Question

The following accounting events affected Stratford Manufacturing Company during its first three years of operation. Assume that all transactions are cash transactions.

Transactions for 2017

1. Started manufacturing company by issuing common stock for $2,000.

2. Purchased $600 of direct raw materials.

3. Used $400 of direct raw materials to produce inventory.

4. Paid $200 of direct labor wages to employees to make inventory.

5. Applied $125 of manufacturing overhead cost to Work in Process Inventory.

6. Finished work on inventory that cost $450.

7. Sold goods that cost $300 for $550.

8. Paid $185 for selling and administrative expenses.

9. Actual manufacturing overhead cost amounted to $114 for the year.

Transactions for 2018

1. Acquired additional $400 of cash from common stock.

2. Purchased $600 of direct raw materials.

3. Used $650 of direct raw materials to produce inventory.

4. Paid $300 of direct labor wages to employees to make inventory.

5. Applied $160 of manufacturing overhead cost to Work in Process Inventory.

6. Finished work on inventory that cost $900.

7. Sold goods that cost $800 for $1,400.

8. Paid $250 for selling and administrative expenses.

9. Actual manufacturing overhead cost amounted to $165 for the year.

Transactions for 2019

1. Paid a cash dividend of $350.

2. Purchased $700 of direct raw materials.

3. Used $600 of direct raw materials to produce inventory.

4. Paid $220 of direct labor wages to employees to make inventory.

5. Applied $145 of manufacturing overhead cost to work in process.

6. Finished work on inventory that cost $1,000.

7. Sold goods that cost $1,100 for $1,750.

8. Paid $355 for selling and administrative expenses.

9. Annual manufacturing overhead costs were $140 for the year.

Required

a.c.&d. Record the preceding events in horizontal statements models for each of the three years. Close overapplied or underapplied overhead to Cost of Goods Sold. Close appropriate accounts for 2017, 2018, and 2019. In year 2017, the first event is shown as an example.

b.&d. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet as of the close of business on December 31, 2017, 2018 and 2019.

Answer 1

a.c.&d.

b&d.

Working Notes - Cash Account and Work in Progess Account