Question

Brinkerhoff, Inc., designs and fabricates display units for use at conventions. The company’s balance sheet as of January 1, the beginning of the current year, appears below:

Brinkerhoff, Inc. Balance Sheet January 1
Assets
Current assets:
Cash		$20,000
Accounts receivable		59,000
Inventories:
Raw materials	$52,000
Work in process	44,000
Finished goods (props awaiting shipment)	59,000	155,000
Prepaid insurance		8,800
Total current assets		242,800
Buildings and equipment	650,000
Less accumulated depreciation	280,000	370,000
Total assets		$612,800
Liabilities and Stockholders' Equity
Accounts payable		$62,500
Common stock	$370,000
Retained earnings	180,300	550,300
Total liabilities and stockholders' equity		$612,800

  

Because each display unit is a unique design and may require anything from a few hours to a month or more to complete, Brinkerhoff, Inc. uses a job-order costing system. Overhead in the fabrication shop is charged to display units on the basis of direct labor cost. The company’s predetermined overhead rate for the year is based on a cost formula that estimated $111,600 in manufacturing overhead for an estimated allocation base of $124,000 direct labor dollars. The following transactions were recorded during the year (Assume all purchases and services were acquired on account):

a.	Raw materials, such as wood, paints, and metal sheeting, were purchased on account, $96,000.
b.	Raw materials were issued to production, $107,000; $7,000 of this amount was for indirect materials.
c.	Payroll costs incurred and paid: direct labor, $139,000; indirect labor, $50,900; and selling and administrative salaries, $85,000.
d.	Fabrication shop utilities costs incurred, $15,400.
e.	Depreciation recorded for the year, $25,800 ($5,600 on selling and administrative assets; $20,200 on fabrication shop assets).
f.	Prepaid insurance expired, $7,400 ($4,800 related to fabrication shop operations, and $2,600 related to selling and administrative activities).
g.	Shipping expenses incurred, $48,000.
h.	Other manufacturing overhead costs incurred, $19,200 (credit Accounts Payable).
i.	Manufacturing overhead was applied to production. Overhead is applied on the basis of direct labor cost.
j.	Display units that cost $351,000 to produce according to their job cost sheets were completed.
k.	Sales for the year totaled $670,000 and were all on account. The total cost to produce these display units was $348,000 according to their job cost sheets.
l.	Collections on account from customers, $485,000.
m.	Payments on account to suppliers, $169,000.

Required:
1&2.	Prepare a T-account for each account on the company’s balance sheet, and enter the beginning balances. Make an entry directly into the T-accounts for transactions (a) through (m). Determine an ending balance for each T-account.
	Was manufacturing overhead underapplied or overapplied for the year?           3-b. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)          4. Prepare an income statement for the year.

Answer 1

Answer 1 & 2.
Cash					Accounts Receivable					Raw Materials
Beg. Bal.	20,000.00	169,000.00	m.		Beg. Bal.	59,000.00	485,000.00	l.		Beg. Bal.	52,000.00	114,000.00	b.
l.	485,000.00				k-1.	670,000.00				a.	96,000.00
End. Bal.	336,000.00				End. Bal.	244,000.00				End. Bal.	34,000.00
Work In Process					Finished Goods					Prepaid Insurnace
Beg. Bal.	44,000.00	351,000.00	j.		Beg. Bal.	59,000.00	348,000.00	k-2		Beg. Bal.	8,800.00	7,400.00	f.
b.	107,000.00				j.	351,000.00
c.	139,000.00
i.	125,100.00
End. Bal.	64,100.00				End. Bal.	62,000.00				End. Bal.	1,400.00
Building & Equipment					Accumulated Depreciation					Accounts Payable
Beg. Bal.	650,000.00				Beg. Bal.		280,000.00			Beg. Bal.		62,500.00
							25,800.00	e.		m.	169,000.00	96,000.00	a.
												15,400.00	d.
												48,000.00	g.
												19,200.00	h.
End. Bal.	650,000.00				End. Bal.		305,800.00			End. Bal.		72,100.00
Common Stock					Retained Earnings					Manufacturing Overhead
Beg. Bal.		370,000.00			Beg. Bal.		180,300.00			Beg. Bal.	-	125,100.00	i.
										b.	7,000.00
										c.	50,900.00
										d.	15,400.00
										e.	20,200.00
										f.	4,800.00
										h.	19,200.00
End. Bal.		370,000.00			End. Bal.		180,300.00			End. Bal.		7,600.00
Salaries & Wages payable					Salaries Expense - Selling & Admn.					Depreciation Expense - Equipment
		274,900.00	c.		c.	85,000.00				e.	5,600.00
End. Bal.		274,900.00			End. Bal.	85,000.00				End. Bal.	5,600.00
Insurance Expense					Shipping Expense					Sales
f.	2,600.00				g.	48,000.00						670,000.00	k-1.
End. Bal.	2,600.00				End. Bal.	48,000.00				End. Bal.		670,000.00
Cost of Goods Sold
k-2	348,000.00
End. Bal.	348,000.00

Answer 3.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Manuacturing Overhead	7,600.00
	Cost of Goods Sold		7,600.00
	(To record the overapplied overhead)
	Manufacturing Overhead - Applied	125,100.00
	Manufacturing Overhead - Actual	117,500.00
	Ovreapplied Overhead	7,600.00

Answer 4.
Income Statement
Sales		670,000.00
Cost of Goods Sold - adjusted		340,400.00
Gross Margin		329,600.00
Selling & Administrative Expenses
Salaries Expense - Selling & Admn.	85,000.00
Depreciation Expense - Equipment	5,600.00
Insurance Expense	2,600.00
Shipping Expense	48,000.00	141,200.00
Net Operating Income		188,400.00