Question

Bergamo Bay's computer system generated the following trial balance on December 31, 2017. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Work in Process Inventory but does show a balance for the Factory Overhead account. In addition, the accrued factory payroll (Factory Payroll Payable) has not been recorded.

	Debit	Credit
Cash	$67,000
Accounts receivable	45,000
Raw materials inventory	27,500
Work in process inventory	0
Finished goods inventory	6,000
Prepaid rent	2,000
Accounts payable		$11,500
Notes payable		14,500
Common stock		20,000
Retained earnings		91,000
Sales		184,500
Cost of goods sold	102,000
Factory overhead	27,000
Operating expenses	45,000
Totals	$321,500	$321,500

After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

Materials requisition 21-3010:	$4,700	direct materials to Job 402
Materials requisition 21-3011:	$7,200	direct materials to Job 404
Materials requisition 21-3012:	$2,100	indirect materials
Labor time ticket 6052:	$5,000	direct labor to Job 402
Labor time ticket 6053:	$8,000	direct labor to Job 404
Labor time ticket 6054:	$3,000	indirect labor

Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 150% of direct labor cost

Part 1

1. Record direct materials cost for Jobs 402 and 404

2. Record Direct labor costs for Jobs 402 and 404

3. Record the entry to allocate overheads to Jobs 402 and 404 at 150% of direct labor costs aligned

4. Record entry to assign cost of indirect materials

5. Record entry to assign cost of indirect labor

Part 2

Determine the revised balance of the Factory Overhead account after making the entries in part 1 using T-accounts. Determine whether there is any under- or overapplied overhead for the year.

Part 3

Prepare a revised trial balance

	BERGAMO BAY COMPANY Trial Balance December 31, 2017 Debit Credit Cash Accounts receivable Raw materials inventory Work in process inventory Finished goods inventory Prepaid rent Accounts payable Factory wages payable Notes payable Common stock Retained earnings Sales Cost of goods sold Factory overhead Operating expenses Totals $0 $0

Part 4

Prepare an income statement for 2017 and a balance sheet as of December 31, 2017.

Answer 1

1.

No.	Account Titles and Explanation	Debit	Credit
1	Work in process inventory ($4700 + $7200)	11900
	Raw materials inventory		11900
	(Direct materials costs assigned to work in process)
2	Work in process inventory ($5000 + $8000)	13000
	Factory payroll payable		13000
	(Direct labor costs assigned to work in process)
3	Work in process inventory (150% x $13000)	19500
	Factory overhead		19500
	(Overhead costs assigned to work in process)
4	Factory overhead	2100
	Raw materials inventory		2100
	(Indirect materials cost assigned to factory overhead)
5	Factory overhead	3000
	Factory payroll payable		3000
	(Indirect labor costs assigned to factory overhead)

2.

Factory Overhead
Ending balance from trial balance	27000
Indirect materials	2100	19500	Overhead applied
Indirect labor	3000
Underapplied overhead	12600

3.

BERGAMO BAY COMPANY
Trial Balance
December 31, 2017
	Debit	Credit
Cash	67000
Accounts receivable	45000
Raw materials inventory	13500
Work in process inventory	44400
Finished goods inventory	6000
Prepaid rent	2000
Accounts payable		11500
Factory payroll payable		16000
Notes payable		14500
Common stock		20000
Retained earnings		91000
Sales		184500
Cost of goods sold	102000
Factory overhead	12600
Operating expenses	45000
Totals	337500	337500

4.

BERGAMO BAY COMPANY
Income Statement
For Year Ended December 31, 2017
Sales	184500
Cost of goods sold ($102000 + $12600)	114600
Gross profit	69900
Operating expenses	45000
Net income	24900

BERGAMO BAY COMPANY
Balance Sheet
December 31, 2017
Assets
Cash		67000
Accounts receivable		45000
Inventories:
Raw materials inventory	13500
Work in process inventory	44400
Finished goods inventory	6000	63900
Prepaid rent		2000
Total assets		177900
Liabilities and equity
Notes payable		14500
Accounts payable		11500
Factory payroll payable		16000
Total liabilities		42000
Common stock		20000
Retained earnings		115900
Total stockholders' equity		135900
Total liabilities and equity		177900