Question

Fanning Corporation makes rocking chairs. The chairs move through two departments during production. Lumber is cut into chair parts in the cutting department, which transfers the parts to the assembly department for completion. The company sells the unfinished chairs to hobby shops. The following transactions apply to Fanning’s operations for its first year, Year 1. (Assume that all transactions are for cash unless otherwise stated.)

1. The company was started when it acquired a $110,000 cash contribution from the owners.
2. The company purchased $34,000 of direct raw materials and $1,100 of indirect materials. Indirect materials are capitalized in the Production Supplies account.
3. Direct materials totaling $14,000 were issued to the cutting department.
4. Labor cost was $49,800. Direct labor for the cutting and assembly departments was $18,000 and $24,000, respectively. Indirect labor costs were $7,800.
5. The predetermined overhead rate was $0.50 per direct labor dollar in each department.
6. Actual overhead costs other than indirect materials and indirect labor were $13,000 for the year.
7. The cutting department transferred $24,000 of inventory to the assembly department.
8. The assembly department transferred $42,000 of inventory to finished goods.
9. The company sold inventory costing $37,000 for $69,000.
10. Selling and administrative expenses were $6,000.
11. A physical count revealed $300 of production supplies on hand at the end of Year 1.
12. Assume that over- or underapplied overhead is insignificant.

Required:

1. Record the data in T-accounts.

2. Record the closing entry for over- or underapplied manufacturing overhead, assuming that the amount is insignificant.

3. Close the revenue and expense accounts.

4. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for Year 1.

Answer 1

a) b) and c)
T-Accounts of Fanning  Corporation:
	Cash Account
Particulars	Debit $	Particulars	Credit $
Common Stock [1]	110,000	Raw Material [2]	34,000
Sales Revenue [9]	69,000	Production Supplies [2]	1100
		Work in Progress Cutting Department [4]	18,000
		Work in Progress Assembly Department [4]	24,000
		Manufacturing overhead [4]	7,800
		Manufacturing overhead (actual) [6]	13,000
		Selling and Administrative Expenses [10]	6,000
Balance	75,100
________________________________________________________________________
	Raw Material
Particulars	Debit $	Particulars	Credit $
Cash [2]	34,000	By Work in Progress Cutting Department [3]	14,000
Balance	20,000
________________________________________________________________________
	Work in Progress Cutting
Particulars	Debit $	Particulars	Credit $
Raw Materials [3]	14,000	Work in Progress Assembly Department [7]	24,000
Cash [4]	18,000
Manufacturing overhead [5] (18000 x .50)	9,000
Balance	17,000
________________________________________________________________________
	Work in Progress Assembly
Particulars	Debit $	Particulars	Credit $
Cash [4]	24,000	Finished Goods [8]	42,000
Manufacturing overhead [5] (24000 x .50)	12,000
Work in Progress Cutting Department [7]	24,000
Balance	18,000
________________________________________________________________________
	Finished Goods Inventory
Particulars	Debit $	Particulars	Credit $
Work in Progress Assembly Department [8]	42,000	Cost of goods sold[9]	37,000
Balance	5,000
________________________________________________________________________
	Common Stock Account
Particulars	Debit $	Particulars	Credit $
		Cash [1]	110,000
		Balance	110,000
________________________________________________________________________
	Sales Revenue Account
Particulars	Debit $	Particulars	Credit $
Income summary	69,000	Cash [9]	69,000
		Balance	0
	Production Supplies
[11]	1100	Cash [2]	800
Balance	300
	Manufacturing Overhead
[4}	7,800	[5]	21,000
[6]	13,000	[12]	600
[11]	800
Balance	0
	Cost of Goods Sold
[9]	37,000	Income summary	37,600
[12]	600
	Retained Earnings
		Income summary (69000-37600-6000)	25,400
	Selling & Admin. Exp
[10]	6000	Income summary	6000
d)
Fanning Corporation
Cost of Goods Manf. and Sold
Beg. Raw Mat. Inv.	$0
Purchases	34,000
Raw Mat. Avail.	34,000
End. Raw Mat. Inv.	20,000
Raw Mat. Used	14,000
Labor	42,000
Overhead	21,600
Total Manf. Costs	77,600
Beg. W-I-P Inv.	0
Total W-I-P Inv.	77,600
End. W-I-P Inv.	35,000
Cost of Goods Man.	42,600
Beg. Fin. Goods	0
Goods Available	42,600
End. Fin. Goods	5,000
Cost of Goods Sold	$37,600
Income Statement
Sales Revenue	$69,000
Cost of Goods Sold	37,600
Gross Margin	31,400
Sell & Admin. Exp.	6,000
Net Income	$25,400
Balance Sheet
Assets
Cash	$75,100
Production Sup.	300
Raw Mat. Inv.	20,000
W-I-P Inv.	35,000
Fin. Goods Inv.	5,000
Total Assets	$135,400
Equity
Common Stk.	$110,000
Ret. Earnings	25,400
Total Equity	$135,400