Question

The following trial balance was taken from the records of Fairport Manufacturing Company at the beginning of 2019:

Cash	$	20,000
Raw materials inventory		1,800
Work in process inventory		2,400
Finished goods inventory		4,200
Property, plant, and equipment		15,000
Accumulated depreciation					$	6,000
Common stock						16,800
Retained earnings						20,600
Total	$	43,400			$	43,400

Transactions for the Accounting Period:

Fairport purchased $11,400 of direct raw materials and $600 of indirect raw materials on account. The indirect materials are capitalized in the Production Supplies account. Materials requisitions showed that $10,800 of direct raw materials had been used for production during the period. The use of indirect materials is determined at the end of the year by physically counting the supplies on hand.

By the end of the year, $10,500 of the accounts payable had been paid in cash.

During the year, direct labor amounted to 950 hours recorded in the Wages Payable account at $21 per hour.

By the end of the year, $18,000 of wages payable had been paid in cash.

At the beginning of the year, the company expected overhead cost for the period to be $12,600 and 1,000 direct labor hours to be worked. Overhead is allocated based on direct labor hours, which, as indicated in Event 3, amounted to 950 for the year.

Selling and administrative expenses for the year amounted to $1,800 paid in cash.

Utilities and rent for production facilities amounted to $9,300 paid in cash.

Depreciation on the plant and equipment used in production amounted to $3,000.

There was $24,000 of goods completed during the year.

There was $25,500 of finished goods inventory sold for $36,000 cash.

A count of the production supplies revealed a balance of $178 on hand at the end of the year.

Any over- or underapplied overhead is considered to be insignificant.

Required

a) Prepare T-accounts with the beginning balances shown in the preceding list and record all transactions for the year including closing entries in the T-accounts.

b) Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet.

Answer 1

a)

Cash					Raw Materials Inventory
Beg. Bal.	20000				Beg. Bal.	1800
12	36000	10500	3		1	11400	10800	2
		18000	5
		1800	7
		9300	8
End. Bal.	16400				End. Bal.	2400
Work in Process Inventory					Finished Goods Inventory
Beg. Bal.	2400				Beg. Bal.	4200
2	10800	24000	10		10	24000	25500	11
4	19950
6	11970
End. Bal.	21120				End. Bal.	2700
Cost of Goods Sold					Production Supplies
11	25500				1	600	422	13
14	752
End. Bal.	26252				End. Bal.	178
Accounts Payable					Wages Payable
3	10500	12000	1		5	18000	19950	4
End. Bal.		1500			End. Bal.		1950
Overheads					Accumulated Depreciation
8	9300	11970	6		Beg. Bal.		6000
9	3000	752	14				3000	9
13	422
End. Bal.	0				End. Bal.		9000
Property, Plant, and Equipment					Common Stock
Beg. Bal.	15000				Beg. Bal.		16800
End. Bal.	15000				End. Bal.		16800
Retained Earnings
Beg. Bal.		20600
		7948
End. Bal.		28548

b)

Fairport Manufacturing Company
Schedule of Cost of Goods Manufactured and Sold
For the Year Ended December 31, 2019
Direct materials used	10800
Direct labor	19950
Manufacturing overhead (950 x $12600/1000)	11970
Total manufacturing costs		42720
Add: Beginning work in process		2400
Total cost of work in process		45120
Less: Ending work in process		21120
Cost of goods manufactured $		24000
Add: Beginning finished goods inventory		4200
Total cost of finished goods available for sale		28200
Less: Ending finished goods inventory		2700
Cost of goods sold $		25500
Underapplied overheads		752
Adjusted cost of goods sold $		26252

Note: Underapplied overheads being insignificant, are adjusted to the cost of goods sold.

Fairport Manufacturing Company
Income Statement
For the Year Ended December 31, 2019
Sales	36000
Cost of goods sold	26252
Gross profit	9748
Selling and administrative expenses	1800
Net income $	7948

Fairport Manufacturing Company
Balance Sheet
At December 31, 2019
Assets
Cash		16400
Production supplies		178
Raw materials inventory		2400
Work in process inventory		21120
Finished goods inventory		2700
Property, plant, and equipment	15000
Accumulated depreciation	-9000	6000
Total assets $		48798
Liabilities and Stockholders' Equity
Accounts payable		1500
Wages payable		1950
Common stock		16800
Retained earnings		28548
Total liabilities and stockholders' equity		48798