Question

Problem 3-15 Journal Entries; T-Accounts; Financial Statements [LO3-1, LO3-2, LO3-3, LO3-4]

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor-hours. Its predetermined overhead rate was based on a cost formula that estimated $380,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year:

A. Raw materials purchased on account, $220,000.
B. Raw materials used in production (all direct materials), $205,000.
C. Utility bills incurred on account, $63,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
D. Accrued salary and wage costs: Direct labor (1,075 hours) $ 250,000 Indirect labor $ 94,000 Selling and administrative salaries $ 130,000
E. Maintenance costs incurred on account in the factory, $58,000
F. Advertising costs incurred on account, $140,000.
G. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
H. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
I. Manufacturing overhead cost was applied to jobs, $ ? .
J. Cost of goods manufactured for the year, $810,000.
K. Sales for the year (all on account) totaled $1,400,000. These goods cost $840,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $ 34,000 Work in Process $ 25,000 Finished Goods $ 64,000

Required:
1. Prepare journal entries to record the preceding transactions.
2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.)
3. Prepare a schedule of cost of goods manufactured.
4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4B. Prepare a schedule of cost of goods sold.
5. Prepare an income statement for the year.

Answer 1

	Accounting titles & Explanations					Debit	Credit
a)	Raw materials inventory					220,000
	Accounts payable						220,000
b)	work in process inventory					205,000
	Raw materials inventory						205,000
c)	manufacturing overhead					56700
	utility expense					6300
	Accounts payable						63,000
d)	work in process inventory					250,000
	Manufacturing overhead					94,000
	Salary expense					130,000
	Salary & wages payable						474,000
e)	Manufacturing overhead					58,000
	Accounts payable						58,000
f)	Advertising expense					140,000
	Accounts payable						140,000
g)	Manufacturing overhead					74800
	Depreciation expense					13200
	Accumulated depreciation						88,000
h)	Manufacturing overhead					101700
	Rent expense					11300
	Accounts payable						113,000
i)	Work in process inventory					408,500
	Manufacturing overhead						408,500
j)	finished goods inventory					810,000
	Work in process inventory						810,000
k)	Accounts receivable					1,400,000
	sales						1,400,000
	cost of goods sold					840,000
	finished goods inventory						840,000

Accounts receivable					Sales
Beg.bal					Beg.bal
k.	1,400,000						1,400,000	k.
end bal	1,400,000						1,400,000	end bal
Raw Materials					cost of goods sold
Beg.Bal	34,000				Beg.Bal
a.	220,000	205,000	b.		k.	840,000
End bal	49,000				End bal	810,000
Work in process					Manufacturing overhead
Beg Bal	25,000				Beg.Bal
b.	205,000	810,000	j		c.	56700	408,500	i
d.	250,000				d.	94,000
i.	408500				e.	58,000
					g.	74800
end bal	78,500				h.	101700
							23,300	End bal
finished goods					Advertising expense
Beg bal	64,000				Beg.bal
j	810,000	840,000	k		f.	140,000
End bal	34,000				end bal	140,000
Accumulated Depreciation					Utilities expense
beg.bal					Beg bal
g.		88,000	g.		c.	6300
End bal		88,000			end bal	6,300
Accounts payable					Salaries expense
Beg.bal					Beg.Bal
		220,000	a.		d.	130,000
		63,000	c.
		58,000	e.
		140,000	f.
		113,000	h.
End bal		594,000			end bal	130,000
Depreciation expense					Salaries & wages payable
Beg.bal					Beg.bal
g.	13200						474,000	d.
End bal	13,200				end bal		474,000
rent expense
beg bal
h.	11300
End bal	11,300