a.) Purchased $180,000 of direct materials on account. b.) Purchased $5,000 of s

Question

a.) Purchased $180,000 of direct materials on account. b.) Purchased $5,000 of supplies on account. (The supplies consisted of glue and cleaning supplies.) c.) Requisitioned $170,000 of direct materials and $4,500 of supplies for use in production. d.) Incurred employee costs: i. Direct labour   $150,000 ii. Indirect labour      40,000 iii. Administrative salaries 190,000 iv. Sales salaries       30,000 v. Sales commissions     90,000 e.) Advertised on local television: $5,000 f.) Rent: $12,000. 40% of the space related to sales offices, 60% was a shop used in production of roofing materials. g.) Depreciation: $25,000. 70% relates to roofing equipment, 30% relates to office equipment. h.) Insurance expired: $15,000. 90% relates to the factory, the remainder relates to insurance on the office equipment. i.) Manufacturing overhead costs were applied to production. j.) Goods costing $375,000 were completed. k.) The company had sales on account of $800,000. According to cost data, the jobs cost $350,000. a.) For items a.)-k.) above, record journal entries. Unless otherwise noted, assume all transactions were on account. b.) Was overhead overapplied or underapplied for the period? By how much? c.) Record a journal entry to close overhead to cost of goods sold. d.) Based on the information above, prepare an income statement for the company – assume a 20% tax rate.

Explanation / Answer

Req a) Journal Entries: Date Accounts Title Debit $ Credit $ a Material 180000 AP 180000 (being material purchased on credit) b Supplies 5000 AP 5000 (purchased supplies on account) c WIP 174500 Material 170000 Supplies 4500 (Being mat and supplies issued to production) d WIP 150000 Manuf Overhead 40000 Admin & Selling exp 310000 (190000+30000+90000) Wages payable 500000 (being labor applied to production, overhead & admin) e Admin & Selling exp 5000 AP 5000 f Manuf Overhead 7200 Admin & Selling exp 4800 Rent payable 12000 (being prod & admin rent booked) g Manuf Overhead 17500 Admin & Selling exp 7500 Depreciation 25000 (being depreciation booked) h Manuf Overhead 13500 Admin & Selling exp 1500 Insurance 15000 (being insurance booked) i WIP 78200 Manuf Overhead 78200 (40000+7200+17500+13500) (Being whole overhead is applied to production as no defined rate) j FG Inventory 375000 WIP 375000 (Being finished goods transferred out) k AR 800000 Sales revenue 800000 (being credit sales booked) COGS 350000 FG Inventory 350000 (Being cost of sales transferred from FG Inventory) Req b) There is no over/under - application of overhead as whole is applied to WIP / production, being there no defined rate of application. Req c) No entry, being no over/under - applied overhead. Req d) Income Statement: Sales 800000 Less: COGS 350000 GP 450000 2 Less: Selling & Admin exp: 328800 (310000+5000+4800+7500+1500) IBT 121200 Less: tax@20% 24240 Net Income 96960

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