Problem 3-26 Journal Entries; T-Accounts, Financial Statements [LO3-1, LO3-2, LO

Question

Problem 3-26 Journal Entries; T-Accounts, Financial Statements [LO3-1, LO3-2, LO3-3, LO3-4, LO3-5, LO3-6, LO3-7 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 and 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 $336,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year (all purchases and services were acquired on account) a. Raw materials purchased for use in production, $245,000 b. Raw materials requisitioned for use in production (all direct materials), $230,000 c. Utility bills were incurred, $68,000 (85% related to factory operations, and the remainder related to selling and administrative activities). d. Salary and wage costs were in curred: Direct labor (1,125 hours) Indirect labor Selling and administrative salaries S 275,000 S 99,000 $155,000 e. Maintenance costs were incurred in the factory, $63,000. f. Advertising costs were incurred, $145,000 g. Depreciation was recorded for the year, $81,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment) h. Rental cost incurred on buildings, $106,000 (75% related to factory operations, 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, $860,000 k. Sales for the year (all on account) totaled $1,650,000. These goods cost $890,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were Raw materials Work in process Finished Goods $39,000 $ 30,000 $69,000 Required: 1.Prepare journal entries to record the above data. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

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FROYA FABRKKER A/S General journal Ref Account Debit Credit a Raw materials 245000 Accounts payable 245000 (Raw materials purchased ) b Work in process 230000 Raw materials 230000 (Raw materials issued for production) c Manufacturing overhead 57800 Utilities expense 10200 Accounts payable 68000 (Utilities expense incurred - 85% of $68,000 for factory balance selling) d Work in process 275000 Manufacturing overhead 99000 Salaries and wages expense 155000 Salaries and wages payable 529000 e Manufacturing overhead 63000 Accounts payable 63000 (Maintenance expenses for factory) f Advertising expenses 145000 Accounts payable 145000 (Advertising expenses incurred) g Manufacturing overhead 60750 Depreciation expense 20250 Accumulated depreciation 81000 (Depreciation expense recorded - Total $81,000 , 75% for factory) h Manufacturing overhead 79500 Rental expense 26500 Accounts payable 106000 (Rental expense recorded) i Work in process 360000 Manufacturing overhead 360000 (Manufacturing overhead applied to production - 1,125 hours @$320 per hr) j Finished goods 860000 Work in process 860000 (Cost of finished goods manufactured transferred to finished goods a/c) k Cost of goods sold 890000 Finished goods 890000 (Cost of finished goods sold recorded) k Accounts receivable 1650000 Sales revenue 1650000 (Sale of goods recorded) l Cost of goods sold 50 Manufacturing overhead 50 (Transfer of underapplied overhead to cost og goods sold) * Predetermnied overhead rate = Estimated overhead cost / Estimated direct labor hours                                                                = 336,000 / 1050 = $320 per direct labor hour

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