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

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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 $399,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account, $280,000. Raw materials used in production (all direct materials), $265,000. Utility bills incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities). Accrued salary and wage costs:

Direct labor (1,100 hours)

$

310,000

Indirect labor

$

106,000

Selling and administrative salaries

$

190,000 Maintenance costs incurred on account in the factory, $70,000 Advertising costs incurred on account, $152,000. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment). Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities). Manufacturing overhead cost was applied to jobs, $ ? . Cost of goods manufactured for the year, $930,000. Sales for the year (all on account) totaled $2,000,000. These goods cost $960,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Raw Materials

$

46,000

Work in Process

$

37,000

Finished Goods

$

76,000

Required:

1. Prepare journal entries to record the preceding transactions.

Transaction list for for journal entries:

· 1

The raw materials were purchased for use in production, $280,000 on account.

· 2

The raw materials used in production (all direct materials), $265,000.

· 3

The utility bills were incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).

· 4

The salary and wage costs accrued were $310,000 (Direct labor), $106,000 (Indirect labor), $190,000 (Selling and administrative salaries).

· 5

The maintenance costs were incurred on account in the factory, $70,000.

· 6

The advertising costs were incurred on account, $152,000.

· 7

The depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).

· 8

The entry for rental cost incurred on account on buildings, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).

· 9

The entry for manufacturing overhead cost applied to jobs.

· 10

The cost of goods manufactured for the year, $930,000.

· 11

The sales for the year (all on account) totaled $2,000,000.

· 12

The goods cost $960,000 according to their job cost

GENERAL JOURNAL HEADINGS (CATEGORY) CHOICES

· No journal entry required

· Accounts payable

· Accounts receivable

· Accumulated depreciation

· Advertising expense

· Commissions

· Cost of goods sold

· Depreciation expense

· Direct materials

· Finished goods

· Indirect materials

· Manufacturing overhead

· Purchases

· Raw materials

· Rent expense

· Salaries and wages payable

· Salaries expense

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.

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.