Problem 8-57 (Algo) Prepare a Production Cost Report and Adjust Inventory Balances: Weighted-Average Method (LO 8-3, 4) The records of Fremont Corporation’s initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs. Units Unaudited Costs Work-in-process inventory 215,000 $ 818,897 Finished goods inventory 26,000 366,250 As the auditor, you have learned the following information. Ending work-in-process inventory is 40 percent complete with respect to conversion costs. Materials are added at the beginning of the manufacturing process, and overhead is applied at the rate of 80 percent of the direct labor costs. There was no finished goods inventory at the start of the period. The following additional information is also available. Costs Units Direct Materials Direct Labor Beginning inventory (80% complete as to labor) 93,000 $ 435,600 $ 524,000 Units started 590,000 Current costs 1,750,000 2,246,000 Units completed and transferred to finished goods inventory 468,000 Required: a. Prepare a production cost report for Fremont using the weighted-average method. (Hint: You will need to calculate equivalent units for three categories: materials, labor, and overhead.) b. Show the journal entry required to correct the difference between the unaudited records and actual ending balances of Work-in-Process Inventory and Finished Goods Inventory. Debit or credit Cost of Goods Sold for any difference. c. If the adjustment in requirement (b) is not made, will the company’s income and inventories be overstated or understated?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Problem 8-57 (Algo) Prepare a Production Cost Report and Adjust Inventory Balances: Weighted-Average Method (LO 8-3, 4)

The records of Fremont Corporation’s initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs.

	Units	Unaudited Costs
Work-in-process inventory	215,000	$	818,897
Finished goods inventory	26,000		366,250

As the auditor, you have learned the following information. Ending work-in-process inventory is 40 percent complete with respect to conversion costs. Materials are added at the beginning of the manufacturing process, and overhead is applied at the rate of 80 percent of the direct labor costs. There was no finished goods inventory at the start of the period. The following additional information is also available.

		Costs
	Units	Direct Materials	Direct Labor
Beginning inventory (80% complete as to labor)	93,000	$	435,600	$	524,000
Units started	590,000
Current costs			1,750,000		2,246,000
Units completed and transferred to finished goods inventory	468,000

Required:

a. Prepare a production cost report for Fremont using the weighted-average method. (Hint: You will need to calculate equivalent units for three categories: materials, labor, and overhead.)

b. Show the journal entry required to correct the difference between the unaudited records and actual ending balances of Work-in-Process Inventory and Finished Goods Inventory. Debit or credit Cost of Goods Sold for any difference.

c. If the adjustment in requirement (b) is not made, will the company’s income and inventories be overstated or understated?

Expert Solution