Chapter 12, Problem 13PSB

Requirement a. and c.

To determine

Record the preceding events in a horizontal statements model and record the closing entry for over- or under applied manufacturing overhead.

Explanation of Solution

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Events:

1. Cash receipts of $46,000 from the issuance of common stocks.

2. Purchased raw materials of $10,500 and worked on three job orders.

3. Direct materials of $4,000 used for Job 1.

4. Cash of $4,000 paid to employees for the completion of Job 1.

5. Direct materials of $1,800 used for Job 2.

6. Cash of $4,800 paid to employees for the completion of Job 2.

7. Direct materials of $3,200 used for Job 3.

8. Cash of $4,480 paid to employees for the completion of Job 3.

9. Manufacturing overhead of $1,875 (Refer table (2)) applied to Job 1.

10. Manufacturing overhead of $2,250 (Refer table (2)) applied to Job 2.

11. Manufacturing overhead of $2,100 (Refer table (2)) applied to Job 3.

12. Cost of Job 1 for $9,875 is transferred from work-in progress inventory to finished goods inventory.

13. Cost of Job 2 for $9,780 is transferred from work-in progress inventory to finished goods inventory.

14. Cash proceeds of $13,000 from the sale of Job 1.

15. The cost of goods sold for Job 1 of $9,875 is recognized.

16. Corporation R paid $1,400 for selling and administrative expenses.

17. Corporation R paid cash of $6,000 for actual factory overhead.

18. The over-application of overhead is $\left(\$6,000-\$6,225\right)$ ($225).

Record the preceding events in a horizontal statements model and record the closing entry for over- or under applied manufacturing overhead.

Table (1)

Requirement b.

To determine

Reconcile all subsidiary accounts with their respective control accounts.

Explanation of Solution

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Reconcile all subsidiary accounts with their respective control accounts.

Items	Job 1	Job 2	Job 3
Direct materials	$4,000	$1,800	$3,200
Direct labor (a)	$4,000	$4,800	$4,480
Manufacturing overhead $\left[\left(\text{a}\right)÷\$16\right]\times \$7.50$	$1,875	$2,250	$2,100
Total product cost	$9,875	$8,850	$9,780

Table (2)

d.

To determine

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a classified balance sheet for the year ended 2014.

Explanation of Solution

Schedule of cost of goods manufactured and sold: The schedule which reports all the expenses incurred by a company to sell the goods during the given period.

Prepare the cost of goods manufactured and sold for the year ended 2014:

Corporation R
Cost of goods manufactured and sold
For the Year Ending 2014
Particulars	Amount
Beginning raw materials inventory	$0
Add: Purchases	$10,500
Raw materials available	$10,500
Less: Ending raw material inventory	($1,500)
Raw materials used	$9,000
Labour	$13,280
Overhead	$6,000
Total manufacturing costs	$28,280
Add: Beginning Work In Process inventory	$0
Total Work In Process inventory	$28,280
Less: Ending Work In Process inventory (Refer Table (2))	($8,850)
Cost of goods manufactured	$19,430
Add: Beginning finished goods inventory	$0
Goods available	$19,430
Less: Ending finished goods inventory (Refer Table (2))	($9,780)
Cost of goods sold	$9,650

Table (3)

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare an income statement for the year ended 2014:

Corporation R
Income statement
For the Year Ending December 31, 2014
Details	Amount
Sales Revenue	$13,000
Less: Cost of goods sold (Refer Table (3))	($9,650)
Gross margin	$3,350
Less: Selling and administrative expenses	($1,400)
Net Income	$1,950

Table (4)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as of 2014:

Corporation R
Balance sheet
As of 2014
Assets	Amount
Cash	$27,820
Raw material inventory	$1,500
Work-in-process inventory	$8,850
Finished  goods inventory	$9,780
Total assets	$47,950
Equity
Common Stock	$46,000
Retained  earnings	$1,950
Total equity	$47,950

Table (5)