Chapter 1, Problem 6P

The post-closing trial balance of Custer Products, Inc. on April 30 is reproduced as follows:

During May, the following transactions took place:

1. a. Purchased raw materials at a cost of $45,000 and general factory supplies at a cost of $13,000 on account (recorded materials and supplies in the materials account).
2. b. Issued raw materials to be used in production, costing $47,000, and miscellaneous factory supplies costing $15,000.
3. c. Recorded the payroll and the payments to employees as follows: factory wages (including $12,000 indirect labor), $41,000; and selling and administrative salaries, $7,000. Additional account titles include Wages Payable and Payroll. (Ignore payroll withholdings and deductions.)
4. d. Distributed the payroll in (c).
5. e. Recognized depreciation for the month at an annual rate of 5% on the building, 10% on the factory equipment, and 20% on the office equipment. The sales and administrative staff uses approximately one-fifth of the building for its offices.
6. f. Incurred other expenses totaling $11,000. One-fourth of this amount is allocable to the office function.
7. g. Transferred total factory overhead costs to Work in Process.
8. h. Completed and transferred goods with a total cost of $91,000 to the finished goods storeroom.
9. i. Sold goods costing $188,000 for $362,000. (Assume that all sales were made on account.)
10. j. Collected accounts receivable in the amount of $345,000.
11. k. Paid accounts payable totaling $158,000.

Required:

1. 1. Prepare journal entries to record the transactions.
2. 2. Set up T-accounts. Post the beginning trial balance and the journal entries prepared in (1) to the accounts and determine the balances in the accounts on May 31.
3. 3. Prepare a statement of cost of goods manufactured, an income statement, and a balance sheet. (Round amounts to the nearest whole dollar.)

To determine

Prepare journal entry to record the given transactions.

Explanation of Solution

Prepare journal entry to record the given transactions.

Date	Accounts title and explanation	Debit ($)	Credit ($)
a	Materials	58,000
	Accounts payable		58,000
	(To record materials purchased on account)
b	Work in Process	47,000
	Factory overhead	15,000
	Materials		62,000
	(To record issue of direct materials and indirect materials)
c	Payroll	48,000
	Wages Payable		48,000
	(To record factory wages and salaries)
	Wages Payable
	Cash
	(To record the payment of factory wages and salaries)
d	Work in Process $\left(\$41,000-\$12,000\right)$	29,000
	Factory overhead	12,000
	Selling and Administrative Expenses (salaries)	7,000
	Payroll		48,000
	(To record the distribution of payroll)
e	Factory overhead (Depreciation of building) (1)	1,600
	Factory overhead (Depreciation of factory equipment) (3)	1,833
	Selling and Administrative Expenses (Depreciation of building) (2)	400
	Selling and Administrative Expenses (Depreciation of office equipment) (4)	1,000
	Accumulated Depreciation - Building		2,000
	Accumulated Depreciation – Factory Equipment		1,833
	Accumulated Depreciation – Office Equipment		1,000
	(To record depreciation on building, factory equipment, and office equipment)
f	Factory overhead(miscellaneous) $\left(\$11,000\times \raisebox{1ex}{$3$}\!\left/ \!\raisebox{-1ex}{$4$}\right.\right)$	8,250
	Selling and Administrative expenses (miscellaneous) $\left(\$11,000\times \raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$4$}\right.\right)$	2,750
	Accounts payable		11,000
	(To record factory overhead costs and selling and administrative expenses on account)
g.	Work in Process	38,683
	Factory Overhead		38,683
	(To record transfer of factory overhead to Work-in process)
h.	Finished Goods	91,000
	Work in Process		91,000
	(To record the transfer of cost of completed work to finished goods)
i	Accounts receivable	362,000
	Sales		362,000
	(To record the sale made on account)
	Cost of goods sold	188,000
	Finished goods		188,000
	(To record the cost of goods sold)
j.	Cash	345,000
	Accounts Receivable		345,000
	(To record the receipt on accounts receivable)
k	Accounts Payable
	Cash
	(To record the payment of accounts payable)

Table (1)

Working note 1: Calculate depreciation on buildings under factory overhead.

$\begin{array}{c}\text{Depreciation on buildings under factory overhead = }\frac{\text{\$480,000}\times \text{5\%}}{12}\times \frac{4}{5}\\ =\$1,600\end{array}$

Working note 2: Calculate depreciation on buildings under selling and administrative expenses.

$\begin{array}{c}\text{Depreciation on buildings under selling and administrative expenses = }\frac{\text{\$480,000}\times \text{5\%}}{12}\times \frac{1}{5}\\ =\$400\end{array}$

Working note 3: Calculate depreciation on factory equipment under factory overhead.

$\begin{array}{c}\text{Depreciation on factory equipment under factory overhead = }\frac{\text{\$220,000}\times 10\text{\%}}{12}\\ =\$1,833\end{array}$

Working note 4: Calculate depreciation on factory equipment under selling and administrative expenses.

$\begin{array}{c}\begin{array}{l}\text{Depreciation on factory on equipment }\\ \text{under selling and administrative expenses }\end{array})\text{= }\frac{\text{\$60,000}\times 20\text{\%}}{12}\\ =\$1,000\end{array}$

To determine

Prepare t-account and post the beginning trial balance and journal entries amount to the particular account and determine the ending balance in the account.

Explanation of Solution

Prepare t-account and post the beginning trial balance and journal entries amount to the particular account and determine the ending balance in the account.

Cash
Beginning balance	25,000	(c)		48,000
(j)	345,000	(k)		158,000
Ending Balance	164,000

Accounts Receivable
Beginning balance	65,000	(j)		345,000
(i)	362,000
Ending Balance	164,000

Finished Goods
Beginning balance	120,000	(i)		188,000
(h)	91,000
Ending Balance	23,000

Work in Process
Beginning balance	35,000	(i)		188,000
(h)	91,000
Ending Balance	23,000

Materials
Beginning balance	18,000	(b)		62,000
(a)	58,000
Ending Balance	14,000

Building
Beginning balance	480,000
Ending Balance	480,000

Accumulated depreciation-Building
		Beginning balance  (e)				72,000 2,000
		Ending Balance				74,000
Factory equipment
Beginning balance	220,000
Ending Balance	220,000

Accumulated depreciation- Factory equipment
		Beginning balance  (e)				66,000 1,833
		Ending Balance				67,833
Office equipment
Beginning balance	60,000
Ending Balance	60,000

Accumulated depreciation- Office equipment
		Beginning balance  (e)		36,000 1,000
		Ending Balance		37,000

Accounts Payable
(j)	158,000	Beginning balance (a) (f)		92,000 58,000 11,000
		Ending Balance		14,000

Payroll
		Beginning balance		0
(c)	48,000	(d)		48,000
		Ending Balance		0

Wages payable
		Beginning balance		0
(c)	48,000	(c)		48,000
		Ending Balance		0

Capital Stock
		Beginning balance		250,000
		Ending Balance		250,000

Retained Earnings
		Beginning balance		504,000
		Ending Balance		504,000

Sales
			(i)		362,000

Cost of goods sold
(i)		188,000

Factory Overhead
(b) (d) (e) (e) (f)		15,000 12,000 1,600 1,833 8,250	(g)		38,683

Selling and administrative expenses
(d) (e) (e) (f)		7,000 400 1,000 2,750
Ending Balance		11,150

To determine

Prepare Incorporation C’s statement of cost of goods manufactured, income statement, and balance sheet.

Explanation of Solution

Prepare Incorporation C’s statement of cost of goods manufactured for the month ended May 31, 2016.

Incorporation C
Statement of cost of goods manufactured
For the month ended May 31, 2016
Particulars	Amount ($)	Amount ($)
Direct materials:
Inventory, May 1	18,000
Add: Purchases	58,000
Total cost of available materials	76,000
Less: Inventory, May 31	14,000
Cost of materials used	62,000
Less: Indirect materials used	15,000
Cost of direct materials used in production		47,000
Direct labor		29,000
Factory  Overhead:
Indirect materials	15,000
Indirect labor	12,000
Depreciation of building	1,600
Depreciation of factory equipment	1,833
Miscellaneous expenses	8,250
Total factory overhead		38,683
Total manufacturing cost		114,683
Add: Work in process inventory, May 1		35,000
		149,683
Less: work in process inventory, May 31		58,683
Cost of goods sold manufactured		91,000

Table (2)

Prepare Incorporation C’s income statement for the month ended May 31, 2016.

Incorporation C
Income statement
For the month ended May 31, 2016
Particulars	Amount ($)	Amount ($)
Sales		362,000
Cost of goods sold:
Finished goods inventory, May 1	120,000
Add: Cost of goods manufactured	91,000
Goods available for sale	211,000
Less: Finished goods inventory , May 31	23,000	188,000
Gross profit on sales		174,000
Selling and administrative expenses		11,150
Net income		162,850

Table (3)

Prepare Incorporation C’s balance sheet at May 31, 2016.

Incorporation C
Balance Sheet
At May 31, 2016
Particulars	Amount ($)		Amount ($)
Current Assets:
Cash			164,000
Accounts receivable			82,000
Inventories:
Finished goods		23,000
Work in process		58,683
Materials		14,000	95,683
Total current assets			341,683
Plant and equipment:
Building	480,000
Less: Accumulated depreciation	74,000	406,000
Factory equipment	220,000
Less: Accumulated depreciation	67,833	152,167
Office equipment	60,000
Less: Accumulated depreciation	37,000	23,000
Total plant and equipment			581,167
Total assets			922,850
Liabilities and stockholder’s equity
Current liabilities:
Accounts payable			6,000
Stockholder’s equity:
Capital stock	250,000
Retained earnings (5)	666,850
Total Stockholder’s equity			916,850
Total liabilities and stockholder’s equity			922,850

Table (4)

Working note 5:

Calculate the amount of retained earnings.

$\begin{array}{c}\text{Retained earnings = Beginning retained earnings balance + Net income for May}\\ =\$504,000+\$162,850\\ =\$666,850\end{array}$