Durham Companys trial balance as of January 1, the beginning of the current year, is given below:

Question:

Durham Company€™s trial balance as of January 1, the beginning of the current year, is given below:

Durham Company uses a job-order costing system. During the year, the following transactions took place:
a. Raw materials purchased on account, $45,000.
b. Raw materials requisitioned for use in production, $40,000 (80% direct and 20% indirect).
c. Factory utility costs incurred, $14,600.
d. Depreciation recorded on plant and equipment, $28,000. Three-fourths of the depreciation relates to factory equipment, and the remainder relates to selling and administrative equipment.
e. Costs for salaries and wages were incurred as follows:
Direct labor . . . . . . . . . . . . . . . . $40,000
Indirect labor . . . . . . . . . . . . . . . $18,000
Sales commissions . . . . . . . . . . $10,400
Administrative salaries . . . . . . . $25,000
f. Prepaid insurance expired during the year, $3,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
g. Miscellaneous selling and administrative expenses incurred, $18,000.
h. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of direct labor cost.
i. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
j. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold on account for $200,000.
k. Collections from customers during the year totaled $197,000.
l. Payments to suppliers on account during the year, $100,000; and payments to employees for salaries and wages, $90,000.

Required:
1. Prepare a T-account for each account in the company€™s trial balance, and enter the opening balances shown above.
2. Record the transactions above directly into the T-accounts. Prepare new T-accounts as needed. Key your entries to the letters (a) through (l) above. Find the ending balance in each account.
3. Is manufacturing overhead underapplied or overapplied for the year? Make an entry in the T-accounts to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the T-accounts you haveprepared.)