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 laborhours.

Its predetermined overhead rate was based on a cost formula that estimated $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year:

a. Raw materials purchased on account, $200,000.

b. Raw materials used in production (all direct materials),

$185,000.

c. Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

d. Accrued salary and wage costs:

$230,000

. . . . . . . $90,000 Selling and administrative salaries page 138 Raw Materials Work in Process Finished Goods $110,000

e. Maintenance costs incurred on account in the factory, $54,000.

f. Advertising costs incurred on account, $136,000.
g. Depreciation was recorded for the year, $95,000 (80%
related to factory equipment, and the remainder related to selling and administrative equipment).
h. Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities).
i. Manufacturing overhead cost was applied to jobs, $ ? .
j. Cost of goods manufactured for the year, $770,000.
k. Sales for the year (all on account) totaled $1,200,000.
These goods cost $800,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
. . . . . . . . . . . . $30,000 . . . . . . . . . . . $21,000 . . . . . . . . . . . $60,000 Required:
1. Prepare journal entries to record the preceding transactions.
2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.
3. Prepare a schedule of cost of goods manufactured.

4. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
Prepare a schedule of cost of goods sold.
5. Prepare an income statement for the year.