Clares Inc. manufactures custom-made jewelry. They uses a normal costing system and apply overhead on the basis of direct labor hours. Supplies are indirect materials and are maintained separate from the Raw Materials inventory. At the beginning of January, they had no outstanding debt and the following balances were in the general ledger:

Cash $ 20,000

Raw Materials Inventory $ 2,500

Supplies Inventory $ 750 Stockholders Equity

Work in Process Inventory $ ???? Common Stock $50,000

Finished Goods Inventory $ 0 Retained Earnings ????

The subsidiary ledgers for work in process are as follows:

Job Type Materials Labor Overhead

10 Necklace $15,000 $5,000 $2,500

11 Bracelet 10,000 3,500 2,500

12 Ring 8,000 4,000 3,000

Overhead is applied on the basis of direct labor hours (dlh). Estimated annual overhead is $40,000, whereas estimated annual direct labor hours were 800 dlh.

During January, two additional pieces of jewelry, a brooch (job 13) and earrings (job 14), were started.

Other items of importance are:

1. $30,000 of gemstones and gold were purchased on account.
2. Gemstones and gold were requisitioned; 10 $5,000, 11 $2,500. 12 $8,000, 13 $3,000, 14 $4,000.
3. Supplies of $1,000 were purchased in cash, while $750 were used.
4. Direct labor is paid on the basis of $125 per hour; hours used were 10 10 dlh, 11 15 dlh, 12 20 dlh, 13 5 dlh, 14 12 dlh.
5. The jewelry supervisor salary was $8,000.
6. Overhead is applied to production on the basis of direct labor hours.
7. General administrative expenses for the month were $7,550, paid in cash.
8. The earrings, ring, and necklace were finished.
9. The earrings and ring were sold for $12,000 in cash, and $40,000 on account, respectively.

REQUIRED:

1. Prepare the Clares Inc. Balance Sheet for January 1.
2. Prepare job cost sheets for all jobs.
3. Prepare all journal entries and record in T-accounts for the information above.
4. Prepare cost of goods manufactured statement for January.
5. Prepare the cost of goods sold statement for January.
6. Close the over-under applied overhead to the cost of goods sold for January.
7. Prepare the Clares Inc. Income Statement for January.
8. Prepare a Statement of Retained Earnings.
9. Prepare the Clares Inc. Balance Sheet for January 31.

10. NOW: Assume that the over or under applied overhead is MATERIAL. Prorate the balance to the appropriate accounts.