Question
Durham Companys trial balance as of January 1, the beginning of the current year, is shown below: Cash $ 8,000 Accounts Receivable 13,000 Raw Materials
Durham Companys trial balance as of January 1, the beginning of the current year, is shown below: Cash $ 8,000 Accounts Receivable 13,000 Raw Materials 7,000 Work in Process 18,000 Finished Goods 20,000 Prepaid Insurance 4,000 Plant and Equipment 230,000 Accumulated Depreciation $ 42,000 Accounts Payable 30,000 Capital Stock 150,000 Retained Earnings 78,000 Total $ 300,000 $ 300,000 Durham Company uses a job-order costing system. During the year, the following transactions took place: Raw materials were purchased on account: $45,000. Raw materials were requisitioned for use in production: $40,000 (80% direct and 20% indirect). Factory utility costs were incurred: $14,600. Depreciation was 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. Costs for salaries and wages were incurred as follows: Direct labour $ 40,000 Indirect labour $ 18,000 Sales commissions $ 10,400 Administrative salaries $ 25,000 Prepaid insurance expired during the year: $3,000 (80% relates to factory operations, and 20% relates to selling and administrative activities). Miscellaneous selling and administrative expenses were incurred: $18,000. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of direct labour cost. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold on account for $200,000. Collections from customers during the year totalled $197,000. Payments to suppliers on account during the year totalled $100,000; payments to employees for salaries and wages totalled $90,000. Required: 1.& 2. Prepare a T-account for each account in the companys trial balance, and enter the beginning balances. Make an entry directly into the T-accounts for transactions (a) through (l). Also post adjusting or closing entries, if any. Determine an ending balance for each T-account. 3. Is manufacturing overhead underapplied or overapplied for the year? 4. Prepare an income statement for the year. Is manufacturing overhead underapplied or overapplied for the year? 4. Prepare an income statement for the year.
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