Exercise 1. Celestial Displays, Inc., puts together large-scale fireworks displays-primarily for Fourth of July celebrations sponsored by corporations and municipalities. The company assembles and orchestrates complex displays using pyrotechnic components purchased from suppliers throughout the world. The company has built a reputation for safety and for the awesome power and brilliance of its computer-controlled shows. Celestial Displays builds its own launch platforms and its own electronic controls. Because of the company's reputation, customers order shows up to a year in advance. Since each show is different in terms of duration and components used, Celestial Displays uses a job-order costing system. Celestial Displays' trial balance as of January 1 , the beginning of the current year, is given below: The company charges manufacturing overhead costs to jobs on the basis of direct labor-hours. (Each customer order for a complete fi reworks display is a separate job.) Management estimated that the company would incur $135,000 in manufacturing overhead costs in the fabrication and electronics shops and would work 18,000 direct labor-hours during the year. The following transactions occurred during the year: a. Raw materials, consisting mostly of skyrockets, mortar bombs, flares, wiring, and electronic components, were purchased on account, $820,000. b. Raw materials were issued to production, $830,000($13,000 of this amount was for indirect materials, and the remainder was for direct materials). c. Fabrication and electronics shop payrolls were accrued, $200,000(70% direct labor and 30% indirect labor). A total of 20,800 direct labor-hours were worked during the year. d. Sales and administrative salaries were accrued, $150,000. e. The company prepaid additional insurance premiums of $38,000 during the year. Prepaid insurance expiring during the year was $40,000 (only $600 relates to selling and administrative; the other $39,400 relates to the fabrication and electronics shops because of the safety hazards involved in handling fireworks). f. Marketing cost incurred, $100,000. The company charges manufacturing overtsead costs to jobs on the basis of direct labor-hours. (Each customer onder for a complete fi reworks display is a separate job.) Management estimated that the company would incur $135,000 in manufacturing overhead costs in the fabricatien and electronics shops and would work 18,000 direct labor-hours during the year. The following transactans occurred during the year: a. Raw materiak, consisting mostly of skyrockets, mortar bombs, flares, wiring and electranic components, were purchased on account, $820,000. b. Raw materials were issued to production, $830,000 ( $13,000 of this ameunt was for indirect materials, and the remainder was for direct materials). c. Fabrication and electronics shop payrolls were accrued, $200,000(70% direct labor and 30% indirect labor). A total of 20,800 direct labor-hours were worked during the yoar. d. Sales and administrative salaries were accrued, 5150,000 . e. The company prepaid additional insurance premiums of 538,000 during the year. Prepaid insarance expiring during the year was $40,000 (only $600 relates to selling and administrative: the other $39,400 relates to the fabrication and electronics shops because of the salety harards involved in handling fireworis). f. Marketing cost incurred, $100,000. g. Depreciation charges for the year, $40,000170% relates to faturication and electronics shop assets, and 30% relates to selling and administrative assets). h. Property taxes accrued an the shop buildings, 512,600 (credit Accounts Payable). i. Manufactaring overhead cost was applied to jobs. f. Jobs completed daring the year had a total production cost of $1,106,000 according to their job cest sheets. k. Revenue (all on acceant), \$1,420,000, Cost of Coods Sold (before aay adjustment for under applied or over applied everhead), $1,120,000. 1. Cash collections on account from customers, $1,415,000. m. Cash payments on accounts payable, $970,000. Cash payments to employees for salaries and wages, $348,000 Required: 1. Prepare joaral entries for the year's transactions. 2. Prepare a T-account for each account in the company's trial balance, and enter the opering balances given above. Post your journal entries to the T-accounts. Prepare new T-accounts as needed. Compute the ending balance in each acceunt. 3. Is manufactiring overhead under applied or over applied for the year? Frepare the aecesary feurnal entry to close the balance in the Manufacturing Overhead accoant to Cost of Coods Sold. 4. Prepare an income statement for the year. (Do not prepare a statement of cost of poods manufactured: all of the information needed for the income statement is available in the T. accounts.]