Exercise 3-8 (Algo) Applying Overhead; Journal Entries; Disposing of Underapplied or Overapplied Overhead [LO3-1, LO3-2, LO3-4]

The following information is taken from the accounts of Latta Company. The entries in the T-accounts are summaries of the transactions that affected those accounts during the year.

Manufacturing Overhead
Debit		Credit
(a)	474,624	(b)	395,520
Balance	79,104

Work in Process
Debit		Credit
Balance	15,480	(c)	734,000
	281,000
	88,000
(b)	395,520
Balance	46,000

Finished Goods
Debit		Credit
Balance	44,000	(d)	652,000
(c)	734,000
Balance	126,000

Cost of Goods Sold
Debit		Credit
(d)	652,000

The overhead that had been applied to production during the year is distributed among Work in Process, Finished Goods, and Cost of Goods Sold as of the end of the year as follows:

Work in Process, ending	$ 22,080
Finished Goods, ending	60,480
Cost of Goods Sold	312,960
Overhead applied	$ 395,520

For example, of the $46,000 ending balance in work in process, $22,080 was overhead that had been applied during the year.

Required:

1. Identify reasons for entries (a) through (d).

2. Assume that the underapplied or overapplied overhead is closed to Cost of Goods Sold. Prepare the necessary journal entry.

3. Assume that the underapplied or overapplied overhead is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the necessary journal entry.