Fanning Corporation makes custom-order furniture to meet the needs of persons with disabilities. On January 1, 2018, the company had the following account balances: $86,000 for both cash and common stock. In 2018, Fanning worked on three jobs. The relevant direct operating costs follow:

Direct Labor Direct MaterialsJob 1$4,700 $4,700 Job 2 2,600 2,000 Job 3 8,900 3,700 Total$16,200 $10,400

Fannings predetermined manufacturing overhead rate was $.40 per direct labor dollar. Actual manufacturing overhead costs amounted to $6,236. Fanning paid cash for all costs. The company completed and delivered Jobs 1 and 2 to customers during the year. Job 3 was incomplete at the end of the year. The company sold Job 1 for $16,400 cash and Job 2 for $8,300 cash. Fanning also paid $3,900 cash for selling and administrative expenses for the year.

Fanning uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account.

Required

1. Record the preceding events in a horizontal statements model. The first row shows beginning balances.-

Record the preceding events in a horizontal statements model. The first row shows beginning balances. (Enter costs of each job individually. Enter any decreases to account balances with a minus sign.)

Assets

=

Equity

Cash

+

Work in Process

+

Finished Goods

+

Manufacturing Overhead

=

Common Stock

+

Retained Earnings

Revenue

-

Expense

=

Net Income

86,000

+

+

+

=

86,000

+

-

=

2. Record the entry to close the amount of underapplied or overapplied overhead for the year to Cost of Goods Sold (in the expense category) in the horizontal financial statements model.

3. Determine the gross margin for the year.