INTRODUCTION The transactions in this practice set were completed by Hydro Paddle Boards, Inc. during January, the first month of the company's fiscal year. Hydro Paddle Boards, Inc. is a manufacturing corporation that designs and manufactures a limited variety of custom stand-up paddle (SUP) boards. The SUP boards vary in size and performance, including beginner, intermediate, advanced, competition, and racing boards. Hydro Paddle Boards, Inc. maintains a job- order cost system. You have accepted a position with Hydro Paddle Boards, Inc. as assistant controller, and you will begin your duties on January 1 of the current year. In your review of the previous assistant controller's records, you notice some jobs were incomplete as of December 31 of the previous year. These jobs are contained in the Job Cost Records, You plan to complete most of these jobs in January and to accept new jobs from dealers and other builders. You are responsible for the daily accounting operations, preparation of interim financial statements, and end-of-month adjusting and closing entries Hydro Paddle Boards, Inc. manufactures all products in a single production department. An individual job-order cost sheet is maintained for each job. The job-order cost sheet contains accumulated costs for each job, including actual direct materials, actual direct labor, and applied factory overhead. Gross pay for direct labor is recorded by a debit to Work in Process. Salaries for all other factory personnel are recorded by a debit to Factory Overhead. Salaries of non-factory personnel are recorded at the end of each month by a debit to the appropriate salary expense accounts. Deductions for employees' FICA and federal income taxes are recorded whenever gross pay is recorded, using the simplified rates of 8% (for FICA, including Medicare) and 15% (for federal income tax). All wages are paid on the last day the month. All employer payroll taxes are recorded at the end of the month. Payroll taxes related to factory personnel are debited to Factory Overhead. Payroll taxes related to all other company personnel are debited to Payroll Taxes Expense General. Hydro Paddle Boards, Inc. maintains two materials accounts, one for Direct Materials and one for Indirect Materials and Factory Supplies. Factory overhead is applied to each job based on 130% of direct labor cost for that job was 125% in Dec). Hydro Paddle Boards, Inc. maintains only one factory overhead account. Remember that debits to Factory Overhead represent actual overhead and credits to Factory Overhead represent applied overhead. Since the difference between actual factory overhead and applied factory overhead is insignificant, the overapplied or underapplied balance is closed out to Cost of Goods Sold as an adjusting entry at the end of each month. Hydro Paddle Boards, Inc. marks up all work by 40% of the job cost. Refer to the individual Job Cost Record for the total cost of the job, and multiply the total cost by 140% to determine the selling price for each job. Since Hydro Paddle Boards, Inc. sells to dealers, sales are exempt from state sales tax. All sales are on account and are subject to terms of 2/10, net 30 days, FOB shipping point. Sales to credit customers expected to take the discount are recorded at the discounted amount. Sales to credit customers who do not normally pay within the discount period are recorded at the gross amount. Since Hydro Paddle Boards, Inc. sells by custom order, it does not accept returns of merchandise. Accounts Payable is used solely for the purchase of direct materials and indirect materials and factory supplies. All vendors expect full payment within 30 days. Operating expenses, with the exception of any accrued salaries, payroll taxes, property taxes, and income taxes, are paid when incurred. All cash received is deposited in the bank, and all payments are made by check. When dealing with an accounts receivable or accounts payable item, be sure to record the company name in the General Journal and post to the Accounts Receivable Ledger or Accounts Payable Ledger It is January 1, and you are ready to assume your new responsibilities. Good luck! 1 Hydro Paddle Boards, Inc. MANUAL INSTRUCTIONS 1. 2. Journalize the entries for the month of January in the General Journal. When using the work in process account, be sure to post to the appropriate Job Cost Record Post the General Journal entries to the General Ledger Accounts provided (Allowance for Doubtful Accounts, Office Supplies, Factory Overhead, and Salaries Payable.) MUST DO!!! Journalize and post the adjusting entries. 3 Hydro Paddle Boards, Inc. NARRATIVE OF TRANSACTIONS Note: Certain transactions, such as those dealing with payroll, require detailed computational work before preparing the journal entry. These transactions are explained initially in the narrative as they occur. Please refer to the original transaction when preparing a subsequent similar transaction. Jan. 2 Paid Salt Water Mall $8,200.00 for January rent. Of this amount, 35% is for office facilities and 65% is for factory facilities. 2 Paid RWT Advertising Agency $1200.00 for preparing advertisements in local newspapers 3 Paid Hi-Foam Products Company $16,826.24 in payment of the December 31 balance, 3 Received a check from Calm Waters Board Corporation for the amount due (check AR schedule). 4 Paid Marine National Bank $45,733.48 for December payroll taxes payable as follows: Employees Income Tax Payable, $26,353.78; FICA Tax Payable, $17,928.88; Federal Unemployment Tax, $638.38; State Unemployment Tax, $812.44. Applied factory overhead to Job No. 1403 is based upon 130% of direct labor cost.(note this was 125% last December but company has a new rate this year) Jan. 4 Transferred the completed job to the finished goods account S Sold and shipped Job No. 1403 to Salt Water Hut.com. All sales are on account 2/10, net 30 days, FOB shipping point. Hydro Paddle Boards, Inc. marks up all work by 40% of the job cost. Refer to the individual Job Cost Record for the total cost of the job, and multiply the total cost by 140% to determine the selling price. Salt WaterHut is not expected to pay within the discount period. Hydro Paddle Boards, Inc. maintains a perpetual inventory system. Each time a sale is made to customer, you must debit Cost of Goods Sold and credit Finished Goods for the cost of the job. 8 Requisitioned $2,482.54 of indirect materials and factory supplies to be used in the manufacture of all jobs currently in process. (Materials Requisition No. 1680) 9 Paid Anabella Henriquez, County Tax Collector, $12,642.00 for property taxes accrued as of December 31. 9 Purchased from GT Matrix Corporation $5,082.52 of indirect factory supplies, credit terms net 15 days. 9 Accepted a job for the manufacture of 66 units Bl (Beginner SUP) Paddle boards for Rio Watersports. The promise date is February 14. The company began the job today, applying $11.828.00 of direct materials to Job No. 1406. (Materials Requisition No. 1681) 10 Received a check from Tarpon Sports Ltd. for the amount due. 11 Paid Light Hardware, Inc. $18,200.00 in payment of the December 31 balance. 4 Paid $13.946.72 for Income Tax Payable. 4 Paid Coco PVC Company S21,428.00 in payment of the December 3i balance. 4 Applied $7,248.00 of direct materials (1679) and $16,240.00 of direct labor (Time Ticket No. 258) to Job No. 1403, which will complete the job. Use the simplified rates of 8% of gross pay for employees' FICA tax and 15% of gross pay for employees federal income tax. When preparing the entry for applying direct labor, debit Work in Process for the gross pay, and credit Employees' Income Tax Payable and FICA Tax Payable for the appropriate amounts and Salaries Payable for net pay. Remember that employees are paid on the last day of each month. company began the job today, applying $4,936.20 of direct materials to Job No. 1408. (Materials Requisition No. 1686) Jan. 11 Applied $2,654.28 of direct materials to Job No. 1402. (Materials Requisition No. 1682) 12 Received a check from Go Paddle Sales Company for the amount due. 15 Applied $4,428.12 of direct materials to Job No. 1404. (Materials Requisition No. 1683) 16 Purchased $1,186.00 of factory supplies from Keys Supplies Inc. and paid cash. 16 Applied $6,434.00 of direct labor to Job No. 1405, which will complete the job. (Time Ticket No. 260) Applied factory overhead using the appropriate rate. Transferred the completed job to the finished goods account. 16 Sold one Standard CI (Competition) custom stand-up paddle (SUP) board to a cash customer for $2,800.00. The cost of the goods shipped from finished goods inventory was $2,000.00 END OF PARTI 17 Requisitioned $2,235.00 of indirect materials and factory supplies to be used in all factory jobs currently in process. (Materials Requisition No. 1684) 17 Signed a contract with Extreme Board Systems for the manufacture of 77 units RI (Racing 1) custom stand-up paddle (SUP) boards. The promise date is February 15. The company began the job today, applying $8,440.000 of direct materials to Job No. 1407. (Materials Requisition No. 1685) 17 Paid the sales manager of Hydro Paddle Boards, Inc. $567.24 for customer entertaining 18 Received a report from the treasurer that Blue Runner Sports Dealers, one of our customers, has declared bankruptcy. Wrote off the balance owed to Hydro Paddle Boards, Inc. by Blue Runner Sports Dealers. 18 Sold and shipped Job No. 1405 to the appropriate customer. Refer to that job's Cost Record for the total cost of the job to determine the selling price. The customer is not expected to pay within the discount period. 22 Purchased $20,464.32 of direct naterials from K.C. Epoxy Supply Company, credit terms net 30 days. 22 Accepted a job for the manufacture of 28 units R2 (Racing 2) custom stand-up paddle (SUP) boards for Four Oceanic Designers. The promise date is January 31. The Jan. 24 Paid GT Matrix Corporation the amount due today from the January 9 purchase 25 Applied $3,320.00 of direct labor to Job No. 1402, which will complete the job. (Time Ticket No. 262) Applied factory overhead using the appropriate rate Transferred the completed job to the finished goods account. 26 Sold and shipped Job No. 1402 to the appropriate customer. Refer to that job's Cost Record for the total cost of the job to determine the selling price. Record the sale net of the 1% discount. 26 Applied $7,280.00 of direct labor to Job No. 1408, which will complete the job. (Time Ticket No. 264) Applied factory overhead using appropriate rate. Transferred the completed job to the finished goods account. 29 Sold and shipped Job No. 1408 to the appropriate customer. Refer to the Job Cost Record for the total cost of the job for billing purposes. Record the sale net of the 1% discount. 29 Paid D H2O Corp. the amount due in payment of the January 1 balance 29 Received a check from HP SUP, Inc. for the amount due after the discount period has expired. 29 Paid Post Office $1,250.00 for postage added to postage meter. Expense this amount 29 Paid Telephone Company $750.00 for January phone service. 29 Paid Island Signs & Advertising Company S2,640.00 for designing ads for our Internet website. 29 Paid Atlantic Power and Light Company $8,800.00 for heat, power, and light. Allocate 25% of this amount to Electricity Expense and 75% to Factory Overhead. 31 Applied $2,000.00 of direct labor to Job No. 1404. (Time Ticket No. 266) Applied factory overhead using the appropriate rate. This job will not be completed until February, 31 Applied $8,440.00 of direct labor to Job No. 1407. (Time Ticket No. 268) Applied factory overhead using the appropriate rate. This job will not be completed until March the Jan. 31 Jan. 31 Applied $2,320.00 of direct labor to Job No. 1406. (Time Ticket No. 270) Paid all employees for wages earned in January, 31 Purchased $16,928.00 of direct materials on account from Light Hardware, Inc. END OF PART 2 Start of Part 3 Adiusting Entries: Jan. 31 Insurance expired during January: Factory (debit Factory Overhead) $2,528.00 Selling 112.50 General 737.60 31 Office supplies inventory as of January 31, $2,900 Applied factory overhead using the appropriate rate. This job will not be completed until February, 31 Received the following data on the monthly payroll from the payroll clerk: Direct labor (already recorded NOT paid) $46,034.00 New payroll data (to be recorded); Factory: Indirect. $22,440.00 Noofactors Sales salaries. 23,950.00 Officers' salaries 14,280.00 Office salaries 12,620.25 Record the monthly payroll in the general journal. Remember that direct labor payroll already has been recorded as it was incurred in January. Salaries for indirect labor are recorded only at the end of the month. Debit Factory Overhead for indirect labor and superintendent's salaries, debit other salary expense accounts for the appropriate amounts, credit FICA Tax Payable for 8% of gross pay, credit Employees' Income Tax Payable for 15% of gross pay, and credit Salaries Payable for the net pay, 31 Record the employer payroll taxes for January. All payroll taxes related to factory personnel are debited to Factory Overhead; all payroll taxes related to wanfuetan personnel are debited to Payroll Taxes Expense General. Use a simplified FICA tax rate of 8% of gross pay, a state unemployment tax rate of 5.4%, and a federal unemployment tax rate of 0.8%. Since this is the first month in the current year, no employee has reached the ceilings on the payroll taxes. Use the form on page 46 (optional) to determine the amounts for the journal entry. 31 Received a check from Salt WaterHut.com for the amount due. 31 Received a check from Fiji Stand-Up Paddle Board Co. for the amount due 31 Depreciation for the month: Factory equipment (debit Factory Overhead) $1,584.00 Office equipment. 799.40 31 Amortization of patents for January (debit Factory Overhead) $750.00 31 Property tax accrued for the month: Factory (debit Factory Overhead) $925.00 General 234.52 31 Close out underapplied /overapplied Factory Overhead to Cost of Goods Sold. 31 Based on past experience, Hydro Paddle Boards, Inc. estimates that $14,670.00 is a reasonable balance for the January 31 balance in the Allowance for Doubtful Accounts. 31 Income tax is based on 40% of income before tax. Accrue income tax owed by debiting Income Tax Expense and crediting Income Tax Payable for $16.750.11. Hydro Paddle Boards, Inc. EXHIBITS Hydro Paddle Boards, Inc. Schedule of Accounts Receivable January 1, 20Y8 Name Aqua-Stream Paddle Board Company Blue Runner Sports Dealers........ Calm Waters Board Corporation Extreme Board Systems ....... Fiji Stand-Up Paddle Board Co Go ddle Sales Company HP SUP, Inc. Tarpon Sports Ltd. Total Balance S 6,480.00 4,346.00 16,693.38 26,550.88 39,426.00 14,429. 45,883.22 21.031.56 $174.840.98 Hydro Paddle Boards, Inc. Schedule of Accounts Payable January 1, 20Y8 Name Coco PVC Company D H2O Corp.. Hi-Foam Products Company Light Hardware, Inc. Total Balance $21,428,00 37,244.00 16,826.24 18,200.00 $93.698.24 Hydro Paddle Boards, Inc. CHART OF ACCOUNTS General Ledger Revenues (410-499) 410 Sales Assets (110-199) Current Assets. 110 Cash 111 Accounts Receivable 112 Allowance for Doubtful Accounts 121 Direct Materials 122 Indirect Materials and Factory Supplies 123 Work in Process 124 Finished Goods 131 Prepaid Insurance 132 Office Supplies Fixed Assets 161 Factory Equipment 162 Accumulated Depreciation-Factory Equipment 163 Office Equipment 164 Accumulated Depreciation - Office Equipment Intangible Assets 171 Organization Costs 172 Patents Liabilities (210-299) 210 Accounts Payable 211 Salaries Payable 221 Employees' Income Tax Payable 222 FICA Tax Payable 223 Federal Unemployment Tax Payable 224 State Unemployment Tax Payable 225 Property Tax Payable 226 Income Tax Payable Expenses (501-599) 501 Cost of Goods Sold 511 Factory Overhead 512 Advertising Expense Print 513 Advertising Expense - Internet 514 Electricity Expense 515 Insurance Expense-Selling 516 Insurance Expense-General 517 Sales Salaries Expense 518 Officers' Salaries Expense 519 Office Salaries Expense 520 Depreciation Expense-Office Equipment 521 Office Supplies Expense 522 Payroll Taxes Expense-General 523 Postage Expense-General 524 Property Tax Expense 525 Rent Expense General 526 Telephone Expense 527 Travel and Entertainment Expense 528 Uncollectible Accounts Expense 599 Miscellaneous Expense Other Income and Expense (610-699) 610 Interest Income 611 Other Income 612 Interest Expense 613 Other Expense Stockholders' Equity (310399) 310 Common Stock ($10 Par) 311 Paid-In Capital in Excess of Par Common Stock 312 Retained Earnings 313 Income Summary Income Tax Expense 710 Income Tax Expense