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Practice Problem 1 Journal Entries, T-Accounts, Disposition of Overhead, Income Statement At the beginning of the year, Polson Manufacturing Company had the following balances in its inventory accounts: Raw Materials S170,000 Work in Process 20,000 Finished Goods 45,000 Polson applies overhead on the basis of 150 percent of direct labor cost. During the year Polson experienced transactions as described below. a. Direct materials purchased, $280,000. b. Direct materials issued, $300,000. c. Indirect materials issued, $82,000. d. Labor costs: $110,0 Direct labor 00 Indirect labor 60,000 Selling & adm 70,000 e. Factory insurance expired, $5,000. f. Advertising costs, $30,000. g. Factory rent, $24,000. h. Depreciation on office equipment, $10,000. i. Miscellaneous factory costs, $7,850. j. Utilities (70 percent factory, 30 percent office), $10,000. k. Sales totaled $983,000. Ending balances in the inventory accounts were: Raw Materials ???? Work in Process 30,000 20,000 Finished Goods REQUIRED: 1. Prepare journal entries for the above transactions. 2. Post the journal entries relating to manufacturing costs to the appropriate T- accounts. 3. Compute the under- or over applied overhead variance. Give the journal entry that disposes of the variance by closing it out to Cost of Goods Sold. Give the journal entry required to close out the variance if it is prorated among the appropriate accounts. 4. Prepare an income statement assuming that the variance is closed to Cost of Goods Sold. Prepare another income statement based on prorating the variance. What is the difference in income figures? Would you judge the difference to be significant