PROBLEM $3-16$ Comprehensive Problem $$ LO$3-1,$ LO$3-2,$ LO$3-4$

Gold Nest Company of Guandong, China, is a family$-$owned enterprise that makes birdcages for the South China market. The company sells

its birdcages through an extensive network of street vendors who receive commissions on their sales.

The company uses a job$-$order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined

overhead rate is based on a cost formula that estimated $$330,000$ of manufacturing overhead for an estimated activity level of $$200,000$

direct labor dollars. At the beginning of the year, the inventory balances were as follows:

During the year, the following transactions were completed:

a$.$ Raw materials purchased on account, $$275,000.$

b$.$ Raw materials used in production, $$280,000($materials costing $$220,000$ were charged directly to jobs; the remaining materials were

indirect$).$

c$.$ Costs for employee services were incurred as follows:

d$.$ Rent for the year was $$18,000($ $$13,000$ of this amount related to factory operations, and the remainder related to selling and

administrative activities$).$

e$.$ Utility costs incurred in the factory, $$57,000.$

f$.$ Advertising costs incurred, $$140,000.$

g$.$ Depreciation recorded on equipment, $$100,000.($ $$88,000$ of this amount related to equipment used in factory operations; the remaining

$$12,000$ related to equipment used in selling and administrative activities.$)$

h$.$ Manufacturing overhead cost was applied to jobs, $ $?.$

i$.$ Goods that had cost $$675,000$ to manufacture according to their job cost sheets were completed.

j$.$ Sales for the year $($all paid in cash$)$ totaled $$1,250,000.$ The total cost to manufacture these goods according to their job cost sheets was

$$700,000.$

Required:

Prepare journal entries to record the transactions for the year.

Prepare T$-$accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal

entries to these $T-$accounts $($don$\text{'}$t forget to enter the beginning balances in your inventory accounts$).$ Compute an ending balance in each

account.

Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing

Overhead account to Cost of Goods Sold.

Prepare an income statement for the year. $($Do not prepare a schedule of cost of goods manufactured; all of the information needed for

the income statement is available in the journal entries and $T-$accounts you have prepared.$)$