Problem 3-15 (Algo) Journal Entries; T-Accounts; Financial Statements [LO3-1, LO3-2, LO3-3, LO3-4]

Froya Fabrikker A/S of Bergen, Norway, manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs based on direct labor-hours. Its predetermined overhead rate was based on a cost formula that estimated $372,000 of manufacturing overhead for an estimated allocation base of 1,200 direct labor-hours. The following transactions occurred during the year:

1. Raw materials purchased on account, $240,000.
2. Raw materials used in production (all direct materials), $225,000.
3. Utility bills incurred on account, $67,000 (95% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,275 hours)	$ 270,000
Indirect labor	$ 98,000
Selling and administrative salaries	$ 150,000

1. Maintenance costs incurred on account in the factory, $62,000
2. Advertising costs incurred on account, $144,000.
3. Depreciation recorded for the year, $80,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $105,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
5. Manufacturing overhead cost applied to jobs, $?question mark.
6. Cost of goods manufactured, $850,000.
7. Sales for the year (all on account) totaled $1,600,000. These goods cost $880,000 according to their job cost sheets.

The beginning balances in the inventory accounts were:

Raw Materials	$ 38,000
Work in Process	$ 29,000
Finished Goods	$ 68,000

Required:

1. Prepare journal entries to record the preceding transactions.

2. Post your entries to T-accounts. (Dont forget to enter the beginning inventory balances above.)

3. Prepare a schedule of cost of goods manufactured.

4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4B. Prepare a schedule of cost of goods sold.

5. Prepare an income statement.