Problem 3-16 Comprehensive Problem (LO3-1, LO3-2, LO3-4) 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 $95,000 of manufacturing overhead for an estimated activity level of $50,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $ 10,900 $ 4,000 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 166,000. b. Raw materials used in production, $145,000 (materials costing $127,000 were charged directly to jobs, the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 173,000 $ 252,700 $ 20,000 $ 45,000 d. Rent for the year was $18,400 ($13,200 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory. $14,000. f. Advertising costs incurred, $14,000. g. Depreciation recorded on equipment, $23,000. ($16,000 of this amount related to equipment used in factory operations, the remaining $7,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. 1. Goods that had cost $227,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $512,000. The total cost to manufacture these goods according to their job cost sheets was $216,000 Required: 1. Prepare journal entries to record the transactions for the year. 2. 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't forget to enter the beginning balances in your inventory accounts). 3A. Is Manufacturing Overhead underapplied or overapplied for the year? 3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared. No Transaction General Journal Debit Credit 1 a. 166,000 Raw materials Cash x 166,000 2 b 145,000 X Work in process Manufacturing overhead Raw materials 18,000 127,000 3 C 173,000 252,700 Work in process Manufacturing overhead Sales commisions expense Administrative salaries expense 20,000 45,000 Cash X 490.700 4 d Manufacturing overhead 13,200 5,200 Rent expense Cash 18,400 5 e 14.000 > Manufacturing overhead Cash 14,000 6 f. 14,000 Advertising expense Cash x 14,000 > 7 g Manufacturing overhead Accumulated depreciation Accumulated depreciation 16,000 7,000 X 23,000 8 h. Work in process 410,875 X Manufacturing overhead 410,875 X 9 i. 227,000 Finished goods Work in process 227,000 10 j(1). Cash 0 512,000 Sales 512,000 11 j(2) 216,000 Cost of goods sold Finished goods 216.000 Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req Req 3B Req 4 WL 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't forget to enter the beginning balances in your inventory accounts). (Do not round intermediate calculations.). Beg. Bal. Raw Materials 10,900 166,000 145,000 Beg. Bal . b. b. Work in Process 4,000 145,000 227,000 173,000 410,875 X C. h. End. Bal. 31,900 End. Bal. 505,875 Manufacturing Overhead Finished Goods 8,400 Beg. Bal. Beg. Bal. 0 227,000 216,000 b 18,000 410,875 X h. C. d. 00000 252,700 13,200 14,000 16,000 End. Bal. 19,400 e. g Cost of Goods Sold End. Bal. 96,975 Beg. Bal. 0 216,000 End. Bal. 216,000 X Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req Req 3B Reg 4 Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Transaction General Journal Debit Credit 1 1 96,975 X Manufacturing overhead Cost of goods sold 96,975 X $ 512,000 (119,025) 392,975 Gold Nest Company Income Statement For the Year Ended Sales Cost of goods sold Gross margin Selling and administrative expenses: Sales commissions Administrative salaries expense Rent expense Advertising expense Depreciation expense 20,000 45,000 5,200 14,000 7,000 91,200 $ 301,775 Net operating income