Required:

1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).
3. Is manufacturing Overhead underapplied or overapplied for the year? Prepare journal entry close any balance in the Manufacturing Overhead account to Cost of Good Sold. Do not allocate the balance between ending inventories and Cost of Good Sold.
4. Prepare income statement for the year.

Palmera Company is a manufacturing firm that uses job-order costing. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw MaterialsP200,000

Work in processP150,000

Finished GoodsP300,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 750,000 machine-hours and incur P4,500,000 in manufacturing overhead cost. The following transactions were recorded for the year:

a. Raw materials were purchased on account, P4,100,000.

1. Raw materials were requisitioned for use in production, P3,800,000 (P3,600,000 direct materials and P200,000 indirect materials).
2. The following costs were incurred for employee services: direct labor, P750,000; indirect labor, P1,100,000; sales commissions, P900,000; and administrative salaries, P2,000,000.
3. Sales travels costs were P170,000.
4. Utility costs in the factory were P430,000.
5. Advertising costs were P1,800,000.
6. Depreciation was recorded for the year, P3,500,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
7. Insurance expired during the year, P100,000 (70% relates to factory operations, and the remaining 30% relates to selling and administrative activities).
8. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 800,000 machine-hours during the year.
9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 800,000 machine-hours during the year.
10. Good costing P9,000,000 to manufacture according to their job cost sheets were completed during the year.
11. Goods were sold on account to customers during the year at a total selling price of P15,000,000. The goods cost P8,700,000 to manufacture according to their job cost sheets.