Chapter 2, Problem 17P

Review Problem for Chapters 1 and 2

UltraLift Corp. manufactures chain hoists. The raw materials inventories on hand on October 1 were as follows:

The balances in the ledger accounts on October 1 were as follows:

Transactions during October were as follows:

1. a. Payroll recorded during the month: direct labor, $28,000; indirect labor, $4,800.
2. b. Indirect materials purchased for cash, $1,000.
3. c. Materials purchased on account: chain–4,000 lb, $8,800; pulleys–2,000 sets, $10,200; steel plates–5,000 units, $3,000.
4. d. Sales on account for the month, $126,375.
5. e. Accounts receivable collected, $72,500.
6. f. Materials used during October (FIFO costing): chain–14,000 lb; pulleys–4,400 sets; bolts and taps–4,000 lb; steel plates–3,800 units.
7. g. Payroll paid, $32,800.
8. h. Indirect materials issued to production in October, $650.
9. i. Factory heat, light, and power costs for October, $3,000 (not yet paid).
10. j. Office salaries paid, $6,000.
11. k. Advertising paid, $2,000.
12. l. Accounts payable paid, $33,750.
13. m. Expired insurance–on office equipment, $100; on factory machinery, $300.
14. n. Factory rent paid, $2,000.
15. o. Depreciation on office equipment, $400; on office furniture, $180; on machinery, $1,200.
16. p. Factory overhead charged to jobs, $11,950.
17. q. Work in Process, October 31, $31,000. (Hint: The difference between the sum of the beginning balance in Work in Process plus the total charges to it during the period less the ending balance in Work in Process represents the cost of the goods completed during the period.)
18. r. Cost of goods sold during the month, $84,250.

Required:

1. 1. Set up T-accounts and enter the balances as of October 1.
2. 2. Prepare journal entries to record each of the previous transactions.
3. 3. Post the journal entries to the accounts, setting up any new ledger accounts necessary. Only controlling accounts are to be maintained; however, show the calculation for the cost of materials used.
4. 4. Prepare a statement of cost of goods manufactured for October.
5. 5. Prepare an income statement.
6. 6. Prepare a balance sheet showing the classifications of current assets, plant and equipment, current liabilities, and stockholders’ equity.

To determine

Post the journal entries to T- account.

Explanation of Solution

Posting of transactions: The process of transferring the journalized transactions into the accounts of the ledger is known as posting the transactions.

T-account: The condensed form of a ledger is referred to as T-account. The left-hand side of this account is known as debit, and the right hand side is known as credit.

Post the entries to T-account.

Prepare T-account for Cash.

Cash
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance		12,000		Materials		1,000
	Accounts receivable		72,500		Payroll		32,800
					Salaries expense		6,000
					Advertisement expense		2,000
					Accounts payable		33,750
					Factory overhead		2,000
					Balance c/d		6,950
			84,500				84,500

Table (1)

Prepare T-account for finished goods.

Finished goods
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Work-in process		98,290		Cost of goods sold		84,250
					Balance c/d		14,040
			98,290				98,290

Table (2)

Prepare T-account for accounts receivable.

Accounts receivable
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Sales		126,375		Cash		72,500
					Balance c/d		53,875
			126,375				126,375

Table (3)

Prepare T-account for machinery.

Machinery
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	balance		125,000

Table (4)

Prepare T-account for work in process.

Work in process
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance		35,000		Finished goods		98,290
	Payroll		28,000		Balance c/d		31,000
	Materials		54,340
	Factory overhead		11,950
			129,290				129,290

Table (5)

Prepare T-account for materials.

Materials
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance		51,000		Work-in process		54,340
	Cash		1,000		Factory overhead		650
	Accounts payable		22,000		Balance c/d		19,010
			74,000				74,000

Table (6)

Prepare T-account for accumulated depreciation.

Accumulated depreciation on machinery
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance c/d		11,700		Balance		10,500
					Factory overhead		1,200
			11,700				11,700

Table (7)

Prepare T-account for prepaid insurance.

Prepaid insurance
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	balance		3,000		Administrative expense		400
					Balance c/d		2,600
			3,000				3,000

Table (8)

Prepare T-account for office equipment.

Machinery
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	balance		30,000

Table (9)

Prepare T-account for accumulated depreciation.

Accumulated depreciation on equipment
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance c/d		5,200		Balance		4,800
					Administrative expense		400
			5,200				5,200

Table (10)

Prepare T-account for office furniture.

Machinery
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	balance		20,000

Table (11)

Prepare T-account for accumulated depreciation.

Accumulated depreciation on furniture
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Balance c/d		2,680		Balance		2,500
					Administrative expense		180
			2,680				2,680

Table (12)

Prepare T-account for accounts payable

.

Accounts payable
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Cash		33,750		Balance		30,000
	Balance c/d		21,250		materials		22,000
					Factory overhead		3,000
			55,000				55,000

Table (13)

Prepare T-account for capital stock.

Capital stock
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
					balance		182,200

Table (14)

Prepare T-account for retained earnings.

Retained earnings
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
					balance		46,000

Table (15)

Prepare T-account for sales.

Sales
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
					Accounts payable		126,375

Table (16)

Prepare T-account for cost of goods sold.

Cost of goods sold
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Cost of goods sold		84,250

Table (17)

Prepare T-account for payroll.

Payroll
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Cash		32,800		Work-in process		32,800

Table (18)

Prepare T-account for factory overhead.

Factory overhead
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Payroll		4,800		Work-in process		11,950
	Materials		650
	Accounts payable		3,000
	Prepaid insurance		300
	Cash		2,000
	Depreciation		1,200
			11,950				11,950

Table (19)

Prepare T-account for selling and administrative expense.

Selling and administrative expense
Date	Particulars	Post Ref.	Debit ($)	Date	Particulars	Post Ref.	Credit($)
	Cash		6,000		Balance c/d		8,680
	Selling expense		2,000
	Prepaid insurance		100
	Selling expense		580
			8,680				8,680

Table (20)

To determine

Prepare the journal entry to post the transaction.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Prepare journal entry.

Table (21)

Table (22)

To determine

Prepare the cost of goods manufactured statement.

Explanation of Solution

Cost of goods manufactured: The cost of goods manufactured is the total costs incurred for the manufacturing of a product which is transferred from work-in process inventory account to the finished goods inventory account.

Prepare the statement for cost of goods manufactured.

Table (23)

To determine

Prepare an income statement.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare an income statement.

Table (24)

To determine

Prepare the balance sheet.

Explanation of Solution

Prepare the balance sheet.

Table (25)