Introduction
The transactions in this practice set were completed by Bath Designs Inc. during January, the first month of the company’s fiscal year. The company designs and manufactures a limited variety of custom bathroom storage cabinets and sauna units, and it maintains a job-order cost system.
You have accepted a position with Bath Designs Inc. as assistant controller, and you will begin your duties on January 1 of the current year. In your review of the previous assistant controller’s records, you notice some jobs were incomplete as of December 31 of the previous year. These jobs are contained in the Job Cost Records. You plan to complete most of these jobs in January and to accept new jobs from builders and contractors. You are responsible for the daily accounting operations, preparation of interim financial statements, and end-of-month adjusting and closings entries.
Bath Designs Inc. manufactures all products in a single production department. An individual job-order cost sheet is maintained for each job. The job-order cost sheet contains accumulated costs for each job, including actual direct materials, actual direct labor, and applied factory overhead.
Gross pay for direct labor is recorded by a debit to Work in Process. Salaries for all other factory personnel are recorded by a debit to Factory Overhead. Salaries of non-factory personnel are recorded at the end of each month by a debit to the appropriate salary expense accounts. Deductions for FICA tax at 7.65% of gross pay (this includes the Medicare Tax deduction) and employees’ income tax at 18% of gross pay are recorded whenever gross pay is recorded. All wages are paid on the last day of the month. All employer payroll taxes are recorded at the end of the month. Payroll taxes related to factory personnel are debited to Factory Overhead. Payroll taxes related to all other company personnel are debited to Payroll Taxes Expense—General.
Bath Designs Inc. maintains two materials accounts, one for Direct Materials and one for Indirect Materials and Factory Supplies.
Factory overhead is applied to each job based on 125% of direct labor cost for that job. Bath Designs Inc. maintains only one factory overhead account. Remember that debits to Factory Overhead represent actual overhead and credits to Factory Overhead represent applied overhead. Since the difference between actual factory overhead and applied factory overhead is insignificant, the over-applied or under-applied balance is closed out to Cost of Goods Sold as an adjusting entry at the end of each month.
Bath Designs Inc. marks up all work by 35% of the job cost. Refer to the individual Job Cost Record for the total cost of the job and multiply the total cost by 135% to determine the selling price for each job.
Since Bath Designs Inc. sells to builders and contractors, sales are exempt from state sales tax. All sales are on account and are subject to terms of 1/10, net 30 days, FOB shipping point.
Accounts Payable is used solely for the purchase of direct materials and indirect materials and factory supplies. All vendors except full payment within 30 days. Operating expenses, with the exception of any accrued salaries, payroll taxes, property taxes, and income taxes, are paid when incurred.
All cash received is deposited in the bank, and all payments are made by check.
When dealing with an accounts receivable or accounts payable item, be sure to record the company name in the General Ledger and post to Accounts Receivable or Accounts Payable Ledger.
It is January 1, and you are ready to assume your new responsibilities.
General Instructions
1. Journalize the entries for the month of January in the General Journal. When using the Work in Process account, be sure to post to the appropriate Job Cost Record.
1. Post the General Journal entries to the General Ledger, the Accounts Payable Ledger, and the Accounts Receivable Ledger.
2. Prepare Schedules of Accounts Receivable and Accounts Payable.
3. Prepare the Trial Balance section of the work sheet.
4. Complete the work sheet using the adjusting entries data for the Adjustment columns.
5. Prepare the following statements:
A. Income Statement
B. Retained Earnings Statement
C. Balance Sheet
6. Journalize and post the adjusting entries
7. Journalize and post the closing entries. (It is acknowledged that this step is not performed until year end; this is for instructional purposes only.)
8. Prepare a Post-Closing Trial Balance.
NARRATIVE OF TRANSACTIONS
Note: Certain transactions, such as those dealing with payroll, require detailed computational work before preparing the journal entry. These transactions are explained initially in the narrative as they occur. Please refer to the original transaction when preparing a subsequent similar transaction.
Jan. 2 Paid Berkeley Road Properties $3,600 for January rent. Of this amount, 30% is for office
Facilities and 70% is for factory facilities.
Jan. 2 Paid Pierce Advertising Agency $490 for preparing advertisements in local newspapers.
Jan. 3 Paid Liberty Wood Products Company $8413.12 in payment of December 31 balance.
Jan. 3 Received a check from Kian Corporation for the amount due within the discount period.
Jan. 4 Paid State National Bank $25,681.41 for December payroll taxes payable as follows:
Employee’s Income Tax Payable, $15,812.27; FICA Tax Payable, $9143.73; Federal
Unemployment Tax, $319.19; State Unemployment Tax, $406.22.
Jan. 4 Paid $7,423.36 for Income Tax Payable.
Jan. 4 Paid Ohio Plastics Company $10,714.00 in payment of the December 31 balance.
Jan. 4 Applied $3,624.00 of direct materials (requisition No. 670) and $8,120 of direct labor (time ticket No. 129) to Job No. 403, which will complete the job. The FICA rate is 7.65% of gross pay and the employees’ income tax rate is 18% of gross pay. When preparing the entry for applying direct labor, debit Work in Process for the gross pay, and credit Employees’ Income Tax Payable and FICA Tax Payable for the appropriate amounts and Salaries Payable for net pay.
Remember that employees are paid on the last day of each month.
Applied factory overhead to Job No. 403 is based upon 125% of direct labor cost.
Transferred the completed job to the finished goods account.
Jan. 5 Sold and shipped Job No. 403 to the appropriate customer. All sales are on account 1/10, net 30 days, FOB shipping point. Bath Designs Inc. marks up all work by 40% of the job cost (NOTE IN THE ORIGINAL INSTRUCTION SHEET IT SAYS BY 35%, SO NOT SURE WHICH TO USE). Refer to the individual Job Order Cost Sheet for the total cost of the job and multiply the total cost by 140% to determine the selling price for each job.
Bath Designs, Inc. maintains a perpetual inventory system. Each time a sale is made to a customer, you must debit Cost of Goods Sold and credit Finished Goods for the cost of the job.
Jan. 8 Requisitioned $1,241.27 of indirect materials and factory supplies to be used in the manufacture of all jobs currently in process. (Materials requisition No. 680)
Jan. 9 Paid Bob Davis, County Tax Collector, $6321.00 for property taxes accrued as of December 31.
Jan. 9 Purchased from Glory Container Corporation $2,243.26 of indirect factory supplies, credit terms net 15 days.
Jan. 9 Accepted a job for the manufacture of 17 closet units for Bloomingdale Engineering. The promise date is Feb. 14. Began the job today by applying $5,914.00 of direct materials to Job. No. 406. (Materials requisition No. 681.)
Jan. 10 Received a check from Tarara Design Corporation for the amount due within the discount period.
Jan. 11 Paid Rorick Hardware Inc. $9,100.00 in payment of the December 31 balance.
Jan. 11 Applied $1,327.14 of direct materials to Job. No. 402 (No. 682)
Jan. 12 Received a check from Ryan Sales Company for the amount due after the discount period has expired.
Jan. 15 Applied $2,214.06 of direct materials to Job No. 404 (No. 683)
Jan. 16 Purchased $503.00 of factory supplies from Samantha Supplies, Inc. and paid cash.
Jan. 16 Applied $3,216.50 of direct labor to Job. No. 405, which will complete the job. (Time ticket No. 130)
Applied factory overhead using the appropriate rate.
Transferred the completed job to the finished goods account.
Jan. 16 Sold four standard vanity units to a cash customer for $1,400. The cost of the goods shipped from finished goods inventory was $1,000.00.
Jan. 17 Requisitioned $614.50 of indirect materials and factory supplies to be used in all factory jobs currently in process (Materials requisition No. 684)
Jan. 17 Signed a contract with Elliana Interiors for the manufacture of 120 counter units. The promise date is Feb. 15. Began the job today by applying $4,220.00 of direct materials to Job. No. 407 (Materials requisition No.685)
Jan. 17 Paid the sales manager of Bath Designs Inc. $142.62 for customer entertaining.
Jan. 18 Received a report from the treasurer that Pickens Contractors, one of our customers, has declared bankruptcy. Wrote off the balance owed to Bath Designs Inc. by Pickens Contractors.
Jan. 18 Sold and shipped Job. No. 405 to the appropriate customer. Refer to that job’s Cost Record for the total cost of the job to determine the selling price.
Jan. 22 Purchased $10,232.16 of direct materials from Neola Supply Company, credit terms net 30 days.
Jan. 22 Accepted a job for the manufacture of 12 sauna units for Maplewood Designers. The promise date is Jan. 31. Began the job today by applying $2,468.10 of direct materials to Job No. 408 (Materials requisition No. 686)
Jan. 24 Paid Glory Container Corp. the amount due today from the Jan. 9 purchase.
Jan. 25 Applied $1,660 of direct labor to Job. No. 402, which will complete the job. (Time ticket No.131)
Applied factory overhead using the appropriate rate.
Transferred the completed job to the finished goods account.
Jan. 26 Sold and shipped Job No. 402 to the appropriate customer. Refer to that job’s Cost Record for the total cost of the job to determine the selling price.
Jan. 26 Ap0plied $3,640 of direct labor to Job. No. 408, which will complete the job. (time ticket No 132)
Applied factory overhead using the appropriate rate.
Transferred the completed job to the finished goods account.
Jan. 29 Sold and shipped Job No 408 to the appropriate customer. Refer to that job’s Cost Records for the total cost of the job for billing purposes.
Jan. 29 Paid Foley Tool Company amount due in payment of the Jan. 1 balance.
Jan. 29 Received a check from Powell Contractors Inc. for the amount due after the discount period has expired.
Jan. 29 Paid Post Office $500.00 for postage added to postage meter. Expense this amount.
Jan. 29 Paid Telephone Company $250.00 for Jan. phone service.
Jan. 29 Paid Owen Advertising Company $1,000.00 for designing ads for our new Internet website.
Jan. 29 Paid Allied Power and Light company $4,216.00 for heat, power, and light. Allocate 25% of this amount to Electricity Expense and 75% to Factory Overhead.
Jan. 31 Applied $1,000.00 of direct labor to Job 404 (time ticket No. 133)
Applied factory overhead using the appropriate rate. This job will not be completed until Feb.
Jan. 31 Applied $4,220.00 of direct labor to Job 407 (time ticket No. 134)
Applied factory overhead using the appropriate rate. This job will not be completed until March.
Jan. 31 Applied $1,160.00 of direct labor to Job 406 (time ticket No. 135)
Applied factory overhead using the appropriate rate. This job will not be completed until Feb.
Jan. 31 Received the following data on the monthly payroll from the payroll clerk:
Direct Labor (already recorded): $23,016.50
New payroll data (to be recorded):
Indirect $11,220.00
Superintendent’s Salary 3,100.00
Sales salaries 11,975.00
Officers’ salaries 7,140.00
Office salaries 6310.10
Record the monthly payroll in the general journal. Remember that direct labor payroll already has been recorded as it was incurred in Jan. Salaries for indirect labor are recorded only at the end of the month. Debit Factory Overhead for Indirect Labor and Superintendent’s salaries, debit other salary expense account for the appropriate amounts, credit FICA Tax Payable for 7.65% of gross pay, credit Employees’ Income Tax Payable for 18% of gross pay, and credit Salaries Payable for the net pay.
All payroll taxes relating to factory personnel are debited to Factory Overhead; all payroll taxes related to non-factory personnel are debited Payroll Taxes Expense – General. The FICA tax is 7.65% of gross pay, state unemployment. Tax is 5.4% of gross pay and federal unemployment. Tax is 0.8% of gross pay. Since this is the first month in the current year, no employee has reached the ceilings on the payroll taxes. Round the charge to Factory Overhead down to the next cent.
Jan. 31 Received a check from Seng Contractors for the amount due after the discount period has expired.
Jan. 31 Received a check from Ruth Builders for the amount due after the discount period has expired.
Jan. 31 Paid all employees for wages earned in Jan.
Jan. 31 Purchased $8,214.00 of direct materials on account from Rorick Hardware Inc.
(Take a trial balance at this point.) According to the book, the total for the debit and credit columns on the general journal BEFORE adjusting and closing entries are made should be $921,436.06. The total for adjusting entries is $18,635.08. Note: The figure for Factory Overhead and Cost of Goods Sold is rounded.
Adjusting Entries:
Jan. 31 Insurance expired during January:
Factory 1,314.00
Selling 61.25
General 268.80
Jan. 31 Office supplies inventory as of Jan. 31 is $1,650
Jan. 31 Depreciation for the month:
Factory equip 642.00
Office equip. 369.70
Jan. 31 Amortization of patents for Jan (debit Factory Overhead) 225.00
Jan. 31 Property tax accrued for the month:
Factory 485.00
General 137.26
Jan. 31 Close out under applied Factory Overhead of $1,427.24 to Cost of Goods Sold.
Jan. 31 Based on past experience, Bath Designs estimates that $7,900.00 is a reasonable balance for the Jan. 31 balance in the Allowance for Doubtful Accounts.
Jan. 31 Income tax is based on 40% of income before tax. Accrue income tax owed by debiting Income Tax Expense and crediting Income Tax Payable for $6,748.83.
(Prepare all reports at this point and print general ledger NOW)
Closing Entries:
Jan. 31 Prepare closing entries to close revenue and expense accounts to Income Summary, and transfer net income to Retained Earnings. (It is acknowledged that this step is not performed until year end; this is for instructional purposes only.) Prepare a Post-Closing Trial Balance.
Bath Designs Inc.
Trial Balance
January 1, 20—
Account Account Title Debit Credit
Number
$81, 412.27
110 Cash
111 Accounts Receivable 87,611.02
112 Allowance for Doubtful Accounts $3,367.00
121 Direct Materials 71,200.00
122 Indirect Materials and Factory Supplies 19,216.27
123 work in Process 130,584.50
124 Finished Goods 21,325.77
131 Prepaid Insurance 7,140.00
132 Office Supplies 1,900.00
161 Factory Equipment 251,944.33
162 Accumulated Depreciation-Factory Equipment 101,212.34
163 Office Equipment 62,943.22
164 Accumulated Depreciation- Office Equipment 21,336.20
171 Organization Costs 7,320.00
172 Patents 13,700.00
210 Accounts Payable 46,849.12
221 Employee’s Income Tax Payable 15,812.27
222 FICA Tax Payable 9,143.73
223 Federal Unemployment Tax Payable 319.19
224 State Unemployment Tax Payable 406.22
225 Property Tax Payable 6,321.00
226 Income Tax Payable 7,423.36
310 Common Stock ($10 Par) 375,000.00
311 Paid-In Capital in Excess of Par – Common Stock 55,000.00
312 Retained Earnings 114,106.95
Totals $ 756,297.38 756,297.95
Bath Designs Inc.
Schedule of Accounts Receivable
January 1, 20
Bright Interior Systems $13,275.44
Hughes Building Company 3,240.00
Kian Corporation 8,431.00
Pickens Contractors 2,173.00
Powell Contractors Inc. 22,941.61
Ruth Builder 19,713.00
Ryan Sales Company 7,214.97
Tarara Design Corpation 10,622.00
Total 87,611.02
Schedule of Accounts Pay
January 1, 20
Foley Tool Company $18,622.00
Liberty Wood Products Company 8,413.12
Ohio Plastics Company 10,714.00
Rorick Hardware Inc. 9,100.00
Total $46,849.12
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