Bergamo Bay's computer system generated the following trial balance on December 31, 2017. The company's manager knows something is wrong with the trial balance because it does not show any balance for Work in Process Inventory but does show a balance for the Factory Overhead account. In addition, the accrued factory payroll (Factory Wages Payable) has not been recorded. After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.
Materials requisition 21-3010: $10,200 direct materials to Job 402
Materials requisition 21-3011: $18,600 direct materials to Job 404
Materials requisition 21-3012: $5,600 indirect materials
Labor time ticket 6052: $36,000 direct labor to Job 402
Labor time ticket 6053: $23,800 direct labor to Job 404
Labor time ticket 6054: $8,200 indirect labor
Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 200% of direct labor cost.
Required
1. Use information on the six source documents to prepare journal entries to assign the following costs.
a. Direct materials costs to Work in Process Inventory.
b. Direct labor costs to Work in Process Inventory.
c. Overhead costs to Work in Process Inventory.
d. Indirect materials costs to the Factory Overhead account.
e. Indirect labor costs to the Factory Overhead account.
2. Determine the revised balance of the Factory Overhead account after making the entries in part 1. Determine whether there is any under- or overapplied overhead for the year. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material.
3. Prepare a revised trial balance.
4. Prepare an income statement for 2017 and a balance sheet as of December 31, 2017.
Analysis Component
5. Assume that the $5,600 on materials requisition 21-3012 should have been direct materials charged to Job 404. Without providing specific calculations, describe the impact of this error on the income statement for 2017 and the balance sheet at December 31, 2017.

Question Completion:

Trial Balance as at December 31, 2017:

Debit Credit  

Cash $170,000

Accounts receivable 75,000

Raw materials inventory 80,000

Work in process inventory 0

Finished goods inventory 15,000

Prepaid rent 3,000

Accounts payable 17,000

Notes payable 25,000

Common stock 50,000

Retained earnings 271,000

Sales 373,000

Cost of goods sold 218,000

Factory overhead 115,000

Operating expenses 60,000

Totals   $736,000 $736,000

Bergamo Bay

1. Journal Entries to assign the following costs:

a. Direct materials costs to Work in Process Inventory.

Debit Work in Process $10,200

Credit Raw materials $10,200

To record direct materials for Job 402.

Debit Work in Process $18,600

Credit Raw materials $18,600

To record direct materials for Job 404.

b. Direct labor costs to Work in Process Inventory.

Debit Work in Process $36,000

Credit Factory Payroll Payable $36,000

To record ticket 6052 direct labor to Job 402.

Debit Work in Process $23,800

Credit Factory Payroll Payable $23,800

To record ticket 6053 direct labor to Job 404.

c. Overhead costs to Work in Process Inventory.

Debit Work in Process $119,600

Credit Factory Overhead $119,600

To apply overhead costs, 200% of direct labor cost to WIP.

d. Indirect materials costs to the Factory Overhead account.

Debit Factory Overhead $5,600

Credit Raw materials $5,600

To record indirect materials to factory overhead.

e. Indirect labor costs to the Factory Overhead account.

Debit Factory Overhead $8,200

Credit Factory Payroll Payable $8,200

To record indirect labor costs to factory overhead.

2. Revised balance of the Factory Overhead account after above entries:

= $9,200

Underapplied overhead = $9,200

Adjusting Journal Entry to Cost of Goods Sold:

Debit Cost of Goods Sold $9,200

Credit Factory Overhead $9,200

To record underapplied overhead to cost of goods sold.

3. Revised Balance as at December 31, 2017:

                                            Debit           Credit  

Cash                                  $170,000

Accounts receivable            75,000

Raw materials inventory     45,600

Work in process inventory   0

Finished goods inventory 223,200

Prepaid rent                           3,000

Accounts payable                                 $17,000

Factory payroll payable                         65,400

Notes payable                                       25,000

Common stock                                     50,000

Retained earnings                               271,000

Sales                                                    373,000

Cost of goods sold        227,200

Factory overhead            0

Operating expenses       60,000

Totals                           $804,000    $801,400

4. Income Statement for the year ended December 31, 2017

Sales                                                    373,000

Cost of goods sold        227,200

Operating expenses       60,000       287,200

Net Income                                           85,800

Retained Earnings    271,000

Net income                85,800

Retained earnings  356,800

Balance Sheet as of December 31, 2017:

Cash                                  $170,000

Accounts receivable            75,000

Raw materials inventory     45,600

Work in process inventory   0

Finished goods inventory 223,200

Prepaid rent                           3,000      $516,800

Accounts payable                  $17,000

Factory payroll payable          65,400

Notes payable                        25,000

Total liabilities                                         107,400

Common stock                       50,000

Retained earnings                356,800 406,800

Total Liabilities and equity                   514,200

5. Assume that the $5,600 on materials requisition 21-3012 should have been direct materials charged to Job 404. Without providing specific calculations, describe the impact of this error on the income statement for 2017 and the balance sheet at December 31, 2017

If the $5,600 were direct materials instead of indirect materials, it would not be expensed in the income statement, through Cost of Goods Sold.  Instead, it would be carried forward as Finished Goods Inventory in the Balance Sheet.

Explanation:

a) Data and Calculations:

Trial Balance as at December 31, 2017:

                                            Debit           Credit  

Cash                                  $170,000

Accounts receivable            75,000

Raw materials inventory     80,000

Work in process inventory   0

Finished goods inventory   15,000

Prepaid rent                          3,000

Accounts payable                                 $17,000

Notes payable                                       25,000

Common stock                                     50,000

Retained earnings                               271,000

Sales                                                    373,000

Cost of goods sold        218,000

Factory overhead           115,000

Operating expenses       60,000

Totals                           $736,000    $736,000

Raw materials inventory

Account Titles          Debit       Credit

Balance                80,000

Work in Process (Job 402)   10,200

Work in Process (Job 404)   18,600

Factory overhead                  5,600

Balance                                45,600

Work in process inventory

Account Titles          Debit       Credit

Balance                    0

Raw materials      10,200

Raw materials      18,600

Factory payroll    36,000

Factory payroll    23,800

Overhead           119,600

Finished Goods                 208,200

Finished goods inventory

Account Titles          Debit       Credit

Balance                  15,000

WIP                     208,200

Balance                                     223,200

Factory Payroll Payable

Account Titles         Debit       Credit

WIP ticket 6052                   36,000

WIP ticket 6053                   23,800

Factory overhead                  5,600

Balance                65,400

Cost of goods sold

Account Titles          Debit       Credit

Balance                  218,000

Factory overhead     9,200

Balance                                  227,200

Factory overhead

Account Titles          Debit       Credit

Balance                 115,000

Raw materials         5,600

Payroll Payable       8,200

Work in Process                    119,600

Underapplied:Cost of goods  9,200

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