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Home / Questions / Cost Flows T-Accounts Income Statement Fantastic Props Inc designs and fabricates movie p...

Cost Flows T-Accounts Income Statement Fantastic Props Inc designs and fabricates movie props such as mock-ups of star-fighters and cybernetic robots The company’s balance sheet as of January

Cost Flows; T-Accounts; Income Statement

Fantastic Props, Inc., designs and fabricates movie props such as mock-ups of star-fighters and cybernetic robots. The company’s balance sheet as of January 1, the beginning of the current year, appears below:

 

 

 

 

 

 

 

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

$ 15,000

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories:

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

$ 25,000

 

40,000

Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30,000

 

 

Finished goods (props awaiting shipment) . . . . . . . .

45,000

 

100,000

Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

5,000

Total current assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

160,000

Buildings and equipment  . . . . . . . . . . . . . . . . . . . . . . . . .

500,000

 

 

Less accumulated depreciation . . . . . . . . . . . . . . . . . . . .

210,000

 

290,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

 

$450,000

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

$250,000

 

$ 75,000

Retained earnings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125,000

 

375,000

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . .

 

 

$450,000

 

Because each prop is a unique design and may require anything from a few hours to a month or more to complete, Fantastic Props uses a job-order costing system. Overhead in the fabrication shop is charged to props on the basis of direct labor cost. The company’s predetermined overhead rate for the year is based on a cost formula that estimated $80,000 in manufacturing overhead for an estimated allocation base of $100,000 direct labor dollars. The following transactions were recorded during the year:

a.       Raw materials, such as wood, paints, and metal sheeting, were purchased on account, $80,000.

b.       Raw materials were issued to production, $90,000; $5,000 of this amount was for indirect materials.

c.       Payroll costs incurred and paid: direct labor, $120,000; indirect labor, $30,000; and selling and administrative salaries, $75,000.

d.       Fabrication shop utilities costs incurred, $12,000.

e.       Depreciation recorded for the year, $30,000 ($5,000 on selling and administrative assets;

$25,000 on fabrication shop assets).

f.       Prepaid insurance expired, $4,800 ($4,000 related to fabrication shop operations, and $800 related to selling and administrative activities).

g.        Shipping expenses incurred, $40,000.

h.       Other manufacturing overhead costs incurred, $17,000 (credit Accounts Payable).

i.        Manufacturing overhead was applied to production. Overhead is applied on the basis of direct labor cost.

j.       Movie props that cost $310,000 to produce according to their job cost sheets were completed.

k.       Sales for the year totaled $450,000 and were all on account. The total cost to produce these movie props was $300,000 according to their job cost sheets.

l.        Collections on account from customers, $445,000.

m.     Payments on account to suppliers, $150,000.

Required:

1.       Prepare a T-account for each account on the company’s balance sheet, and enter the beginning balances.

 

 

2.       Make entries directly into the T-accounts for transactions (a) through (m). Create new T-accounts as needed. Determine an ending balance for each T-account.

3.       Was manufacturing overhead underapplied or overapplied for the year? Assume that the com- pany allocates any overhead balance between the Work in Process, Finished Goods, and Cost of Goods Sold accounts. Prepare a journal entry to show the allocation. (Round allocation percentages to one decimal place.)

4.       Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manu- factured; all of the information needed for the income statement is available in the T-accounts.)

Jun 28 2020 View more View Less

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