Almeda Products, Inc. uses a job-order costing system. The company’s inventory balances on April 1, the start of its fiscal year, were as follows:

Raw materials...........................................$52,000
Work in process..........................................40,000
Finished goods............................................38,000

During the year, the following transactions were completed:

a. Raw materials were purchased on account, $170,000.

b. Raw materials were issued from the storeroom for use in production, $200,000 (80% direct and 20% indirect).

c. Employee salaries and wages were accrued as follows: direct labour, $200,000; indirect labour, $82,000; selling and administrative salaries, $120,000.

d. Utility costs were incurred in the factory, $75,000.

e. Advertising costs were incurred, $90,000.

f. Prepaid insurance expired during the year, $20,000 (70% related to factory operations, and 30% related to selling and administrative activities).

g. Depreciation was recorded, $150,000 (80% related to factory assets, and 20% related to selling and administrative assets).

h. Manufacturing overhead was applied to jobs at the rate of 160% of direct labour cost.

i. Goods that cost $700,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

j. Sales for the year totalled $1,000,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $720,000.

Required:

1. Prepare journal entries to record the transactions for the year.

2. Prepare T-accounts for raw materials, work in process, finished goods, manufacturing overhead, and cost of goods sold. Post the appropriate parts of your journal entries to these T-accounts. Compute the ending balance in each account. (Do not forget to enter the beginning balances in the inventory accounts.)

3. Is manufacturing overhead underapplied or overapplied for the year? Prepare a journal entry to close this balance to cost of goods sold.

4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)