1. What are the three components of the manufacturing account?

2. Explain the rationale behind the accounting for manufacturing profit.

3. In the accounting for unrealized profits, how are the realization concept and the cost applied?

Use this Tabular schedule as a guide for question 4 & 5.

4. The Shane Wame is manufacturing of cricket balls. These are transferred from the manufacturing to the trading department at a factory mark up of 20%. The closing stock for the first four years were $18,000, $12,000, $19,000, $19,000 and $16,000.

a. Calculate the unrealized profits for each year.

b. State the accounting entry for the change in provision for unrealized profits for each year.

c. Explain how the provision for the unrealized profits is treated in the balance sheet at the end of each year.

5. Fruta is a manufacturer of natural fruit juice. The finished goods are transferred to the trading department at mark up rate to be determined from year to year. Data for the first four year were as follows:

a. Calculate the unrealized profits for each year.

b. State the accounting entry for the change in provision for unrealized profits for each year.

Transcribed Image Text:

Years 1 2 3 4 Mark up Rate 15% 10% 20% 20% Stock of Finished Goods. 23,000 19,800 28,800 30,000 Years 1 2 3 4 Mark up Rate 15% 10% 20% 20% Stock of Finished Goods. 23,000 19,800 28,800 30,000

Answer rating: 100% (QA)

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