King's Brew is a small business that manufactures equipment for the brewing industry. The company's current...

 

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King's Brew is a small business that manufactures equipment for the brewing industry. The company's current fiscal year (FY2020) ends on December 31, 2020. The company uses a normal job cost system to account for its production operations with a predetermined overhead rate based on direct labor hours. For FY2020, the predetermined overhead rate is $32 per direct-labor hour. The company prepares monthly financial statements and shows any over or under applied overhead as an adjustment to inventories on the statement of financial position. The statement of financial position at August 31, 2020, is as follows: King's Brew Statement of Financial Position August 31, 2020 Assets Current Assets: Cash and cash equivalents Accounts receivable S 40,100 $21,625 (2.300) 19,325 Less: Allowance for uncollectible accounts Inventories: Direct and indirect materials Work-in-process* Finished goods** Plus: Underapplied manufacturing overhead 19,550 56,875 40,250 3.200 119,875 9,000 188.300 Prepaid insurance on property Total current assets Property, Plant and Equipment: Land Factory building Less: Accumulated depreciation-factory building Factory equipment Less: Accumulated depreciation-factory equipment Marketing and administration equipment Less: Accumulated depreciation-marketing and Administration equipment Total property, plant and equipment Total assets 120,000 S600,000 (225.000) 375,000 1,050,000 (600,000) 450,000 255,000 (150,000) 105,000 1.050.000 SL.238.300 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Payroll payable Bond interest payable Income taxes payable Total current liabilities $ 21,000 15,650 7,500 8.950 53,100 Non-current liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock 450,000 503,100 Retained carnings Total liabilities and stockholders' equity S600,000 135,200 735,200 $1.238.300 Page 2 *The August 31 work-in-process inventory consisted of four jobs with the following costs: Job 173 $4,700 2,500 4,375 SILS75 Job 170 S12,000 Job 172 $4,250 2,250 3.500 SI0.000 Job 171 Direct materials $7,500 Direct labor 3,200 2,800 Applied overhead Total 5,600 S20.800 4.200 $14.500 **The August 31 finished goods inventory consisted of Job 167 with a cost of $21,050 and Job 168 with a cost of $19.200. The income statement for the month of August is as follows: King's Brew Income Statement For the Month Ended August 31, 2020 Sales Revenue $180,000 106,000 74,000 Less: Cost of goods sold Gross margin Marketing and administrative expenses Bad debt expense Operating income Interest expense Income before income taxes $52,650 900 53.550 20,450 L.500 18,950 3,790 S 15.160 Income tax expense Net income During September 2020, the following transactions occurred: 1. Direct and indirect materials costing $37,150 were purchased on account. 2. Materials costing the following were transferred to production during August. Job 172 Job 173 $11,000 9,650 8,800 3,400 Job 174 Indirect materials 3. Labor was incurred as follows. All labor costs are recorded as Payroll Payable initially, and the liability is reduced when the cash payment is made. Hours 55 215 Direct Labor: Job 170 Dollars $990 Job 171 Job 172 Job 173 Job 174 Indirect labor 3,440 7,800 3,800 1,890 5,150 22,250 390 255 105 Marketing and administrative labor 4. Manufacturing overhead was applied to jobs using the predetermined overhead rate. 5. Insurance on the company's property was prepaid for the year, 2020, in December 2019. The amount paid in December was $27,000. Sixty percent (60%) of the insurance relates to the factory building and equipment, and 40 percent relates to marketing and administrative cquipment. The amount is allocated equally over the 12 months in the year. Page 3 6. Depreciation on property, plant and equipment for September consisted of: Depreciation of factory building Depreciation of factory equipment Depreciation of marketing and administrative equipment $5,000 3,000 2,250 7. Cash was paid for the following costs: Accounts payable for purchases of materials Payroll payable for salaries and wages Utilities on factory (has not been previously recorded) Other manufacturing costs (has not been previously recorded) Advertising (has not been previously recorded) Other marketing and administrative costs (has not been previously recorded) $39,450 49,150 8,250 2,250 7,500 21,400 8. During September, the company completed Jobs 170, 171, 172, and 173. 9. During September, the company sold the following jobs on account. Total Sales Price of Jobs S 35,400 32,500 38,400 61,700 Job 167 Job 168 Job 170 Job 173 10. Collections of accounts receivable during September totaled S162,500. I1. Interest on the bonds payable for the month of September was accrued on September 30. The bonds have a four percent (4%) annual interest rate, and the principal amount will be due on September 30, 2022. 12. Bond interest is paid semi-annually on March 31" and September 30". 13. Bad debt expense is estimated at one-half of one percent (0.5%) of sales and is recorded monthly. 14. During September, the company wrote off S1,425 of uncollectible accounts. 15. Income taxes for September were accrued in September. Income taxes are 20 percent of income before taxes. 16. The taxes for each quarter are paid in the month following the end of the quarter, i.e., income taxes for July, August, and September 2020 are paid in October 2020. Requirements: a. Prepare journal entries to record the September transactions. b. Prepare an income statement for the month ended September 30, 2020. c. Prepare a statement of financial position as of September 30, 2020. Jourmal entries must show complete account titles and be prepared in general journal format showing debit and credit amounts in separate columns. Journal entries should not be broken down by job as these individual amounts are accounted for in subsidiary ledgers called job order cost sheets. Financial statements must include correct statement headings and be prepared in good format. Please prepare your financial statements using a computer application (excel, word, etc.) Calculations should be submitted to King's Brew is a small business that manufactures equipment for the brewing industry. The company's current fiscal year (FY2020) ends on December 31, 2020. The company uses a normal job cost system to account for its production operations with a predetermined overhead rate based on direct labor hours. For FY2020, the predetermined overhead rate is $32 per direct-labor hour. The company prepares monthly financial statements and shows any over or under applied overhead as an adjustment to inventories on the statement of financial position. The statement of financial position at August 31, 2020, is as follows: King's Brew Statement of Financial Position August 31, 2020 Assets Current Assets: Cash and cash equivalents Accounts receivable S 40,100 $21,625 (2.300) 19,325 Less: Allowance for uncollectible accounts Inventories: Direct and indirect materials Work-in-process* Finished goods** Plus: Underapplied manufacturing overhead 19,550 56,875 40,250 3.200 119,875 9,000 188.300 Prepaid insurance on property Total current assets Property, Plant and Equipment: Land Factory building Less: Accumulated depreciation-factory building Factory equipment Less: Accumulated depreciation-factory equipment Marketing and administration equipment Less: Accumulated depreciation-marketing and Administration equipment Total property, plant and equipment Total assets 120,000 S600,000 (225.000) 375,000 1,050,000 (600,000) 450,000 255,000 (150,000) 105,000 1.050.000 SL.238.300 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Payroll payable Bond interest payable Income taxes payable Total current liabilities $ 21,000 15,650 7,500 8.950 53,100 Non-current liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock 450,000 503,100 Retained carnings Total liabilities and stockholders' equity S600,000 135,200 735,200 $1.238.300 Page 2 *The August 31 work-in-process inventory consisted of four jobs with the following costs: Job 173 $4,700 2,500 4,375 SILS75 Job 170 S12,000 Job 172 $4,250 2,250 3.500 SI0.000 Job 171 Direct materials $7,500 Direct labor 3,200 2,800 Applied overhead Total 5,600 S20.800 4.200 $14.500 **The August 31 finished goods inventory consisted of Job 167 with a cost of $21,050 and Job 168 with a cost of $19.200. The income statement for the month of August is as follows: King's Brew Income Statement For the Month Ended August 31, 2020 Sales Revenue $180,000 106,000 74,000 Less: Cost of goods sold Gross margin Marketing and administrative expenses Bad debt expense Operating income Interest expense Income before income taxes $52,650 900 53.550 20,450 L.500 18,950 3,790 S 15.160 Income tax expense Net income During September 2020, the following transactions occurred: 1. Direct and indirect materials costing $37,150 were purchased on account. 2. Materials costing the following were transferred to production during August. Job 172 Job 173 $11,000 9,650 8,800 3,400 Job 174 Indirect materials 3. Labor was incurred as follows. All labor costs are recorded as Payroll Payable initially, and the liability is reduced when the cash payment is made. Hours 55 215 Direct Labor: Job 170 Dollars $990 Job 171 Job 172 Job 173 Job 174 Indirect labor 3,440 7,800 3,800 1,890 5,150 22,250 390 255 105 Marketing and administrative labor 4. Manufacturing overhead was applied to jobs using the predetermined overhead rate. 5. Insurance on the company's property was prepaid for the year, 2020, in December 2019. The amount paid in December was $27,000. Sixty percent (60%) of the insurance relates to the factory building and equipment, and 40 percent relates to marketing and administrative cquipment. The amount is allocated equally over the 12 months in the year. Page 3 6. Depreciation on property, plant and equipment for September consisted of: Depreciation of factory building Depreciation of factory equipment Depreciation of marketing and administrative equipment $5,000 3,000 2,250 7. Cash was paid for the following costs: Accounts payable for purchases of materials Payroll payable for salaries and wages Utilities on factory (has not been previously recorded) Other manufacturing costs (has not been previously recorded) Advertising (has not been previously recorded) Other marketing and administrative costs (has not been previously recorded) $39,450 49,150 8,250 2,250 7,500 21,400 8. During September, the company completed Jobs 170, 171, 172, and 173. 9. During September, the company sold the following jobs on account. Total Sales Price of Jobs S 35,400 32,500 38,400 61,700 Job 167 Job 168 Job 170 Job 173 10. Collections of accounts receivable during September totaled S162,500. I1. Interest on the bonds payable for the month of September was accrued on September 30. The bonds have a four percent (4%) annual interest rate, and the principal amount will be due on September 30, 2022. 12. Bond interest is paid semi-annually on March 31" and September 30". 13. Bad debt expense is estimated at one-half of one percent (0.5%) of sales and is recorded monthly. 14. During September, the company wrote off S1,425 of uncollectible accounts. 15. Income taxes for September were accrued in September. Income taxes are 20 percent of income before taxes. 16. The taxes for each quarter are paid in the month following the end of the quarter, i.e., income taxes for July, August, and September 2020 are paid in October 2020. Requirements: a. Prepare journal entries to record the September transactions. b. Prepare an income statement for the month ended September 30, 2020. c. Prepare a statement of financial position as of September 30, 2020. Jourmal entries must show complete account titles and be prepared in general journal format showing debit and credit amounts in separate columns. Journal entries should not be broken down by job as these individual amounts are accounted for in subsidiary ledgers called job order cost sheets. Financial statements must include correct statement headings and be prepared in good format. Please prepare your financial statements using a computer application (excel, word, etc.) Calculations should be submitted to

Answer rating: 100% (QA)

1 Journal entries Rawmeterial ac Dr 37150 To Accounts payableac 37150 Beeing rawmaterial purchased on credit Work in progress ac Dr 29450 Factory overhead ac Dr 3400 To rawmaterial ac 32850 Beeing Dir... View the full answer