Problem $3-16($Algo$)$ Comprehensive Problem $[$LO$3-1,$ LO$3-2,$ LO$3-4]$

Gold Nest Company of Guandong, China, makes birdcages for the South China market. The company sells its birdcages through an

extensive network of street vendors who receive commissions on their sales.

The company uses a job$-$order costing system that applies overhead to jobs based on direct labor cost. Its predetermined overhead

rate is based on a cost formula that estimated $$60,000$ of manufacturing overhead for an estimated activity level of $$40,000$ direct

labor dollars. The beginning inventory balances were as follows:

During the year, the following transactions were completed:

a$.$ Raw materials purchased on account, $$163,000.$

b$.$ Raw materials used in production, $$147,000($materials costing $$128,000$ were charged directly to jobs; the remaining materials were

indirect$).$

c$.$ Employee expenses incurred $($credit Salaries and wages payable$)$:

d$.$ Rent for the year was $$18,700($ $$13,600$ related to factory operations, and the remainder related to selling and administrative

activities$).$

e$.$ Utility costs incurred in the factory, $$16,000.$

f$.$ Advertising costs incurred, $$12,000.$

g$.$ Depreciation on equipment, $$21,000($ $$15,000$ related to equipment used in factory operations; the remaining $$6,000$ related to

equipment used in selling and administrative activities$).$

h$.$ Manufacturing overhead cost applied to jobs, $$?$

i$.$ Completed goods cost $$225,000$ to manufacture.

j$.$ Sales for the year $($all paid in cash$)$ totaled $$500,000.$ The manufacturing cost of these goods was $$217,000.$

Required:

Prepare journal entries to record the transactions for the year.

Prepare T$-$accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your

journal entries to these T$-$accounts $($don$\text{'}$t forget to enter the beginning balances in your inventory accounts$).$

$3$A$.$ Is Manufacturing Overhead underapplied or overapplied?

$3$B$.$ Prepare a journal entry to close Manufacturing Overhead to Cost of Goods Sold.

Prepare an income statement. All of the information needed for the income statement is available in the journal entries and T$-$

accounts you have prepared.

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