PROBLEM $3$A$-4$ Transaction Analysis LO$3-5$

Morrison Company uses a job$-$order costing system to assign manufacturing costs to jobs.

Its balance sheet on January $1$ is as follows:

Morrison Company

Balance Sheet

January $1$

Assets

$$32,000$

Raw materials

Work in process

Finished goods

Liabilities and Stockholders' Equity

Accounts payable

Retained earnings

Prepaid expenses

Property, plant, and equipment $($net$)$

Total assets

Total liabilities and stockholders' equity

During January the company completed the following transactions:

a$.$ Purchased raw materials on account, $$74,000.$

b$.$ Raw materials used in production, $$77,000($ $$67,000$ was direct materials and $$10,000$ was

indirect materials$).$

c$.$ Paid $$167,000$ of salaries and wages in cash was direct labor, $$35,000$ was indirect

labor, and $$37,000$ was related to employees responsible for selling and administration$).$

d$.$ Various manufacturing overhead costs incurred $($on account$)$ to support production, $$33,000.$

e$.$ Depreciation recorded on property, plant, and equipment, related to manufac$-$

turing equipment and $30\%$ related to assets that support selling and administration$).$

f$.$ Various selling expenses paid in cash, $$27,000.$

g$.$ Prepaid insurance expired during the month, $$1,200(80\%$ related to production, and $20\%$

related to selling and administration$).$

h$.$ Manufacturing overhead applied to production, $$132,000.$

i$.$ Cost of goods manufactured, $$288,000.$

j$.$ Cash sales to customers, $$395,000.$

k$.$ Cost of goods sold $($unadjusted$),$ $$285,000.$

Cash payments to creditors, $$62,000.$

m$.$ Underapplied or overapplied overhead $

Required:

Calculate the ending balances that would be reported on the company's balance sheet on

January $31.$ You can derive your answers using Microsoft Excel and Exhibit $3$A$-2$ as

your guide, or you can use paper, pencil, and a calculator. $($Hint: Be sure to calculate

the underapplied or overapplied overhead and then account for its affect on the balance sheet.$)$

What is Morrison Company's net operating income for the month of January?