Question

Bergamo Bay's computer system generated the following trial balance on December 31, 2019. The company’s manager...

Bergamo Bay's computer system generated the following trial balance on December 31, 2019. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Work in Process Inventory but does show a balance for the Factory Overhead account. In addition, the accrued factory payroll (Factory Wages Payable) has not been recorded.

Debit Credit
Cash $ 80,000
Accounts receivable 49,000
Raw materials inventory 29,500
Work in process inventory 0
Finished goods inventory 15,000
Prepaid rent 5,000
Accounts payable $ 8,700
Notes payable 11,700
Common stock 50,000
Retained earnings 77,000
Sales 202,100
Cost of goods sold 105,000
Factory overhead 28,000
Operating expenses 38,000
Totals $ 349,500 $ 349,500


After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

Materials requisition 21-3010: $ 4,700 direct materials to Job 402
Materials requisition 21-3011: $ 7,900 direct materials to Job 404
Materials requisition 21-3012: $ 1,700 indirect materials
Labor time ticket 6052: $ 4,000 direct labor to Job 402
Labor time ticket 6053: $ 16,000 direct labor to Job 404
Labor time ticket 6054: $ 5,000 indirect labor


Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 100% of direct labor cost.

2-a. Post any entries from part 1 related to factory overhead to the T-account below to determine the amount of under- or overapplied overhead for the year. Determine whether there is any under- or overapplied overhead for the year.
2-b. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material.

Homework Answers

Answer #1
Factory Overheads
Beginning balance 28000 Work in process inventory 20,000
Raw material Inventory 1700 (4000+16000)*100%
Factory wages payable 5000
Ending balance 14,700
As the factory overheads account is having a debit balance of $14,700.
Therefore,
It is Under-applied overheads equal to $14,700.
Journal entry
S.no. Accounts title and explanations Debit $ Credit $
a. Cost of goods sold 14,700
      Factory overheads 14,700
(for closing under-applied overheads)
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