Question

During January 2020, the following transactions occurred:

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.

                        Direct Labor:                                        Hours            Dollars

                                    Job 870                                         150             $2,400

                                    Job 871                                         650               9,750

                                    Job 872                                       1200             16,200

                                    Job 873                                         400               6,200                  

                                    Job 874                                         350               5,950

                        Indirect labor                                                                 9,250

                        Marketing and administrative labor                            39,400

4. Manufacturing overhead was applied to jobs using the predetermined overhead rate. The predetermined overhead rate is $25 per direct-labor hour

5. Insurance on the company’s property was prepaid for the year, 2020, in December 2019. The amount paid in December was $30,000. Seventy percent (70%) of the insurance relates to the factory building and equipment, and 30 percent relates to marketing and administrative equipment. The amount is allocated equally over the 12 months in the year.

6. Depreciation on property, plant and equipment for January consisted of:

                                    Depreciation of factory building                                                        $12,000                                                          

                                    Depreciation of factory equipment                                      8,000

                                    Depreciation of marketing and administrative equipment   6,000

7. Cash was paid for the following costs:

                        Accounts payable for purchases of materials                               $59,800

                        Payroll payable for salaries and wages                                          93,500

                        Utilities on factory (has not been previously recorded)                 20,800

                        Other manufacturing costs (has not been previously recorded)       6,300

                        Advertising (has not been previously recorded)                            15,000

                        Other marketing and administrative costs (has not

                             been previously recorded)                                                         35,700

8. During January, the company completed Jobs 870, 871, and 873.

9. During January, the company sold the following jobs on account.

                                                                                                Total Sales Price of Jobs

                                    Job 868                                                         $ 62,400

                                    Job 869                                                            83,000

                                    Job 871                                                          128,000

                                    Job 873                                                            74,600

10. Collections of accounts receivable during January totaled $328,500.

11. Bond interest is paid semi-annually on June 30 and December 31. Interest on the bonds payable for the month of January was accrued on January 31. The bonds have a four percent (4%) annual interest rate, and the principal amount will be due on June 30, 2023.

12. Bad debt expense is estimated at one percent (1.00%) of sales and is recorded monthly

13. During January, the company wrote off $4,500 of uncollectible accounts.

14. Income taxes are paid in the month following the end of the quarter. The income taxes for October, November, and December 2019 were paid in January 2020.

15. Income taxes for January were accrued in January. Income taxes are 20 percent of income before taxes. The income taxes for January, February, and March 2020 will be paid in April 2020.

Requirements:

a. Prepare journal entries to record the January transactions.

Answer 1

3	DIRECT LABOR	…. DR	2400
	TO PAYROLL PAYABLE			2400
	(DIRECT LABOR ON JOB 870)
	DIRECT LABOR	…. DR	9750
	TO PAYROLL PAYABLE			9750
	(DIRECT LABOR ON JOB 871)
	DIRECT LABOR	…. DR	16200
	TO PAYROLL PAYABLE			16200
	(DIRECT LABOR ON JOB 872)
	DIRECT LABOR	…. DR	6200
	TO PAYROLL PAYABLE			6200
	(DIRECT LABOR ON JOB 873)
	DIRECT LABOR	…. DR	5950
	TO PAYROLL PAYABLE			5950
	(DIRECT LABOR ON JOB 874)
	INDIRECT LABOR	…. DR	9250
	TO PAYROLL PAYABLE			9250
	(INDIRECT LABOR OF JAN)
4	MARKETING & ADMINISTRATIVE LABOUR	…. DR	39400
	TO PAYROLL PAYABLE			39400
	MARKETING & ADMINISTRATIVE LABOUR OF JAN)
	MANUFACTURING OVERHEAD	…. DR	3750
	TO MANUFACTURING OVERHEAD PAYABLE		3750
	(MANUFACTURING OVERHEAD ON JOB 870)
	MANUFACTURING OVERHEAD	…. DR	16250
	TO MANUFACTURING OVERHEAD PAYABLE		16250
	(MANUFACTURING OVERHEAD ON JOB 871)
	MANUFACTURING OVERHEAD	…. DR	30000
	TO MANUFACTURING OVERHEAD PAYABLE		30000
	(MANUFACTURING OVERHEAD ON JOB 872)
	MANUFACTURING OVERHEAD	…. DR	10000
	TO MANUFACTURING OVERHEAD PAYABLE		10000
	(MANUFACTURING OVERHEAD ON JOB 873)
	MANUFACTURING OVERHEAD	…. DR	8750
	TO MANUFACTURING OVERHEAD PAYABLE		8750
	(MANUFACTURING OVERHEAD ON JOB 874)
5	INSURANCE EXPENSES	…. DR	2500
	TO PREPAID INSURANCE			2500
	(PREPAID INSURANCE OF JAN (1750 ON FACTORY BUILDING & EQUIPMENT & 750 ON MARKETING & DMINISTRTIVE EQUIPMENT)
6	DEPRECIATION	…. DR	26000
	TO FACTORY BUILDING			12000
	TO FACTORY EQUIPMENT			8000
	TO MARKETING & ADMINISTRATIVE EQUIPMENT		6000
	(BEING DEPRECIATION OF JAN)
7	ACCOUNTS PAYABLE	…. DR	59800
	PAYROLL PAYABLE	…. DR	93500
	UTILITIES EXPENSES	…. DR	20800
	OTHER MANUFACTURING EXPENSES	…. DR	6300
	ADVERTISING	…. DR	15000
	OTHER MARKETNG & ADMINISTRATIVE COSTS	…. DR	35700
	TO CASH			231100
	(BEING CASH EXPENSES OF JAN)
8	ACCOUNTS RECEIVABLE	…. DR	62400
	TO SALES			62400
	(JOB NO 868 SOLD)
	ACCOUNTS RECEIVABLE	…. DR	83000
	TO SALES			83000
	(JOB NO 869 SOLD)
	ACCOUNTS RECEIVABLE	…. DR	128000
	TO SALES			128000
	(JOB NO 871 SOLD)
	ACCOUNTS RECEIVABLE	…. DR	74600
	TO SALES			74600
	(JOB NO 873 SOLD)
10	CASH	…. DR	328500
	TO ACCOUNT RECEIVABLE			328500
	(BEING SALES COLLECTION OF JAN)
11	INTEREST ON BOND	…. DR	AMOUNT NOT MENTIONED
	TO BOND INTEREST PAYABLE			AMOUNT NOT MENTIONED
	( BEING INT @ 4% PA ACCRUE)
12	BAD DEBT EXPENSES	…. DR	3480
	TO PROVISION FOR BAD DEBTS			3480
	(BEING BAD DEBT 1% ON SALE OF 348000)
13	BAD DEBT EXPENSES	…. DR	4455
	PROVISION FOR BAD DEBTS	…. DR	45
	TO ACCOUNT RECEIVABLE			4500
	(BEING 4500 UNCOLLETIBLE WRITTEN OFF)
14	INCOME TAX PAYABLE	…. DR	AMOUNT NOT MENTIONED
	TO CASH
	(BEING INCOME TAX PAID FOR OCT, NOV & DEC)
15	INCOME TAX EXPENSES	…. DR	AMOUNT NOT MENTIONED
	TO INCOME TAX PAYABLE
	(INCOME TAX ACCRUED FOR JAN)