Question

The following data relate to the activities of Nana Company during the year:
1. Raw materials used to produce $100,000 (all direct materials).
2. Salaries costs incurred on account: direct labour $200,000 (40,000 hours); indirect labour
$60,000; selling and administrative $130,000.
3. Utilities cost incurred for the factory $40,000 on credit.
4. Advertising cost incurred for the year $50,000 on credit.
5. Depreciation recorded for the year $30,000, of which 60% related to the factory and 40%
related to selling and administrative activities.
6. Other factory overhead costs incurred for the year $40,000 on account.
7. Prepaid rent of $50,000 expired during the year; all of this is related to the factory.
8. The company applied overhead on the basis of direct labour-hours at $6.50 per hour.
9. The cost of goods manufactured for the year was $600,000.
10. Goods that cost $600,000 according to the job cost sheets were sold on account, cost is
two-third of the sales.

Required:
a) Prepare journal entries for the company. Write your entries with the numbers 1-10.
b) Is overhead underapplied or overapplied for the year? Prepare the closing entry which close
the balance to Cost of goods sold.

Answer 1

a)	Journal Entries
	Events	Particulars			Debit	Credit
	1)	WIP			$ 100,000.00
		To Raw Materials				$ 100,000.00
	2)	WIP			$ 200,000.00
		Factory OH			$   60,000.00
		Salaries Expense			$ 130,000.00
		To Factory Payroll Payable				$ 390,000.00
	3)	Factory OH			$   40,000.00
		To Utilities Bills Payable				$   40,000.00
	4)	Advertising Expense			$   50,000.00
		To Accounts Payable				$   50,000.00
	5)	Factory OH			$   18,000.00
		Depreciation Expense			$   12,000.00
		To Accumulated Depreciaton				$   30,000.00
	6)	Factory OH			$   40,000.00
		To Accounts Payable				$   40,000.00
	7)	Factory OH			$   50,000.00
		To Prepaid Rent				$   50,000.00
	8)	WIP			$ 260,000.00
		To Factory OH				$ 260,000.00
		($ 6.5 x 40000 hours)
	9)	Finished Goods			$ 600,000.00
		To WIP				$ 600,000.00
	10)	Accounts Receivable			$ 600,000.00
		To Sales				$ 600,000.00
		Cost of Goods sold			$ 400,000.00
		To Finished Goods				$ 400,000.00
		($ 600000 x 2/3)

b)	Actual OH incurred			$ 208,000.00
	OH applied			$ 260,000.00
	Overapplied OH			$   52,000.00

Closing Entry
Particulars			Debit	Credit
Factory OH			$ 52,000.00
To Cost of Goods sold				$ 52,000.00