Question

The transactions in this practice set were completed by Hydro Paddle Boards, Inc. during January, the first month of the company’s fiscal year. Hydro Paddle Boards, Inc. is a manufacturing corporation that designs and manufactures a limited variety of custom stand-up paddle (SUP) boards. The SUP boards vary in size and performance, including beginner, intermediate, advanced, competition, and racing boards. Hydro Paddle Boards, Inc. maintains a job-order cost system. You have accepted a position with Hydro Paddle Boards, Inc. as an assistant controller, and you will begin your duties on January 1 of the current year. In your review of the previous assistant controller’s records, you notice some jobs were incomplete as of December 31 of the previous year. These jobs are contained in the Job Cost Records. You plan to complete most of these jobs in January and to accept new jobs from dealers and other builders. You are responsible for the daily accounting operations, preparation of interim financial statements, and end-of-month adjusting and closing entries. Hydro Paddle Boards, Inc. manufactures all products in a single production department. An individual job-order cost sheet is maintained for each job. The job-order cost sheet contains accumulated costs for each job, including actual direct materials, actual direct labor, and applied factory overhead. Gross pay for direct labor is recorded by a debit to Work in Process. Salaries for all other factory personnel are recorded by a debit to Factory Overhead. Salaries of nonfactory personnel are recorded at the end of each month by a debit to the appropriate salary expense accounts. Deductions for employees’ FICA and federal income taxes are recorded whenever gross pay is recorded, using the simplified rates of 8% (for FICA, including Medicare) and 15% (for federal income tax). All wages are paid on the last day of the month. All employer payroll taxes are recorded at the end of the month. Payroll taxes related to factory personnel are debited to Factory Overhead. Payroll taxes related to all other company personnel are debited to Payroll Taxes Expense—General. Hydro Paddle Boards, Inc. maintains two materials accounts, one for Direct Materials and one for Indirect Materials and Factory Supplies. Factory overhead is applied to each job based on 130% of direct labor cost for that job(was 125% in Dec). Hydro Paddle Boards, Inc. maintains only one factory overhead account. Remember that debits to Factory Overhead represent actual overhead and credits to Factory Overhead represent applied overhead. Since the difference between actual factory overhead and applied factory overhead is insignificant, the overapplied or underapplied balance is closed out to Cost of Goods Sold as an adjusting entry at the end of each month. Hydro Paddle Boards, Inc. marks up all work by 40% of the job cost. Refer to the individual Job Cost Record for the total cost of the job, and multiply the total cost by 140% to determine the selling price for each job. Since Hydro Paddle Boards, Inc. sells to dealers, sales are exempt from state sales tax. All sales are on account and are subject to terms of 2/10, net 30 days, FOB shipping point. Sales to credit customers expected to take the discount are recorded at the discounted amount. Sales to credit customers who do not normally pay within the discount period are recorded at the gross amount. Since Hydro Paddle Boards, Inc. sells by custom order, it does not accept returns of merchandise. Accounts Payable is used solely for the purchase of direct materials and indirect materials and factory supplies. All vendors expect full payment within 30 days. Operating expenses, with the exception of any accrued salaries, payroll taxes, property taxes, and income taxes, are paid when incurred. All cash received is deposited in the bank, and all payments are made by check. When dealing with an accounts receivable or accounts payable item, be sure to record the company name in the General Journal and post to the Accounts Receivable Ledger or Accounts Payable Ledger. It is January 1, and you are ready to assume your new responsibilities. Good luck!

Answer 1