Solution manual fundamentals of accounting by cabrera chapter 14

Chapter 14
Basic Accounting for
Manufacturing Operations

Exercises
Exercise 1
Southern Manufacturing Corporation
Statement of Cost of Goods Manufactured
For the Year Ended June 30, 2008
Raw materials used
Raw materials inventory, July 1, 2007
Add: Purchases
Add (Deduct)
Freight in
Purchase returns & allowances
Purchase discount
Net purchases
Raw materials available for use
Less: Raw materials inventory, June 30, 2008
Raw materials used
Direct labor
Factory overhead
Indirect labor
Factory – rent expense
Depreciation – machinery and equipment
Superintendence
Indirect materials
Factory supplies used
Machinery – repairs and maintenance
Amortization of patents
Factory insurance expense

Total manufacturing costs for the period

P400,000
P1,300,000
28,000
(78,000)
(18,000)
1,232,000
P1,632,000
340,000
P1,292,000
640,000
P 164,000
120,000
100,000
96,000
80,000
74,400
70,000
40,000
14,400

758,800
P2,690,800


2

Chapter 14

Exercise 2
Requirement (1)
Cookie Factory
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 2008
Raw materials used
Raw materials inventory, January 1
Add: Raw materials purchases
Add (Deduct)
Purchase returns & allowances
Purchase discounts
Transportation-in
Net purchases
Raw materials available for use
Less: Raw materials inventory, December 31
Raw materials used
Direct labor
Factory overhead
Indirect materials
Indirect labor
Depreciation – factory building
Factory supervisor
Machine maintenance
Factory supplies expense
Freight and power
Expired factory insurance
Total manufacturing costs
Add: Work in process inventory, January 1, 2008
Total cost of goods placed in process
Less: Work in process inventory, December 31, 2008

Cost of Goods Manufactured

P 720,000
2,200,000
(66,000)
(24,600)
30,000
2,139,400
P2,859,400
540,000
P2,319,400
1,020,000
P 360,000
130,000
100,000
96,000
82,000
58,000
26,000
12,000
P4,203,400
860,000
P5,063,400
840,000
P4,223,400


Basic Accounting for Manufacturing Operations

3

Requirement (2)
Cookie Factory
Statement of Income
For the Year Ended December 31, 2008
Sales
Less:

Sales Returns and Allowances
Sales Discounts
Net Sales
Less: Cost of Sales
Cost of Goods Manufactured
Add: Finished Goods Inventory, January 1
Total Available for Sale
Less: Finished Goods Inventory, December 31
Cost of Goods Sold
Gross Profit
Less: Operating Expenses
Selling Expenses
Sales Commission
Advertising Expense
Transportation Cost
Depreciation – Store Fixtures
Store Supplies Expense
Total
Administrative Expenses
Office Salaries
Depreciation Office Furniture
Bad Debts Expense

Office Supplies Used
Total
Total Operating Expenses
Net Operating Income
Add (Deduct) Other Income (Expenses)
Rent Income
Interest Income
Interest Expense
Net Income

P5,928,000
P 86,000
58,400

144,400
P5,783,600
P4,223,400
900,000
5,123,400
960,000
P4,163,400
P1,620,200

P592,800
62,000
52,000
24,000
16,800
747,600
P368,000

36,000
32,000
14,000
450,000
1,197,600
P 422,600

P

19,200
4,000
(11,200)
12,000
434,600


4

Chapter 14

Requirement (3)
A Balance Sheet Statement cannot be prepared for lack of information.
Requirement (4)
Closing Entries, December 31, 2008
(1) Cost of Goods Manufactured
P4,223,400
Raw Materials Inventory, December 31
540,000
Work in Process Inventory, December 31
840,000

Raw Materials Purchase Returns and Allowances
66,000
Raw Materials Purchase Discount
24,600
Raw Materials Inventory, January 1
720,000
Work in Process Inventory, January 1
860,000
Raw Materials Purchases
2,200,000
Transportation In
30,000
Direct Labor
1,020,000
Indirect Materials
360,000
Indirect Labor
130,000
Depreciation – Factory Building
100,000
Factory Supervisor
96,000
Machine Maintenance
82,000
Factory Supplies Expense
58,000
Light and Power
26,000
Expired Factory Insurance
12,000

(2) Cost of Sales
Finished Goods Inventory, December 31
Cost of Goods Manufactured
Finished Goods Inventory, January 1

4,163,400
960,000

(3) Income Summary
Cost of Sales

4,163,400

4,223,400
900,000
4,163,400


Basic Accounting for Manufacturing Operations

(4) Sales
Rent Income
Interest Income
Sales Returns and Allowances
Sales Discount
Sales Commission
Advertising Expense
Transportation Out
Depreciation – Store Fixture
Store Supplies Expense

Office Salaries
Depreciation – Office Furniture
Bad Debts Expense
Office Supplies Expense
Interest Expense
Income Summary

5,928,000
19,200
4,000
86,000
58,400
592,800
62,000
52,000
24,000
16,800
368,000
36,000
32,000
14,000
11,200
4,598,000

5


6

Chapter 14

Exercise 3
Requirement (1)
Crown Manufacturing Co.
Worksheet
June 30, 2008

Cash
Raw Materials
Inventory, Jan. 1
Work in Process
Inventory, Jan. 1
Finished Goods
Inventory, Jan. 1
Unexpired Factory
Insurance
Factory Supplies on
Hand
Machinery
Accumulated
Depreciation –
Machinery
Tools
Patents
Vouchers Payable
Bonds Payable
Share Capital
Retained Earnings
Sales
Raw Materials

Purchases
Discount on Raw
Materials Purchases

Trial Balance
DR
CR
P 87,500

Adjustments
DR
CR

Adjusted Trial Balance
DR
CR
P 87,500

Cost of Goods
Manufactured
DR
CR

66,500

66,500

66,500

76,500

76,500

76,500

83,000

83,000

Income Statement
DR
CR

Balance Sheet
DR
CR
P 87,500

83,000

12,600

(1) 4,000

8,600

8,600

25,600
365,800

(2) 20,600

5,000
365,800

5,000
365,800

P 84,000
14,800
28,000

(5) 18,000
(3) 14,800
(4) 2,800

102,000

78,000
200,000
400,000
250,700
720,000
247,200

–
25,200
78,000
200,000

400,000
250,700
720,000

247,200
5,000

102,000

–
25,200

78,000
200,000
400,000
250,700
720,000
247,200

5,000

5,000


7

Basic Accounting for Manufacturing Operations

Direct Labor
Indirect Labor

Supervision
Machinery Repairs
Other Factory
Expenses
Selling Expenses
Administrative
Expenses
Interest Expense

Insurance Expense –
Factory
Factory Supplies
Expense
Tools Expense
Patent Amortization
Depreciation –
Machinery
Interest Payable
Wages Payable

Trial Balance
DR
CR
356,400
53,200
44,000
16,000

Adjustments
DR

CR
(7) 3,600
(7) 1,000

20,000
125,600

Adjusted Trial Balance
DR
CR
360,000
54,200
44,000
16,000
20,000
125,600

Cost of Goods
Manufactured
DR
CR
360,000
54,200
44,000
16,000

Balance Sheet
DR
CR

20,000
125,600

110,000
5,000
(6) 1,000
P1,737,700 P1,737,700

110,000
6,000

(1) 4,000

4,000

4,000

(2) 20,600
(3) 14,800
(4) 2,800

20,600
14,800
2,800

20,600
14,800
2,800

(5) 18,000

Income Statement
DR
CR

110,000
6,000

18,000

18,000

(6) 1,000

1,000

1,000

(7) 4,600

4,600

4,600

Raw Materials
Inventory, June 30
Work in Process
Inventory, June 30
Finished Goods
Inventory, June 30

48,000

48,000

56,000

56,000

944,600

109,000
835,600

324,600
835,600

944,600

944,600

1,160,200

60,000
780,000

60,000
656,100

1,036,300

380,200
1,160,200

380,200
1,036,300

1,036,300


8

Chapter 14

Requirement (2)
Crown Manufacturing Co.
Statement of Cost of Goods Manufactured
For the Period Ended June 30, 2008
Raw materials used:
Raw materials inventory, January 1, 2008
Add Net material purchases
Purchases
Less: Discount on raw material purchases
Raw materials available for use
Less: Raw materials inventory, December 31, 2008
Raw materials used
Direct labor
Factory overhead costs:
Indirect labor
Supervision

Machinery repairs
Other factory expenses
Insurance expense - factory
Factory supplies expense
Tools expense
Patent amortization
Depreciation expense - machinery
Total manufacturing costs
Add: Goods in process inventory, January 1, 2008
Total cost of goods placed in process
Less: Goods in process inventory, December 31, 2008
Cost of goods manufactured

P
P247,200
(5,000)

P 54,200
44,000
16,000
20,000
4,000
20,600
14,800
2,800
18,000

66,500

242,200

P 308,700
(48,000)
P 260,700
360,000

194,400
P 815,100
76,500
P 891,600
(56,000)
P 835,600


Basic Accounting for Manufacturing Operations

9

Requirement (3)
Crown Manufacturing Co.
Income Statement
For the Period Ended June 30, 2008
Sales
Less: Cost of goods sold:
Finished goods inventory, January 1, 2008
Add: Cost of goods manufactured
Total available for sale
Less: Finished goods inventory,
June 30, 2008
Cost of goods sold
Gross profit

Less: Selling and administrative expenses
Selling expenses
Administrative expenses
Operating income
Less: Interest expense
Net income

P720,000
P 83,000
835,600
918,600
(60,000)
(858,600)
P(138,600)
P(125,600)
(110,000)

(235,600)
P(374,200)
(6,000)
P(380,200)


10

Chapter 14

Requirement (4)
Crown Manufacturing Co.
Balance Sheet

June 30, 2008
ASSETS
Current Assets
Cash
Raw materials inventory
Goods in process inventory
Finished goods inventory
Unexpired factory insurance
Factory supplies on hand
Total current assets

P

87,500
48,000
56,000
60,000
8,600
5,000
P 265,100

Non-current Assets
Machinery (net of accumulated depreciation of
P102,000)
Patent
Total non-current assets
Total assets

P 263,800
25,200

P 289,000
P 554,100

LIABILITIES AND EQUITY
Current Liabilities
Vouchers payable
Interest payable
Wages payable
Total current liabilities

P 78,000
1,000
4,600
P 83,600

Non-current Liabilities
Bonds payable

200,000

Total liabilities
Equity
Share capital
Retained earnings
Deduct: Net loss
Total equity
Total liabilities and equity

P 283,600
P 400,000

P 250,700
(380,200)

(129,500)
P 270,500
P 554,100


Basic Accounting for Manufacturing Operations

11

Test Material
Test Material 14-1
Date
2008
April
1

3

10

13

20

30

May

4

7

20

Debit

Accounts Payable
Cash
Purchase Discount

24,000

Raw Materials Purchases
Cash

12,000

Direct Labor
Withholding Taxes Payable
Cash

36,000

Accounts Payable
Purchase
Returns
Allowances

Credit

480
23,520

12,000

712
35,288
2,000
and

Factory Supplies
Cash

2,000

9,000
9,000

Raw Materials Purchases
Cash
Notes Payable
Accounts Payable

20,000
4,000
6,000
10,000

Indirect Materials
Cash

4,000
4,000

Cash

3,000
Purchase
Returns
Allowances

15

Post
Ref

Account Titles and Explanation

Indirect Labor
Superintendence
Sales Salaries
Office Salaries
Withholding Taxes Payable
Cash
Notes Payable
Interest Expense
Cash

and

3,000

12,800
20,000
19,240
17,960
3,744
66,256
6,000
20
6,020


12

Chapter 14

Date
2008
June
10

Account Titles and Explanation
Tools

Post
Ref

Debit
15,600

Cash
14

19

25

28

30

30

Credit

15,600

Prepaid Insurance
Cash

5,400

Indirect Materials
Accounts Payable

9,200

Accounts Payable
Indirect Materials

1,200

Freight-in
Cash

3,000

Direct Labor
Indirect Labor
Wages Payable
Depreciation Expense
Accumulated Depreciation –
Machinery and Equipment

5,400

9,200

1,200

3,000
14,000
9,000
23,000
6,000
6,000

13

Basic Accounting for Manufacturing Operations

Test Material 14-2
Requirement (1)
Bea Manufacturing Co.
Worksheet
For the Year Ended December 31, 2008
Trial Balance
DR
CR
Cash on hand and
in banks
Accounts receivable
Allowance for bad
debts
Notes receivable
Raw materials
inventory, Jan. 1
Goods in process
inventory, Jan. 1
Finished goods
inventory, Jan. 1
Prepaid insurance
Land
Buildings
Machinery and

equipment
Office furniture and
equipment
Tools
Store furniture and
fixtures
Accumulated
depreciation –
Machinery and
equipment

Adjustments
DR
CR

1,060,000
2,280,000

Adjusted Trial Balance
DR
CR

Cost of Goods Manufactured
DR
CR

Income Statement
DR
CR

1,060,000
2,280,000
81,000

(2)

55,800

1,060,000
2,280,000
136,800

136,800

300,000

300,000

1,260,000

1,260,000

1,260,000

1,395,000

1,395,000

1,395,000

1,105,000
18,000
1,500,000
2,400,000

(4)

14,400

975,000
225,000
170,000

(5)

34,000

180,000

272,000

Trial Balance

(5) 195,000

Adjustments

Balance Sheet
DR
CR

300,000

1,105,000
3,600
1,500,000
2,400,000

1,105,000
3,600
1,500,000
2,400,000

975,000

975,000

225,000
136,000

225,000
136,000

180,000

180,000

467,000

Adjusted Trial Balance

467,000

Cost of Goods Manufactured

Income Statement

Balance Sheet


14

Chapter 14
DR

Accumulated
depreciation –
Buildings
Accumulated
depreciation –
Office furniture
and fixtures
Accumulated
depreciation –
Store furniture
and fixtures
Patent
Vouchers payable
Notes payable
Mortgage payable

Share capital
(authorized,
50,000 shares,
p.v. P200)
Premium on share
capital
Reserve for sinking
fund
Treasury shares
(1,000 shares at
cost)
Retained earnings
Sales
Sales allowance
and discounts
Raw materials
purchases
Purchase
allowances and
discount
Freight in
Direct labor
Indirect labor

CR

DR

720,000

CR

DR

(5) 480,000

27,000

(5)

45,000

22,500

(5)
(6)

36,000
30,000

150,000

CR

DR

CR

DR

CR

DR

CR

1,200,000

1,200,000

72,000

72,000

58,500
120,000

120,000

1,380,000
270,000
800,000

1,380,000
270,000
800,000

1,380,000
270,000
800,000

6,000,000

6,000,000

6,000,000

600,000

600,000

600,000

100,000

100,000

100,000

240,000

240,000
2,419,500
13,680,000

408,000

408,000

4,400,000

4,400,000
480,000

540,000
2,900,000
840,000

Trial Balance

240,000
2,419,500
13,680,000

2,419,500
13,680,000
408,000
4,400,000

480,000
(8)
(8)

40,000
30,000

Adjustments

540,000
2,940,000

870,000

Adjusted Trial Balance

480,000
540,000
2,940,000
870,000

Cost of Goods Manufactured

Income Statement

Balance Sheet


15

Basic Accounting for Manufacturing Operations

Indirect materials
Manufacturing
supplies
expenses
Superintendence
Advertising
Sales salaries
Office salaries
Miscellaneous
factory

overhead
Interest expense
Interest income
Freight out
Miscellaneous
selling expenses
Miscellaneous
general
expenses

DR
720,000

CR

240,000
460,000
600,000
700,000
800,000

DR

(9)

CR

DR
720,000

24,000

216,000
460,000
480,000
710,000
800,000

216,000
460,000

260,000
30,000

260,000

(10) 120,000

260,000
18,000

(8)

10,000

(7)

12,000

12,000

(3)

1,800

CR

DR
720,000

CR

DR

DR

CR

480,000
710,000
800,000

30,000
13,800

13,800

360,000

360,000

360,000

200,000

200,000

200,000

160,000

160,000

160,000
26,693,000

CR

26,693,000

Raw materials
inventory,
12.31.08
Goods in process
inventory,
12.31.08
Finished goods
inventory,
12.31.08
Bad debts expense

Interest receivable
Insurance expense
Depreciation
expense –
Buildings
Depreciation
expense –
Machinery and
equipment

1,900,000

1,900,000

1,200,000

1,200,000
1,560,000

(2)
(3)
(4)

Trial Balance

55,800
1,800
14,400

55,800

1,800
14,400

7,200

7,200

(5) 480,000

480,000

240,000

240,000

(5) 195,000

195,000

195,000

Adjustments

Adjusted Trial Balance

1,560,000

55,800
1,800

Cost of Goods Manufactured

Income Statement

Balance Sheet


16

Chapter 14
DR

Depreciation
expense –
Office furniture
and fixtures
Tools expense
Depreciation
expense – Store
furniture and
fixtures
Patent amortization
Interest payable
Salaries payable
Unused
manufacturing
supplies
Prepaid advertising

CR

DR

CR

DR

CR

DR

(5)
(5)

45,000
34,000

45,000
34,000

34,000

(5)
(6)

36,000
30,000

36,000
30,000

30,000

(7)
(8)

12,000
80,000

DR

CR

DR

CR

45,000

36,000
12,000
80,000

12,000
80,000

(9) 24,000
(10) 120,000
13,567,200
13,567,200

Net income

CR

3,580,000
9,987,200
13,567,200

4,637,000
9,987,200
629,600
15,253,800

15,253,800

24,000
120,000
14,225,400

13,595,800

15,253,800

14,225,400

629,600
14,225,400

Basic Accounting for Manufacturing Operations

17

Requirement (2)
Bea Manufacturing Co.
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 2008
Raw materials used:
Raw materials inventory, January 1, 2008
Add Net material purchases
Purchases
P4,400,000
Add: Freight-in
540,000
Total
P4,940,000
Less: Purchase allowances and discount
(480,000)
Raw materials available for use
Less: Raw materials inventory, December 31, 2008
Raw materials used
Direct labor
Factory overhead costs:
Indirect labor
P 870,000
Indirect materials used
720,000
Manufacturing supplies expenses
216,000

Superintendence
460,000
Miscellaneous factory overhead
260,000
Insurance expense
7,200
Depreciation expense - buildings
240,000
Depreciation expense – machinery and equipment
195,000
Tools expense
34,000
Patent amortization
30,000
Total manufacturing costs
Add: Goods in process inventory, January 1, 2008
Total cost of goods placed in process
Less: Goods in process inventory, December 31, 2008
Cost of goods manufactured

P 1,260,000

4,460,000
P 5,720,000
(1,900,000)
P 3,820,000
2,940,000

3,032,200
P 9,792,200

1,395,000
P11,187,200
(1,200,000)
P 9,987,200


18

Chapter 14

Requirement (3)
Bea Manufacturing Co.
Income Statement
For the Year Ended December 31, 2008
Sales
Less: Sales discounts and allowances
Net sales
Less: Cost of goods sold:
Finished goods inventory, January 1, 2008
Add: Cost of goods manufactured
Total available for sale
Less: Finished goods inventory,
December 31, 2008
Cost of goods sold
Gross profit
Less: Selling and administrative expenses
Selling expenses
Insurance expense
Advertising
Sales salaries

Freight-out
Miscellaneous selling expenses
Depreciation expense – building
Depreciation expense – store
furniture and fixtures
Administrative expenses
Office salaries
Bad debt expense
Depreciation expense – office
furniture and fixtures
Depreciation expense – building
Insurance expense
Miscellaneous general expenses
Total
Operating income
Add (Deduct) Other Income (Expense)
Interest income
Interest expense
Net income

P13,680,000
(408,000)
P13,272,000
P 1,105,000
9,987,200
11,092,200
(1,560,000)
9,532,200
P 3,739,800
P

(3,600)
(480,000)
(710,000)
(360,000)
(200,000)
(120,000)
(36,000)

(1,909,600)

P (800,000)
(55,800)
(45,000)
(120,000)
(3,600)
(160,000)

P

(1,184,400)
(3,094,000)
P 645,800

13,800
(30,000)
P

(16,200)
629,600

Basic Accounting for Manufacturing Operations

19

Requirement (4)
Bea Manufacturing Co.
Balance Sheet
December 31, 2008
ASSETS
Current Assets
Cash on hand and in banks
Accounts receivable (net of Allowance for bad
debts of P136,800)
Notes receivable
Interest receivable
Raw materials inventory
Goods in process inventory
Finished goods inventory
Prepaid insurance
Unused manufacturing supplies
Prepaid advertising
Total current assets

P 1,060,000
2,143,200
300,000
1,800
1,900,000

1,200,000
1,560,000
3,600
24,000
120,000
P 8,312,600

Non-current Assets
Land
Buildings (net of accumulated depreciation of
P1,200,000)
Machinery and equipment (net of accumulated
depreciation of P467,000)
Office furniture and equipment (net of
accumulated depreciation of P72,000)
Store furniture and fixtures (net of accumulated
depreciation of P58,500)
Tools
Patent
Total non-current assets

P 1,500,000

Total assets

P12,051,100

1,200,000
508,000
153,000

121,500
136,000
120,000
P 3,738,500


20

Chapter 14

LIABILITIES AND EQUITY
Current Liabilities
Vouchers payable
Notes payable
Interest payable
Salaries payable
Total current liabilities

P 1,380,000
270,000
12,000
80,000
P 1,742,000

Non-current Liabilities
Mortgage payable
Total liabilities

800,000
P 2,542,000

Equity
Contributed Capital
Share capital, P200 par value
Authorized, 50,000 shares
Issued, 30,000 shares of which 1,000
shares are in treasury
Premium on share capital
Total contributed capital
Retained Earnings
Unappropriated
Balance, January 1
Add: Net income for 2008
Total
Appropriated for sinking fund
Total retained earnings
Total contributed capital and retained earnings
Less: Treasury shares (at cost)
Total liabilities and equity

P 6,000,000
600,000
P 6,600,000

P 2,419,500
629,600
P 3,049,100
100,000
P 3,149,100
P 9,749,100

(240,000)
P 9,509,100
P12,051,100


Basic Accounting for Manufacturing Operations

21

Requirement (5)
GENERAL JOURNAL
Date
2008
Dec.

Account Titles and Explanation
Closing Entries
31

31

31

Post
Ref

Debit

Cost of Goods Manufactured
Raw Materials Inventory, December

31, 2008
Work in Process Inventory, December
31, 2008
Purchase Allowances and Discount
Raw Materials Inventory, January
1, 2008
Work in Process Inventory,
January 1, 2008
Raw Materials Purchases
Freight-In
Direct Labor
Indirect Materials
Indirect Labor
Manufacturing supplies
expenses
Superintendence
Miscellaneous factory overhead
Insurance expense
Depreciation expense - buildings
Depreciation expense –
machinery and equipment
Tools expense
Patent amortization

9,987,200

Cost of Sales
Finished Goods Inventory, December
31, 2008
Cost of Goods Manufactured

Finished Goods Inventory,
January 1, 2008

9,532,200

Income Summary
Cost of Sales

9,532,200

Credit

1,900,000
1,200,000
480,000
1,260,000
1,395,000
4,400,000
540,000
2,940,000
720,000
870,000
216,000
460,000
260,000
7,200
240,000
195,000
34,000
30,000

1,560,000
9,987,200
1,105,000

9,532,200


22

Chapter 14

Date
2008
Dec.

Account Titles and Explanation
Closing Entries
31

Sales
Interest Income
Insurance expense
Advertising
Sales salaries
Freight-out
Miscellaneous selling expenses
Depreciation expense – building
Depreciation expense – store
furniture and fixtures

Office salaries
Bad debt expense
Depreciation expense – office
furniture and fixtures
Depreciation expense – building
Insurance expense
Miscellaneous general expenses
Interest Expense
Income Summary

Post
Ref

Debit

Credit

13,680,000
13,800
3,600
480,000
710,000
360,000
200,000
120,000
36,000
800,000
55,800
45,000
120,000

3,600
160,000
30,000
10,569,800