Question

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Finished Goods..................................... $62,000
Work in Process-Spinning Department.........35,000
Work in Process-Tufting Department............28,500
Materials............................................... 17,000
Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:
A. Materials purchased on account . . . . . . . . . . . . . . . .$500,000
B. Materials requisitioned for use:
Fiber—Spinning Department . . . . . . . . . . . . . . . . . . . . . $275,000
Carpet backing—Tufting Department . . . . . . . . . . . . . . . .110,000
Indirect materials—Spinning Departme . . . . . . . . . . . . . . . 46,000
Indirect materials—Tufting Departme. . . . . . . . . . . . . . . . . 39,500
C. Labor used:
Direct labor—Spinning Department . . . . . . . . . . . . . . . . $185,000
Direct labor—Tufting Department. . . . . . . . . . . . . . . . . . . . 98,000
Indirect labor—Spinning Department .. . . . . . . . . . . . . . . . 18,500
Indirect labor—Tufting Department . . . . . . . . . . . . . . . . . . . 9,000
D. Depreciation charged on fixed assets:
Spinning Department . . . . . . . . . . . . . .. . . . . . . . . . . . . . $12,500
Tufting Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,500
E. Expired prepaid factory insurance
Spinning Department . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $2,000
Tufting Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
F. Applied factory overhead:
Spinning Department . . . . . . . . . . . . . . . . . . . . . . . . . . . .$80,000
Tufting Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
G. Production costs transferred from Spinning Department to Tufting Department .
$547,000
H. Production costs transferred from Tufting Department to Finished Goods .
$807,200
I. Cost of goods sold during the period . . . . . . . . . . . . . . .$795,200
Instructions
1. Journalize the entries to record the operations, identifying each entry by letter.
2. Compute the January 31 balances of the inventory accounts.
3. Compute the January 31 balances of the factory overhead accounts.

Answer 1

1. Journal Entries:

A. Debit Materials $500,000

Credit Accounts payable $500,000

To record the purchase of materials on account.

B. Debit Work-in-Process - Spinning $275,000

Credit Materials $275,000

To record the materials requisitioned.

B. Debit Work-in-Process -Tufting $110,000

Credit Materials $110,000

To record carpet backing

B. Debit Overhead - Spinning $46,000

Debit Overhead - Tufting $39,500

Credit Materials $85,500

To record indirect materials used.

C. Debit Work-in-Process - Spinning $185,000

Debit Work-in-Process - Tufting $98,000

Credit Factory labor $283,000

To record direct labor costs.

C. Debit Overhead - Spinning $18,500

Debit Overhead - Tufting $9,000

Credit Factory labor $27,500

To record indirect labor costs.

D. Debit Overhead - Spinning $12,500

Debit Overhead - Tufting $8,500

Credit Factory Depreciation $21,000

To record depreciation costs.

E. Debit Overhead - Spinning $2,000

Debit Overhead - Tufting $1,000

Credit Factory Insurance $3,000

To record insurance costs.

F. Debit Work-in-Process - Spinning $80,000

Debit Work-in-Process - Tufting $55,000

Credit Factory Overhead $135,000

To record overhead costs applied.

G. Debit Work-in-Process - Tufting $547,000

Credit Work-in-Process - Spinning $547,000

To record the transfer to Tufting department.

H. Debit Finished Goods Inventory $807,200

Credit Work-in-Process- Tufting $807,200

To record the transfer to Finished Goods.

I. Debit Cost of Goods Sold $795,200

Credit Finished Goods $795,200

To record the cost of goods sold.

2. January 31 balances of the inventory accounts:

Finished Goods = $74,000

Work-in-Process - Spinning = $28,000

Work-in-Process - Tufting = $32,300

Materials = $46,500

3. Factory Overhead Accounts:

Overhead - Spinning:

B. Materials (Indirect) 46,000

C. Indirect labor 18,500

D. Depreciation exp. 12,500

E. Factory insurance 2,000

F. Applied overhead 80,000

Overapplied overhead 1,000

Overhead - Tufting:

B. Materials (Indirect) 39,500

C. Indirect labor 9,000

D. Depreciation exp. 8,500

E. Insurance expense 1,000

F. Applied overhead 55,000

Underapplied overhead 3,000

Step-by-step explanation:

a) Data and Calculations:

January 1 Inventories:

Finished Goods = $62,000

Work in Process- Spinning = $35,000

Work in Process - Tufting = $28,500

Materials = $17,000

Finished Goods

Account Titles Debit Credit

Beginning balance $62,000

Work-in-Process-Tufting 807,200

Cost of Goods Sold $795,200

Ending balance 74,000

Work-in-Process - Spinning

Account Titles Debit Credit

Beginning balance $35,000

B. Materials 275,000

C. Direct labor 185,000

F. Applied overhead 80,000

G. Work-in-Process -Tufting $547,000

Ending balance 28,000

Work-in-Process - Tufting

Account Titles Debit Credit

Beginning balance $28,500

B. Carpet backing 110,000

C. Direct labor 98,000

E. Insurance expense 1,000

F. Applied overhead 55,000

G. WIP- Spinning 547,000

H. Finished Goods $807,200

Ending balance 32,300

Cost of Goods Sold

I. Finished Goods $795,200

Materials

Account Titles Debit Credit

Beginning balance $17,000

A. Accounts receivable 500,000

B. Work-in-Process - Spinning $275,000

B. Work-in-Process - Spinning 46,000

B. Work-in-Process - Tufting 39,500

B. Work-in-Process - Tufting 110,000

Ending balance 46,500