Woods Company’s trial balance columns from its work sheet are shown below. Data for adjusting the accounts are as follows: Problem 27-6B

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Woods Company’s trial balance columns from its work sheet are shown below. Data for adjusting the accounts are as follows: Problem 27-6B

Woods Company’s trial balance columns from its work sheet are shown below. Data for adjusting the accounts are as follows: Problem 27-6B

(a) Factory overhead to be applied to work in process ending inventory $ 4,300
(b) Interest receivable 100
(c) Interest payable 700
(d) Estimate of uncollectible accounts, based on an aging of accounts receivable 4,110
(e) Office supplies consumed 3,200
(f) Factory supplies consumed 6,700
(g) Factory building depreciation 10,000
(h) Factory equipment depreciation 6,000
(i) Underapplied factory overhead 7,690
(j) Provision for corporate income taxes 8,100
(k) Physical counts of the inventories agreed with the amounts in the books.
Additional information needed to prepare the financial statements is as follows:

Beginning inventories:
 Finished goods, January 1 $ 22,300
 Work in process, January 1 12,400
 Materials inventory, January 1 7,900
Materials purchases for the year 18,700
Direct labor 90,300
Actual factory overhead 104,290
Assume that all materials inventory items are direct materials
1. Prepare a work sheet.
2. Prepare the following financial statements and schedule:
a. income statement
b. schedule of cost of goods manufactured

c. statement of retained earnings

d. balance sheet

Answer & Explanation (4)

1
Explanation
The work sheet is a preliminary document prepared to make the financial reporting process more efficient. A 10-column work sheet is composed of the list of account titles followed by the unadjusted trial balance columns, the adjustment columns, the adjusted trial balance columns, the income statement columns, and the balance sheet columns.

The unadjusted trial balance presents the listing of accounts before adjustments are made. Total debits and total credits for the unadjusted trial balance is $861,510.

Under the adjustments columns, the following adjustments are made:

A debit to work in process inventory and a credit to factory overhead of $4,300 for the applied factory overhead.
A debit to interest receivable and a credit to interest revenue $100 for the accrual of interest revenue earned.
A debit to interest expense and a credit to interest payable of $700 for the accrual of unpaid interest expense.
A debit to bad debts expense and a credit to allowance for doubtful accounts of $3,500, which is the difference of estimated uncollectible accounts of $4,110 less beginning balance of allowance for doubtful accounts account of $610, for the adjustment of estimated uncollectible accounts.
A debit to office supplies expense and a credit to office supplies of $3,200 for the consumed office supplies.
A debit to factory overhead subsidiary account on factory supplies expense and a credit to factory supplies of $6,700 for the consumed factory supplies.
A debit to factory overhead subsidiary account on depreciation expense-factory building and a credit to accumulated depreciation-factory building of $10,000 for the depreciation of the factory building.
A debit to factory overhead subsidiary account on depreciation expense-factory equipment and a credit to accumulated depreciation-factory equipment of $6,000 for the depreciation of the factory equipment.
A debit to cost of goods sold and a credit to factory overhead of $7,690 for adjustment on factory overhead cost to actual amount.

A debit to income tax expense and a credit to income tax payable of $7,690 for the accrual of unpaid income tax expense.

The adjusted trial balance is a listing of the account balances for the reporting period after period-end adjustments have been made. Total debits and total credits for the adjusted trial balance is $901,900.

The revenue and expense accounts are forwarded to the income statement columns of the work sheet and the net income/loss for the period is computed. Total revenues equal $411,300 whereas total expenses equal $337,510. The difference is the net income for the period which is $73,790.

The net income of $73,790 is forwarded to the balance sheet columns. Accounts that should be listed on the balance sheet should only be real accounts such as assets, liabilities, and equity accounts. The total debits and credits for the balance sheet columns, after net income is forwarded, is $460,100.

2a
Explanation
The income statement is prepared to assess the company's financial performance. For companies engaged in manufacturing activity, this statement has the following sections: (1) cost of goods sold, this is computed by deducting the ending balance of finished goods inventory from the cost of goods available for sale, which is the sum of the beginning balance of finished goods inventory and the cost of goods manufactured, (2) gross profit, which is the net sales less cost of goods sold, (3) operating expenses, which contains the operating expense accounts for each revenue generating department and for total company, (4) operating income, which is gross profit less operating expenses, and (5) income before income taxes, which is the sum of operating income and other revenue less other expenses.

Net income is then computed by deducting income tax from the income before income taxes.

The company's cost of goods sold, gross profit, operating expenses, operating income, income before income taxes, and net income is $205,990, $204,710, $90,300, $114,410, $105,310, and $73,790, respectively.

b
Step 1 of 3
The schedule of cost of goods manufactured is prepared to calculate the cost of all products produced for a period of time. The
schedule contains the (1) total manufacturing cost, which is the sum of direct materials used, direct labor, and factory overhead,
and (2) total work in process during the period, which is the sum of the beginning balance of work in process inventory account
and total manufacturing cost. Cost of goods manufactured is computed as total work in process during the period less ending
balance of work in process inventory account.
The company's total manufacturing cost, total work in process during the period, and cost of goods manufactured is $211,890,
$224,290, and $209,790, respectively.
Step 2 of 3
Schedule of cost of goods manufactured, direct materials used portion. Compute for the materials available. Items to be included
are the beginning balance of materials inventory account of $7,900, and materials purchases of $18,700.
Materials Available
= Materials Inventory ,Beginning + Materials Purchases
= $7,900 + $18,700 = $26,600
Step 3 of 3
Schedule of cost of goods manufactured, direct materials used portion. Compute for the cost of materials used. Items to be
included are the materials available of $26,600 less ending balance of materials inventory account of $9,300.
Cost of Materials Used
= Materials Available − Materials Inventory ,Ending
= $26,600 − $9,300 = $17,300

d
Explanation
The balance sheet is prepared to present the financial position of a company. This has two main sections, namely, (1) total assets, which is the sum of current assets and property, plant, and equipment accounts of which all accounts with debit balance are added and credit balance are deducted, and (2) total liabilities and stockholders' equity, which is the sum of its two subsections, (2-a) total liabilities, this the sum of current liabilities and long-term liabilities accounts, and (2-b) total stockholders' equity, which is the sum of all stockholders' equity accounts. The total assets, and total liabilities and stockholders' equity sections should be equal.

The company's total assets is $349,990, which is also the same amount as the total liabilities and stockholders' equity.

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