INTRODUCTION

The transactions in this .practice set werecompleted by Bath Designs Inc. during January, thefirst month of the company's fiscal year. Thecompany designs and manufactures a limited varietyof custom bathroom storage cabinets and sauna units,and it maintains a job-order cost system.;

, .You have accepted a position with BathDesigns Inc. as assistant controller, and you willbegin your duties on January I' of the current year. Inyour review of the previous assistant controller's'records, you notice some jobs were incomplete as ofDecember 31 of the previous year. These jobs are'contained in the Job Cost Records. You plan tocomplete most of these jobs in January and to acceptnew jobs from builders and contractors. You areresponsible' for the daily accounting operations,preparation of interim financial statements, and end-.of-month adjusting and closing entries.

Bath Designs Inc. manufacfures all products ina 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 debitto Work in Process. Salaries for all other factory·personnel are recorded by a debit to FactoryOverhead, Salaries of non-factory personnel are.recorded at the end of each month by a debit to theappropriate salary expense accounts. Deductions forFICA tax at 7.65% of gross pay (this includes theMedicare Tax deduction) and employees' income taxat 18% of gross pay are recorded whenever gross payis recorded. All wages are paid on the last day of themonth. All employer payroll taxes are recorded atthe end of the month. Payroll taxes related to factory I

personnel are debited to Factory Overhead, Payroll'taxes related to all other company personnel are'debited to Payroll Taxes Expense-General.

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Bath Designs 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 125% of' direct labor cost for that job. BathDesigns Inc. maintains only one factory overheadaccount. . Remember that debits to Factory Overheadrepresent actual overhead and credits to FactoryOverhead represent applied overhead. Since, thedifference between actual factory overhead andapplied factory overhead is insignificant, the over-applied or under-applied balance is closed out to Costof Goods Sold as an adjusting entry at the end of eachmonth.

Bath Designs Inc. marks up allwork by 35% ofthe job cost. Refer to the individual Job Cost Recordfor the totalcost of the job and multiply the total costby 135% to determine the selling price for eachjob.

Since Bath Design'S Inc. sells. to builders andcontractors, sales are exempt from state sales tax. Allsales are on account and are subject to terms of 1/10,net 30 days, FOB shipping point.

.. Accounts Payable is used solely for the'purchase of. direct materials and indirect materialsand factory supplies. All vendors expect fullpayment within 30 days. Operating expenses, withthe exception of any accrued salaries, payroll taxes,property taxes, and income taxes, are paid whenincurred.

All cash received is deposited in' the bank, andall payments are made by check.

When dealing with an accounts receivable oraccounts payable item, be sure to record the companyname in the General Ledger and post ,10 the AccountsReceivable or Accounts Payable Ledger., It is January 1, and' you are ready to assumeyour new responsibilities.

Good Luck!

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.NARRA TIVE OF TRANSACTIONS

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Note: Certain transactions, such as those dealing withpayroll; require detailed computational work beforepreparing the journal entry. These transactions areexplained initially in the narrative as they occur. Pleaserefer to the original transaction when' preparing asubsequent similar transaction.

'Jan. 2 Paid Berkeley Road Properties $3,600.00 forJanuary rent. Of this amount, 30% is foroffice facilities and 70% is for factoryfacilities.

2 Paid Pierce Advertising Agency 490.00 forpreparing advertisements 111 localnewspapers.

3 Paid Liberty Wood Products Company$8.413.12 in payment of December 31balance.

3 Received a check from Kian Corporation forthe amount due within the discount period.,

4 Paid State National Bank $25,681.41 for'December payroll taxes payable as follows:

Employees' Income Tax Payable,$15,812.27; FICA Tax Payable, ~9,143.73; ,~Federal Unemployment Tax, $319.19; StateUnemployment Tax, $406.22.

4 Paid $7,423.36 for Income Tax Payable.

4 Paid Ohio Plastics Company $10,714.00 111

payment of the December 31 balance.

4 Applied $3,624.00. 'of direct materials(requisition No. 679) and $8,120.00 of directlabor (time ticket No. 129.) to Job No. 403,which will complete the job. The FICA rateis 7.65% of gross pay and the employees'income tax rate is 18%' of gross pay. Whenpreparing the entry for applying direct labor,debit Work in Process for the gross pay, andcredit Employees' Income Tax Payable andFICA Tax payable for the appropriateamounts and Salaries Payable for net pay.

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Jan. 5'

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Remember that employees are paid on thelast day of each month.

Applied factory overhead to Job No. 403 isbased upon 125% of direct labor cost.

Transferred the completed job to the finishedgoods account.

Sold and shipped Job No. 403 to the-appropriate customer. All sales are Onaccount 1II 0, net 30 days, FOB shippingpoint. Bath Designs Inc. marks up all workby 40% of the job cost. Refer to theindividual Job Order Cost Sheet for the totalcost of the job and multiply the total cost by140% to determine the selling price for eachjob. .

Bath Designs Inc. maintains a perpetualinventory system. Each time a sale is madeto a customer, you must debit Cost of GoodsSold and credit Finished Goods for the costof the job.

Requisioned $1,241.27 of indirect materialsand factory supplies to be used in themanufacture 'of all jobs currently in process.(Materials requisition No. 680.)

paid Bob Davis, County Tax Collector,$6,321.00 for property. taxes accrued as ofDecember 31. .

Purchased from Glory Container Corporation$2,243.26 of indirect factory supplies, creditterms net 15 days.

Accepted a job for the manufacture of 17closet units for Bloomingdale Engineering.The promise date is February 14. Began thejob today by applying $5,914.00 of directmaterials to Job No. 406. (Materialsrequisition No. 681.)

Received a check from Tarara DesignCorporation for the amount due within thediscount period.

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Jan. II Paid Rorick Hardware Inc. $9, 1OO~OOmpayment of the December 3 1 balance.

II Applied $1,327.14 of direct materials to JobNo. 402. (Materials requisition No. 682.)

12 Received a check from Ryan Sales Companyfor the 'amount due after the discount periodhas expired.

15 . Applied $2,214.06 of direct materials to JobNo. 404. (Materials requisition No. 683.) .

16 Purchased $503.00 of factory supplies fromSamantha Supplies Inc. and paid cash.

16 Applied $3,216.50 of direct labor to Job No.405, which will complete the job. (Timeticket No. 130.)

Applied factory overhead using theappropriate rate.

Transferred the completed job to the finishedgoods account.

16 Sold four standard vanity units to a cashcustomer for $1,400.00. The cost of thegoods shipped from finished goods inventorywas $1,000.00.

17 Requisitioned $614.50 of indirect materialsand factory supplies to be used in all factoryjobs currently in·process. (Marerialsrequisition No. 684.}

17 Signed a contract with Elliana Interiors forthe manufacture of 120 counter units. Thepromise date is February 15. Began the jobtoday by applying $4,220.00' of directmaterials to' Job No. 407. . (Materialsrequisition No. 685.)

17 Paid the sales manager of Bath Designs Inc.$142.62 for customer entertaining.

18 Received a report from the treasurer. thatPickens Contractors, one of our customers,has declared bankruptcy. Wrote off thebalance owed to' Bath. Designs Inc. byPickens Contractors.

18 Sold' and shipped Job No. 405 to theappropriate customer. Refer to that job'sCost Record for the total cost of the job todetermine the selling price.

22 Purchased $10,232.16 of direct materialsfrom Neola Supply Company, credit termsnet 30 days.

22 Accepted-a job for the manufacture of 12sauna units for Maplewood Designers. Thepromise date is January 31. Began the jobtoday by applying $2,468.10 of directmaterials to Job No. 408: . (Materialsrequisition No. 686.)

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Jan. 24

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'Paid Glory. Container Corporation theamount due, today from the January 9purchase.

Applied $1,660.00 of direct labor to Job No.402, which will complete the job. (TimeticketNo .. 131.)

Applied factory overhead usmg theappropriate rate.

Transferred the completed job to the finishedgoods account.

Sold and shipped Job No. 402 to the'appropriate customer. Refer to that job'sCost Record for the total cost of the job todetermine the selling price.

Applied $3,640.00 of direct labor to Job No.408, which' will complete the job. (Timeticket No. 132.)

Applied .factory overhead using theappropriate rate.

Transferred the completed job to the finishedgoods account

Sold and shipped Job o. 408 to theappropriate customer. Refer to that job'sCost Records for the total cost of the job forbilling purposes.

Paid Foley Tool Company amount due inpayment of the January I balance:

Received a check from. Powell ContractorsInc. for the amount due after the discountperiod has expired.

Paid Post Office $500.00 for postage addedto postage meter. Expense this amount.

Paid Telephone Company .$250.00 for.January phone service.

Paid Owen Advertising Company, $1,000.00for designing ads for our new Internetwebsite.

Paid Allied Power and Light Company$4,216.00 for heat, power, and light.Allocate 25% of this amount to Electricity

, Expense and 75% to Factory Overhead.

Applied $1,000.00 of direct labor to Job No.404. (Time ticket No. 133.)

Applied factory overhead using theappropriate rate. .This job will not _becompleted until February.

Applied $4,220.00 of direct labor to Job No.407. (Time ticket 1'10. 134.)

Applied factory overhead using theappropriate rate. This job will not becompleted until March.

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Jan. 31 'Applied $1,16.0 ..0.0of direct labor to Job No.406. (Time ticket No. 135.)

Applied factory overhead using theappropriate rate. This job will not becompleted until 'February.

,31 Received the following data on the monthly

payroII from the payroll clerk:'

, Direct labor (already recorded) $23,.016.50I

New payroll data (to be recorded):

Indirect $11,220.00Superintendent's salary.............. 3,10.0.00Sales salaries :....... 11,975.00Officers' salaries......................... 7,140.00Office salaries............................. 6,31.0.10

Record the monthly payroll in the general'journal. Remember that direct labor payroll.already has been, recorded as it was incurredin January. Salaries for indirect labor arerecorded only at the end of the month. DebitFactory Overhead for Indirect Labor andSuperintendent's salaries, debit other salaryexpense accounts for the appropriateamounts, credit FICA'Tax Payable for 7.65%of gross pay, credit Employees' Income TaxPayable for 18%, of gross pay, .and creditSalaries Payable for the net pay,

All payroll taxes relating to factory' personnelare debited to Factory Overhead; all payrolltaxes related to non-factory personnel aredebited to Payroll Taxes Expense=General.The FICA tax is 7.65% of gross pay, stateunemployment tax is 5.4% of gross pay, andfederal unemployment tax is .0,8% of grosspay. Since this is the first month in thecurrent year, no employee has reached theceilings on the payroll taxes, Round thecharge to Factory Overhead down to the next .,cent.

31 Received a check from Seng Contractors forthe amount due after the discount period hasexpired. . ,

31 'Received a check from Ruth Builders for theamount due after the discount period hasexpired.

31 Paid all employees for wages earned 111January. ,

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Jan. 31 Purchased $8,214 ..00 of direct materials onaccount from Rorick Hardware Inc.

(Take a trial balance at this point.)Adjusting Entries:

.Jan. 31 Insurance expired during January:

Factory .Selling ,....•.....................General, , " .

$1,314.0.061.25

268.8.0

31 Office supplies inventory as ofJanuary 31,$1,650.00.

31 Depreciation for the 1110nth:

Factory equipment .Office equipment .

Amortization of patents for Janu-. ary (debit Factory Overhead) .

Property tax accrued for the month:'

Factory - .General .

$485.00137.26

$642.00369.70

, 31$225.00

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31 Close out underapplied Factory Overhead of$1,427.24 to Cost of Goods Sold.

3 1 Based on past experience, Bath Designs Inc.estimates that $7,900:00 is a reasonable

, balance for the January 31 balance in theAllowance for Doubtful Accounts.

31' Income tax is based on 40% of incomebefore tax. Accrue income tax owed bydebiting Income Tax Expense and creditingIncome Tax Payable for $6,748.83.'

(Prepare all reports at this point. If you are using acomputerized system; print your journal entries andgeneral ledger NOW.j

Closing Entries:.

Jan. 31 Prepare closing entries to close revenue andexpense accounts to Income Summary, andtransfer net income to Retained Earnings. (Itis acknowledged that this' step is not'performed until year end; this, is forinstructional purposes only.) Prepare a Post-Closing Trial Balance.

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