Bergo Bay's accounting system generated the following account balances on December 31. The company’s manager knows something is wrong with this list of balances because it does not show any balance for Work in Process Inventory, and the accrued factory payroll (Factory Wages Payable) has not been recorded. Debit Credit Cash $ 70,000 Accounts receivable 39,000 Raw materials inventory 24,500 Work in process inventory 0 Finished goods inventory 15,000 Prepaid rent 5,000 Accounts payable $ 11,800 Notes payable 14,800 Common stock 50,000 Retained earnings (prior year) 94,000 Sales 158,900 Cost of goods sold 112,000 Factory overhead 28,000 General and administrative expenses 36,000 Totals $ 329,500 $ 329,500 These six documents must be processed to bring the accounting records up to date. Materials requisition 10: $ 4,400 direct materials to Job 402 Materials requisition 11: $ 7,800 direct materials to Job 404 Materials requisition 12: $ 2,400 indirect materials Labor time ticket 52: $ 7,000 direct labor to Job 402 Labor time ticket 53: $ 13,000 direct labor to Job 404 Labor time ticket 54: $ 5,000 indirect labor Jobs 402 and 404 are the only jobs in process at year-end. The predetermined overhead rate is 150% of direct labor cost. 4. Prepare an income statement for the year and a balance sheet as of December 31. Hint: Retained earnings is $99,500 at the end of the current year.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.2.1MBA

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Question

Bergo Bay's accounting system generated the following account balances on December 31. The company’s manager knows something is wrong with this list of balances because it does not show any balance for Work in Process Inventory, and the accrued factory payroll (Factory Wages Payable) has not been recorded.

	Debit	Credit
Cash	$ 70,000
Accounts receivable	39,000
Raw materials inventory	24,500
Work in process inventory	0
Finished goods inventory	15,000
Prepaid rent	5,000
Accounts payable		$ 11,800
Notes payable		14,800
Common stock		50,000
Retained earnings (prior year)		94,000
Sales		158,900
Cost of goods sold	112,000
Factory overhead	28,000
General and administrative expenses	36,000
Totals	$ 329,500	$ 329,500

These six documents must be processed to bring the accounting records up to date.

Materials requisition 10:	$ 4,400	direct materials to Job 402
Materials requisition 11:	$ 7,800	direct materials to Job 404
Materials requisition 12:	$ 2,400	indirect materials
Labor time ticket 52:	$ 7,000	direct labor to Job 402
Labor time ticket 53:	$ 13,000	direct labor to Job 404
Labor time ticket 54:	$ 5,000	indirect labor

Jobs 402 and 404 are the only jobs in process at year-end. The predetermined overhead rate is 150% of direct labor cost.

4. Prepare an income statement for the year and a balance sheet as of December 31. Hint: Retained earnings is $99,500 at the end of the current year.
5. Assume that the $2,400 on materials requisition 12 should have been direct materials charged to Job 404. Does this error result in overstatement or understatement of total assets?

BERGO BAY COMPANY
Income Statement
For Year Ended December 31
$
0
0

Inventories
Total assets
Total liabilities
Total equity
Total liabilities and equity
BERGO BAY COMPANY
Balance Sheet
As at December 31
Assets
Liabilities
Equity
$
$
0
0
0
O
0

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