The Agado Products Company is a small, newly organized company that

manufactures taro chips. The company's products are sold to jobbers or

wholesale distributors, who in turn sell them to retailers. The basic steps in
the company's manufacturing process are as follows:

Step 1: Collection and Cleaning

Step 2: Decortication

Step 3: Retting

Step 4: Rinsing and Washing

Step 5: Crushing or Milling

Step 6: Drying

Step 7: Sorting and Grading

Step 8: Baling or Packaging

The beginning Statement of Financial Position for the Company on January 1

of the current year is presented below…

The following transactions are completed for January:

1. Materials are purchased on account at a cost of P50,000.00

2. During the month, direct materials (lumber and paint) costing P40,000
and indirect materials costing P1,900 are issued to the factory.
3. Total payroll for the month amounted to P36,000, consisting of P20,000
earned by laborers working on the product; P7,000 for factory
supervision; P9,000 for sales and administrative employees.
4. Depreciation expense for the building is 6% per year. The office
occupies 1/10 of the total building, and the factory operation is in the
other 9/10.
5. Depreciation expense for machinery and equipment is 20% per year.
All machinery and equipment is used in the factory for production
purposes.
6. The cost of heat, light, and power for the month was P3,000.
7. Miscellaneous expenses for telephone, office supplies, travel, and
rental of office furniture and equipment totaled P1,500.
8. Factory overhead is charged to production at 85% of direct labor cost.
9. Assuming that all goods started in process have been finished.
10. Costs of materials, utilities, and selling and administrative
expenses paid amounted to P34,000.
11. 800 tables are sold to jobbers at a net price of P86,240.
12. Cash totaling P55,000 is collected on accounts receivable.
13. Received cash of P20,000 and land with fair value of P1,000,000
to be used at the entity’s discretion
14. Received Membership fees amounted to P6,000.

Additional information:

1. 1,000 sacks of coco coir were produced, the unit cost is P77.
2. Management determines that a 40% gross profit is necessary to cover
the product’s share of selling and administrative expenses and earn a
satisfactory profit.
3. 10% of the remaining accounts receivable from customers for the sale
of finished goods are uncollectible.
4. The company failed to accrue the 10,000 rent expenses incurred for
the month.
5. Noeled Product Company declared dividend of 8,000, and the amount
payable to members will be deducted from the unrestricted net assets.

Journal Entries

1. Materials (lumber, paint, screws, lubricants, and solvents) are

purchased on account at a cost of P50,000.00

Materials 50,000
Accounts Payable 50,000
2. During the month, direct materials (lumber and paint) costing P40,000
and indirect materials (screws, lubricants for machines, and solvents
for cleaning) costing P1,900 are issued to the factory.

Work in process 40,000

Factory Overhead Control 1,900
Materials
3. Total payroll for the month amounted to P36,000, consisting of P20,000
earned by laborers working on the product; P7,000 for factory
supervision; P9,000 for sales and administrative employees.

Payroll 36,000
Accrued Payroll
36,000

Accrued payroll 36,000

Cash
36,000

Work in process 20,000

Factory Overhead Control 7,000
Selling and Administrative Expenses Control 9,000
Payroll
36,000
4. Depreciation expense for the building is 6% per year. The office
occupies 1/10 of the total building, and the factory operation is in the
other 9/10.

Factory operation = 750,000 x 6% x 1/12 x 9/10 = 3,375

Office = 750,000 x 6% x 1/12 x 1/10 = 375

Factory Overhead Control 3,375

Selling and Administrative Expenses Control 375
Accumulated Depreciation - building
3,750
5. Depreciation expense for machinery and equipment is 20% per year.
All machinery and equipment are used in the factory for production
purposes.
Factory Overhead Control 2,500
Accumulated Depreciation - building
2,500
6. The cost of heat, light, and power for the month was P3,000.

Factory overhead control = 3,000 x 9/10 = 2,700

Selling and Administrative Expense = 3,000 x 1/10 = 300

Factory Overhead Control 2,700

Selling and Administrative Expense Control 300
Accounts Payable

7. Miscellaneous expenses for telephone, office supplies, travel, and rental

of office furniture and equipment totaled P1,500.
Selling and Administrative Expense Control 1,500
Accounts Payable
1,500
8. Factory overhead is charged to production at 85% of direct labor cost.

Work in process 17,000

Factory Overhead Applied
17,000
9. Assuming that all goods started in process have been finished.

Finished Goods 77,000

Work in Process 77,000

10. Costs of materials, utilities, and selling and administrative expenses

paid amounted to P34,000.

Accounts Payable 34,000

Cash 34,000
 11. 800 sacks are sold to jobbers at a net price of P86,240.

Accounts Receivable 86,240

Sales 86,240

Cost of Goods Sold 61, 600

Finished Goods 61,600

12. Cash totaling P55,000 is collected on accounts receivable.

Cash 55,000
Accounts Receivable 55,000

13. Received cash of P20,000 and land with fair value of P1,000,000
to be used at the entity’s discretion.

Cash 20,000
Land 1,000,000
Contribution revenue 34,000

14. Received Membership fees amounted to P6,000.

Cash 6,000
Membership fees 6,000

Ledger
Cash Accounts Receivable
Beg. 80,000 36,000 3 11 86,240 55,000 12
12 55,000 34,000 10 31,240
13 20,000
14 6,000
91,000

Materials Work in Process

1 50,000 41,900 2 2 40,000 77,000 9
8,100 3 20,000
8 17,000
0
Unadjusted Trial balance

Additional information for adjustments:

a) The company estimates that the machinery and equipment used in

production will depreciate by P3,000 per year.
b) The company has incurred P12,000 in wages and salaries for factory
workers that will be paid in the next period.
c) The company paid a P24,000 premium for a one-year insurance policy
on its factory on January 1. As of December 31, and the 10 months
have expired.
d) The company determines that P5,000 of its inventory is obsolete and
has no market value.
e) The company owes 8,000 in property taxes for the current year, but
the taxes have not yet been paid.
Adjusting Entries:

a) Factory Overhead- Control P3,000.00

Accumulated Depreciation- P3,000.00
Mach. & Equip.

b) Factory Overhead- Control 12,000.00

Salaries payable 12,000.00

c) Insurance Expense 20,000.00

Prepaid insurance 20,000.00
(24,000 /12 months = 2,000 )
(2,000 x 10 = 20,000)

d) Cost of goods sold 5,000.00

Inventory 5,000.00

e) Property taxes expense 8,000.00

Property taxes payable 8,000.00
Preparing the Adjusted Trial Balance:

Noeled Products Company

Adjusted Trial Balance
December 31, 2019
DEBIT CREDIT
ASSETS:
Cash Php 65,000
Accounts Receivable 31,240
Prepaid Insurance Php 20,000
Finished goods 15,400
Materials 8,100
Building 750,000
Inventory 5,000
Accumulated Depreciation-Building 3,750
Machinery and Equipment 150,000
Accumulated Depreciation-Mach. & 5,500
Equip.4OO
LIABLILITIES:
Accounts Payable 20,500
Salaries Payable 12,000
Property Taxes Payable 8,000
Accrued Payroll 0
EQUITY
Capital stock 980,000
Sales 86,240
Cost of goods sold 66,600
Factory Overhead Control 32,475
Factory Overhead Applied 17,000
Selling and Administrative Expense 11,175
Control
Insurance Expense 20,000
Property Taxes Expense 8,000 _____
Php Php
TOTAL 1,157,990 1,157,990