Bath Design

Introduction

The transactions in this practice set were completed by Bath Designs Inc. during January, the first month of the company�s fiscal year. The company designs and manufactures a limited variety of custom bathroom storage cabinets and sauna units, and it maintains a job-order cost system.

You have accepted a position with Bath Designs Inc. as assistant controller, and you will begin your duties on January 1 of the current year. In your review of the previous assistant controller�s records, you notice some jobs were incomplete as of December 31 of the previous year. These jobs are contained in the Job Cost Records. You plan to complete most of these jobs in January and to accept new jobs from builders and contractors. You are responsible for the daily accounting operations, preparation of interim financial statements, and end-of-month adjusting and closings entries.

Bath Designs Inc. manufactures all products in a 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 debit to Work in Process. Salaries for all other factory personnel are recorded by a debit to Factory Overhead. Salaries of non-factory personnel are recorded at the end of each month by a debit to the appropriate salary expense accounts. Deductions for FICA tax at 7.65% of gross pay (this includes the Medicare Tax deduction) and employees� income tax at 18% of gross pay are recorded whenever gross pay is recorded. All wages are paid on the last day of the month. All employer payroll taxes are recorded at the end of the month. Payroll taxes related to factory personnel are debited to Factory Overhead. Payroll taxes related to all other company personnel are debited to Payroll Taxes Expense�General.

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. Bath Designs Inc. maintains only one factory overhead account. Remember that debits to Factory Overhead represent actual overhead and credits to Factory Overhead represent applied overhead. Since the difference between actual factory overhead and applied factory overhead is insignificant, the over-applied or under-applied balance is closed out to Cost of Goods Sold as an adjusting entry at the end of each month.

Bath Designs Inc. marks up all work by 35% of the job cost. Refer to the individual Job Cost Record for the total cost of the job and multiply the total cost by 135% to determine the selling price for each job.

Since Bath Designs Inc. sells to builders and contractors, sales are exempt from state sales tax. All sales 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 materials and factory supplies. All vendors except full payment within 30 days. Operating expenses, with the exception of any accrued salaries, payroll taxes, property taxes, and income taxes, are paid when incurred.

All cash received is deposited in the bank, and all payments are made by check.

When dealing with an accounts receivable or accounts payable item, be sure to record the company name in the General Ledger and post to Accounts Receivable or Accounts Payable Ledger.

It is January 1, and you are ready to assume your new responsibilities.

1.	Journalize the entries for the month of January in the General Journal.  When using the Work in Process account, be sure to post to the appropriate Job Cost Record.

2.	Post the General Journal entries to the General Ledger, the Accounts Payable Ledger, and the Accounts Receivable Ledger.

3.	Prepare Schedules of Accounts Receivable and Accounts Payable.

4.	Prepare the Trial Balance section of the work sheet.

5.	Complete the work sheet using the adjusting entries data for the Adjustment columns.

6.	Prepare the following statements:

A.	Income Statement

B.	Retained Earnings Statement

C.	Balance Sheet

7.	Journalize and post the adjusting entries

8.	Journalize and post the closing entries.  (It is acknowledged that this step is not performed until year end; this is for instructional purposes only.)

9.	Prepare a Post-Closing Trial Balance.