Chapter 17, Problem 10E

a.

To determine

Prepare journal entry to record the purchase of direct materials in December.

Explanation of Solution

Prepare journal entry to record the purchase of direct materials in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Material inventory	125,000
	Accounts payable		125,000
	(To record the purchase of direct materials on account.)

(Table 1)

• Material inventory is an asset and there is an increase value of an asset. Hence, debit the materials inventory account by $125,000.
• Accounts payable is a liability and there is an increase in the value of liability. Hence, credit the accounts payable account by $125,000.

b.

To determine

Prepare journal entry to record the cost of direct materials applied to jobs in December.

Explanation of Solution

Prepare journal entry to record the cost of direct materials applied to jobs in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory	100,000
	Material inventory		100,000
	(To record the cost of direct materials used)

(Table 2)

• Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory account by $100,000.
• Material inventory is an asset and there is a decrease value of an asset. Hence, credit the materials inventory account by $100,000.

c.

To determine

Prepare journal entry to record the cost of direct labor applied to jobs in December.

Explanation of Solution

Prepare journal entry to record the cost of direct labor applied to jobs in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory	50,000
	Direct labor		50,000
	(To record the cost of direct labor in December)

(Table 3)

• Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory account by $50,000.
• Direct labor is an asset and there is a decrease value of an asset. Hence, credit the direct labor account by $50,000.

d.

To determine

Prepare journal entry to record the actual cost of manufacturing overhead incurred in December.

Explanation of Solution

Prepare journal entry to record the actual cost of manufacturing overhead incurred in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Manufacturing overhead	150,000
	Cash		150,000
	(To record the actual overhead cost incurred.)

(Table 4)

• Manufacturing overhead (Expense) is a component of stockholder’s equity and there is an increase value of expense. Hence, debit the manufacturing overhead account by $150,000.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash account by $150,000.

e.

To determine

Prepare journal entry to record the cost of manufacturing overhead applied to jobs in December.

Explanation of Solution

Prepare journal entry to record the cost of manufacturing overhead applied to jobs in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory	140,000
	Manufacturing overhead (3)		140,000
	(To apply overhead to jobs in December )

(Table 5)

• Work in process inventory is an asset and there is an increase in the value of an asset. Hence, debit the work in process inventory account by $140,000.
• Manufacturing overhead (Expense) is a component of stockholder’s equity and there is a decrease value of expense. Hence, credit the manufacturing overhead account by $140,000.

Working notes:

Calculate the per- unit value of direct labor hours:

$\begin{array}{c}\begin{array}{l}\text{Per- unit value of direct }\\ \text{labor hours}\end{array}\}\text{=}\frac{\text{Budgeted overhead}}{\text{Direct labor hours budgeted}}\\ =\frac{\$133,000}{1,900}\\ =\$7\text{0 per direct labor hours}\end{array}$ (1)

Calculate the total manufacturing overhead applied:

$\begin{array}{c}\text{Total manufacturing overhead applied = }\frac{\text{Direct labor cost}}{\text{Per hour wage}}\\ =\frac{\$50,000}{\$25}\\ =\text{2,000Actual direct labor hours}\end{array}$ (2)

Calculate the cost manufacturing overhead applied:

$\begin{array}{c}\text{Cost of manufacturing overhead applied=}\left(\begin{array}{l}\text{Actual direct}\\ \text{ labor hours}\end{array}\right)\text{ × }\left(\begin{array}{l}\text{Per direct labor}\\ \text{ hour applied}\end{array}\right)\\ =2,000(2)\times \$70(1)\\ =\$140,000\end{array}$ (3)

f.

To determine

Prepare journal entry to record the revenue and the related cost of jobs sold in December. Assume all sales are made on account.

Explanation of Solution

Prepare journal entry to record the revenue and the related cost of jobs sold in December. Assume all sales are made on account.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Accounts receivable	600,000
	Sales		600,000
	(To record the sale on account during December)

(Table 6)

• Accounts receivable is an asset and there is an increase in the value of an asset. Hence, debit the accounts receivable by $600,000.
• Sales (Revenue) are a component of stockholder’s equity and there is an increase in the value of equity. Hence, credit the sales by $600,000.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	325,000
	Finished goods inventory		325,000
	(To record cost of goods sold in December)

(Table 7)

• Cost of goods sold (expense) is component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the cost of goods sold account by $325,000.
• Finished goods inventory is an asset and there is a decrease in the value of an asset. Hence, credit the finished goods account by $325,000.

g.

To determine

Prepare journal entry to record the revenue and the related cost of jobs sold in December.

Explanation of Solution

Prepare journal entry to record the revenue and the related cost of jobs sold in December.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Selling and  administrative expenses	250,000
	Cash		250,000
	(To record selling and administrative expense of December.)

(Table 8)

• Selling and administrative Expense is a component of stockholder’s equity and there is an increase value of expense. Hence, debit the Selling and administrative Expense by $250,000.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash account by $250,000.

h.

To determine

Prepare journal entry to close the Manufacturing Overhead account directly to Cost of Goods Sold on December 31.

Explanation of Solution

Prepare journal entry to close the Manufacturing Overhead account directly to Cost of Goods Sold on December 31.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	10,000
	Manufacturing overhead		10,000
	(To close the manufacturing overhead that is under-applied($150,000 actual -$140,000 applied)

(Table 9)

• Cost of goods sold (expense) is component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the cost of goods sold by $10,000.
• Manufacturing overhead (Expense) is a component of stockholder’s equity and there is s a decrease in value of expense. Hence, credit the manufacturing overhead by $10,000.

i.

To determine

Compute the company’s December income.

Explanation of Solution

Compute the company’s December income.

Particulars	Amount  in $
Sales	600,000
Less: Cost of  goods sold (4)	335,000
Gross profit	265,000
Less: Selling and  administrative expense	250,000
Net income	15,000

(Table 10)

Working Notes:

Calculate the cost of goods sold.

$\begin{array}{c}\text{Cost of goods sold = Undajusted cost of goods sold + Under-applied manuacturing overhead}\\ \text{=\$325,000+ }\$10,000\\ =\$335,000\end{array}$ (4)