Concept explainers
a.
Prepare
a.
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 $125,000.
b.
Prepare journal entry to record the cost of direct materials applied to jobs in December.
b.
Explanation of Solution
Prepare journal entry to record the cost of direct materials applied to jobs in December.
Date | Accounts title and explanation |
Debit ($) |
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 $100,000.
c.
Prepare journal entry to record the cost of direct labor applied to jobs in December.
c.
Explanation of Solution
Prepare journal entry to record the cost of direct labor applied to jobs in December.
Date | Accounts title and explanation |
Debit ($) |
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 $50,000.
d.
Prepare journal entry to record the actual cost of manufacturing
d.
Explanation of Solution
Prepare journal entry to record the actual cost of manufacturing overhead incurred in December.
Date | Accounts title and explanation |
Debit ($) |
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 $150,000.
e.
Prepare journal entry to record the cost of manufacturing overhead applied to jobs in December.
e.
Explanation of Solution
Prepare journal entry to record the cost of manufacturing overhead applied to jobs in December.
Date | Accounts title and explanation |
Debit ($) |
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 $140,000.
Working notes:
Calculate the per- unit value of direct labor hours:
Calculate the total manufacturing overhead applied:
Calculate the cost manufacturing overhead applied:
f.
Prepare journal entry to record the revenue and the related cost of jobs sold in December. Assume all sales are made on account.
f.
Explanation of Solution
Prepare journal entry to record the revenue and the related cost of jobs sold in December. Assume all sales are made on account.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
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 $325,000.
g.
Prepare journal entry to record the revenue and the related cost of jobs sold in December.
g.
Explanation of Solution
Prepare journal entry to record the revenue and the related cost of jobs sold in December.
Date | Accounts title and explanation |
Debit ($) |
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 $250,000.
h.
Prepare journal entry to close the Manufacturing Overhead account directly to Cost of Goods Sold on December 31.
h.
Explanation of Solution
Prepare journal entry to close the Manufacturing Overhead account directly to Cost of Goods Sold on December 31.
Date | Accounts title and explanation |
Debit ($) |
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.
Compute the company’s December income.
i.
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.
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