Chapter 18, Problem 18.1APR

1.

To determine

Work in process costs

It is the cost of production process that is used to manufacture partly completed products. It comprises the cost of raw materials, labor, and overhead that incurred for the production process of the products at various phases.

Direct materials cost

Manufacturing products arise with raw materials that are altered into finished products. The cost of any material that is an important part of the finished product is categorized as a direct materials cost.

Conversion cost

Cost of changing the materials into a finished product. It includes direct labor costs and factory overhead costs.

To Prepare: The journal entry to record transactions of Company FMC.

Explanation of Solution

1. a. Prepare the journal entry to record material purchased on account of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Materials	$84,900
Accounts payable		$84,900
(To record material purchased on account)

Table (1)

• Materials inventory is a current asset and increased. Therefore, debit material account for $84,900.
• Accounts payable is a current liability and increased. Therefore, credit accounts payable account for $84,900.

1. b. Prepare the journal entry to record material requisition used for production of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Work in process - Spinning Department	$43,600
Work in process - Tufting Department	$34,100
Factory overhead - Spinning Department	$3,200
Factory overhead - Tufting Department	$2,900
Materials		$83,800
(To record materials used in production)

Table (2)

• Work in process inventory – spinning department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $43,600.
• Work in process inventory – tufting department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $34,100.
• Factory overhead – spinning department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – spinning department account for $3,200.
• Factory overhead – tufting department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – tufting department account for $2,900.
• Materials inventory is a current asset, and decreased it. Therefore, credit material account for $83,800.

1. c. Prepare the journal entry to record labor used for production of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Work in process - Spinning Department	$26,300
Work in process - Tufting Department	$17,900
Factory overhead - Spinning Department	$12,100
Factory overhead - Tufting Department	$11,700
Wages payable		$68,000
(To record labor cost incurred for production)

Table (3)

• Work in process inventory – spinning department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $26,300.
• Work in process inventory – tufting department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $17,900.
• Factory overhead – spinning department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – spinning department account for $12,100.
• Factory overhead – tufting department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – tufting department account for $11,700.
• Wages payable is a current liability, and increased. Therefore, credit wages payable account for $68,000.

1. d. Prepare the journal entry to record accumulated depreciation on fixed asset of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Factory Overhead - Spinning Department	$5,300
Factory Overhead - Tufting Department	$3,400
Accumulated depreciation – Fixed asset		$8,700
(To record accumulated depreciation for fixed asset)

Table (4)

• Factory overhead – spinning department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – spinning department account for $5,300.
• Factory overhead – tufting department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – tufting department account for $3,400.
• Accumulated depreciation – fixed asset is a contra asset, and increased. Therefore, credit accumulated depreciation – fixed asset account for $8,700.

1. e. Prepare the journal entry to record expired factory insurance of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Factory Overhead - Spinning Department	$1,200
Factory Overhead - Tufting Department	$1,000
Prepaid insurance		$2,200
(To record expired prepaid factory insurance)

Table (5)

• Factory overhead – spinning department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – spinning department account for $1,200.
• Factory overhead – tufting department is a component of stockholders’ equity, and decreased it. Therefore, debit factory overhead – tufting department account for $1,000.
• Prepaid insurance is a current asset, and decreased. Therefore, credit prepaid insurance account for $2,200.

1. f. Prepare the journal entry to record applied factory overhead of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Work in process - Spinning Department	$22,000
Work in process - Tufting Department	$18,700
Factory overhead - Spinning Department		$22,000
Factory overhead - Tufting Department		$18,700
(To record allocation of factory overhead)

Table (6)

• Work in process inventory – spinning department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $22,000.
• Work in process inventory – tufting department is a current asset account, and increased. Therefore, debit work in process – tufting department account for $18,700.
• Factory overhead – spinning department is a component of stockholders’ equity, and increased it. Therefore, credit factory overhead – spinning department account for $22,000.
• Factory overhead – tufting department is a component of stockholders’ equity, and decreased it. Therefore, credit factory overhead – tufting department account for $18,700.

1. g. Prepare the journal entry to record production costs transferred from spinning department to tufting department of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Work in process - Tufting Department	$88,000
Work in process - Spinning Department		$88,000
(To record production costs transferred from spinning department to tufting department)

Table (7)

• Work in process inventory – spinning department is a current asset account, and increased. Therefore, debit work in process – spinning department account for $88,000.
• Work in process inventory – tufting department is a current asset account, and decreased. Therefore, credit work in process – tufting department account for $88,000.

1. h. The journal entry to record production costs transferred from tufting department to finished goods of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Finished goods	$159,000
Work in process - Tufting Department		$159,000
(To record production costs transferred from tufting department to Finished goods)

Table (8)

• Finished goods inventory is a current asset, and increased. Therefore, debit finished goods account for $159,000.
• Work in process inventory – tufting department is a current asset, and decreased. Therefore, credit work in process – tufting department account for $159,000.

1. i. Prepare the journal entry to record cost of goods sold during the period of Company FMC as shown below:

Account title and Explanation	Debit	Credit
Cost of Goods sold	$160,500
Finished goods		$160,500
(To record cost of goods sold during the period)

Table (9)

• Cost of goods sold is a component of stockholders’ equity, and increased it. Therefore, debit cost of goods sold account for $160,500.
• Finished goods inventory is a current asset, and decreased. Therefore, credit finished goods account for $160,500.

2.

To determine

To Compute: The ending balance of inventory accounts of Company FMC.

Answer to Problem 18.1APR

Calculate ending balance of inventory account of Company FMC as shown below:

Particulars	Amount ($)
	Materials	Work in Process - Spinning Department	Work in Process - Tufting Department	Finished Goods
Balance, October 1	4,800	1,500	2,300	5,600
Add: Debit balance	84,900	91,900 (1)	158,700 (2)	159,000
Less: Credit balance	(83,800)	(88,000)	(159,000)	(160,500)
Balance, October 31	5,900	5,400	2,000	4,100

Table (10)

Explanation of Solution

Working notes:

Calculate debit balance for work in process – spinning department of Company FMC as shown below:

$\begin{array}{c}\begin{array}{l}\text{Debit balance for work in }\\ \text{process - spinning department}\end{array})\text{ =}\text{\$43,600}\text{+}\text{\$26,300}\text{+}\text{\$22,000}\\ \text{=}\text{\$91,900}\end{array}$ (1)

Calculate debit balance for work in process – tufting department of Company FMC as shown below:

$\begin{array}{c}\begin{array}{l}\text{Debit balance for work in }\\ \text{process - tufting department}\end{array})\text{ =}\text{\$34,100}\text{+\$17,900}\text{+\$18,700}\text{+\$88,000}\\ \text{=}\text{\$158,700}\end{array}$ (2)

Ending balance of inventory account is calculated by adding opening balance of inventory, debit balance and then deduct with credit balance. Hence, ending balance for materials is $5,900 (debit balance), ending balance for work in process – spinning department is $5,400 (debit balance), ending work in process - tufting department is $2,000 (debit balance), and ending balance for finished goods is $4,100 (debit balance).

3.

To determine

To Compute: The ending balance of factory overhead accounts of Company FMC.

Answer to Problem 18.1APR

Calculate ending balance of factory overhead accounts of Company FMC as shown below:

Particulars	Amount ($)
	Factory Overhead - Spinning Department	Factory Overhead - Tufting Department
Balance, October 1	0	0
Add: Debit balance	21,800 (3)	19,000 (4)
Less: Credit balance	(22,000)	(18,700)
Balance, October 31	(200)	300

Table (11)

Explanation of Solution

Working notes:

Calculate debit balance for factory overhead– spinning department of Company FMC as shown below:

$\begin{array}{c}\begin{array}{l}\text{Debit balance for factory }\\ \text{overhead - spinning department}\end{array})\text{ =}\text{\$3,200}\text{+}\text{\$12,100}\text{+\$5,300}\text{+\$1,200}\\ \text{=}\text{\$21,800}\end{array}$

Calculate debit balance for factory overhead – tufting department of Company FMC as shown below:

$\begin{array}{c}\begin{array}{l}\text{Debit balance for factory }\\ \text{overhead - tufting department}\end{array})\text{ =}\text{\$2,900}\text{+\$11,700}\text{+\$3,400}+\$1,000\\ \text{=}\text{\$19,000}\end{array}$

Ending balance of factory overhead account is calculated by adding opening balance of factory overhead, debit balance and then deduct with credit balance. Hence, ending balance of factory overhead – spinning department is $200 (credit balance), and ending balance of factory overhead – tufting department is $300 (debit balance).