Chapter 19, Problem 13E

To determine

Introduction:

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Prepare:

Journal entries for transactions of the company.

Solution:

Transaction	Particulars	Debit ($)	Credit ($)
a	Raw Materials	$90,000
	Accounts payable		$90,000
	(Being raw materials purchased on account)
b	Work in Process	$36,500
	Manufacturing Overhead	$19,200
	Raw Materials		$55,700
	(Being raw materials used in production)
c	Work in Process	$38,000
	Manufacturing Overhead	$12,000
	Cash		$50,000
	(Being direct labor of $38,000 and indirect labor of $12,000 recorded)
d	Manufacturing Overhead	$11,475
	Cash		$11,475
	(Being actual overhead expenses incurred incurred)
e	Work in Process	$47,500
	Manufacturing Overhead		$47,500
	(Being overhead applied at a pre-determined rate of 125% of direct labor cost of $38,000)
f	Finished Goods Inventory	$56,800
	Work in Process		$56,800
	(Being cost of jobs completed of $56,800 transferred to finished goods)
g	Accounts receivable	$82,000
	Sales		$82,000
	(Being On account Sales of jobs of $82,000 recorded)
	Cost of Goods Sold	$56,800
	Finished Goods		$56,800
	(Being Cost of Goods sold recorded)

Explanation of Solution

• In case of Asset and Expenses accounts, the opening balance will be Debit Balance and in case of Liabilities and Incomes accounts, the opening balance is Credit Balance.

• Examples of Assets and Expenses −
Assets - Raw Materials, Work In process, Finished Goods, Cash, Accounts receivable
Expenses - Manufacturing Overhead and Cost of Goods sold

• In order to increase balances of Asset and Expenses accounts, they are debited and in order to decrease the balances, they are credited

• In order to increase balances of Liability and Income accounts, they are credited and in order to decrease the balances, they are debited.

Explanations for the journal entries are as follows:

• Raw Materials
  will be debited by $ 90,000 and Accounts payable will be credited since raw materials were purchased on account.

• Work in Process will be debited by $ 36,500, Manufacturing Overhead will be debited by $19,200 to record indirect material used, and Raw Materials will be credited by $55,700 since raw materials were used in production

• Work In Process will be debited by $ 38,000, Manufacturing Overhead will be debited by $ 12,000 and Cash will be credited by $50,000 since Salaries and wages are paid

• Manufacturing Overhead will be debited by $ 11,475 and Cash will be credited since actual overhead expenses relating to factory were incurred.

• Work in Process will be debited by $ 47,500 and Manufacturing Overhead will be credited since overhead applied at a pre-determined rate of 125% of direct labor cost of $38,000 ($38,000 x 125%)

• Finished Goods Inventory will be debited by $ 56,800 and Work in Process will be credited by since Cost of goods manufactured calculated by transferring Work in Process.

• Accounts receivable will be debited by $ 82,000 and Sales will be credited since Sales of jobs completed are recorded.

• Cost of Goods Sold will be debited by $56,800 and Finished Goods will be credited by since Cost of Goods sold was recorded.

Conclusion

Hence, the transactions are journalized and entries are recorded.