
1.
Prepare
1.

Explanation of Solution
Prepare journal entry to record the cost incurred and applied on goods.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Material inventory | 710,000 | ||
Accounts payable | 710,000 | ||
(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 $710,000.
- Accounts payable is a liability and there is an increase in the value of liability. Hence, credit the accounts payable account by $710,000.
Prepare journal entry to record the conversion cost incurred.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Conversion incurred | 1,450,000 | ||
Wages payable | 1,450,000 | ||
(To record the cost of conversion) |
(Table 2)
- Conversion cost incurred is an expense and there is an increase in the value of expense. Hence, debit the materials inventory account by $1,450,000.
- Wages payable is a liability and there is an increase in the value of liability. Hence, credit the wage payable account by $1,450,000.
Prepare journal entry to record the completion of yards of the product.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Finished goods | 1,976,250 | ||
Material inventory (1) | 658,750 | ||
Conversion cost applied (2) | 1,317,500 | ||
(To record the completion of yards) |
(Table 3)
- Finished goods inventory is an asset and there is an increase in the value of an asset. Hence, debit the finished goods by $1,976,250.
- Material inventory is an asset and there is a decrease value of an asset. Hence, credit the materials inventory account by $658,750.
- Conversion cost applied an asset and there is a decrease value of an asset. Hence, credit the conversion cost account by $1,317,500.
Working notes:
1. Calculate the amount of material inventory.
2. Calculate the amount of conversion cost applied.
Prepare journal entry to record the closing entry for conversion cost.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Conversion cost applied | 1,317,500 | ||
Cost of goods sold | 132,500 | ||
Conversion cost incurred | 1,450,000 | ||
(To record the closing of two conversion cost in cost of good sold) |
(Table 4)
- Conversion cost applied is an asset and there is an increase in the value of an asset. Hence, debit the conversion cost applied by $1,317,500.
- Cost of goods sold is an expense and there is an increase in the value of expense. Hence, credit the cost of goods sold account by $132,500.
- Conversion cost incurred is an expense and there is a decrease in the value of expense. Hence, credit the materials inventory account by $1,450,000.
Date | Accounts title and explanation |
Debit ($) |
Credit ($) |
Cost of goods sold (3) | 8,250 | ||
Materials inventory | 8,250 | ||
(To record the closing of actual usage of inventory to cost of goods sold) |
(Table 5)
- Cost of goods sold is an expense and there is an increase in the value of expense. Hence, credit the cost of goods sold account by $8,250.
- Material inventory is an asset and there is a decrease value of an asset. Hence, credit the materials inventory account by $8,250.
Working notes:
3. Calculate the cost of goods sold.
2.
State the reason under which backflush method is used by the company.
2.

Explanation of Solution
Only when work in process level is small backflush method is used by the company. Moreover, this might lead to usage of Just-in-time method were the purchase properly coordinate with scheduled production on daily basis.
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Chapter 6 Solutions
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