Q25E - Horngren'S Financial And Managerial Accounting

Question

Question: Analyze the following T-accounts, and describe each lettered transaction. Note that some transactions may be compound entries.

Raw material inventory

(a)

(b)

Work in process inventory

(b)	(f)
(c )
(e )

 

Finished goods inventory

(f)

(g)

Prepaid insurance

(d)

 

Account payable

(a)

Wages payable

(c)

 

Manufacturing overhead

(b)	(e)
(c )	(h)
(d)

 

Cost of goods sold

(g)
(h)

 

Step-by-Step Solution

Answer

Answer

Letered transaction	Description
(a)	Raw material purchased on account
(b)	Issued raw material including direct and indirect material for production
(c )	Incurred direct labor cost and indirect labor cost for processing raw material
(d)	Recorded prepaid insurance to manufacturing overhead account
(e )	Applied manufacturing overhead to jobs
(f)	Jobs are completed and costs are transferred from work in process inventory to finished goods inventory
(g)	Jobs are sold, and cost in finished goods inventory transferred to cost of goods sold
(h)	Recorded under allocated manufacturing overhead by charging it to cost of goods sold

Step 1: Journal entry for explaining the lettered transaction (a)

Date	Particulars	Debit ($)	Credit ($)
	Raw material inventory	XXX
	Account payable		XXX

The raw material purchased on account is recorded by debiting the raw material inventory account and by crediting the accounts payable account.

Step 2: Journal entry for explaining the lettered transaction (b)

Date	Particulars	Debit ($)	Credit ($)
	Work in process inventory	XXX
	Manufacturing overhead	XXX
	Raw material inventory		XXX

The raw material issued for production is recorded as by debiting the work in process inventory for direct material and the manufacturing overhead for indirect material and by crediting the raw material inventory account.

Step 3: Journal entry for explaining the lettered transaction (c)

Date	Particulars	Debit ($)	Credit ($)
	Work in process inventory	XXX
	Manufacturing overhead	XXX
	Wages payable		XXX

Labor cost incurred should be recorded by debiting the work in process inventory for direct labor, manufacturing overhead for indirect labor and by crediting the wages payable account.

Step 4: Journal entry for explaining the lettered transaction (d)

Date	Particulars	Debit ($)	Credit ($)
	Manufacturing overhead	XXX
	Prepaid insurance		XXX

For transferring the prepaid insurance to manufacturing overhead, company debit the manufacturing overhead account and credi the prepaid insurance account.

Step 5: Journal entry for explaining the lettered transaction (e)

Date	Particulars	Debit ($)	Credit ($)
	Work in process inventory	XXX
	Manufacturing overhead		XXX

Application of manufacturing overhead to job is recorded by debiting the work in process account and by crediting the manufacturing overhead account

Step 6: Journal entry for explaining the lettered transaction (f)

Date	Particulars	Debit ($)	Credit ($)
	Finished goods inventory	XXX
	Work in process inventory		XXX

For recording the transfer of work in process account to finished goods inventory, company debit the finished goods inventory and credit the work in process inventory account.

Step 7: Journal entry for explaining the lettered transaction (g)

Date	Particulars	Debit ($)	Credit ($)
	Cost of goods sold	XXX
	Finished goods inventory		XXX

When the goods are sold the cost incurred on the goods sold is transferred to the cost of goods sold by debiting the cost of goods sold account and crediting the finished goods inventory account.

Step 8: Journal entry for explaining the lettered transaction (h)

Date	Particulars	Debit ($)	Credit ($)
	Cost of goods sold	XXX
	Manufacturing overhead		XXX

When the manufacturing overhead is underallocated, the company debit the cost of goods sold and credit the manufacturing overhead for recording the underallocated amount to manufacturing overhead.