Q29E - Horngren'S Financial And Managerial Accounting

Question

Hartley Company has a production process that involves three processes. Units move through the processes in this order: cutting, stamping, and then polishing. The company had the following transactions in November:

1. Cost of units completed in the Cutting Department, \(17,000

2. Cost of units completed in the Stamping Department, \)30,000

3. Cost of units completed in the Polishing Department, \(35,000

4. Sales on account, \)50,000

5. Cost of goods sold is 80% of sales

Prepare the journal entries for Hartley Company.

Step-by-Step Solution

Answer

The journal entries to record the transfer of cost from one department to another, sales of the units, and the cost of goods sold are shown in step 2.

The cost of goods sold is $50,000.

Step-by-Step Solution: Step 1: Manufacturing Process

The manufacturing process converts the raw material by applying the conversion cost into the finished product, and the company can sell that finished product in the market.

Step 2: Journal entries to record the transactions

Date	Particulars	Debit ($)	Credit ($)
1.	Work-in-process inventory – Stamping department	17,000
	Work-in-process inventory – Cutting dept.		17,000
2.	Work-in-process inventory-Polishing department	30,000
	Work-in-process inventory-Stamping dept.		30,000
3.	Finished goods inventory	35,000
	Work-in-process inventory-Polishing dept		35,00
4.	Account receivable	50,000
	Sales revenue		50,000
5.	Cost of goods sold (80% of $50,000)	40,000
	Finished goods inventory		40,000

Step 3: Cost of goods sold

$\begin{array}{c}\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}=\mathrm{Sales}\times 80\%\\ =\$50,000\times 80\%\\ =\$40,000\end{array}$