Chapter 1, Problem 7P

Selected account balances and transactions of Titan Foundry Inc. follow:

May Transactions:

1. a. Purchased raw materials and factory supplies on account at costs of $45,000 and $10,000, respectively. (One inventory account is maintained.)
2. b. Incurred wages during the month of $65,000 ($15,000 was for indirect labor).
3. c. Incurred factory overhead costs in the amount of $42,000 on account.
4. d. Made adjusting entries to record $10,000 of factory overhead for items such as depreciation (credit Various Credits). Factory overhead was closed to Work in Process. Completed jobs were transferred to Finished Goods, and the cost of jobs sold was charged to Cost of Goods Sold.

Required:

Prepare journal entries for the following:

1. 1. The purchase of raw materials and factory supplies.
2. 2. The issuance of raw materials and supplies into production. (Hint: Be certain to consider the beginning and ending balances of raw materials and supplies as well as the amount of the purchases.)
3. 3. The recording of the payroll.
4. 4. The distribution of the payroll.
5. 5. The payment of the payroll.
6. 6. The recording of factory overhead incurred.
7. 7. The adjusting entry for factory overhead.
8. 8. The entry to transfer factory overhead costs to Work in Process.
9. 9. The entry to transfer the cost of completed work to Finished Goods. (Hint: Be sure to consider the beginning and ending balances of Work in Process as well as the manufacturing costs added to Work in Process this period.)
10. 10. The entry to record the cost of goods sold. (Hint: Be sure to consider the beginning and ending balances of Finished Goods as well as the cost of the goods finished during the month.)

To determine

Prepare journal entry to record the given transactions.

Explanation of Solution

Cost accounting system of an organization consists of procedures and techniques used by an enterprise. This system helps the enterprise to track their resources that are used in creating and delivering products and services.

Prepare journal entry to record the given transactions.

Date	Accounts title and explanation	Debit ($)	Credit ($)
1.	Material inventory	55,000
	Accounts payable		55,000
	(To record the purchase of materials and office supplies on account)
2.	Work in process inventory (Materials) (1)	45,500
	Factory overhead (Indirect materials) (2)	9,900
	Materials inventory		55,400
	(To record issuance of raw materials and supply for production)
3.	Payroll	65,000
	Wages payable		65,000
	(To record the payroll)
4.	Work in process inventory (Labor)	50,000
	Factory overhead (Indirect labor)	15,000
	Payroll		65,000
	(To record the distribution of payroll)
5.	Wages payable	65,000
	Cash		65,000
	(To record the payment of payroll)
6.	Factory overhead	42,000
	Accounts payable		42,000
	(To record the factory overhead incurred)
7.	Factory overhead	10,000
	Various credits (Prepaid insurance, Accumulated Depreciation)		10,000
	(Adjusting entry for the factory overhead expense)
8.	Work in  process (3)	76,900
	Factory overhead		76,900
	(To record transfer of factory overhead costs to work in process)
9.	Finished goods (4)	169,400
	Work in process		169,400
	(To record transfer of cost of completed work to finished goods)
10	Cost of goods sold (5)	168,200
	Finished goods		168,200
	(To record the cost of goods sold)

(Table 1)

Working note 1: Calculate the work in process of raw materials.

$\begin{array}{c}\begin{array}{l}\text{Work in process }\\ \text{of raw materials }\end{array}\}\text{=}\left(\begin{array}{l}\text{Beginning balance+Purchase}\\ -\text{Ending balance}\end{array}\right)\\ =\$6,000+\$45,000-\$5,500\\ =\$45,500\end{array}$

Working note 2: Calculate the factory overhead of indirect materials.

$\begin{array}{c}\begin{array}{l}\text{Factory overhead of indirect }\\ \text{materials }\end{array}\}\text{=}\left(\begin{array}{l}\text{Beginning balance+Purchase}\\ -\text{Ending balance}\end{array}\right)\\ =\$800+\$10,000-\$900\\ =\$9,900\end{array}$

Working note 3: Calculate the amount of goods transferred from factory overhead to work in process.

$\begin{array}{c}\text{Work in process =}\left(\begin{array}{l}\text{Indirect materials+Indirect labor+}\\ \text{Factory overhead paid+Factory overhead }\\ \text{recorded}\end{array}\right)\\ =\$9,900+\$15,000+\$42,000+\$10,000\\ =\$76,900\end{array}$

Working note 4: Calculate the amount goods transferred from completed work to finished goods.

$\begin{array}{c}\text{Finished goods =}\left(\begin{array}{l}\text{Beginning work in process + Materials+ Labor+}\\ \text{Factory overhead}-\text{Ending work in process}\end{array}\right)\\ =\$3,500+\$45,500+\$50,000+\$76,900-\$6,500\\ =\$169,400\end{array}$

Working note 5: Calculate the cost of goods sold.

$\begin{array}{c}\text{Cost of goods sold =}\left(\begin{array}{l}\text{Beginning balance of finished goods + Goods fininshed }\\ \text{during the month}-\text{Ending balance of the finished goods}\end{array}\right)\\ =\$12,000+\$169,400-\$13,200\\ =\$168,200\end{array}$