Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
Question
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Chapter 2, Problem 1GLP

2.

To determine

To prepare: Journal entries.

2.

Expert Solution
Check Mark

Explanation of Solution

a.

To record material purchases on credit.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Purchase of raw materials 500,000
Accounts payable 500,000
(To record material purchases on credit

Table(2)

  • Purchase of raw materials is an asset account. Raw material increases as the new raw materials has been brought to the business that increases the assets and all the assets are debited as their values increases.
  • Account payable is a liability account. Account payable increases as the raw materials are purchased on credit, hence the liability increases and all the liabilities are credited as their values decreases.

b.

To record direct materials used in production.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Work in process inventory 455,000
Raw materials inventory 455,000
(To record. direct materials used in production.)

Table(3)

  • Work in process inventory is an asset account. Work in process account increases as raw materials are in process to convert them into finished goods which will increase the assets and all the assets are debited as their value increases.
  • Raw materials inventory is an asset account. Raw material decreases as they are used in production, hence asset decreases and all the assets are credited as their value decreases.

c.

To record the payment for direct labor.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Inventory Work in Progress 340,000
Cash 340,000
(To record. the payment for direct labor)

Table(4)

  • Inventory work in progress is an asset account. Inventory account increases as payment is made to the direct labor which increases the production of goods, hence asset increases and all the assets are debited as their values increase.
  • Cash is an asset account. Cash account decreases as payment of direct labor is made in cash, hence asset decreases and all the assets are credited as their value decreases.

d.

To record the payment for indirect labor.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Factory Overhead cost 23,000
Cash 23,000
(To record. the payment for indirect labor)

Table(5)

  • Factory overhead cost is an expense account. Factory overhead account increases as the expenses increases for the company for the payment of labor and all the expenses and losses are debited.
  • Cash is an asset account. Cash account decreases as payment of direct labor is made in cash, hence asset decreases and all the assets are credited as their value decreases.

e.

To record overhead cost applied to work in process inventory.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Inventory Work in Progress 340,000
Factory Overhead cost 340,000
(To record. the payment for direct labor)

Table(6)

  • Inventory work in progress is an asset account. Inventory account increases as the overhead cost are applied to this account and will increase the value of asset and all assets are debited as their values increases.
  • Factory overhead cost is a liability account. Factory overhead account increases as the liability for the company increases, hence it is credited.

f.

To record overhead cost incurred of indirect material costing $50,000.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Factory Overhead account 50,000
Inventory-raw material 50,000
(To record the overhead cost)

Table(7)

  • Factory overhead is an expense account. Factory overhead increases as there is an indirect expense and all the expenses are debited.
  • Inventory raw materials are an asset account. Inventory decreases as the expense is not directly related to the production and all the assets are credited as their value decreases.

To record the entry for payment of factory utilities for cash $19,000.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Factory Overhead account 19,000
Cash 19,000
(To record expenses paid)

Table(8)

  • Factory overhead is an expense account. Since expense reduces equity and Expenses have been paid that is the reason it is debited.
  • Cash is an asset account. Cash account decreases as the amount for expenses has been paid in cash, hence the asset decreases and all the assets are credited as their value decreases.

To record the depreciation indirect expense.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Factory Overhead account 51,000
Accumulated depreciation 51,000
(To record depreciation booked towards factory overheads)

Table(9)

  • Factory overhead is an expense account. Factory overhead increases as the depreciation is charged towards overheads accounts and all expenses and losses are debited.
  • Accumulated depreciation is a contra asset account and has a credit balance. Accumulated depreciation increases as the expense is transferred to this account.

To Record the payment of rent.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Factory Overhead account 32,000
Cash 32,000
(To record expenses paid)
  • Factory overhead is an expense account. Since expense reduces equity and Expenses have been paid that is the reason it is debited.
  • Cash is an asset account. Cash account decreases as the amount for expenses has been paid in cash, hence the asset decreases and all the assets are credited as their value decreases.

Table(10)

g.

To record the transfer of jobs 306 and 307 to finished goods inventory.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Inventory-finished goods 828,500
Inventory-work in progress 828,500
(To record completion of jobs)

Table(11)

  • Inventory is an asset account. Inventory account increases as the work in process goods are now converted into finished goods, hence the balance will be transferred to finished goods, and hence the account increases and all assets are debited as their values increase.
  • Inventory work in progress is an asset account. Inventory account decreases as the balance has been transferred to finished goods and balance of work in progress account reduces, hence it is credited.

Working note:

Total production of job 306 as per the table is $321,500.
Total production of job 307 as per the table is $507,000.

Computation of total production transferred,

    Totalproductiontransferred=( Total production of job 306 +Total production of job 307 ) =$321,500+$507,000 =$828,500
Total production transferred is $828,500.

h.

To record the cost of goods sold of job 6 cost $321,500.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cost of goods sold 321,500
Inventory-finished goods 321,500
(To record the cost of sale)

Table(12)

  • Cost of goods sold is an expense account. Cost of goods sold increases as the cost is ascertained for the product which is about to be sold and all expenses and losses are debited.
  • Inventory (finished goods) is an asset account. Inventory Account decreases as the asset is being sold, hence asset decreases and all the assets are credited as their value decreases.

i.

To record the entry for revenue from the sale of job 306.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cash 635,000
Sale of goods 635,000
(To record cash sale)

Table(13)

  • Cash account is an asset account. Cash Account increases as the sale has been made and cash has come into the business, hence the asset increases and all assets are debited as their values increases.
  • Sale of goods is a revenue account. Sale and revenue generated are always credited as all incomes and gains are credited.

j.

To record the entry for under applied overheads.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Cost of goods sold 5,000
Factory over head cost 5,000
(To record the cost of sale)

Table(14)

  • Cost of goods sold is an expense account. Cogs increases as the under applied amount of goods s added to the cost of goods sold and it increases the balance of cogs and all expenses and losses are always debited.
  • Factory over head cost is an expense account. The account decreases as it was wrongly debited earlier of under applied goods to reverse it, it is credited.

Working notes:

Given,
Over head on indirect materials is $50,000.
Over head on indirect man power is $23,000.
Factory rent is $32,000.
Factory utilities are $19,000.
Factory equipment depreciation is $51,000.

Computation of total overheads, Totaloverheads=( Over head on indirect materials +Over head on indirect man power +Factory rent+Factory utilities +Factory equipment depreciation ) =$50,000+$23,000+$32,000+$19,000+$51,000 =$175,000 The total overheads are $175,000.

Overhead applied is $170,000.

Computation of excess balance or under applied, Underappliedoverhead=TotaloverheadOverheadapplied =$175,000$170,000 =$5,000 Under applied overhead is $5,000.
To determine

To prepare: The schedule of cost of goods manufactured.

Expert Solution
Check Mark

Explanation of Solution

Computation of schedule of cost of goods manufactured,

M Company Schedule for cost of goods manufactured for the year ended on April 30

Particulars Cost ($)
Direct Materials Cost 455,000
Direct Labor Cost 340,000
Factor Overheads 170,000
Total Cost 965,000
Work in progress for jobs 306 and 307 121,000
Total Cost 1,086,000
Less: Work in progress of job 308 257,500
Total goods manufactured 828,500

Table(15)

Hence, the total goods manufactured is $828,500.

To determine

To prepare: The income statement.

Expert Solution
Check Mark

Explanation of Solution

Computation of the income statement,

BB System

Statement Of Income

For the year ended on 31st December

Details Amount
Sales revenue 635,000
Less: Cost of goods sold (326,000)
Gross income 309,000
Less: Operating expense -
Net income 309,000

Table(9)

Hence, the net income is $309,000.

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Chapter 2 Solutions

Managerial Accounting

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