Question

Journal Entries, T-Accounts, Cost of Goods Manufactured and Sold

During May, the following transactions were completed and reported by Jerico Company:

1. Materials purchased on account, $60,100.
2. Materials issued to production to fill job-order requisitions: direct materials, $50,000; indirect materials, $8,700.
3. Payroll for the month: direct labor, $75,000; indirect labor, $35,000; administrative, $28,000; sales, $19,000.
4. Depreciation on factory plant and equipment, $10,400.
5. Property taxes on the factory accrued during the month, $1,450.
6. Insurance on the factory expired with a credit to the prepaid insurance account, $6,200.
7. Factory utilities, $5,500.
8. Advertising paid with cash, $7,900.
9. Depreciation on office equipment, $800; on sales vehicles, $1,650.
10. Legal fees incurred but not yet paid for preparation of lease agreements, $750.
11. Overhead is charged to production at a rate of $18 per direct labor hour. Records show 4,000 direct labor hours were worked during the month.
12. Cost of jobs completed during the month, $150,000.

The company also reported the following beginning balances in its inventory accounts:

Materials Inventory	$7,500
Work-in-Process Inventory	37,000
Finished Goods Inventory	50,000

Required:

1. Prepare journal entries to record the transactions occurring in May. For a compound transaction, if an amount box does not require an entry, leave it blank.

a.	Materials
	Accounts Payable
b.	Work in Process
	Overhead Control
	Materials
c.	Work in Process
	Overhead Control
	Administrative Expense
	Selling Expense
	Wages Payable
d.	Overhead Control
	Accumulated Depreciation
e.	Overhead Control
	Property Taxes Payable
f.	Overhead Control
	Prepaid Insurance
g.	Overhead Control
	Utilities Payable
h.	Selling Expense
	Cash
i.	Administrative Expense
	Selling Expense
	Accumulated Depreciation
j.	Administrative Expense
	Accounts Payable
k.	Work in Process
	Overhead Control
l.	Finished Goods
	Work in Process

Feedback

Consider each line of data to determine which accounts are affected and whether the account is to be debited or credited.

2. Prepare T-accounts for Materials Inventory, Overhead Control, Work-in-Process Inventory, and Finished Goods Inventory. Post the entries to the T-account in the same order in which they were journalized.

Materials Inventory
Balance		(b)
(a)
Balance

Feedback

Set up T-accounts and consider the information that pertains to Overhead Control, Work-in-Process, Materials, and Finished Goods account. The use of T-accounts would provide a good picture of balances and transactions for the required reporting. Remember to focus on the normal balance of the accounts. What is the increasing side? The decreasing side? This will be helpful when posting the journalized transactions.

Work in Process Inventory
Balance		(l)
(b)
(c)
(k)
Balance

Feedback

Set up T-accounts and consider the information that pertains to Overhead Control, Work-in-Process, Materials, and Finished Goods account. The use of T-accounts would provide a good picture of balances and transactions for the required reporting. Remember to focus on the normal balance of the accounts. What is the increasing side? The decreasing side? This will be helpful when posting the journalized transactions.

Finished Goods Inventory
Balance
(l)
Balance

Feedback

Set up T-accounts and consider the information that pertains to Overhead Control, Work-in-Process, Materials, and Finished Goods account. The use of T-accounts would provide a good picture of balances and transactions for the required reporting. Remember to focus on the normal balance of the accounts. What is the increasing side? The decreasing side? This will be helpful when posting the journalized transactions.

Overhead Control
(b)		(k)
(c)
(d)
(e)
(f)
(g)
		Balance

Feedback

Set up T-accounts and consider the information that pertains to Overhead Control, Work-in-Process, Materials, and Finished Goods account. The use of T-accounts would provide a good picture of balances and transactions for the required reporting. Remember to focus on the normal balance of the accounts. What is the increasing side? The decreasing side? This will be helpful when posting the journalized transactions.

3. Prepare a statement of cost of goods manufactured.

Jerico Company
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 20XX
Direct materials		$
Direct labor
Overhead:
Supplies	$
Indirect labor
Depreciation, plant, and equipment
Property taxes
Utilities, factory
Insurance
	$
Add: Overapplied overhead
Overhead applied
Manufacturing costs added		$
Add: Beginning work in process
Less: Ending work in process Correct
Cost of goods manufactured		$

Feedback

Review what you have learned in the chapter.

4. If the overhead variance is all allocated to cost of goods sold, by how much will cost of goods sold decrease or increase?
Decreases    by   $

Answer 1

1	Ref.	Account titles and explanation					Debit	Credit
	a.	Materials inventory					60100
		Accounts payable						60100
		(Materials purchased on account)
	b.	Work in process inventory					50000
		Overhead control					8700
		Materials inventory						58700
		(Materials issued to production)
	c.	Work in process inventory					75000
		Overhead control					35000
		Salaries and wages expense			(28000+19000)		47000
		Salaries and wages payable						157000
		(Payroll recorded)
	d.	Overhead control					10400
		Accumulated depreciation- Factory plant & equipment						10400
		(Depreciation recorded)
	e.	Overhead control					1450
		Property taxes payable						1450
		(Property taxes due)
	f.	Overhead control					6200
		Prepaid insurance						6200
		(Prepaid insurance expired)
	g.	Overhead control					5500
		Utilities payable						5500
		(Factory utilities incurred)
	h.	Selling expense					7900
		Cash						7900
		(Advertising expense paid)
	i.	Depreciation expense				(800+1650)	2450
		Accumulated depreciation- Office equipment						800
		Accumulated depreciation- Vehicles						1650
		(Depreciation recorded)
	j.	Administrative expense					750
		Accounts payable						750
		(Legal fees accrued)
	k.	Work in process inventory				(4000*18)	72000
		Overhead control						72000
		(Overhead charged to production)
	l.	Finished goods inventory					150000
		Work in process inventory						150000
		(Cost of jobs completed)
2			Materials inventory
	Particulars			Debit	Particulars			Credit
	Beg. Bal.			7500	b.			58700
	a.			60100
				67600				58700
	End. Bal.			8900
			Overhead control
	Particulars			Debit	Particulars			Credit
	b.			8700	k.			72000
	c.			35000
	d.			10400
	e.			1450
	f.			6200
	g.			5500
				67250				72000
					End. Bal.			4750
			Work in process inventory
	Particulars			Debit	Particulars			Credit
	Beg. Bal.			37000	l.			150000
	b.			50000
	c.			75000
	k.			72000
				234000				150000
	End. Bal.			84000
			Finished goods inventory
	Particulars			Debit	Particulars			Credit
	Beg. Bal.			50000
	l.			150000
				200000				0
	End. Bal.			200000