Question

I was struggling to find the correct combination of accounts to use in these two journal entries. Note 2 states that we need to approach number 5 in FIFO, and don't know how to interpret this question in terms of what they're asking for other than COGS. Number 6 just needs a better wording because I am not understanding what they're trying to ask me to do from what is given.
2. In general, inventories are stated at full cost utilizing First-in-First-Out flow methods. Work- In-Process and Finished Goods are costed at direct materials plus factory labor (thus factory labor is included in the cost of manufactured inventory). The Company does not allocate any overhead to these accounts. This is non-standard accounting but is done in this practice set as a simplification.

Answer 1

Note 2 is a note on inventory valuation method and it is part of accounting policy The general practice is notes are given in addition to Financial statements to understand the financial statements in a better way. Hence additional disclosures is made by the firm on accounting policy for inventory valuation This does not require any Journal entry The purpose of giving this accounting policy is to ensure Finished goods are valued at Direct material + Direct labor cost only without including manufacturing overheads in it Entry for Cost of goods sold 5 Date Credit Debit $12,000,000 Account Title and Explanation Cost of goods sold Finished goods Inventory (To record Cost of goods sold) $12,000,000 Note: Closing inventory details of raw material and units produced and sold are not given Hence entire amount is taken to Cost of goods sold If you have theses details please share because Cost of goods sold will change Cost of goods sold = Units sold * Direct Material cost per unit 6 Date Credit Debit $19,500,000 Account Title and Explanation Cash Accounts receivable (To record cash collected from customers) $19,500,000 Note: Cash received from customers on account of credit sales can be more than credit sales when collection is made out of opening balance + Credit sales during the year.