(L. OBJ. 2, 3, 4) Accounting for construction transactions [30—45 min] Sherborn Constru...

(L. OBJ. 2, 3, 4) Accounting for construction transactions [30—45 min]

Sherborn Construction, Inc., is a home builder in New Mexico. Sherborn uses a job order costing system in which each house is a job. Because it constructs houses, the company uses accounts titled Construction wages and Construction overhead. The following events occurred during August:

Requirements

1. Record the events in the general journal.

2. Open T-accounts for Work in process inventory and Finished goods inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.

3. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work in process inventory account.

4. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance ¡n Finished goods inventory.

5. Compute gross profit on the house that was sold. What costs must gross profit cover for Sherborn Construction?