Question

The following transactions occurred in April at Steve’s Cabinets, a custom cabinet firm.

1. Purchased $80,000 of materials on account.

2. Issued $4,000 of supplies from the materials inventory.

3. Purchased $56,000 of materials on account.

4. Paid for the materials purchased in transaction (1) using cash.

5. Issued $68,000 in direct materials to the production department.

6. Incurred direct labor costs of $100,000, which were credited to Wages Payable.

7. Paid $106,000 cash for utilities, power, equipment maintenance, and other miscellaneous items for the manufacturing plant.

8. Applied overhead on the basis of 125 percent of $100,000 direct labor costs.

9. Recognized depreciation on manufacturing property, plant, and equipment of $50,000.

The following balances appeared in the accounts of Steve’s Cabinets for April.

	Beginning			Ending
Materials Inventory	$	148,200			?
Work-in-Process Inventory		33,000			?
Finished Goods Inventory		166,000		$	143,200
Cost of Goods Sold					263,400

Required:

a. Prepare journal entries to record the transactions.

b. Prepare T-accounts to show the flow of costs during the period from Materials Inventory through Cost of Goods Sold.

Answer 1

a	Journal entries in the books of Steve's Cabinets
Date	Account's tittle	Debit $	Credit $
1	Material Inventory	80000
	Accounts Payable		80,000
	( purchase of material on account )
2	Work-in process inventory	4,000
	Material Inventory		4,000
	( Issue of supplies )
3	Material Inventory	56,000
	Accounts Payable		56,000
	( purchase of material on account )
4	Accounts Payable	80,000
	Cash		80,000
	( Cash paid to suppliers )
5	Work-in process inventory	68,000
	Material Inventory		68,000
	( Issue of materials for production )
6	Direct Labor cost	100,000
	Wages Payable		100,000
	( Labor cost incurred but not paid )
7	Manufacturing overhead	106,000
	Cash		106,000
	( cash paid for utility,power,maintenance and others )
8	Work-in process inventory ( $ 100,000 x 125% )	125,000
	Manufacturing overhead		125,000
	( Applied manufacturing overhead )
9	Manufacturing overhead ( Depreciation )	50,000
	Accumulated depreciation		50,000
	( Depreciation on manufacturing property,plant and equipment )
10	Work-in process inventory	100,000
	Direct Labor cost		100,000
	(Direct labor cost applied for production )

T-Account
Material inventory
	Debit $		Credit $
Beginning balance	148,200	Work-in process inventory	4,000
Accounts payable	80,000	Work-in process inventory	68,000
Accounts Payable	56,000
		Ending inventory	212,200
Total	284,200	Total	284,200
Accounts payable
	Debit $		Credit $
Cash	80,000	Material Inventory	80,000
		Material Inventory	56,000
Ending balance	56,000
Total	136,000	Total	136,000
Work-in process inventory
	Debit $		Credit $
Beginning balance	33,000	Finished goods	45,070
Material Inventory	4,000
Material Inventory	68,000
Manufacturing overhead	125,000	Ending inventory ( $ 330,000 - $ 209,600 )	120,400
Direct Labor cost	100,000
Total	330,000	Total	330,000
Cash
	Debit $		Credit $
		Accounts Payable	80,000
		Manufacturing overhead	106,000
Total	186,000	Total	186,000
Direct Labor cost
	Debit $		Credit $
Wages Payable	100,000	Work-in process inventory	100,000
Total	100,000	Total	100,000
Wages payable
	Debit $		Credit $
		Direct Labor cost	100,000
Total	100,000	Total	100,000
Manufacturing overhead
	Debit $		Credit $
Cash	106,000	Work-in process inventory	125,000
Accumulated depreciation	50,000	Cost of goods sold (underapplied )	31,000
Total	156,000	Total	156,000
Accumulated depreciation
	Debit $		Credit $
		Manufacturing overhead ( Depreciation )	50,000
Total	50,000	Total	50,000
Finished goods
	Debit $		Credit $
Beginning balance	166,000	Cost of goods sold	232,400
Work-in process inventory ( $ 375,600 - $ 166,000)	209,600
		Ending balance	143,200
Total	375,600	Total	375,600
Cost of goods sold
	Debit $		Credit $
Finished goods ( $ 263,400 - $ 31,000 )	232,400
Manufacturing overhead (Underapplied)	31,000
		Ending balance	263,400
Total	263,400	Total	263,400