Question

exercise 3-5 (algo) journal entries and t-accounts lo3-1, lo3-2

the polaris company uses a job-order costing system. the following transactions occurred in october:

a. raw materials purchased on account, $211,000.
b. raw materials used in production, $188,000 ($150,400 direct materials and $37,600 indirect materials).
c. accrued direct labor cost of $49,000 and indirect labor cost of $21,000.
d. depreciation recorded on factory equipment, $106,000.
e. other manufacturing overhead costs accrued during october, $130,000.
f. the company applies manufacturing overhead cost to production using a predetermined rate of $7 per machine-hour. a total of 76,500 machine-hours were used in october.
g. jobs costing $513,000 were completed and transferred to finished goods.
h. jobs costing $449,000 were shipped to customers. these jobs were sold on account at 36% above cost.

required:

1. prepare journal entries to record the transactions given above.
2. prepare t-accounts for manufacturing overhead and work in process. post the relevant transactions from above to each account. compute the ending balance in each account, assuming work in process has a beginning balance of $36,000.

Explanation:

Record journal entries for transactions (a) through (h)

Using the Job Costing System knowledge point, we prepare the journal entries:

• a. Raw materials purchased on account, $211,000:

Debit Raw Materials $211,000; Credit Accounts Payable $211,000.

• b. Raw materials used in production, $188,000 ($150,400 direct materials and $37,600 indirect materials):

Debit Work in Process $150,400; Debit Manufacturing Overhead $37,600; Credit Raw Materials $188,000.

• c. Accrued direct labor cost of $49,000 and indirect labor cost of $21,000:

Debit Work in Process $49,000; Debit Manufacturing Overhead $21,000; Credit Salaries and Wages Payable $70,000.

• d. Depreciation recorded on factory equipment, $106,000:

Debit Manufacturing Overhead $106,000; Credit Accumulated Depreciation $106,000.

• e. Other manufacturing overhead costs accrued during October, $130,000:

Debit Manufacturing Overhead $130,000; Credit Accounts Payable (or Cash/Prepaid Expenses) $130,000.

• f. Apply manufacturing overhead to production:

Using the Predetermined Overhead Rate and Overhead Application knowledge points:

$$ \text{Applied Overhead} = 76,500 \text{ machine-hours} \times \$7/\text{machine-hour} = \$535,500 $$

Debit Work in Process $535,500; Credit Manufacturing Overhead $535,500.

• g. Jobs costing $513,000 were completed and transferred to Finished Goods:

Debit Finished Goods $513,000; Credit Work in Process $513,000.

• h. Jobs costing $449,000 were shipped to customers (sold on account at 36% above cost):

1. Cost of Goods Sold: Debit Cost of Goods Sold $449,000; Credit Finished Goods $449,000.
2. Sales Revenue:

$$ \text{Sales Revenue} = \$449,000 \times 1.36 = \$610,640 $$

Debit Accounts Receivable $610,640; Credit Sales $610,640.

Post to Manufacturing Overhead T-account

We summarize the debits (actual overhead) and credits (applied overhead) to find the ending balance:

• Debits (Actual):
• Indirect materials (b): $37,600
• Indirect labor (c): $21,000
• Depreciation (d): $106,000
• Other overhead (e): $130,000
• Total Debits = $294,600

• Credits (Applied):
• Applied overhead (f): $535,500

• Ending Balance:

Since credits exceed debits, the account has a credit balance (overapplied overhead):

$$ \$535,500 - \$294,600 = \$240,900 \quad (\text{Credit}) $$

Post to Work in Process T-account

We summarize the beginning balance, debits (additions), and credits (transfers) to find the ending balance:

• Beginning Balance: $36,000 (Debit)
• Debits (Additions):
• Direct materials (b): $150,400
• Direct labor (c): $49,000
• Applied overhead (f): $535,500
• Total Debits = $734,900

• Credits (Transfers):
• Completed jobs (g): $513,000

• Ending Balance:

$$ \text{Ending Balance} = \$36,000 + \$734,900 - \$513,000 = \$257,900 \quad (\text{Debit}) $$

Answer:

Question 1

Transaction	General Journal	Debit	Credit
	Accounts Payable		$211,000
b.	Work in Process	$150,400
	Manufacturing Overhead	$37,600
	Raw Materials		$188,000
c.	Work in Process	$49,000
	Manufacturing Overhead	$21,000
	Salaries and Wages Payable		$70,000
d.	Manufacturing Overhead	$106,000
	Accumulated Depreciation		$106,000
e.	Manufacturing Overhead	$130,000
	Accounts Payable		$130,000
f.	Work in Process	$535,500
	Manufacturing Overhead		$535,500
g.	Finished Goods	$513,000
	Work in Process		$513,000
h.(1)	Cost of Goods Sold	$449,000
	Finished Goods		$449,000
h.(2)	Accounts Receivable	$610,640
	Sales		$610,640

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Question 2

Manufacturing Overhead T-Account

                  Manufacturing Overhead
----------------------------------------------------------
(b) Indirect materials   $37,600 | (f) Applied overhead  $535,500
(c) Indirect labor       $21,000 |
(d) Depreciation        $106,000 |
(e) Other overhead      $130,000 |
----------------------------------------------------------
                                 | Ending Balance        $240,900 (Credit)

Work in Process T-Account

                     Work in Process
----------------------------------------------------------
Beginning Balance        $36,000 | (g) Completed jobs    $513,000
(b) Direct materials    $150,400 |
(c) Direct labor         $49,000 |
(f) Applied overhead    $535,500 |
----------------------------------------------------------
Ending Balance          $257,900 |