Chapter 3, Problem 15E

To determine

Journal Entries:

It is a book of original entry. It records and summarizes financial transaction of an entity in chronological manner, generally according to dual aspect of accounting.

Accounting rules regarding journal entries:

• Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
• Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.

To prepare: Journal entry.

Explanation of Solution

Solution:

(a)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Raw Material Inventory		500,000
	Accounts Payable			500,000
	(Being raw material inventory is purchased on credit )

                                                  Table (1)

• Raw material inventory is an asset. Since, raw material inventory is purchased, it increases asset. Hence debit raw material inventory account
• Account payable is a liability. Since, asset is purchased but not paid yet it increases liability. Hence, credit accounts payable account.

(b)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Work in Process-Weaving		240,000
	Work in Process-Sewing		75,000
	Raw Material Inventory			315,000
	(Being raw material directly used in production)

]

                                                  Table (2)

• Work in process-weaving is an asset. Since, material is used to manufacture good but not completed yet, it increases work in process-weaving. Hence, debit work in process-weaving account.
• Work in process-sewing is an asset. Since, material is used to manufacture good but not completed yet, it increases work in process-sewing. Hence, debit work in process-sewing account.
• Raw material inventory is an asset. Since, raw material is used, it decreases asset. Hence, credit raw material inventory account.

(c)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Factory Overhead		120,000
	Raw Material Inventory			120,000
	(Being raw material indirectly used in production))

                                                  Table (3)

• Factory overhead is an expense. Since, raw material inventory is used, it increases expense. Hence, debit factory overhead.
• Raw material inventory is an asset. Since, raw material is used, it decreases asset. Hence credit raw material inventory account.

(d)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Work in Process-Weaving		1,200,000
	Work in Process-Sewing		360,000
	Factory Wages Payable			1,560,000
	(Being direct labor expenses incurred during production )

                                                  Table (4)

• Work in process-weaving is an asset. Since, labor is used to manufacture, it increases work in process-weaving. Hence, debit work in process-weaving account.
• Work in process-sewing is an asset. Since, labor is used to manufacture, it increases work in process-sewing. Hence, debit work in process-sewing account.
• Factory wages payable is a liability. Since, expense is incurred and expense reduces equity. Hence, credit factory wages payable account.

(e)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Factory Overhead		1,500,000
	Factory Wages Payable			1,500,000
	(Being indirect labor expenses incurred during production )

                                                  Table (5)

• Factory overhead is an expense. Since, labor is used, it increases expense. Hence, debit factory overhead.
• Factory wages payable is a liability. Since, expense is incurred and expense reduces equity. Hence, credit factory wages payable account.

(f)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Factory Overhead		156,000
	Other Accounts			156,000
	(Being other indirect expenses incurred )

                                                  Table (6)

• Factory overhead is an expense. Since, other overhead cost are indirect, it increases expense. Hence, debit factory overhead.
• Other accounts are expense to the company. Since, expense reduces equity, other accounts is credited.

(g)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Work in Process-Weaving		960,000
	Work in Process-Sewing		540,000
	Factory overhead			1,500,000
	(Being factory overhead cost applied )

                                                  Table (7)

• Work in process-weaving is an asset. Since, indirect labor is used to manufacture, it increases work in process-weaving. Hence, debit work in process-weaving account.
• Work in process-sewing is an asset. Since, indirect labor is used to manufacture, it increases work in process-sewing. Hence, debit work in process-sewing account.
• Factory overhead is an expense. Since, factory overhead is transferred to work in process, it decreases factory overhead. Hence, credit factory overhead account.

(h)

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Factory Wages Payable		3,060,000
	Cash			3,060,000
	(Being factory wages paid))

                                                  Table (8)

• Factory wages payable is a liability. Since, liability is paid, it decreases liability. Hence, debit factory wages payable account.
• Cash is an asset. Since, cash is used to pay liability, it decreases asset. Hence, credit cash account.