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Exercise 3-5 Journal Entries and T-accounts [LO3-1, LO3-2] The Polaris Company uses a job-order costing system. The following transactions occurred in October: Raw materials purchased on account, $210,000. Raw materials used in production, $189,000 ($151,200 direct materials and $37,800 indirect materials). Accrued direct labor cost of $50,000 and indirect labor cost of $21,000. Depreciation recorded on factory equipment, $105,000. Other manufacturing overhead costs accrued during October, $130,000. The company applies manufacturing overhead cost to production using a predetermined rate of $6 per machine-hour. A total of 76,300 machine-hours were used in October. Jobs costing $512,000 according to their job cost sheets were completed during October and transferred to Finished Goods. Jobs that had cost $448,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 32% 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 that Work in Process has a beginning balance of $35,000.

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Answer:

1. The Journal Entry and their narrations is shown below:-

2. Preparation of Manufacturing Overhead and Work in Process is given below:-

Explanation:

a. Raw materials inventory Dr, $210,000  

    To Accounts payable $210,000

(Being purchase of raw material is recorded)

b. Work in process inventory Dr, $151,200  

Manufacturing overhead Dr, $37,800  

            To Raw materials inventory $189,000

(Being material used is recorded)

c. Work in process inventory Dr, $50,000  

Manufacturing overhead Dr, $21,000  

     To salaries and wages payable $71,000

(Being factory labor assigned is recorded)

d. Manufacturing overhead Dr, $105,000  

     To Accumulated depreciation $105,000

(Being depreciation of factory equipment is recorded)

e. Manufacturing overhead Dr, $130,000  

        To Accounts payable                   $130,000

(Being accrued of manufacturing overhead is recorded)

f. Work in process inventory Dr, $457,800

        To Manufacturing overhead $457,800  

($76,300 × $6)

(Being manufacturing overhead applied is recorded)

g. Finished goods inventory Dr, $512,000  

            To Work in process inventory $512,000

(Being completion of production is recorded)

h. Cost of goods sold Dr, $448,000  

          To Finished goods inventory $448,000

(Being cost of goods sold is recorded)

i. Accounts receivable Dr, $591,360

           To Sales $591,360

$448,000 + (32% × $448,000)

(Being sale of product is recorded)

2.                    Manufacturing overhead

b.         $37,800             f.      $457,800

c.         $21,000

d.         $105,000

e.          $130,000

Ending balance                     $164,000

                  Work in process inventory

Beginning balance      $35,000     g. $512,000

b.                                   $151,200

c.                                  $50,000

f.                                   $457,800

Ending balance           $182,000

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