Explore BrainMass

Explore BrainMass

    Job Cost Journal Entries and T-Account

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    20-11

    Shown below are the job cost related accounts for the law firm of Barnes, King, and Morton and their manufacturing equivalents:
    Law Firm Accounts Manufacturing Firm Accounts
    Supplies Raw Materials
    Salaries Payable Factory Wages Payable
    Operating Overhead Manufacturing Overhead
    Work in Process Work in Process
    Cost of Completed Work Cost of Goods Sold
    Cost data for the month of March follow.
    1. Purchased supplies on account $1,500.
    2. Issued supplies $1,200 (60% direct and 40% indirect).
    3. Time cards for the month indicated labor costs of $50,000 (80% direct and 20% indirect).
    4. Operating overhead costs incurred for cash totaled $40,000.
    5. Operating overhead is applied at a rate of 90% of direct attorney cost.
    6. Work completed totaled $70,000.

    Journalize the transactions for March. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
    Trans. No. Account/Description Debit Credit
    1.

    2.

    3.

    4.

    5.

    6.

    Determine the balance of the Work in Process account. Use a T account. (List amounts in order of the transaction numbers above. If an amount should be blank, enter a zero. All boxes must be filled to be correct.)
    Work in Process

    © BrainMass Inc. brainmass.com October 2, 2022, 12:57 pm ad1c9bdddf
    https://brainmass.com/business/journal-entries/job-cost-journal-entries-account-387113

    Attachments

    SOLUTION This solution is FREE courtesy of BrainMass!

    *** Please see the attached document with answers and explanations. ***

    I have copied and pasted it as well but I think the attachment is more clear. Best of luck!

    =========================
    20-11

    Shown below are the job cost related accounts for the law firm of Barnes, King, and Morton and their manufacturing equivalents:
    Law Firm Accounts Manufacturing Firm Accounts
    Supplies Raw Materials
    Salaries Payable Factory Wages Payable
    Operating Overhead Manufacturing Overhead
    Work in Process Work in Process
    Cost of Completed Work Cost of Goods Sold
    Cost data for the month of March follow.
    1. Purchased supplies on account $1,500.
    2. Issued supplies $1,200 (60% direct and 40% indirect).
    3. Time cards for the month indicated labor costs of $50,000 (80% direct and 20% indirect).
    4. Operating overhead costs incurred for cash totaled $40,000.
    5. Operating overhead is applied at a rate of 90% of direct attorney cost.
    6. Work completed totaled $70,000.
    Explanations are below the answers.

    Journalize the transactions for March. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.)
    Trans. No. Account/Description Debit Credit
    1.
    2.
    3.
    4.
    5.
    6.

    Determine the balance of the Work in Process account. Use a T account. (List amounts in order of the transaction numbers above. If an amount should be blank, enter a zero. All boxes must be filled to be correct.)

    Work in Process
    Explanations for the First Part of the Question
    1. Purchasing supplies on account increases the amount of supplies that the company has in stock. Supplies are an asset because they are used to yield goods and services which provide value to the company. An increase in an asset account is recorded as a debit. They are paying with trade credit, which is a liability. This liability is represented as an increase (credit) to the accounts payable account of the company.

    2. Issuing supplies decreases the supplies in the company's stock, therefore we credit the supplies asset account so that the net amount reflects the supplies remaining on-hand. Direct supplies are recorded in the relevant WIP account because with direct costs, we know exactly how much are used for that specific job/project. Indirect costs are accumulated in an overhead control account. A pre-determined rate determines the amount of indirect costs allocated to a given job/project. The applied and actual amounts are accumulated in an overhead control account and discrepancies, if they exist, are dealt with at the end of the period.

    3. Direct labor is added directly to the WIP account because it is the amount of labor that is traceable to that project/job. Indirect labor is an overhead cost because a specific amount cannot be easily traced to a given project/job. Indirect labor is applied to jobs in the WIP account based on a pre-determined rate. The actual amount of overhead (including indirect labor) is recorded in the overhead control account. Salaries payable is the liability account that accumulates money owed to employees for labor. The salaries payable account will be debited to reduce the liability when the cash is actually paid to the employees.

    4. The overhead control account is debited for actual overhead costs and overhead costs that have been applied for jobs are recorded on the credit side of the overhead control account T-account. Cash is credited because paying cash reduces the balance in the company's cash account.

    5. Overhead is applied therefore we must debit the WIP account and credit the overhead control account.
    80% of labor are direct = $40,000
    90% of direct labor = $36,000
    No entry is recorded to the cash account because no cash is being paid at this time - this account event is just acknowledging the allocation of costs.

    6. Completion of work moves costs associated with the completed work to the finished goods inventory account (or whatever you may choose to call the account) and the costs are credited (subtracted) from the WIP account.

    For the second part of this question, the debits and credits from the entries shown are transferred into T-account format. WIP is an asset account therefore debits are increases to the account and are recorded on the left-hand side. Credits are a reduction of costs in the account and are recorded on the right-hand side of the T-account.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 2, 2022, 12:57 pm ad1c9bdddf>
    https://brainmass.com/business/journal-entries/job-cost-journal-entries-account-387113

    Attachments

    ADVERTISEMENT