Prepare summary journal entries to record the following transactions for a company in its first month of operations. Raw materials purchased on account, $108,000. Direct materials used in production, $44,000. Indirect materials used in production, $19,800. Paid cash for factory payroll, $70,000. Of this total, $46,000 is for direct labor and $24,000 is for indirect labor. Paid cash for other actual overhead costs, $8,750. Applied overhead at the rate of 120% of direct labor cost. Transferred cost of jobs completed to finished goods, $86,000. Sold jobs on account for $123,000. The jobs had a cost of $86,000.

Journal Entries

Raw Materials $108,000 (debit)

Accounts Payable $108,000 (credit)

Being purchase of Raw Materials on Account

Work In Process; Direct Material Cost $44,000 (debit)

Work In Process; Indirect Material Cost $19,800 (debit)

Raw Materials $63,800 (credit)

Being Raw Materials requisitioned for Production

Work In Process; Direct Wages and Salaries $46,000 (debit)

Work In Process; Indirect Wages and Salaries $24,000 (debit)

Cash $70,000 (credit)

Being Wages and Salaries Paid in Cash

Overheads $8,750 (debit)

Cash $8,750 (credit)

Being Cash paid for Overheads

Work In Process $55,200 (debit)

Overheads $55,200 (credit)

Being Overheads Applied to Work In Process at 120% of direct labor cost

Finished Goods $86,000 (debit)

Work In Process $86,000 (credit)

Being Goods transferred to Finished Goods

Trade Receivable $123,000 (debit)

Revenue $123,000 (credit)

Being Sale of Jobs on Account

Cost of Sales $86,000 (debit)

Finished Goods $86,000 (credit)

Being Cost of Jobs Sold

Explanation:

Costs incurred for Manufacturing are accumulated In the Work In Process Account.

This account is de-recognized as the goods are transferred to Finished Goods.

The Finished Goods Inventory Account is then de-recognised as the Jobs are sold to the Customers.