Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

An airline manufacturer incurred the following costs last month (in thousands of dollars):- Direct materials: $2,000- Direct labor: $1,500- Factory overhead: $800- Selling expenses: $400Which of the following journal entries correctly records the incurrence of direct labor costs?

Factory Overhead $1,500 Wages Payable $1,500

Work in Process Inventory $1,500 Cash $1,500

Wages Expense $1,500 Cash $1,500

Work in Process Inventory $1,500 Wages Payable $1,500

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Verified step by step guidance

Step 1: Understand the nature of direct labor costs. Direct labor refers to the wages paid to workers directly involved in the production process. These costs are considered part of the manufacturing costs and are recorded in the Work in Process Inventory account.

Step 2: Recognize the correct accounts involved. When direct labor costs are incurred, they increase the Work in Process Inventory account (an asset account) because these costs are part of the production process. At the same time, the liability for these wages is recorded in the Wages Payable account (a liability account).

Step 3: Analyze the journal entry options provided. The correct journal entry should debit Work in Process Inventory to reflect the increase in production costs and credit Wages Payable to record the liability for the wages owed.

Step 4: Exclude incorrect options. For example, debiting Factory Overhead or Wages Expense would be incorrect because direct labor costs are not classified as overhead or period expenses. Similarly, crediting Cash would be incorrect unless the wages were paid immediately, which is not indicated in the problem.

Step 5: Confirm the correct journal entry. The correct journal entry is: Debit Work in Process Inventory $1,500 and Credit Wages Payable $1,500. This reflects the incurrence of direct labor costs as part of production and the liability for wages owed.