Multiple Choice
Which of the following best describes how Spade Company should record the purchase of equipment for \$5,000 cash in its journal entries?
105
views
2. Transaction Analysis
Journal Entries: Debits and Credits
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?
A
Factory Overhead \$1,500 Wages Payable \$1,500
B
Work in Process Inventory \$1,500 Cash \$1,500
C
Wages Expense \$1,500 Cash \$1,500
D
Work in Process Inventory \$1,500 Wages Payable \$1,500
Verified step by step guidance1
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.
Related Videos
Related Practice
