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: Business Formation Example

Financial Accounting

2. Transaction Analysis

Journal Entries: Business Formation Example

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Multiple Choice

Which of the following is the correct journal entry to record the allocation of factory overhead to Work in Process?

Debit Work in Process; Credit Raw Materials

Debit Work in Process; Credit Factory Overhead

Debit Factory Overhead; Credit Work in Process

Debit Factory Overhead; Credit Raw Materials

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Verified step by step guidance

Understand the concept of factory overhead allocation: Factory overhead includes indirect costs such as utilities, depreciation, and indirect labor. These costs are allocated to Work in Process (WIP) to reflect the production costs incurred.

Recall the journal entry format: When allocating factory overhead to WIP, the Work in Process account is debited because it represents an increase in production costs. The Factory Overhead account is credited to reduce the overhead balance, as these costs are being applied to production.

Analyze the options provided: The correct journal entry should debit Work in Process and credit Factory Overhead, as this reflects the allocation of overhead costs to production.

Eliminate incorrect options: For example, 'Debit Work in Process; Credit Raw Materials' is incorrect because raw materials are not involved in overhead allocation. Similarly, 'Debit Factory Overhead; Credit Work in Process' is incorrect because it reverses the correct accounts.

Select the correct answer: The correct journal entry is 'Debit Work in Process; Credit Factory Overhead,' as it properly allocates factory overhead to production costs.