Larned Corporation recorded the following transactions for the just completed month. 1. $89,000 in raw materials were purchased on account.
2. $87,000 in raw materials were used in production.
3. Of this amount, $76,000 was for direct materials and the remainder was for indirect materials.
4. Total labor wages of $128,500 were paid in cash. Of this amount, $103,000 was for direct labor and the remainder was for indirect labor.
5. Depreciation of $190,000 was incurred on factory equipment.

Required:
Record the above transactions in journal entries.

Answer with its Explanation:

Part 1: $89,000 in raw materials were purchased on account.

The purchase of raw material inventory on account is treated as increase in raw material inventory and accounts payables. The journal entry would be as under:

Dr Raw Material Inventory $89,000

Cr Accounts Payables              $89,000

Part 2: $87,000 in raw materials were used in production. Of this amount, $76,000 was for direct materials and the remainder was for indirect materials.

The entry would be increase in work in progress by $76,000 & Manufacturing overhead by $11,000 and would decrease the raw material inventory with $87,000.

The journal entry would be as under:

Dr Work In Progress                 $76,000

Dr Manufacturing Overhead    $11,000

Cr Raw Material  Inventory               $87,000

Part 3: Total labor wages of $128,500 were paid in cash. Of this amount, $103,000 was for direct labor and the remainder was for indirect labor.

The direct cost are allocated to the work in progress and indirect costs are allocated to manufacturing overheads.

The journal entry would be as under:

Dr Work In Progress                 $128,500

Dr Manufacturing Overhead    $103,000

Cr Cash Account                                 $231,500

Part 4: Depreciation of $190,000 was incurred on factory equipment.

The depreciation of the factory equipment is an indirect cost and all the indirect costs are charged to manufacturing overhead.

The journal entry would be as under:

Dr Manufacturing Overhead    $190,000

Cr Cash Account                          $190,000

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