How do we journalize this entry: Applied $7,248.00 of direct materials (1679) an

Question

How do we journalize this entry:

Applied $7,248.00 of direct materials (1679) and $16,240.00 of direct labor(time ticket No.258) to Job No. 1403, which will complete the job. Use the simplified rates of 7.5% of gross pay for employees' FICA tax and 15% of gross pay for employees' federal income tax. When preparing the entry for applying direct labor, debit Work in Process for the gross pay, and credit Emplyoees' Income Tax Payable and FICA Tax Payable for the appropriate amounts and Salaries Payable for net pay.

Remember that employees are paid on the last day of each month. Applied factory overhead to Job. 1403 is based upon 125% of direct labor cost. This entry is from the Hydro Paddle Boards, Inc.

Explanation / Answer

There will be 3 parts to the journal entry, one would relate to application of direct material and the secon one would relate to direct labor and third one for application of factory overheads. The journal entries are given below:

Application of Direct Material:

The application of direct materials would involve a debit to work in process account and a credit to direct material account as shown below:

_________

Application of Direct Labor:

The application of direct labor would involve a debit to work in process account with the gross amount of $16,240 and a credit to relevant tax accounts in accordance with the tax rates specified in the question. The difference between the gross pay and total tax would give us the net pay which will be credited to salaries payable account as shown below:

_________

Application of Factory Overheads:

Since, we have not been provided with any other information, we will assume that the total direct labor cost is $16,240 in respect of Job 1403. The factory overhead is applied at a predetermined rate of 125% of the direct labor cost which will result in an amount of $20,300 (16,240*125%). The journal entry would involve a debit to work in process and a credit to factor overhead as shown below:

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