Esposito, Inc. uses a just-in-time costing system. During the month, Esposito incurred $700,000 as direct labor and $8000 as overhead. Wages were not paid. Which of the following is the correct journal entry to record the conversion costs?
A) $$\begin{array} { | l | l | l | }
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Wages Payable, Accumulated Depreciation, etc. } & & 708,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | l | l | }
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Wages Payable } & & 708,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | l | l | }
\hline \text { Manufacturing Overhead } & 708,000 & \
\hline \text { Conversion Costs } & & 708,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | l | l | }
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Accounts Payable } & & 708,000 \
\hline
\end{array}$$

Question

Esposito, Inc. uses a just-in-time costing system. During the month, Esposito incurred $700,000 as direct labor and $8000 as overhead. Wages were not paid. Which of the following is the correct journal entry to record the conversion costs?
A) $$\begin{array} { | l | l | l | } 
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Wages Payable, Accumulated Depreciation, etc. } & & 708,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | l | l | } 
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Wages Payable } & & 708,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | l | l | } 
\hline \text { Manufacturing Overhead } & 708,000 & \
\hline \text { Conversion Costs } & & 708,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | l | l | } 
\hline \text { Conversion Costs } & 708,000 & \
\hline \text { Accounts Payable } & & 708,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Since Esposito uses a just-in-time costing system, the conversion costs are only recorded when the product is completed or sold. Therefore, wages were not paid and should not be recorded in the accounts until the products are completed or sold. The correct journal entry to record the conversion costs would be to debit Work in Process for $8,000 (overhead) and credit Manufacturing Overhead Control for $8,000.

Esposito, Inc B) Conversion Costs 708,000 Wages Payable 708,000\begin{array} { | c | l | l | } \hline \text { Conversion Costs } & 708,000 & \\\hline \text { Wages Payable } & & 708,000 \\\hline\end{array} Conversion Costs Wages Payable ​708,000​708,000​​

Esposito, Inc B) $\begin{array} { | c | l | l | } \hline \text { Conversion Costs } & 708,000 & \\\hline \text { Wages Payable } & & 708,000 \\\hline\end{array}$