Hornsby has a single production department, and uses a process-costing system. The balance in its Work-in-Process account on January 1 was $68,000. The account was charged with direct materials, direct labor, and manufacturing overhead of $450,000 throughout the year. If a review of the accounting records determined that $86,000 of goods were still in production at year-end, Hornsby should make a journal entry on December 31 that includes:
A) a debit to Cost of Goods Sold for $432,000.
B) a debit to Finished-Goods Inventory for $432,000.
C) a debit to Work-in-Process Inventory for $432,000.
D) a debit to Finished-Goods Inventory for $86,000.
E) a credit to Work-in-Process Inventory for $86,000.

Question

Quizplus · Accepted Answer

CThe correct answers are B) a debit to Finished-Goods Inventory for $432,000 and C) a debit to Work-in-Process Inventory for $432,000. The total costs for the year are the beginning balance of Work-in-Process ($68,000) plus additional costs incurred ($450,000), totaling $518,000. With $86,000 of goods still in production at year-end, the cost of goods manufactured and transferred out of Work-in-Process would be $518,000 - $86,000 = $432,000. This amount ($432,000) should be debited to Finished-Goods Inventory as it represents the cost of goods completed during the year. However, the inclusion of option C as correct was an error, as it suggests an additional debit to Work-in-Process Inventory, which is not correct in this context. The correct entry to reflect the transfer of goods from Work-in-Process to Finished Goods would involve a debit to Finished-Goods Inventory (B) and a credit to Work-in-Process Inventory for the cost of goods manufactured ($432,000), not a debit to Work-in-Process. Therefore, the only correct answer should be B, not C. My explanation mistakenly included C as a correct choice due to an oversight in interpreting the process of transferring costs in a process-costing system.

Hornsby Has a Single Production Department, and Uses a Process-Costing