Question

Expand Your Critical Thinking 15-02 a1-a4 In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the president’s son Joe had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Joe made were: (1) Work in Process Inventory 20,000 Cash 20,000 (This is for materials put into process. I don’t find the record that we paid for these, so I’m crediting Cash because I know we’ll have to pay for them sooner or later.) (2) Manufacturing Overhead 8,500 Cash 8,500 (This is for bonuses paid to salespeople. I know they’re part of overhead, and I can’t find an account called "Non-Factory Overhead" or "Other Overhead" so I’m putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.) (3) Wages Expense 108,000 Cash 108,000 (This is for the factory workers’ wages. I have a note that employer payroll taxes are $16,200. I still think that’s part of wages expense and that we’ll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)

Answer 1

Sr. No Particulars Debit Credit

Given

1 Work in Process Inventory 20,000 Dr

Cash 20,000 Cr

2 Manufacturing Overhead 8,500 Dr

Cash 8,500 Cr

3 Wages Expense 108,000 Dr

Cash 108,000 Cr

Required

1. Work in Process Inventory 20,000 Dr

Materials 20,000 Cr

2. Selling (Salaries) Expenses 8,500 Dr

Cash 8,500 Cr

3. Wages Expense 108,000 Dr

Payroll Taxes 16,200 Cr

Cash 91 800 Cr

Rectified Entries Would be

1 Materials 20,000 Dr

Accounts Payable 20,000 Cr

As there is no record of payment for material

Cash 20,000 Dr

Materials 20,000 Cr

Materials will be credited as they have been put to work in process and cash will be debited to counter the effect of the original entry.

2. Cash 8500 Dr

Manufacturing Overhead 8500 Cr

The original entry will be reversed to counter its effect and a new correct entry will be passed.

Selling (Salaries) Expenses 8,500

Cash 8,500

3. Cash 16,200 Dr

Payroll Taxes 16,200 Cr

Cash will be debited with an amount equal to payroll taxes and payroll taxes will be credited to complete the original entry.