Figure 5-11. Olson Corporation constructs new homes.Assume that Olson uses a job costing system.During May of the current year,the following transactions occurred:
Olson purchased $4,500 of lumber on account.
Olson used $3,750 of lumber in production and incurred 50 hours of direct labor hours at $15 per hour.
Depreciation of $1,500 on equipment used to build new houses was recorded.
A house that was completed last period at a cost of $150,000 was sold for $180,000 in cash.
Refer to Figure 5-11.The journal entry to record labor for Olson would include a

Question

Quizplus · Accepted Answer

The journal entry to record direct labor would include a debit to Work-in-Process (WIP) since the labor costs are part of the cost of the project currently in progress. The amount would be $750 (50 hours of direct labor at $15 per hour). Option A is incorrect because Finished Goods would only be debited once the project is complete and ready to be sold. Option B is incorrect because Wages Payable would only be credited once the wages have been paid. Option C is incorrect because Finished Goods would only be credited once the project is complete and ready to be sold.