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

Olson Corporation uses a job costing system, which means that direct labor costs are recorded in work-in-process (WIP) until the house is completed. Therefore, the journal entry to record labor would be a debit to WIP for $750. The other options are incorrect because the labor cost should be recorded as an asset (WIP) until the house is completed and transferred to finished goods.