Question

Flying High Manufacturing produces frisbees using a three-step sequential process that includes molding, coloring and finishing. When the frisbees and associated costs are transferred out of the coloring process and into the finishing process, the journal entry would include a:
A. debit to Finished Goods Inventory and a credit to WIP Inventory - Coloring.
B. debit to WIP Inventory - Coloring and a credit to Finished Goods Inventory.
C. debit to WIP Inventory - Finishing and a credit to WIP Inventory - Coloring.
D. debit to WIP Inventory - Coloring and a credit to WIP Inventory - Finishing.

Answer 1

Answer:

Option D : Debit to WIP Inventory - Coloring and Credit to WIP Inventory - Finishing

Explanation:

Definition of Finish Goods Inventory:

Finish Goods means having a product that is ready for the dispatch(consumer) after the completion of all processes of manufacturing. i.e. Molding, Coloring, Finishing for the process in hand.

Therefore Finish Goods Inventory will be the products which we receive after the completion of Finishing process not after the coloring process.

Considering the above statement, Option A & Option B get omitted from the possible correct options.

Thus we are left with only Option C & Option D:

As we know that:

Credit is something due towards a process(person) and increase the liability of respective process or person.

Debit is something given by a process (person) and decreases the liability of respective process or person.

On seeing the definitions of credit & debit, if frishbees are being transferred from coloring to finishing process, then it should be debited from the coloring process's account as it has handed over the product while decreasing it's liability and,

It should be credited to the finishing process's account as it has received the product to work on while increasing it's liability.

Taking the above explanation into consideration:

Option D is our only true choice.