Frank Thompson operates a small business that manufactures

Frank Thompson operates a small business that manufactures oversized backyard games.  He runs the business as a sole proprietorship.  The company uses a job order cost system using a first-in, first-out (FIFO) inventory system.  He purchases the materials that will be needed and then as customers place orders they cut the materials and assemble the games as specified in the order.  He keeps some completed games on hand to sell to customers as well. 

As they purchase the materials they record them as an asset in an account called materials.  They might be direct, or they might be indirect.  As they need the materials they will either get debited to the Work in Process account (an asset, direct materials related to a specific job) or to Factory Overhead (indirect materials, related to all jobs).  When jobs are completed, all costs related to them (direct materials, direct labor, applied factory overhead) will be combined to determine the total cost for the job and will be moved from the Work in Process account to Finished Goods (also an asset).  Factory Overhead will be applied at 40% of Direct Material costs.  When told to record the sale, you will record two entries – one for the sale at retail and one for the cost in the goods. 

Costs for any jobs in process on December 31 have been recorded on the job cost records.  As new costs are incurred for those jobs or for any new jobs you will be required to update the appropriate job cost records for the specified jobs.  These records will allow you to accumulate all costs related to each job to determine the total cost for that job. 

To help in the manufacturing process Frank has two employees who work on the production of the games.  These wages are considered direct costs to the jobs.  Plus, he has one employee that helps do the accounting work.  That job is not related to production and is treated as a period cost.  He pays all employees at the end of the month.  Federal Income Tax is withheld at 15% for all employees.  FICA Tax is withheld at 7.65% (combines both Social Security and Medicare).  At this point the company does not have a retirement plan or insurance plan set up for its employees. 

We will be journalizing the transactions for the company for the month of January 2021.  Provided for your reference is a Trial Balance dated January 1, 2021 (beginning of this period, end of the previous period), a schedule of accounts receivable showing who owes us money and how much they owe us.   A schedule of accounts payable showing who we owe money to and how much.

  The general ledger with the beginning balances filled in.  And the necessary job cost record sheets.