Question

Carlton Construction Company sold a home that it built for a total cost of $150,000 for a sales price of $250,000. The journal entries to record the sales revenue and cost of the sale would include:

(a) A debit to Cost of Goods Sold for $150,000
(b) A credit to Finished Goods for $150,000
(c) A debit to Sales Revenue for $250,000
(d) A and B

Answer 1

To record the sale of a home, Carlton Construction Company must credit Sales Revenue for $250,000 and debit Cost of Goods Sold for $150,000. A credit to Finished Goods for $150,000 is also necessary if the home is part of inventory. This results in an accounting profit calculation where total revenue minus explicit costs equals the profit.

Step-by-step explanation:

The subject question is related to accounting transactions for a construction company that has sold a home. To record the sale, there would be multiple journal entries. First, to record the sales revenue of $250,000, a credit to the Sales Revenue account is needed. This acknowledges that the company has earned revenue through the sale. Second, to recognize the cost associated with the sale (Cost of Goods Sold, or COGS), a debit to Cost of Goods Sold for $150,000 is made. If the home was previously categorized under 'Finished Goods' inventory, there would also be a credit to the Finished Goods account for $150,000 to reflect the removal of this asset from the company's inventory due to the sale.

Accounting profit can be calculated from these types of transactions. For example, if a firm had sales revenue of $1 million and incurred explicit costs of $600,000 on labor, $150,000 on capital, and $200,000 on materials, its accounting profit would be:

• 
  
• Total revenues ($1,000,000) minus explicit costs ($600,000 + $150,000 + $200,000)
• 
  
• Accounting profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000

This calculation shows the profit after deducting all explicit costs from the total revenues.

Answer 2

The correct journal entries for Carlton Construction Company to record the sale of a home would include a debit to Cost of Goods Sold for $150,000 and a credit to Finished Goods for $150,000. Option (d) from the provided choices includes both correct entries.

Step-by-step explanation:

The subject of the question is related to the accounting process for recognizing sales revenue and cost associated with the sale of goods, specifically in a construction company context. Carlton Construction Company sold a home for $250,000 that had a cost of $150,000. The journal entries to record the sales revenue and cost of goods sold would include:

• A debit to Cost of Goods Sold for $150,000, reflecting the cost associated with constructing the home that was sold.
• A credit to Finished Goods, if that account was previously used to accumulate the costs of the home during its construction, for $150,000, moving the cost from the balance sheet to the income statement.
• A debit to Cash or Accounts Receivable for $250,000, depending on whether the sale was for cash or on credit.
• A credit to Sales Revenue for $250,000, reflecting the revenue earned from the sale.

So, the correct journal entries among the options provided are: (a) and (b), making (d) the correct answer.