Making journal entries for a sale of a by-product when different accounting methods are used. The Houston Chemical Company manufactures a commercial chemical. In the Filtering Department, the product is allowed to stand for several hours so that certain impurities will settle to the bottom. The purified chemical is then transferred out to the next department, and the impurities are removed to be sold as a by-product.

Instructions 1. On January 1, 19X4, 2,800 barrels of the by-product recovered in the month of December 19X3 were in storage awaiting sale. These 2,800 barrels were sold on January 8, 19X6 for $3 per barrel. Assume that no entry is made for the byproduct until it is sold. Give the entries in general journal form to record the sale for cash of the 2,800 barrels under these procedures.

a. The proceeds of the sale are treated as miscellaneous income. (Date the entry January 31, 19X4.)

b. The proceeds of the sale are treated as a reduction in the cost of the main product. (NOTE: Credit Work in Process—Filtering Department 122 instead of Miscellaneous Income.)

2. During the month of January 19X4, 2,680 additional barrels of the by-product were recovered. These were sold on February 4. Instead of using the procedures in Instruction 1, assume that the estimated sales value of the by-product is treated as a reduction in the cost of the main product when it is removed. Give the entries in general journal form to record the following:

a. Removal of the 2,680 barrels during January, assuming an estimated value of

$3 per barrel. (Date the entry January 31, 19X4).

b. Sale on credit of the 2,680 barrels on February 4 at $2.94 per barrel.