To record the sales of the byproduct during July Income Statements of Westlake Corporation for Say 2014 Using the Production and Sales Methods for Byproduct Accounting ACCOUNTING FOR BYPRODUCTS 647 Revenues Proti Method Method 250.000 250.000 750.000 14.000 20.000 149.2014 19600 47200 100% Main product Fine-grade lumber 10.000 1x per ..) Byproduct Wood chips (1.200 et 51 perc) Deduct byproduct revenue and inventory 4.000 1.51 perc) Grossmargin percentage (543,200 $240.000,541,200-$241,200 To record the cost of the main product sold during July 6. Cash or Accounts Receivable (40,000 b.f. X $ per b.1.) To record the sales of the main product during July Cash or Accounts Receivable 1.200 c.f. x $1 perc) Exhibit 16-9 Total revenues Cost of goods sold Total manufacturing couts 5200 It e Not manufacturing costs Deduct main product inventory of Cost of goods sold Gross margin 200.000 Inventoriable costs (end of period: $ 4200 Main product: Fine-grade lumber 17.09% Byproduct Wood chips (2.800 cf. x 51 perc $ 41.200 $ 50 000 10.000.000 net manufacturing cost (10.000 - 50.000.000 2.800 0 1.000.000 total manufacturing cost (10.000.000.000 Recorded at selling prices Production Method: Byproducts Recognized at Time Production Is Completed This method recognizes the byproduct in the financial statements--the 4,000 cubic feet ist of wood chips in the month it is produced, July 2014. The NRV from the byproduct are produced is offset against the costs of the main product. The following journal entries illustrate the production method: les en 1. Work in Process 150.000 Accounts Payable 150.000 der To record the direct materials purchased and used in production during July 100,000 2 Work in Process 100.000 Various accounts such as Wages Payable and Accumulated Depreciation To record the conversion costs in the production process during July examples include energy, manufacturing supplies, all manufacturing lobor, and plant depreciation 4.000 2 Byproduct inventory-Wood Chips 14,000 cf. Si peret! 246,000 Finished Goods Fine-Grade Lumber (5250,000 - $4,0001 Work in Process ($150,000+ $100,000 196,800 To record the cost of goods completed during July 196,500 Cost of Goods Sold /40,000 61.50,000 b.) $245,000 Finished Goods Fine-Grade Lumber 240.000 Revenues--Fine-Grade Lumber 1200 1,200 250.000 240.000 Byproduct inventory Wood Chips sheet at its 1 per cubic for selling price f/4.000 cubic feet - 1,200 cubic feet) X Si pet The production method reports the byproduct inventory of wood chips in the balance One variation of this method would be to report the byproduct inventory at its NKY the byproduct inventory is sold in a subsequent period, the income statement will match the Sales Method: Byproducts Recognized at Time of Sale With this method, no journal entries are made for byproducts until they are sold. At are either grouped with other sales, included as other income, or deducted from the that time, the byproduct revenues are reported in the income statement. The revenus cost of goods sold. In the Westlake Corporation example, byproduct revenues in July 2014 are $1,200 (1,200 cubic feet x Si per cubic foot) because only 1,200 cubic feet of byproducts is consistent with the matching principle and is the preferred method This method recognizes the byproduct inventory in the accounting period in which is produced and simultaneously reduces the cost of manufacturing the main or jo product. However, the sales method is simpler and is often used in practice, primany method is that it allows a firm to manage its reported earnings by timing the sale are immaterial. The drawback of the suis byproducts for several periods and then sell them when the revenues and profits byproducts. For example, to boost its revenues and income slightly, a firm might store selling price, $2,800, with the "cost" reported for the byproduct inventory, $2,240, resulting wood chips are sold in July (of the 4.000 cubic feet produced). The journal entries are products, thereby better matching the revenues and expenses from selling the mult 640 O-WATER IS OOST ALLOCANON JONT PRODUCTS AND BYPRODUCTS $2,240. When cubic foot - $2,800 reduced by a normal profit margin, say 20% $2,800 - 20% X $2,800 = in a byproduct operating income of 5560 ($2,800 - $2,240). as follows 150,000 150.000 100,000 106.300 250,000 250,000 1. and 2 Same as for the production method Work in Process Accounts Payable Work in Process Various accounts such as Wages Payable and Accumulated Depreciation 3. Finished Goods-Fino-Grade Lumber Work in Process To record the cost of the main product completed during July 4a. Cost of Goods Sold ||40,000 b.1. 50,000 b.1.1 X $250,000) Finished Goods-Fine-Grade Lumber To record the cost of the main product sold during July 46. Same as for the production method Cash or Accounts Receivable (40,000 b.f. x $6 per b.f.) Revenues-Fine-Grade Lumber 5. Cash or Accounts Receivable Revenues-Wood Chips To record the sales of the byproduct during July. 200.000 200,000 240.000 240.000 1.200 120 Which method should a company use? The production method for accounting hur Decision Point What methods can be used to account for byproducts and which of them is preferable? because the dollar amounts of byproducts main product or joint products are low, zhe from the