Identify all adjusting and closing entries that would be affected by this error and prepare the missing portions of the entries.

Identify all adjusting and closing entries that would be affected by this error and prepare the missing portions of the entries.

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January 8, 2022
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Drafts of the condensed income statement and balance sheet of Allofe Co. for the current year are shown below. Shortly after preparing these draft financial statements, Allofe discovered that an error had been made in the year-end adjustment process. Overhead of $2,500 had not been applied to the ending work in process.

Identify all adjusting and closing entries that would be affected by this error and prepare the missing portions of the entries.

Answer and ExplanationSolution by a verified expert

Explanation
The general journal is the book where entries are initially made relating to financial transactions entered into by the company.

The first adjusting journal entry is a debit to work in process inventory and a credit to factory overhead of $2,500 for the applied factory overhead.

The second adjusting journal entry is a debit to factory overhead and a credit to cost of goods sold of $2,500 for the adjustment on factory overhead from the prior entry.

The first closing journal entry is a debit to factory overhead and a credit to income summary of $2,500 to transfer the credit balance to income summary and close the factory overhead account.

The second closing journal entry is a debit to income summary and a credit to factory overhead of $2,500 to transfer the debit balance to income summary and close the factory overhead account.

The third closing journal entry is a debit to cost of goods sold and a credit to income summary of $2,500 to transfer the credit balance to income summary and close the expense account.

The last closing journal entry is a debit to income summary, and a credit to retained earnings of $2,500 for the balance of income summary transferred and closed to retained earnings.

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