Prepare the December 31 adjusting journal entries for Davis Company. Data for the end of the year adjustments are as follows:
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Prepare the December 31 adjusting journal entries for Davis Company. Data for the end of the year adjustments are as follows: |
Explanation
The adjusting entries are needed in order to correct or adjust the trial balance.
The following are the needed adjustments of DA Company:
a. Factory overhead applied to work in process - recognize this adjustment by debiting work in process inventory amounting to $8,700 while crediting factory overhead.
b. Interest receivable - debit this account amounting to $730 in order to recognize the interest income earned.
c. Provision for uncollectible accounts - recognize bad debt expense for the provision by debiting $4,200 while crediting allowance for doubtful accounts.
d. Office supplies consumed - recognize office supplies expense by debiting $990 while crediting office supplies.
e. Factory supplies consumed - record this expense as factory overhead by debiting $3,800 while crediting factory supplies. Factory supplies consumed is considered an indirect cost of manufacturing a product or a cost that cannot be directly assigned to a specific product. Thus, it is initially recorded as factory overhead. Factory overhead is eventually reduced to zero by applying it to work in process inventory and cost of goods sold.
f. Insurance expired on factory building and equipment - recognize the expired insurance by debiting factory overhead amounting to $3,100 while crediting prepaid insurance. Factory building and equipment are needed to manufacture a product; thus, any expense incurred for these assets such as the insurance is considered an indirect cost.
g. Depreciation on factory equipment - recognize the depreciation expense for this equipment by debiting factory overhead amounting to $8,000 while crediting accumulated depreciation-factory equipment. Depreciation expense on factory equipment is an indirect cost of manufacturing a product.
h. Depreciation on factory building - recognize the depreciation expense for this building by debiting factory overhead amounting to $6,300 while crediting accumulated depreciation-factory building. Depreciation expense on factory building is also an indirect cost of manufacturing a product.
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