Adjusting and Correcting Entries
Upon inspecting the books and records for Wernli Company for the year ended December 31, 2008, you find the following data:
(a) A receivable of $640 from Hatch Realty is determined to be uncollectible. The company maintains an allowance for bad debts for such losses.
(b) A creditor, E. F. Bowcutt Co., has just been awarded damages of $3,500 as a result of breach of contract by Wernli Company during the current year. Nothing appears on the books in connection with this matter.
(c) A fire destroyed part of a branch office. Furniture and fixtures that cost $12,300 and had a book value of $8,200 at the time of the fire were completely destroyed. The insurance company has agreed to pay $7,000 under the provisions of the fire insurance policy.
(d) Advances of $950 to salespersons have been previously recorded as sales salaries expense.
(e) Machinery at the end of the year shows a balance of $19,960. It is discovered that additions to this account during the year totaled $4,460, but of this amount, $760 should have been recorded as repairs. Depreciation is to be recorded at 10% on machinery owned throughout the year but at one-half this rate on machinery purchased or sold during the year.
Record the entries required to adjust and correct the accounts. (Ignore income tax consequences.)