Cavallo Mfg.'s computer system generated the following account balances on December 31. The company's manager knows that this list of balances is wrong because it does not show any balance for Work in Process Inventory, and the accrued factory payroll (Factory Wages Payable) has not been recorded.

These six documents must be processed to bring the accounting records up to date.

Jobs 603 and 604 are the only jobs in process at year-end. The predetermined overhead rate is \(200 \%\) of direct labor cost.
Required
1. Use the document information above to prepare journal entries for the following costs.
a. Direct materials.
b. Direct labor.
c. Overhead applied.
d. Indirect materials.
e. Indirect labor.
2. Set up a Factory Overhead T-account and enter amounts from part 1 related to factory overhead. Determine the amount of over- or underapplied overhead. Prepare the entry to close any over- or underapplied overhead to Cost of Goods Sold.
3. Prepare a revised list of account balances as of December 31. Hint: Use the prior year's Retained Earnings balance of \(\$ 87,000\).
4. Prepare an income statement for the year and a balance sheet as of December 31. Hint: Retained earnings is \(\$ 110,900\) at the end of the current year.
5. Assume that the \(\$ 2,100\) indirect materials on materials requisition 33 should have been direct materials charged to Job 604. Does this error result in overstatement or understatement of total assets on the balance sheet at December 31?

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Cash...... Accounts receivable Raw materials inventory.. Work in process inventory Finished goods inventory Prepaid rent..... Accounts payable Notes payable....... Common stock... Retained earnings (prior year). Sales....... Cost of goods sold.. Factory overhead... General and administrative expenses Totals....... Debit $ 64,000 42,000 26,000 0 9,000 3,000 Credit $ 10,500 13,500 30,000 87,000 180,000 105,000 27,000 45,000 $321,000 $321,000