Question

1. For each of the following situations, identify and analyze the adjustments to be recorded on March 31, 2017. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

a. Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2017, with interest and principal to be paid at maturity. Assume 360 days a year.

Activity Accounts Statement(s)

If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

b. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2017. During March, Kretz adds $750 to the account for purchases during the period. A count of the supplies on hand at the end of March indicates a balance of $1,370.

Activity Accounts Statement(s)

c. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000. Use straight line method of depreciation.

Activity Accounts Statement(s)

d. The company’s plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Friday, March 31.

Activity Accounts Statement(s)

e. The company rented an idle warehouse to a neighboring business on February 1, 2017, at a rate of $2,500 per month. On this date, Kretz Corporation recorded Rent Collected in Advance for six months’ rent received in advance.

Activity Accounts Statement(s)

f. On March 1, 2017, Kretz Corporation recorded a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period.

Activity Accounts Statement(s)

g. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900.

Activity Accounts Statement(s)

2. Assume that Kretz reports income of $23,000 before any of the adjustments. What net income will Kretz report for March?

Answer 1

a.

Activity	Operating
Accounts	Interest Payable Increase and Interest Expense Increase
Statements	Balance Sheet and Income Statement

Assets	=	Liabilities		Stockholders Equity		Revenues	-	Expenses		Net Income
		Interest Payable	100	-100				Interest Expense	100	-100

2.

Activity	Operating
Accounts	Office Supplies Decrease and Office Supplies Expense Increase
Statements	Balance Sheet and Income Statement

Assets		Liabilities	+	Stockholders Equity		Revenues	-	Expenses		Net Income
Office Supplies	-660			-660				Office Supplies Expense	660	-660

c.

Activity	Operating
Accounts	Accumulated Depreciation-Office Equipment Increase and Depreciation Expense Increase
Statements	Balance Sheet and Income Statement

Assets		Liabilities	+	Stockholders Equity		Revenues	-	Expenses		Net Income
Accumulated Depreciation	-9600			-9600				Depreciation Expense	9600	-9600

d.

Activity	Operating
Accounts	Wages Payable Increase and Wages Expense Increase
Statements	Balance Sheet and Income Statement

Assets		Liabilities		Stockholders Equity		Revenues	-	Expenses		Net Income
		Wages Payable	4750	-4750				Wages Expense	4750	-4750

e.

Activity	Operating
Accounts	Rent Collected in advance Decrease and Rent Revenue Increase
Statements	Balance Sheet and Income Statement

Assets		Liabilities		Stockholders Equity		Revenues		Expenses		Net Income
Rent Collected in advance	-2500				2500	Rent Revenue	2500			2500

f.

Activity	Operating
Accounts	Customer Deposits Decrease and Service Revenue Increase
Statements	Balance Sheet and Income Statement

Assets		Liabilities		Stockholders Equity		Revenues		Expenses		Net Income
Customer Deposits	-1200				1200	Service Revenue	1200			1200

g.

Activity	Operating
Accounts	Income tax Payable Increase and Income tax Expense
Statements	Balance Sheet and Income Statement

Assets		Liabilities		Stockholders Equity		Revenues		Expenses		Net Income
		Income tax Payable	3900		-3900			Income tax Expense	-3900	-3900

2. 23,000 - 100 - 660 - 9,600 - 4,750 + 2,500 + 1,200 - 3,900 =7,690