Question

Effects of Adjusting Entries on the Accounting Equation Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2016: Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2016, with interest and principal to be paid at maturity. Assume a 360-day year. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2016. 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. 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. 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 Thursday, March 31. The company rented an idle warehouse to a neighboring business on February 1, 2016, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months' rent received in advance. On March 1, 2016, Kretz Corporation credited 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. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900.

Required: 1. Complete the table below to summarize how the required adjusting entries affect the accounting equation. Use the format in Exhibit 3-1. Identify each adjustment by letter. Use straight line method of depreciation. For those boxes in which you must enter subtractive or negative numbers, use a minus sign. For those boxes in which no entry is required, leave the box blank. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

1. 	Assets		=	Liabilities					+	Stockholders' Equity
   	Office Supplies	Accumulated Depreciation		Interest Payable	Wages Payable	Income Tax Payable	Rent Collected in Advance	Customer Deposits		Capital Stock	Retained Earnings
   a.	$	$		$	$	$	$	$		$	$
   b.
   c.
   d.
   e.
   f.
   g.

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

Answer 1