Jay, Inc., a party rental business, completed its first year of operations on December 31. Because this is the end of the annual accounting period, the company bookkeeper prepared the following tentative income statement:

Jay, Inc., a party rental business, completed its first year of operations on December 31. Because this is the end of the annual accounting period, the company bookkeeper prepared the following tentative income statement:

  

Income Statement
Rental revenue	$	109,000
Expenses:
Salaries and wages expense		24,800
Maintenance expense		10,800
Rent expense		7,700
Utilities expense		4,900
Gas and oil expense		2,100
Miscellaneous expenses (items not listed elsewhere)		1,000
Total expenses		51,300
Income	$	57,700

You are an independent CPA hired by the company to audit the company's accounting systems and review the financial statements. In your audit, you developed additional data as follows:

1. Wages for the last three days of December amounting to $750 were not recorded or paid.
2. Jay estimated telephone usage at $330 for December, but nothing has been recorded or paid.
3. Depreciation on rental autos, amounting to $22,500 for the current year, was not recorded.
4. Interest on a $11,000, one-year, 5 percent note payable dated October 1 of the current year was not recorded. The 5 percent interest is payable on the maturity date of the note.
5. Maintenance expense excludes $3,000, representing the cost of maintenance supplies used during the current year.
6. The Unearned Rental Revenue account includes $5,700 of revenue to be earned in January of next year.
7. The income tax expense is $4,800. Payment of income tax will be made next year.

Required:

1. What adjusting entry for each item (a) through (g) should Jay record at December 31?

 

Prepare a corrected income statement for the current year in good form, including earnings per share, assuming that 6,600 shares of stock are outstanding all year.

 

 

 Compute the total asset turnover ratio based on the corrected information. Assume the beginning of the year balance for Jay's total assets was $58,020 and its ending balance for total assets was $65,180.

 

Explanation:

1.
 

Interest payable = $11,000 × 0.05 × 3/12 = $138

2.
 

Salaries and wages = $24,800 + $750 = $25,550

Maintenance expense = $10,800 + $3,000 = $13,800

Utilities expense = $4,900 + $330 = $5,230

Interest expense = $11,000 × 0.05 × 3/12 = $138

Earnings per share = $26,182 ÷ 6,600 shares = $3.97

3.
 

Total asset turnover ratio = Sales (or Operating) Revenues ÷ Average Total Assets

= $109,000 ÷ [($58,020 + $65,180) / 2]

= $109,000 ÷ $61,600 = $1.77