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?

 

2. 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

  

Daniel Company started operations on January 1 of the current year. It is now December 31, the end of the current annual accounting period. The part-time bookkeeper needs your help to analyze the following three transactions:

Daniel Company started operations on January 1 of the current year. It is now December 31, the end of the current annual accounting period. The part-time bookkeeper needs your help to analyze the following three transactions:

  

1. During the year, the company purchased office supplies that cost $3,500. At the end of the year, office supplies of $970 remained on hand.
2. On January 1 of the current year, the company purchased a special machine for cash at a cost of $29,500. The machine's cost is estimated to depreciate at $2,950 per year.
3. On July 1, the company paid cash of $1,480 for a two-year premium on an insurance policy on the machine; coverage began on July 1 of the current year.

Required:

Complete the following schedule with the amounts that should be reported for the current year.

 

Explanation:

Selected Balance Sheet Accounts at December 31 of the current year

Prepaid insurance (remaining coverage, $1,480 × 18/24 months) = 1,110

Selected Income Statement Accounts for the Current Year ended December 31

Office supplies expense (used, $3,500 − $970 on hand) = $2,530

Insurance expense (for 6 months, $1,480 × 6/24 months) = 370

Dittman's Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during year have been journalized and posted. The following data with respect to adjusting entries are available:

Dittman's Variety Store is completing the accounting process for the current year just ended, December 31. The transactions during year have been journalized and posted. The following data with respect to adjusting entries are available:

1. Wages earned by employees during December, unpaid and unrecorded at December 31, amounted to $2,700. The last payroll was December 28; the next payroll will be January 6.
2. Office supplies on hand at January 1 of the current year totaled totaled $450. Office supplies purchased and debited to Office Supplies during the year amounted to $500. The year-end count showed $275 of supplies on hand.
3. One-fourth of the basement space is rented to Heald’s Specialty Shop for $560 per month, payable monthly. At the end of the current year, the rent for November and December had not been collected or recorded. Collection is expected in January of the next year.
4. The store used delivery equipment all year that cost $60,500; $12,100 was the estimated annual depreciation.
5. On July 1 of the current year, a two-year insurance premium amounting to $2,400 was paid in cash and debited in full to Prepaid Insurance. Coverage began on July 1 of the current year.
6. The remaining basement of the store is rented for $1,600 per month to another merchant, M. Carlos, Inc. Carlos sells compatible, but not competitive, merchandise. On November 1 of the current year, the store collected six months’ rent in the amount of $9,600 in advance from Carlos; it was credited in full to Unearned Rent Revenue when collected.
7. Dittman’s Variety Store operates a repair shop to meet its own needs. The shop also does repairs for M. Carlos. At the end of the current year, Carlos had not paid $800 for completed repairs. This amount has not yet been recorded as Repair Shop Revenue. Collection is expected during January of next year.

Required:

For each of the transactions above, indicate the amount and direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the table below, indicate + for increase and - for decrease.