Martin Towing Company is at the end of its accounting year ending December 31. The following data that must be considered were developed from the company's records and related documents:

Martin Towing Company is at the end of its accounting year ending December 31. The following data that must be considered were developed from the company's records and related documents:

1.  On January 1 of the current year, the company purchased a new hauling van at a cash cost of $24,400. Depreciation estimated at $2,600 for the year has not been recorded for the current year.
2.  During the current year, office supplies amounting to $840 were purchased for cash and debited in full to Supplies. At the end of last year, the count of supplies remaining on hand was $240. The inventory of supplies counted on hand at the end of the current year was $340.
3.  On December 31 of the current year, Lanie's Garage completed repairs on one of the company's trucks at a cost of $1,100; the amount is not yet recorded by Martin and by agreement will be paid during January of next year.
4.  On December 31 of the current year, property taxes on land owned during the current year were estimated at $1,320. The taxes have not been recorded and will be paid in the next year when billed.
5.  On December 31 of the current year, the company completed towing service for an out-of-state company for $7,100 payable by the customer within 30 days. No cash has been collected, and no journal entry has been made for this transaction.
6.  On July 1 of the current year, a three-year insurance premium on equipment in the amount of $900 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 of the current year. 
7. On October 1 of the current year, the company borrowed $10,800 from the local bank on a one-year, 11 percent note payable. The principal plus interest is payable at the end of 12 months. 
8. The income before any of the adjustments or income taxes was $40,000. The company's federal income tax rate is 30 percent. (Hint: Compute adjusted pre-tax income based on (a) through (g) to determine income tax expense.)

Required:

1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.

Prepare the adjusting entry required for each transaction at December 31 of the current year.
 

Explanation:

2.

2. Beg. Inventory of $240 + Purchases $840 − Ending Inventory $340 = $740
6. $900 ÷ 36 months × 6 months of coverage = $150
7. $10,800 × 0.11 × 3/12 = $297
8. To accrue income tax expense incurred but not paid:

Income before adjustments (given)	$	40,000
Effect of adjustments (a) through (g)		893		(–$2,600 – $740 – $1,100 – $1,320 + $7,100 – $150 – $297)
Income before income taxes		40,893
Income tax rate	×	30	%
Income tax expense	$	12,268

 

Green Valley Company prepared the following trial balance at the end of its first year of operations ending December 31. To simplify the case, the amounts given are in thousands of dollars.

Green Valley Company prepared the following trial balance at the end of its first year of operations ending December 31. To simplify the case, the amounts given are in thousands of dollars.

  

	UNADJUSTED
Account Titles	Debit		Credit
Cash	29
Accounts receivable	26
Prepaid insurance	21
Machinery	88
Accumulated depreciation
Accounts payable			22
Wages payable
Income taxes payable
Common stock (4,000 shares)			6
Additional paid-in capital			68
Retained earnings	20
Revenues (not detailed)			124
Expenses (not detailed)	36
Totals	220		220

Other data not yet recorded at December 31 include:

1. Insurance expired during current year, $11.
2. Wages payable, $15.
3. Depreciation expense for current year, $17.
4. Income tax expense, $5.

Required:

2. Using the adjusted balances, give the closing entry for current year.

 

Explanation:

2.
 

Expenses = $36 + $11 + $17 + $15 + $5 = 84

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