Question

he 6 Chapter 2-Adjusting Entries Ashley Judd Fine Motors, Inc. commenced operations on July 1 of the current year. Since Ashley is skilled trom a Facebook site. This bookkeeper has exaggerated his abilities and, on December 31, presented Ashley with financial statements fraught with errors and a stated net income of 96,000. When Ashley's banker examined these statements, he brought up the following issues: in automotive matters but lacks any expertise in accounting, she hires a bookkeeper 1. Why does the rent expense account have a balance of $48,000 when your rent is only $4,000 per month? You paid this rent on July 1. Why is there no insurance expense on the income statement? Your balance sheet shows a balance of si8,000 that comes from a payment to Acme Insurance Ageney on October 1 2. for an annual policy You paid $66,000 for balance sheet. Doesn't it need to have depreciation recorded? 3. manufacturing equipment on September 1 and recorded it on your 4. On your balance sheet, you show $2,500 in office supplies were purchased on July 1. 5" 6. Have you used any of them? You borrowed $60,000 from our bank on October 1 at an interest rate of 12%, why are you not showing any interest expense on the income statement? I noticed on your balance sheet that you have a liability of $8,400 that is listed as earned revenue. I asked the bookkeeper where it came from and she told me that it was payment for an annual service contract paid b on a monthly basis. The payment was made to you on December 1 You loaned your destitute cousin $30,000 to start a dog grooming business on September 1. The note is for nine months and has an interest rate of 14%. How much interest did you un y a local mortuary to maintain their hearses 7. hen I was examining your payroll records, I noticed that you showed no payroll for the last three days of the month. Your weekly payroll is $2,400 and is earned equally each day Monday through Friday. 8. W The banker has instructed Ashley to prepare the necessary adjusting entries to correct these errors. Assume that equipment has a useful life of 10 years and a salvage value of $6,000. Further, assume that there are $975 in office supplies on hand. Record adjusting entries for each of the above events including explanations. If any event requires a reversing entry, please record it as well. Compute the correct net income for Ashley Judd Fine Motors. Required: 1. 2.

Answer 1