Question

Adjustments Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2017: Required: 1. For each of the following situations, identify and analyze the adjustments to be recorded on March 31, 2017. Do not round intermediate calculations. If required, round your final answers to the nearest dollar. a. Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2017, with interest and principal to be paid at maturity. Assume 360 days a year. Activity Operating Accounts Interest Payable Increase, Interest Expense Increase Statement(s) Balance Sheet only Wow does this entry affect the accounting equation? Ja financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Net Assets + Stockholders' + Equity C Revenues Expenses = Liabilities Interest Expense Income Cash b. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2017. 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. Activity Accounts Statement(s) How does this entry affect the accounting equation?

Answer 1

Section 1

Part A

Activity	Operating
Accounts	Interest expense, interest payable
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

interest payable

100

-100

interest expense

100

-100

(15000*8%*30/360 = 100)

Part B

Activity	Operating
Accounts	supplies expense, supplies
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

supplies

-660

-660

Supplies expense

660

-660

1280+750-1370 = 660

Part C

Activity	Operating
Accounts	Depreciation expense, accumulated depreciation –office equipment
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

Accumulate depreciation – office equipment

-800

-800

Depreciation expense

800

-800

($62,600 – $5,000) × 1/72 = 800

Part D

Activity	Operating
Accounts	Wages expense, Wages payable
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

Wages payable

5700

-5700

Wages expense

-5700

-5700

950*6 = 5700

Part E

Activity	Operating
Accounts	Rent revenue, rent revenue collected in advance
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

rent revenue collected in advance

-2500

2500

Rent revenue

2500

2500

Part F

Activity	Operating
Accounts	Customer Deposits, service revenue
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

Customer Deposits

-1200

1200

Service revenue

1200

1200

Part G

Activity	Operating
Accounts	Income tax expense, income tax payable
Statement (s)	Income statement and balance sheet

Balance Sheet

Income statement

Assets

=

Liabilities

+

Stockholders’ equity

Revenue

-

Expenses

=

Net income

Income tax payable

3900

-3900

Income tax expense

3900

-3900

Section 2

Adjusted net income = reported net income – interest expense – supplies expense –depreciation expense - Wages expense + rent revenue + service revenue –income tax expense = 23000-100-660-800-5700+2500+1200-3900 = $15540