During the first quarter of 2007 the Payne Corporation entered into the following transactions:

Jan. 1 Acquired 150 shares of Block Corporation common stock for $20 per share, 200 shares of Bridle Corporation common stock for $30 per share, and 100 shares of Alpha Corporation common stock for $25 per share. These are the only shares the company owns and all are classified as securities available for sale.

Feb. 1 Purchased 12% A Company bonds with a face value of $20,000 at par, plus accrued interest. Interest on the bonds is payable February 28 and August 31 each year, and the bonds are due August 31, 2010. Also purchased 10% B Company bonds with a face value of $12,000 at par, plus accrued interest. Interest on the bonds is payable March 31 and September 30, and the bonds are due September 30, 2013. These are the only bonds the company owns and all are classified as securities available for sale.

Feb. 1 Established a petty cash fund for incidental expenditures at $500.

Feb. 28 Received the semiannual interest on the A Company bonds.

Feb. 28 A count of cash on hand indicated that $125.50 remained in the petty cash fund. A sorting of petty cash vouchers disclosed that $110.00 was spent for postage, $170.65 was spent for office supplies, $45.00 was spent for transportation, and $43.50 was spent for miscellaneous items. The fund was replenished.

Mar. 31 Received first quarter dividends of $1,500 and the semiannual interest on the B Company bonds. On this date, the aggregate fair value of Payne’s securities available for sale is $42,600.

Mar. 31 A count of cash on hand indicated that $230.50 remained in the petty cash fund. A sorting of petty cash vouchers disclosed that $140.00 was spent for postage, $75.30 was spent for office supplies, and $54.20 was spent for miscellaneous items. The fund was replenished.

The bank statement and the accounting records of the Payne Corporation for the month of March 2007 indicated that the cash collected from the dividends and the B Company bond interest was deposited on March 31 but did not appear on the March bank statement. There were no other deposits in transit. The bank statement showed a balance on March 31 of $13,459.75, which included collection of a $1,500 note and $100 of interest by the bank for the Payne Corporation. Also listed was a $20 bank service charge and a $75.60 NSF check returned by the bank. The cash balance per the accounting records on March 31 was $11,689.95, which included checks totaling $2,365.40 that had not yet cleared the bank.

Required

1. Prepare journal entries to record the preceding transactions of the Payne Corporation for the first quarter of 2007.

2. Prepare a bank reconciliation for Payne for March 31, 2007.

3. Prepare any journal entries necessary to adjust Payne’s books on March 31, 2007.