Jay, Inc., a party rental business, completed its third 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: $108,000 Income Statement Rent revenue Expenses: Salaries and wages expense Maintenance expense Rent expense Utilities expense Gas and oil expense Miscellaneous expenses (items not listed elsewhere) Total expenses Income 25,000 10,100 7,900 3,400 2,200 1,600 50,200 $ 57,800 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: a. Wages for the last three days of December amounting to $620 were not recorded or paid. b. Jay estimated telephone usage at $370 for December, but nothing has been recorded or paid. c. Depreciation on rental autos, amounting to $23,600 for the current year, was not recorded. d. Interest on a $12,000, one-year, 14 percent note payable dated October 1 of the current year was not recorded. The 14 percent interest is payable on the maturity date of the note. e. Maintenance expense excludes $2,200, representing the cost of maintenance supplies used during the current year. f. The Unearned Rent Revenue account includes $4,700 of revenue to be earned in January of next year. g. The income tax expense is $5,700. 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 7,900 shares of stock are outstanding all year. 3. Compute the total asset turnover ratio based on the corrected information. Assume the beginning-of-the-year balance for Jay's total assets was $59,420 and its ending balance for total assets was $66,580. Required 1 Required 2 Required 3 What adjusting entry for each item (a) through (9) should Jay record at December 31? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Credit Transaction a. General Journal Salaries and wages expense Salaries and wages payable Debit 620 620 b. 370 Remaining expenses (not detailed) Accounts payable 370 3 C. 23,600 Depreciation expense Accumulated depreciation 23,600 4 d. 360 X Interest expense Interest payable 360 e. 2,200 Maintenance expense Maintenance supplies 2,200 No journal entry required 5,700 Income tax expense Income tax payable 5,700 JAY, INC. Income Statement For the Current Year Ended December 31 Operating revenue: Rent revenue $ 108,000 Operating expenses: Salaries and wages expense 25,000 Maintenance expense 10,100 % Rent expense 7,900 Utilities expense 3,400 Gas and oil expense 2,200 Miscellaneous expenses 1,600 Depreciation expense 23,600 73,800 370 x Total expenses Operating income Other Item: Interest expense Pretax income Income tax expense 370 5,700 Net income Earnings per share
