JE # Activity For The Month of January 1 Mason Automotive sells 10,000,000 shares at $2 par for $20 on January 1st, 2021. 2 Mason Automotive purchases fixed assets of $160 Million that will have a useful life of 18 years and a salvage value of $30 million on January 9th, 2021. $60 million was paid with cash with the remaining balance on account. These assets are depreciated using the straight-line method. Mason Automotive purchased $250 Million dollars worth of inventory on January 3rd, 2021. $90 Million was 3 paid with cash with the remaining balance on account. Mason notes that it will use a perpetual inventory system to track inventory. 4 Mason Automotive purchased $4 Million dollars worth of supplies on account on January 4th, 2021. 5 6 Ed Mason, the CEO, hires 4,000 employees, whom will receive a combined salary of $4.75 Million on a monthly basis. The employees started on January 1st and will be paid for the month of January on February 4th. Employee's withholdings are as follows: 11% for federal income taxes 5.6% for state income taxes and 7.65% for FICA. Record the necessary entry as of the date of hire, January 1st, 2021. On January 6th, Mason Automotive receives $60 Million advance payment from a customer, Highland Inc., to manufacture 6,000 cars. On January 7th, Mason Automotive shipped an order to Panther Paws Corporation. The shipping terms were FOB 7 shipping point. The sales value of the order was $200 Million and the inventory cost was $105 Million. Assume that this sale was made on account. 8 Mason Automotive issues a bond payable on January 8th, 2021 with a face value of $100 Million at 95 The bond will have a useful life of 20 years with an interest payment of 7.5% (Annual Percentage Rate) due at the end of the month. Record the necessary journal entry as of January 8th, 2021. (Note: When considering the amortization of the discount or premium, assume the straight line method is used). 9 Mason Automotive pre-pays for rent Expense for the next two years of $18 Million on January 1st, 2021. Mason Automotive buys a patent from Apple for $17.5 Million on January 10th, 2021. The patent has a legal life of 10 27 years and useful life of 20 years. Record the necessary entry as of January 10th, 2021. Assume the patent was purchased using cash. 11 On January 21st, Mason Automotive decides to purchase 100,000 shares of Treasury stock at $22.5 per share. Month End Adjusting Entries There are 10 applicable adjusting entries that need to be made as of the end of the month based on the information provided above. When recording these adjusting entries consider the following facts: 1. Interest expense will be recorded as a operating expense items on the income statement. 2. Record the necessary adjusting entries related to pre-paid expense as separate journal entries. When reviewing the supply room as of the end of the month, Mason Automation noted that it had $3.5 Million 3. worth of supplies still on hand. As of the end of the month, 3,000 cars were completed for Highland Inc. and the performance obligation had been met on those 3,000 cars. As such, revenue was determined to be earned on those 3,000 vehicles and it was noted that each vehicle costed $6,000 to manufacture. (These journal entries are considered 2 of the 10 total adjusting 4. entries). Mason Automation uses the balance sheet approach in estimating the allowance for doubtful accounts as of the 5. end of the period. Based on industry average, Mason noted that it will use 6% of receivables as an estimation. 6. There should be two separate entries related to payroll that is recorded. Note on Balance Sheet: When preparing the balance sheet, close out net income to retained earnings.