Question

Jay, Inc., a party rental business, completed its first year of operations on December 31, 2014. Because this is the end of the annual accounting period, the company bookkeeper prepared the following tentative income statement:


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 $730 were not recorded or paid.
b. Jay estimated telephone usage at $440 for December 2014, but nothing has been recorded or paid.
c. Depreciation on rental autos, amounting to $24,000 for 2014, was not recorded.
d. Interest on a $15,000, one-year, 8 percent note payable dated October 1, 2014, was not recorded. The 8 percent interest is payable on the maturity date of the note.
e. Maintenance expense excludes $1,100 representing the cost of maintenance supplies used during 2014.
f. The Unearned Rental Revenue account includes $4,100 of revenue to be earned in January 2015.
g. The income tax expense is $5,800. Payment of income tax will be made in 2015.

Required:
1. What adjusting entry for each item (a) through (g) should Jay record at December 31, 2014? If none is required, explain why.
2. Prepare a corrected income statement for 2014 in good form, including earnings per share, assuming that 7,000 shares of stock are outstanding all year. Show computations.
3. Compute the total asset turnover ratio based on the corrected information. Assume Jay’s December 31,
2013, total assets were $58,020 and its December 31, 2014, total assets were $65,180. What does this ratio suggest? If the average total asset turnover ratio for the industry is 2.31, what might you infer about Jay,Inc.?


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  • CreatedJuly 01, 2014
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