Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month.


Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2010:

a. Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2010, with interest and principal to be paid at maturity.

b. The asset account Office Supplies on Hand has a balance of $1,280 on March 1, 2010. 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.

c. The company purchased office equipment last year for $62,600. The equipment has an estimated useful life of six years and an estimated salvage value of $5,000.

d. The company’s plant operates seven days per week with a daily payroll of $950. Wage earners are paid every Sunday. The last day of the month is Saturday, March 31.

e. The company rented an idle warehouse to a neighboring business on February 1, 2010, at a rate of $2,500 per month. On this date, Kretz Corporation recorded Rent Collected in Advance for six months’ rent received in advance.

f. On March 1, 2010, Kretz Corporation recorded a liability account, Customer Deposits, for $4,800. This sum represents an amount that a customer paid in advance and that Kretz will earn evenly over a four-month period.

g. Based on its income for the month, Kretz Corporation estimates that federal income taxes for March amount to $3,900.


1. For each of the preceding situations, identify and analyze the adjustments to be recorded on March 31, 2010.

2. Assume that Kretz reports income of $23,000 before any of the adjustments. What net income will Kretz report for March?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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