Mason Automotive is an auto parts company that sells auto parts and provides auto services to customers. This is Mason's first year of operations and they have hired you as their CPA to prepare their company's income statement and balance sheet. As such, January 1, 2018 was the first day Mason was in business. 

Required:

For the month of January, record all necessary journal entries for transactions that occurred during the month. 

Also, prepare any necessary adjusting journal entries at the end of the month.

Journal Entry #1

Mason Automotive sells 10,000,000 shares at $5 par for $30 on January 1, 2018.

Journal Entry #2

Ed Mason, the CEO, hires 3,000 employees, who will receive a combined salary of $12 million per month. Employees started on January 1st and will be paid for the month of January on February 5th. Employee withholdings are as follows: 10% for federal income taxes, 5% for state income taxes, and 7% for FICA. Record entry required from January 1, 2018.

Journal Entry #3

Mason Automotive issues a bond payable on January 1, 2018 with a face value of $200 Million at 102. The bond will have a useful life of 5 years and interest is paid monthly at a rate of 5% APR. Record the necessary journal entry as of January 1, 2018.

( Note : Assume a straight-line amortization for the discount/premium of the bond.)

Journal Entry #4

Mason Automotive purchased $80 million worth of inventory on account on January 2, 2018. Mason says it will use a perpetual inventory system to track inventory.

Journal Entry #5

Mason Automotive purchases $120 million of fixed assets that will have a useful life of 10 years and no salvage value on January 2, 2018. $20 million was paid in cash with the remaining balance on account. These assets are depreciated using the straight line method.

Journal Entry #6

On January 2, Mason Automotive submitted an order to the Corby Panther Company. Shipping terms were FOB shipping point and order value was $50 million and inventory cost was $20 million. Suppose this sale was made on account.

Journal Entry #7

On January 3, Mason Automotive receives a $75 million advance from a customer, the Michael Scott Paper Company, to build 7,500 cars.

Journal Entry #8

Mason Automotive purchases a patent from Apple for $24 million on January 3, 2018. The patent has a legal life of 20 years, but a useful life of 10 years. Record the entry required as of January 3, 2018. Assume the patent was purchased for cash.

Journal Entry #9

Mason Automotive purchased $2 million worth of supplies on January 4, 2018. $1.5 million was paid in cash with the remaining balance in the account.

Journal Entry #10

Mason Automotive prepays next year's rental costs of $12 million and insurance costs of $2.4 million on January 4, 2018

Journal Entry #11

On January 20, Mason Automotive decides to purchase 2,000,000 shares of treasury at $25 per share.

End of month adjusting entries

There are 10 applicable adjusting entries that must be made at 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 operating expense items in the income statement.

2.) Record the necessary adjusting entries related to prepaid expenses as separate journal entries.

3.) In checking the supply room at the end of the month, Mason Automation noticed that they still had $1.5 million worth of supplies on hand.

4.) At the end of the month, 4,000 cars were completed for the Michael Scott Paper Company and the performance obligation on those 4,000 cars had been met.

As such, it was determined that revenue would be earned from those 4,000 vehicles and it was noted that each vehicle cost $8,000 to manufacture.
5.) Mason Automation uses the balance sheet approach to estimate the allowance for doubtful accounts at the end of the period. Based on the industry average,

Mason noted that he will use 5% of the accounts receivable as an estimate.
6.) When preparing the balance sheet, close net income with retained earnings.

Answer rating: 100% (QA)

Sure Here are the journal entries for the transactions that occurred during the month of January as well as the necessary adjusting entries at the end of the month Journal Entry 1 Date January 1 2018 ... View the full answer