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Question(s) / Instruction(s):

     33.     (Transaction analysis, journal entries, and adjusting journal entries)

Ricardo Sanchez repairs automobiles. He started calendar year 2009 year with the following account balances: Cash - $5,000; Accounts receivable - $30,000; Allowance for uncollectible accounts - $3,000; Repair parts inventory - $23,000; Equipment - $60,000; Accumulated depreciation - $25,000; Accounts payable - $10,000; and R. Sanchez, Capital -$80,000. The following transactions occurred during the month of January.
          a.     Ricardo paid rent of $8,000 for the months of January and February.
          b.     He purchased $10,000 of repair parts for inventory. The purchase was made on credit.
          c.     He paid outstanding invoices in the amount of $12,000.
          d.     He billed customers a total of $35,000 for repair services.
          e.     In performing the repairs in transaction d., he used repair parts that cost him $13,000.
          f.     He received $40,000 from his customers against previous billings for repair work.
          g.     One of his customers, who owed him $2,000, went bankrupt. Ricardo received $400 in cash and wrote off the remaining $1,600 as a bad debt.
          h.     He paid his mechanics $8,000 for four weeks' salary.
          i.     He used $10,000 of his idle cash to purchase a short-term certificate of deposit (CD). The CD pays interest at the rate of 3% a year.
          j.     He purchased new equipment for $5,000 on credit.

Ricardo wants financial statements at the end of the month. The following adjusting journal entries are needed:

          k.     To recognize one month's depreciation on the $60,000 of equipment on hand at the beginning of the month. Ricardo assumes the equipment will have a 10-year life.
          l.     To recognize estimated bad debts. Ricardo wants to provide for additional bad debts at the rate of 2% of the month's billings (see transaction d.)
          m.     To recognize unpaid salaries of $1,200 for the last few days in January.
          n.     To recognize interest earned for one-month on the CD purchased in transaction i., above.
          o.     To recognize the expiration of one month's rent paid in transaction a.

Required:
          a.     Analyze the above transactions on a work sheet. The work sheet should show columns for individual accounts classified as cash, other, assets, liabilities, and equity.
          b.     Prepare journal entries to record all of the above transactions.

 


     

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