loader  Loading... Please wait...

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.

          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.



Find Similar Answers by Subject

Student Reviews

Rate and review your solution! (Please rate on a Scale of 1 - 5. Top Rating is 5.)

Expert's Answer
Download Solution:

This solution includes:

  • Plain text
  • Cited sources when necessary
  • Attached file(s)
  • Solution Document(s)

You Recently Viewed...

Reach Us