Problem 1: Somerville Corp. purchases office supplies once a month and prepares monthly financial statements. The assets accounts Office Supplies on hand has a balance of $1,450 on May 1. Purchases of supplies during May amount to $1,100. Supplies on hand at May 31amount to $920. Prepare the necessary adjusting entry on Somerville's books on May 31. What will be the effect on net income for May if this entry is not recorded?
Problem 2: The highway department contracted with a private company to collect tolls and maintain facilities on a turnpike. Users of the turnpike can pay cash as they approach the toll booth, or they can purchase a pass. The pass is equipped with an electronic sensor that subtracts the toll free from the pass balance as the motorist slowly approaches a special toll booth. The passes are issued in $10 increments. Refunds are available to motorists who do not use the pass balance, but they are issued very infrequently. Last year, $3,000,000 was collected at the traditional toll booths, $2,000,000 of passes were issued, and $1,700,000 of assets was used at the special toll booth. How much should the company recognize as revenue for the year? Explain how the revenue recognition rule should be applied in this case.
Problem 3: Denton Corporation employs 50 workers in its plant. Each employee is paid $10 per hour and works seven hours per day, Monday through Friday. Employees are paid every Friday. The last payday was Friday, September 19.
Required:
1. Compute the dollar amount of the weekly payroll.
2. Prepare the journal entry on Friday, September 26, for the payment of the weekly payroll.
Denton prepares monthly financial statements. Prepare the adjusting journal entry on Tuesday, September 30, the last day of the month.
4. Prepare the journal entry on Friday, October 3, for the payment of the weekly payroll.
5. Will net income for the month of September be understated or overstated if Denton doesn't bother with an adjusting entry on September 30? Explain your answer.
Problem 4: Blue Jay Delivery Service is incorporated on January 2 and enters into the following transactions during its first month of operations:
January 2: Filled articles of incorporation with the state and issued 100, 000 shares of capital stock. Cash of $100,000 is received from the new owners for the shares.
January 3: Purchased a warehouse and land for $80, 000 in cash. An appraiser values the land at $20,000 and the warehouse at $60,000.
January 4: Signed a three-year promissory note at Third State Bank in the amount of $50,000.
January 6: Purchased five new delivery trucks for a total of $45,000 in cash.
January 31: Performed services on account that amounted to $15,900 during the month. Cash amounting to $7,940 was received from customers on account during the month.
January 31: Established an open account at a local service station at the beginning of the month. Purchased of gas and oil during January amounted to $3,230. Blue Jay has until the 10th of the following month to pay its bill.
Required:
1. Prepare journal entries on the books of Blue Jay to record the transactions entered into during the month.
2. Prepare a trail balance at January 31.
3. Prepare an income statement for the month of January
4. Prepare a classified balance sheet at January 31.
5. Assume that you are considering buying stock in this company. Beginning with the transaction to record the purchase of the property on January 3, list any additional information you would like to have about each of the transactions during the remainder of the month.