Refer to the information provided for Kretz Corporation in Problem 4-1.
Required
1. Prepare a table to summarize the required adjusting entries as they affect the accounting equation. Use the format in Exhibit 3-1 on page 109. Identify each adjustment by letter.
2. Assume that Kretz reports income of $23,000 before any of the adjusting entries. What net income will Kretz report for March?
Problem 4-1:
Kretz Corporation prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for March 2014:
a. Kretz Corporation takes out a 90-day, 8%, $15,000 note on March 1, 2014, 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, 2014. 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, 2014, at a rate of $2,500 per month. On this date, Kretz Corporation credited Rent Collected in Advance for six months’ rent received in advance.
f. On March 1, 2014, Kretz Corporation credited 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.
Required
For each of the preceding situations, prepare in general journal form the appropriate adjusting entry to be recorded on March 31, 2014.