Share
Explore BrainMass

Servo Corporation: journal entries and adjusting entries

Servo Corporation's balance sheet at December 31,2006, is presented below.

Servo Corporation
Balance Sheet
Decemeber 31, 2006
Cash $24,600 Accounts Reveivable $25,600
Accounts Revievable 45,500 Common Stock($10 par) 80,000
Allowance for doubtful accounts (1500) Retained Earnings 127,400
Supplies 4,400
Land 40,000
Building 142,000
Accumulated depreciation-building (22,000)
$233,000

During 2007, the following transactions occurred.
1. On January 1, 2007, Servo issued 1,500 shares of $20 par, 7% preferred stock for $33,000.
2. On January 1, 2007, Servo also issed 600 shares of the $10 par value common stock for $21,000.
3. Servo performed services for $280,000 on account
4. On April 1, 20007, Servo collected fees of $48,000 in advance for services to be performed from April, 1, 2007, to March 31, 2008
5. Servo collected $267,000 from customers on account.
6. Servo bought $30,100 of supplies on account
7. Servo paid $32,200 on accounts payable.
8. Servo reacquired 400 shares of its common stock on June 1, 2007, for $38 per share
9. Paid other operating expenses of $188,200
10. On December 31, 2007, Servo declared the annual preferred stock dividend and a $1.20 per share dividend on the outstanding common stock, all payable on January 15, 2008.
11. An account receivable of $1,300 which originated in 2006 is written off as uncollectible.
Adjustment data
1. A count of supplies indicates that $5900 of supplies remain unused at year-end.
2. Recorded revenue earned from item 4 above.
3. The allowance for doubtful accounts should have a balance of $3,500 at year end.
4. Depreciation is recorded on the building on a straight-line basis based on a 30-year life and a salvage value of $10,000.
5. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

Instructions
Prepare journal entries for the transactions listed above and adjusting entries.

Solution Preview

Servo Corporation's balance sheet at December 31, 2006, is presented below.

Servo Corporation
Balance Sheet
December 31, 2006
Cash $24,600 Accounts Receivable $25,600
Accounts Receivable 45,500 Common Stock ($10 par) 80,000
Allowance for doubtful accounts (1500) Retained Earnings 127,400
Supplies 4,400
Land 40,000
Building 142,000
Accumulated depreciation-building (22,000)
$233,000

During 2007, the following transactions occurred.
1. On January 1, 2007, Servo issued 1,500 shares of $20 par, 7% preferred stock for $33,000.
2. On January 1, 2007, Servo also issued 600 shares of the $10 par value common stock for $21,000.
3. Servo performed services for $280,000 on account
4. On April 1, 20007, Servo collected fees of $48,000 in advance for services to be performed from April, 1, 2007, to March 31, 2008
5. Servo collected $267,000 from customers on account.
6. Servo bought $30,100 of supplies on account
7. Servo paid $32,200 on ...

Solution Summary

This solution is comprised of a detailed explanation to prepare journal entries for the transactions listed above and adjusting entries.

$2.19