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    Servo Corporation: journal entries and adjusting entries

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    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.

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    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

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