Jones Widget Company (JWC) incorporated near the end of 2013. Operations began i
ID: 2464663 • Letter: J
Question
Jones Widget Company (JWC) incorporated near the end of 2013. Operations began in January of 2014. JWC prepares adjusting entries and financial statements at the end of each month. The statements report monthly results for the period February 1-29, 2014.
Pertinent items of general information:
Beginning Balances from 1/31/14
Cash $33,620
Unearned Revenue (40 units) $6,000
Accounts Receivable $9,510
Accounts Payable (Jan Rent) $1,300
Allowance for Doubtful Accounts $700
Notes Payable $18,000
Inventory (30 units) $2,730
Contributed Capital $15,000
Retained Earnings $4,860
• JWC establishes a policy that it will sell inventory at $150 per unit.
• In January, JWC received a $6,000 advance for 40 units, as reflected in Unearned Revenue.
• JWC’s February 1 inventory balance consisted of 30 units at a total cost of $2,730.
• JWC’s note payable accrues interest at a 10% annual rate.
• JWC will use the FIFO inventory method and record COGS on a perpetual basis.
February Transactions
02/01 Included in JWC’s February 1 Accounts Receivable balance is a $2,000 account due from Kit Kat, a JWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. JWC arranges with Kit Kat to convert the $2,000 balance to a note, and Kit Kat signs a 6-month note, at 12% interest. The principal and all interest will be due and payable to JWC on August 1, 2014.
02/02 JWC paid a $500 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
02/05 An additional 150 units of inventory are purchased on account by JWC for $14,100 – terms 3/10, n30; FOB Destination.
02/10 Sales of 110 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
02/15 The advance order for 40 units from January is delivered to the customer.
02/15 20 units of the inventory that had been sold on 2/10 are returned to JWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are identified as being from the batch that was acquired on 02/05.
02/16 JWC pays the first 2 weeks wages to the employees. The total paid $1,500.
02/17 Paid in full the amount owed for the 02/05 purchase of inventory.
02/18 Wrote off a customer’s account in the amount of $700.
02/19 $2,600 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense.
02/19 Collected $4,000 on customers’ Accounts Receivable. Of the $4,000, the discount was taken by the customer on
$3,000 of the account balances.
02/21 A new inventory supplier that charges a lower price per unit is located. The new supplier’s terms are 2/15, n45; FOB Shipping Point. JWC purchases 50 units on account for $4,400.
02/22 JWC paid Federal Express $100 to have the 50 units of inventory delivered overnight. Delivery occurred on 02/22.
02/26 JWC recovered $400 cash from the customer whose account had previously been written off (see 02/18).
02/27 A $400 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28 JWC declared and paid a $500 cash dividend.
02/28 Paid in full the amount owed for the 02/21 purchase of inventory.
Adjusting entries:
02/29 (adjusting 1) Record the $1,500 employee salary that is owed but will be paid March 1.
02/29 (adjusting 2) JWC decides to use the aging method to estimate uncollectible accounts. JWC determines 8% of the ending accounts receivable balance is the appropriate end of February estimate of uncollectible accounts.
02/29 (adjusting 3) Record February interest expense accrued on the note payable.
02/29 (adjusting 4) Record one month’s interest earned Kit Kat’s note (see 02/01)
A Prepare all February journal entries and adjusting entries.
B. Post all February entries (transactions and adjustments) to the T-accounts
C. Prepare the Income Statement, Statement of Retained Earnings, Balance Sheet
D. Prepare all February 29 closing entries for JWC in the journal entry space below using the income summary method.
Explanation / Answer
Answer (b)
Answer C
Answer D
Answer (a) Journal Enteries Sl. No. Date Account Debit Credit 1 02/01 Note Receivable 2000 Account receivable 2000 2 02/02 Insurance Exp. 500 Cash 500 3 02/05 Inventory 14100 Account Payable 14100 4 02/10 Account receivable 16500 Sales a/c 16500 Cost of goods sold 10250 Inventory 10250 5 02/15 Unearned Revenue 6000 Sales a/c 6000 Cost of goods sold 3760 Inventory 3760 6 02/15 Sale return a/c 3000 Account receivable 3000 Inventory 1880 Cost of goods sold 1880 7 02/16 Salary 1500 Cash 1500 8 02/17 account payable 14100 cash 14100 9 02/18 Bad debt exp 700 account receivable 700 10 02/19 Rent a/c 1300 Account payable rent Jan 1300 cash 2600 11 02/19 Cash 3940 Discount Allowed 60 account receivable 4000 12 02/21 Inventory 4400 account payable 4400 13 02/22 Frieght Charges 100 cash 100 14 02/26 Cash 400 Bad debt exp 400 15 02/27 Utility bill 400 Utility bill payable 400 16 02/28 Dividend 500 Cash 500 17 02/28 account payable 4400 Discount received 88 Cash 4312 Adjusting Enteries 18 02/29 Salary 1500 Salary payable 1500 19 02/29 Bad debt 1305 Dobut ful allowance 1305 20 02/29 Interest exp. 150 interest payable 150 21 02/29 Interest received 20 Interest receivable 20 Working notes 4 Calculation of cost of goods sold Opeining invetory 30 2730 purchase 150 14100 sale 30 2730 sale (14100/150*80) 80 7520 Total cost of goods sold 10250 5 sale (14100/150*40) 40 3760 19 Account recivable add Opening balance 9510 02/10 16500 16500 less Convert note payable 2000 Sales return 3000 bad debts 700 Cash received 4000 9700 Total 16310 Provision of dobutful 8% 1304.8Related Questions
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