Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began
ID: 2470621 • Letter: W
Question
Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows:
Included in WWC’s February 1 Accounts Receivable balance is a $2,000 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $2,000 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
WWC paid a $750 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
An additional 160 units of inventory are purchased on account by WWC for $12,000 – terms 2/15, n30.
WWC paid Federal Express $320 to have the 160 units of inventory delivered overnight. Delivery occurred on 02/06.
Sales of 130 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
The 45 units that were paid for in advance and recorded in January are delivered to the customer.
10 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase.
Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs.
$3,600 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.
Collected $8,500 of customers’ Accounts Receivable. Of the $8,500, the discount was taken by customers on $6,000 of account balances; therefore WWC received less than $8,500.
WWC recovered $450 cash from the customer whose account had previously been written off (see 02/18).
A $750 utility bill for February arrived. It is due on March 15 and will be paid then.
Record the $2,700 employee salary that is owed but will be paid March 1.
WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 6% of the ending balance is the appropriate end of February estimate of uncollectible accounts.
Record one month’s interest earned Kit Kat’s note (see 02/01).
Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows:
Feb. 10b Cost of Goods Sold 10,000 Inventory 10,00 Feb. 15a Unearned Revenue 4, 600 4600 Sales Revenue 4,600 Feb. 15b Cost of Goods Sold 750X Inventory 750X Feb 15c Inventory 10,000x Cost of Goods Sold 10,000XExplanation / Answer
For Feb 10 : cost of Units sold : Beginning 4000
Remaining Units are sold out of feb 5 purchase (130-50 = 80 units) = (12000+320Delievery cost ) * 80 / 160 = 6160
Total cost of goods sold = 4000 +6160 = 10160
2)Cost of goods sold = (12000+320) * 45 / 160 = 3465
3)Cost of inventory returned = 6160 * 10 / 80 = 770
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