Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began

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.

I already did mostly everything, so here are my journal entries: (I only need help with Feb 29b and questions 1-7 at the end.)

What is the WWC’s gross profit for February?

What is the gross profit percentage? (Round your answer to 1 decimal place.)

What were WWC’s net sales for February?

If WWC had chosen to use the percentage of sales method, taking 2% of sales, instead of using the aging method WWC would have reported ------ as bad debt expense for February and a net Accounts Recievable of ------ (Round your answers to 2 decimal places.)

How many units are in ending inventory?

What is the cost per unit of the ending inventory?

If WWC had chosen LIFO, calculate its February cost of goods sold.

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:

Explanation / Answer

Date General Journal Debit Credit Feb. 1 Notes Receivable 2,000 Accounts Receivable 2,000 Feb. 2 Insurance Expense 750 Cash 750 Feb. 5 Inventory 12,000 Accounts Payable 12,000 Feb. 6 Inventory 320 Cash 320 Feb. 10a Accounts Receivable 23,400 Sales Revenue 23,400 Feb. 10b Cost of Goods Sold 10,160 Inventory 10,160 Feb. 15a Unearned Revenue 4,600 ### Accounts receivables 3,500 Sales Revenue 8,100 Feb. 15b Cost of Goods Sold 3,465 Inventory 3,465 Feb. 15c Inventory 770 Cost of Goods Sold 770 Feb. 15d Sales (Returns ) 1,800 Accounts Receivable 1,800 Feb. 16 Wages Expense 2,700 Cash 2,700 Feb. 17 Accounts Payable 12,000 Cash 11,760 ### Purchase Discounts 240 Feb. 18 Allowance for Doubtful Accounts 1,250 Accounts Receivable 1,250 Feb. 19a Accounts Payable 1,800 Rent Expense 1,800 Cash 3,600 Feb. 19b Cash 8,380 Sales Discounts 120 Accounts Receivable 8,500 (Sales Discount 6000*2%) Feb. 26a Accounts Receivable 450 Allowance for Doubtful Accounts 450 Feb. 26b Cash 450 Accounts Receivable 450 Feb. 27 Utility Expense 750 Accounts Payable 750 Feb. 28 Dividends Declared 500 Cash 500 Feb. 29a Wages Expense 2,700 Wages Payable 2,700 Feb. 29b Bad Debt Expense 1701 ### Allowance for Doubtful Accounts 1701 Feb. 29c Interest Expense 160 Interest Payable 160 Feb. 29d Interest Receivable 20 Interest Revenue 20 PERPETUAL FIFO PURCHASE SALES BALANCE Sale Value Units Value 1-Feb 50 4000 50 4000 5-Feb 160 12320 50 4000 160 12320 7 Feb - 10 Feb 50 4000 80 6160 80 6160 23400 130 10160 15-Feb 45 3465 35 2695 8100 15-Feb 10 770 -10 -770 45 3465 -1800 28-Feb 45 3465 29700 165 12855 -120 COGS (G/P) 16725 29580 (Net Sales) Sales Revenue COGS Feb 10 a 23400 10160 Feb. 15 a. 8100 3465 Feb.15.d. -1800 -770 Feb. 19.b. -120 Total 29580 12855 Gross Profit 16725 Allowance based on Aging of A/cs. Rec. Accounts Receivables All.for Doubtful A/cs. Bad Debts Debit Credit Debit Credit Debit Credit Feb.Op.bal. 10400 Feb.Op.bal. 1150 All.for Doubtful A/cs. 1701 Notes Receivable 2000 Acc. Rec. 1250 Sales Revenue 23400 Restoration 450 Sales Revenue 8100 New Bad debts 1351 Sales Ret.&All. 1800 Cl.Bal.28350*6% 1701 All.for Doubtful A/cs. 1250 2951 2951 Cash& sales Discounts 8500 Restoration 450 Cash recd. 450 Cl.balance 28350 42350 42350 %. of Net sales Sales Revenue All.for Doubtful A/cs. Bad Debts Feb 10 a 23400 Debit Credit Debit Credit Feb. 15 a. 8100 Feb.Op.bal. 1150 All.for Doubtful A/cs. 241.6 Feb.15.d. -1800 Accounts Receivable 1250 Feb. 19.b. -120 Restoration 450 Total Net sales 29580 New Bad debts 241.6 Cl.Bal.29580*2% 591.6 2% All. For D/D = 2%*29580= 1841.6 1841.6 591.6 ANSWERS: 1 WWC’s gross profit for February 16725 2 Gross profit percentage 16725/29580= 56.54 % 56.54% 3 WWC’s net sales for February 29580 4 If WWC had chosen to use the % of sales method, taking 2% of sales, instead of using the aging method WWC would have reported $ 241.6 as bad debt expense for February and a net Accounts Recievable of 28350-591.6= $ 27758.4 5 No.of units are in ending inventory = 45 6 Cost per unit of the ending inventory= $ 77 7 If WWC had chosen LIFO, February cost of goods sold= $ 12750 130*77 10010 30*77 2310 15*80 1200 -10*77 -770 12750

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