Wally?s Widget Company (WWC) incorporated near the end of 2011. Operations began
ID: 2522775 • 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 $1,700 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 $1,700 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 $600 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
An additional 130 units of inventory are purchased on account by WWC for $9,750 ? terms 2/15, n30.
WWC paid Federal Express $260 to have the 130 units of inventory delivered overnight. Delivery occurred on 02/06.
Sales of 100 units of inventory occurred during the period of 02/07 ? 02/10. The sales terms are 2/10, net 30.
The 30 units that were paid for in advance and recorded in January are delivered to the customer.
15 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.
$3,000 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 $8,200 of customers? Accounts Receivable. Of the $8,200, the discount was taken by customers on $4,500 of account balances; therefore WWC received less than $8,200.
WWC recovered $420 cash from the customer whose account had previously been written off (see 02/18).
A $600 utility bill for February arrived. It is due on March 15 and will be paid then.
Record the $2,400 employee salary that is owed but will be paid March 1.
WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% 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).
Prepare all February journal entries and adjusting entries. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
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 Accounts Title Dr Cr 1-Feb nOte receivable $1,700 Accounts Receivable $1,700 2-Feb Insurance Expenses $600 Cash $600 5-Feb Inventory $9,750 Accounts payable $9,750 10-Feb Accounts receivable $16,500 Sales Revenue (100*165) $16,500 Cost of good sold $9,138 Inventory 2800+(9750/100*65 units) $9,138 15-Feb Unearned Revenue $4,450 Sales revenue $4,450 15-Feb Sales Return (165*15) $2,475 Accounts receivable $2,475 Inventory $1,463 Cost of good sold (97.5*15) $1,463 16-Feb Wages expenses $2,400 Cash $2,400 17-Feb Accounts payable $9,750 Purchase Discount (9750*2%) 195 Cash $9,555 18-Feb Allowance for Doubtful Accounts $1,100 Accounts receivable $1,100 19-Feb Cash $8,110 Sales discount (4500*2%) 90 Accounts receivable 8200 26-Feb Accounts receivable $420 Allowance for Doubtful Accounts $420 Cash $420 Accounts receivable $420 28-Feb Cash Dividend $800 Dividend Payable $800 Feb-29 Wages expenses $2,400 Wages Payable $2,400 Feb-29 Bad Debt expenses 38 Allowance for Doubtful Accounts $38 ((9950-1700+16500-2475-8200-1100)*8%)-1000 Feb-29 Interest expenses $145 Interest payable (14500*12%*1/12) $145 Feb-29 Interest receivable $17 Interest Revenue (1700*12%*1/12) $17
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