Project 2: Review of Merchandising Cycle [I have completed the questions, I just
ID: 2571428 • Letter: P
Question
Project 2: Review of Merchandising Cycle
[I have completed the questions, I just need help with a couple of the numbers.The incorrect entries are shown in red at the bottom of this 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 $1,400 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 $1,400 balance to a note, and Kit Kat signs a 6-month note, at 9% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
WWC paid a $850 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
An additional 200 units of inventory are purchased on account by WWC for $15,000 – terms 2/15, n30.
WWC paid Federal Express $600 to have the 200 units of inventory delivered overnight. Delivery occurred on 02/06.
Sales of 170 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
The 35 units that were paid for in advance and recorded in January are delivered to the customer.
30 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.
$5,800 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 $9,600 of customers’ Accounts Receivable. Of the $9,600, the discount was taken by customers on $7,000 of account balances; therefore WWC received less than $9,600.
WWC recovered $560 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 $2,400 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).
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:
No Date General Journal Debit Credit Feb. 1 Notes Receivable 1,400 Accounts Receivable 1,400 Feb. 2 Insurance Expense 850 Cash 850 Feb. 5 Inventory 15,000 Accounts Payable 15,000 4 Feb. 6 Inventory 600 Cash 600 Feb. 10a Accounts Receivable 25,500 Sales Revenue 25,500 Feb. 10b Cost of Goods Sold 25,500 Inventory 25,500 7 Feb. 15a Unearned Revenue 5,150 Sales Revenue 5,150 Feb. 15b Cost of Goods Sold 5,150 Inventory 5,150 Feb. 15c Inventory 4,500 Cost of Goods Sold 4,500 10 Feb. 15d Sales Returns and Allowance 5,150 Accounts Receivable 5,150Explanation / Answer
Journal entries for correction
Feb 10b
Cost of goods sold - Debit $14,450
(170 units at $85)
To Inventory - Credit $14,450
(being cost of goods sold recorded)
Feb 15b
Cost of goods sold - Debit $2,975
(35 units at $85)
To Inventory - Credit $2,975
(being cost of goods sold recorded)
Feb 15c
Inventory - Debit $2,550
Cost of goods sold - Credit 2,550
(30 units at $85)
(being inventory returned from sale made on February 10)
Feb 15d
Sales returns and allowance - Debit $4,500
(30 units at $150 per unit)
To Accounts Receivable - Credit $4,500
(being 30 units returned from sales made on February 10)
Feb 29b
Bad debts Expenses - Debit $912
170 sales -30 units returned = 140 units,
140 units - 64 units (cash received), outstanding 76 units
76*150 = $11,400, $11,400*8%
To Allowance for doubt full debts - Credit $912
(being record of 8% accounts receivables as bad debts)
Feb 29bc
Interest expenses - Debit $140
($14,000*12%= $1680/12 months =$140 per month)
To Interest Payable - Credit $140
(being interest in notes payable recorded)
Feb 29bd
Interest Receivable - Debit $21
($1,400*9%= $126/6 months =$21 per month)
To Interest Revenue - Credit $21
(being interest receivable recorded in notes receivable)
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