On January 1, 2018, the general ledger of ACME Fireworks includes the following

Question

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
  

  
During January 2018, the following transactions occur:

January 2. Sold gift cards totaling $8,800. The cards are redeemable for merchandise within one year of the purchase date.
January 6. Purchase additional inventory on account, $151,000.
January 15. Firework sales for the first half of the month total $139,000. All of these sales are on account. The cost of the units sold is $75,800.
January 23. Receive $125,800 from customers on accounts receivable.
January 25. Pay $94,000 to inventory suppliers on accounts payable.
January 28. Write off accounts receivable as uncollectible, $5,200.
January 30. Firework sales for the second half of the month total $147,000. Sales include $12,000 for cash and $135,000 on account. The cost of the units sold is $81,500.
January 31. Pay cash for monthly salaries, $52,400.

1.

Required information

1. Record each of the transactions listed above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

2.

Required information

1. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,800 and a two-year service life.
2. At the end of January, $15,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected.
3. Accrued interest expense on notes payable for January.
4. Accrued income taxes at the end of January are $13,400.
5. By the end of January, $3,400 of the gift cards sold on January 2 have been redeemed.
  
2. Record the adjusting entries on January 31 for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

  Accounts Debit Credit   Cash $ 25,500   Accounts Receivable 47,000   Allowance for Uncollectible Accounts $ 4,600   Inventory 20,400   Land 50,000   Equipment 17,000   Accumulated Depreciation 1,900   Accounts Payable 28,900   Notes Payable (6%, due April 1, 2019) 54,000   Common Stock 39,000   Retained Earnings 31,500        Totals $ 159,900 $ 159,900

Explanation / Answer

1)

2)Depreciation for year : [cost-residual value]/useful life

        = [17000-3800]/2=6600

Depreciation for one month = 6600*1/12 =550

**Accounts receivable at end =47000beginning+139000-125800-5200+135000=190000

Estimated uncollectible account:[15000*.30]+[(190000-15000)*.03]

= 4500+ 5250

= 9750

Balance in allowance account = 4600 beginning -5200 = -600 (Dr)

Bad debt expense to be recorded = 9750- (-600) = 9750+600 = 10350

Date Account Debit credit Jan 2 cash 8800 Unearned revenue 8800 jan 6 Inventory 151000 Accounts payable 1510000 jan15 Accounts receivable 139000 sales revenue 139000 cost of goods sold 75800 Inventory 7580 jan23 cash 125800 Accounts receivable 125800 jan25 Accounts payable 94000 cash 94000 jan28 Allowance for uncollectible accounts 5200 Accounts receivable 5200 jan 30 cash 12000 Accounts receivable 135000 sales revenue 147000 cost of goods sold 81500 Inventory 81500 [cost of sales recorded] 31 jan Salary expense 52400 cash 52400

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