Question

Whispering Winds Corp.’s balance sheet at December 31, 2018, is presented below. Whispering Winds Corp. Balance Sheet December 31, 2018 Cash $32,000 Accounts payable $13,050 Inventory 30,500 Interest payable 2,525 Prepaid insurance 7,320 Bonds payable 50,500 Equipment 38,280 Common stock 23,825 Retained earnings 18,200 $108,100 $108,100 During 2019, the following transactions occurred. 1. Whispering Winds paid $2,525 interest on the bonds on January 1, 2019. 2. Whispering Winds purchased $243,900 of inventory on account. 3. Whispering Winds sold for $498,500 cash inventory which cost $264,500. Whispering Winds also collected $34,895 sales taxes. 4. Whispering Winds paid $228,500 on accounts payable. 5. Whispering Winds paid $2,525 interest on the bonds on July 1, 2019. 6. The prepaid insurance ($7,320) expired on July 31. 7. On August 1, Whispering Winds paid $12,000 for insurance coverage from August 1, 2019, through July 31, 2020. 8. Whispering Winds paid $24,300 sales taxes to the state. 9. Paid other operating expenses, $91,400. 10. Retired the bonds on December 31, 2019, by paying $47,500 plus $2,525 interest. 11. Issued $95,000 of 8% bonds on December 31, 2019, at 104. The bonds pay interest every December 31. Adjustment data: 1. Recorded the insurance expired from item 7. 2. The equipment was acquired on December 31, 2018, and will be depreciated on a straight-line basis over 5 years with a $3,180 salvage value. 3. The income tax rate is 30%. (Hint: Prepare the income statement up to income before taxes and multiply by 30% to compute the amount.)

(a) Prepare journal entries for the transactions listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) B) Prepare journal entries for the adjusting entries.

Answer 1

Whispering Winds Corp Journal entries Date Account 1 Interest Payable Cash Credit Calculation Debit $ 2,525 $ 2,525 2 $ 243,900 Inventory Accounts Payable $ 243,900 $ 533,395 Cash Sales Sales Taxes Payable Cost of goods sold Inventory $ 498,500 $ 34,895 $ 264,500 $ 264,500 $ 228,500 Accounts Payable Cash $ 228,500 5 $ 2,525 Interest expense Cash $ 2,525 $ 7,320 Insurance expense Prepaid Insurance $ 7,320 7 $ 12,000 Aug 1, 2019, till July 31, 2020 Prepaid Insurance Cash $ 12,000 8 Sales Taxes Payable Cash $ 24,300 $ 24,300 $ 91,400 Operating expenses Cash $ 91,400 10 $ $ 50,500 2,525 Bonds Payable Interest expense Cash Gain on retirement of bonds $ 50,025 $ 3,000 $ 98,800 =95,000*104% $ $ 3,800 95,000 11 Cash Premium on Bonds Payable Bonds Payable Adjusting entries 12 Insurance expense Prepaid Insurance $ 5,000 =12,000/12*5 $ 5,000 13 $ 7,020 =(38,280-3,180)/5 Depreciation expense Accumulated Depreciation-Equipment $ 7,020 14 $ 36,363 =121,210*30% Income tax expense Income Taxes Payable $ 36,363

Calculation 498,500 264,500 234,000 Whispering Winds Corp Income Statement For the Year Ended Dec 31, 2019 Sales Cost of goods sold Gross Profit Operating expenses Operating expenses Insurance expense Depreciation expense Total Operating expenses Operating Income Other expense (income) Interest expense Gain on retirement of bonds Total Other expense (income) Net Income before taxes Income tax expense Net Income 91,400 12,320 7,020 =7,320+5,000 110,740 123,260 5,050 (3,000) 2,050 121,210 36,363 84,847 =121,210*30%

Adjusted TB Debit Credit 252,920 9,900 7,000 38,280 7,020 28,450 Whispering Winds Corp Account Names Cash Inventory Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Interest Payable Sales Taxes Payable Income Taxes Payable Bonds Payable Premium on Bonds Payable Common Stock Retained Earnings Sales Cost of goods sold Operating expenses Insurance expense Depreciation expense Interest expense Gain on retirement of bonds Income tax expense Totals 10,595 36,363 95,000 3,800 23,825 18,200 498,500 264,500 91,400 12,320 7,020 5,050 3,000 36,363 724,753 724,753