Question

One Trick Pony (OTP) incorporated and began operations near the end of the year, resulting in the following post-closing balances at December 31:

Cash	$	18,620
Accounts Receivable		9,650
Allowance for Doubtful Accounts		900	*
Inventories		2,800
Deferred Revenue (30 units)		4,350
Accounts Payable		1,300
Note Payable (long-term)		15,000
Common Stock		5,000
Retained Earnings		4,520

* credit balance.

The following information is relevant to the first month of operations in the following year:

• OTP will sell inventory at $145 per unit. OTP’s January 1 inventory balance consists of 35 units at a total cost of $2,800. OTP’s policy is to use the FIFO method, recorded using a perpetual inventory system.
• In December, OTP received a $4,350 payment for 30 units OTP is to deliver in January; this obligation was recorded in Deferred Revenue. Rent of $1,300 was unpaid and recorded in Accounts Payable at December 31.
• OTP’s note payable matures in three years, and accrues interest at a 10% annual rate.

  

January Transactions

1. Included in OTP’s January 1 Accounts Receivable balance is a $1,500 balance due from Jeff Letrotski. Jeff is having cash flow problems and cannot pay the $1,500 balance at this time. On 01/01, OTP arranges with Jeff to convert the $1,500 balance to a six-month note, at 12% annual interest. Jeff signs the promissory note, which indicates the principal and all interest will be due and payable to OTP on July 1 of this year.
2. OTP paid a $500 insurance premium on 01/02, covering the month of January; the payment is recorded directly as an expense.
3. OTP purchased an additional 150 units of inventory from a supplier on account on 01/05 at a total cost of $9,000, with terms n/30.
4. OTP paid a courier $300 cash on 01/05 for same-day delivery of the 150 units of inventory.
5. The 30 units that OTP’s customer paid for in advance in December are delivered to the customer on 01/06.
6. On 01/07, OTP received a purchase allowance of $1,350 on account, and then paid the amount necessary to settle the balance owed to the supplier for the 1/05 purchase of inventory (in c).
7. Sales of 40 units of inventory occurring during the period of 01/07–01/10 are recorded on 01/10. The sales terms are n/30.
8. Collected payments on 01/14 from sales to customers recorded on 01/10.
9. OTP paid the first 2 weeks’ wages to the employees on 01/16. The total paid is $2,200.
10. Wrote off a $1,000 customer’s account balance on 01/18. OTP uses the allowance method, not the direct write-off method.
11. Paid $2,600 on 01/19 for December and January rent. See the earlier bullets regarding the December portion. The January portion will expire soon, so it is charged directly to expense.
12. OTP recovered $400 cash on 01/26 from the customer whose account had previously been written off on 01/18.
13. An unrecorded $400 utility bill for January arrived on 01/27. It is due on 02/15 and will be paid then.
14. Sales of 65 units of inventory during the period of 01/10–01/28, with terms n/30, are recorded on 01/28.
15. Of the sales recorded on 01/28, 15 units are returned to OTP on 01/30. The inventory is not damaged and can be resold. OTP charges sales returns directly against Sales Revenue.
16. On 01/31, OTP records the $2,200 employee salary that is owed but will be paid February 1.
17. OTP uses the aging method to estimate and adjust for uncollectible accounts on 01/31. All of OTP’s accounts receivable fall into a single aging category, for which 8% is estimated to be uncollectible. (Update the balances of both relevant accounts prior to determining the appropriate adjustment.)
18. Accrue interest for January on the note payable on 01/31.
19. Accrue interest for January on Jeff Letrotski’s note on 01/31 (see a). NEED HELP W GENERAL ENTERIES

Answer 1

Date	Account Titles	Debit	Credit
1-Jan	Note Receivable	1,500
	Accounts Receivable		1,500
2-Jan	Insurance Expenses	500
	Cash		500
5-Jan	Inventory	9,000
	Accounts Payable		9,000
5-Jan	Inventory	300
	Cash		300
6-Jan	Unearned Revenue	4,350
	Sales Revenue ($145 x 30 units)		4,350
	Cost of Goods Sold	2,400
	Inventory		2,400
	($2,800/35 units = $80 per unit x 30 units delivered = $2,400)
7-Jan	Accounts Payable	9,000
	Cash		7,650
	Inventory		1350
10-Jan	Accounts Receivable	5,800
	Sales Revenue ($145 x 40 units)		5,800
	Cost of Goods Sold	2,255
	Inventory		2,255
	{($80 x 5 units) + [($9,000+$300-$1350)/150 units x 35 units] }
14-Jan	Cash	5,800
	Accounts Receivable		5,800
16-Jan	Wages Expenses	2200
	Cash		2200
18-Jan	Allowance for Doubtful Accounts	900
	Bad debts	100
	Accounts Receivable		1,000
19-Jan	Rent expenses	1300
	Accounts Payable	1,300
	Cash		2,600
26-Jan	Cash	400
	Recovery from Bad Debts		400
27-Jan	Utilities Expenses	400
	Utilities Payable		400
28-Jan	Accounts Receivable	9,425
	Sales Revenue ($145 x 65 units)		9,425
	Cost of Goods Sold	3,445
	Inventory		3,445
	[($9,000+$300-$1350)/150 units x 65 units] }
30-Jan	Sales Returns and Allowances	2,175
	Accounts Receivable ($145 x 15 units)		2,175
	Inventory (3445/65 x15)	795
	Cost of Goods Sold		795
31-Jan	Salaries Expenses	2200
	Salaries Payable		2200
31-Jan	Bad Debt Expense	852
	Allowance for Doubtful Accounts		852
	[($9,650-$1,500+/-$5,800-$1,000+/-$400+$9,425-$2,175) x 0.08 = $1,152 desired – ($900-$1,000+$400) unadjusted = $852]
31-Jan	Interest expenses (15000 x 10% x 1/12	125
	Interest payable		125
	Interest Receivable ($1,500 x 0.12 x 1/12 )	15
	Interest Revenue		15