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:

Cash	$	19,220		Unearned Revenue (40 units)	$	4,550
Accounts Receivable	$	10,250		Accounts Payable (Jan Rent)	$	1,700
Allowance for Doubtful Accounts	$	(1,100)		Notes Payable	$	15,500
Inventory (45 units)	$	3,600		Contributed Capital	$	5,400
				Retained Earnings – Feb 1, 2012	$	4,820

•	WWC establishes a policy that it will sell inventory at $175 per unit.
•	In January, WWC received a $4,550 advance for 40 units, as reflected in Unearned Revenue.
•	WWC’s February 1 inventory balance consisted of 45 units at a total cost of $3,600.
•	WWC’s note payable accrues interest at a 12% annual rate.
•	WWC will use the FIFO inventory method and record COGS on a perpetual basis.

February Transactions
02/01	Included in WWC’s February 1 Accounts Receivable balance is a $1,900 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 $1,900 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.
02/02	WWC paid a $700 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
02/05	An additional 150 units of inventory are purchased on account by WWC for $9,000 – terms 2/15, n30.
02/05	WWC paid Federal Express $600 to have the 150 units of inventory delivered overnight. Delivery occurred on 02/06.
02/10	Sales of 120 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
02/15	The 40 units that were paid for in advance and recorded in January are delivered to the customer.
02/15	25 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.
02/16	WWC pays the first 2 weeks wages to the employees. The total paid is $2,600.
02/17	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.
02/18	Wrote off a customer’s account in the amount of $1,200.
02/19	$3,400 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.
02/19	Collected $8,400 of customers’ Accounts Receivable. Of the $8,400, the discount was taken by customers on $5,500 of account balances; therefore WWC received less than $8,400.
02/26	WWC recovered $440 cash from the customer whose account had previously been written off (see 02/18).
02/27	A $700 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28	WWC declared and paid a $400 cash dividend.

Adjusting Entries:

02/29	Record the $2,600 employee salary that is owed but will be paid March 1.
02/29	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.
02/29	Record February interest expense accrued on the note payable.
02/29	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.)

Answer 1

ANSWER

In the books of Wally's Widget Company: Journal Entries: Date | Account Titles 2012 1-Feb Notes Receivable Accounts Receivable Debit Credit S s 1,900 1.900 700 2-Feb Insurance Expense Cash 700 9,000 5-Feb Inventory Accounts Payable 9,000 600 5-Feb Inventory Cash 600 10-Feb Accounts Receivable ( 120 x $ 175) Sales 21.000 L 21,000 8,310 10-Feb Cost of Goods Sold (3,600 + 75 x $ 9.420/150) Inventory 8.310 4,550 15-Feb Unearned Revenue Sales 4,550 2,512 15-Feb Cost of Goods Sold ( 40 x $ 62.8) Inventory 2,512 4.375 15-Feb Sales Returns (25 x S 175) |Accounts Receivable 4,3751

1,570 15-Feb Inventory ( 25 x $ 62.8) Cost of Goods Sold 1,5701 2.600 16-Feb Wages Expense Cash 2.6001 9,000 17-Feb Accounts Payable Cash Purchase discounts 8.820 1801 1.200 18-Feb Allowance for Doubtful Accounts Accounts Receivable 1.200 19-Feb Cash Sales Discounts ($ 5,500 x 2%) Accounts Receivable 8,290 110 8,4001 440 26-Feb Accounts Receivable Allowance for Doubtful Accounts 440 440 26-Feb Cash Accounts Receivable 4401 700 27-Feb Utilities Expense Accounts Payable 700 400 28-Feb Dividends Cash 4001

Adjusting Entries: Date Account Titles Debit Credit 2.600 Feb-29 Wages Expense Wages Payable 2.600 3,090 Feb-29 Bad Debts Expense Allowance for Doubtful Accounts 3,090 155 Feb-29 Interest Expense ($ 15,500 x 1%) Interest Payable 155 Feb-29 Interest Receivable ($ 1,900 x 1%) Interest Revenue 19

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