Question

On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances:

Accounts	Debit				Credit
Cash	$	11,700
Accounts Receivable		35,000
Inventory		152,500
Land		72,300
Buildings		125,000
Allowance for Uncollectible Accounts					$	2,300
Accumulated Depreciation						10,100
Accounts Payable						23,200
Common Stock						205,000
Retained Earnings						155,900
Totals	$	396,500			$	396,500

During January 2021, the following transactions occur:

January 1		Borrow $105,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,030 are required at the end of each month for 60 months.
January 4		Receive $31,500 from customers on accounts receivable.
January 10		Pay cash on accounts payable, $16,000.
January 15		Pay cash for salaries, $29,400.
January 30		Firework sales for the month total $196,000. Sales include $65,500 for cash and $130,500 on account. The cost of the units sold is $115,000.
January 31		Pay the first monthly installment of $2,030 related to the $105,000 borrowed on January 1. Round your interest calculation to the nearest dollar.

The following information is available on January 31, 2021.

1. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $24,800.
2. The company estimates future uncollectible accounts. The company determines $3,500 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Unpaid salaries at the end of January are $26,600.
4. Accrued income taxes at the end of January are $8,500.
5. $18,657 of the long-term note payable balance will be paid over the next year.

I need help completing the general journal, income balance, balance sheet, and analysis please.

Answer 1

Freedom Fireworks Journal Enteries Date Particulars 1.1.2021 Cash a/c Dr. To Note Payable (Note Payable issued) Debit in $ Credit in $ 105000 105000 31500 4.1.2021 Cash a/c Dr. To Accounts Receivable (Cash received from debtors) 31500 Dr. 16000 10.1.2021 Accounts Payable a/c To Cash (Creditors paid off) 16000 Dr. 29400 15.1.2021 Salaries Expense a/c To Cash (Salaries paid in cash) 29400 65500 130500 Dr. 30.1.2021 Cash a/c Dr. Accounts Receivable a/c To Sales (Sales made) 196000 115000 Cost of goods sold a/c To Inventory (To record cost of goods sold) 115000 1592 438 31.1.2021 Note Payable a/c Dr. Interest Expense a/c Dr. To Cash (First installment paid) 105000 x 6% x 1/12 = 438 2030

Adjusting Enteries Date Particulars 31.1.2021 Depreciation Expense - Build a/c Dr. To Accum. Depre - Build (Depreciation charged to building) (125000 - 24800 ) / 10 = 10020 /12 = 835 Debit in $Credit in $ 8351 835 Dr. 31.1.2021 Bad Debts a/c 33651 To Allowance for Uncollectible accounts 3365 (Bad debts estimated) 3500 / 2 = 1750 + 3915 = 5665 - 2300 = 3365 (134000 - 3500 ) = 130500 x 3% = 3915 26600 31.1.2021 Salaries Expense a/c Dr. To Salaries Payable (Salary expense accrued) 26600 Dr. 8500 31.1.2021 Income Tax Expense a/c To Income Tax Payable (Income tax accrued) 8500 Debit in $Credit in $ 184138 115000 56000 Closing Enteries Date Particulars 31.1.2021 Income Summary a/c Dr. To Cost of goods sold To Salaries Expense To Interest Expense To Depreciation Expense - Build To Bad Debts To Income Tax Expense (Expense accounts closed) 438 835 3365 8500 Dr. 196000 31.1.2021 Sales a/c To Income Summary (Revenue accounts closed) 196000 Dr. 11862 31.1.2021 Income Summary a/c To Retained Earnings (Profits Transferred) 11862

Worksheet For the month ending 31.1.2021 8500 Particulars Cash Accounts Receivable Allowance for Uncollectible accounts Inventory Land Buildings Accum. Depre - Build Accounts Payable Salaries Payable Income Tax Payable Note Payable Common Stock Retained Earnings Sales Cost of goods sold Salaries Expense Interest Expense Depreciation Expense - Build Bad Debts Income Tax Expense Totals Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 166270 166270 134000 134000 2300 3365 5665 37500 37500 72300 72300 125000 125000 10100 835 10935 7200 7200 26600 26600 8500 103408 103408 205000 205000 155900 155900 196000 196000 115000 115000 29400 26600 56000 438 438 835 835 3365 3365 8500 8500 679908 679908 39300 39300719208 719208

196000 115000 81000 Statement of Income For the month ending 31.1.2021 Sales Cost of goods sold Gross Profit Less: Salaries Expense Interest Expense Depreciation Expense - Build Bad Debts Income Tax Expense Net Income 56000 438 835 3365 8500 69138 11862 Statement of Retained Earnings For the month ending 31.1.2021 Beginning 155900 Net Income 11862 167762

Amounts in $ Amounts in $ Balance sheet As at 31.1.2021 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash 166270 Accounts Payable Accounts Receivable 134000 Salaries Payable Allowance for Uncollec -5665 Income Tax Payable Inventory 37500 332105 Note Payable 7200 26600 8500 18657 60957 84751 Non Current Assets Land Buildings Accum. Depre - Build 125000 -10935 Non Current Liabilities Note Payable 72300 Shareholders Equity 114065 Common Stock Retained Earnings 518470 Total Liabilities & Equity 205000 167762 372762 518470 Total Assets Debt to Equity Ratio = Total Liabilities/Total Equity = (60957 +84751) /372762 = 0.391 The company is less leveraged compared to Industry Times interest earned = Operating Income / Interest expense = ( 81000 - 56000 - 835 - 3365) / 438 = 20800 /438 = 47.49 times The company is comforably able to meet interest payments compared to industry Freedom Fireworks is more likely to receive a higher interest rate than the average borrowing rate in the industry.