Question

On January 1, 2021, the general ledger of Big Blast Fireworks includes the following account balances: Accounts Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Land Accounts Payable Notes Payable (8%, due in 3 years) Common Stock Retained Earnings Totals Debit Credit $ 24,900 44,000 $ 3,300 45,000 84,100 27,700 45,000 71,000 51,000 $198,000 $198,000 The $45,000 beginning balance of inventory consists of 450 units, each costing $100. During January 2021, Big Blast Fireworks had the following inventory transactions: January 3 Purchase 1,350 units for $145,800 on account ($108 each). January 8 Purchase 1,450 units for $163,850 on account ($113 each). January 12 Purchase 1,550 units for $182,900 on account ($118 each). January 15 Return 175 of the units purchased on January 12 because of defects. January 19 Sell 4,500 units on account for $675,000. The cost of the units sold is determined using a FIFO perpetual inventory system. January 22 Receive $661,000 from customers on accounts receivable. January 24 Pay $440,000 to inventory suppliers on accounts payable. January 27 Write off accounts receivable as uncollectible, $2,400. January 31 Pay cash for salaries during January, $134,000. The following information is available on January 31, 2021. a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each. b. The company estimates future uncollectible accounts. The company determines $5,500 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.) C. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31. d. Accrued income taxes at the end of January are $13,800.

Answer 1

Credit Adjusting entries Date Account 31-Jan Cost of goods sold Inventory Debit $ 2,250 Calculation Wkgs below $ 2,250 $ 3,255 Wkgs below 31-Jan Bad debts expense Allowance for Uncollectible Accounts $ 3,255 $ 300 -45,000*8%*1/12 31-Jan Interest expense Interest Payable $ 300 $ 13,800 $ 13,800 31-Jan Income tax expense Income Tax Payable Closing entries 31-Jan Sales Retained Earnings $ 675,000 $ 675,000 $ 655,755 31-Jan Retained Earnings Cost of goods sold Salaries expense Bad debts expense Interest expense Income tax expense $ $ $ 504,400 134,000 3,255 300 13,800 $ wkgs Cost of goods sold FIFO Inventory 1-Jan Beginning Balance 3-Jan Purchase 8-Jan Purchase 12-Jan Purchase 19-Jan Cost of goods sold Units Per Unit Cost 450 $ 100 1,350 $ 108 1,450 $ 113 1,250 $ 118 Total Cost $ $ $ $ 45,000 145,800 163,850 147,500 502,150 4,500 Inventory Write down 12-Jan Purchase 15-Jan Purchase Returns 19-Jan Sales 31-Jan Inventory Cost-Ending Balance Inventory - Net Realisable Value Inventory Write down $ $ $ $ $ 1,550 $ (175) $ (1,250) $ 125 $ 125 $ 118 118 118 118 100 $ 182,900 $ (20,650) $ (147,500) $ 14,750 $ 12,500 2,250 =14,750-12,500 Bad debts expense Accounts Receivable Past due Not past due Total Accts Rec Ucollectible % Uncollectible Amount $ 5,500 30% $ 1,650 $ 50,100 5% $ 2,505 $ 55,600 4,155 Allowance for Uncollectible Accounts Beginning Balance Write off Unadjusted Ending Balance Adjusted Ending Balance Bad debts expense $ $ $ $ $ 3,300 (2,400) 900 4,155 From above table 3,255 -4,155-900

Big Blast Fireworks Journal entries Date Account 3-Jan Inventory Accounts Payable Credit Calculation Debit $ 145,800 $ 145,800 $ 163,850 8-Jan Inventory Accounts Payable $ 163,850 $ 182,900 12-Jan Inventory Accounts Payable $ 182,900 $ 20,650 -175 * 118 15-Jan Accounts Payable Inventory $ 20,650 $ 675,000 19-Jan Accounts Receivable Sales $ 675,000 $ 502,150 Wkgs below 19-Jan Cost of goods sold Inventory $ 502,150 $ 661,000 22-Jan Cash Accounts Receivable $ 661,000 $ 440,000 24-Jan Accounts Payable Cash $ 440,000 $ 2,400 27-Jan Allowance for Uncollectible Accounts Accounts Receivable $ 2,400 $ 134,000 31-Jan Salaries expense Cash $ 134,000

Big Blast Fireworks TAccounts Date Debit Date Credit Cash Op bal $ 24,900 22-Jan $ 661,000 24-Jan $440,000 31-Jan $134,000 Date Debit Date Credit Accounts Receivable Op bal $ 44,000 19-Jan $675,000 22-Jan $ 661,000 27-Jan $ 2,400 Date Debit Date Credit Date Debit Date Credit Allowance for Uncollectible Accounts Inventory Op bal $ 3,300 Op bal $ 45,000 27-Jan $ 2,400 31-Jan $ 3,255 3-Jan $ 145,800 15-Jan $ 20,650 8-Jan $ 163,850 19-Jan $502,150 12-Jan $182,900 31-Jan $ 2,250 Bal. Bal. $ 111,900 Land $ 84,100 Bal. $ 4,155 Notes Payable (8%, due in 3 years) Op bal $ 45,000 $ 12,500 Interest Payable 31-Jan $ Op bal Bal. $ 55,600 Accounts Payable Op bal $ 27,700 15-Jan $ 20,650 3-Jan $ 145,800 24-Jan $440,000 8-Jan $ 163,850 12-Jan $ 182,900 300 Bal. $ 59,600 $ 45,000 $ 300 $ 84,100 Income Tax Payable 31-Jan $ 13,800 Bal. Common Stock Op bal Bal. Retained Earnings Op bal $ 71,000 $ 51,000 $ 71,000 $ 51,000 Bal. $ 13,800 Sales 19-Jan $675,000 Bal. Cost of goods sold 19-Jan $502,150 31-Jan $ 2,250 Bal. Salaries expense 31-Jan $ 134,000 Bad debts expense 31-Jan $ 3,255 Bal. $ 675,000 $ 134,000 Ral. $ 3,255 Interest expense 31-Jan $ 300 Bal. $504,400 Income tax expense 31-Jan $ 13,800 Bal. $ 300 Bal. $ 13,800

Big Blast Fireworks Account Names Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Land Accounts Payable Interest Payable Income Tax Payable Notes Payable (8%, due in 3 years) Common Stock Retained Earnings Sales Cost of goods sold Salaries expense Bad debts expense Interest expense Income tax expense Totals Adjusted TB Debit Credit 111,900 55,600 4,155 12,500 84,100 59,600 300 13,800 45,000 71,000 51,000 675,000 504,400 134,000 3,255 300 13,800 919,855 919,855