Question

Required information [The following information applies to the questions displayed below.] On January 1, 2021, the general ledger of Big Blast Fireworks includes the following account balances: Debit Credit Accounts $ 22,700 38,500 Cash Accounts Receivable Allowance for Uncollectible 3,900 $ Accounts 34,000 67,600 Inventory Land Accounts Payable Notes Payable (6%, due in 3 years) Common Stock 30,400 34,000 60,000 34,500 Retained Earnings $162,800 $162,800 Totals The $34,000 beginning balance of inventory consists of 340 units, each costing $100. During January 2021, Big Blast Fireworks had the following inventory transactions: 3 Purchase 1,300 units for $141,700 on account ($109 each). 8 Purchase 1,400 units for $159,600 on account ($114 each). January January January 12 Purchase 1,500 units for $178,500 on account ($119 each). January 15 Return 120 of the units purchased on January 12 because of defects January 19 Sell 4,300 units on account for $645,000. The cost of the units sold is determined using a FIFO perpetual inventory system. January 22 Receive $621,000 from customers on accounts receivable. January 24 Pay $451,000 to inventory suppliers on accounts payable. January 27 Write off accounts receivable as uncollectible, $2,900. January 31 Pay cash for salaries during January, $118,000 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 $4,400 of accounts receivable on January 31 are past due, and 35% 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 $12,700.

Answer 1

Big Blast Fireworks Journal Enteries Date Particulars 3.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory purchased on account) Debit in $ Credit in $ 141700 141700 159600 8.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory purchased on account) 159600 178500 12.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory purchased on account) 178500 14280 15.1.2021 Accounts Payable a/c Dr. To Inventory (Inventory returned to supplier) 14280 645000 19.1.2021 Accounts Receivable a/c Dr. To Sales (Sales made on account) 645000 449540 Cost of goods sold a/c Dr. To Inventory (Cost of goods sold charged to inventory) 449540 621000 22.1.2021 Cash a/c Dr. To Accounts Receivable (Cash received from debors) 621000 451000 24.1.2021 Accounts Payable a/c Dr. To Cash (Cash paid to Suppliers) 451000 2900 27.1.2021 Allowance for Uncollectible Accounts a/c Dr. To Accounts Receivable I(receivables written off) 2900 Dr. 118000 31.1.2021 Salaries Expense a/c To Cash (Salaries paid in cash) 118000

Adjustment Enteries Date Particulars 31.1.2021 Cost of goods sold a/c Dr. To Inventory (Loss in inventory charged to Inventory) Debit in $Credit in $ 7980 7980 3300 31.1.2021 Bad Debts a/c Dr. To Allowance for Uncollectible accounts (Bad debts estimated) 3300 170 31.1.2021 Interest Expense a/c Dr. To Interest Payable (Interest expense accrued) 34000 x6% x 1/12 12700 31.1.2021 Income Tax Expense a/c Dr. To Income Tax Payable (Income Tax accrued) 12700 Closing Enteries Date Particulars 31.1.2021 Income Summary a/c Dr. To Cost of goods sold To Salaries Expense To Bad Debts To Interest Expense To Income Tax Expense (Expense accounts closed) Debit in $Credit in $ 591690 457520 118000 3300 170 12700 645000 31.1.2021 Sales a/c Dr. To Income Summary (Revenue accounts closed 645000 53310 31.1.2021 Income Summary a/c Dr. To Retained Earnings (Income Summary closed) 53310

FIFO Perpetual Purchase Unit Cost Cost of goods sold Units Unit Cost Units Total Total Date 1.1.2021 3.1.2021 Balance Unit Cost 100 1300 109 141700 100 8.1.2021 1400 159600 Units 340 340 1300 340 1300 1400 340 1300 1400 1500 340 1300 12.1.2021 1500 178500 109 100 109 114 100 109 114 119 100 109 114 119 119 Total 34000 34000 141700 34000 141700 159600 34000 141700 159600 178500 34000 141700 159600 164220 49980 15.1.2021 120 119 14280 1400 1380 420 19.1.2021 340 1300 1400 960 100 109 114 34000 141700 159600 114240 119 31.1.2021 420 100 42000 420 100 Ending 42000 42000 Purchase 479800 COGS 449540 Bal Sales Accounts Receivable 38500 Cash 645000 Bad debts w/off 621000 2900 513800 463820 49980 -7980 Bal. 683500 59600 683500 Accounts Receivable Allowance for Uncollectible accounts 2900 Bal 3900 Bad Debts 3300 4300 7200 7200 Bal. Uncollectibles 4400 x 35% ( 59600 - 4400) x 5% 1540 2760 4300 1000 3300 Cr. Bal Bad debts

Worksheet For the month ending 31.1.2021 Particulars Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Land Accounts Payable Interest Payable Income Tax Payable Notes Payable (9%, due in 3 years) Common Stock Retained Earnings Sales Cost of goods sold Salaries Expense Bad Debts Interest Expense Income Tax Expense Totals Unadusted Adjustment Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 74700 74700 74700 59600 59600 59600 1000 3300 4300 4300 49980 7980 42000 42000 67600 67600 67600 44920 44920 44920 170 170 170 12700 12700 12700 34000 34000 34000 60000 60000 60000 34500 34500 87810 645000 645000 449540 7980 457520 118000 118000 3300 3300 170 170 12700 12700 819420 819420 24150 24150 835590 835590 243900 243900

Statement of Income For the month ending 31.1.2021 Sales Cost of goods sold Gross Margin 645000 -457520 187480 Less: Salaries Expense Bad Debts Interest Expense Income Tax Expense Net Income 118000 3300 170 12700 134170 53310 Statement of Retained Earnings For the month ending 31.1.2021 Beginning Net Income 34500 53310 87810

Balance sheet As at 31.1.2021 Assets Amounts i Amounts in $ Liabilities Amounts in $ Amounts in $ Current Assets Current Liabilities Cash 74700 Accounts Payable 44920 Accounts Receivable 59600 Interest Payable 170 Allowance for Uncollec -4300 Income Tax Payable 12700 57790 Inventory 42000 172000 Non Current Liabilities Non Current Assets Notes Payable (12%, due in 3 years) 34000 Land 67600 Shareholders Equity Common Stock 60000 Retained Earnings 87810 147810 Total Assets 239600 Total Liabilities & Equity 239600 Inventory Turnover = Cost of goods sold / Avg. Inventory = 457520/ ( 34000 +42000)/2 = 457520 / 38000 = 12.04 Since Inventory turnover is > than industry average Company peformace is less efficient than indust Gross Profit Ratio = Gross Profit/ Sales = 187480 / 645000 = 40.98% The company is mpre profitable compared to industry