Question

Comprehensive Problem 8 (Part Level Submission) Pina Colada Corp.’s balance sheet at December 31, 2018, is presented below. Pina Colada Corp. Balance Sheet December 31, 2018 Cash $14,300 Accounts payable $8,900 Accounts receivable 20,600 Common stock 19,500 Allowance for doubtful accounts (700 ) Retained earnings 14,900 Inventory 9,100 $43,300 $43,300 During January 2019, the following transactions occurred. Pina Colada uses the perpetual inventory method. Jan. 1 Pina Colada accepted a 4-month, 8% note from Merando Company in payment of Merando’s $5,100 account. 3 Pina Colada wrote off as uncollectible the accounts of Inwood Corporation ($500) and Goza Company ($100). 8 Pina Colada purchased $16,700 of inventory on account. 11 Pina Colada sold for $26,600 on account inventory that cost $17,600. 15 Pina Colada sold inventory that cost $800 to Mark Lauber for $1,100. Lauber charged this amount on his Visa First Bank card. The service fee charged Pina Colada by First Bank is 3%. 17 Pina Colada collected $20,200 from customers on account. 21 Pina Colada paid $16,400 on accounts payable. 24 Pina Colada received payment in full ($100) from Goza Company on the account written off on January 3. 27 Pina Colada purchased supplies for $1,400 cash. 31 Pina Colada paid other operating expenses, $3,500. Adjustment data: 1. Interest is recorded for the month on the note from January 1. 2. Bad debts are expected to be 6% of the January 31, 2019, accounts receivable. 3. A count of supplies on January 31, 2019, reveals that $500 remains unused.

(a) Prepare journal entries for the transactions listed above and adjusting entries. (Include entries for cost of goods sold using the perpetual system.)

Answer 1

Journal Entries:

Date Particulars Debit Credit

01/01/2019 8% Promissory Notes A/c Dr. $5100

To Merando Company $5100

(Being 8% Note accepted from Morando Co.)

01/03/2019 Bad Debts A/c    Dr. $600

To Inwood Company $500

To Goza   Company $100

(Being uncollectible balances written off )

01/08/2019 Purchase A/c Dr.   $17600

To Accounts Payable $17600

(Being purchase made on credit)

01/11/2019 Accounts Receivable A/c Dr. $26600

To Sales    $26600

(Being sales made on credit)

01/15/2019 Bank A/c     Dr. $1067

Sales Expenses Dr. $33

To Sales $1100

(Being sale made worth $1100 and collected through card after paying service charge @3%)

01/17/2019 Bank A/c    Dr. $20200

To Accounts Receivables    $20200

(Being amount collected from debtors)

01/21/2019 Accounts Payable    Dr. $16400

To Bank    $16400

(Being amount paid to creditors)

01/24/2019 Bank A/c    Dr. $100

To Bad Debts    $100

(Being bad debts recovered)

01/27/2019 Consumable Expenses A/c    Dr. $1400

To Cash     $1400

(Being amount paid for cosumbles)

01/31/2019 Operating Expenses A/c Dr. $3500

To Cash     $3500

(Being amount paid for other operating expenses)

01/31/2019 8% Promissory Note A/c Dr. $34

To Interest Income $34

(Being interest earned for the month)

01/31/2019 Allowance for Doubtful Accounts Dr. $500

To Bad debts     $500

(Being balance of Bad Debts account transferred)

01/31/2019 Profit and Loss  A/c Dr. $1078

To Allowance for Doubtful Accounts    $1078

(Being provision made as per Note No. 2)

01/31/2019 Consumable Store A/c Dr. $500

To Consumable Expenses $500

(Being Consumable Store accounted for)

Working Note:

1. Account Receivable at January 31: $

Balance as on Jan. 1 20600

Add: Sales on Credit for the Month 26600

47200

Less: 8% Note 5100

Bad Debts 600

Collection for the month 20200

21300  

2. Allowances for Doubtful Debts during the month

Balance as on Jan. 31 (21300*6%)    1278

Add: Bad Debt for the Month (600-100) 500

1778

Less: Balance as on Jan. 31          700

1078