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: Accounts Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Land Accounts Payable Notes Payable (6%, due in 3 years) Common Stock Retained Earnings Totals Debit Credit $ 22,700 38,500 $ 3,900 34,000 67,600 30,400 34,000 60,000 34,500 $162,800 $162,800 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: January 3 Purchase 1,300 units for $141,700 on account ($109 each). January 8 Purchase 1,400 units for $159,600 on account ($114 each). 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

Requirement 2-1: Prepare the following journal entry

Date	Account Title and Explanation	Debit	Credit
Jan. 31	Cost of Goods Sold ($119 − $100) × 120	$2,280
	Inventory		$2,280
	To record inventory write off

Requirement 3: Prepare the following adjusted trial balance

BBF
Adjusted Trial Balance
January 31, 2021
Account Title	Debit	Credit
Cash	$74,700
Accounts Receivable	$59,600
Allowance for Uncollectible Accounts		$4,300
Inventory ($14,280 − $2,280)	$12,000
Land	$67,600
Accounts Payable		$44,920
Interest Payable		$170
Income Tax Payable		$12,700
Notes Payable		$34,000
Common Stock		$60,000
Retained Earnings		$34,500
Sales Revenue		$645,000
Cost of Goods Sold ($485,240 + $2,280)	$487,520
Salaries Expense	$118,000
Bad Debt Expense	$3,300
Interest Expense	$170
Income Tax Expense	$12,700
Total	$835,590	$835,590

Requirement 4: Prepare the following income statement

BBF
Income Statement
For the Year Ended December 31, 2021
Sales Revenue		$645,000
Cost of Goods Sold		$487,520
Gross Profit		$157,480
Operating Expenses
Salaries Expense	$118,000
Bad Debt Expense	$3,300
Total Operating Expenses		$121,300
Operating Income		$36,180
Interest Expense		$170
Income Before Taxes		$36,010
Income Tax Expense		$12,700
Net income		$23,310

Requirement 5: Prepare the following balance sheet

BBF
Balance Sheet
January 31, 2021
Assets
Current Assets
Cash		$74,700
Accounts Receivable	$59,600
Deduct: Allowance for Uncollectible Accounts	$4,300	$55,300
Inventory		$12,000
Total Current Assets		$142,000
Property, Plant and Equipment
Land		$67,600
Total Assets		$209,600
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable	$44,920
Interest Payable	$170
Income Tax Payable	$12,700
Total Current Liabilities		$57,790
Notes Payable		$34,000
Total Liabilities		$91,790
Stockholders' Equity
Common Stock	$60,000
Retained Earnings ($34,500 + $23,310)	$57,810
Total Stockholders' Equity		$117,810
Total Liabilities and Stockholders' Equity		$209,600

Requirement 6: Prepare the following closing entries

Date	Account Title and Explanation	Debit	Credit
Jan. 31	Sales Revenue	$645,000
	Income Summary		$645,000
	To close revenue accounts to income summary
Jan. 31	Income Summary	$621,690
	Cost of Goods Sold ($485,240 + $2,280)		$487,520
	Salaries Expense		$118,000
	Bad Debt Expense		$3,300
	Interest Expense		$170
	Income Tax Expense		$12,700
	To close expense accounts to income summary

Requirement 7a-1: Compute inventory turnover ratio as follows

Inventory turnover ratio = Cost of Goods Sold ÷ Average Inventory

= $487,520 ÷ (($34,000 + $12,000) ÷ 2)

= 21.2 times

Requirement 7b-1: Compute gross profit ratio as follows

Gross profit ratio = (Gross profit ÷ Sales Revenue) × 100

= ($157,480 ÷ $645,000) × 100

= 24.4%

Notes: Cost of goods sold and ending inventory before inventory write off under FIFO

FIFO Method Cost of Goods Sold Units Unit Cost Amount Goods Purchased Units Unit Cost Amount Date Beg. Bal. Jan 3 1,300 $109 $141,700 Jan 8 1,400 $114 $159,600 Jan 12 | 1,500 $119 $178,500 Inventory Balance Units Unit Cost Amount 340 $100 $34.000 340 $100 $34.000 1,300 $109 $141.700 340 $100 $34.000 1,300 $109 S141,700 1.400 S114 $159.600 340 $100 $34.000 1,300 $109 S141,700 1,400 $114 $159.600 1,500 $119 $178.500 340 $100 $34.000 1,300 $109 S141,700 1,400 $114 S159,600 1,380 $119 $164.220 120 $119 $14,280 Jan 15 -120 $119 ($14,280) Jan 19 3401 1,400 1.260 465,5204.300 $100 $34.000 $109 S141,700 $114 $159.600 $119 $149.940 485,240| Total 4,080 120 $14,280