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

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 $ 145800 145800 163850 8.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory purchased on account) 163850 182900 12.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory purchased on account) 182900 20650 15.1.2021 Accounts Payable a/c Dr. To Inventory (Inventory returned to supplier) 20650 675000 19.1.2021 Accounts Receivable a/c Dr. To Sales (Sales made on account) 675000 502150 Cost of goods sold a/c Dr. To Inventory (Cost of goods sold charged to inventory) 502150 6610001 22.1.2021 Cash a/c Dr. To Accounts Receivable (Cash received from debors) 661000 440000 24.1.2021 Accounts Payable a/c Dr. To Cash (Cash paid to Suppliers) 440000 2400 27.1.2021 Allowance for Uncollectible Accounts a/c Dr. To Accounts Receivable I(receivables written off) 2400 Dr. 134000 31.1.2021 Salaries Expense a/c To Cash (Salaries paid in cash) 134000

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 $ 2250 2250 3255 31.1.2021 Bad Debts a/c Dr. To Allowance for Uncollectible accounts (Bad debts estimated) 3255 300 300 31.1.2021 Interest Expense a/c Dr. To Interest Payable (Interest expense accrued) 45000 x 8% x 1/12 13800 31.1.2021 Income Tax Expense a/c Dr. To Income Tax Payable (Income Tax accrued) 13800 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 $ 655755 504400 134000 3255 300 13800 675000 31.1.2021 Sales a/c Dr. To Income Summary (Revenue accounts closed 675000 19245 31.1.2021 Income Summary a/c Dr. To Retained Earnings (Income Summary closed) 19245

FIFO Perpetual Purchase Unit Cost Cost of goods sold Units Unit Cost Units Total Total Date 1.1.2021 3.1.2021 1350 108 145800 8.1.2021 1450 113 163850 Units 450 450 1350 450 1350 1450 450 1350 1450 1550 450 1350 Balance Unit Cost 100 100 108 100 108 113 100 108 113 118 100 12.1.2021 1550 118 182900 Total 45000 45000 145800 45000 145800 163850 45000 145800 163850 182900 45000 145800 163850 162250 14750 15.1.2021 175 118 20650 108 1450 1375 125 113 118 118 19.1.2021 100 450 1350 1450 1250 108 113 45000 145800 163850 147500 118 31.1.2021 125 125 100 100 Ending 12500 12500 12500 Purchase 492550 COGS 502150 Bal Sales Accounts Receivable 44000 Cash 675000 Bad debts w/off 661000 2400 537550 522800 14750 -2250 Bal. 719000 55600 719000 Accounts Receivable Allowance for Uncollectible accounts 2400 Bal 3300 Bad Debts 3255 4155 6555 6555 Bal. Uncollectibles 5500 x 30% ( 55600 - 5500) x 5% 1650 2505 4155 900 3255 Cr. Bal Bad debts

Worksheet For the month ending 31.1.2021 4155 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 $ 111900 111900 111900 55600 55600 55600 900 3255 4155 14750 2250 12500 12500 84100 84100 84100 59600 59600 59600 300 300 300 13800 13800 13800 45000 45000 45000 71000 71000 71000 51000 51000 70245 675000 675000 502150 2250 504400 134000 134000 3255 3255 300 300 13800 13800 902500 902500 19605 19605 919855 919855 264100 264100

Statement of Income For the month ending 31.1.2021 Sales Cost of goods sold Gross Margin 675000 -504400 170600 Less: Salaries Expense Bad Debts Interest Expense Income Tax Expense Net Income 134000 3255 300 13800 151355 19245 Statement of Retained Earnings For the month ending 31.1.2021 Beginning Net Income 51000 19245 70245

Balance sheet As at 31.1.2021 Assets Amounts i Amounts in $ Liabilities Amounts in $ Amounts in $ Current Assets Current Liabilities Cash 111900 Accounts Payable 59600 Accounts Receivable 55600 Interest Payable 300 Allowance for Uncollec -4155 Income Tax Payable 13800 73700 Inventory 12500 175845 Non Current Liabilities Non Current Assets Notes Payable (12%, due in 3 years) 45000 Land 84100 Shareholders Equity Common Stock 71000 Retained Earnings 70245 141245 Total Assets 259945 Total Liabilities & Equity 259945 Inventory Turnover = Cost of goods sold / Avg. Inventory = 504400 / ( 45000 + 12500)/2 = 504400 / 28750 = 17.54 Since Inventory turnover is > than industry average Company peformace is less efficient than industry Gross Profit Ratio = Gross Profit/ Sales = 170600 / 675000 = 25.27% The company is mpre profitable compared to industry