Question

[The following information applies to the questions displayed below. Wally's Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows: Cash $20,720 Unearned Revenue (25 units) $ 5,05 $ 11,750 Accounts Payable (Jan Rent) $ 4,100 Accounts Receivable Allowance for Doubtful Accounts Inventory (30 units) $ (1,600) Notes Payable $ 2,550 Contributed Capital Retained Earnings - Feb 1, $ 13,000 $ 6,400 $ 6,270 2012 . WWC establishes a policy that it will sell inventory at $170 per unit. In January, WWC received a $5,050 advance for 25 units, as reflected in Unearned Revenue. .WWC's February 1 inventory balance consisted of 30 units at a total cost of $2,550. • WWC's note payable accrues interest at a 12% annual rate. . WWC will use the FIFO inventory method and record COGS on a perpetual basis. February Transactions Included in WWC's February 1 Accounts Receivable balance is a $2,000 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and 02/01 cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $2,000 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012. WWC paid a $750 insurance premium covering the month of February. The amount paid is recorded directly as an expense. 02/05 An additional 180 units of inventory are purchased on account by WWC for $13,500 - terms 2/15, n30. WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery occurred on 02/06. Mo Sales of 150 units of inventory occurred during the period of 02/07 - 02/10. The sales terms are 2/10, net 30. 25 The 25 units that were paid for in advance and recorded in January are delivered to the customer. 20 units of the inventory that had been sold on 2/10 are returned to WWC. The 02/15 units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase. 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,200. Paid in full the amount owed for the 2/05 purchase of inventory. WWC records 02/17 purchase discounts in the current period rather than as a reduction of inventory costs. 02/18 Wrote off a customer's account in the amount of $1,700. 2M $5,400 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense. Collected $9,400 of customers' Accounts Receivable. Of the $9,400, the 02/19 discount was taken by customers on $6,000 of account balances; therefore WWC received less than $9,400.

Journal Entries

4.WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery occurred on 02/06.

6.Record the cost of goods sold for 150 units.

8.Record the cost of goods sold for 25 units.

9.Record the 20 units of inventory returned

10.Record the sales return and allowance.

12.Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs.

13.Wrote off a customer’s account in the amount of $1,700.

21.WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts.

22.Record February interest expense accrued on the note payable.

23.Record one month’s interest earned Kit Kat’s note (see 02/01).

Answer 1

Ref.	Date	General journal				Debit	Credit
4	02/06.	Inventory				360
		Cash					360
		(To record frieght charges)
6	02/10.	Cost of goods sold			(Note:1)	11790
		Inventory					11790
		(To record cost of goods sold)
8	02/15.	Cost of goods sold			(25*77)	1925
		Inventory					1925
		(To record cost of goods sold)
9	02/15.	Inventory			(20*77)	1540
		Cost of goods sold					1540
		(To record goods returned)
10	02/15.	Sales returns and allowances			(20*170)	3400
		Accounts receivable					3400
		(To record sales returns and allowances)
12	02/17.	Accounts payable				13500
		Purchase dicount		(13500*2%)			270
		Cash		(13500-270)			13230
		(To record the payment for purchase)
13	02/18.	Allowance for doubtful accounts				1700
		Accounts receivable					1700
		(To write off customers account)
21	02/29.	Bad debt expense			(Note:2)	1390
		Allowance for doubtful accounts					1390
		(To record bad debt expense)
22	02/29.	Interest expense		(13000*12%*1/12)
		Interest payable					130
		(To record interest due for 1 month)
23	02/29.	Interest receivable		(2000*12%*1/12)		20
		Interest revenue					20
		(To record interest earned for 1 month)
Note:1
FIFO method is used.
As per FIFO,Goods purchased first are sold first.
Cost per unit of units in beginning inventory=2550/30=$ 85 per unit
Cost per unit of 180 units purchased on 02/05=(Purchase cost+Freight charges)/Number of units=(13500+360)/180=$ 77
150 units sold as follows:
				$
Beg bal.	30 units at $ 85 per unit			2550
02/05.	120 units at $ 77 per unit			9240
	(150-30)
Total				11790
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