Question

One Product Corporation (OPC) incorporated at the beginning of last year. The balances on its post-closing trial balance prepared on December 31, at the end of its first year of operations, were:

Cash	21,980
Accounts Receivable	8,310
Allowance for Doubtful Accounts	1,065
Inventory	12,420
Prepaid Rent	1,960
Equipment	46,600
Accumulated Depreciation	4,560
Accounts Payable	0
Sales Tax Payable	500
FICA Payable	600
Withheld Income Taxes Payable	500
Salaries and Wages Payable	1,600
Unemployment Tax Payable	300
Deferred Revenue	4,500
Interest Payable	536
Notes Payable (long-term)	23,800
Common Stock	18,500
Additional Paid-In Capital, Common	20,069
Retained Earnings	18,740
Treasury Stock	4,000

The following information is relevant to the first month of operations in the following year:

• OPC sells its inventory at $150 per unit, plus sales tax of 6 percent. OPC’s January 1 inventory balance consists of 180 units at a total cost of $12,420. OPC’s policy is to use the FIFO method, recorded using a perpetual inventory system.
• The $1,960 in Prepaid Rent relates to a payment made in December for January rent this year.
• The equipment was purchased on July 1 of last year. It has a residual value of $1,000 and an expected life of five years. It is being depreciated using the straight-line method.
• Employee wages are $4,000 per month. Employees are paid on the 16th for the first half of the month and on the first day of the following month for the second half of each month. Withholdings each pay period include $250 of income taxes and $150 of FICA taxes. These withholdings and the employer’s matching contribution are paid monthly on the second day of the following month. In addition, unemployment taxes of $50 are accrued each pay period, and will be paid on March 31.
• Deferred Revenue is for 30 units ordered and paid for in advance by two customers in late December. One order of 25 units is to be filled in January, and the other will be filled in February.
• Notes Payable arises from a three-year, 9 percent bank loan received on October 1 last year.
• The par value on the common stock is $2 per share.
• Treasury Stock arises from the reacquisition of 500 shares at a cost of $8 per share.

January Transactions

1. On 1/01, OPC paid employees’ salaries and wages that were previously accrued on December 31.
2. A truck is purchased on 1/02 for $10,500 cash. It is estimated this vehicle will be used for 50,000 miles, after which it will have no residual value.
3. Payroll withholdings and employer contributions for December are remitted on 1/03.
4. OPC declares a $0.50 cash dividend on each share of common stock on 1/04, to be paid on 1/10.
5. A $1,040 customer account is written off as uncollectible on 1/05.
6. On 1/06, recorded sales of 175 units of inventory on account. Sales tax is charged but not yet collected or remitted to the state.
7. Sales taxes of $500 that had been collected and recorded in December are paid to the state on 1/07.
8. On 1/08, OPC issued 300 shares of treasury stock for $2,400.
9. Collections from customers on account, totaling $18,071, are recorded on 1/09.
10. On 1/10, OPC distributes the $0.50 cash dividend declared on January 4. The company’s stock price is currently $5 per share.
11. OPC purchases on account and receives 70 units of inventory on 1/11 for $4,620.
12. The equipment purchased last year for $46,600 is sold on 1/15 for $48,200 cash. Record depreciation for the first half of January prior to recording the equipment disposal.
13. Payroll for January 1–15 is recorded and paid on 1/16. Be sure to accrue unemployment taxes and the employer’s matching share of FICA taxes.
14. Having sold the equipment, OPC pays off the note payable in full on 1/17. The amount paid is $24,434, which includes interest accrued in December and an additional $98 interest through January 17.
15. On 1/27, OPC records sales of 30 units of inventory on account. Sales tax is charged but not yet collected or remitted.
16. A portion of the advance order from December (25 units) is delivered on 1/29. No sales tax is collected on this transaction because the customer is a U.S. governmental organization that is exempt from sales tax.
17. To obtain funds for purchasing new equipment, OPC issued bonds on 1/30 with a total face value of $108,000, stated interest rate of 5 percent, annual compounding, and six-year maturity date. OPC received $97,704 from the bond issuance, which implies a market interest rate of 7 percent.
18. On 1/31, OPC records units-of-production depreciation on the vehicle (truck), which was driven 2,000 miles this month.
19. OPC estimates that 2% of the ending accounts receivable balance will be uncollectible. Adjust the applicable accounts on 1/31, using the allowance method.
20. On 1/31, adjust for January rent expired.
21. Accrue January 31 payroll on 1/31, which will be payable on February 1. Be sure to accrue unemployment taxes and the employer’s matching share of FICA taxes.
22. Accrue OPC’s corporate income taxes on 1/31, estimated to be $5,140.

Prepare the Journal Entries for the problems above

Answer 1

Transaction / Event	Date	General Journal	Debit	Credit
			$	$
a.	1-Jan	Salaries and Wages Payable	1,600
		Cash		1,600
b.	2-Jan	Truck	10,500
		Cash		10,500
c.	3-Jan	FICA Payable	600
		Withheld Income Taxes Payable	500
		Cash		1,100
d.	4-Jan	Dividends (18500 / $2 per share x $0.50)	4,625
		Dividends Payable		4,625
e.	5-Jan	Allowance for Doubtful Accounts	1040
		Accounts Receivable		1040
f.	6-Jan	Accounts Receivable	27,825
		Sales (175 x $150)		26,250
		Sales Tax Payable (26250 x 6%)		1,575
f.	6-Jan	Cost of Goods Sold (12420/180 x 175)	12,075
		Inventory		12,075
g.	7-Jan	Sales Tax Payable	500
		Cash		500
h.	8-Jan	Cash	2,400
		Treasury Stock		2,400
i.	9-Jan	Cash	18,071
		Accounts Receivable		18,071
j.	10-Jan	Dividends Payable	4,625
		Cash		4,625
k.	11-Jan	Inventory ( 70 units @ $ 66 )	4,620
		Accounts Payable		4,620
l.	15-Jan	Depreciation Expense (46600 -1000)/5 yrs x 1/12 x 50%	380
		Accumulated Depreciation		380
l.	15-Jan	Cash	48,200
		Accumulated Depreciation (46600-1000)/5 yrs x 6/12	4,560
		Gain on Disposal of Equipment		6,160
		Equipment		46,600
m.	16-Jan	Salaries Expense	2,000
		Withheld Income Taxes Payable		250
		FICA Payable		150
		Cash		1,600
m.	16-Jan	Payroll Tax Expense	200
		FICA Payable		150
		Unemployment Tax Payable		50
n.	17-Jan	Interest Expense	98
		Note Payable	23,800
		Interest Payable	536
		Cash		24,434
o.	27-Jan	Accounts Receivable	4,770
		Sales (30 units x $150)		4,500
		Sales Tax Payable 4500 x 6%		270
o.	27-Jan	Cost of Goods Sold (25 x $66) + 5 x 12420/180	1995
		Inventory		1,995
p.	29-Jan	Deferred Revenue (25 units x 150)	3,750
		Sales		3,750
p.	29-Jan	Cost of Goods Sold ( 25 units @ $ 66 )	1,650
		Inventory		1,650
q.	30-Jan	Cash	97,704
		Discount on Bonds Payable	10,296
		Bonds Payable		108,000

s.	31-Jan	Bad Debt Expense (96,584 x 2%)	1932
		Allowance for Doubtful Accounts		1932
t.	31-Jan	Rent Expense	1,960
		Prepaid Rent		1,960
u.	31-Jan	Salaries Expense	2,000
		Withheld Income Taxes Payable		250
		FICA Payable		150
		Salaries and Wages Payable		1,600
u.	31-Jan	Payroll Tax Expense	200
		FICA Payable		150
		Unemployment Tax Payable		50
v.	31-Jan	Income Tax Expense	5,140
		Income Taxes Payable		5,140
		Accounts Receivables
	Bal.	83100	1040	Jan.5
		27,825	18,071
		4,770
	ending bal.	96,584