Question

Blossom Company's balance sheet at December 31, 2021, is presented below. Blossom Company Balance Sheet December 31, 2021 Cash $13,270 Accounts payable $9,520 Accounts receivable 20,200 Common stock 22,000 Allowance for doubtful accounts (790) Retained earnings 10,770 Inventory 9,610 $42,290 $42.290 During January 2022, the following transactions occurred. Blossom uses the perpetual inventory method. Jan. 1 Blossom accepted a 4-month, 8% note from Betheny Company in payment of Betheny's $6,000 account. 3 Blossom wrote off as uncollectible the accounts of Walter Corporation ($500) and Drake Company ($300). 8 Blossom purchased $16,810 of inventory on account. 11 Blossom sold for $22,600 on account inventory that cost $16,040. 15 Blossom sold inventory that cost $740 to Jack Rice for $900. Rice charged this amount on his Visa First Bank card. The service fee charged Blossom by First Bank is 39 17 Blossom collected $24,500 from customers on account. 21 Blossom paid $17,450 on accounts payable. 24 Blossom received payment in full ($300) from Drake Company on the account written off on January 3. 27 Blossom purchased advertising supplies for $1,480 cash. 31 Blossom paid other operating expenses, $3,190. 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, 2022, accounts receivable. 3. A count of advertising supplies on January 31, 2022, reveals that $550 remains unused. 4. The income tax rate is 30%. (Hint: Prepare the income statement up to Income before taxes and multiply by 30% to compute the amount; round to whole dollars.) (You may want to set up T-accounts to determine ending balances.)

1. Prepare journal entries for the transactions listed above and adjusting entries. (Include entries for cost of goods sold using the perpetual inventory system.) (Round answers to 0 decimal places, e.g. 1,250. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

2. Prepare an adjusted trial balance at January 31, 2022. (Round answers to 0 decimal places, e.g. 1,250.)
3. Prepare an income statement for the month ending January 31, 2022. (Round answers to 0 decimal places, e.g. 1,250.)
4. Prepare a retained earnings statement for the month ending January 31, 2022. (Round answers to 0 decimal places, e.g. 1,250.)
5. Prepare a classified balance sheet as of January 31, 2022. (List Current Assets in order of liquidity. Round answers to 0 decimal places, e.g. 1,250.)

Answer 1

Blossom Company Journal Entry Date Particulars 1.1.2021 Note Receivable a/c Dr. To Accounts receivable (Note Receivable received) Debit in $ Credit in $ 6000 6000 3.1.2021 Allowance for doubtful accounts a/c Dr. To Accounts receivable (Uncollectibles written off) 800 16810 8.1.2021 Inventory a/c Dr. To Accounts Payable (Inventory on account) 16810 Dr. 22600 11.1.2021 Accounts Receivable a/c To Sales Revenue (Sales on account) 22600 16040 Cost of goods sold a/c Dr. To Inventory (To record cost of goods sold) 16040 Dr. 873 27 Dr. 15.1.2021 Cash a/c Visa Service fee a/c To Sales Revenue (Sales made) 900 Cost of goods sold a/c Dr. To Inventory (To record cost of goods sold) 740

Dr. Date Particulars 17.1.2021 Cash a/c To Accounts receivable (Cash from debtors) Debit in $ Credit in $ 24500 24500 Dr. 17450 21.1.2021 Accounts Payable a/c To Cash (Creditors paid) 17450 300 24.1.2021 Accounts Receivable a/c Dr. To Allowance for doubtful accounts (Recovery of bad debts) 300 Dr. 300 Cash a/c To Accounts receivable (Cash from debtors) 300 1480 27.1.2021 Supplies a/c Dr. To Cash (Advertising supplies purchased) 1480 Dr. 3190 31.1.2021 Operating Expense a/c To Cash (Operating expense paid) 3190

Adjusting Enteries Date Particulars Debit in $ Credit in $ 31.1.2021 Interest Receivable a/c Dr. To Interest Revenue (Interest income accrued) 6000 x 8% x 1/12 40 31.1.2021 Bad Debts Expense a/c Dr. To Allowance for doubtful accounts 400 (Bad debts estimated) 20200-6000 - 800 +22600 -24500 + 300 - 300 = 11500 x 6% = 690 Allowance for doubtful accounts = 790 - 800 + 300 = 290 690 - 290 930 31.1.2021 Supplies Expense a/c Dr. To Supplies (Supplies on account) 1480 - 530 = 930 930 Dr. 31.1.2021 Income Tax Expense a/c To Income Tax Payable (Income Tax accrued) 664

Worksheet For the Month Ending 31.1.2021 Particulars Cash Note Receivable Interest Receivable Accounts Receivable Allowance for doubtful accounts Inventory Supplies Accounts Payable Income Tax Payable Common Stock Retained Earnings Interest Revenue Sales Revenue Cost of goods sold Visa Service fee Operating Expense Bad Debts Expense Supplies Expense Income Tax Expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 16823 16823 6000 6000 40 11500 11500 290 400 690 9640 9640 1480 930 550 8880 8880 664 664 22000 22000 10770 10770 40 40 23500 23500 16780 16780 3190 3190 400 930 400 930 664 2034 664 66544 65440 65440 2034 66544

23500 -16780 6720 Statement of Income For the Month Ending 31.1.2021 Sales Revenue Cost of goods sold Gross Profit Visa Service fee Operating Expense Bad Debts Expense Supplies Expense Operating Income Non Operating Items Interest Revenue 27 3190 400 930 4547 2173 40 Income Tax Expense @30% Net Income 2213 664 1549 Statement of Retained Earnings For the Month Ending 31.1.2021 Beginning Balance Net Income 10770 1549 12319

664 Balance sheet As at 31.1.2021 Assets Current Assets Cash Note Receivable Interest Receivable Accounts Receivable Allowance for doubtful accounts Inventory Supplies Total Assets Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities 16823 Accounts Payable 8880 6000 Income Tax Payable 9544 40 11500 -690 Shareholders Equity 9640 Common Stock 22000 550 43863 Retained Earnings 12319 34319 43863 Total Liabilities & Equity 43863