Question

Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On December 31, 2019, the firm’s general ledger contained the accounts and balances that follow.

ACCOUNTS AND BALANCES
Cash	$	30,900		Dr.
Accounts Receivable		36,000		Dr.
Allowance for Doubtful Accounts		500		Cr.
Merchandise Inventory		86,800		Dr.
Supplies		11,200		Dr.
Prepaid Insurance		6,360		Dr.
Office Equipment		10,000		Dr.
Accum. Depreciation—Office Equipment		2,730		Cr.
Warehouse Equipment		38,400		Dr.
Accum. Depreciation—Warehouse Equipment		11,200		Cr.
Notes Payable—Bank		36,000		Cr.
Accounts Payable		13,000		Cr.
Interest Payable
Social Security Tax Payable		1,760		Cr.
Medicare Tax Payable		396		Cr.
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Phillip Tucker, Capital		128,696		Cr.
Phillip Tucker, Drawing		60,000		Dr.
Sales		661,778		Cr.
Sales Returns and Allowances		10,800		Dr.
Purchases		354,000		Dr.
Purchases Returns and Allowances		10,000		Cr.
Income Summary
Rent Expense		36,800		Dr.
Telephone Expense		3,000		Dr.
Salaries Expense		168,000		Dr.
Payroll Taxes Expense		13,800		Dr.
Supplies Expense
Insurance Expense
Depreciation Expense—Office Equip.
Depreciation Expense—Warehouse Equip.
Uncollectible Accounts Expense
Interest Expense

   
ADJUSTMENTS

a.–b. Merchandise inventory on December 31, 2019, is $78,800.

3. During 2019, the firm had net credit sales of $568,000; past experience indicates that 0.75 percent of these sales should result in uncollectible accounts.
4. On December 31, 2019, an inventory of supplies showed that items costing $1,260 were on hand.
5. On May 1, 2019, the firm purchased a one-year insurance policy for $6,360.
6. On January 2, 2017, the firm purchased office equipment for $10,000. At that time, the equipment was estimated to have a useful life of seven years and a salvage value of $445.
7. On January 2, 2017, the firm purchased warehouse equipment for $38,400. At that time, the equipment was estimated to have a useful life of six years and a salvage value of $4,800.
8. On November 1, 2019, the firm issued a four-month, 10 percent note for $36,000.
9. On December 31, 2019, the firm owed salaries of $12,000 that will not be paid until 2020.
10. On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $12,000 of accrued wages.
11. On December 31, 2019, the firm owed the federal unemployment tax (assume 0.6 percent) and the state unemployment tax (assume 5.4 percent) on the entire $12,000 of accrued wages.

Required:

1. Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.
2. Enter the adjustments above in the Adjustments section of the worksheet.
3. Complete the worksheet.

Analyze:
When the financial statements for Healthy Eating Foods Company are prepared, what net income will be reported for the period ended December 31, 2019?

Answer 1

Particulars	Unadjusted balance		Adjustments		Adjusted balance		Income statement		Balance sheet
	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Assets	Liabilities
Cash	30900				30900				30900
Accounts receivable	36000				36000				36000
Allowance for doubtful accounts		500		4260		4760				4760
Merchandise inventory	86800			8000	78800				78800
Supplies	11200			9940	1260				1260
Prepaid insurance	6360			4240	2120				2120
Office equipment	10000				10000				10000
Accm. Depreciation - Office equipment		2730		1365		4095				4095
Warehouse equipment	38400				38400				38400
Accm. Depreciation - Warehouse equipment		11200		5600		16800				16800
Notes payable - Bank		36000				36000				36000
Accounts payable		13000				13000				13000
Interest payable				1800		1800				1800
Social security tax payable		1760		744		2504				2504
Medicare tax payable		396		174		570				570
Federal unemployment tax payable				72		72				72
State unemployment tax payable				648		648				648
Salaries payable				12000		12000				12000
Phillip Tucker, Capital		128696				128696				128696
Phillip Tucker, Drawing	60000				60000				60000
Sales		661778				661778		661778
Sales returns and allowances	10800				10800		10800
Purchases	354000				354000		354000
Purchase returns and allowances		10000				10000		10000
Income summary			8000		8000		8000
Rent expense	36800				36800		36800
Telephone expense	3000				3000		3000
Salaries expense	168000		12000		180000		180000
Payroll taxes expense	13800		1638		15438		15438
Supplies expense			9940		9940		9940
Insurance expense			4240		4240		4240
Depreciation expense - Office equipment			1365		1365		1365
Depreciation expense - Warehouse equipment			5600		5600		5600
Uncollectible accounts expense			4260		4260		4260
Interest expense			1800		1800		1800
Total
Net income							36535			36535
Totals	866060	866060	48843	48843	892723	892723	671778	671778	257480	257480

The net income would be reported at $ 36535.