* credit balance. The following information is relevant to the first month of op
ID: 2475987 • Letter: #
Question
* credit balance.
The following information is relevant to the first month of operations in the following year:
OTP will sell inventory at $145 per unit. OTP’s January 1 inventory balance consists of 35 units at a total cost of $2,800. OTP’s policy is to use the FIFO method, recorded using a perpetual inventory system.
In December, OTP received a $4,350 payment for 30 units to be delivered in January; this obligation was recorded in Unearned Revenue. Rent of $1,300 was unpaid and recorded in Accounts Payable at December 31.
OTP’s note payable matures in three years, and accrues interest at a 10% annual rate.
Included in OTP’s January 1 Accounts Receivable balance is a $1,500 balance due from Jeff Letrotski. Jeff is having cash flow problems and cannot pay the $1,500 balance at this time. On 01/01, OTP arranges with Jeff to convert the $1,500 balance to a 6-month note, at 12% annual interest. Jeff signs the promissory note, which indicates the principal and all interest will be due and payable to OTP on July 1 of this year.
OTP paid a $500 insurance premium on 01/02, covering the month of January; the payment is recorded directly as an expense.
OTP purchased an additional 150 units of inventory from a supplier on account on 01/05 at a total cost of $9,000, with terms 2/15, n/30.
OTP paid a courier $300 cash on 01/05 for same-day delivery of the 150 units of inventory.
The 30 units that OTP’s customer paid for in advance in December are delivered to the customer on 01/06.
On 01/07, OTP paid the amount necessary to settle the balance owed to the supplier for the 1/05 purchase of inventory (in 3).
Sales of 40 units of inventory occuring during the period of 01/07 – 01/10 are recorded on 01/10. The sales terms are 2/10, n/30.
Collected payments on 01/14 from sales to customers recorded on 01/10. The discount was properly taken by customers on $5,800 of these credit sales; consequently, OTP received less than $5,800.
Wrote off a $1,000 customer’s account balance on 01/18. OTP uses the allowance method, not the direct write-off method.
Paid $2,600 on 01/19 for December and January rent. See the earlier bullets regarding the December portion. The January portion will expire soon, so it is charged directly to expense.
OTP recovered $400 cash on 01/26 from the customer whose account had previously been written off on 01/18.
Of the sales recorded on 1/28, 15 units are returned to OTP on 01/30. The inventory is not damaged and can be resold.
OTP uses the aging method to estimate and adjust for uncollectible accounts on 01/31. All of OTP’s accounts receivable fall into a single aging category, for which 8% is estimated to be uncollectible. (Update the balances of both relevant accounts prior to determining the appropriate adjustment, and round your calculation to the nearest dollar.)
Prepare all January journal entries and adjusting entries for items 1–19.
One Trick Pony (OTP) incorporated and began operations near the end of the year, resulting in the following post-closing balances at December 31:Explanation / Answer
Date Particulars Debit Credit 1-Jan Biils Receivable 1500 Accounts Receivable 1500 Amount due from Jeff converted to Promissory note 2-Jan Insurance expense 500 Cash 500 Insurance expense recorded for year 5-Jan Inventory 9000 Accounts Payable 9000 Inventory purchased on account 5-Jan Inventory 300 Cash Courier expense on unit purchased 6-Jan Unearned revenue 4350 Sales 4350 Sale recorded and unearned revenue transferred to income account 6-Jan Cost of goods sold 2400 Inventory 2400 Proportionate cost from opening inventory on 30 units transferred to cost of goods sold FIFO method of inventory is followed 7-Jan Accounts payable 9000 Inventory 180 Cash 8820 Since payment is made within 15 days we will avail a discount of 2 % on amount to be paid = 9000 x 2% , = 180 Under perpetual accounting any discount will reduce cost of inventory 10-Jan Acccounts recceivable 5800 Sales 5800 Sale recorded 10-Jan Cost of goods sold 2528 Inventory 2528 Cost is calculated as 5 units X 80 , =400 ( from opening stock) Cost of 150 units purchased = 9000 +300 -180 , = 9120 proportionate cost of 35 units sold = (9120 / 150) x 35 2128 Total cost of goods sold = 400 +2128 , = 2528 14-Jan Cash 5684 sales Discount 116 Accounts Receivable 5800 Discount allowed on early payment = 5800 x 2% , = 116 16-Jan Work in process 2200 Cash 22200 Wage expense recorded in work in process 18-Jan Allowance for doubtful account 1000 Accounts receivables 1000 Amount written off to allowance account 19-Jan Rent Expense 1300 Accounts payable 1300 Cash 2600 Rent expense recorded and outstanding rent for december paid 26-Jan Accounts receivable 400 Allowance for doubtful account 400 26-Jan Cash 400 Accounts receivables 400 Accouts receivable re instated and amount recovered from customer 27-Jan Utility Expense 400 Accounts Payable 400 Since amount relate to January so recorded in January 28-Jan Accounts receivables 9425 Sales 9425 28-Jan Cost of Goods Sold 3952 Inventory 3952 Proportionate cost of 65 units sold = (9120 / 150) x 65 3952 30-Jan sales 2175 Accounts receivables 2175 Sale price of 15 units = 15 x 145 , 2175 30-Jan Inventory 912 Cost of Goods Sold 912 Proportionate cost of 15 units = (9120 / 150) x 15 , =912 31-Jan Employee Salary expense 2200 Acccounts payable 2200 Employee salary expense recorded 31-Jan Allowance for doubtful account 852 Accounts receivable 852 Adjusted balance of accounts receivables = Details for Allowance for doubtful account opening balance 9650 Closing balance required 1152 Add: on Account Sales of month 15225 =14400*8% = 5800 +9425 Add: Net allowance 600 Add: Allowance re instated 400 (1000-400) Sub total 25275 Less Opening Balance 900 Less: Jeff balance 1500 Less : sale return 2175 Provision to be created 852 Cash received on sale 5684 Discount on sale 116 Less: Allowance 1000 Less Cash received 400 Net Balance 14400 31-Jan Interest Expense 125 Accounts payable 125 Interest payable yearly = 15000 x 10 %, 1500 Monthly interest due= 1500 / 12 ,= 125 31-Jan Interest receivable 15 Interest Income 15 Amount to be received fromm Jeff = 1500 Interestr at 12 % , = 1500 x 12%, =180 monthly interest = 180 /12 , =15
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.