Project 2: Review of Merchandising Cycle The following information applies to th
ID: 2514331 • Letter: P
Question
Project 2: Review of Merchandising Cycle 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: 19,820 Unearned Revenue (35 units) 10,850 Accounts Payable (Jan Rent) Cash Accounts Receivable Allowance for Doubtful Accounts Inventory (40 units) s 4,750 $ 2100 $14,000 s 5,800 $ 5,520 $(1300) Notes Payable 2,800 Contributed Capital Retained Earnings - Feb 1,2012 . WWC establishes a pollcy that It wll sell Inventory at $150 per unt . In January, WWC received a $4750 advance for 35 units, as reflected in Unearned Revenue. . WWC's February 1 inventory balance consisted of 40 units at a total cost of $2,800. 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 02/01 Included in wwC's February 1 Accounts Receivable balance is a $1,400 account de from ??? a WWC customer. Kit Kat is having cash flow problems and cannot pay lts balance at this time. WWC arranges with Kit Kat to convert the $1400 balance to a note, and Kit Kat signs a 6 month note, att 2% annual interest. The principal and all interest will be due and payable to ww on August 1, 2012. 02/02 wwc paid a $450 Insurance premium covering the month of February. The amount paid is 02/05 An additional 190 units of inventory are purchased on account by WWC for $14.250-terms 215 recorded directly as an expense. n30. occurred on 02/06 210, net 30 damaged and can be resold. Therefore, they are returned to Inventory. Assume the units returned Express $380 to have the 190 units of inventory delivered overnight. Delivery 02/10 Sales of 160 units of inventory occurred during the period of 02/07-0210. The sales terms are 02/15 The 35 units that were paid for in advance and recorded in Ja 02/15 25 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not nuary are delivered to the customer the 2/05 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $3,000. 02/17 Pald 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 0218 Wrote off a customer's account in the amount of $1,400 0219 $4,200 of rent for January and February was paid. Because all of the rent wll soon expire, the February portion of the payment is charged directly to expense customers on $4,500 of account balances; therefore WWC recelved less than $8,800 see 02/18). of customers' Accounts Recelvable. Of the $8,80o, the discount was taken by 02/26 wwC recovered $480 cash from the customer whose account had previously been written off 02/27 A $900 utlity bill for February arrlved. It is due on March 15 and will be paid then. 02/28 WWC declared and paid o $800 cash dvidend. Adjusting Entries: 02/29 Record the $3,000 employee salary that is owed but will be paid March 1 02/29 wwC decides to use the aging method to esti mate uncollectible accounts. ww determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts 02/29 Record February Interest expense accrued on the note payable. 02/29 Record one month's Interest earned Kit Kat's note (see 02/01)Explanation / Answer
Cash Accounts Receivable Date Debit Credit Date Date Debit Credit Date Beg.Bal. 19820 450 2/2 Beg.Bal. 10850 1400 2/1 2/19 8710 380 2/5 2/10 24000 1400 2/18 2/26 480 3000 2/16 3750 2/15 13965 2/17 8800 2/19 4200 2/19 34850 15350 800 2/28 End Bal 19500 29010 22795 End Bal 6215 Note Receivable Date Debit Credit Date Allowance for doubtful accounts 2/1 1400 Date Debit Credit Date End.Bal. 1400 2/18 1400 1300 Beg.Bal. 480 2/26 Inventory 1180 2/29 Date Debit Credit Date 1400 2960 Beg.Bal. 2800 12040 2/10 1560 End.Bal. 2/5 14250 2695 2/15 2/5 380 2/15 1925 19355 14735 Unearned Revenue End.Bal. 4620 Date Debit Credit Date 2/15 4750 4750 Beg.Bal. Accounts Payable Date Debit Credit Date 4750 4750 2/17 14250 2100 Beg.Bal. 0 End.Bal. 2/19 2100 14250 2/5 900 2/27 16350 17250 900 End.Bal. Notes Payable Contrubited Capital Date Debit Credit Date Date Debit Credit Date 14000 Beg.Bal. 5800 Beg.Bal. 0 14000 0 5800 14000 End.Bal. 5800 End.Bal. Retained Earnings Sales Date Debit Credit Date Date Debit Credit Date 5520 Beg.Bal. 24000 2/10 4750 2/15 0 5520 0 28750 5520 End.Bal. 28750 End.Bal. Sales Returns and Allowances Sales Discount Date Debit Credit Date Date Debit Credit Date 2/15 3750 2/19 90 3750 0 90 0 End.Bal. 3750 End.Bal. 90 Cost of goods sold Rent Expense Date Debit Credit Date Date Debit Credit Date 2/10 12040 1925 2/15 2/19 2100 2/15 2695 285 2/17 14735 2210 2100 0 End.Bal. 12525 End.Bal. 2100 Insurance Expense Salary and wage expense Date Debit Credit Date Date Debit Credit Date 2/2 450 2/16 3000 2/29 3000 450 0 6000 0 End.Bal. 450 End.Bal. 6000 Utility Epense Dividend Date Debit Credit Date Date Debit Credit Date 2/27 900 2/28 800 900 0 800 0 End.Bal. 900 End.Bal. 800 Salary and wage payable Bad Debt expense Date Debit Credit Date Date Debit Credit Date 3000 2/29 2/29 1180 0 3000 1180 0 3000 End.Bal. End.Bal. 1180 Interest Expense Interest Revenue Date Debit Credit Date Date Debit Credit Date 2/29 140 14 2/29 140 0 0 14 End.Bal. 140 14 End.Bal. Interest Payable Interest Receivbale Date Debit Credit Date Date Debit Credit Date 140 2/29 2/29 14 0 140 14 0 140 End.Bal. End.Bal. 14 Willey Widget Company Income statement for the moth ending February 29, 2012 Sales Revenue 28750 Less: Sales Returns 3750 Less: Sales discounts 90 -3840 Net sales 24910 Cost of goods sold 12525 Gross margin 12385 Operating expenses Wages expense 6000 Rent expense 2100 Bad debt expense 1180 Insurance expense 450 Utilitiy expense 900 Total operating expenses 10630 Operating income 1755 Non operating items Interest expense 140 Interest income -14 Total non operating expenses 126 Net income before taxes 1629 Willey Widget Company Balance sheet as at February 29, 2012 Assets Cash 6215 Accounts receivable 19500 Less: Allowance for doubtful accounts -1560 17940 Inventory 4620 Note receivable 1400 Interest receivable 14 Total Assets 30189 Liabilities and equity Accounts payable 900 Salary and wage payable 3000 Interest payable 140 Notes payable 14000 Totalliabilities 18040 Common stock 5800 Retained earnings as at 02/01 5520 Net income 1629 7149 Dividends paid -800 Retained earnings as at 02/29 6349 Total stockholders' equity 12149 Total liabilities and equity 30189 Willey Widget Company Statement of retained earnings as at February 29, 2012 Beginning balance as at Feb.1 5520 Add: Net income 1629 7149 Less: Dividends paid -800 Ending balance as at Feb.29 6349 Willey Widget Company Closing entries Date Acount Debit Credit 2/29/12 Sales revenue 28750 Interest revenue 14 (Closing the revenue accoutns to income summary) 28764 Sales returns 3750 Sales discounts 90 cost of goods sold 12525 Wages expense 6000 Rent expense 2100 Bad debt expense 1180 Insurance expense 450 Utilitiy expense 900 Interest expense 140 Income summary 1629 (To record closing of expenses accounts) 2/29/12 Income summary 1629 Retained earnings 1629 (To record the closing of net income to retained earnings0 2/29/12 Retained earnings 800 Dividends 800 (To record closing of dividends paid to retained earnings)
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