1. Depreciation on the equipment for the month of January is calculated using th
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Question
1. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $4,500 and a two-year service life.
2. At the end of January, $13,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 4% will not be collected.
3. Accrued interest expense on notes payable for January.
4. Accrued income taxes at the end of January are $13,200.
5. By the end of January, $3,200 of the gift cards sold on January 2 have been redeemed.
1. Prepare an adjusted trial balance as of January 31, 2018
On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances: Debit Credit $ 25,300 Accounts Recevable 46,600 S 4,400 Inventory Land Equipment 20,200 48,000 16,500 Accounts Payable Notes Payable (6%, due April 1, 2019) Common Stock Retolned Earnings 1,700 28,700 52,000 37,000 32,800 Totals $156,600 S156,600 During January 2018, the following transactions occur January 2. Sold gift cards totaling $8.400. The cards are redeemable for merchandise within one year of the purchase date January 6. Purchase additional inventory on account, $149,000. January 15. Firework sales for the first half of the month total $137,000. All of these sales are on account. The cost of the units sold is $74,800 January 23. Receive $125,600 from customers on accounts receivable January 25. Pay $92,000 to inventory suppliers on accounts payable January 28. Write off accounts receivable as uncollectible, $5,000. January 30. Firework sales for the second half of the month total $145,000. Sales include $15,000 for cash and $130,000 on account. The cost of the units sold is $80,500. January 31. Pay cash for monthly salaries, $52,200.Explanation / Answer
To prepare a adjusted trial balance as on 31st January, 2018, first we need to pass the journal entries for different transactions as a part of our working
Journal Entries
1) Sold gift cards for 8400
Until gift cards are redeemed or goods are provided against them, we cant recognize revenue so we have to create a liability( defered revenue)
Cash a/c dr 8400
To Gift Card liability 8400
2) Purchase Additional inventory on account for $149000
Purchase a/c Dr 149000
To Accounts Payable 149000
3) Sales of $ 137000 on account
Accounts Receivable a/c Dr 137000
To Sales 137000
4)Receive $ 125600 from Customers
Cash a/c Dr 125600
To Accounts Receivable 125600
5) Paid $ 92000 to Inventory suppliers
Accounts Payble a/c Dr 92000
To Cash 92000
6) Accounts Receivable uncollectable $ 5000
Since we already have a provision of 4400, so my actual bad debt charged to PL will be 600 (5000-4400)
Allowance for Uncollectable Accounts a/s Dr 4400
Bad Debts a/c Dr 600
To Accounts Receivable 5000
7) Sales of $ 145000
Cash a/c Dr 15000
Accounts Receivable a/c Dr 130000
To Sales 145000
8) Payment of Salaries $ 52200
Salaries a/c Dr 52200
To Cash 52200
9) Depreciation on Equipment for 1 Month
Depreciation =(16500 -4500)/2 = 6000
Depreciation for one month = 6000/12 = 500
Depreciation a/c Dr 500
To Accumulated depreciation 500
10) Calculation of Allowances for uncollectable Account
Accounts Receivable as on 31.01.2018= 46600+137000-125600-5000+130000=183000
So Provision = on $ 13000 @ 30% & 170000@ 4%
= 3900 + 6800=10700
Bad Debts Expense a/c DR 10700
To Allowances for Uncollectable Account 10700
11) Calculation of Accrued Interest on Notes Payable
Accrued Interest = 50000*6% *1/12=250
Interest on Notes Payable a/c Dr 250
To Accrued Interest 250
12) Accrued Income Tax of $13200
Income Tax Expense a/c Dr 13200
To Income Tax Payable 13200
13) $ 3200 gifts reedeemed
As $ 3200 gifts are redeemed, we can recognize revenue upto 3200
Gift Card Liability a/c Dr 3200
To Sales 3200
After Passing of all journal entries we need to calculated the amount transfered to retained earnings, so we have to prepare statement of Profit & Loss
Calculation of Closing stock = Op stock + Purchase - Cost of Goods Sold
= 20200 +149000- (74800+80500)
= 13900
Final working
Statement of Profit & Loss Revenue from Fireworks(137000+145000) 282000 Revenue from Gift Cards 3200 Total Revenue 285200 Expenses Purchase 149000 Change in Stock (20200-13900) 6300 Depreciation 500 Interest on Notes Payable 250 Bad Debt Expense(600+10700) 11300 Salaries 52200 Total Expense 219550 Profit Before Tax 65650 Less: Tax Expenses 13200 Profit After Tax 52450Related Questions
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