Wally\'s Widget Company (WWC) incorporated near the end of 2011. Operations bega
ID: 2558674 • Letter: W
Question
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 $ 5,300 $ 3,200 $15,500 $ 6,900 $ 3,620 $21,470 Unearned Revenue (25 units) $ 12,500 Accounts Payable (Jan Rent) Cash Accounts Receivable Allowance for Doubtful Accounts (1850) Notes Payable Inventory (30 units) $ 2,400 Contributed Capital Retained Earnings Feb 1, 2012 WWC establishes a policy that it will sell inventory at $165 per unit. . In January, WWC received a $5,300 advance for 25 units, as reflected in Unearned Revenue WWC's February 1 inventory balance consisted of 30 units at a total cost of $2,400 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 $1,700 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,700 balance to a note, and Kit Kat signs a 6-month note, at 9% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012 02/02 WWC paid a $600 insurance premium covering the month of February. The amount paid is recorded 02/05 An additional 170 units of inventory are purchased on account by WWC for $12,750 terms 2/15 02/05 WWC paid Federal Express $510 to have the 170 units of inventory delivered overnight. Delivery 02/10 Sales of 140 units of inventory occurred during the period of 02/07 02/10. The sales terms are 02/15 The 25 units that were paid for in advance and recorded in January are delivered to the customer. directly as an expense n30 occurred on 02/06 2/10, net 30 02/15 20 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,700 02/17 Paid 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. 02/18 Wrote off a customer's account in the amount of $1,950 02/19 $6,400 of rent for January and February was paid. Because all of the rent will soon expire, the 02/19 Collected $9,900 of customers' Accounts Receivable. Of the $9,900, the discount was taken by 02/26 WWC recovered $590 cash from the customer whose account had previously been written off (see 02/27 A $900 utility bill for February arrived. It is due on March 15 and will be paid then. February portion of the payment is charged directly to expense customers on $7,500 of account balances; therefore WWC received less than $9,900 02/18) 02/28 wWC declared and paid a $850 cash dividendExplanation / Answer
Willey Widget Company General Journal for the moth of February 2012 Date Account Debit Credit 2/1/2012 Note receivable 1700 Accounts receivable 1700 (To record conversion of accounts receivable from Kitkat to note receivable) 2/2/2012 Insurance expense 600 Cash 600 (To record the insurance premium paif for February) 2/5/2012 Inventory 12750 Accounts payable 12750 (To record purchase of 170 units ) Inventory 510 Cash 510 (To record freight paid on purchase of 170 units) 2/10/2012 Accounts receivable 23100 Sales revenue 23100 (To record sales of 140 units from 02/07 to 02/10) Cost of goods sold 10980 Inventory 10980 (To record cost of goods sold for 140 units) 02/15/2012 Unearned revenue 5300 Sales revenue 5300 (To record delivery of 25 units against advance received in January) Cost of goods sold 1950 Inventory 1950 (To record cost of goods for 25units sold @$78 per unit) 02/15/2012 Sales revenue 3300 Accounts receivable 3300 (To record return of 20 units sold on 02/10) Inventory 1560 Cost of goods sold 1560 (To record cost of the 20 units returned) 02/16/2012 Salaries and Wages expense 2700 Cash 2700 (To record payment of wages for the first two weeks) 02/17/2012 Accounts payable 12750 Cost of goods sold 255 Cash 12495 (To record on account payment for 02/05 purchase) 02/18/2012 Allowance for doubtful accounts 1950 Accounts receivable 1950 (To record wrting off of customer's account balance ) 02/19/2012 Rent expense 3200 Accounts payable 3200 Cash 6400 (To record payment of rent for January and February) 02/19/2012 Cash 9750 Sales discounts 150 Accounts receivable 9900 (To record collection from custmeors) 02/26/2012 Cash 590 Allowance for doubtful accounts 590 (To record recovery of amount from account written of on 02/18) 02/27/2012 Utility expense 900 Accounts payable 900 (To record utility bill ) 02/28/2012 Dividends 850 Cash 850 (To record cash dividend paid) Willey Widget Company Adjustment journal entries for the month of February 2012 02/29/2012 Salaries and Wages expense 2700 Salaries and Wages payable 2700 (To record wages accrued) 02/29/2012 Bad debt expense 1010 Allowance for doubtful accounts 1010 (To record the provision for bad debts expense ) 02/29/2012 Interest expense 155 Interest payable 155 (To record interest on note payable for February @12% p.a. 15,500*12% /12) 02/29/2012 Interest receivable 13 Interest revenue 13 (To record interest earned on note receivable @9% of Kit Kat -- 9%*1,700 / 12) Workings: Cost of goods sold Sale of 140 units from 02/07 to 02/10 Beginning inventory of 30 units 2400 Balance 110 units from 02/05 purchase 8580 @$78 per unit (12750+510)/170 10980 Allowance for doubtful accounts Ending balance of accounts receivable(12500-1700+23100-3300-1950-9900) 18750 Allowance @8% A 1500 Allowance account: Beginning balance 1850 Writtne off in February -1950 Recovered from customer written off 590 Ending balance for February B 490 Balance to be provided now (A - B) 1010
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