Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began
ID: 2582949 • 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:
Included in WWC’s February 1 Accounts Receivable balance is a $1,400 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 $1,400 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
WWC paid a $650 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
An additional 180 units of inventory are purchased on account by WWC for $13,500 – terms 2/15, n30.
WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery occurred on 02/06.
Sales of 150 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
The 30 units that were paid for in advance and recorded in January are delivered to the customer.
25 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.
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.
$6,600 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense.
Collected $10,000 of customers’ Accounts Receivable. Of the $10,000, the discount was taken by customers on $8,000 of account balances; therefore WWC received less than $10,000.
WWC recovered $600 cash from the customer whose account had previously been written off (see 02/18).
A $950 utility bill for February arrived. It is due on March 15 and will be paid then.
Record the $2,800 employee salary that is owed but will be paid March 1.
WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts.
Prepare the Balance Sheet at the end of February. (Balance Sheet only, items to be deducted must be indicated with a negative amount.)
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:
Explanation / Answer
WWC Balance sheet at the end of February Assets Cash $ 7470 Accounts Receivable $ 21750 Notes Receivable $ 1400 Interest Receivable $ 14 Allowance for doubtful debts $ -1740 Inventory(90 Units) $ 6930 $ 35824 Liabilities Unearned Revenue $ 0 Accounts Payable-Utilities $ 950 Wages Payable $ 2800 Interest Payable $ 160 Notes Payable $ 16000 Working Income statement Contributed Capital $ 7000 Retained Earnings $ 8914 COGS 9730 Sales 32350 $ 35824 Sales Return -4500 Insurance 650 Purchase Discount 270 Wages 2800 Rent 3300 Interest 14 Sales discount 160 utility 950 Wages 2800 Interest 160 Bad debt 1240 Net Income 6344 28134 28134
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