Carrier Enterprises started business on January, 1, Year 1 and keeps its books on the cash basis of accounting. The trial balance of the company at December 31, Year 1 is as follows: Selling Expenses Cash $5,000 (Debit) Common Stock $10,000 (Credit) Sales 40,000 (Credit) Cost of Sales 20,000 (Debit) Payroll Expense 8,000 (Debit) Selling Expenses 3,000 (Debit) Admin expenses 5,000 (Debit) Small tools expenses 5,000 (Debit) Income tax expense 4,000 (Debit) Other information about Carrier's operations: 1. Customers owe the company $20,000 on unpaid invoices at the end of the year. 2. The company has goods with a cost of $12,000 in its warehouse at year end. The company owes its supplier for all of these goods, plus they owe another $2,000 on a prior shipment that was sold during the year. 3. The amount the company shows as small tools is for the principal manufacturing asset of the company. The company depreciates its fixed assets on a straight line basis with a five year asset life. Fixed assets are assumed to be purchased at the beginning of the year. 4. Included in administrative expenses is a payment on the companys one year general liability insurance policy for $2,400. The policy was purchased and effective on July 1, Year 1. 5. When reconciling the bank accounts for the year, the company discovered that it had received a $500 bad check from a customer. The check was re-deposited and paid in January of Year 2. 6. The company estimates that 1.5% of its sales will eventually be uncollectible. 7. The company pays its employees on a weekly basis 7 days after the end of the pay period. The last paycheck date for the year was on December 31st. The weekly payroll of the company is $1,300. 8. The companys tax rate is 25%. There were no non-taxable transactions made by the company. The journal entries needed to adjust their financial statements from the cash basis to the accrual basis: Transaction	General Journal	Debit	Credit
1	Accounts Receivable (40,000 - 20,000)	20,000
	Sales		20,000
2	Inventory (12,000 + 2,000)	14,000
	Accounts Payable		14,000
	Cost of Goods Sold	14,000
	Inventory		14,000
3	Equipment	5,000
	Small Tools Expense		5,000
	Depreciation Expense	1,000
	Accumulated Depreciation (5,000/5)		1,000
4	General Liability Insurance	1,200
	Prepaid General Liability Insurance	1,200
	Administrative Expense		2,400
5	Accounts Receivable	500
	Cash		500
6	Allowance for Doubtful Accounts	300
	Accounts Receivable (20,000*1.5%)		300
7	Payroll Expense	1300
	Cash		1300
8	Income Tax Expense	2150
	Income Tax Payable		2150

Write a written explanation for the journal entries detailing how your answer solves the problem. Your written explanation should include the codification reference to U.S. GAAP, providing the source the guidance used to solve the problem.