One Trick Pony (OTP) incorporated and began operations near the end of the year, resulting in the following post-closing balances at December 31: Cash $ 29,880 Accounts Receivable 12,640 Allowance for Doubtful Accounts 930* Inventory 2,000 Deferred Revenue (40 units) 5,200 Accounts Payable 1,460 Notes Payable (long-term) 24,000 Common Stock 7,600 Retained Earnings 5,330 * credit balance. The following information is relevant to the first month of operations in the following year: OTP will sell inventory at $130 per unit. OTPs January 1 inventory balance consists of 50 units at a total cost of $2,000. OTPs policy is to use the FIFO method, recorded using a perpetual inventory system. In December, OTP received a $5,200 payment for 40 units OTP is to deliver in January; this obligation was recorded in Deferred Revenue. Rent of $1,160 was unpaid and recorded in Accounts Payable at December 31. OTPs notes payable mature in three years, and accrue interest at a 10% annual rate. January Transactions Included in OTPs January 1 Accounts Receivable balance is a $2,400 balance due from Jeff Letrotski. Jeff is having cash flow problems and cannot pay the $2,400 balance at this time. On 01/01, OTP arranges with Jeff to convert the $2,400 balance to a six-month note, at 10% annual interest. Jeff signs the promissory note, which indicates the principal and all interest will be due and payable to OTP on July 1 of this year. OTP paid a $430 insurance premium on 01/02, covering the month of January; the payment is recorded directly as an expense. OTP purchased an additional 200 units of inventory from a supplier on account on 01/05 at a total cost of $8,000, with terms n/30. OTP paid a courier $400 cash on 01/05 for same-day delivery of the 200 units of inventory. The 40 units that OTPs customer paid for in advance in December are delivered to the customer on 01/06. On 01/07, OTP received a purchase allowance of $1,200 on account, and then paid the amount necessary to settle the balance owed to the supplier for the 1/05 purchase of inventory (in c). Sales of 60 units of inventory occurring during the period of 01/0701/10 are recorded on 01/10. The sales terms are n/30. Collected payments on 01/14 from sales to customers recorded on 01/10. OTP paid the first 2 weeks wages to the employees on 01/16. The total paid is $3,220. Wrote off a $760 customers account balance on 01/18. OTP uses the allowance method, not the direct write-off method. Paid $2,320 on 01/19 for December and January rent. See the earlier bullets regarding the December portion. The January portion will expire soon, so it is charged directly to expense. OTP recovered $350 cash on 01/26 from the customer whose account had previously been written off on 01/18. An unrecorded $300 utility bill for January arrived on 01/27. It is due on 02/15 and will be paid then. Sales of 70 units of inventory during the period of 01/1001/28, with terms n/30, are recorded on 01/28. Of the sales recorded on 01/28, 10 units are returned to OTP on 01/30. The inventory is not damaged and can be resold. OTP charges sales returns to a contra-revenue account. On 01/31, OTP records the $3,220 employee salary that is owed but will be paid February 1. OTP uses the aging method to estimate and adjust for uncollectible accounts on 01/31. All of OTPs accounts receivable fall into a single aging category, for which 10% is estimated to be uncollectible. (Update the balances of both relevant accounts prior to determining the appropriate adjustment.) Accrue interest for January on the notes payable on 01/31. Accrue interest for January on Jeff Letrotskis note on 01/31 (see a).