One Trick Pony (OTP) Incorporated and began operations near the end of the year, resulting in the followng post-closing balances at. December 31 : The followng Information is relevant to the first month of operations in the following year: - OTP will sell inventory at $145 per unit. OTP's January 1 inventory balance consists of 35 units at a total cost of $2,800. OTP's policy is to use the FIFO method, recorded using a perpetual inventory system. - In December, OTP recelved a $4,350 payment for 30 units OTP Is to delver In January: this obligation was recorded in Deferred Revenue. Rent of $1,300 was unpaid and recorded in Accounts Payable at December 31. - OTP's notes payable mature In three years, and accrue Interest at a 10% annual rate. January Transactions a. Included in OTP's January 1 Accounts Recelvable balance is a $1,500 balance due from Jeff LetrotskI. Jeff is having cash flow problems and cannot pay the $1,500 balance at this time. On 0101, OTP arranges with Jeff to convert the $1,500 balance to a sixmonth note, at 12% annual interest. Jeff signs the promissory note, which indlcates the principal and all interest will be due and payable to OTP on July 1 of this year. b. OTP paid a $500 insurance premium on 0102 covering the month of January, the payment is recorded directly as an expense. c. OTP purchased an additional 150 units of Irventory from a supplier on account on 0105 at a total cost of $9,000, with terms n/30. d. OTP paid a courler $300 cash on 0105 for same-day delivery of the 150 units of inventory. e. The 30 units that OTP's customer pald for in advance in December are dellvered to the customer on 01/06. f. On 01107, OTP recelved a purchase allowance of $1,350 on account, and then pald the amount necessary to settle the balance owed to the supplier for the 1/05 purchase of Inventory (In c). g. Sales of 40 units of inventory occurring during the period of 01/0701/10 are recorded on 01/10. The sales terms are n/30. h. Collected payments on 01/4 from sales to customers recorded on 0110 . 1. OTP paid the first 2 weeks" wages to the employees on 0116 . The total paid 15$2.200. 1. Wrote off a $1,000 customer's account balance on 01/18. OTP uses the allowance method, not the direct wite-off method. k. Pald $2600 on 01/9 for December and January rent. See the earlier bullets regarding the December portion. The January portion will explre soon, so it is charged directly to expense. 1. OTP recovered $400 cash on 0126 from the customer whose account had previously been written off on 01/8. m. An unrecorded $400 utllity bill for January arrlved on 01/27. It Is due on 02/5 and will be paid then. n. Sales of 65 units of inventory during the perlod of 01/1001/28, with terms n/30, are recorded on 01/28. 0. Of the sales recorded on 01/28,15 units are retumed to OTP on O1/30. The inventory is not damaged and can be resold. OTP charges sales returns to a contra-revenue account. p. On 0131 . OTP records the $2,200 employee salary that is owed but will be pald February 1 . 9. OTP uses the aging method to estimate and adjust for uncollectible accounts on O1/31. All of OTP's accounts recelvable fall into a single aging category, for which 8% is estimated to be uncollectible. Update the balances of both relevant accounts prior to determining the appropriate adjustment.) r. Accrue interest for January on the notes payable on 01/31. s. Accrue interest for January on Jeff Letrotskis note on O1/31 (see a). For the month ended Januay 31, indicate the (i) gross profi percentage, (i) number of units in ending inventory, and (iii) cost ver unit of endina inventorv. If OTP had used the percentage of sales method (using 2% of Net Sales) rather than the aging method, what amounts would OTC's January financial statements have reported for (i) Bad Dabt Expense and (ii)
