Project 2: Review of Merchandising Cycle [The following information applies to the questions displayed below.] 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 Cash Accounts Receivable Allowance for Doubtful Accounts$ (1,90O) Inventory (35 units) $ 5,350 S 3,300 $16,000 $ 7000 S 3,520 $ 21,620 Unearned Revenue (30 units) $ 12,650 Accounts Payable (Jan Rent) Notes Payable $ 2,800 Contributed Capital Retained Earnings - Feb 1, 2012 . WWC establishes a policy that it will sell inventory at $180 per unit. . In January, WWC received a $5,35O advance for 30 units, as reflected in Unearned Revenue * WWC's February 1 inventory balance consisted of 35 units at a total cost of $2.800 * 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 $1,400 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. 02/02 WWC paid a $650 insurance premium covering the month of February. The amount paid is recorded 02/05 An additional 180 units of inventory are purchased on account by WWC for $13,500 terms 2/15 02/05 WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery 02/10 Sales of 150 units of inventory occurred during the period of 02/07-02/10. The sales terms are 02/15 The 30 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 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 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,800. 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 $2,000. 02/19 $6,600 of rent for January and February was paid. Because all of the rent will soon expire, the 02/19 Collected $10,000 of customers' Accounts Receivable. Of the $10,000, the discount was taken by 02/26 WWC recovered $600 cash from the customer whose account had previously been written off (see 02/27 A$950 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 $8,000 of account balances, therefore WWC received less than $10,000. 02/18). 02/28 WWC declared and paid a $950 cash dividend Adjusting Entries 02/29 Record the $2,800 employee salary that is owed but will be paid March 1 02/29 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, 02/29 Record February interest expense accrued on the note payable 02/29 Record one month's interest earned Kit Kat's note (see 02/01)