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: S 19,370 5 10,400 Unearned Revenue (45 units) Accounts Payable (Jan Rent) 5 4,600 5 1,800 $16,000 $ 5,500 5 4,720 Cash Allowance for Doubtful Accounts Inventory (50 units) 1150 Notes Payable 5 4,000 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 $4,600 advance for 45 units, as reflected in Unearned Revenue. WWC's February 1 inventory balance consisted of 50 units at a total cost of $4,000. 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. 02/01 Included in WWC's February 1 Accounts Receivable balance is a $2,000 account due from Kit Kat, a WWC custormer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $2,000 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 $750 insurance premium covering the month of February. The amount paid is recorded 02/05 An additional 160 units of inventory are purchased on account by WWC for $12,000 - terms 2/15, 02/05 wWC paid Federal Express $320 to have the 160 units of inventory delivered overnight. Delivery 02/10 Sales of 130 units of inventory occurred during the period of 02/07 02/10. The sales terms are 0215 The 45 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. 0215 10 units of the inventory that had been sold on 210 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. WWC pays the first 2 weeks wages to the employees. The total paid is $2,700. 02/16 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 $1,250. 02/19 $3,600 of rent for January and February was paid. Because all of the rent will soon expire, the 02/19 Collected $8,500 of customers Accounts Receivable. Of the $8,500, the discount was taken by 02/26 wWC recovered $450 cash from the customer whose account had previously been written off (see 02/27 A $750 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 $6,000 of account balances; therefore WWC received less than $8,500 02/18). 02/28 wWC declared and paid a $500 cash dividend. Adjusting Entries: 02/29 Record the $2,700 employee salary that is owed but will be paid March 1. 02/29 WWC decides to use the aging method to estimate uncollectible accourts. WWC determines 6% 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)