Wallys 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 WWC establishes a policy that it will sell inventory at $165 per unit In January, WWC received a $4,800 advance for 40 units, as reflected in Unearned Revenue WWCs February 1 inventory balance consisted of 45 units at a total cost of $3,150 WWCs 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 WWCs February 1 Accounts Receivable balance is a $1,500 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 $1,500 balance to a note, and Kit Kat signs a 6 month note, at 10 annual interest The principal and all interest will be due and payable to WWC on August 1, 2012 02 02 WWC paid a $500 insurance premium covering the month of February The amount paid is recorded directly as an expense 02 05 An additional 200 units of inventory are purchased on account by WWC for $15,000 terms 2 15, n30 02 05 WWC paid Federal Express $200 to have the 200 units of inventory delivered overnight Delivery occurred on 02 06 02 10 Sales of 170 units of inventory occurred during the period of 02 07 02 10 The sales terms are 2 10, net 30 02 15 The 40 units that were paid for in advance and recorded in January are delivered to the customer 02 15 30 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 $3,100 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 customers account in the amount of $1,450 02 19 $4,400 of rent for January and February was paid Because all of the rent will soon expire, the February portion of the payment is charged directly to expense 02 19 Collected $8,900 of customers Accounts Receivable Of the $8,900, the discount was taken by customers on $5,000 of account balances therefore WWC received less than $8,900 02 26 WWC recovered $490 cash from the customer whose account had previously been written off (see 02 18) 02 27 A $400 utility bill for February arrived It is due on March 15 and will be paid then 02 28 WWC declared and paid a $900 cash dividend Adjusting Entries 02 29 Record the $3,100 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 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 months interest earned Kit Kats note (see 02 01) $ 19,970 Unearned Revenue (40 unlts) $11,000 Accounts Payable (Jan Rent) Cash Accounts Recelvable Allowance for Doubtful Accounts Inventory (45 units) $ 4,800 $ 2,200 $14,500 5,900 Retained Earnings Feb 1, 2012 5,370 (1,350) Notes Payable $3,150 Contributed Capital 1 b Post all February entries (transactions and adjustments) to the T accounts Cash Accounts Receivable Beg bal eb 19b eb 26b 19,970 Beg bal eb 10a eb 26a 11,000 28,050 490 500 Feb 2 1,500 Feb 1 200 Feb 6 eb 16 eb 17 eb 19a eb 28 eb 15d eb 18 eb 19b eb 26b End bal 19,270 End bal 38,040 Allowance for Doubtful Accounts Inventory 3,150 200 1,350 Beg bal eb 18 490 Feb 26a eb 29b Beg bal eb 6 eb 15c eb 10b eb 15b eb 17 End bal 1,840 End bal 3,350 Notes Receivable Interest Receivable Beg bal eb 1 Beg bal eb 29d End bal End bal Accounts Payable Unearned Revenue Beg bal eb 17 eb 19a 2,200 Beg bal eb 15a 4,800 eb 27 4 800 End bal 2,200 End bal Wages Payable Interest Payable Beg bal Beg bal eb 29a eb 29c End bal End bal Notes Payable Contributed Capital Beg bal 14,500 Beg bal 5,900 End bal 14,500 End bal 5,900 Retained Earnings Dividends Declared Beg bal 5,370 Beg bal eb 28 End bal 5,370 End bal Sales Revenue Sales Returns Allowances Beg bal Beg bal eb 15d 28,050 Feb 10a 4,800 Feb 15a End bal 32,850 End bal Sales Discounts Cost of Goods Sold Beg bal eb 19b Beg bal eb 10b eb 15b eb 15c End bal End bal Interest Revenue Bad Debt Expense Beg bal Beg bal eb 29b eb 29d End bal End bal Insurance Expense Interest Expense Beg bal eb 2 Beg bal eb 29c End bal End bal Rent Expense Utility Expense Beg bal eb 19a Beg bal eb 27 End bal End bal Wages Expense Beg bal eb 16 eb 29a

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Wallys Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the

Wallys 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:

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	WWC establishes a policy that it will sell inventory at $165 per unit.
	In January, WWC received a $4,800 advance for 40 units, as reflected in Unearned Revenue.
	WWCs February 1 inventory balance consisted of 45 units at a total cost of $3,150.
	WWCs 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 WWCs February 1 Accounts Receivable balance is a $1,500 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 $1,500 balance to a note, and Kit Kat signs a 6-month note, at 10% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
02/02	WWC paid a $500 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
02/05	An additional 200 units of inventory are purchased on account by WWC for $15,000 terms 2/15, n30.
02/05	WWC paid Federal Express $200 to have the 200 units of inventory delivered overnight. Delivery occurred on 02/06.
02/10	Sales of 170 units of inventory occurred during the period of 02/07 02/10. The sales terms are 2/10, net 30.
02/15	The 40 units that were paid for in advance and recorded in January are delivered to the customer.
02/15	30 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 $3,100.
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 customers account in the amount of $1,450.
02/19	$4,400 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense.
02/19	Collected $8,900 of customers Accounts Receivable. Of the $8,900, the discount was taken by customers on $5,000 of account balances; therefore WWC received less than $8,900.
02/26	WWC recovered $490 cash from the customer whose account had previously been written off (see 02/18).
02/27	A $400 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28	WWC declared and paid a $900 cash dividend.

Adjusting Entries:

02/29	Record the $3,100 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 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 months interest earned Kit Kats note (see 02/01).

$ 19,970 Unearned Revenue (40 unlts) $11,000 Accounts Payable (Jan Rent) Cash Accounts Recelvable Allowance for Doubtful Accounts Inventory (45 units) $ 4,800 $ 2,200 $14,500 5,900 Retained Earnings - Feb 1, 2012 5,370 (1,350) Notes Payable $3,150 Contributed Capital 1-b. Post all February entries (transactions and adjustments) to the T-accounts Cash Accounts Receivable Beg. bal eb. 19b eb. 26b 19,970 Beg. bal eb. 10a eb. 26a 11,000 28,050 490 500 Feb.2 1,500 Feb. 1 200 Feb. 6 eb. 16 eb. 17 eb. 19a eb. 28 eb. 15d eb. 18 eb. 19b eb. 26b End. bal 19,270 End. bal 38,040 Allowance for Doubtful Accounts Inventory 3,150 200 1,350 Beg. bal eb. 18 490 Feb. 26a eb. 29b Beg. bal eb. 6 eb. 15c eb. 10b eb. 15b eb. 17 End. bal 1,840 End. bal 3,350 Notes Receivable Interest Receivable Beg. bal eb. 1 Beg. bal eb. 29d End. bal End. bal Accounts Payable Unearned Revenue Beg. bal eb. 17 eb. 19a 2,200 Beg. bal eb. 15a 4,800 eb. 27 4.800 End. bal 2,200 End. bal Wages Payable Interest Payable Beg. bal Beg. bal eb. 29a eb. 29c End. bal End. bal Notes Payable Contributed Capital Beg. bal 14,500 Beg. bal 5,900 End. bal 14,500 End. bal 5,900 Retained Earnings Dividends Declared Beg. bal 5,370 Beg. bal eb. 28 End. bal 5,370 End. bal Sales Revenue Sales Returns & Allowances Beg. bal Beg. bal eb. 15d 28,050 Feb. 10a 4,800 Feb. 15a End. bal 32,850 End. bal Sales Discounts Cost of Goods Sold Beg. bal eb. 19b Beg. bal eb. 10b eb. 15b eb. 15c End. bal End. bal Interest Revenue Bad Debt Expense Beg. bal Beg. bal eb. 29b eb. 29d End. bal End. bal Insurance Expense Interest Expense Beg. bal eb. 2 Beg. bal eb. 29c End. bal End. bal Rent Expense Utility Expense Beg. bal eb. 19a Beg. bal eb. 27 End. bal End. bal Wages Expense Beg. bal eb. 16 eb. 29a