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 Inventory (45 units) $19,220 Unearned Revenue (40 units) $ 4,550 $10,250 Accounts Payable (Jan Rent) $ 1700 $ (1.100) Notes Payable $ 15.500 $5,400 $ 3.600 Contributed Capital Retained Earnings - Feb 1 2012 4 ,820 Wwd establishes a policy that it will sell inventory at $175 per unit. in January. WwC received a $4,550 advance for 40 units as reflected in Unearned Revenue WWC's February 1 inventory balance consisted of 45 units at a total cost of $3.600. Wwc's note payable accrues interest at a 12 annual rate ww will use the FIFO Inventory method and record COGS on a perpetual basis. WWC will use the FIFO inventory method and record COGS on a perpetual basis. February Transactions Included in WWC's February 1 Accounts Receivable balance is a $1,900 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and 02/01 4 cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,900 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. WWc paid a $700 insurance premium covering the month of February. The amount paid is recorded directly as an expense. 02/05 02/05 An additional 150 units of inventory are purchased on account by WwC for $9.000 - terms 2/15, n30. 02/05 WWC paid Federal Express $600 to have the 150 units of inventory delivered overnight. Delivery occurred on 02/06. 020 Sales of 120 units of inventory occurred during the period of 02/07 - 02/10. The sales terms are 2/10, net 30. 2. The 40 units that were paid for in advance and recorded in January are delivered to the customer 25 units of the inventory that had been sold on 2/10 are returned to WWC. The 02/15 units are not damaged and can be resold. Therefore, they are returned to Inventory. Assume the units retumed are from the 205 purchase 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,600. Paid in full the amount owed for the 2:05 purchase of inventory WwC records 217 hirchase Hermints in the current and rather than t radition of inventar 02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,600. Paid in full the amount owed for the 2/05 purchase of inventory. WWC records 02/17 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 $1,200. 20 $3,400 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. Collected $8,400 of customers' Accounts Receivable. Of the $8,400, the 02/19 discount was taken by customers on $5.500 of account balances, therefore WWC received less than $8,400. 02/26 26 WWC recovered $440 cash from the customer whose account had previously - been written off (see 02/18). 02/27 A $700 utility bill for February arrived. It is due on March 15 and will be paid then 02/28 WWC declared and paid a $400 cash dividend. Adjusting Entries: 02/29 Record the $2,600 employee salary that is owed but will be paid March 1 WWC decides to use the aging method to estimate uncollectible accounts. WWC es 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). OCX Feb. 10a 21,000 Accounts Receivable Sales Revenue 21,000 6 Feb. 10b 8,310 Cost of Goods Sold Inventory 8,310 X 7 Feb. 15a Unearned Revenue Sales Revenue 4,550 4,550 Feb. 15b Cost of Goods Sold Inventory 2,512 2.5123 Feb 150 4.375 Sales Returns and Allowance Accounts Receivable 4.375 X Feb. 15c 4,375 Sales Returns and Allowance Accounts Receivable 4,375 X Feb. 15d 1,570 Inventory Cost of Goods Sold 1,570 Feb. 16 2,600 Wages Expense Cash 2,600 Feb. 17 9,000 Accounts Payable Cash Sales Discounts 8,820 180 Feb. 18 1,200 Allowance for Doubtful Accounts Accounts Receivable 1,200 @ RO 5 CX 13 Feb 18 1,200 Allowance for Doubtful Accounts Accounts Receivable 1,200 14 Feb. 19a Cash Sales Discounts 8,290 110 Accounts Receivable 8,400 Feb. 19b Cash Sales Discounts Accounts Receivable 8,290 110 8,400 16 Feb. 26a 440 Accounts Receivable Allowance for Doubtful Accounts 440 Feb 26b Cash Accounts Receivable 440 440 5 CX Feb 27 700 Utility Expense Accounts Payable 700 Feb 28 400 Dividends Declared Cash 400 Feb. 29a 2.600 Wages Expense Wages Payable 2,600 Feb. 29b 3,090 Bad Debt Expense Allowance for Doubtful Accounts 3,090 X Feb. 29c Interest Expense Interest Payable 155 155 Feb. 290 Interest Receivable Interest Revenue 5 CX SP w 1-b. Post all February entries (transactions and adjustments) to the T-accounts. Accounts Receivable Beg bal. Beg. bal. End bal End bal Inventory Allowance for Doubtful Accounts Beg bal Beg bal End, bal End, bal Notes Receivable Interest Receivable Beg bal. Beg bal. End, bal. End bal Accounts Payable Unearned Revenue Beg bal Beg bal. End bal Wages Payable Interest Payable 15 CX Wages Payable Interest Payable Beg. bal. Beg. bal. End, bal End bal. Notes Payable Contributed Capital Beg. bal. Beg bal. End bal. End bal. Retained Earnings Dividends Declared Beg bal Beg bal End. bal End. bal Retained Earnings Dividends Declared Beg. bal. Beg bal. End. bal End bal Sales Revenue Sales Returns & Allowances Beg bal. Beg bal End bal End bal Sales Discounts Cost of Goods Sold Beg bal Beg bal End, bal End, bal. Sales Discounts Cost of Goods Sold Beg. bal. Beg bal. End. bal. End, bal Interest Revenue Bad Debt Expense Beg bal Beg bal. End bal End bal Insurance Expense Interest Expense X Insurance Expense Interest Expense Beg. bal. Beg. bal. End bal End, bal. Rent Expense Utility Expense Beg bal. Beg bal. End bal End bal Wages Expense Beg bal . 5c X