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:

Cash $19,820

Unearned Revenue (35 units):$750

Accounts Receivable: $10,850

Accounts Payable (Jan Rent): $2,100

Allowance for Doubtful Accounts: $(1,300)

Notes Payable:$14,000

Inventory (40 units):$2,800

Contributed Capital:$5,800

Retained Earnings Feb 1, 2012 $:5,520

WWC establishes a policy that it will sell inventory at $150 per unit.

In January, WWC received a $4,750 advance for 35 units, as reflected in Unearned Revenue.

WWCs February 1 inventory balance consisted of 40 units at a total cost of $2,800.

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 $1,400 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 $450 insurance premium covering the month of February. The amount paid is recorded directly as an expense. 02/05 An additional 190 units of inventory are purchased on account by WWC for $14,250 terms 2/15, n30.

02/05 WWC paid Federal Express $380 to have the 190 units of inventory delivered overnight. Delivery occurred on 02/06.

02/10 Sales of 160 units of inventory occurred during the period of 02/07 02/10. The sales terms are 2/10, net 30.

02/15 The 35 units that were paid for in advance and recorded in January are delivered to the customer.

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 $3,000.

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 $1,400. 02/19 $4,200 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 $8,800 of customers Accounts Receivable. Of the $8,800, the discount was taken by customers on $4,500 of account balances; therefore WWC received less than $8,800. 02/26 WWC recovered $480 cash from the customer whose account had previously been written off (see 02/18).

02/27 A $900 utility bill for February arrived. It is due on March 15 and will be paid then.

02/28 WWC declared and paid a $800 cash dividend.

Adjusting Entries:

02/29 Record the $3,000 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 months interest earned Kit Kats note (see 02/01).

Journal Entry Questions:

Feb. 1 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 $1,400 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.

Feb. 2 WWC paid a $450 insurance premium covering the month of February. The amount paid is recorded directly as an expense.

Feb. 5 An additional 190 units of inventory are purchased on account by WWC for $14,250 terms 2/15, n30.

Feb. 6 WWC paid Federal Express $380 to have the 190 units of inventory delivered overnight. Delivery occurred on 02/06.

Feb. 10a Record the sales of 160 units of inventory.

Feb. 10b Record the cost of goods sold for 160 units.

Feb. 15a Record the unearned revenue for 35 units paid in advance.

Feb. 15b Record the cost of goods sold for 35 units.

Feb. 15c Record the 25 units of inventory returned

Feb. 15d Record the sales return and allowance.

Feb. 16 WWC pays the first 2 weeks wages to the employees. The total paid is $3,000.

Feb. 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.

Feb. 18 Wrote off a customers account in the amount of $1,400.

Feb. 19a $4,200 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.

Feb. 19b Collected $8,800 of customers Accounts Receivable. Of the $8,800, the discount was taken by customers on $4,500 of account balances; therefore WWC received less than $8,800.

Feb. 26a Record the entry to reversal of allowance for doubtful accounts. Feb. 26b Record the entry to recovered $480 cash from the customer.

Feb. 27 A $900 utility bill for February arrived. It is due on March 15 and will be paid then.

Feb. 28 WWC declared and paid a $800 cash dividend.

Feb. 29a Record the $3,000 employee salary that is owed but will be paid March 1.

Feb. 29b 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.

Feb. 29c Record February interest expense accrued on the note payable.

Feb. 29d Record one months interest earned Kit Kats note (see 02/01).