Wills Widget Company WWC incorporated near the end of 2017 O

Will’s Widget Company (WWC) incorporated near the end of 2017. Operations began in January of 2018. 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:

Account Title

Dr

Cr

  Cash

21,170

Accounts Receivable

12,200

Allowance for Doubtful Accounts

1,750

Inventory (45 units)

3,825

Unearned Revenue (40 units)

5,200

Accounts Payable (Jan Rent)

3,000

Notes Payable

14,500

Contributed Capital

6,700  

Retained Earnings – Feb 1, 2012

6,045

Additional Information you need to know about WWC:

•

WWC establishes a policy that it will sell inventory at $165 per unit.

•

In January, WWC received a $5,200 advance for 40 units, as reflected in Unearned Revenue.

•

WWC’s February 1 inventory balance consisted of 45 units at a total cost of $3,825.

•

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.

Below are transactions for February 2018:

Record Journal Entries for following transactions:

02/01

Included in WWC’s 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 9% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.

02/02

WWC paid a $900 insurance premium covering the month of February. The amount paid is recorded directly as an expense.

02/05

An additional 150 units of inventory are purchased on account by WWC for $11,250 – terms 2/15, n30.

02/05

WWC paid Federal Express $450 to have the 150 units of inventory delivered overnight. Delivery occurred on 02/06. (Hint--Recall company uses perpetual inventory system, record transportation fees as part of inventory costs—debit to inventory)

02/10

Sales of 120 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30. (Hint --Recall company follows FIFO. What are the COGS of 120 sold units?)

02/15

The 40 units that were paid for in advance and recorded in January are delivered to the customer. (Hint --Recall WWC follows FIFO. What are the COGS of 40 sold units?)

02/15

10 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 $2,500.

02/17

Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts as a reduction of inventory costs (credit to inventory).

02/18

Wrote off a customer’s account in the amount of $1,850.

02/19

$6,000 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 $9,700 of customers’ Accounts Receivable. Of the $9,700, the discount was taken by customers on $6,500 of account balances; therefore WWC received less than $9,700.

02/26

WWC recovered $570 cash from the customer whose account had previously been written off (see 02/18).

02/27

A $800 utility bill for February arrived. It is due on March 15 and will be paid then.

02/28

WWC declared and paid a $650 cash dividend.

Record Adjusting Entries:

02/29

Record the $2,500 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 estimates the bad debts expenses for this month is $568.

02/29

Record February interest expense accrued on the note payable (Hint—Recall company’s note payable accrues interest at a 12% annual rate and Note payable is $14,500)

02/29

Record one month’s interest earned Kit Kat’s note (see transaction on 02/01).

1. Prepare all February journal entries and adjusting entries

Date

General Journal

Debit

Credit

Feb. 1

Feb. 2

Feb. 5

Feb. 6

Feb. 10a

Record Sales Revenue of 120 sold units

Feb. 10b

Record COGS of 120 sold units

Feb. 15a

Record Sales Revenue of 40 sold units

Feb. 15b

Record COGS of 40 sold units

Feb. 15c

Record Returned 10 units (Inventory)

Feb. 15d

Record Returned 10 units (Sales Returns and Allowance)

Feb. 16

Feb. 17

Feb. 18

Feb. 19a

Record Rent Payment

Feb. 19b

Record Sales discount

Feb. 26a

Feb. 26b

Feb. 27

Feb. 28

AJE:

Feb. 29a

Record Wages

Feb. 29b

Record Bad Debts

Feb. 29c

Record Interests (on N/P)

Feb. 29d

Record Interests (on N/R)

2.

Prepare the financial statements at the end of February.

WWC, Inc.

Income Statement

For the Month Ended February 29

Revenues

Sales Revenue

Less: Sales Returns and Allowances

Less: Sales Discounts

Net Sales

Cost of Goods Sold

Gross Profit

Expenses

Wages Expense

Utility Expense

Bad Debt Expense

Insurance Expense

Rent Expense

Interest Expense

Total Expenses

Interest Revenue

Net Income

WWC, Inc.

Statement of Retained Earnings

For the Month Ended February 29

Retained Earnings, Beginning of Period

Add: Net Income

Less: Dividends

Retained Earnings, End of Period

WWW, Inc.

Balance Sheet

At February 29

Assets

Liabilities

Current Assets

Current Liabilities

Cash

Accounts Payable

Accounts Receivable

Wages Payable

Allowance for Doubtful Accounts

Interest Payable

Inventory

Notes Receivable

Interest Receivable

Total Current Assets

Total Current Liabilities

Notes Payable

Total liabilities

Stockholders\' Equity

Contributed Capital

Retained Earnings

Total Stockholders\' Equity

Total Assets

Total Liabilities and Stockholders\' Equity

Will’s Widget Company (WWC) incorporated near the end of 2017. Operations began in January of 2018. 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:

Solution

1. Prepare all February journal entries and adjusting entries Date General Journal Debit Credit Feb. 1 Accounts Payable account 1500 Note payable account 1500 Feb. 2 Insurance Premium Account 900 Profit and Loss Account 900 Feb. 5 Purchases acount 11250 Accounts Payable Account 11250 Feb. 6 Freight Account 450 Cash account 450 Feb. 10a COGS for 120 units = (45*85) +(75*76.5) = 9562.5 Record Sales Revenue of 120 sold units Accounts Receivables account 19800 Sales (165*120) 19800 Feb. 10b COGS account 9562.5 Record COGS of 120 sold units Profit on sales 10237.5 Sales account 19800 Feb. 15a Cost of the 40 units = $85 Per unit Record Sales Revenue of 40 sold units Sales revenue = 40 units * $ 165 = $6600 Feb. 15b Record COGS of 40 sold units COGS of 40 units = 40 units * $ 85 = $3400 Feb. 15c Record Returned 10 units (Inventory) Sales 1650 Accounts Receivables account 1650 Feb. 15d Record Returned 10 units (Sales Returns and Allowance) sales returns 765 Inventory account 765 Feb. 16 Wages 2500 Profit and loss account 2500 Feb. 17 Accounts payable 11025 Cash 11025 Feb. 18 Bad debts written off 1850 Accounts receivable 1850 Feb. 19a Record Rent Payment Rent 6000 Profit and loss account 6000 Feb. 19b Record Sales discount Discount 6500 Cash 3200 Accounts receivable 9700 Feb. 26a Cash 570 Bad debts written off 570 Feb. 26b Feb. 27 Utility 800 Outstanding Utility 800 Feb. 28 Dividend 650 Cash 650 AJE: Feb. 29a Profit and loss 2500 Record Wages Outstanding Wages 2500 Feb. 29b Profit and losss 568 Record Bad Debts Provision for bad debts 568 Feb. 29c Record Interests (on N/P) 145 145 Feb. 29d Interest income accrued 11.25 Record Interests (on N/R) Kit kat accou t 11.25