Question: Introduction:
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:
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Account Title
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Dr
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Cr
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Cash
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21,170
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Accounts Receivable
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12,200
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Allowance for Doubtful Accounts
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1,750
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Inventory (45 units)
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3,825
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Unearned Revenue (40 units)
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5,200
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Accounts Payable (Jan Rent)
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3,000
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Notes Payable
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14,500
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Contributed Capital
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6,700
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Retained Earnings - Feb 1, 2012
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6,045
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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).
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WWW, Inc.
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Balance Sheet
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At February 29
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Assets
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Liabilities
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Current Assets
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Current Liabilities
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Cash
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Accounts Payable
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Accounts Receivable
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Wages Payable
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Allowance for Doubtful Accounts
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Interest Payable
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Inventory
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Notes Receivable
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Interest Receivable
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Total Current Assets
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Total Current Liabilities
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Notes Payable
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Total liabilities
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Stockholders' Equity
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Contributed Capital
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Retained Earnings
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Total Stockholders' Equity
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Total Assets
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Total Liabilities and Stockholders' Equity
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