On January 1, 2018, the general ledger of Big Blast Fireworks includes the following account balances:
Accounts Debit Credit
Cash $ 24,300
Accounts Receivable 42,500
Inventory 42,000
Land 79,600
Allowance for Uncollectible Accounts 2,700
Accounts Payable 29,200
Notes Payable (8%, due in 3 years) 42,000
Common Stock 68,000
Retained Earnings 46,500
Totals $ 188,400 $ 188,400
The $42,000 beginning balance of inventory consists of 420 units, each costing $100.
During January 2018, Big Blast Fireworks had the following inventory transactions:
January 3 Purchase 1,050 units for $115,500 on account ($110 each).
January 8 Purchase 1,150 units for $132,250 on account ($115 each).
January 12 Purchase 1,250 units for $150,000 on account ($120 each).
January 15 Return 160 of the units purchased on January 12 because of defects.
January 19 Sell 3,600 units on account for $576,000. The cost of the units sold is determined using a FIFO perpetual inventory system.
January 22 Receive $529,000 from customers on accounts receivable.
January 24 Pay $359,000 to inventory suppliers on accounts payable.
January 27 Write off accounts receivable as uncollectible, $2,100.
January 31 Pay cash for salaries during January, $110,000.
The following information is available on January 31, 2018.
a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.
b. At the end of January, $5,200 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected.
c. Of the remaining accounts receivable, the company estimates that 5% will not be collected.
d. Accrued interest expense on notes payable for January.
1. Record adjusting entries on January 31 for the above transactions.
2. Interest is expected to be paid each December 31. Accrued income taxes at the end of January are $13,500.
3. Prepare an adjusted trial balance as of January 31, 2021.
4. Prepare a multiple-step income statement for the period ended January 31, 2021.
5. Prepare a classified balance sheet as of January 31, 2021.
6. Record closing entries.

Answer:

January 3 Purchase 1,050 units for $115,500 on account ($110 each).

Dr Inventory 115,500

    Cr Accounts payable 115,500

January 8 Purchase 1,150 units for $132,250 on account ($115 each).

Dr Inventory 132,250

    Cr Accounts payable 132,250

January 12 Purchase 1,250 units for $150,000 on account ($120 each).  *110

Dr Inventory 150,000

    Cr Accounts payable 150,000

January 15 Return 160 of the units purchased on January 12 because of defects.

Dr Accounts payable 19,200

    Cr Inventory 19,200

January 19 Sell 3,600 units on account for $576,000. The cost of the units sold is determined using a FIFO perpetual inventory system.

Dr Accounts receivable 576,000

    Cr Sales revenue 576,000

Dr Cost of goods sold 407,350

    Cr Inventory 407,350

January 22 Receive $529,000 from customers on accounts receivable.

Dr Cash 529,000

    Cr Accounts receivable 529,000

January 24 Pay $359,000 to inventory suppliers on accounts payable.

Dr Accounts payable 359,000

    Cr Cash 359,000

January 27 Write off accounts receivable as uncollectible, $2,100.

Dr Bad debt expense 2,100

    Cr Allowance for uncollectible accounts 2,100

January 31 Pay cash for salaries during January, $110,000.

Dr Wages expense 110,000

    Cr Cash 110,000

a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.

Dr Cost of goods sold [110 units x ($120 - $100)] 2,200

    Cr Inventory 2,200

b. At the end of January, $5,200 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected.

Dr Bad debt expense 1,560

    Cr Allowance for uncollectible accounts 1,560

c. Of the remaining accounts receivable, the company estimates that 5% will not be collected.

Dr Bad debt expense 3,975

    Cr Allowance for uncollectible accounts 3,975

d. Accrued interest expense on notes payable for January.

Dr Interest expense 280

    Cr interest payable 280

Accrued income taxes at the end of January are $13,500.

Dr Income taxes expense 13,500

    Cr Income taxes payable 13,500

                                                                  debit            credit

Cash                                                     $84,300

Accounts Receivable                          $89,500

Inventory                                              $11,000

Land                                                     $79,600

Allowance for Uncollectible Acc.                               $10,335

Accounts Payable                                                       $48,750

Interest payable                                                             $280

Income taxes payable                                                $13,500

Notes Payable                                                            $42,000

Common Stock                                                           $68,000

Retained Earnings                                                      $46,500

Sales revenue                                                          $576,000

Cost of goods sold                             $409,550

Wages expense                                   $110,000

Bad debt expense                                  $7,635

Interest expense                                       $280

Income taxes expense                         $13,500                            

Totals                                                  $805,365        $805,365

Sales revenue                                    $576,000

COGS                                                ($409,550)

Gross profit                                         $166,450

Operating expenses:

Operating profit (EBIT)                        $48,815

Interest expense                                    ($280)

Income taxes expense                     ($13,500)

Net income                                         $35,035

Dr Sales revenue 576,000

    Cr Income summary 576,000

Dr Income summary 540,965

    Cr Cost of goods sold 409,550

    Cr Wages expense 110,000

    Cr Bad debt expense 7,635

    Cr Interest expense 280

    Cr Income taxes expense 13,500  

Dr Income summary 35,035

    Cr Retained earnings 35,035

Assets:

Current assets

Cash                                          $84,300

Accounts Receivable, net         $79,165

Inventory                                    $11,000

Total current assets                                    $174,465

Property, plant and equip.

Land                                         $79,600

Total P, P & E                                               $79,600

Total assets                                                                      $254,065

Liabilities:

Current liabilities

Accounts Payable                    $48,750

Interest payable                            $280

Income taxes payable              $13,500

Total current liabilities                                 $62,530

Long term liabilities:

Notes Payable                         $42,000

Total long term liabilities                            $42,000

Stockholders' equity:

Common Stock                       $68,000

Retained Earnings                    $81,535

Total stockholder's equity                         $149,535

Total liabilities + stockholders' equity                           $254,065

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Accounts Receivable 17,100
Accumulated Depreciation—Equipment 68,000
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Common Stock 35,000
Cost of Goods Sold 609,960
Freight-Out 6,440
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Depreciation Expense 13,700
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Prepaid Insurance 6,000
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Rent Expense 34,000
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Customer return processing Kilowatt hours used
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Human resources Number of customers
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Machine depreciation Number of employees
Materials handling Number of inspections
Order shipping Number of inventory transactions
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Production control Number of material moves
Production setup Number of payroll checks processed
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Quality control Number of purchase orders
Sales order processing Number of sales orders
Number of setups

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Hours of press time 30,000 60,000 90,000
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