Question

Cash	$	21,020		Unearned Revenue (35 units)	$	5,150
Accounts Receivable	$	12,050		Accounts Payable (Jan Rent)	$	2,900
Allowance for Doubtful Accounts	$	(1,700)		Notes Payable	$	14,000
Inventory (40 units)	$	3,400		Contributed Capital	$	6,600
				Retained Earnings – Feb 1, 2012	$	6,120

•	WWC establishes a policy that it will sell inventory at $150 per unit.
•	In January, WWC received a $5,150 advance for 35 units, as reflected in Unearned Revenue.
•	WWC’s February 1 inventory balance consisted of 40 units at a total cost of $3,400.
•	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.

February Transactions
02/01	Included in WWC’s 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 9% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
02/02	WWC paid a $850 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
02/05	An additional 200 units of inventory are purchased on account by WWC for $15,000 – terms 2/15, n30.
02/05	WWC paid Federal Express $600 to have the 200 units of inventory delivered overnight. Delivery occurred on 02/06.
02/10	Sales of 170 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	30 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 $2,400.
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 customer’s account in the amount of $1,800.
02/19	$5,800 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 $9,600 of customers’ Accounts Receivable. Of the $9,600, the discount was taken by customers on $7,000 of account balances; therefore WWC received less than $9,600.
02/26	WWC recovered $560 cash from the customer whose account had previously been written off (see 02/18).
02/27	A $750 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28	WWC declared and paid a $600 cash dividend.

Adjusting Entries:

02/29

Record the $2,400 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 month’s interest earned Kit Kat’s note (see 02/01)

	PREPARE AN INCOME STATEMENT

Answer 1