Reference no: EM131874865

Project - Review of Merchandising Cycle

Introduction - Wally's 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. The statements report monthly results for the period February 1-29, 2012.

Pertinent items of general information:

Beginning Balances from 1/31/12

• WWC establishes a policy that it will sell inventory at $145 per unit.
• In January, WWC received a $4,350 advance for 30 units, as reflected in Unearned Revenue.
• WWC's February 1 inventory balance consisted of 35 units at a total cost of $2,800.
• 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 $1,500 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot 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 10% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.

02/02 WWC paid a $500 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 $9,000 - terms 2/15, n30.

02/05 WWC paid Federal Express $300 to have the 150 units of inventory delivered overnight. Delivery occurred on 02/06.

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.

02/15 The 30 units that were paid for in advance and recorded in January are delivered to the customer.

02/15 15 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 $2,200.

02/17 Paid in full the amount owed for the 2/05 purchase of inventory.

02/18 Wrote off a customer's account in the amount of $1,000.

02/19 $2,600 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 $8,000 of customers' Accounts Receivable. Of the $8,000, the discount was taken by customers on $5,000 of account balances, therefore WWC received less than $8,000.

02/26 WWC recovered $400 cash from the customer whose account had previously been written off (see 02/18).

02/27 A $500 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.

02/29 (adjusting 1) Record the $2,200 employee salary that is owed but will be paid March 1.

02/29 (adjusting 2) WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending accounts receivable balance is the appropriate end of February estimate of uncollectible accounts. (Round to the nearest dollar) (Note you will need to post before you can do this adjustment.)

02/29 (adjusting 3) Record February interest expense accrued on the note payable.

02/29 (adjusting 4) Record one month's interest earned Kit Kat's note (see 02/01)

All work must be WRITTEN. No credit will be given for computer generated projects.

REQUIREMENT 1 -

A. Prepare all February journal entries and adjusting entries. Use Attachment A to record the entries.

B. Post all February entries (transactions and adjustments) to the T-accounts provided in Attachment B.

C. Prepare the financial statements at the end of February, 2008 using the formats in Attachment C.

REQUIREMENT 2 -

A. Prepare all February 29 closing entries for WWC in the journal entry space below. Post to T-accounts.

B. Complete the calculations below.

1) What is the WWC's gross profit for February?

2) What is the gross profit percentage?

3) What were WWC's net sales for February?

4) If WWC had chosen to use the percentage of sales method, taking 2% of sales, instead of using the aging method, WWC would have reported $ ________________ of bad debt expense for February and a net Accounts Receivable of _____________________.

5) How many units are in ending inventory?

6) What is the cost per unit of the ending inventory?

7) If WWC had chosen LIFO, calculate its February cost of goods sold.

Attachment:- Assignment File.rar