Question

Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On December 31, 2019, the firm’s general ledger contained the accounts and balances that follow.

ACCOUNTS AND BALANCES
Cash	$	30,700		Dr.
Accounts Receivable		35,800		Dr.
Allowance for Doubtful Accounts		480		Cr.
Merchandise Inventory		86,600		Dr.
Supplies		11,000		Dr.
Prepaid Insurance		6,120		Dr.
Office Equipment		8,500		Dr.
Accum. Depreciation—Office Equipment		2,710		Cr.
Warehouse Equipment		31,600		Dr.
Accum. Depreciation—Warehouse Equipment		10,800		Cr.
Notes Payable—Bank		35,000		Cr.
Accounts Payable		12,800		Cr.
Interest Payable
Social Security Tax Payable		1,740		Cr.
Medicare Tax Payable		394		Cr.
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Phillip Tucker, Capital		118,418		Cr.
Phillip Tucker, Drawing		59,000		Dr.
Sales		659,778		Cr.
Sales Returns and Allowances		10,600		Dr.
Purchases		353,000		Dr.
Purchases Returns and Allowances		9,800		Cr.
Income Summary
Rent Expense		36,600		Dr.
Telephone Expense		2,800		Dr.
Salaries Expense		166,000		Dr.
Payroll Taxes Expense		13,600		Dr.
Supplies Expense
Insurance Expense
Depreciation Expense—Office Equip.
Depreciation Expense—Warehouse Equip.
Uncollectible Accounts Expense
Interest Expense

   
ADJUSTMENTS

a.–b. Merchandise inventory on December 31, 2019, is $78,600.

During 2019, the firm had net credit sales of $566,000; past experience indicates that 0.50 percent of these sales should result in uncollectible accounts.

On December 31, 2019, an inventory of supplies showed that items costing $1,240 were on hand.

On May 1, 2019, the firm purchased a one-year insurance policy for $6,120.

On January 2, 2017, the firm purchased office equipment for $8,500. At that time, the equipment was estimated to have a useful life of six years and a salvage value of $370.

On January 2, 2017, the firm purchased warehouse equipment for $31,600. At that time, the equipment was estimated to have a useful life of five years and a salvage value of $4,600.

On November 1, 2019, the firm issued a four-month, 12 percent note for $35,000.

On December 31, 2019, the firm owed salaries of $14,000 that will not be paid until 2020.

On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $14,000 of accrued wages.

On December 31, 2019, the firm owed the federal unemployment tax (assume 0.6 percent) and the state unemployment tax (assume 5.4 percent) on the entire $14,000 of accrued wages.

Required:

Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.

Enter the adjustments above in the Adjustments section of the worksheet.

Complete the worksheet.

Analyze:
When the financial statements for Healthy Eating Foods Company are prepared, what net income will be reported for the period ended December 31, 2019?

Answer 1

Particulars Debit Credit
Cash 30700 Accounts Payable 12800 Accounts Receivable 35800 Social Security Tax Payable 1740 Merchandise Inventory 78600 Medicare Tax Payable 394 Supplies 1240 Capital 150437 Insurance 4080 Allowance for Doubtful Accounts 480 Office Equipment 8500 Sales 659778 Warehouse Equipment 31600 Purchases Returns 9800 Drawing 59000 Accumulates Depreciation _ Office Equipment 2710 Notes Payable—Bank 35000 Accumulates Depreciation _ Warehouse Eqipment 10800 Purchases 353000 Uncollected Accounts 2830 Sales returns 9800 Salaries Outstanding 14000 Rent Expense 36600 Outstanding Social Security Tax 868 Telephone Expense 2800 Outstanding Medicare Tax 203 Salaries Expense 166000 Outstanding Federal Unemployment Tax 84 Payroll Taxes Expense 13600 Prepaid Insurance 1360 Outstanding State Unemployment Tax 756 867680 867680