Question

On January 1, 2018, the general ledger of TNT Fireworks includes the following account balances:
  

Accounts	Debit			Credit
Cash	$	59,200
Accounts Receivable		26,000
Allowance for Uncollectible Accounts					2,700
Inventory		36,800
Notes Receivable (5%, due in 2 years)		18,000
Land		160,000
Accounts Payable					15,300
Common Stock					225,000
Retained Earning					57,000
Totals	$	300,000		$	300,000

  
During January 2018, the following transactions occur:
  
January 1. Purchase equipment for $20,000. The company estimates a residual value of $2,000 and a four-year service life.
January 4. Pay cash on accounts payable, $10,000.
January 8. Purchase additional inventory on account, $87,900.
January 15. Receive cash on accounts receivable, $22,500
January 19. Pay cash for salaries, $30,300.
January 28. Pay cash for January utilities, $17,000.
January 30. Firework sales for January total $225,000. All of these sales are on account. The cost of the units sold is $117,500.

Information for adjusting entries:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method.
2. The company estimates future uncollectible accounts. The company determines $3,500 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 2% of these accounts are estimated to be uncollectible. The note receivable of $18,000 is considered fully collectible and therefore is not included in the estimate of uncollectible accounts.
3. Accrued interest revenue on notes receivable for January.
4. Unpaid salaries at the end of January are $33,100.
5. Accrued income taxes at the end of January are $9,500
  

Question: Record the adjusting entries on January 31 for the above transactions.

Answer 1

			In the books of TNT Fireworks
			Journal Entries
Date	Account title and explanation					Debit	Credit
2018
Jan-31	Depreciation					375
		Accumulated Depreciation					375
		(20,000-2,000/4) = 4,500
		(for one month 4,500/12)
	(To record depreciation on equipment)
Jan-31	Bad Debt Expense					3,550
		Allowance for doubtful Accounts					3,550
	(To record bad debt expense for the month of January)
Jan-31	Accrued Interest (18,000*5%*1/12)					75
		Interest Income					75
	(To record accrued interest on note receivable)
Jan-31	Salaries					33,100
		Salaries Payable					33,100
	(To record unpaid salaries for the month)
Jan-31	Income Tax					9,500
		Tax Payable					9,500
	(To record income tax payable for the month of January)
Note -1
	Balance of accounts receivable at the end of January
	Opening Balance					26,000
Less	Amount collected					-22,500
Add	Sales for the month					2,25,000
Less	Past due					-3,500
	Balance of accounts receivable					2,25,000
	Balance of allowance for doubtful accounts
	2% of balance of accounts receivable (225,000*2%)					4,500
	50% of past due (3500*50%)					1,750
	Total balance of allowance for doubtful accounts					6,250
Less	Opening Balance					-2,700
	Bad debt expense for the month of January					3,550