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	$	30,600		Dr.
Accounts Receivable		35,700		Dr.
Allowance for Doubtful Accounts		470		Cr.
Merchandise Inventory		86,500		Dr.
Supplies		10,900		Dr.
Prepaid Insurance		6,000		Dr.
Office Equipment		9,800		Dr.
Accum. Depreciation—Office Equipment		2,700		Cr.
Warehouse Equipment		36,300		Dr.
Accum. Depreciation—Warehouse Equipment		10,600		Cr.
Notes Payable—Bank		34,500		Cr.
Accounts Payable		12,700		Cr.
Interest Payable
Social Security Tax Payable		1,730		Cr.
Medicare Tax Payable		393		Cr.
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Phillip Tucker, Capital		123,429		Cr.
Phillip Tucker, Drawing		58,500		Dr.
Sales		658,778		Cr.
Sales Returns and Allowances		10,500		Dr.
Purchases		352,500		Dr.
Purchases Returns and Allowances		9,700		Cr.
Income Summary
Rent Expense		36,500		Dr.
Telephone Expense		2,700		Dr.
Salaries Expense		165,000		Dr.
Payroll Taxes Expense		13,500		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 $78,500.

3. During 2019, the firm had net credit sales of $565,000; past experience indicates that 0.50 percent of these sales should result in uncollectible accounts.
4. On December 31, 2019, an inventory of supplies showed that items costing $1,230 were on hand.
5. On May 1, 2019, the firm purchased a one-year insurance policy for $6,000.
6. On January 2, 2017, the firm purchased office equipment for $9,800. At that time, the equipment was estimated to have a useful life of seven years and a salvage value of $350.
7. On January 2, 2017, the firm purchased warehouse equipment for $36,300. At that time, the equipment was estimated to have a useful life of six years and a salvage value of $4,500.
8. On November 1, 2019, the firm issued a four-month, 10 percent note for $34,500.
9. On December 31, 2019, the firm owed salaries of $12,000 that will not be paid until 2020.
10. 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 $12,000 of accrued wages.
11. 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 $12,000 of accrued wages.

Required:

1. Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.
2. Enter the adjustments above in the Adjustments section of the worksheet.
3. 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

SOLUTION;-

Adjusting Entries:
Date	Account	Debit	Credit
a	Income Summary	$      78,500
	Merchandise Inventory		$      78,500
b	Merchandise Inventory	$      86,500
	Income Summary		$      86,500
c	Uncollectible Expense	$        2,825
	Allowance for Doubtful Accounts		$        2,825
d	Supplies Expense	$        9,670		10900-1230
	Supplies		$        9,670
e	Insurance Expense	$        4,000		6000/12*8
	Prepaid Insurance		$        4,000
f	Depreciation Expense-Office Equipment	$        1,350		(9800-350)/7
	Accumulated Depreciation-Office Equipment		$        1,350
g	Depreciation Expense-Warehous Equip	$        5,300		(36300-4500)/6
	Accumulated Depreciation-Warehouse Equip		$        5,300
h	Interest Expense	$           575		34500*10%*2/12
	Interest Payable		$           575
i	Salaries Expense	$      12,000
	Salaries Payable		$      12,000
j	Payroll Tax Expense	$           918
	Social Security Tax Payable		$           744
	Medicare Tax Payable		$           174
k	Payroll Tax Expense	$           720
	Federal Unemployment Tax Payable		$              72
	State Unemployment Tax Payable		$           648

	Unadjusted		Adjustments		Adjusted		Income Statement		Balance Sheet
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$ 30,600				$ 30,600				$ 30,600
Accounts Receivable	$ 35,700				$ 35,700				$ 35,700
Allowance for Doubtful Accounts		$        470		$    2,825		$    3,295				$    3,295
Merchandise Inventory	$ 86,500		$ 86,500	$ 78,500	$ 94,500				$ 94,500
Supplies	$ 10,900			$    9,670	$    1,230				$    1,230
Prepaid Insurance	$    6,000			$    4,000	$    2,000				$    2,000
Office Equipment	$    9,800				$    9,800				$    9,800
Accumulated Depreciation—Office Equipment		$    2,700		$    1,350		$    4,050				$    4,050
Warehouse Equipment	$ 36,300			$    5,300	$ 31,000				$ 31,000
Accumulated Depreciation—warehouse Equip		$ 10,600				$ 10,600				$ 10,600
Note Payable		$ 34,500				$ 34,500				$ 34,500
Accounts Payable		$ 12,700				$ 12,700				$ 12,700
Interest Payable				$       575		$       575				$       575
Social Security Tax Payable		$    1,730		$       744		$    2,474				$    2,474
Medicare Tax Payable		$        393		$       174		$       567				$       567
Federal Unemployment Tax Payable				$         72		$         72				$         72
State Unemployment Tax Payable				$       648		$       648				$       648
Salaries Payable				$ 12,000		$ 12,000				$ 12,000
Philip Tucker, Capital		$123,429				$123,429				$123,429
Philip Tucker, Drawing	$ 58,500				$ 58,500				$ 58,500
Sales		$658,778				$658,778		$658,778
Sales Returns and Allowances	$ 10,500				$ 10,500		$ 10,500
Purchases	$352,500				$352,500		$352,500
Purchases Returns and Allowances		$    9,700				$    9,700		$    9,700
Rent Expense	$ 36,500				$ 36,500		$ 36,500
Telephone Expense	$    2,700				$    2,700		$    2,700
Salaries Expense	$165,000		$ 12,000		$177,000		$177,000
Payroll Taxes Expense	$ 13,500		$    1,638		$ 15,138		$ 15,138
Income Summary			$ 78,500	$ 86,500		$    8,000		$    8,000
Supplies Expense			$    9,670		$    9,670		$    9,670
Insurance Expense			$    4,000		$    4,000		$    4,000
Depreciation Expense—Office Equipment			$    1,350		$    1,350		$    1,350
Depreciation Expense—warehouse Equipment			$    5,300		$    5,300		$    5,300
Uncollectible Accounts Expense			$    2,825		$    2,825		$    2,825
Inerest Expense			$       575		$       575		$       575
Total	$855,000	$855,000	$202,358	$202,358	$881,388	$881,388	$618,058	$676,478	$263,330	$204,910
Net Income							$ 58,420			$ 58,420
Total							$676,478	$676,478	$263,330	$263,330

Net Income

$ 58,420

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