Question

Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)

[The following information applies to the questions displayed below.]
  
On January 1, Year 1, the general ledger of a company includes the following account balances:
  

Accounts	Debit				Credit
Cash	$	59,800
Accounts Receivable		27,200
Allowance for Uncollectible Accounts					$	3,300
Inventory		37,400
Notes Receivable (5%, due in 2 years)		25,200
Land		166,000
Accounts Payable						15,900
Common Stock						231,000
Retained Earnings						65,400
Totals	$	315,600			$	315,600

  
During January Year 1, the following transactions occur:
  

January		1		Purchase equipment for $20,600. The company estimates a residual value of $2,600 and a five-year service life.
January		4		Pay cash on accounts payable, $10,600.
January		8		Purchase additional inventory on account, $93,900.
January		15		Receive cash on accounts receivable, $23,100.
January		19		Pay cash for salaries, $30,900.
January		28		Pay cash for January utilities, $17,600.
January		30		Sales for January total $231,000. All of these sales are on account. The cost of the units sold is $120,500.

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 $4,100 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 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest revenue on notes receivable for January.
4. Unpaid salaries at the end of January are $33,700.
5. Accrued income taxes at the end of January are $10,100.

rev: 11_22_2018_QC_CS-148298, 06_13_2019_QC_CS-170054

Exercise 7-21B Part 2

2. Record the adjusting entries on January 31 for the above transactions. (If no entry is required for a particular transaction/event, select particular "No Journal Entry Required" in the first account field.)  

Answer 1

2. Adjusting Entries
No	Date	Account Titles and Explanation	Debit	Credit
a)	Jan. 31	Depreciation Expense ($20,600 - $2,600 = $18,000/5 years*1/12 months)	$300
		Accumulated Depreciation - Equipment		$300
		(To record the depreciation on the equipment for month of January)
b)	Jan. 31	Bad Debts (see working note)	$5,680
		Allowance for Uncollectible Accounts		$5,680
		(To record the estimation of uncollectible accounts)
c)	Jan. 31	Interest Receivable	$105
		Interest Revenue ($25,200*5/100*1/12 months)		$105
		(To record the interest revenue on the notes receivable for January)
d)	Jan. 31	Salaries Expense	$33,700
		Salaries Payable		$33,700
		(To record the salaries payable)
e)	Jan. 31	Income Tax Expense	$10,100
		Income Tax Payable		$10,100
		(To record the income tax expense accrued)
		Working notes:
		Accounts Receivable:
		Beginning balance	$27,200
		Less: Collection of cash on accounts	($23,100)
		Add: Credit sales	$231,000
		Ending balance	$235,100
		Uncollectible accounts ($4,100*50/100)	$2,050
		Uncollectible accounts in remaining accounts receivable ($235,100 - $4,100 = $231,000*3/100)	$6,930
		Total estimated uncollectible accounts	$8,980
		Less: Credit balance in allowance for uncollectible accounts	($3,300)
		Bad Debts	$5,680