Question

Sheridan Company’s balance sheet at December 31, 2021, is presented below.

Sheridan Company Balance Sheet December 31, 2021
Cash		$13,500			Accounts payable		$8,300
Accounts receivable		20,600			Common stock		21,900
Allowance for doubtful accounts		(860)			Retained earnings		12,710
Inventory		9,670
		$42,910					$42,910

During January 2022, the following transactions occurred. Sheridan uses the perpetual inventory method.

Jan. 1		Sheridan accepted a 4-month, 8% note from Betheny Company in payment of Betheny’s $3,600 account.
3		Sheridan wrote off as uncollectible the accounts of Walter Corporation ($400) and Drake Company ($200).
8		Sheridan purchased $18,870 of inventory on account.
11		Sheridan sold for $24,200 on account inventory that cost $15,790.
15		Sheridan sold inventory that cost $760 to Jack Rice for $1,000. Rice charged this amount on his Visa First Bank card. The service fee charged Sheridan by First Bank is 3%.
17		Sheridan collected $20,900 from customers on account.
21		Sheridan paid $15,300 on accounts payable.
24		Sheridan received payment in full ($200) from Drake Company on the account written off on January 3.
27		Sheridan purchased advertising supplies for $1,290 cash.
31		Sheridan paid other operating expenses, $2,940.

Adjustment data:

1.		Interest is recorded for the month on the note from January 1.
2.		Bad debts are expected to be 6% of the January 31, 2022, accounts receivable.
3.		A count of advertising supplies on January 31, 2022, reveals that $610 remains unused.
4.		The income tax rate is 30%. (Hint: Prepare the income statement up to Income before taxes and multiply by 30% to compute the amount; round to whole dollars.)

(You may want to set up T-accounts to determine ending balances.)

Prepare journal entries for the transactions listed above and adjusting entries. (Include entries for cost of goods sold using the perpetual inventory system.) AND Prepare an adjusted trial balance at January 31, 2022. AND Prepare an income statement for the month ending January 31, 2022.

Answer 1

JOURNAL ENTRIES
S. NO.	PARTICULARS	DEBIT	CREDIT
1	8%, RECEIVABLE NOTE	3600
	ACCOUNTS RECEIVABLES		3600
2	ALLOWANCE FOR DOUBTFUL DEBTS	600
	ACCOUNTS RECEIVABLES		600
3	INVENTORY	18870
	ACCOUNTS PAYABLE		18870
4	ACCOUNTS RECEIVABLES	24200
	SALES		24200
5	COST OF GOODS SOLD	15790
	INVENTORY		15790
6	BANK	970
	SALES EXPENSES	30
	SALES		1000
7	COST OF GOODS SOLD	760
	INVENTORY		760
8	BANK	20900
	ACCOUNTS RECEIVABLES		20900
9	ACCOUNTS PAYABLE	15300
	BANK		15300
10	BANK	200
	BAD DEBTS RECOVERED		200
11	ADVERTISING INVENTORY	1290
	BANK		1290
12	OPERATING EXPENSES	2940
	BANK		2940
13	8%, RECEIVABLE NOTE	24
	INTEREST ACCRUED		24
14	BAD DEBTS	1182
	ALLOWANCE FOR DOUBTFUL DEBTS		1182

TRIAL BALANCE
AS ON JANUARY 31, 2022
PARTICULARS	DEBIT	CREDIT
CASH	13500
ACCOUNTS RECEIVABLES	19700
ALLOWANCE FOR DOUBTFUL DEBTS	-1442
8%, RECEIVABLE NOTE	3624
INVENTORY	11990
BANK	2540
SALES EXPENSES	30
OPERATING EXPENSES	2940
ADVERTISING INVENTORY	1290
BAD DEBTS RECOVERED		200
ACCOUNTS PAYABLE		11870
COMMON STOCK		21900
RETAINED EARNINGS		12710
COST OF GOODS SOLD	16550
INTEREST ACCRUED		24
BAD DEBTS	1182
SALES		25200
TOTAL	71904	71904

INCOME STATEMENT
FOR JANUARY, 2022
PARTICULARS	AMOUNT
Sales revenue	$25,200
Interest revenue	$24
BAD DEBTS RECOVERED	$200
Net revenue		25,224
Expenses:
COST OF GOODS SOLD	16550
Selling expenses	$30
OPERATING EXPENSES	2940
ADVERTISING INVENTORY (1290-610)	680
BAD DEBTS	1182
Total expenses		$21,382
Income from continuing operations before income taxes		$3,842
Income tax expense		$1,153
Income from continuing operations		$2,689