Question

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

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On January 1, Year 1, the general ledger of a company includes the following account balances:
  

Accounts	Debit				Credit
Cash	$	59,100
Accounts Receivable		25,800
Allowance for Uncollectible Accounts					$	2,600
Inventory		36,700
Notes Receivable (5%, due in 2 years)		16,800
Land		159,000
Accounts Payable						15,200
Common Stock						224,000
Retained Earnings						55,600
Totals	$	297,400			$	297,400

  
During January Year 1, the following transactions occur:
  

January		1		Purchase equipment for $19,900. The company estimates a residual value of $1,900 and a five-year service life.
January		4		Pay cash on accounts payable, $9,900.
January		8		Purchase additional inventory on account, $86,900.
January		15		Receive cash on accounts receivable, $22,400.
January		19		Pay cash for salaries, $30,200.
January		28		Pay cash for January utilities, $16,900.
January		30		Sales for January total $224,000. All of these sales are on account. The cost of the units sold is $117,000.

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 $3,400 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 $33,000.
5. Accrued income taxes at the end of January are $9,400.

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

Balance of Accounts receivable
Beginning balance of AR		25800
Add: Sales			224000
Less: Collection			-22400
Balance of AR			227400
Required balance of Allowance (3400*50% + 224000*3%): $8420
Adjusting entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Depreciation expense (19900-1900)/5*1/12	300
	Accumulated depreciation-Equipment		300
	(for depreciation charged)
b.	Bad debts expense (8420-2600)		5820
	Allowance for uncollectible account		5820
	(for bad debt expense)
c.	Interest receivable (16800*5%*1/12)	70
	Interest revenue				70
	(for interest accrued)
d.	Salaries and Wages expense		33000
	Salaries and wages payable			33000
	(for salaries due)
e.	Income tax expense			9400
	Income tax payable			9400
	(for income tax due)