Question

One Product Corp. (OPC) incorporated at the beginning of last year. The balances on its post-closing trial balance prepared on December 31, at the end of its first year of operations, were:

Cash	$	19,570
Accounts Receivable		8,270
Allowance for Doubtful Accounts		935
Inventory		12,760
Prepaid Rent		1,700
Equipment		31,000
Accumulated Depreciation		3,000
Accounts Payable		0
Sales Tax Payable		500
FICA Payable		600
Withheld Income Taxes Payable		500
Salaries and Wages Payable		1,600
Unemployment Tax Payable		300
Deferred Revenue		4,500
Interest Payable		506
Note Payable (long-term)		22,500
Common Stock		14,600
Additional Paid-In Capital, Common		19,449
Retained Earnings		8,310
Treasury Stock		4,000

The following information is relevant to the first month of operations in the following year:

• OPC sells its inventory at $150 per unit, plus sales tax of 6%. OPC’s January 1 inventory balance consists of 180 units at a total cost of $12,760. OPC’s policy is to use the FIFO method, recorded using a perpetual inventory system.
• The $1,700 in Prepaid Rent relates to a payment made in December for January rent this year.
• The equipment was purchased on July 1 of last year. It has a residual value of $1,000 and an expected life of five years. It is being depreciated using the straight-line method.
• Employee wages are $4,000 per month. Employees are paid on the 16th for the first half of the month and on the first day of the following month for the second half of each month. Withholdings each pay period include $250 of income taxes and $150 of FICA taxes. These withholdings and the employer’s matching contribution are paid monthly on the second day of the following month. In addition, unemployment taxes of $50 are accrued each pay period, and will be paid on March 31.
• Deferred Revenue is for 30 units ordered and paid for in advance by two customers in late December. One order of 25 units is to be filled in January, and the other will be filled in February.
• Notes Payable arises from a three-year, 9 percent bank loan received on October 1 last year.
• The par value on the common stock is $2 per share.
• Treasury Stock arises from the reacquisition of 500 shares at a cost of $8 per share.

January Transactions

1. On 1/01, OPC paid employees’ salaries and wages that were previously accrued on December 31.
2. A truck is purchased on 1/02 for $10,000 cash. It is estimated this vehicle will be used for 50,000 miles, after which it will have no residual value.
3. Payroll withholdings and employer contributions for December are remitted on 1/03.
4. OPC declares a $0.50 cash dividend on each share of common stock on 1/04, to be paid on 1/10.
5. A $975 customer account is written off as uncollectible on 1/05.
6. On 1/06, recorded sales of 175 units of inventory on account. Sales tax is charged but not yet collected or remitted to the state.
7. Sales taxes of $500 that had been collected and recorded in December are paid to the state on 1/07.
8. On 1/08, OPC issued 300 shares of treasury stock for $2,400.
9. Collections from customers on account, totaling $13,043, are recorded on 1/09.
10. On 1/10, OPC distributes the $0.50 cash dividend declared on January 4. The company’s stock price is currently $5 per share.
11. OPC purchases on account and receives 70 units of inventory on 1/11 for $4,480.
12. The equipment purchased last year for $31,000 is sold on 1/15 for $30,000 cash. Record depreciation for the first half of January prior to recording the equipment disposal.
13. Payroll for January 1-15 is recorded and paid on 1/16. Be sure to accrue unemployment taxes and the employer’s matching share of FICA taxes.
14. Having sold the equipment, OPC pays off the note payable in full on 1/17. The amount paid is $23,099, which includes interest accrued in December and an additional $93 interest through January 17.
15. On 1/27, OPC records sales of 30 units of inventory on account. Sales tax is charged but not yet collected or remitted.
16. A portion of the advance order from December (25 units) is delivered on 1/29. No sales tax is collected on this transaction because the customer is a U.S. governmental organization that is exempt from sales tax.
17. To obtain funds for purchasing new equipment, OPC issued bonds on 1/30 with a total face value of $95,000, stated interest rate of 5 percent, annual compounding, and six-year maturity date. OPC received $85,944 from the bond issuance, which implies a market interest rate of 7 percent.
18. On 1/31, OPC records units-of-production depreciation on the vehicle (truck), which was driven 2,000 miles this month.
19. OPC estimates that 2% of the ending accounts receivable balance will be uncollectible. Adjust the applicable accounts on 1/31, using the allowance method.
20. On 1/31, adjust for January rent expired.
21. Accrue January 31 payroll on 1/31, which will be payable on February 1. Be sure to accrue unemployment taxes and the employer’s matching share of FICA taxes.
22. Accrue OPC’s corporate income taxes on 1/31, estimated to be $4,120

Prepare all January journal entries and adjusting entries for items (a)–(v). Review the 'General Ledger' and the adjusted 'Trial Balance' Tabs to see the effect of the transactions on the account balances. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

		Journal Entries
S.No	Date	Particulars	Dr/Cr	Amount ($)	Amount ($)
a	01-Jan	Salary & Wages Payable	Dr	1600
		To Cash	Cr		1600
b	02-Jan	Truck A/c	Dr	10000
		To Cash	Cr		10000
c	03-Jan	FICA Payable	Dr	600
		Withheld Income Taxes Payable	Dr	500
		To Cash	Cr		1100
d	04-Jan	Dividend A/c	Dr	8512
		To Dividend Payable	Cr		8512
		[(14600+19449)/2*0.50)]
e	05-Jan	Bad Debt	Dr	975
		To Account Receivable	Cr		975
f	06-Jan	Account Receivable	Dr	27825
		To Sales (175*150)	Cr		26250
		To Sales Tax Payable (6%)	Cr		1575
g	07-Jan	Sales Tax Payable	Dr	500
		To Cash	Cr		500
h	08-Jan	Cash (300*8)	Dr	2400
		To Treasury Stock	Cr		2400
i	09-Jan	Cash	Dr	13043
		To Accounts Receivable	Cr		13043
j	10-Jan	Dividend Payable A/c	Dr	8512
		To Cash	Cr		8512
k	11-Jan	Inventory (70 units)	Dr	4480
		To Accounts Payable	Cr		4480
l	15-Jan	Depreciation A/c	Dr	250
		To Accumulated Depreciation	Cr		250
		((31000-1000)/5/12/2)
l	15-Jan	Cash	Dr	30000
		Accumulated Depreciation	Dr	3250
		To Equipment	Cr		31000
		To Profit on Sale of Equipment			2250
m	16-Jan	Salary & Wages	Dr	2050
		To Cash	Cr		1600
		To Withheld Income tax payable	Cr		250
		To FICA payable	Cr		150
		To Unemployment taxes payable	Cr		50
n	17-Jan	Note Payable	Dr	22500
		Interest payable	Dr	506
		Interest Exp	Dr	93
		To Cash			23099
o	27-Jan	Account Receivable	Dr	4770
		To Sales (30*150)	Cr		4500
		To Sales Tax Payable (6%)	Cr		270
p	29-Jan	Account Receivable	Dr	3750
		To Sales (25*150)	Cr		3750
		To Sales Tax Payable (0%)	Cr		0
q	30-Jan	Cash	Dr	85944
		Discount	Dr	9056
		To Bond Payable	Cr		95000
r	31-Jan	Depreciation A/c	Dr	400
		To Accumulated Depreciation	Cr		400
		(10000/50000*2000)
t	31-Jan	Rent	Dr	1700
		To Prepaid rent	Cr		1700
u	31-Jan	Salary & Wages	Dr	2050
		To Cash	Cr		1600
		To Withheld Income tax payable	Cr		250
		To FICA payable	Cr		150
		To Unemployment taxes payable	Cr		50
v	31-Jan	Corporate income tax	Dr	4120
		To Income tax payable	Cr		4120