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In: Accounting

On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances: Accounts...

On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances:

Accounts Debit Credit
Cash $ 102,700
Accounts Receivable 37,000
Inventory 153,500
Land 82,300
Buildings 135,000
Allowance for Uncollectible Accounts $ 3,300
Accumulated Depreciation 11,100
Accounts Payable 34,200
Bonds Payable 135,000
Discount on Bonds Payable 31,500
Common Stock 215,000
Retained Earnings 143,400
Totals $ 542,000 $ 542,000


During January 2021, the following transactions occurred:

January 1 Borrowed $115,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,223.27 are required at the end of each month for 60 months.
January 1 Called the bonds at the contractual call price of $115,000. The 7% bonds pay interest semiannually each June 30 and December 31.
January 4 Received $32,500 from customers on accounts receivable.
January 10 Paid cash on accounts payable, $26,000.
January 15 Paid cash for salaries, $30,400.
January 30 Firework sales for the month totaled $210,000. Sales included $66,500 for cash and $143,500 on account. The cost of the units sold was $120,000.
January 31 Paid the first monthly installment of $2,223 related to the $115,000 borrowed on January 1. Round your interest calculation to the nearest dollar.


The following information is available on January 31, 2021.

  1. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $27,000.
  2. At the end of January, $4,500 of accounts receivable are past due, and the company estimates that 50% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 3% will not be collected. No accounts were written off as uncollectible in January.
  3. Unpaid salaries at the end of January are $27,600.
  4. Accrued income taxes at the end of January are $6,500.

Prepare the journal entries for transactions. (If no entry is required for a particular transaction/event, select "No journal entry required" in the first account field.)

Solutions

Expert Solution

01/01/2021 Cash account Dr. 1,15,000
To Loan (captive credit corporation) 1,15,000
( 115000 borrowed from captive CC for 5 years @ 6%PA)
01/01/2021 Bonds payable 1,35,000
Loss on bonds 15,000
To Discount on bonds payable 35,000
To cash account 1,15,000
(Bonds called back)
04/01/2021 Cash account Dr. 32,500
To Accounts receivables/debtors 32,500
(cash collected from debtors)
10/01/2021 Accounts payables/creditors Dr. 26,000
To cash account 26,000
(cash paid to creditors)
15/01/2021 Salaries account Dr. 30,400
To cash account 30,400
(Salaries paid)
30/01/2021 Cash account Dr.            66,500
Account Receivables Dr.        1,43,500
To Sales account        2,10,000
31/01/2021 Loan (captive credit corporation) Dr. 2223
To Cash account 2223
(Monthly installment paid)
Interest expense Dr. 575
To Loan (captive credit corporation) 575
31/01/2021 Depreciation account Dr. 900
To Accumulated depreciation 900
(Dep charged for jan 21)
cal : (135,000-27000)/10/12
31/01/2021 uncollectable account Dr. 3264
To allowance for uncollectable 3264
(Provision for uncollectable created)
Accounts receivable
opening 37000
add 143500
less -32500
closing 148000
less past due -4500
balance 143500
3% of balance 4305
50% of 4500 2259
Allowance in balance sheet 6564
Already created 3300
Created in jan 3264
ekkarill92 answered 1 year ago
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