Question

Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On December 31, 2019, the firm’s general ledger contained the accounts and balances that follow. ACCOUNTS AND BALANCES Cash $ 30,600 Dr. Accounts Receivable 35,700 Dr. Allowance for Doubtful Accounts 470 Cr. Merchandise Inventory 86,500 Dr. Supplies 10,900 Dr. Prepaid Insurance 6,000 Dr. Office Equipment 9,800 Dr. Accum. Depreciation—Office Equipment 2,700 Cr. Warehouse Equipment 36,300 Dr. Accum. Depreciation—Warehouse Equipment 10,600 Cr. Notes Payable—Bank 34,500 Cr. Accounts Payable 12,700 Cr. Interest Payable Social Security Tax Payable 1,730 Cr. Medicare Tax Payable 393 Cr. Federal Unemployment Tax Payable State Unemployment Tax Payable Salaries Payable Phillip Tucker, Capital 123,429 Cr. Phillip Tucker, Drawing 58,500 Dr. Sales 658,778 Cr. Sales Returns and Allowances 10,500 Dr. Purchases 352,500 Dr. Purchases Returns and Allowances 9,700 Cr. Income Summary Rent Expense 36,500 Dr. Telephone Expense 2,700 Dr. Salaries Expense 165,000 Dr. Payroll Taxes Expense 13,500 Dr. Supplies Expense Insurance Expense Depreciation Expense—Office Equip. Depreciation Expense—Warehouse Equip. Uncollectible Accounts Expense Interest Expense ADJUSTMENTS a.–b. Merchandise inventory on December 31, 2019, is $78,500. During 2019, the firm had net credit sales of $565,000; past experience indicates that 0.50 percent of these sales should result in uncollectible accounts. On December 31, 2019, an inventory of supplies showed that items costing $1,230 were on hand. On May 1, 2019, the firm purchased a one-year insurance policy for $6,000. On January 2, 2017, the firm purchased office equipment for $9,800. At that time, the equipment was estimated to have a useful life of seven years and a salvage value of $350. On January 2, 2017, the firm purchased warehouse equipment for $36,300. At that time, the equipment was estimated to have a useful life of six years and a salvage value of $4,500. On November 1, 2019, the firm issued a four-month, 10 percent note for $34,500. On December 31, 2019, the firm owed salaries of $12,000 that will not be paid until 2020. On December 31, 2019, the firm owed the employer’s social security tax (assume 6.2 percent) and Medicare tax (assume 1.45 percent) on the entire $12,000 of accrued wages. On December 31, 2019, the firm owed the federal unemployment tax (assume 0.6 percent) and the state unemployment tax (assume 5.4 percent) on the entire $12,000 of accrued wages. Required: Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019. Enter the adjustments above in the Adjustments section of the worksheet. Complete the worksheet. Analyze: When the financial statements for Healthy Eating Foods Company are prepared, what net income will be reported for the period ended December 31, 2019?

Answer 1

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Adjusting Entries:
Date	Account	Debit	Credit
a	Income Summary	$      78,500
	Merchandise Inventory		$      78,500
b	Merchandise Inventory	$      86,500
	Income Summary		$      86,500
c	Uncollectible Expense	$        2,825
	Allowance for Doubtful Accounts		$        2,825
d	Supplies Expense	$        9,670		10900-1230
	Supplies		$        9,670
e	Insurance Expense	$        4,000		6000/12*8
	Prepaid Insurance		$        4,000
f	Depreciation Expense-Office Equipment	$        1,350		(9800-350)/7
	Accumulated Depreciation-Office Equipment		$        1,350
g	Depreciation Expense-Warehous Equip	$        5,300		(36300-4500)/6
	Accumulated Depreciation-Warehouse Equip		$        5,300
h	Interest Expense	$           575		34500*10%*2/12
	Interest Payable		$           575
i	Salaries Expense	$      12,000
	Salaries Payable		$      12,000
j	Payroll Tax Expense	$           918
	Social Security Tax Payable		$           744
	Medicare Tax Payable		$           174
k	Payroll Tax Expense	$           720
	Federal Unemployment Tax Payable		$              72
	State Unemployment Tax Payable		$           648

	Unadjusted		Adjustments		Adjusted		Income Statement		Balance Sheet
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$ 30,600				$ 30,600				$ 30,600
Accounts Receivable	$ 35,700				$ 35,700				$ 35,700
Allowance for Doubtful Accounts		$        470		$    2,825		$    3,295				$    3,295
Merchandise Inventory	$ 86,500		$ 86,500	$ 78,500	$ 94,500				$ 94,500
Supplies	$ 10,900			$    9,670	$    1,230				$    1,230
Prepaid Insurance	$    6,000			$    4,000	$    2,000				$    2,000
Office Equipment	$    9,800				$    9,800				$    9,800
Accumulated Depreciation—Office Equipment		$    2,700		$    1,350		$    4,050				$    4,050
Warehouse Equipment	$ 36,300			$    5,300	$ 31,000				$ 31,000
Accumulated Depreciation—warehouse Equip		$ 10,600				$ 10,600				$ 10,600
Note Payable		$ 34,500				$ 34,500				$ 34,500
Accounts Payable		$ 12,700				$ 12,700				$ 12,700
Interest Payable				$       575		$       575				$       575
Social Security Tax Payable		$    1,730		$       744		$    2,474				$    2,474
Medicare Tax Payable		$        393		$       174		$       567				$       567
Federal Unemployment Tax Payable				$         72		$         72				$         72
State Unemployment Tax Payable				$       648		$       648				$       648
Salaries Payable				$ 12,000		$ 12,000				$ 12,000
Philip Tucker, Capital		$123,429				$123,429				$123,429
Philip Tucker, Drawing	$ 58,500				$ 58,500				$ 58,500
Sales		$658,778				$658,778		$658,778
Sales Returns and Allowances	$ 10,500				$ 10,500		$ 10,500
Purchases	$352,500				$352,500		$352,500
Purchases Returns and Allowances		$    9,700				$    9,700		$    9,700
Rent Expense	$ 36,500				$ 36,500		$ 36,500
Telephone Expense	$    2,700				$    2,700		$    2,700
Salaries Expense	$165,000		$ 12,000		$177,000		$177,000
Payroll Taxes Expense	$ 13,500		$    1,638		$ 15,138		$ 15,138
Income Summary			$ 78,500	$ 86,500		$    8,000		$    8,000
Supplies Expense			$    9,670		$    9,670		$    9,670
Insurance Expense			$    4,000		$    4,000		$    4,000
Depreciation Expense—Office Equipment			$    1,350		$    1,350		$    1,350
Depreciation Expense—warehouse Equipment			$    5,300		$    5,300		$    5,300
Uncollectible Accounts Expense			$    2,825		$    2,825		$    2,825
Inerest Expense			$       575		$       575		$       575
Total	$855,000	$855,000	$202,358	$202,358	$881,388	$881,388	$618,058	$676,478	$263,330	$204,910
Net Income							$ 58,420			$ 58,420
Total							$676,478	$676,478	$263,330	$263,330

Net Income

$ 58,420