Question

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

Accounts	Debit				Credit
Cash	$	27,100
Accounts Receivable		50,200
Allowance for Uncollectible Accounts					$	6,200
Inventory		22,000
Land		66,000
Equipment		25,000
Accumulated Depreciation						3,500
Accounts Payable						30,500
Notes Payable (6%, due April 1, 2022)						70,000
Common Stock						55,000
Retained Earnings						25,100
Totals	$	190,300			$	190,300

During January 2021, the following transactions occur:

January		2		Sold gift cards totaling $12,000. The cards are redeemable for merchandise within one year of the purchase date.
January		6		Purchase additional inventory on account, $167,000.
January		15		Firework sales for the first half of the month total $155,000. All of these sales are on account. The cost of the units sold is $83,800.
January		23		Receive $127,400 from customers on accounts receivable.
January		25		Pay $110,000 to inventory suppliers on accounts payable.
January		28		Write off accounts receivable as uncollectible, $6,800.
January		30		Firework sales for the second half of the month total $163,000. Sales include $17,000 for cash and $146,000 on account. The cost of the units sold is $89,500.
January		31		Pay cash for monthly salaries, $54,000.

• Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $5,200 and a two-year service life.

• The company estimates future uncollectible accounts. The company determines $31,000 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 4% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)

• Accrued interest expense on notes payable for January.

• Accrued income taxes at the end of January are $15,000.

• By the end of January, $5,000 of the gift cards sold on January 2 have been redeemed.

  
2. Record the adjusting entries on January 31 for the above transactions.

Answer 1

Answer-2-The adjusting entries

Date	Account Title and Explanation	Debit ($)	Credit ($)
Jan. 31	Depreciation Expenses-Equipment	825
	($25,000-$5,200/ 2 *1/12)
	Accumulated Depreciation-Equipment		825
	(To record the depreciation expenses for the month of January)
Jan.31	Bad Debts Expenses (Note 1)	16,740
	Allowance for uncollectible accounts		16,740
	(To record the allowance for uncollectible debt which was 30% for $31,000 and 4% for remaining accounts)
Jan.31	Interest Expenses ($70,000*6%*1/12)	350
	Interest Payable		350
	(To record interest expenses due)
Jan.31	Income tax expenses	15,000
	Income tax payable		15,000
	(To record the accrued income tax)
Jan.31	Deferred Revenue	5,000
	Sales Revenue		5,000
	(To record the revenue from gift card worth $5,000)

Note-1- Calculate of allowance for doubtful accounts:-

Particulars	Amount ($)	Amount ($)
Beginning balance of accounts receivable	50,200
Add: Sales on account ($155,000+$146,000)	$301,000	$351,200
Less:Payment received		-127,400
written off		-6,800
Ending balance of accounts receivable		$217,000
Allowance creation:-
30% of $31,000	$9,300
4% on remaining $186,000( $217,000-$31,000)	$7,440
Total allowance	$16,740