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Exercise 6-21B Complete the accounting cycle using inventory transactions (LO6-2, 6-3, 6-5, 6-6, 6-7)

[The following information applies to the questions displayed below.]

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

Accounts	Debit			Credit
Cash	$	22,500
Accounts Receivable		38,000
Allowance for Uncollectible Accounts				$	3,700
Inventory		33,000
Land		66,100
Accounts Payable					30,900
Notes Payable (8%, due in 3 years)					33,000
Common Stock					59,000
Retained Earnings					33,000
Totals	$	159,600		$	159,600

The $33,000 beginning balance of inventory consists of 330 units, each costing $100. During January Year 1, the company had the following inventory transactions:

January		3		Purchase 1,200 units for $129,600 on account ($108 each).
January		8		Purchase 1,300 units for $146,900 on account ($113 each).
January		12		Purchase 1,400 units for $165,200 on account ($118 each).
January		15		Return 115 of the units purchased on January 12 because of defects.
January		19		Sell 4,000 units on account for $600,000. The cost of the units sold is determined using a FIFO perpetual inventory system.
January		22		Receive $577,000 from customers on accounts receivable.
January		24		Pay $407,000 to inventory suppliers on accounts payable.
January		27		Write off accounts receivable as uncollectible, $2,800.
January		31		Pay cash for salaries during January, $117,000.

The following information is available on January 31, Year 1.

1. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.
2. The company estimates future uncollectible accounts. The company determines $4,300 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 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31.
4. Accrued income taxes at the end of January are $12,600.

Exercise 6-21B Part 2

a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.
b. The company estimates future uncollectible accounts. The company determines $4,300 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 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
c. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31.
d. Accrued income taxes at the end of January are $12,600.
  
2. Record adjusting entries on January 31 for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Answer 1

2)

Adjusting Entries
No	Date	Account Titles and Explanation	Debit	Credit
a)	Jan. 31	Loss in Inventory - Written Down (see note 1)	$2,070
		Inventory		$2,070
		(To record the loss due to inventory written down)
b)	Jan. 31	Bad Debt Expense	$3,515
		Allowance for Uncollectible Accounts (see note 2)		$3,515
		(To record the bad debt expense)
c)	Jan. 31	Interest Expense ($33,000*8/100*1/12 months)	$220
		Interest Payable		$220
		(To record the interest expense accrued for January)
d)	Jan. 31	Income Tax Expense	$12,600
		Income Tax Payable		$12,600
		(To record the income tax expense accrued for January)

Working note - 1)	Units (a)	Rate (b)	Amount (a*b)
Beginning inventory	330	$100	$33,000
Purchases - Jan. 3	1,200	$108	$129,600
Purchases - Jan. 8	1,300	$113	$146,900
Purchases - Jan. 12	1,400	$118	$165,200
Return - Jan. 15	-115	$118	($13,570)
Total goods available for sale	4,115		$461,130
Cost of goods sold for 4,000 units under FIFO:
Beginning inventory	330	$100	$33,000
Purchases - Jan. 3	1,200	$108	$129,600
Purchases - Jan. 8	1,300	$113	$146,900
Purchases - Jan. 12 (4,000 - 330 - 1,200 - 1,300)	1,170	$118	$138,060
Cost of Goods Sold	4,000		$447,560
Ending inventory (4,115 - 4,000)	115	$118	$13,570
Less: Net realizable value at $100 each unit	115	$100	$11,500
Loss in the value of inventory due to write down			$2,070

Working note - 2
Beginnin Accounts Receivable	$38,000
Add: Credit sales	$600,000
Less: Cash collections from customers	($577,000)
Less: Write off	($2,800)
Less: Accounts receivable past due	$4,300
Accounts receivable not past due	$62,500
	Accounts receivable (a)	% of Uncollectible (b)	Allowance for uncollectible accounts (a*b)
Accounts receivable past due	$4,300	30%	$1,290
Accounts receivable not past due	$62,500	5%	$3,125
			$4,415
Beginning balance of allowance for uncollectible accounts	$3,700
Less: Write off	($2,800)
Balance not adjusted	$900
Balance to be adjusted	$4,415
Bad debt expense ($4,415 - $900)	$3,515