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	$	30,300		Dr.
Accounts Receivable		35,400		Dr.
Allowance for Doubtful Accounts		440		Cr.
Merchandise Inventory		86,200		Dr.
Supplies		10,600		Dr.
Prepaid Insurance		5,640		Dr.
Office Equipment		9,700		Dr.
Accum. Depreciation—Office Equipment		2,670		Cr.
Warehouse Equipment		34,200		Dr.
Accum. Depreciation—Warehouse Equipment		10,000		Cr.
Notes Payable—Bank		33,000		Cr.
Accounts Payable		12,400		Cr.
Interest Payable
Social Security Tax Payable		1,700		Cr.
Medicare Tax Payable		390		Cr.
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Salaries Payable
Phillip Tucker, Capital		118,262		Cr.
Phillip Tucker, Drawing		57,000		Dr.
Sales		655,778		Cr.
Sales Returns and Allowances		10,200		Dr.
Purchases		351,000		Dr.
Purchases Returns and Allowances		9,400		Cr.
Income Summary
Rent Expense		36,200		Dr.
Telephone Expense		2,400		Dr.
Salaries Expense		162,000		Dr.
Payroll Taxes Expense		13,200		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 $78,200.

C. During 2019, the firm had net credit sales of $562,000; past experience indicates that 0.75 percent of these sales should result in uncollectible accounts.

D. On December 31, 2019, an inventory of supplies showed that items costing $1,200 were on hand.

E. On May 1, 2019, the firm purchased a one-year insurance policy for $5,640.

F. On January 2, 2017, the firm purchased office equipment for $9,700. At that time, the equipment was estimated to have a useful life of seven years and a salvage value of $355.

G. On January 2, 2017, the firm purchased warehouse equipment for $34,200. At that time, the equipment was estimated to have a useful life of six years and a salvage value of $4,200.

H. On November 1, 2019, the firm issued a four-month, 10 percent note for $33,000.

I. On December 31, 2019, the firm owed salaries of $12,000 that will not be paid until 2020.

J. 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.

K. 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:

1. Prepare the Trial Balance section of a 10-column worksheet. The worksheet covers the year ended December 31, 2019.

2. Enter the adjustments above in the Adjustments section of the worksheet.

3. 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