Question

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

Prepare a classified balance sheet as of January 31, 2021.

Answer 1

Balance Sheet Acme Fireworks As of January 31,2021
Assets
Current Asets:
Cash (WN 1)	19,500
Accounts receivable (WN 2)	217,000
Allowance for Uncollectible Accounts (WN 3)	(17,008)
Inventory (WN 4)	15,700
Total Current Asset		235,192
Non-current Asset
Tangible Asset – Fixed Asset
Land	66,000
Equipment	25,000
Accumulated depreciation (WN 5)	(4,325)
Total Fixed Asset		86,675
Total Asset		321,867
Liabilities & SH .Equity
Current Liability
Accounts Payable (WN 6)	87,500
Gift card liability (12,000 – 5,000 = 7,000)	7000
Income tax payable	15000
Interest payable (70,000 * 6%) / 12	350
Total current liabilities		109,850
Notes Payable (6%, due April 1, 2022)		70,000
Total Liabilities		179,850
SH .Equity
Common stock	55,000
Retained Earnings (25100 + 61917) (WN 7)	87,017
Total SH .Equity		142,017
Total Liabilities & SH .Equity		321,867

WORKING NOTES:

WN 1

Cash A/c
Date	Debit	Date	Credit
Opening balance	27,100	Jan 25 Accounts payable	110,000
Jan 2 Gift card sold	12,000	Jan 31 Salaries	54,000
Jan 23 Accounts Receivable	127,400
Jan 30 Sales	17,000	Bal C/F	19500
	183,500		183,500

WN 2

Accounts Receivable
Date	Debit	Date	Credit
Opening balance	50,200	Jan 23 Cash received	127,400
Jan 15 Cr. Sales	155,000	Jan 28 AR written off	6800
Jan 30 Cr. Sales	146,000	Bal C/F	217,000
	351,200		351,200

WN 3

Allowance for Uncollectible Accounts
Date	Debit	Date	Credit
Jan 28 AR written off	6,800	Opening balance	6,200
Bal C/F	17,008	New provn. Reqd.(Bal.fig.)	17,608
	23,808		23,808

Ending Allowance for Uncollectible Acs. Rec. reqd.

$31,000 * 30% = 9,300

(217,000 – 9300) * 4% = 8308

Total allowance required = 9300 + 8308 = 17,608

WN 4

Inventory A/c
Date	Debit	Date	Credit
Opening Balance	22,000	Jan 15 COGS	83,800
Jan 6 Inventory purchased	167,000	Jan 30 COGS	89,500
		Bal C/F	15,700
	189,000		189,000

WN 5

Accumulated Depreciation
Date	Debit	Date	Credit
		Opening Balance	3,500
Bal C/F	4,325	Depreciation-equipment	825
	4,325		4,325

WN 6

Accounts Payable
Date	Debit	Date	Credit
Jan 25 paid to supplier	110,000	Opening Balance	30,500
Bal C/F	87,500	Jan 6 Cr Purchase	167,000
	197,500		197,500

WN 7

Income statement
Sales (155,000 + 163,000 + 5,000)	323,000
Less: COGS (83800 + 89500)	(173,300)
Gross Profit	149,700
Less: operating expenses
Depreciation- equipment	(825)
Salaries expense	(54,000)
Bad debt Expense	(17,608)
Operating Income	77,267
Less: Interest expense (70,000 * 6%) / 12	(350)
Income before tax	76,917
Less: Income tax expense	(15,000)
Net Income	61,917