Name ACC 2013 Spring 2013 Project 2 (15 pts) #
Project 2 -- Review of Merchandising Cycle
Check your syllabus for the due date.
Introduction
Wally’s Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares
adjusting entries and financial statements at the end of each month. The statements report monthly results for the period
February 1-29, 2012.
Pertinent items of general information:
Beginning Balances from 1/31/12
Cash $23,120 Unearned Revenue (28 units) $5,012
Accounts Receivable $11,420 Accounts Payable (Jan Rent) $1,150
Allowance for Doubtful Accounts ($700) Notes Payable $18,000
Inventory (40 units) $3,000 Contributed Capital $8,200
Retained Earnings – Feb 1, 2012 $4,478
WWC establishes a policy that it will sell inventory at $179 per unit.
In January, WWC received a $5,012 advance for 28 units, as reflected in Unearned Revenue.
WWC’s February 1 inventory balance consisted of 40 units at a total cost of $3,000.
WWC’s note payable accrues interest at a 10% annual rate.
WWC will use the FIFO inventory method and record COGS on a perpetual basis.
February Transactions
02/01 Included in WWC’s February 1 Accounts Receivable balance is a $4,000 account due from Kit Kat, a WWC
customer. Kit Kat is having cash flow problems and cannot its balance at this time. WWC arranges with Kit Kat to
convert the $4,000 balance to a note, and Kit Kat signs a 6-month note, at 15% annual interest. The principal and all
interest will be due and payable to WWC on August 1, 2012.
02/02 WWC paid a $250 insurance premium covering the month of February. The amount paid is recorded directly as an
expense.
02/05 An additional 175 units of inventory are purchased on account by WWC for $9,100 – terms 2/15, n30.
02/05 WWC paid Federal Express $350 to have the 175 units of inventory delivered overnight. Delivery occurred on 02/06.
02/10 Sales of 120 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
02/15 The 28 units that were paid for in advance and recorded in January are delivered to the customer.
02/15 15 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be
resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase.
02/16 WWC pays the first 2 weeks wages to the employees. The total paid is $2,200.
02/17 Paid in full the amount owed for the 2/05 purchase of inventory.
02/18 Wrote off a customer’s account in the amount of $965.
02/19 $2,300 of rent for January and February was paid. Because all of the rent will soon expire, the February
portion of the payment is charged directly to expense.
02/19 Collected $8,000 of customers’ Accounts Receivable. Of the $8,000, the discount was taken by customers on
$5,000 of account balances, therefore WWC received less than $8,000.
02/26 WWC recovered $400 cash from the customer whose account had previously been written off (see 02/18).
02/27 A $500 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28 WWC declared and paid a $600 cash dividend.
******************************************************************************************************************************************************
02/29 (adjusting 1) Record the $2,200 employee salary that is owed but will be paid March 1.
02/29 (adjusting 2) WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 6% of
the ending accounts receivable balance is the appropriate end of February estimate of uncollectible accounts.
(Round to the nearest dollar) (Note you will need to post before you can do this adjustment.)
02/29 (adjusting 3) Record February interest expense accrued on the note payable.
02/29 (adjusting 4) Record one month’s interest earned Kit Kat’s note (see 02/01)
All work must be WRITTEN. No credit will be given for computer generated projects. 1
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
REQUIREMENT 1
A Prepare all February journal entries and adjusting entries. Use Attachment A to record the entries.
B. Post all February entries (transactions and adjustments) to the T-accounts provided in Attachment B.
C. Prepare the financial statements at the end of February, 2008 using the formats in Attachment C.
ATTACHMENT A
WWC – General Journal
Date Account Name Debit Credit
02/01
02/02
02/05
2/06
02/10
2/15
2/15
2/16
2/17
2/18
2/19
2/19
All work must be WRITTEN. No credit will be given for computer generated projects. 2
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
2/26
2/27
2/28
AJE 1
AJE 2
AJE 3
AJE 4
All work must be WRITTEN. No credit will be given for computer generated projects. 3
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
ATTACHMENT B: Some T-accounts may have no February transactions. Don’t forget beginning balances.
CASH Accounts Receivable Allowance Inventory
Notes Receivable Prepaid Rent Interest Receivable
Unearned Revenue Accounts Payable Wages Payable
Interest Payable Notes Payable Contributed Capital Retained Earnings
Dividends Declared Sales Revenue Sales Ret & Allow Sales Discounts
Cost of Goods Sold Insurance Expense Wages Expense Bad Debt Expense
Rent Expense Interest Revenue Utility Expense Interest Expense
All work must be WRITTEN. No credit will be given for computer generated projects. 4
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
Unadjusted TB Adjustments Adjusted TB
Account Debit Credit Debit Credit Debit Credit
Cash
Account Receivable
Allowance
Inventory
Nots Receivable
Prepaid Rent
Interest Receivable
Unearned Revenue
Account Payable
Wages Payable
Interest Payable
Notes Payable
Contributed Capital
Retained Earnings
Dividends Declared
Sales Revenue
Sales Ret & Allow
Sales Discounts
Cost of Goods Sold
Insurance Expense
Wages Expense
Bad Debt Expense
Rent Expense
Interest Revenue
Utility Expense
Interest Expense
Totals
All work must be WRITTEN. No credit will be given for computer generated projects. 5
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
ATTACHMENT C: Financial Statements for February 2012: Multiple Step Income Statement
WWC, Inc. Income
Statement
For the period February 1 – February 29, 2012
Net income
WWC, Inc.
Statement of Retained Earnings
For the period February 1 – February 29, 2012
Retained earnings, beginning of period
Add:
Less:
Retained earnings, end of period
WWC, Inc.
Balance Sheet
as of February 29, 2012
ASSETS LIABILITIES
Total Liabilities
STOCKHOLDERS’ EQUITY
Total stockholders’ equity
Total assets Total liabilities and stockholders’ equity
All work must be WRITTEN. No credit will be given for computer generated projects. 6
Name ACC 2013 Spring 2013 Project 2 (15 pts) #
REQUIREMENT 2
A. Prepare all February 29 closing entries for WWC in the journal entry space below. Post to T-accounts.
B. Complete the eight calculations below.
Space for Requirement 2 - Part A – Closing Entries:
B. Analysis calculations:
1) What is the WWC’s gross profit for February? $
2) What is the gross profit percentage? __________________%
3) What were WWC’s net sales for February? $
4) If WWC had chosen to use the percentage of sales method, taking 2% of sales, instead of using the
aging method, WWC would have reported $ of bad debt expense for February
and a net Accounts Receivable of .
5) How many units are in ending inventory? units
6) What is the cost per unit of the ending inventory? $ per unit
7) If WWC had chosen LIFO, calculate its February cost of goods sold. $
All work must be WRITTEN. No credit will be given for computer generated projects. 7