Included in WWC’s February 1 Accounts Receivable balance is a $1,800 account due
ID: 2395622 • Letter: I
Question
Included in WWC’s February 1 Accounts Receivable balance is a $1,800 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,800 balance to a note, and Kit Kat signs a 6-month note, at 9% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
WWC paid a $650 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
An additional 160 units of inventory are purchased on account by WWC for $12,000 – terms 2/15, n30.
WWC paid Federal Express $320 to have the 160 units of inventory delivered overnight. Delivery occurred on 02/06.
Sales of 130 units of inventory occurred during the period of 02/07 – 02/10. The sales terms are 2/10, net 30.
The 35 units that were paid for in advance and recorded in January are delivered to the customer.
10 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.
Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs.
$5,000 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.
Collected $9,200 of customers’ Accounts Receivable. Of the $9,200, the discount was taken by customers on $6,500 of account balances; therefore WWC received less than $9,200.
WWC recovered $520 cash from the customer whose account had previously been written off (see 02/18).
A $550 utility bill for February arrived. It is due on March 15 and will be paid then.
Record the $2,000 employee salary that is owed but will be paid March 1.
WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts.
1. what is the WWC's gross profit for feburary?
2. What is the gross profit percentage?
3. What were WWC’s net sales for February?
4. How many units are in ending inventory?
5. What is the cost per unit of the ending inventory?
6. If WWC had chosen LIFO, calculate its February cost of goods sold.
Cash $ 20,420 Unearned Revenue (35 units) $ 4,950 Accounts Receivable $ 11,450 Accounts Payable (Jan Rent) $ 2,500 Allowance for Doubtful Accounts $ (1,500) Notes Payable $ 16,000 Inventory (40 units) $ 3,600 Contributed Capital $ 6,200 Retained Earnings – Feb 1, 2012 $ 4,320Explanation / Answer
In the books of WWC:
Adjusting Entries:
1. Computation of gross profit for February:
2. Gross profit percentage = $ 10,130 / $ 22,345 * 100 = 45.33 %.
3. Net sales for February = $ 22, 345.
4. Units in ending inventory = 40 + 160 - 130 - 35 + 10 = 45 units.
5. Cost per unit of ending inventory = $ ( 12,000 + 320) / 160 x 45 = $ 3,465.
Date Account Titles Debit Credit $ $ 02/01 Note Receivable 1,800 Accounts Receivable 1,800 02/02 Insurance Expense 650 Cash 650 02/05 Inventory 12,000 Accounts Payable 12,000 02/05 Inventory 320 Cash 320 02/10 Accounts Receivable ( 130 units x $ 145) 18,850 Sales 18,850 02/10 Cost of Goods Sold ( $ 3,600 + 90 x ( 12,000 + 320) / 160 10,530 Inventory 10,530 02/15 Unearned Revenue 4,950 Accounts Receivable 125 Sales 5,075 02/15 Cost of Goods Sold ( 35 x $ 77) 2,695 Inventory 2,695 02/15 Sales Returns and Allowances 1,450 Accounts Receivable 1,450 02/15 Inventory 770 Cost of Goods Sold 770 02/16 Wages Expense 2,000 Cash 2,000 02/17 Accounts Payable 12,000 Purchase Discounts 240 Cash 11,760 02/18 Allowance for Doubtful Accounts 1,600 Accounts Receivable 1,600 02/19 Accounts Payable 2,500 Rent Expense 2,500 Cash 5,000 02/19 Cash 9,070 Sales Discounts 130 Accounts Receivable 9,200 02/26 Accounts Receivable 520 Allowance for Doubtful Accounts 520 02/26 Cash 520 Accounts Receivable 520 02/27 Utilities Expense 550 Accounts Payable 550 02/28 Dividends 650 Cash 650