Prepare all February journal entries and adjusting
entries. (If no entry is required for a transaction/event, select
“No Journal Entry Required” in the first account
field.)

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. Balances in the
accounts at the end of January are as follows:

Cash $ 19,220 Unearned Revenue (40 units) $ 4,550 Accounts
Receivable $ 10,250 Accounts Payable (Jan Rent) $ 1,700 Allowance
for Doubtful Accounts $ (1,100) Notes Payable $ 15,500 Inventory
(45 units) $ 3,600 Contributed Capital $ 5,400 Retained Earnings –
Feb 1, 2012 $ 4,820 •

WWC establishes a policy that it will sell inventory at $175 per
unit. • In January, WWC received a $4,550 advance for 40 units, as
reflected in Unearned Revenue. • WWC’s February 1 inventory balance
consisted of 45 units at a total cost of $3,600. • WWC’s note
payable accrues interest at a 12% 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 $1,900 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 $1,900 balance to a note,
and Kit Kat signs a 6-month note, at 12% annual interest. The
principal and all interest will be due and payable to WWC on August
1, 2012.

02/02 WWC paid a $700 insurance premium covering the month of
February. The amount paid is recorded directly as an expense.

02/05 An additional 150 units of inventory are purchased on
account by WWC for $9,000 – terms 2/15, n30.

02/05 WWC paid Federal Express $600 to have the 150 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 40 units that were paid for in advance and recorded in
January are delivered to the customer.

02/15 25 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 $2,600.

02/17 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.

02/18 Wrote off a customer’s account in the amount of
$1,200.

02/19 $3,400 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 $8,400 of customers’ Accounts Receivable. Of the
$8,400, the discount was taken by customers on $5,500 of account
balances; therefore WWC received less than $8,400.

02/26 WWC recovered $440 cash from the customer whose account
had previously been written off (see 02/18).

02/27 A $700 utility bill for February arrived. It is due on
March 15 and will be paid then.

02/28 WWC declared and paid a $400 cash dividend.

Adjusting Entries:

02/29 Record the $2,600 employee salary that is owed but will be
paid March 1.

02/29 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.

02/29 Record February interest expense accrued on the note
payable.

02/29 Record one month’s interest earned Kit Kat’s note (see
02/01).