Wally’s Widget Company (WWC) incorporated near the end of 2011.Operations began in January of 2012. WWC prepares adjusting entriesand financial statements at the end of each month. Balances in theaccounts at the end of January are as follows: Cash $ 20,870Unearned Revenue (30 units) $ 5,100 Accounts Receivable $ 11,900Accounts Payable (Jan Rent) $ 2,800 Allowance for Doubtful Accounts$ (1,650) Notes Payable $ 13,500 Inventory (35 units) $ 2,975Contributed Capital $ 6,500 Retained Earnings – Feb 1, 2012 $ 6,195• WWC establishes a policy that it will sell inventory at $165 perunit. • In January, WWC received a $5,100 advance for 30 units, asreflected in Unearned Revenue. • WWC’s February 1 inventory balanceconsisted of 35 units at a total cost of $2,975. • WWC’s notepayable accrues interest at a 12% annual rate. • WWC will use theFIFO inventory method and record COGS on a perpetual basis.February Transactions 02/01 Included in WWC’s February 1 AccountsReceivable balance is a $1,300 account due from Kit Kat, a WWCcustomer. Kit Kat is having cash flow problems and cannot pay itsbalance at this time. WWC arranges with Kit Kat to convert the$1,300 balance to a note, and Kit Kat signs a 6-month note, at 12%annual interest. The principal and all interest will be due andpayable to WWC on August 1, 2012. 02/02 WWC paid a $800 insurancepremium covering the month of February. The amount paid is recordeddirectly as an expense. 02/05 An additional 190 units of inventoryare purchased on account by WWC for $14,250 – terms 2/15, n30.02/05 WWC paid Federal Express $380 to have the 190 units ofinventory delivered overnight. Delivery occurred on 02/06. 02/10Sales of 160 units of inventory occurred during the period of 02/07– 02/10. The sales terms are 2/10, net 30. 02/15 The 30 units thatwere paid for in advance and recorded in January are delivered tothe customer. 02/15 25 units of the inventory that had been sold on2/10 are returned to WWC. The units are not damaged and can beresold. Therefore, they are returned to inventory. Assume the unitsreturned are from the 2/05 purchase. 02/16 WWC pays the first 2weeks wages to the employees. The total paid is $2,300. 02/17 Paidin full the amount owed for the 2/05 purchase of inventory. WWCrecords purchase discounts in the current period rather than as areduction of inventory costs. 02/18 Wrote off a customer’s accountin the amount of $1,750. 02/19 $5,600 of rent for January andFebruary was paid. Because all of the rent will soon expire, theFebruary portion of the payment is charged directly to expense.02/19 Collected $9,500 of customers’ Accounts Receivable. Of the$9,500, the discount was taken by customers on $6,500 of accountbalances; therefore WWC received less than $9,500. 02/26 WWCrecovered $550 cash from the customer whose account had previouslybeen written off (see 02/18). 02/27 A $700 utility bill forFebruary arrived. It is due on March 15 and will be paid then.02/28 WWC declared and paid a $950 cash dividend. AdjustingEntries: 02/29 Record the $2,300 employee salary that is owed butwill be paid March 1. 02/29 WWC decides to use the aging method toestimate uncollectible accounts. WWC determines 8% of the endingbalance is the appropriate end of February estimate ofuncollectible accounts. 02/29 Record February interest expenseaccrued on the note payable. 02/29 Record one month’s interestearned Kit Kat’s note (see 02/01).

NEEDED JOURNAL ENTRIES: Feb 15. Record the 25 units of inventoryreturned Feb 29. WWC decides to use the aging method to estimateuncollectible accounts. WWC determines 8% of the ending balance isthe appropriate end of February estimate of uncollectibleaccounts.