Exercise 2.7: The following information comes from the books of Lombardo Locks:

Question

Exercise 2.7: The following information comes from the books of Lombardo Locks: May 1 The owner contributed cash of $35 000 and a vehicle valued at $25 000 to the business 2 Bought stock on credit for $12 000 from Wholesale Locks 3 Bought shop fittings for $14 000, paying $4 000 deposit with the balance due in 30 days to Colin the Carpenter 4 Sold goods for cash $3 000 (cost price $1 200) 5 Sold goods on credit to S. Catania for $2 000 (cost price $800) 6 Paid wages for week $500 7 Purchased more stock on credit from Wholesale Locks $8 000 8 Paid for the purchases made on 2 May 9 The owner withdrew $1 000 from the business for personal use 10 Received cash from S. Catania $1 200 Prepare a worksheet to show the twofold effect of the listed transactions for the period 1-10 May. Follow the format shown in figure 2.8 and use the following headings: a Assets: Cash at bank, Stock, Debtor - Catania, Vehicle, Shop fittigs Liabilities: Creditor -Wholesale Locks, Creditor - Colin the Carpenter Owner's equity: Capital b Prepare a statement of financial position as at 10 May 2005

Explanation / Answer

a. TWO fold affect:

Debit/(credit) Date Assets Liabilities Capital Income statement May Cash Vehicle Inventory Shop fittings Debtor- catania Creditors- wholesale locks Creditors- colin the carpenter Sales Cost of goods sold Wage expense 1 35000 25000 -60000 2 12000 -12000 3 -4000 14000 -10000 4 3000 -1200 -3000 1200 5 -800 2000 -2000 800 6 -500 500 7 8000 -8000 8 -12000 12000 9 -1000 1000 10 1200 -1200 Total 21700 25000 18000 14000 800 -8000 -10000 0 -59000 0 -5000 2000 500

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