ALLESSANDRO SCARLATTI COMPANY Balance Sheet (Partial) December 31, 2017 Current
ID: 2576482 • Letter: A
Question
ALLESSANDRO SCARLATTI COMPANY
Balance Sheet (Partial)
December 31, 2017
Current Assets
Cash
Accounts receivable
Less: Allowance for doubtful account
Inventory
Prepaid expenses
Total current assets
Current Liabilities
Account payable
Notes payable
Total current liabilities
89,000
7,000
40,000
82,000
171,000
9,000
302,000
61,000
67,000
128,000
The following errors in the corporation's accounting have been discovered:
(1) January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of $39,000, on which a cash discount of 2% was taken.
(2) This inventory included $27,000 of merchandise that has been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $12,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.
(3) Sales for the first four days in January 2018 in the amount of $30,000 were entered in the sales journal as of December 31, 2017. Of these, $21,500 were sales on account and the remainder were cash sales.
(4) Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled $35,324. Of this amount, $23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan
Instructions
(a) Restate the current assets and current liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross)
(b) State the net effect of your adjustments on Allessandro Scarlatti Company's retained earnings balance.
ALLESSANDRO SCARLATTI COMPANY
Balance Sheet (Partial)
December 31, 2017
Current Assets
Cash
Accounts receivable
Less: Allowance for doubtful account
Inventory
Prepaid expenses
Total current assets
Current Liabilities
Account payable
Notes payable
Total current liabilities
89,000
7,000
40,000
82,000
171,000
9,000
302,000
61,000
67,000
128,000
Explanation / Answer
(1) 31/12/2017 Accounts Payable Paid in Jan shown in Dec Balance increase 39,000 Effect on Retained Earning Decrease by 39000*2%, As wrongly booked as income 780 (2) $12,000 Goods received on consignment basis No entry Remaining 15,000 received will be entered Account Payable balance increase 15,000 Inventory Balance will increase 15,000 (3) In December books Cash will decrease by 8,500 A/R will decrease by 21,500 Assumed no entry of cost of goods sales passed in decmber books for this sale (4) In December books Cash will decrease by 23,324 A/R will increase by 23,800 Increase in retained earning due to wrongly debited on discount on sales in past 476 Accounts Payable Balance 61,000 Add: Accounts Payable Paid in Jan shown in Dec Balance increase 39,000 Add: Account Payable balance increase as goods recived on 12/31, 15,000 Adjusted balance as on 12/31 1,15,000 Inventory Inventory Balance 1,71,000 Add: Goods received on FOB destination Inventory Balance will increase 15,000 Adjusted balance as on 12/31 1,86,000 Cash Cash Balance 40,000 Cash sale of jan Booked in December (8,500) Cash Collected in Jan shown in december (23,324) Adjusted balance as on 12/31 8,176 A/R A/R balance 89,000 Credit sale of jan Booked in December (21,500) A/R collected in Jan shown in dember 23,800 Adjusted balance as on 12/31 91,300 Retained earning Decrease by 39000*2%, As wrongly availed the discount and booked as income (780) Increase in retained earning due to wrongly debited on discount on sales in past 476 Adjusted balance as on 12/31 (304) ALLESSANDRO SCARLATTI COMPANY Adjusted Balance Sheet (Partial) December 31, 2017 Current Assets Cash 8,176 Accounts receivable 91,300 Less: Allowance for doubtful account 7,000 84,300 Inventory 1,86,000 Prepaid expenses 9,000 Total current assets 2,87,476 Current Liabilities Account payable 1,15,000 Notes payable 67,000 Total current liabilities 1,82,000
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