The company closes its books regularly on Dec 31, but ast theend of 2007 it held
ID: 2444409 • Letter: T
Question
The company closes its books regularly on Dec 31, but ast theend of 2007 it held its cash book open so that a more favoravlebalance sheet could be prepared for credit purposes. Cashreceips and disbursements for the first 10 days of January wererecorded as Dec transactions. The following info isgiven. 1) Jan cash receipts recorded in the Dec cash book totaled$39,640, of which $22,000 represents cash sales, and $17,640represents collections on account for which cash discounts of $360were given. 2) Jan cash disbursements recorded in the Dec check registerliquidated accts payable of $26,450, on which discunts of $250 weretaken. 3) The ledger has not been closed for 2007. 4) The amount shown as inventory was determined by physicalcount on Dec 31,2007; the compnay uses the periodic method of inventory. Instructions: a) Prepare an entries you consider necessary to correct Dumainaccounts at Dec 31. b) To what extent was Dumaine Equip co able to show a morefavorable balance sheet at Dec 31 by holding its cash bookopen? (compute working capital and the current ratio) Assume that the balance sheet that was prepared by teh companyshowed the following amounts: cash 39,000 receivables 42,000 inventories 67,000 accountspayable 45,000 other currentliabilities 14,200 The company closes its books regularly on Dec 31, but ast theend of 2007 it held its cash book open so that a more favoravlebalance sheet could be prepared for credit purposes. Cashreceips and disbursements for the first 10 days of January wererecorded as Dec transactions. The following info isgiven. 1) Jan cash receipts recorded in the Dec cash book totaled$39,640, of which $22,000 represents cash sales, and $17,640represents collections on account for which cash discounts of $360were given. 2) Jan cash disbursements recorded in the Dec check registerliquidated accts payable of $26,450, on which discunts of $250 weretaken. 3) The ledger has not been closed for 2007. 4) The amount shown as inventory was determined by physicalcount on Dec 31,2007; the compnay uses the periodic method of inventory. Instructions: a) Prepare an entries you consider necessary to correct Dumainaccounts at Dec 31. b) To what extent was Dumaine Equip co able to show a morefavorable balance sheet at Dec 31 by holding its cash bookopen? (compute working capital and the current ratio) Assume that the balance sheet that was prepared by teh companyshowed the following amounts: cash 39,000 receivables 42,000 inventories 67,000 accountspayable 45,000 other currentliabilities 14,200Explanation / Answer
( 1 ) Sales 22,000.00 Cash 22,000.00 Retained Earnings 22,000.00 Sales 22,000.00 Discount 360.00 Receivables 17,640.00 Discount 360.00 Cash 18,000.00 ( 2 ) Cash 26,700.00 Payables 26,450.00 Discount 250.00 Discount 250.00 Retained Earnings 250.00 New Balances Cash 25,810.00 Receivables 60,000.00 Inventories 67,000.00 Accounts Payable 18,300.00 Other current Liabilities 14,200.00 Total 152,810.00 32,500.00 Current Ratio 152810 / 32500 Current Ratio 4.70 Working Capital 152810 -32500 Working Capital 120,310.00