Problem 7-1 Sage Equipment Co. closes its books regularly on December 31, but at
ID: 2788637 • Letter: P
Question
Problem 7-1 Sage Equipment Co. closes its books regularly on December 31, but at the end of 2017 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given below January cash receipts recorded in the December cash book totaled $52,800, of which $29,700 represents cash sales, and $23,100 represents collections on account for which cash discounts of $346 were given January cash disbursements recorded in the December check register liquidated accounts payable of $22,491 on which discounts of $251 were taken The ledger has not been closed for 2017 The amount shown as inventory was determined by physical count on December 31, 2017. 1· 2. 3. 4. The company uses the periodic method of inventoryExplanation / Answer
Journal entries:
Date Particulars Debit($) Credit($)
31/12 Accounts receivable $23446
Sales $29700
To cash $52800
To sales discount $346
31/12 Cash $22240
Purchase discount $251
To accounts payable $22491
Balance sheet After adjustment
Dr Cr Dr Cr
Cash $40840 $10280
Accounts receivable $39970 $63416
Inventory $69520 $69520
Accounts payable $41690 $64181
Other current liabilities $14694 $14694
Balance sheet:
Working capital = current assets - current liabilities
= $150330 - $56384
= $93946
Current ratio = current assets / current liabilities
= $150330 / $56384
= 2.67 times
After adjustment
Working capital = $143216 - $78875
= $64341
Current ratio = $143216 / $78875
= 1.82 times.