The current assets and liabilities sections of the balance sheet of Agincourt Company appear as follows.
|Balance Sheet (Partial)|
|December 31, 2010|
|Accounts receivable||$89,000||Notes payable||67,000|
|Less: Allowance for doubtful accounts||7,000||82,000||$128,000|
The following errors in the corporation’s accounting have been discovered:
- January 2011 cash disbursements entered as of December 2010 included payments of accounts payable in the amount of $35,000, on which a cash discount of 2% was taken.
- The inventory included $27,000 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $10,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.
- Sales for the first four days in January 2011 in the amount of $30,000 were entered in the sales book as of December 31, 2010. Of these, $21,500 were sales on account and the remainder were cash sales.
- Cash, not including cash sales, collected in January 2011 and entered as of December 31, 2010, totaled $35,324. Of this amount, $23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.
|(a)||Restate the current assets and liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross.) (List current liabilities with notes payable first.)|
|Partial Balance Sheet|
|As of December 31, 2010|
|Accounts receivableAllowance for doubtful accountsPrepaid expensesAccounts payableNotes payableCash||$|
|Notes payableAccounts receivableCashAllowance for doubtful accountsPrepaid expensesAccounts payable||$|
|Less: Accounts payableCashAccounts receivablePrepaid expensesNotes payableAllowance for doubtful accounts|
|Notes payableCashPrepaid expensesAccounts receivableAccounts payableAllowance for doubtful accounts|
|Total current assets||$|
|CashAllowance for doubtful accountsPrepaid expensesAccounts receivableNotes payableAccounts payable||$|
|CashAccounts receivablePrepaid expensesNotes payableAllowance for doubtful accountsAccounts payable|
|Total current liabilities||$|
|(b)||State the net effect of your adjustments on Agincourt Company’s retained earnings balance. (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)|
|Adjustment to retained earnings balance:|
|Add: January sales discounts||$|
|Deduct: January sales||$|
|January purchase discounts|
|Change (decrease) to retained earnings||$|