Francis
Equipment Co. closes its books regularly on December 31, but at the end of 2014
it held its cash book open so that a more
P7-1 (Determine Proper Cash Balance) Francis Equipment Co. closes its books regularly
on December 31, but at the end of 2014 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.
1. January
cash receipts recorded in the December cash book totalled $45,640 of which $28,000
represents cash sales, and $17,640 represents collections on account for which
cash discounts of $360 were given.
2. January
cash disbursements recorded in the December check register liquidated accounts
payable of $22,450 on which discounts of $250 were taken.
3. The
ledger has not been closed for 2014.
4. The
amount shown as inventory was determined by physical count on December 31,
2014.
The
company uses the periodic method of inventory.
Instructions
(a) Prepare
any entries you consider necessary to correct Francis’s accounts at December
31.
(b) To what
extent was Francis Equipment Co. able to show a more favorable balance sheet at December 31 by holding its cash book
open? (Compute working capital and the current ratio.) ssume that the balance sheet that
was prepared by the company showed the
following amounts:
TUTORIAL
PREVIEW
(a) Prepare
any entries you consider necessary to correct Francis’s accounts at December
31.
31/12/2014
|
Accounts Receivable ($17,640 + $360)
|
18,000
|
|
Sales
|
28,000
|
||
Cash
|
45,640
|
||
File name: P7-1 Francis.xls File type: . xls PRICE:$6
