(Determine Proper Cash Balance) Francis Equipment Co. closes its books regularly
ID: 2366892 • Letter: #
Question
(Determine Proper Cash Balance) Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 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 following information is given. 1.January cash receipts recorded in the December cash book totaled $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 2010. 4.The amount shown as inventory was determined by physical count on December 31, 2010. The company uses the periodic method of inventory. (A) Prepare any entries you consider necessary to correct Francis's accounts at December 31. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) (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.) Assume that the balance sheet that was prepared by the company showed the following amounts: Cash Dr.= $39,000 Receivables Dr.= $42,000 Inventories Dr.= $67,000 Accounts payable Cr.= $45,000 Other current liabilities Cr.= $14,200 (Round current ratios to 2 decimal places, e.g. 5.25.) Working capital per balance sheet $_________ Working capital after adjustment $___________ Current ratio per balance sheet ____?_____to 1 Current ratio after adjustment ____?_____to 1Explanation / Answer
1. Goods shipped toKwokf.o.b. destination on December 20, 2011, were received on January 4, 2012. The invoice cost was $30,000.
Not included in Kwok's inventory at 12/31 as goods shipped FOB destination do not become the property of the receiving company until they reach the destination
2. Goods shipped to Kwok f.o.b. shipping point on December 28, 2011, were received on January 5, 2012. The invoice cost was $20,000.
These are included in Kwok's inventory as goods shipped FOB shipping point become the property of the receiving company as soon as they leave the selling company's shipping dock. destination
3. Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2011, were received by the customer on January 3, 2012. The sales price was $45,000 and the merchandise cost $24,000.
Items shipped by Kwok FOB destination are considered Kwok's until they reach their destination. These are included in Kwok's 12/31 inventory.
4. Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2011, were received by the customer on December 30, 2011. The sales price was $23,000 and the merchandise cost $15,000.
Items were received by the customer by 12/31, so Kwok does not include these in their 12/31 inventory.
5.Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2011, were received by the customer on January 4, 2012. The sales price was $28,000 and the merchandise cost $16,000.
These became the customer's property as soon as they left Kwok's dock. They are not included in the 12/31inventory Balance.
Balance includes:
$169,000 + $20,000 + $24,000 = $213,000
The answer is $213,000
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