The current assets and current liabilities sections of the balance sheet of Alle

Question

The current assets and current liabilities sections of the balance sheet of Allessandro Scarlatti Company appear as follows. The following errors in the corporation's accounting have been discovered: January 2015 cash disbursements entered as of December 2014 included payments of accounts payable in the amount of $43,700, on which a cash discount of 2% was taken. The inventory included $29,100 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $11,800 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 2015 in the amount of $34,660 were entered in the sales journal as of December 31, 2014. Of these, $30,840 were sales on account and the remainder were cash sales. Cash, not including cash sales, collected in January 2015 and entered as of December 31, 2014, totaled $39,226. Of this amount, $27,636 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan. Restate the current assets and current 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 Assets in order of liquidity.) Restate the current assets and current 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 Assets in order of liquidity.) State the net effect of your adjustments on Allessandro Scarlatti Company's retained earnings balance.

Explanation / Answer

a Allesandro Scarlatti Company Partial Balance Sheet As of December 2014 $ $ Current Asset Cash*            48,620 Account Receivable**          95,880 Allowance for doubtful account          (8,970)            86,910 Inventories***          161,920 Prepaid expense              9,110 Total current Assets          306,560 Current Liabilities Accounts payable a            94,210 Notes payable b            61,120 Total current Liabilities          155,330 b Adjustment to retained earnings statement $ $ January sales discounts($27636/.98*0.02)                  564 January sales 34660 January purchase discount($43700*0.02) 874 December purchase ($29100-$11800) 17300 consignment inventory 11800          (64,634) Change (decrease) to retained earnings          (64,070) $ Cash Balance            48,840 Cash disbursement after discount(43,700*98%)            42,826            91,666 Cash sale in january($34,660-$30,840)            (3,820) Cash collected on account          (27,636) Bank loan proceeds          (11,590) Adjusted cash*            48,620 $ Account Receivable balance            98,520 Accounts reduced from january collection($27636/.98)            28,200          126,720 Account receivable in January          (30,840) Adjusted accounts receivable**            95,880 $ Inventories          173,720 Inventories received on consignment          (11,800) Adjustment to inventory***          161,920 $ $ Accounts Payable          67,810 Cash disbursement            43,700 Purchase invoice ommitted($29,100-$11,800)          (17,300)          26,400 Adjusted account payable a          94,210 $ Notes Payable            72,920 Proceeds of bank loan          (11,800) Adjusted notes payable b            61,120

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