E.5.9.The currents assets and liabilities sections of the balance sheet of Allesandro Scarlatti Co appears as follows

E.5.9.The currents assets and liabilities sections of the balance sheet of Allesandro Scarlatti Co appears as follows :

Allesandro Scarlatti Co

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Balance Sheet (Partial)

December 31,2004

Cash                               $    40,000   Accounts payable      $   61,000

Account Receivable        $    89,000   Notes payable           $   67,000

Allowance for doubtful   $    (7,000)                                   $ 128,000

Inventories                     $  171,000

Prepaid expenses           $      9,000

                                       $  302,000                                  

The following errors in the corporation’s accounting have been discovered

•January 2005 cash disbursements entered as of December 2004, included payments of accounts payable in the amount of $ 39,000, 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, $ 12,000 had been received on consignment, the remainder was purchased FOB destination, terms 2/10, n/30.

•Sales for the first four days in January 2005 in the amount of $ 30,000 were entered in the sales book as of December 31,2004. Of these, $ 21,500 were sales on account and the remainder were cash sales.

•Cash not including cash sales, collected in January 2005 and entered as of December 31,2004, 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.

Instructions :

a.Restate the currents 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).

State the net effect of your adjustments on Allesandro Scarlatti Co’s retained earnings balance.

P.5-3.The adjusted trial balance of Side Kicks Co and other related information for the year 2004 is presented below :

Side Kicks Company

Adjusted Trial Balance

December 31, 2004

                                                                               Debits                 Credits

Cash                                                                          41,000

Account Receivable                                                 163,500

Allowance for doubtful accounts                                                            8,700

Prepaid insurance                                                       5,900

Inventory                                                                308,500   

Long term investments                                            339,000

Land                                                                          85,000

Construction work in progress                                 124,000

Patents                                                                      36,000

Equipment                                                               400,000

Accumulated depreciation of equipment                                            140,000

Unamortized discount on bonds payable                    20,000

Account payable                                                                                 148,000

Accrued expenses                                                                                 49,200

Notes payable                                                                                       94,000

Bonds payable                                                                                     400,000

Capital stock                                                                                       500,000

Premium on capital stock                                                                      45,000

Retained earnings                                            _                _          _    138,000

                                                                        $  1,522,900          $ 1,522,900

Additional information :

1.The inventory has a replacement market value of $ 353,000. The LIFO method of inventory value is used.

2.The cost and fair value of the long term investments that consist of stocks and bonds is the same.

3.The amount of the construction work in progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time). The land on which the building is being constructed cost $ 85,000, as shown in the trial balance.

4.The patents were purchased by the company at a cost of $ 40,000 and are being amortized on a straight line basis.

5.Of the unamortized discount on bonds payable, $ 2,000 will be amortized in 2005

6.The notes payable represent bank loans that are secured by long term investments carried at $ 120,000. These bank loans are due in 2005

7.The bonds payable bear interest at 11 % payable every December 31, and are due January 1, 2015.

8.600,000 shares of common stock of a par value of $ 1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions :

Prepare a balance sheet of December 31, 2004, so that all important information is fully disclosed.

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