ACCO 240 Lecture : Correction of errors- add qu.docx
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The Colby Group has the following unadjusted trial balance as of August 31, 2019.
Collby Group | ||
Unadjusted Trial Balance | ||
August 31, 2019 | ||
Accounts Title | Debit | Credit |
Cash | $17,300 | |
Accounts Receivable | $37,000 | |
Supplies | $7,400 | |
Prepaid Insurance | $1,900 | |
Equipment | $196,000 | |
Notes Payable | $97,600 | |
Accounts Payable | $26,000 | |
Terry Collby, Capital | $129,150 | |
Terry Collby, Drawings | $56,000 | |
Fee Earned | $454,450 | |
Wages Expense | $270,000 | |
Rent Expense | $51,800 | |
Advertising Expense | $25,200 | |
Miscellaneous Expense | $5,100 | |
Total | $667,700 | $707,200 |
The debit and credit totals are not equal as a result of the following errors:
a. The cash entered on the trial balance was understated by $6,000.
b. A cash receipt of $5,600 was posted as a debit to Cash of $6,500.
c. A debit of $11,000 to Accounts Receivable was not posted.
d. A return of $150 of defective supplies was erroneously posted as a $1,500 credit to Supplies.
e. An insurance policy acquired at a cost of $1,200 was posted as a credit to Prepaid Insurance.
f. The balance of Notes Payable was understated by $20,000.
g. A credit of $4,800 in Accounts Payable was overlooked when determining the balance of the account.
h. A debit of $7,000 for withdrawal by the owner was posted as a credit to Terry Colby, Capital.
i. The balance of $58,100 in Rent Expense was entered as $51,800 in the trial balance.
j. Gas, Electricity, and Water Expense, with a balance of $24,150, was omitted from the trial balance.
Required:
1. Prepare a corrected unadjusted trial balance as of August 31, 2019.
2. Does the fact that the unadjusted trial balance in (1) is balanced means that there are no errors in the accounts?
Question 3
The information given below was extracted for the records ofZebro Traders for May 2017
Required.
3.1 Prepare the correct Creditors Control Account for my2017.Balance the account. (11)
3.2 Prepare the corrected Creditors List as at 31 May 2017.
Information
Credit balance in the creditorâs control account on 01 May2017 | R 256 500 |
Transactionâs for May 2017(excluding the additional informationbelow): | R |
Merchandise purchased on credit | 660 600 |
Merchandise purchased by cheque | 446 400 |
Cheques issued to creditors in payment of accounts and discountsreceived | 642 150 |
Merchandise returned to creditors | 7 560 |
Stationery purchased on account | 14 400 |
Interest charged by a creditor on an overdue account | 270 |
Creditors List AS at 31 May 2017 | ||
Creditor | Debit | Credit |
Union Limited Voltex Suppliers Tropical Manufactures Southgate Enterprises Proworx Wholesalers | 2700 | 41 400 63 180 169 200 30 600 |
2700 | 304 380 |
Additional Information not yet recorded.
1. The balance in the account of Proworx Wholesalers must betransferred to their account in the Debtors ledger.
2. A credit note received from Union Limited for Merchandise returnedwas not recorded in the Purchases Returns Journal. R8 100.
3. An invoice received from Tropical Manufactures for goods purchasedwas correctly entered in the Purchases Journal as R7500 buterroneously posted to their account as R 9120 in the creditorsLedger.
4. An electronic funds transfer to Voltex Suppliers in part settlementof account was not recorded in the Cash Payment Journal, R6300.
5. A cheque to Southgate Enterprises for R9000 was correctly recordedin the Cash Payments Journal but treated as a purchase in thesuppliers account in the CREDITORs ledger.
Ferntree Clothing Inc. is a company that makes and sellsclothing to upscale shops across the country. In 2005, the companydecided to add the sale of fabric to the company portfolio, sellingmainly to other clothing manufacturing companies. Ferntree soonrealized that this market was unprofitable with low margins andwith the continued increase in on-line sales ,their fabric divisionwas suffering.
The companyâs current controller vacated the position withoutnotice four months ago and Ferntree has hired you as their newcontroller to make any adjustments necessary and correct any errorsyou may find. The fiscal year end is January 31, 2017 and you willneed to correct errors, make adjustments and draft financialstatements using ASPE in preparation for the annual audit. Thefollowing information has been gathered for you to work with.
The trial balance at January 31, 2017, before any adjustments isprovided on the attached excel worksheet.
Your review through the company files has led you to thefollowing information, which may require adjustments:
1. In October of 2016, the shareholders met and decided to sellthe fabric division. By December 2016, it became apparent that abuyer is unlikely to be found. The only asset of this division isthe inventory, and all attempts have been made to sell this byyear-end. The company is expected to recover the book value of theinventory as it is being carried at its current fair value. Thereare no liabilities relating to this division. (Hint: Regardless ofa buyer, this would be classified as a gain/loss from discontinuedoperations).
2. The company paid a dividend of $25,000 to its shareholders inDecember 2016. This amount was incorrectly recorded as a cost ofgoods sold for the clothing division.
3. Last years accounts payable had been paid: $25,000 for theclothing division and $15,000 for the fabric division. When theywere paid, they had been debited to cost of goods sold for clothingdivision and operating expenses for the fabric division.
4. Upon reviewing the aged accounts receivable, it is apparentthat one account in the amount $5,000 had become uncollectible andwas written off to bad debt expense. In the past, 1% of accountsreceivable had been used to estimate the allowance for doubtfulaccounts, but this year given the past history, they have decidedto increase that amount to 2% of accounts receivable. All accountsreceivable and the allowance account relate to the clothingdivision.(Hint: adjust the bad debt expense and allowance accountfirst before you adjust for the allowance for doubtfulaccounts).
5. In January 2017, some old equipment was sold for proceeds of$250 cash. The original equipment cost $5,000 and had accumulateddepreciation of $4,900. The entry made when depositing the cash wasdebit Cash, credit equipment for $250. The equipment is beingamortized using the straight-line method over 10 years.Depreciation has not been recorded for the current year for theremainder of the equipment in this account.
6. FV-NI investments are long-term investments. The fair valueof the portfolio investments at January 31, 2017 was $35,000.
7. Insurance is paid each November 30th and covers a 12-monthperiod. When the company paid the insurance, it was debited toinsurance expense.
8. The note payable is due in two equal installments of $25,000each, plus interest on January 31, 2018 and 2019. The annualinterest rate is 5% and the note has been outstanding since August1, 2016.
9. Unpaid salaries and wages amounted to $1,500 at January 31,2017 and will be paid in the first payroll of February 2017. Thesehave not been recorded.
10. In reviewing sales, it was determined that the balance inthe unearned revenue account as at January 31, 2017 should be$30,000. The entire amount relates to the clothing division.
11. Ferntree has been making some income tax installments anddebiting these payments to the Income Taxes Payable account. It hasbeen determined that the applicable tax rate is 25%. The adjustingentry needed for taxes has not been recorded yet. (Hint: do thisentry last)
Required: a) Prepare all adjusting and correcting entries basedon the above information.
b) Post these entries journal entries to the trial balance andcomplete other columns of the work in good form
c) Prepare the January 31, 2017 Combined IncomeStatement/Comprehensive Income using the Multi-step incomestatement format, Statement of Financial Position and Statement ofRetained Earnings for Ferntree Clothing Inc. for the fiscal yearended January 31, 2017
Ferntree Clothing Inc. | January 31, 2017 | ||||||
Unadjusted Trial Balance | Adjustments | Adjusted Trial Balance | |||||
Account | Debit | Credit | Debit | Credit | Debit | Credit | |
Petty Cash | 500 | ||||||
Cash | 63,250 | ||||||
Accounts Receivable | 252,000 | ||||||
Allowance for doubtful accounts | 7,500 | ||||||
Preapaid Insurance | 5,000 | ||||||
Inventory- Clothing | 400,000 | ||||||
Inventory- Fabric | 150,000 | ||||||
FV-NI Investments | 30,000 | ||||||
Equipment | 499,750 | ||||||
Accum. Depreciation- Equipment | 200,000 | ||||||
Goodwill | 25,000 | ||||||
Accounts Payable | 75,000 | ||||||
Salaries & wages Payable | 0 | ||||||
Interest payable | 0 | ||||||
Notes Payable | 50,000 | ||||||
Unearned Revenue | 20,000 | ||||||
Income tax payable | 60,000 | ||||||
Common shares | 75,000 | ||||||
Retained Earnings | 588,000 | ||||||
Dividends | 0 | ||||||
Sales Revenue- Clothing | 2,000,000 | ||||||
Sales Revenue- Fabric | 250,000 | ||||||
Unrealized Gain/loss- FV-NI | 0 | ||||||
Gain/loss on disposal of equipment | 0 | ||||||
Cost of Goods sold- Clothing | 1,200,000 | ||||||
Cost of Goods sold- Fabric | 275,000 | ||||||
Operating expenses-Fabric | 100,000 | ||||||
Operating Expenses-Clothing: | |||||||
Depreciation expense | 0 | ||||||
Office expense | 12,000 | ||||||
Travel expense | 4,800 | ||||||
Insurace expense | 7,200 | ||||||
Interest expense | 1,200 | ||||||
Utilities expense | 2,600 | ||||||
Rent expense | 41,000 | ||||||
Salaries & wages expense | 125,000 | ||||||
Supplies expense | 500 | ||||||
Bad debt expense | 5,000 | ||||||
Telephone & internet expense | 4,200 | ||||||
Repairs & maintenance expense | 1,500 | ||||||
Income tax expense | 0 | ||||||
3,265,500 | 3,265,500 | 0 | 0 | 0 | 0 | ||