LuLu Limited is a merchandizing company of computer printers. Weighted average cost method and perpetual inventory system are adopted in the accounting for its inventory valuation. LuLu prepares its financial statements, adjusting entries and closing entries on December 31 each year. Below was the adjusted trial balance on December 31, 2020 which was prepared by an inexperienced accountant of the company. LuLu Limited Adjusted Trial Balance As at December 31, 2020 Debit Credit (S) 700,000 350,000 241,000 10,000,000 (S) Cash Inventory Accounts receivable Land and building Accumulative depreciation: building Allowance for impairment (January 1, 2020) Accounts payable 5% Notes payable (due December 31, 2020) Ordinary shares (300,000 shares, $10 par value) Share premium: Ordinary shares Retained earnings (January 1, 2020) Treasury shares (5,000 ordinary shares at cost) Dividends Sales revenue 200,000 48,000 160,000 60,000 3,000,000 1,500,000 565,000 55,000 60,000 9,945,000 Cost of goods sold Operating expense Salaries expense Depreciation expense: building 2,902,000 1,000,000 120,000 50,000 15,478,000 15,478,000 Other information: • On October 1, 2020, LuLu Limited borrowed $60,000 from East Bank and signed a 5%, three-month note payable, all due at December 31, 2020. You were the auditor of LuLu Limited. After reviewing the financial statement prepared by the inexperienced accountant, you discovered that the following transactions were not recorded by the company for the financial year ended December 31, 2020. Item Date Descriptions No. (i) Nov. 1 The company reissued 2,000 shares of treasury shares for cash of $40,000. (ii) Nov 2 Sold 80 units of computer printers for $400 each to Shen Limited on account. The cost of each computer was $150. A check for $2,000 was received from the customer, Samson Chan, whose account receivable was written off as uncollectible on March 31, 2020. (iii) Nov 15 (iv) Dec 31 The $60,000 note payable to East Bank matured on December 31, 2020. LuLu paid all the accrued interest and $20,000 of the principal on this note. A new two-month, 6% note payable was issued to replace the balance of the principal that matured. (v) Dec 31 LuLu bank reconciliation at December 31, 2020 showed that check #224 for the payment of an account payable (Susan Fong) was correctly written on the check for $3,657 but was mistakenly recorded in the accounting records as $3,675. (vi) Based on an aging schedule of accounts receivable prepared on December 31, 2020, $65,000 of accounts receivable were estimated to be Assume LuLu Limited uses the statement of financial Dec 31 uncollectible. position approach to estimate the credit losses. Required: Prepare the journal entries to capture the unrecorded transactions from items (i) to (vi) and information listed above so as to bring the financial records of LuLu Limited up-to-date. а. If a transaction does not require any entry, state “No entry is required". (Explanation for each journal entry is NOT required.) b. Prepare the Income Statement of LuLu Limited based on the up-to-date financial records for the year ended December 31, 2020.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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LuLu Limited is a merchandizing company of computer printers. Weighted average cost
method and perpetual inventory system are adopted in the accounting for its inventory valuation.
LuLu prepares its financial statements, adjusting entries and closing entries on December 31
each year.
Below was the adjusted trial balance on December 31, 2020 which was prepared by an
inexperienced accountant of the company.
LuLu Limited
Adjusted Trial Balance
As at December 31, 2020
Debit
Credit
(S)
700,000
350,000
241,000
10,000,000
(S)
Cash
Inventory
Accounts receivable
Land and building
Accumulative depreciation: building
Allowance for impairment (January 1, 2020)
Accounts payable
5% Notes payable (due December 31, 2020)
Ordinary shares (300,000 shares, $10 par value)
Share premium: Ordinary shares
Retained earnings (January 1, 2020)
Treasury shares (5,000 ordinary shares at cost)
Dividends
Sales revenue
200,000
48,000
160,000
60,000
3,000,000
1,500,000
565,000
55,000
60,000
9,945,000
Cost of goods sold
Operating expense
Salaries expense
Depreciation expense: building
2,902,000
1,000,000
120,000
50,000
15,478,000
15,478,000
Other information:
• On October 1, 2020, LuLu Limited borrowed $60,000 from East Bank and signed a 5%,
three-month note payable, all due at December 31, 2020.
Transcribed Image Text:LuLu Limited is a merchandizing company of computer printers. Weighted average cost method and perpetual inventory system are adopted in the accounting for its inventory valuation. LuLu prepares its financial statements, adjusting entries and closing entries on December 31 each year. Below was the adjusted trial balance on December 31, 2020 which was prepared by an inexperienced accountant of the company. LuLu Limited Adjusted Trial Balance As at December 31, 2020 Debit Credit (S) 700,000 350,000 241,000 10,000,000 (S) Cash Inventory Accounts receivable Land and building Accumulative depreciation: building Allowance for impairment (January 1, 2020) Accounts payable 5% Notes payable (due December 31, 2020) Ordinary shares (300,000 shares, $10 par value) Share premium: Ordinary shares Retained earnings (January 1, 2020) Treasury shares (5,000 ordinary shares at cost) Dividends Sales revenue 200,000 48,000 160,000 60,000 3,000,000 1,500,000 565,000 55,000 60,000 9,945,000 Cost of goods sold Operating expense Salaries expense Depreciation expense: building 2,902,000 1,000,000 120,000 50,000 15,478,000 15,478,000 Other information: • On October 1, 2020, LuLu Limited borrowed $60,000 from East Bank and signed a 5%, three-month note payable, all due at December 31, 2020.
You were the auditor of LuLu Limited. After reviewing the financial statement prepared by the
inexperienced accountant, you discovered that the following transactions were not recorded by
the company for the financial year ended December 31, 2020.
Item
Date
Descriptions
No.
(i)
Nov. 1
The company reissued 2,000 shares of treasury shares for cash of
$40,000.
(ii)
Nov 2
Sold 80 units of computer printers for $400 each to Shen Limited on
account. The cost of each computer was $150.
A check for $2,000 was received from the customer, Samson Chan, whose
account receivable was written off as uncollectible on March 31, 2020.
(iii)
Nov 15
(iv)
Dec 31
The $60,000 note payable to East Bank matured on December 31, 2020.
LuLu paid all the accrued interest and $20,000 of the principal on this
note. A new two-month, 6% note payable was issued to replace the
balance of the principal that matured.
(v)
Dec 31
LuLu bank reconciliation at December 31, 2020 showed that check #224
for the payment of an account payable (Susan Fong) was correctly written
on the check for $3,657 but was mistakenly recorded in the accounting
records as $3,675.
(vi)
Based on an aging schedule of accounts receivable prepared on December
31, 2020, $65,000 of accounts receivable were estimated to be
Assume LuLu Limited uses the statement of financial
Dec 31
uncollectible.
position approach to estimate the credit losses.
Required:
Prepare the journal entries to capture the unrecorded transactions from items (i) to (vi) and
information listed above so as to bring the financial records of LuLu Limited up-to-date.
а.
If a transaction does not require any entry, state “No entry is required".
(Explanation for each journal entry is NOT required.)
b.
Prepare the Income Statement of LuLu Limited based on the up-to-date financial records
for the year ended December 31, 2020.
Transcribed Image Text:You were the auditor of LuLu Limited. After reviewing the financial statement prepared by the inexperienced accountant, you discovered that the following transactions were not recorded by the company for the financial year ended December 31, 2020. Item Date Descriptions No. (i) Nov. 1 The company reissued 2,000 shares of treasury shares for cash of $40,000. (ii) Nov 2 Sold 80 units of computer printers for $400 each to Shen Limited on account. The cost of each computer was $150. A check for $2,000 was received from the customer, Samson Chan, whose account receivable was written off as uncollectible on March 31, 2020. (iii) Nov 15 (iv) Dec 31 The $60,000 note payable to East Bank matured on December 31, 2020. LuLu paid all the accrued interest and $20,000 of the principal on this note. A new two-month, 6% note payable was issued to replace the balance of the principal that matured. (v) Dec 31 LuLu bank reconciliation at December 31, 2020 showed that check #224 for the payment of an account payable (Susan Fong) was correctly written on the check for $3,657 but was mistakenly recorded in the accounting records as $3,675. (vi) Based on an aging schedule of accounts receivable prepared on December 31, 2020, $65,000 of accounts receivable were estimated to be Assume LuLu Limited uses the statement of financial Dec 31 uncollectible. position approach to estimate the credit losses. Required: Prepare the journal entries to capture the unrecorded transactions from items (i) to (vi) and information listed above so as to bring the financial records of LuLu Limited up-to-date. а. If a transaction does not require any entry, state “No entry is required". (Explanation for each journal entry is NOT required.) b. Prepare the Income Statement of LuLu Limited based on the up-to-date financial records for the year ended December 31, 2020.
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