ts accounting policy calls for inventory purchases to be recorded net of any discounts offered. Jan. 10 Paid Aztec Enterprises $11,100 for books that it received on December 15. (This purchase was recorded as a debit to Inventory and a credit to Accounts Payable on December 15 of last year, but the accounting clerk ignores that fact.) Dec. 27 Received books from McSaw Inc. for $26,500; terms 2/10, n/30. Dec. 30 Sold books to Booksellers Unlimited
King Enterprises is a book wholesaler. King hired a new accounting clerk on January 1 of the current year. The new clerk does not understand accrual accounting and recorded the following transactions based on when cash receipts and disbursements changed hands rather than when the transaction occurred. King uses a perpetual inventory system, and its accounting policy calls for inventory purchases to be recorded net of any discounts offered.
| Jan. | 10 | Paid Aztec Enterprises $11,100 for books that it received on December 15. (This purchase was recorded as a debit to Inventory and a credit to Accounts Payable on December 15 of last year, but the accounting clerk ignores that fact.) | |
| Dec. | 27 | Received books from McSaw Inc. for $26,500; terms 2/10, n/30. | |
| Dec. | 30 | Sold books to Booksellers Unlimited for $43,000; terms 1/10, n/30. The cost of these books to King was $34,000. |
Required:
a) As a result of the accounting clerk's errors, compute the amount by which
How much Inventory is understated. (the answer is not $8,030, is not $7500, is not $7350, is not $7,250) ?
How much Accounts Payable is understate (the answer is not $541,00)?
b) Prepare a single
c) Assume that the ending inventory balance is correctly stated based on adjustments resulting from a physical inventory count. (Cost of Goods Sold was debited or credited based on the inventory adjustment.) Assume that King has already closed its books for the current year, and make a single journal entry to correct the errors that the accounting clerk has made. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Journal entries are those entries that involve the day-to-day transactions or events of a company and further, they are stated in the books of accounts on the desired accounting basis.
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