Chapter 6 Correction of Errors (I): Errors Not Affecting
Trial Balance Agreement
QUESTION 1
The petty cashier of Hush Enterprise found that the petty cash balance shown in the petty cash book as at
30 April 2011 was different from the amount kept in the cash box. The balances were as follows:
Balance as per petty cash book$1,250
Petty cash balance in the cash box$3,080
The monthly total of the expenses paid by petty cash had already been posted to the general ledger.
After investigation, the petty cashier found the following mistakes:
(i)A payment for cleaning expenses of $450 had been recorded twice in the petty cash book.
(ii)Travelling expenses of $55 had been recorded in the petty cash book as $25.
(iii)A medical claim by a staff memberfor $400 had been recorded in the motor expenses column.
(iv)A magazine subscription of $1,000 had been paid by cheque. The petty cashier wrongly recorded it in the petty cash book.
(v)A petty cash application to purchase stationery costing $710 was not paid by the petty cashier until
1 May 2011. However, it had been recorded in the petty cash book.
(vi)During the month, the petty cashier reimbursed a staff member $330 for postage, which was actually $30. The amount recorded in the petty cash book was $30. As at 30 April 2011, the staff member had not returned the overpayment.
Required:
(a)Prepare the journal entries to correct the above errors. (Narrations are not required.)(5 marks)
(b)Prepare a statement to show the correct petty cash book balance.(3 marks)
(c)Prepare a statement to show the correct petty cash on hand balance, starting with the corrected petty cash book balance computed in part (b). (1 mark)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Petty cash / 450 / 0.5
Cleaning expenses / 450 / 0.5
(ii) / Travelling expenses ($55 – $25) / 30 / 0.5
Petty cash / 30 / 0.5
(iii) / Medical expenses / 400 / 0.5
Motor expenses / 400 / 0.5
(iv) / Petty cash / 1,000 / 0.5
Bank / 1,000 / 0.5
(v) / Petty cash / 710 / 0.5
Stationery expenses / 710 / 0.5
(b)
Statement Showing the Correct Petty Cash Book Balance as at 30 April 2011$ / $
Balance as per petty cash book before correction / 1,250 / 0.5
Add / Cleaning expenses recorded twice (i) / 450 / 0.5
Magazine subscription wrongly recorded (iv) / 1,000 / 0.5
Stationery expense not yet incurred (v) / 710 / 2,160 / 0.5
3,410
Less / Travelling expenses understated (ii) / (30 / )0.5
Correct petty cash book balance / 3,380 / 0.5
(c)
Statement Showing the Correct Petty Cash On Hand Balance as at 30 April 2011$
Correct petty cash book balance / 3,380 / 0.25
Less / Over-payment of postage (vi) ($330 – $30) / (300 / )0.5
Correct petty cash on hand balance / 3,080 / 0.25
QUESTION 2
The balance sheet of Watt Enterprise as at 31 March 2010 is set out below:
Balance Sheet as at 31 March 2010$ / $ / $ / $
Non-current assets / Capital
Plant and machinery / 120,000 / Balance as at 1 April 2009 / 135,000
Less Accumulated / Add Net profit for the year / 43,500
depreciation / (30,000 / ) / 90,000 / 178,500
Motor vehicles / 112,500 / Less Drawings / (11,190 / )
Less Accumulated / 167,310
depreciation / (52,500 / ) / 60,000 / Current liabilities
150,000 / Accounts payable / 5,010
Current assets / Accrued expenses / 180 / 5,190
Inventory / 12,300
Accounts receivable / 6,225
Bank / 3,975 / 22,500
172,500 / 172,500
After investigation, the following information was revealed:
(i)During the inventory taking on 31 March 2010, 375 units of goods were entered at a unit cost of $1.8. Those goods should have been valued at $10.8 per unit.
(ii)An allowance for doubtful accountsat 8% ofaccounts receivable was to be created. In addition, an allowance for discounts allowed of 2% wasto be made.
(iii)It is the firm’s policy to depreciate non-current assets based on the reducing-balance method. Unfortunately, the accounts clerk wrongly computed the depreciation for the year (plant and machinery for $12,000 and motor vehicles for $22,500) based on the straight-line method even though the same rates had been applied. There was no purchase or disposal of non-current assets during the year.
(iv)The accrued expenses of $180 should have been prepaid expenses.
(v)The firm had $11,250 in wages and salaries outstanding as at 31 March 2010but this had not been recorded.
Required:
(a)Prepare the journal entries to correct the above errors. (Narrations are not required.)(7 marks)
(b)Calculate the net profit after adjustments have been made.(4.5 marks)
(c)Prepare a statement to ascertain the amount of net current assets as at 31 March 2010.(4.5 marks)
(Calculations to the nearest dollar)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Inventory [375 × ($10.8 – $1.8)] / 3,375 / 0.5
Profit and loss ─ Closing inventory / 3,375 / 0.5
(ii) / Profit and loss / 613 / 0.5
Allowance for doubtful accounts ($6,225 × 8%) / 498 / 0.5
Allowance for discounts allowed [($6,225 – $498) × 2%] / 115 / 0.5
(iii) / Accumulated depreciation: Plant and machinery / 1,800 / 0.5
Profit and loss ─ Depreciation (W1) / 1,800 / 0.5
Accumulated depreciation: Motor vehicles / 6,000 / 0.5
Profit and loss ─ Depreciation (W2) / 6,000 / 0.5
(iv) / Accrued expenses / 180 / 0.5
Prepaid expenses / 180 / 0.5
Profit and loss / 360 / 0.5
(v) / Profit and loss ─ Wages and salaries / 11,250 / 0.5
Accrued expenses / 11,250 / 0.5
(b)
Watt EnterpriseStatement of Adjusted Net Profit for the year ended 31 March 2010$ / $
Net profit before adjustments / 43,500 / 0.5
AddClosing inventory understated (i) / 3,375 / 0.5
Depreciation on plant and machinery overstated (iii) / 1,800 / 0.5
Depreciation on motor vehicles overstated (iii) / 6,000 / 0.5
Prepaid expenses wrongly recorded as accrued expenses (iv) / 360 / 11,535 / 0.5
55,035
LessAllowance for doubtful accounts omitted (ii) / 498 / 0.5
Allowance for discounts allowed omitted (ii) / 115 / 0.5
Accrued expenses omitted (v) / 11,250 / (11,863 / )0.5
Adjusted net profit / 43,172 / 0.5
(c)
Watt EnterpriseStatement of Adjusted Net Current Assets as at 31 March 2010$ / $
Current assets
Inventory ($12,300 + $3,375) / 15,675 / 0.5
Accounts receivable / 6,225 / 0.5
Less Allowance for doubtful accounts / (498 / ) / 0.5
Allowance for discounts allowed / (115 / ) / 5,612 / 0.5
Prepaid expenses / 180 / 0.5
Bank / 3,975 / 0.5
25,442
Less Current liabilities
Accounts payable / 5,010 / 0.5
Accrued expenses / 11,250 / (16,260 / )0.5
Adjusted net current assets / 9,182 / 0.5
Workings:
(W1)Plant and machinery:
Depreciation rate = 100% = 10%
Under the reducing-balance method, the depreciation charge for the year
= [$120,000 – ($30,000 – $12,000)] 10%
= $10,200
Depreciation overstated= $12,000 – $10,200
= $1,800
(W2)Motor vehicles:
Depreciation rate = 100% = 20%
Under the reducing-balance method, the depreciation charge for the year
= [$112,500 – ($52,500 – $22,500)] 20%
= / $16,500 Depreciation overstated= $22,500 – $16,500
= $6,000
QUESTION 3
For each of the independent situations described below, prepare journal entries to show the necessary adjustment. Narrations are not required. (8 marks)
(i)After inventory was taken at the year-end date, the closing inventory was determined to be $314,800. The bookkeeper recorded it in the books as follows:
DrProfit and loss account$318,400
CrInventory account$318,400
(ii)Accrued rental expenses of $5,210 and prepaid insurance expenses of $2,100 were omitted from the books.
(iii)Depreciation for office equipment was overcharged by $3,800.
(iv)The bank made a payment of $6,443 under a standing order for a subscription to a trade association. The item had been debited to the wages account.
(v)A bad debt recovered in the amount of $880 was for a debt written off earlier in the same financial year. No record wasmade of the recovery.
(vi)A cheque for $2,220 was drawn by the business at the year-end date but had not yet been presented for payment.
Answer:
The JournalDetails / Dr / Cr
$ / $
(i) / Inventory ($318,400 + $314,800) / 633,200 / 0.5
Profit and loss / 633,200 / 0.5
(ii) / Rental expenses / 5,210 / 0.5
Accrued rental expenses / 5,210 / 0.5
Prepaid insurance expenses / 2,100 / 0.5
Insurance expenses / 2,100 / 0.5
(iii) / Accumulated depreciation: Office equipment / 3,800 / 0.5
Depreciation: Office equipment / 3,800 / 0.5
(iv) / Subscriptions / 6,443 / 0.5
Wages / 6,443 / 0.5
(v) / Account receivable / 880 / 0.5
Bad debts / 880 / 0.5
Cash/Bank / 880 / 0.5
Account receivable / 880 / 0.5
(vi) / No journal entry is required. / 1
QUESTION 4
For each of the independent situations described below, prepare the journal entries to show the necessary adjustment. Narrations are not required. (9 marks)
(i)A telephone bill for $632 had been paid through the bank using direct debit. The business made the following entries after a bank statement was received at the end of the month.
DrTelephone expenses$623
CrBank$623
(ii)Credit sales of $250 to Kammy Luk, a customer, had been recorded in the purchases journal and then posted to the accounts payable ledger.
(iii)The business decided to increase the allowance for doubtful accounts from $1,366 to $2,134.
(iv)Depreciation at a rate of 5% on cost should be made on office equipment. The cost of the office equipment was $125,000. The following entries were made to record this:
DrAccumulated depreciation: Office equipment$6,250
CrDepreciation: Office equipment$6,250
(v)A gross credit sale of $50,000 with a 5% trade discount was made and the following entries were made:
DrAccounts receivable$47,500
DrDiscounts allowed$2,500
CrSales$50,000
(vi)During the year, furniture which originally cost $74,220 andfor which no depreciation had been was sold for $33,990 and the sum was paid by cheque. The bookkeeper debited the bank account and credited the sales account.
Answer:
The JournalDetails / Dr / Cr
$ / $
(i) / Telephone expenses ($632 – $623) / 9 / 0.5
Bank / 9 / 0.5
(ii) / Accounts payable Kammy Luk / 250 / 0.5
Purchases / 250 / 0.5
Accounts receivable Kammy Luk / 250 / 0.5
Sales / 250 / 0.5
(iii) / Profit and loss ($2,134 – $1,366) / 768 / 0.5
Allowance for doubtful accounts / 768 / 0.5
(iv) / Depreciation : Office equipment [($125,000 × 5%) + $6,250] / 12,500 / 0.5
Accumulated depreciation: Office equipment / 12,500 / 0.5
(v) / Sales ($50,000 – $47,500) / 2,500 / 0.5
Discounts allowed / 2,500 / 0.5
(vi) / Sales / 33,990 / 0.5
Disposal: Furniture / 33,990 / 0.5
Disposal: Furniture / 74,220 / 0.5
Furniture / 74,220 / 0.5
Profit and loss Loss on disposal / 40,230 / 0.5
Disposal: Furniture / 40,230 / 0.5
QUESTION 5
The following list of balances was extracted from the books of Johnny Tse’s business as at 31 May 2012:
$
Accounts payable34,440
Accounts receivable75,000
Accumulated depreciation: Motor vehicles, 1 June 2011168,000
Allowance for doubtful accounts, 1 June 20112,550
Bad debts7,325
Capital, 1 June 2011910,075
Discounts allowed2,150
Cash at bank245,000
Drawings5,000
Inventory, 1 June 201118,760
Inventory, 31 May 201221,630
Loan from Mr Chu (repayable in 2022)180,000
Loan interest19,200
Motor vehicles, at cost1,334,000
Purchases1,120,920
Rent and rates225,640
Returns inwards17,250
Returns outwards12,800
Salaries102,900
Sales1,865,280
After the preparation of the trial balance, the following errors were discovered:
(i)Closing inventory had been overvalued by $2,330.
(ii)A cash payment of $400 made by a trade debtor, Kitty Kong, had been wrongly credited to the account of another trader debtor, Katy Tong.
(iii)Motor vehicle repairs of $1,800 had been wrongly entered into the motor vehicles account.
(iv)A cash discount of $55 allowed to Yoby Yeung had been debited to her account and credited to the discounts allowed account.
(v)Credit purchases of goods amounting to $34,000 had been omitted from Johnny Tse’s books.
Required:
(a)Show the journal entries to correct the above errors. (Narrations are not required.)(5 marks)
(b)Prepare a corrected trial balance as at 31 May 2012.(10 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Profit and loss Closing inventory / 2,330 / 0.5
Inventory / 2,330 / 0.5
(ii) / Katy Tong / 400 / 0.5
Kitty Kong / 400 / 0.5
(iii) / Motor expenses / 1,800 / 0.5
Motor vehicles / 1,800 / 0.5
(iv) / Discounts allowed ($55 × 2) / 110 / 0.5
Yoby Yeung / 110 / 0.5
(v) / Purchases / 34,000 / 0.5
Accounts payable / 34,000 / 0.5
(b)
Johnny TseCorrected Trial Balance as at 31 May 2012
Dr / Cr
$ / $
Accounts payable ($34,440 + $34,000) / 68,440 / 0.5
Accounts receivable ($75,000 – $110) / 74,890 / 0.5
Accumulated depreciation:Motor vehicles, 1 June 2011 / 168,000 / 0.5
Allowance for doubtful accounts, 1 June 2011 / 2,550 / 0.5
Bad debts / 7,325 / 0.5
Capital, 1 June 2011 / 910,075 / 0.5
Discounts allowed ($2,150 + $110) / 2,260 / 0.5
Cash at bank / 245,000 / 0.5
Drawings / 5,000 / 0.5
Inventory, 1 June 2011 / 18,760 / 0.5
Loan from Mr Chu (repayable in 2022) / 180,000 / 0.5
Loan interest / 19,200 / 0.5
Motor vehicles, at cost ($1,334,000 – $1,800) / 1,332,200 / 0.5
Purchases ($1,120,920 + $34,000) / 1,154,920 / 0.5
Rent and rates / 225,640 / 0.5
Returns inwards / 17,250 / 0.5
Returns outwards / 12,800 / 0.5
Salaries / 102,900 / 0.5
Sales / 1,865,280 / 0.5
Motor expenses / 1,800 / 0.5
3,207,145 / 3,207,145
QUESTION 6
The following list of balances was extracted from the books of Sunny Leung’s business as at 31 March 2012:
$
Capital, 1 April 2011728,060
Drawings4,000
Office premises, at cost1,920,000
Office equipment, at cost307,200
Accumulated depreciation, 1 April 2011:
Office premises950,400
Office equipment134,400
Accounts receivable60,000
Bank loan (repayable in 2015)384,000
Accounts payable27,552
Wages and salaries210,912
Allowance for doubtful accounts, 1 April 20112,040
Bad debts5,858
Carriage inwards1,720
Bank196,000
Inventory, 1 April 201115,010
Inventory, 31 March 201219,886
Loan interest15,360
Purchases896,736
Returns inwards13,800
Returns outwards10,240
Sales1,492,224
Rent and rates82,320
After the preparation of the trial balance, the following errors were discovered:
(i)An amount of $9,200 had been paid into the bank on 30 March 2012 but had not yet been credited in the bank statement.
(ii)Sales of goods amounting to $1,600 had been omitted from Sunny Leung’s books. Sunny received the sum in cash.
(iii)The amount of carriage outwards for the year was $350. It had been mistakenly recorded in the carriage inwards account when Sunny prepared the above list of balances.
(iv)A credit purchase of $12,155 from Tony Leung had been wrongly recorded in the books as a cash purchase.
(v)A debt of $600 owed by a trade debtor should have been written off as bad.
Required:
(a)Show the journal entries to correct the above errors. (Narrations are not required.)(5 marks)
(b)Prepare a corrected trial balance as at 31 March 2012.(12 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / No journal entry is required. / 1
(ii) / Cash / 1,600 / 0.5
Sales / 1,600 / 0.5
(iii) / Carriage outwards / 350 / 0.5
Carriage inwards / 350 / 0.5
(iv) / Cash / 12,155 / 0.5
Accounts payable / 12,155 / 0.5
(v) / Bad debts / 600 / 0.5
Accounts receivable / 600 / 0.5
(b)
Sunny LeungCorrected Trial Balance as at 31 March 2012
Dr / Cr
$ / $
Capital, 1 April 2011 / 728,060 / 0.5
Drawings / 4,000 / 0.5
Office premises, at cost / 1,920,000 / 0.5
Office equipment, at cost / 307,200 / 0.5
Accumulated depreciation, 1 April 2011:
Office premises / 950,400 / 0.5
Office equipment / 134,400 / 0.5
Accounts receivable ($60,000 – $600) / 59,400 / 0.5
Bank loan (repayable in 2015) / 384,000 / 0.5
Accounts payable ($27,552 + $12,155) / 39,707 / 0.5
Wages and salaries / 210,912 / 0.5
Allowance for doubtful accounts, 1 April 2011 / 2,040 / 0.5
Bad debts ($5,858 + $600) / 6,458 / 0.5
Carriage inwards ($1,720 – $350) / 1,370 / 0.5
Bank / 196,000 / 0.5
Inventory, 1 April 2011 / 15,010 / 0.5
Loan interest / 15,360 / 0.5
Purchases / 896,736 / 0.5
Returns inwards / 13,800 / 0.5
Returns outwards / 10,240 / 0.5
Sales ($1,492,224 + $1,600) / 1,493,824 / 0.5
Rent and rates / 82,320 / 0.5
Cash in hand ($1,600 + $12,155) / 13,755 / 0.5
Carriage outwards / 350 / 0.5
3,742,671 / 3,742671 / 0.250.25
QUESTION 7
The following trial balance was extracted from Dolce Enterprise’s books as at 31 December 2011:
Dr / Cr$ / $
Capital as at 1 January 2011 / 300,000
5% bank loan / 150,000
Non-current assets / 270,300
Purchases / 733,500
Sales / 1,149,750
Inventory as at 1 January 2011 / 91,800
Loan interest / 7,500
Accounts receivable / 181,900
Accounts payable / 164,200
Bank / 123,350
Bad debts / 1,800
Water and electricity / 7,000
Carriage outwards / 2,255
Rental income / 4,355
Returns outwards / 7,950
Rent, rates and insurance / 201,000
Salaries and wages / 148,050
General expenses / 7,800
1,776,255 / 1,776,255
Inventoryas at 31 December 2011 was valued at $90,855.
After the preparation of the trial balance, the following errors were discovered:
(i)A credit purchase of $1,500 had been completely omitted.
(ii)A credit sale of goods to Miss Fong totalling $1,300 had been posted to her personal account in the accounts receivable ledger and the sales account as $3,100.
(iii)Bank charges of $150 were included in the bank statement for December 2011. No entry had been madein the books.
(iv)Rental income represented the amountreceived for sub-letting part of the office premises for
13 months from 1 January 2011 to 31 January 2012.
(v)An insurance premium of $2,190 was prepaid for the three months ended 31 March 2012.
Required:
(a)Show the journal entries to correct the above errors. (Narrations are not required.)(5 marks)
(b)Prepare a corrected trial balance as at 31 December 2011.(11 marks)
(c)Prepare an income statement for the year ended 31 December 2011.(9 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Purchases / 1,500 / 0.5
Accounts payable / 1,500 / 0.5
(ii) / Sales ($3,100 – $1,300) / 1,800 / 0.5
Miss Fong / 1,800 / 0.5
(iii) / Bank charges / 150 / 0.5
Bank / 150 / 0.5
(iv) / Rental income / 335 / 0.5
Unearned revenue ($4,355 ) / 335 / 0.5
(v) / Prepaid expenses / 2,190 / 0.5
Insurance / 2,190 / 0.5
(b)
Dolce EnterpriseCorrected Trial Balance as at 31 December 2011
Dr / Cr
$ / $
Capital as at 1 January 2011 / 300,000 / 0.5
5% bank loan / 150,000 / 0.5
Non-current assets / 270,300 / 0.5
Purchases ($733,500 + $1,500) / 735,000 / 0.5
Sales ($1,149,750 – $1,800) / 1,147,950 / 0.5
Inventory as at 1 January 2011 / 91,800 / 0.5
Loan interest / 7,500 / 0.5
Accounts receivable ($181,900 – $1,800) / 180,100 / 0.5
Accounts payable ($164,200 + $1,500) / 165,700 / 0.5
Bank ($123,350 – $150) / 123,200 / 0.5
Bad debts / 1,800 / 0.5
Water and electricity / 7,000 / 0.5
Carriage outwards / 2,255 / 0.5
Rental income ($4,355 – $335) / 4,020 / 0.5
Returns outwards / 7,950 / 0.5
Rent, rates and insurance ($201,000 – $2,190) / 198,810 / 0.5
Salaries and wages / 148,050 / 0.5
General expenses / 7,800 / 0.5
Bank charges / 150 / 0.5
Prepaid expenses / 2,190 / 0.5
Unearned revenue / 335 / 0.5
1,775,955 / 1,775,955 / 0.250.25
(c)
Dolce EnterpriseIncome Statement for the year ended 31 December 2011
$ / $ / $
Opening inventory / 91,800 / Sales / 1,147,950 / 0.50.5
Purchases / 735,000 / 0.5
LessReturns outwards / (7,950 / ) / 727,050 / 0.5
818,850
LessClosing inventory / (90,855 / ) / 0.5
Cost of goods sold / 727,995 / 0.5
Gross profit c/d / 419,955 / 0.5
1,147,950 / 1,147,950
Loan interest / 7,500 / Gross profit b/d / 419,955 / 0.50.5
Bad debts / 1,800 / Rental income / 4,020 / 0.50.5
Water and electricity / 7,000 / 0.5
Carriage outwards / 2,255 / 0.5
Rent, rates and insurance / 198,810 / 0.5
Salaries and wages / 148,050 / 0.5
General expenses / 7,800 / 0.5
Bank charges / 150 / 0.5
Net profit / 50,610 / 0.5
423,975 / 423,975
QUESTION 8
Man Ho operates an office appliance retailing business in North Point. The following account balances were extracted after an income statement for the year ended 31 December 2010 was prepared:
$
Net profit for the year480,464
Accounts receivable40,721
Inventory, 31 December 201023,445
Accounts payable 15,200
Drawings8,676
Cash40
Bank10,410
Office furniture and equipment, at cost498,960
Accumulated depreciation: Office furniture and equipment36,085
Capital, 1 January 201050,503
After investigation, the following mistakes were found:
(i)Goods purchased on credit from Paul Tam for $5,321 had been recorded as a credit sale to Paul Lam.
(ii)Mandy Chan, whose debt of $2,500 had been written off in 2009, repaid the debt on 31 December 2010 by cheque. No entry had been made regarding the bad debtrecovery.
(iii)As at 31 December 2010, prepaid rent and accrued telephone expenses amounted to $500 and $300, respectively. No entry had beenmade in the books.
(iv)An office equipment purchase of $35,000 was mistakenly included in the purchases account.
(v)Office furniture and equipment was to be depreciated at 10% per annum on a straight-line basis.A full year’s depreciation was to be charged in the year of purchase. Depreciation for the year had not yet been provided for.
(vi)Accounts receivable totalling $2,000 had to be written off and anallowance for doubtful accounts was to be provided at 3% of theremaining accounts receivable.
Required:
(a)Show the journal entries to correct the above errors. (Narrations are not required.)(11 marks)
(b)Prepare a balance sheet as at 31 December 2010.(7 marks)
Answer:
(a)
The JournalDetails / Dr / Cr
$ / $
(i) / Profit and loss Purchases / 5,321 / 0.5
Profit and loss Sales / 5,321 / 0.5
Accounts payable Paul Tam / 5,321 / 0.5
Accounts receivable Paul Lam / 5,321 / 0.5
(ii) / Mandy Chan / 2,500 / 0.5
Bad debts recovered / 2,500 / 0.5
Bank / 2,500 / 0.5
Mandy Chan / 2,500 / 0.5
Bad debts recovered / 2,500 / 0.5
Profit and loss / 2,500 / 0.5
(iii) / Prepaid expenses / 500 / 0.5
Profit and loss Rent / 500 / 0.5
Profit and loss Telephone expenses / 300 / 0.5
Accrued expenses / 300 / 0.5
(iv) / Office furniture and equipment / 35,000 / 0.5
Profit and loss Purchases / 35,000 / 0.5
(v) / Profit and loss Depreciation[($498,960 + $35,000) × 10%] / 53,396 / 0.5
Accumulated depreciation: Office furniture and equipment / 53,396 / 0.5
(vi) / Profit and loss Bad debts / 2,000 / 0.5
Accounts receivable / 2,000 / 0.5
Profit and loss Allowance for doubtful accounts
[($40,721 – $5,321 – $2,000) × 3%] / 1,002 / 0.5
Allowance for doubtful accounts / 1,002 / 0.5
(b)
Man HoBalance Sheet as at 31 December 2010 / 0.5
$ / $ / $ / $ / $
Non-current assets / Capital
Office furniture and equipment / 533,960 / Balance as at 1 January 2010 / 50,503 / 0.50.5
Less Accumulated depreciation / (89,481 / ) / AddNet profit for the year / 451,124 / 0.50.5
444,479 / 501,627
Current assets / LessDrawings / (8,676 / )0.5
Inventory / 23,445 / 492,951 / 0.5
Accounts receivable / 33,400 / 0.5
Less Allowance for doubtful
accounts / Current liabilities
(1,002 / ) / 32,398 / Accounts payable / 20,521 / 0.50.5
Prepaid expenses / 500 / Accrued expenses / 300 / 20,821 / 0.50.5
Bank / 12,910 / 0.5
Cash / 40 / 69,293 / 0.5
513,772 / 513,772
QUESTION 9
Michael Lee, a trader running a retail business, extracted the following trial balance from his book at the close of business on 30 April 2010:
Dr / Cr$ / $
Accounts receivable and accounts payable / 18,000 / 19,453
Advertising / 5,412
Bank / 3,410
Capital / 157,147
Carriage inwards / 1,551
Carriage outwards / 1,150
Motor vehicles at cost / 121,560
Accumulated depreciation: Motor vehicles / 31,960
Drawings / 56,628
Water and electricity / 5,880
Insurance / 4,318
Interest on bank overdraft / 154
Inventory at 1 May 2009 / 21,880
Purchases / 239,344
Rent expenses and revenue / 1,650 / 11,374
Repair costs / 6,517
Returns of goods to suppliers / 5,480
Sales / 311,270
Telephone and Internet expenses / 1,325
Returns inwards / 825
Furniture / 64,680
Accumulated depreciation:Furniture / 10,780
550,874 / 550,874
Inventoryas at 30 April 2010 was valued at $22,378.
After investigation, the following errors were found:
(i)Closing inventory had been overvalued by $870.
(ii)A $2,211 payment by a trade debtor, Thomas Hon, had been credited to the account of another trade debtor, Thomas Ho.
(iii)As at 30 April 2010, prepaid repair costsand accrued rent revenue amounted to $210 and $1,700, respectively. No entry had been made in the books.
(iv)Motor vehicles were to be depreciated at 20% per annum on a reducing-balance basis, while furniture was to be depreciated at 5% per annum on a straight-line basis.Depreciation for the year had not yet been provided for.
(v)An allowance for doubtful accounts was to be maintained at 5% of accounts receivable. In addition, a 5% allowance for discounts allowed was to be made.
Required:
(a)Show the journal entries to correct the above errors. (Narrations are not required.)(8 marks)
(b)Prepare an income statement for the year ended 30 April 2010, and a balance sheet as at that date.