Problem 3 – 25

Comprehensive cycle problem: Perpetual system

At the beginning of 2012, the Jeater Company had the following balances in its accounts:

Cash $ 4,300

Inventory $9,000

Common stock 10,000

Retained earnings 3,300

During 2012, the company experienced the following events.

1.      Purchased inventory that cost $2,200 on account from Blue Company under terms 1/10, n/30.

The merchandise was delivered FOB shipping point. Freight costs of $110 were paid in cash.

2.      Returned $200 of inventory that is had purchased because the inventory was damaged in transit. The freight company agreed to pay the return freight cost.

3.      Paid the amount due on its account payable to Blue Company within the cash discount period.

4.      Sold inventory that had cost $3,000 for $5,500 on account, under terms 2/10, n/45.

5.      5. Received merchandise returned from a customer. The merchandise originally cost $400 and was sold to the customer for $710 cash during the previous accounting period. The customer was paid $710 cash for returned merchandise.

6.      Deliver goods FOB destination in Event 4. Freight costs of $60 were paid in cash.

7.      Collected the amount due on the account receivable within the discount period.

8.      Took a physical count indicating that $7,970 of inventory was on hand at the end of the accounting period.

Required

a.      Identify these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE).

b.      Record each event in a statements model like the following one.

                          EVENTS                Assets               =        Liability          =        Equity

                                    Cash   +    Acct’s Rec.         +     Mdse, Inv.         =   Accts Pay.  +   Ret. Earn.

                         Rev.                        –                 Exp.           =                Net Inc.

c.       Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows.

Problem 4 – 20

Missing information in a bank reconciliation

The following data supply to superior Auto Supply Inc. for May 2012.

1.      Balance per the bank on May 31, $8,000.

2.      Deposit in transit not recorded by the bank, $975.

3.      Bank error: check written by Allen Auto Supply was charged to Superior Auto Supply’s account, $650.

4.      The following checks written and recorded by Superior Auto Supply were not included in the bank statement.

3013      $385

3054       735

3056     1,900

5.      Note collected by the bank, $500.

6.      Service charge for collection of note, $10.

7.      The bookkeeper recorded a check written for $188 to pay for the May utilities expense as $888 in the cash disbursement journal.

8.      Bank service charge in addition to the note collection fee, $25.

9.      Customer checks returned by the bank as NSF, $125.

Required

Determine the amount of the unadjusted cash balance per Superior Auto Supply’s books.