Question

The current assets and current liabilities sections of the balance sheet of BLANK Company appear as follows.

BLANK COMPANY BALANCE SHEET (PARTIAL) DECEMBER 31, 2017
Cash				$ 47,800		Accounts payable		$  64,720
Accounts receivable		$91,000				Notes payable		67,890
Less: Allowance for doubtful accounts		7,810		83,190				$132,610
Inventory				175,740
Prepaid expenses				9,770
				$316,500

The following errors in the corporation’s accounting have been discovered:

1.		January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of $44,100, on which a cash discount of 2% was taken.
2.		The inventory included $30,240 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $10,320 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.
3.		Sales for the first four days in January 2018 in the amount of $31,880 were entered in the sales journal as of December 31, 2017. Of these, $22,420 were sales on account and the remainder were cash sales.
4.		Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled $34,932. Of this amount, $22,932 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.

State the net effect of your adjustments on Tamarisk Company’s retained earnings balance.

Decrease to retained earnings

$

=?

Answer 1

Adjustment to retained earnings balance: Add January sales discounts [(S22,932/98%)* 2%] Less: January sales $468 $31,880 January Purchase discount (S44,100 * 2% December purchases ($30,240 - $10,320) Consignment inventory $882 $19,920 $10,320 $63,002 Change to retained earnings (decrease) -$62,534 Note: Decrease to retained earnings -$62,534