Ace Training supplies clothing to qualified low income families Ace
Ace Training supplies clothing to qualified low income families. Ace buys damaged lots from suppliers and sells them to local organizations at small markups. Ace has committed to a break even budget for this year and as such uses an encumbrance system to manage its expenses. The board has approved an annual budget of $47,000 for the purchase of clothing, most of which is expected to arrive in the first quarter of the year. Ace has set an internal allowance of $15,000 per month for each of the first three months. During the month of January, 2013, the following transactions occurred:
January 2, 2013 ordered $25,000 of clothing to be shipped in 4 lots in each of the next 4 months
January 12, 2013 received $5,000 of goods
January 14, 2013 returned $2,000 of goods as not saleable
January 31, 2013 received another $3,000 of goods
Janaury 31, 2013 paid $5,000 for the goods received
Prepare the journal entries that would be made using the encumbrance system.
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