Question

The bookkeeper for Garfield Corp. has prepared the following statement of financial position as at July 31, 2014:
The following additional information is provided:
1. Cash includes $1,200 in a petty cash fund and $12,000 in a bond sinking fund.
2. The net accounts receivable balance is composed of the following three items:
(a) accounts receivable debit balances $52,000;
(b) accounts receivable credit balances $8,000;
(c) allowance for doubtful accounts $3,500.
3. Inventory costing $5,300 was shipped out on consignment on July 31, 2014. The ending inventory balance does not include the consigned goods. Receivables of $5,300 were recognized on these consigned goods.
4. Equipment had a cost of $112,000 and an accumulated depreciation balance of $28,000.
5. Income Tax Payable of $9,000 was accrued on July 31. Garfield Corp., however, had setup a cash fund to meet this obligation. This cash fund was not included in the cash balance, but was offset against the income tax payable account.
Instructions
(a) Use the information available to prepare a corrected classified statement of financial position as at July 31, 2014.
(Adjust the account balances based on the additional information.)
*(b) What effect, if any, does the treatment of the credit balances in accounts receivable ofS8,000 have on the working capital and current ratio of Garfield Corp.? What is likely the reason that the credit balances in accounts receivable were given that particular classification? What is likely the cause of the credit balances in accounts receivable?


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  • CreatedSeptember 18, 2015
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