Clear Images Ltd. has been in operation for several years. It wholesales furniture to its customers. The company's post-closing trial balance at July 31, 2018, the end of its fiscal year, is presented below:

The company had a limited amount of business activity in August 2018 because of holidays for both the company and its major customers. You have been hired on a temporary basis to update the company's records for August. The August transactions and adjustments are presented below:
Aug. 1 Paid $20,000 for office expenses and $3,600 for the August rent.
2 Accepted a six-month, 8% note in exchange for Chen Enterprises' overdue account receivable of $100,000.
3 Sale on account to Chavier Ltd. for $500,000, terms 2/10, n/30. Cost of goods sold, $270,000. The company uses a perpetual inventory system.
8 Determined that an account receivable from Densmore Ltd. of $70,000 is uncollectible.
9 A $300,000 partial payment on account was received from Chavier (see August 3 transaction).
10 Old equipment was sold for $6,000. The equipment's original cost was $44,000; accumulated depreciation to the date of disposal was $36,169.
14 Paid a $10,000 income tax instalment.
21 Purchased a patent for $24,000 cash. The estimated useful life of the patent is five years; the legal life, 20 years.
31 Recorded cash received from sales of digital library images for the month, $75,000. The cost of goods sold is $35,000.
31 The monthly bank statement revealed the following unrecorded items: interest on bank loan, $1,500, and bank service charges, $1,130.
31 Reviewed outstanding accounts receivable. Determined, through an aging of accounts, that doubtful accounts totalled $320,000 at month end.
31 Recorded depreciation for the month on the remaining equipment that cost $150,000 and is still in use. Useful life of all equipment is estimated to be four years with no residual value. The straight-line method of depreciation is used and depreciation is calculated to the nearest month.
31 Recorded and paid salaries for the month of $100,000.
31 Accrued interest on the Chen Enterprises note receivable (see August 2 transaction).
31 Recorded amortization on the patent (see August 21 transaction). A full month's amortization is recorded on any intangible assets acquired during the month.
Instructions
(a) Record the August transactions and adjustments.
(b) Set up T accounts, enter the July 31 opening balances, and post the journal entries prepared in part (a).
(c) Prepare an adjusted trial balance at August 31.
(d) Prepare a
(1) Income statement,
(2) Statement of changes in equity, and
(3) Statement of financial position for August.

Transcribed Image Text:

CLEAR IMAGES LTD Post-Closing Trial Balance July 31, 2018 Debit $ 170,000 2,700,00o Credit Cash Accounts receivable Allowance for doubtful accounts Inventory Equipment Accumulated depreciation-equipment Accounts payable Bank loan payable Common shares Retained earnings $300,000 500,000 194,000 73,669 1,009,00o 350,00O 300,000 $3.564.000 $3.564,000