You must prove your calculations
The following information pertains to Blue Company revenue cycle and was reported at December 31, 2011.
Year 2011, additional information is as follows:
1. 100 units that was purchased for $750 was sold for $1,840
2. On July 15, a customer returned merchandise to Blue Company because it was defective.
3. The merchandise returned was purchased by Blue Company for $240 and sold for $650
4. Depreciation expense for the year equal to $70
5. $990 of account receivable was wrote off during the year
6. Cash represent payments received from customers
Question 1)
What is the ending balance of account receivables at December 31, 2011?
On January 2, 2012 you were called by Blue Corp. to audit the company accounting information systems. (Specifically the revenue cycle)
Year 2011 transactions (first year of operations) are as follows)
July 10 100 units were sold on account for $1,560
July 14 Merchandise with cost of $240 was defective and returned.
The merchandise returned was erroneously entered in the books as $460 ( sales ) and $130 ( cost )
Dec 24 Received a check from customer for the amount of $210 but entered in the books as $120
Dec 25 A check previously received from a customer for $280 returned from the bank as not sufficient fund. Erroneously no correction entry was entered in the GL
Dec 26 Collect 45% of correct A/R remaining balance
Dec 29 Wrote off Account Receivable $60
Dec 31 Books were closed
Assume the following information:
1) Tax rate equal to 40%
2) Blue Corp always use 140% markup on cost
3) On January 2, 2012 you discovered the errors and proposed the adjusting entries
You must prove your calculations
Question 2)
Identify each account and calculate the balance if overstated or understated at December 31, 2011
Question 3)
Write the journal entry necessary to fix the error(s) occurred during year 2011
Question 4)
During year 2004, Red company erroneously recorded merchandise shipped to a customer for $500. The sales never occurred, the inventory never left the warehouse and the error was not fixed during the year. At December 31, 2004 the books will show
a) Sales understated by $500
b) Account payable overstated by $500
c) Merchandise inventory overstated by $500
d) Account receivable overstated by $500
e) None of the above
Question 5)
During year 2007, Yellow Company received payment of $1,200 from a customer but did not record the transaction. The mistake was not fixed during year. At December 31, 2007 the books will show
a) Account receivable understated by $1,200
b) Cost of goods sold overstated by $1,200
c) Cost of goods sold understated by $1,200
d) Cash understated by $1,200
e) None of the above
Question 6)
At December 31, 2008 management at Green Company estimated that $800 of account receivables would be uncollectible but erroneously omitted to record the required journal entry.
Which statement is correct at December 31, 2008?
a) Account receivable (net) balance is understated by $800
b) Account receivable balance is correct
c) Company total expenses is understated by $800
d) Company total net income is understated by $800
e) None of the above