Franklin s Tower Company completes these transactions during April of the current year (the terms of all its credit sales are 2/10, n/30):
Apr. 2 Purchased $15,400 of merchandise on credit from Garcia Company, invoice dated April 2, terms 2/10, n/60.
3 Sold merchandise on credit to M. Jagger, Invoice No. 760, for $3,500 (cost is $2,000).
3 Purchased $880 of office supplies on credit from Paper Clips, Inc. Invoice dated April 2, terms n/10 EOM.
4 Issued Check No. 587 to NewLook Magizine for advertising expense, $750.
5 Sold merchandise on credit to C. Watts, Invoice No. 761, for $6,000 (cost is $4,400).
6 Received an $75 credit memorandum from Paper Clips, Inc., for some of the office supplies received on April 3 and returned for credit.
9 Purchased $11,000 of store equipment on credit from Jane s Junk, invoice dated April 9, terms n/10 EOM.
11 Sold merchandise on credit to K. Richards, Invoice No. 762, for $12,800 (cost is $6,900).
12 Issued Check No. 588 to Garcia Company in payment of its April 2 invoice, less the discount.
13 Received payment from M. Jagger for the April 3 sale, less the discount.
13 Sold $4,200 of merchandise on credit to M. Jagger (cost is $2,100), Invoice No. 763.
14 Received payment from C. Watts for the April 5 sale, less the discount.
16 Issued Check No. 589, payable to Payroll, in payment of sales salaries for the first half of the month, $8,850. Cashed the check and paid employees.
16 Cash sales for the first half of the month are $42,420 (cost is $20,070). (Cash sales are recorded daily from cash register readings but are recorded only twice in this problem to reduce repetitive entries.)
17 Purchased $16,600 of merchandise on credit from Lesh Company, invoice dated April 16, terms 2/10, n/30.
18 Borrowed $50,000 cash from Second National Bank by giving a long-term note payable.
20 Received payment from K. Richards for the April 11 sale, less the discount.
20 Purchased $690 of store supplies on credit from Jane s Junk, invoice dated April 19, terms n/10 EOM.
23 Received a $600 credit memorandum from Lesh Company for defective merchandise received on April 17 and returned for credit.
23 Received payment from M. Jagger for the April 13 sale, less the discount.
25 Purchased $9,470 of merchandise on credit from Garcia Company, invoice dated April 24, terms 2/10, n/60.
26 Issued Check No. 590 to Lesh Company in payment of its April 17 invoice, less the return and the discount.
27 Sold $2,880 of merchandise on credit to C. Watts, Invoice No. 764 (cost is $2,120).
27 Sold $1,700 of merchandise on credit to K. Richards, Invoice No. 765 (cost is $810).
30 Issued Check No. 591, payable to Payroll, in payment of the sales salaries for the last half of the month, $12,000.
30 Cash sales for the last half of the month are $69,690 (cost is $45,500).
Required
1. Prepare a sales journal like Exhibit 7.5 and a cash receipts journal like Exhibit 7.7. Number both journal pages as page 3. Then review the transactions of Franklin s Tower Company and enter those that should be journalized in the sales journal and those that should be journalized in the cash receipts journal. Ignore any transactions that should be journalized in a purchases journal, a cash disbursements journal, or a general journal.
2. Open the following general ledger accounts: Cash, Accounts Receivable, Inventory, Long-Term Notes Payable, Cost of Goods Sold, Sales, and Sales Discounts. Enter the March 31 balances for Cash ($55,000), Inventory ($101,000), and Long-Term Notes Payable ($156,000). Also open accounts receivable subsidiary ledger accounts for C. Watts, M. Jagger, and K. Richards.
3. Verify that amounts that should be posted as individual amounts from the journals have been posted. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
4. Prepare a trial balance of the general ledger and prove the accuracy of the subsidiary ledger by preparing a schedule of accounts receivable.
Analysis Component
5. Assume that the total for the schedule of Accounts Receivable does not equal the balance of the controlling account in the general ledger. Describe steps you would take to discover the error(s).