Question

Problem 7-1 Bonita Equipment Co. closes its books regularly on December 31, but at the end of 2017 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given below. 1. January cash receipts recorded in the December cash book totaled $49,100, of which $38,000 represents cash sales, and $11,100 represents collections on account for which cash discounts of $384 were given. 2. January cash disbursements recorded in the December check register liquidated accounts payable of $24,372 on which discounts of $275 were taken. 3. The ledger has not been closed for 2017. 4. The amount shown as inventory was determined by physical count on December 31, 2017. The company uses the periodic method of inventory. Prepare any entries you consider necessary to correct Bonita’s accounts at December 31. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit 1. Dec. 31 2. Dec. 31 SHOW LIST OF ACCOUNTS To what extent was Bonita Equipment Co. able to show a more favorable balance sheet at December 31 by holding its cash book open? (Compute working capital and the current ratio.) Assume that the balance sheet that was prepared by the company showed the following amounts: (Round ratios to 2 decimal place, e.g. 4.56.) Dr. Cr. Cash $41,340 Accounts receivable 39,800 Inventory 66,370 Accounts payable $46,680 Other current liabilities 15,002 Per Balance Sheet After Adjustment Working capital $ $ Current ratio to 1 to 1

Answer 1

In the books of Bonita Equipment Co.

	ADJUSTING ENTRIES
Sl no	Date	Particulars	Debit	Credit
1	31-Dec-17	Accounts Receivables (11100 + 384)	$ 11,484.00
		Sales	$ 38,000.00
		Cash (38000 + 11100)		$ 49,100.00
		Sales Discount		$       384.00
2	31-Dec-17	Cash (24372 - 275)	$ 24,097.00
		Purchase Discount	$        275.00
		Accounts Payable		$ 24,372.00
3		NO ENTRY	0	0
4		NO ENTRY	0	0

		Adjustments
Particulars	Per Balance sheet	Add	Less	After Adjustment Balance sheet
Current Assets
Cash	$              41,340.00	$         24,097.00	$49,100.00	$                                           16,337.00
Accounts Receivables	$              39,800.00	$         11,484.00		$                                           51,284.00
Inventory	$              66,370.00			$                                           66,370.00
TOTAL	$            147,510.00			$                                         133,991.00
Current Liabilities
Accounts Payables	$              46,680.00	$         24,372.00		$                                           71,052.00
Other Current Liabilities	$              15,002.00			$                                           15,002.00
TOTAL	$              61,682.00			$                                           86,054.00
WORKING CAPITAL	$              85,828.00			$                                           47,937.00
CURRENT RATIO	2.39			1.56
	to 1			to 1

As we can see above, after adjustments the working capital of Bonita Equipment Co. has deceased by

$ 37,891.00.

And Current ratio is decresed from 2.39 to 1.56