Question

Part A

Each of the following accounts from The Furst Company has a normal balance as of December 31, 2016, the end of Furst’s first year of operations.

Cash $100                      Common stock                                  $500

Accounts receivable                        300                        Dividends 100

Inventory 250                        Sales revenue 800

Property, plant, and equip 750                        Selling expenses                               300

Accounts payable 150 Administrative expenses 50

Notes payable 400

Directions:

Prepare a trial balance for Furst Company as of December 31, 2016.

Part B

Lampe Distributors was formed to serve as a distributor of fine furnishings imported from overseas manufacturers. Assume the following trial balance was prepared as of December 31, 2016, at the end of Lampe’s first year of operations.

LAMPE DISTRIBUTORS

Unadjusted Trial Balance

December 31, 2016

Debit                     Credit

Cash                                                      $23,000

Accounts receivable 4,500

Buildings 72,000

Equipment 20,500

Inventory 38,000

Accounts payable $5,500

Notes payable                                                                  47,750

Common stock 42,000

Dividends 6,000

Sales revenue 280,250

Wage expense 100,000

Selling expenses 31,000

Rent expense 23,000

Administrative expenses 15,750

Tax expense 23,000

Totals $356,750             $375,500

It is apparent that there is an error somewhere in the company’s accounts since the sum of the debit

account balances ($356,750) does not equal the sum of the credit account balances ($375,500). After

further research, we learn the following:

1. A cash purchase of $20,000 in inventory, occurring near year-end, was not recorded.

2. By mistake, $5,000 that should have been recorded as Accounts Payable was recorded as Notes

Payable.

3. A credit of $26,000 was accidentally recorded in the Wage Expense account rather than in Sales

Revenue.

4. A sale on account of $18,750 was correctly recorded as Sales Revenue, but the other side of the

entry was mistakenly never recorded.

Directions:

a. Which of the four errors, if any, is the reason that the trial balance is not in balance?

b. Which of the errors, if any, must be corrected?

c. Prepare a corrected trial balance.

Answer 1