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The bookkeeper for Garfield Corp. has prepared the following statement of financial position as
at July 31, 2017:
1. Cash includes $1,200 in a petty cash fund and $12,000 in a bond sinking fund.
2. The net accounts receivable balance is composed of the following three items:
3. Inventory costing $5,300 was shipped out on consignment on July 31, 2017. The ending
inventory balance does not include the consigned goods. Receivables of $5,300 were
recognized on these consigned goods.
5. Income tax payable of $9,000 was accrued on July 31. Garfield Corp., however, had set up a
cash fund to meet this obligation. This cash fund was not included in the cash balance, but was
offset against the income tax payable account.
7. Shareholders' equity is made up of two account balances: Common Shares of $105,000 and
Retained Earnings of $50,500.
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Instructions
(a) Use the information available to prepare a corrected classified statement of financial position
as at July 31, 2017. (Adjust the account balances based on the additional information.)
*(b) What effect, if any, does the treatment of the credit balances in accounts receivable of
$8,000 have on the working capital and current ratio of Garfield Corp.? What is likely the reason
that the credit balances in accounts receivable were given that particular classification? What is
likely the cause of the credit balances in accounts receivable?
The bookkeeper for Garfield Corp has prepared the following statement
ANSWER
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