Reference no: EM132345427

Question

(Determine Proper Cash Balance) Lighthouse Co. closes its books regularly on December 31, but at the end of 2014 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 Decem- ber transactions. The information is given below.

January cash receipts recorded in the December cash book totaled $85,650, of which $32,900 repre- sents cash sales, and $52,750 represents collections on account for which cash discounts of $650 were given.

January cash disbursements recorded in the December check register liquidated accounts payable of $42,900 on which discounts of $400 were taken.

The ledger has not been closed for 2014.

The amount shown as inventory was determined by physical count on December 31, 2014.

The company uses the periodic method of inventory.

Instructions

Prepare any entries you consider necessary to correct Lighthouse's accounts at December 31.

To what extent was Lighthouse 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

Dr. Cash $86,000 Accounts receivable

165,000 Inventory 134,000

Accounts payable Other current liabilities Cr.

$138,000 23,000