Answer:
a. Francis Equipment Co
Adjusting entries
December 31 2017
1. Revenues Debit $ 28,000
Cash Credit $ 28,000
To reverse the cash sales recorded in December
2. Account receivable Debit $ 18,000
Sales Discounts Credit $ 360
Cash Credit $ 17,640
To reverse the collections from customers and sales discounts allowed
3. Cash Debit $ 22,450
Purchase Discounts Debit $ 250
Accounts payable Credit $ 22,700
To reverse the payments made and discounts availed
4. No entry for inventory
b. Francis Equipment company managed to show a higher retained earnings of $ 28,110
Explanation:
Computation for change in balance sheet
Cash sales reversed $ 28,000
Sales discounts allowed reversed $ 360
Purchase discounts availed reversed <u>$ ( 250)</u>
Net items affecting income statement $ 28,110
The income was higher by $ 28,110, so correspondingly the retained earnings account was also higher by $ 28,110
No entry is required for inventory since it was based on an inventory count conducted on December 31 and a periodic inventory system is in use.
