Dev Equipment Corp. usually closes its books on December 31, but at the end of 2014 it held its cash book open so that a more favorable statement of financial position could be prepared for credit purposes. Cash receipts and disbursements for the first I 0 days of January were recorded as December transactions. The company uses the gross method to record cash discounts.
The following information is given:
1. January cash receipts recorded in the December cash book totalled $38,900. Of that amount, $25,300 was for cash sales and $13,600 was for collections on account for which cash discounts of $630 were given.
2. January cash disbursements that were recorded in the December cheque register were for payments on account totalling $24,850 of accounts payable on which discounts of S520 were taken.
3. The general ledger has not been closed for 2014.
4. The amount shown as inventory was determined by a physical count on December 31, 2014.
Inst ructions
(a) Prepare any entries that you consider necessary to correct Dev Equipment Corp.'s accounts at December 31.
(b) To what extent was Dev Equipment Corp. able to show a more favourable statement of financial position at December 31 by holding its cash book open? (Use ratio analysis.) Assume that the statement of financial position that was prepared by the company showed the following amounts prior to any required adjustments:

(c) Discuss the ethical implications of holding the cash book open and showing a more favourable statement of financial position.

Transcribed Image Text:

Credit Cash Accounts Receivable Inventory Accounts payable Accrued liabilities Debit $39,000 42,000 67,000 $45,000 14,200