EXERCISE 5.10 The following trial balance of C. Qube, general dealer, was prepared by the firm's bookkeeper at 31 December 2018: Accounts payable Accounts receivable Bank overdraft Capital - C. Dube Drawings - C. Dube. Prepaid insurance - 1 January Allowance for credit losses - 1 January Inventory Sales Cost of sales Bad debts expense Insurance expense Salaries and wages expense Selling and administrative expenses DR CR R R 39 900 27 600 18 800 150 2070 25 000 1:700 64 600 200 000 132 200 1 500 360 20 000 3460 R268 670 R268 670 5.10 After some investigation the firm's newly appointed accountant obtained the following information: NON-CURRENT ASSETS 1. 1.1 2. 1.2 1.3 On 1 March 2018 the land which the firm had previously rented was bought for R80 000. To finance the purchase the firm had on the same date raised a ten-year loan of R55 000 bearing interest at 12% p.a. and the balance had been paid from Dube's, private bank account. No entries have yet been recorded for this transaction. The annual instalment on the loan of R12 100 (capital and interest) is payable in arrears on 1 March of each year. The land will not be depreciated. The firm leases all its other fixed assets. INVENTORY 2.1 Inventory transactions are always accounted for using the perpetual recording method. . Until 31 December 2017 unit costs were assigned to goods sold using the first-in-first-out basis but this was changed to the moving average basis as from 1 January 2018. Selling prices for inventory are normally determined by adding 33% to assigned unit costs except during quarterly 'special sales' when selling prices are reduced for selected items. Inventory is presently insured for R50 000 against fire or theft in terms of a policy which contains the usual 'average' clause. The annual premium on this policy is paid in advance on 30 September each year and the firm is not insured against any other losses. 2.2 A check of the recorded inventory transactions for the last month of the financial year revealed that: A. Goods with a reduced selling price of R3 200 had been returned by a customer on 31 December but had been stolen from the firm's van en route to the stores department. The goods had been sold on credit during the November 'special sale' at 20% less than the normal selling price. The return of these goods had been recorded by the bookkeeper as: DR Sales R3 200 CR Inventory R3 200 No claim has yet been submitted to the insurance company. B. The inventory sheets prepared from the physical stock count on 31 December had yielded an inventory value which exceeded the value in the inventory account by R10 800. The bookkeeper had adjusted for this difference by recording the entry: DR Inventory R10 800 CR Cost of sales R10 800 3. The accountant has since discovered that while the physical quantities on the inventory sheets were correct the inventory values had been mistakenly calculated using the first- in-first-out basis. 2.3 Items 2.2 A. and B. above are the only errors affecting the year-end inventory value. ACCOUNTS RECEIVABLE 3.1 The total for accounts receivable on the trial balance reflects the amounts owing by trade debtors for credit sales. The subsidiary ledger for accounts receivable shows that this total is made up of: 3.2 Debit balances Credit (abnormal) balances Balance per trial balance R29 200 1600 R27 600 The abnormal balances have arisen because one customer whose debt of R1 000 had been written off in February had subsequently paid this debt in full during November, and because a second customer had mistakenly paid his November debt of R600 twice. It is the firm's practice to record a year-end adjustment for estimated bad debts expense of 5% of trade debtors. REQUIRED: (a) Prepare journal entries (without narrations) to record any adjustments or corrections which are necessary in terms of 1 to 3 above. A worksheet has been provided. Use of the worksheet is optional. If used, submit as part of workings