Trades Payable

You note that the staff have entered all the invoices dated prior to the year end and have set aside those that were not paid by year end. You did a quick total of the invoices and found that they amount to $502,700, different from the G/L. After doing some checking of individual invoices, you find that the discrepancy is related to invoices that have discount terms (e.g., 2/10 n/30). Apparently LLL uses the net basis for recording its payables. You check the pile again and discover that for invoices totaling $388,410 ($384,290 on the system), the discount period had passed as of year end and LLL will have to pay the undiscounted amount.

As you looked through the invoices, you noticed some other problems. Two of the suppliers describe their loyalty programs on their invoices:

Jansen Corp. offers 8% purchasing credits if customers calendar year purchases reach a threshold of $60,000, 10% if they reach $80,000. Purchase credits are awarded at December 31. You queried the system and noted that LLL has purchased $62,163 thus far in 2023.

Another company offers a 6% rebate if annual purchases exceed $25,000. The rebate program runs from September 1 August 31, and you notice a letter attached to the invoice advising that their purchases unfortunately fell slightly short of the threshold for the September 2022-August 2023 rebate year. The current invoice, dated September 26, 2023, is for $8,295.50, and the letter notes that LLL is off to a great start for the September 2023 August 2024 qualification period.

You verified with staff that there were no other supplier rebate programs, and that no rebates had been recorded.

Another problem you noticed was that there were several invoices from US and European suppliers (see Exhibit I for copies of the invoices). You checked the subledger for these invoices and they all appeared to be entered at their face value.

Finally, there was an invoice marked Do not pay in red pen (see Exhibit 2). The invoice was for large trees shipped in July from Royal City Nurseries. You verified from receiving reports that the trees were indeed received at the customers premises. The problem, according to staff, was that the trees were of inferior quality. The rootballs looked quite dried out and the trees were already showing stress and yellowing before they were even planted. As the months have continued, some trees recovered but many are not doing well. Quite a few have already been replaced under the warranty and quite a few more are unlikely to make it through the winter. Most concerningly, the customer is not happy with the unsightly appearance of the struggling trees. Royal City claims that LLL did not properly care for the trees after they were planted and noted that they had recommended waiting to plant until fall when the trees were dormant. LLL management acknowledges the suboptimal timing of the planting but the crew responsible for the job came by every week through July and August to ensure the trees were well watered. LLL management believes they will be able to negotiate a discount of at least 50%, and possibly more if they keep the pressure on Royal City. When you queried the system, you found that the invoice had not been recorded.

Trade payables

1. The journal entries required to correct LLLs trade payables ledger as at year end.
2. Detailed calculations and explanations for the amounts in your journal entries.

3. Where your journal entry(ies) involve(s) estimated amounts, a discussion of the criteria and

4. evidence you used in making your estimate.