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shilpjain
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Joined: 21 Jun 2007
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Posted: 11 Jun 2009 at 05:46 \| IP Logged

Black corps accounts payable as at Dec 31 1989 totaled 900,000 before any necessary adjustments were made for the following transactions :
On dec 27, 1989 , Black wrote and recorded checks to creditors totalling 400,000.The checks were mailed out on Jan 10,1990 . At Dec 31 , 1989 , what amount should Black report as total accounts payable ?

Beckers solution :
Accounts
    Payable
Balance per books before y/e adjustments    $   900,000

Add:    Checks written on 12/27/89 (which
    reduced A/P) but not mailed until 1/10/90.    400,000


My question is , why would we add this amount of $400,000 to the A/P balance , since the check is already written . If the check is already written , that means A/P is reduced in the books . how does it matter , when the check gets mailed ?

Thanks

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Nan - Louisiana
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Posted: 11 Jun 2009 at 09:23 \| IP Logged

Until it is mailed you still have control over it, so you have to add it back.

Otherwise you could write checks for anything you want before year-end to make your books look good, then void them two days later.

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shilpjain
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Posted: 11 Jun 2009 at 10:39 \| IP Logged

thanks Nan. that makes sense

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kars82
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Posted: 22 Jun 2009 at 15:19 \| IP Logged

Hi Folks,
In Becker simulation for consolidation (3-B) , On January 1 Year 1 Parent Company acquires a 100% interest in Subsidiary Company by issuing 100000 shares of 10 par common stock. The investment was accounted for internally using the cost method.
How can we use the cost method for accounting? To my understanding in this case we can use cost method only because it is "internal reporting" ? The restriction of 20% or less for cost method is only for external reporting Or is it that In case of consolidation, it could be either equity or cost? Kindly confirm this. Also when is the eliminating J/E is passed ? At the beginning of the year or end of the year?

Aries1
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Posted: 22 Jun 2009 at 17:08 \| IP Logged

KARS82

%ownership is not the only criteria.equity method is not used if the parent has more than 20%control but the sub is in:

bankrupstcy

if investment is temporary

etc.

I hope it answers your question.

---------------------

FAR 6TH JULY 2009

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