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Xalina
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| Posted: 21 Sep 2009 at 17:34 | IP Logged
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Lyle, Inc. is preparing its financial statements for the year ended December 31, 1992. Accounts payable amounted to $360,000 before any necessary year-end adjustment related to the following:
At December 31, 1992, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier, resulting from a $50,000 advance payment for goods to be manufactured to Lyle's specifications.
Checks in the amount of $100,000 were written to vendors and recorded on December 29, 1992. The checks were mailed on January 5, 1993.
What amount should Lyle report as accounts payable in its December 31, 1992, balance sheet?
Sometimes I just don't understand the wording. Who is paying here?
My first guess was that Lyle is paying the supplier but apparently I'm wrong!
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bryris
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| Posted: 21 Sep 2009 at 18:05 | IP Logged
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I *believe* the answer is $510,000.
I am curious to see if I'm right. The debit balance to A/P really ought to have been made to a receivable it would seem. Its an asset either way because future benefit will come from the advance. So, that is removed which increased A/P control to 410,000. Then the checks, though written, were still under control of Lyle (not mailed), thus, the payable is still on the books as of the balance sheet date, add 100,000 = 510,000.
I could be wrong though. There is no warranty, expressed or implied, with this answer. ;)
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Xalina
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| Posted: 21 Sep 2009 at 18:16 | IP Logged
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Yes you are and I can see why it would be 510 if its a customer deposit of 50.
My issue was why would a supplier( Ross) pay the customer (Lyle).
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winsouza
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| Posted: 21 Sep 2009 at 18:22 | IP Logged
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Xalina, by the facts provided it does seem that Lyle, Inc is the one paying. From which cpa prep material did you get this question? If you are using Becker i could quickly lookup the question.
I *Believe* that the A/P balance as of 12/31/92 should be $460,000. To me it seems like the $50,000 is included inside the $100,000 worth of checks that was issued on 12/29/92 but not mailed until 01/05/93.
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Xalina
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| Posted: 21 Sep 2009 at 18:43 | IP Logged
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ahh..never mind. I get it!!
Winsouza, the question ID is CPA-00575
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Topic: Revenue Recogniton
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