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Joined: 08 May 2010
Location: Australia
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Posts: 23
Posted: 08 May 2012 at 19:52 | IP Logged  

Becker Ch2-CPA-00575

Lyle Inc. preparing its financial statement for the year ended December 31,1992. Accounts payable amounted to $360k before any necessary year-end adjustment related to the following:

·                      At December 31,1992 Lyle has a $50k debit balance in its accounts payable to Ross, a supplier, resulting from a $50k advance payment for goods to be manufactured to Lyle’s specification.

·                      Checks in the amount of $100k 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.

  1. $510k
  2. $410k
  3. $310k
  4. $210k

 Choice "a" is correct, $510,000.


Unadjusted accounts payable at 12/31/92                                                    $360,000

Reverse debit balance and record as a prepaid (asset)                     50,000

Reverse unmailed checks:                                                                                 100,000


Adjusted accounts payable at 12/31/92                                                       $510,000


I agree that Advances to Supplier should reflect in the Current Assets and reversal is OK.

But what happened if any of the following situations arise, these events are very common in the real world.

* Suppose if he is our regular supplier and have a credit balance.

*What about if we back charge to supplier due to a faulty work.

*What about if we have wrongly overpaid to any regular supplier.


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