Case 1-1: Ribbons an’ Bows, Inc

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Case 1-1: Ribbons an’ Bows, Inc.

Comments on Information Gathered and Carmen’s Concerns

The three month sales total is the sum of the cash sales ($7,400) and credit sales ($320).
Cost of sales is derived from the following equation
Beginning merchandise inventory $3,300
Plus Purchases 2,900
Equals Total available merchandise $6,200
Less Ending merchandise inventory 4,100
Equals Cost of sales $2,100
Rent expense is $1,800 of $600 per month times three months. Paid in cash.
Part-time employee expenses ($1600) is the sum of cash paid ($1510) plus amount owed ($90).
Supplies expense ($80) is beginning supplies inventory ($100) less supplies inventory on hand on March 31 ($20).
The prepaid advertising ($150) was run by the local paper on April 2. The benefit of the asset expired so the asset became an expense.
The commercial sewing machine purchase led to an $1800 asset being recorded (a future benefit). The asset’s benefit was partly consumed during May and June resulting in a $60 depreciation charge ($1800/ 5 years/ 12 months x 2 months – straight line depreciation.)
Some of the future benefits of the computer and related software asset were consumed during the three month period. A $250 depreciation charge must be recognized ($2000/ 2/ 12/ x 3 – straight line depreciation.)
Cash balance at the end of period lower than beginning balance. See Question 1 discussion.
Four month’s interest must be recorded on the cousins’ $10,000 loan. ($10,000 x .06 x 4/ 12). Carmen has “rented” the cousins’ money for four months. (She forgot to include the March rent in her March 31 balance sheet.)

No depreciation is recorded on the cash register loaned by the local credit-card charge processor and the furniture left by the former tenant. These “assets” were not recognized on the financial statement because they were neither donated nor…...

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