E5-9B (Current Assets and Current Liabilities) The current assets and liabilities sections of the balance sheet of Cooper Company appear as follows.

E5-9B (Current Assets and Current Liabilities) The current assets and liabilities sections of the balance sheet of Cooper Company appear as follows.

                                                     COOPER COMPANY

                                             BALANCE SHEET (PARTIAL)

                                                DECEMBER 31, 2014

Cash                                                            $100,000            Accounts payable     $152,500

Accounts receivable               $222,500                               Notes payable             167,500

Less: Allowance for                                   $320,000

doubtful accounts                      17,500                                                                        205,000

Inventories                                                    427,500

Prepaid expenses                                         22,500

                                                                      $755,000

The following errors in the corporation’s accounting have been discovered:

1. The inventory included $67,500 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, $30,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.

2. January 2015 cash disbursements entered as of December 2014 included payments of accounts payable in the amount of $97,500, on which a cash discount of 2% was taken.

3. Cash, not including cash sales, collected in January 2015 and entered as of December 31, 2014, totaled $88,310. Of this amount, $58,310 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.

4. Sales for the first four days in January 2015 in the amount of $75,000 were entered in the sales book as of December 31, 2014. Of these, $53,750 were sales on account, and the remainder were cash sales.

Instructions

(a) Restate the current assets and liabilities sections of the balance sheet in accordance with good accounting

practice. (Assume that both accounts receivable and accounts payable are recorded gross.)

(b) State the net effect of your adjustments on Cooper Company’s retained earnings balance.