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how can you tell from this listing of accounts that the business has not recorded it 626333

Review the company’s year-end listing of accounts’ balances shown below.

a. How can you tell from this listing of accounts that the business has not recorded its following three expenses for the year?

• Bad debts expense: Caused by uncollectible accounts receivable

• Cost of goods sold expense: For the cost of products sold; the revenue from these sales has been recorded in the sales revenue account

• Depreciation expense: For the use of fixed assets (property, plant, and equipment) during the year

b. Also, did you notice that there is no income tax expense account? What is the explanation for this omission?

 

End of First Year

 

Debits

Credits

Cash

$559,750

 

Accounts Receivable

$645,000

 

Allowance for Doubtful Accounts

 

$0

Inventory

$3,725,000

 

Prepaid Expenses

$185,000

 

Property, Plant & Equipment

$1,150,000

 

Accumulated Depreciation

 

$0

Accounts Payable

 

$309,500

Accrued Expenses Payable

 

$108,500

Short-term Notes Payable

 

$350,000

Long-term Notes Payable

 

$500,000

Owners’ Equity – Capital Stock

 

$1,500,000

Owners’ Equity – Retained Earnings

 

$0

Sales Revenue

 

$4,585,000

Cost of Goods Sold Expense

$0

 

Depreciation Expense

$0

 

Bad Debts Expense

$0

 

Selling & General Expenses

$1,033,000

 

Interest Expense

$55,250

 

Totals

$7,353,000

$7,353,000

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