The bookkeeper of Dan & Dean Fashion Company had prepared the following
unadjusted balance sheet as of December 31, 2008:
Accounts receivable (net)
Additional information was as follows:
Net accounts receivable includes a debit balance of $48,000, a credit balance of
$5,000 and allowance for doubtful accounts of $3,000.
Equipment has a useful life of 10 years with no salvage value. The company has
used the equipment for 2 years and depreciates it using the straight-line method.
The trademarks have an indefinite useful life and are not impaired at year end.
The bookkeeper forgot to journalize the purchase of two short-term investments.
The first investment was for marketable securities bought with cash on August 20,
2008 at a cost of $8,000. The company did not intend to hold the securities until
their maturity nor did they plan to actively trade them (i.e., the plan was to sell the
securities in 2 years). As of December 31, 2008, the market value was $3,000 and
it was the first time the company had bought such securities for resale. The second
investment was for stock options (i.e. derivatives) bought with cash on January
18, 2008 at a cost of $2,000. The company held the options until they expired
unexercised on July 18, 2008 when they became worthless.