Question

Bill’s Lawn Care Mini Practice Part 4

In June, Bill commented to you that he could never figure outhis bank statement, “it never matches the

balance in my accounting records” he tells you. So you explainthat a bank reconciliation is a tool used

to balance the bank statement to the accounting books. He givesyou his bank statement for June, 2014

(shown below). The general ledger shows a balance for theaccount cash of $14,319.00 on June 30,

2014 (detail transactions below). Bill’s business only has onechecking account and no other cash

accounts.

Bill has begun to have problems collecting some of his creditaccounts and is considering writing off a

couple of customer account balances. He asks you how these baddebts should be recorded and has

asked you to begin recording bad debt using the allowance methodfor June, 2014. Selected account

balances at the end of June, 2014 are:

Sales $7,200

Sales on Credit $2,900

Accounts Receivable $3,200

As a result of increased focus on collecting accountsreceivable, Bill has decided to extend credit for one

customer, Alan Jones, who owes Bill’s Lawn Care $500. Bill andAlan have agreed to a 90-day 6% note

for $500 issued on June 5, 2014.

Instructions:

1. Using the bank statement and the general ledger, prepare abank reconciliation for Bill’s Lawn

Care as of June 30, 2014. Record the necessary journal entriesto adjust the books for the

appropriate reconciling items. Start with Page 6 for the journalentries. Explanations are

optional.

2. Using the information given above, calculate the amount ofbad debt using:

Using the chart of accounts, record the journal entry for baddebt expense for Bill’s Lawn Care

using the percentage of sales on credit method.

3. Using the note receivable information above and the chart ofaccounts, record the following

entries in the general journal (continue these entries on Page6):

a. Percentage of Sales on Credit = 1.5%

b. Percentage of Accounts Receivable = 1%

a. Receipt of the note in payment of the accounts receivablebalance.

b. Adjusting entry at the end of June, 2014 for the notereceivable. (Round interest

calculations to two decimals)

c. Assume that Alan pays the note and interest in full on thedue date, record the necessary

journal entry. Assume that interest has been accrued at the endof each month.

d. Assume that Alan defaults on the note and interest on the duedate, record the necessary

journal entry. Assume that interest has been accrued at the endof each month.

CHECKING ACCOUNT DETAIL:

DATE	TRANSACTION TYPE & NUMBER	AMOUNT	BALANCE
BEGINNING BALANCE			$12,850.00
6/2/2014	CHECK #1570	226.00	12,624.00
6/5/2014	CHECK #1571	83.00	12,541.00
6/6/2014	EFT #43	127.00	12,414.00
6/10/2014	DEPOSIT #104	1,550.00	13,964.00
6/15/2014	CHECK #1572	145.00	13,819.00
6/15/2014	CHECK #1573	185.00	13,634.00
6/20/2014	DEPOSIT #105	885.00	14,519.00
6/24/2014	EFT #44	143.00	14,376.00
6/28/2014	CHECK #1574	87.00	14,289.00
6/28/2014	CHECK #1575	95.00	14,194.00
6/30/2014	DEPOSIT #106	425.00	14,619.00
6/30/2014	CHECK #1576	155.00	14,464.00
6/30/2014	CHECK #1577	145.00	$14,319.00

BANK STATEMENT:

FIRST NATIONAL BANK
ACCOUNT SUMMARY JUNE 30, 2014
BEGINNING BALANCE	$12,850.00
PAYMENTS	$1,021.00
DEPOSITS	2,440.00
FEES	20.00
ENDING BALANCE	$14,249.00
PAYMENTS
DATE	REFERENCE	AMOUNT
6/5/2014	1570	$266.00
6/9/2014	1571	83.00
6/10/2014	43	127.00
6/19/2014	1572	145.00
6/28/2014	1573	185.00
6/28/2014	NSF	120.00
6/30/2014	1575	95.00
TOTAL PAYMENTS		$1,021.00
DEPOSITS
DATE	REFERENCE	AMOUNT
6/11/2014	104	$1,550.00
6/23/2014	105	885.00
6/30/2014	INTEREST	5.00
TOTAL DEPOSITS		$2,440.00
FEES
6/30/2014	SVC CHG	$20.00
TOTAL FEES		$20.00

Additional Information: Check #1570 waswritten for $266.00, but was recorded incorrectlyin the general ledger. The check was for fuel.

Bill’s Lawn Care

Chart of Accounts

Classification	Account Number	Account Name
ASSETS	101	Cash
	110	Accounts Receivable
	112	Allowance for Doubtful Accounts
	115	Notes Receivable
	116	Interest Receivable
	120	Supplies
	130	Prepaid Insurance
	140	Inventory
	150	Equipment
	155	Accumulated Depreciation – Equipment
LIABILITIES	201	Accounts Payable
	220	Notes Payable
	225	Interest Payable
OWNER’S EQUITY	301	Owner’s Capital
	305	Owner’s Drawings
	310	Income Summary
REVENUES	401	Lawn Service Revenue
	410	Sales Revenue
	415	Sales Returns and Allowances
	420	Interest Income
COST OF GOODS SOLD	501	Purchases
	505	Purchase Returns and Allowances
EXPENSES	620	Supplies Expense
	630	Fuel Expense
	640	Repair and Maintenance Expense
	650	Advertising Expense
	660	Insurance Expense
	670	Depreciation Expense
	680	Interest Expense
	690	Bad Debt Expense
	695	Miscellaneous Expense

Please answer for the following

Bank reconciliation

Cash balanceper bank statement
Adjusted cashbalance per bank
Cash balanceper books
Adjusted cashbalance per books

General Ledger

	GENERALJOURNAL			Page
DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT

Bad Debt Calculations

Term ofNote

TotalInterest on Note

AccruedInterest June 30, 2014

Notes Receivable Calculation

Percentage ofSales on Credit
Percentage ofAccounts Receivable

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