Exercise#1
10 points Using the code letters below, indicate howeach of the items listed would be handled in preparing a bankreconciliation. Enter the appropriate code letter in the space tothe left of each item. Code A Add to cash balance per books B Deduct from cash balance per books C Add to cash balance per bank D Deduct from cash balance per bank E Does not affect the bank reconciliation Items: 1 Outstanding checks. 2 Bank service charge. 3 Check for $420 correctly written and paidby the bank but incorrectly entered in the cash payments journalfor $240. 4 Deposit in transit. 5 Bank returns deposited check marked NSF. 6 Bank collects notes receivable and interest for depositor. 7 Bank debit memorandum for check printing fees. 8 Petty cash custodian has $91 in paid pettycash vouchers that have not been reimbursed. 9 Bank charged a check against the companywhich should have been charged to another company. 10 A check for $246 was correctly paid by thebank but was incorrectly entered in the cash payments journal for$264.
| 10 points | |||
| Using the code letters below, indicate howeach of the items listed would be handled in preparing a bankreconciliation. Enter the appropriate code letter in the space tothe left of each item. | ||||
| Code | ||||
| A | Add to cash balance per books | |||
| B | Deduct from cash balance per books | |||
| C | Add to cash balance per bank | |||
| D | Deduct from cash balance per bank | |||
| E | Does not affect the bank reconciliation | |||
| Items: | ||||
| 1 | Outstanding checks. | |||
| 2 | Bank service charge. | |||
| 3 | Check for $420 correctly written and paidby the bank but incorrectly entered in the cash payments journalfor $240. | |||
| 4 | Deposit in transit. | |||
| 5 | Bank returns deposited check marked NSF. | |||
| 6 | Bank collects notes receivable and interest for depositor. | |||
| 7 | Bank debit memorandum for check printing fees. | |||
| 8 | Petty cash custodian has $91 in paid pettycash vouchers that have not been reimbursed. | |||
| 9 | Bank charged a check against the companywhich should have been charged to another company. | |||
| 10 | A check for $246 was correctly paid by thebank but was incorrectly entered in the cash payments journal for$264. | |||
Related questions
Please answer.
Bank Reconciliation The Chicago Scooter Company's bank statement for the month of June indicated a balance of $3,350. The company's cash account in the general ledger showed a balance of $2,464 on June 30. Other relevant information includes the following:
Deposits in transit on June 30 total $2,550.
The bank statement shows a debit memorandum for a $10 check printing charge.
Check No. 160 payable to Simon Company was recorded in the accounting records for $124 and cleared the bank for this same amount. A review of the records indicated that the Simon account now has an $18 credit balance and the check to them should have been $142.
Outstanding checks as of June 30 totaled $3,100.
Check No. 176 was correctly written and paid by the bank for $203. The check was recorded in the accounting records as a debit to accounts payable and a credit to cash for $230.
The bank returned a NSF check in the amount of $311.
The bank included a credit memorandum for $630 representing a collection of a customer's note. The principle portion was $610 and the interest portion was $20. The interest had not been accrued.
Required
a. Prepare the June bank reconciliation for Chicago Scooter Company.
b. Prepare any necessary adjusting entries.
a.
| CHICAGO SCOOTER COMPANY Bank Reconciliation June 30 | |||
|---|---|---|---|
| Cash Balance per Bank | $Answer | ||
| Add: | AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | Answer | |
| Less: | AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | Answer | |
| AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | $Answer | ||
| Cash Balance per Books | $Answer | ||
| Add: | Accounts Payable Error | $Answer | |
| Add: | AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | Answer | Answer |
| Less: | AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | Answer | |
| Less: | NSF Check | Answer | Answer |
| AnswerReconciled Cash Balance per BankReconciled Cash Balance per BooksCollection of NoteDeposit in TransitNSF CheckOutstanding ChecksCheck Printing Charge | $Answer | ||
b.
| GENERAL JOURNAL | ||||
|---|---|---|---|---|
| Date | Description | Debit | Credit | |
| June | 30 | AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | $Answer | $Answer |
| AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | ||
| To correct check error in recording check No. 176. | ||||
| 30 | AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | |
| AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | ||
| Interest Earned | Answer | Answer | ||
| To record note collection by bank. | ||||
| 30 | AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | |
| AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | ||
| To record check printing charge. | ||||
| 30 | AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | |
| AnswerAccounts PayableAccounts ReceivableCashInterest EarnedMiscellaneous ExpenseNotes Receivable | Answer | Answer | ||
| To record NSF check. | ||||
Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.
Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.
| Beginning Inventory | Purchases | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | |
| a. | $180,000 | $325,000 | $80,000 |
| Sales (Revenue) | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| b. | $240,000 | $145,000 | $32,000 |
| Revenue (Sales) | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| c. | $515,000 | $240,000 | $145,000 | $225,000 | $145,000 |
. For each question below, circle the best answer from the choices given. (
1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False
2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False
3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False
4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False
5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)
T F 1. US Treasury bills that mature within 120 days are cash equivalents.
T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.
T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.
T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.
T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.
. For each question below, circle the best answer from the choices given.
1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?
A) Bank service charges.
B) Deposits in transit.
C) Outstanding checks.
D) NSF check from one of the depositor's customers.
2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:
A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.
B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.
C) To record outstanding checks and bank service charges.
D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.
3. The Allowance for Doubtful Accounts represents:
A) Cash set aside to make up for bad debt losses.
B) The amount of uncollectible accounts written off to date.
C) The difference between total credit sales and collections on credit sales.
D) The difference between the face value of A/R and the net realizable value of A/R.
4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
5. During preparation of a bank reconciliation, outstanding checks should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing
Process
Deduct from bank balance 2. Add to bank balance
3. Deduct from checkbook balance 4. Add to checkbook balance
Situation
_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)
_______ Bank collection (wire) fee was $15
_______ Check number 111 was outstanding for $55
_______ A $400 check was written, but recorded on the books as $40
_______ Interest received from your bank for the month was $16.55
FNEC 1600
Comprehensive Problem â Due Date: December 1, 2017
Fall 2017
Your score on the following problem will carry a weight of 13% in determining your overall course grade. A hard copy of your solution must be submitted by December 1st. Any submission after the beginning of class on that date is subject to a 10 point per day late point reduction.
Description:
You have been charged with preparing year-end adjusting entries along with a multiple-step income statement and a classified balance sheet for Fat Tire, Inc., a wholesaler of bicycles and bicycle parts. The financial statements will cover the year ended December 31, 2016. A December 31 bank reconciliation, an unadjusted trial balance, and other information to help with the adjusting entries follow.
| Fat Tire, Inc. | ||||||
| Bank Reconciliation | ||||||
| 31-Dec-16 | ||||||
| Balance per Bank Statement | $297,000 | |||||
| Deposits in Transit | $4,500 | |||||
| Bank Error (See note 1 below) | 1,200 | |||||
| Outstanding Checks | (2,000) | 3,700 | ||||
| Adjusted Balance | $300,700 | |||||
| Balance per Fat Tire's Books | $300,000 | |||||
| Interest Earned per bank statement | $450 | |||||
| Book Error (See note 2 below) | 1,170 | |||||
| NSF Check (See note 3 below) | (500) | |||||
| December bank service charges | (420) | 700 | ||||
| Adjusted Balance | $300,700 | |||||
| note 1: The bank incorrectly charged Fat Tire's account for a fee | ||||||
| that belonged to another client of the bank. | ||||||
| note 2: A check for $130 to pay a cash miscellaneous operating | ||||||
| expense was incorrectly recorded as $1,300 on Fat Tire's | ||||||
| note 3: The bank returned a bad check deposited by Fat Tire | ||||||
| that represented a receipt of payment from one of Fat Tire's | ||||||
| customers. | ||||||
| Fat Tire, Inc. | ||||||
| Unadjusted Trial Balance | ||||||
| December 31, 2016 | ||||||
| Debit | Credit | |||||
| Accounts Payable | 50,000 | |||||
| Accounts Receivable | 425,700 | |||||
| Accumulated Depreciation (Equip) | 4,305 | |||||
| Accumulated Depreciation (F & F) | 23,600 | |||||
| Advertising Expense | 18,000 | |||||
| Allowance for Doubtful Accounts | $1,500 | |||||
| Cash | $300,000 | |||||
| Common Stock | 180,000 | |||||
| Cost of Goods Sold | 2,613,000 | |||||
| Depreciation Expense | 6,455 | |||||
| Equipment | 10,000 | |||||
| Furniture & Fixtures | 50,000 | |||||
| Income Tax Expense | 228,323 | |||||
| Insurance Expense | 7,500 | |||||
| Interest Revenue | 5,200 | |||||
| Inventory | 325,000 | |||||
| Miscellaneous Operating Expense | 2,500 | |||||
| Note Payable | 35,000 | |||||
| Payroll Tax Expense | 23,680 | |||||
| Prepaid Insurance | 10,500 | |||||
| Rent Expense | 168,000 | |||||
| Rent Revenue | 4,000 | |||||
| Retained Earnings | 242,553 | |||||
| Salary Expense | 264,500 | |||||
| Sales Discounts | 42,000 | |||||
| Sales Returns | 30,000 | |||||
| Sales Revenue | 4,020,000 | |||||
| Supplies | 2,000 | |||||
| Supplies Expense | 17,000 | |||||
| Unearned Rent | 2,000 | |||||
| Utilities Expense | 24,000 | |||||
| Totals | 4,568,158 | 4,568,158 | ||||
Information related to adjusting entries:
No entries have been made for the December 31 bank reconciliation. Use the bank reconciliation provided to prepare the necessary entries.
Fat Tire pays employees and all payroll related liabilities semi-monthly. Each payment of payroll related liabilities is for the previous pay period. Thus, Fat Tire needs to accrue salaries and payroll related expenses for the December 16th-31st pay period. The following information was obtained for the last pay period of the year.
Gross Pay = $12,000
Federal Income Tax withholding rate = 20%
FICA rate for employees and employers = 8%
State unemployment taxes for the pay period = $250
Federal unemployment taxes for the pay period = $75
Fat Tire maintains a liability account for federal income tax withheld from employees and a separate liability account for its own corporate income taxes.
Based on a count taken on December 31st, the amount of supplies that remain on hand is $500.
Unbilled sales as of December 31 totaled $5,000. The cost of those bikes sold was $2,000.
The Allowance for Doubtful accounts is adjusted at the end of each year using the percentage of sales method. Fat Tires estimates that 1% of adjusted net sales will go uncollected.
The Prepaid Insurance balance represents an $18,000 one-year policy that began on July 1. The company adjusts any prepaid items on a monthly basis.
Fat Tire decided to sublease some of its rental space. On October 1, the company received $6,000 in advance from a neighboring business for 3 monthâs rent. The lease period began on October 1. Fat Tire adjusts rent related accounts on a monthly basis.
Furniture and Fixtures were acquired on January 2, 2012 at a cost of $50,000. Management selected a 10 year life and a $2,000 residual value. Fat Tire depreciates Furniture and Fixtures on a monthly basis using the straight-line method of depreciation.
The Equipment was purchased on January 2, 2015 at a cost of $10,000. Management selected a productive life of 6,000 hours and a $1,000 residual value. Fat Tire depreciates Equipment on a monthly basis using the units-of-production method. The equipment was used 200 hours in December.
The Note Payable was issued on December 1, 2016. The terms of the note state that the principal and interest is to be paid two years from the issuance date. The interest rate stated on the note is 6 percent.
Accrued advertising expenses incurred but not yet paid totaled $1,000 on December 31.
Fat Tire makes quarterly payments for its income taxes. No entry has been made for the fourth quarter income taxes of 2016 which will be paid in 2017. To make this entry, you will have to determine the Income Before Tax for the year. One-fourth of that amount represents income earned in the fourth quarter. Fat Tireâs corporate tax rate is 40%.
Required:
Prepared the adjusting journal entries required on December 31, 2016.
Prepared a multiple-step income statement for the year ended December 31, 2016. Make sure your operating expenses are listed in descending order. Use the Income statement example that I provided as supplemental notes to chapter 6 as a guide.
Prepare a classified balance sheet as of December 31, 2016. List your current assets in order of liquidity.
Note: If it helps, prepare a supplemental schedule like we completed in problem 4.6A. It may help organize your data prior to preparing the financial statements.
Appropriate Use of Office Hours:
Office hours are held so that students can ask questions about assignments and/or concepts. For assignments that are to be submitted for a grade, it is unreasonable for you to ask âis my assignment correctâ or âcan you find my mistakesâ. That is why the assignments are graded. A reasonable request is to ask âhow toâ questions if you are stuck on a step or âcan you help me understand this data or this requirementâ. We (Iâm speaking for the TAs as well) want to help, but we are not there to complete your assignments for you.
Print Formats: Be sure to use the print preview feature in Excel and adjust your spreadsheets so that they can be easily read. Points will be deducted if I have to work just to read your printouts. Use normal size fonts and make sure that when reading left to right, you do not have sheets starting on one page and finishing on another. In other words, pretend Iâm your client.
