ACCTG 201 Study Guide - Midterm Guide: Asset, Inventory Turnover, Asset Turnover
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Billâs Lawn Care Mini Practice Part 4
In June, Bill commented to you that he could never figure outhis bank statement, âit never matches the
balance in my accounting recordsâ 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). Billâs 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 Billâs 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 Billâs 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 Billâs 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.
Billâs 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 â Equipment | |
LIABILITIES | 201 | Accounts Payable |
220 | Notes Payable | |
225 | Interest Payable | |
OWNERâS EQUITY | 301 | Ownerâs Capital |
305 | Ownerâs 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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