ACCT 2000 Chapter : ACCT Chapter 7
Document Summary
Get access
Related Documents
Related Questions
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 | |||
Expert Answer
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.