El gato painting company bank reconciliation

7-10 Review the financial information pertaining to Evergreen Company and prepare the following:

1. Prepare the necessary journal entries for Evergreen for each of the dates listed in the problem. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold (round all calculations to the nearest dollar).

2. Prepare any necessary adjusting entries at December 31, 2011. Adjusting entries are only recorded at year-end (round all calculations to the nearest dollar).

3. Prepare a schedule showing the effect of the journal entries in requirements 1 and 2 on 2011 income before taxes.

Evergreen Company sells lawn and garden products to wholesalers. The company’s fiscal year-end is December 31. During 2011, the following transactions related to receivables occurred:

February 28

Sold merchandise to Lennox, Inc. for $10,000 and accepted a 10%, 7-month note. 10% is an approximate rate for this type of note.

March 31

Sold Merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 10%. The $8,000 payment is due on March 31, 2012.

April 3

Sold merchandise to Carr Co. for $7,000 with terms 2/10, n/30 Evergreen uses the gross method to account for cash discounts.

11

Collected the entire amount due from Carr Co.

17

A customer returned merchandise costing $3,200. Evergreen reduced the customer’s receivable balance by $5,000, the sales price of the merchandise. Sales returns are recorded by the company as they occur.

30

Transferred receivables of $50,000 to a factor without recourse. The factor charged Evergreen a 1% finance charge on the receivables transferred. The sale criteria are met.

June 30

Discounted the Lennox, Inc. note at the bank. The bank’s discount rate is 12%. The note was discounted without recourse.

August 31

Lennox, Inc. paid the note plus interest to the bank.

7-14 Review the information pertaining to El Gato Painting Company and prepare the following:

1. Prepare a bank reconciliation for the El Gato checking account at December 31, 2011.

2. Prepare any necessary adjusting journal entries indicated.

El Gato Painting Company maintains a checking account at American Bank. Bank statements are prepared at the end of each month. The November 30, 2011 reconciliation of the bank balance is as follows:

Balance per bank, November 30

$3231

Add: Deposits outstanding

1,200

Less: Checks Outstanding:

#363

$123

#365

201

#380

56

#381

86

#382

340

(806)

Adjusted balance per bank, November 30

$3,625

The company’s general ledger checking account showed the following for December:

Balance, December 1

$3,625

Receipts

42,650

Disbursements

(41,853)

Balance, December 31

$4,422

The December bank statement contained the following information:

Balance, December 1

$3,231

Deposits

43,000

Checks Processed

(41,918)

Service Charges

(22)

NSF Checks

(440)

Balance, December 31

$3,851

The Checks that were processed by the bank in December include all of the outstanding checks at the end of November except for check #365. In addition, there are some December checks that had not been processed by the bank by the end of the month. Also, you discover that check #411 for $320 was correctly recorded by the bank but was incorrectly recorded on the books as a $230 disbursement for advertising expense. Included in the bank’s deposits is a $1,300 deposit incorrectly credited to the company’s account. The deposit should have been posted to the credit of the Los Gatos Company. The NSF checks have not been re-deposited and the company will seek payment from the customers involved.