Pr 7 5a bank reconciliation and entries

Chapter 7&8 Homework Assignment

7-1A, 7-5A*, 8-1A, 8-6A

PR 7-1A Evaluating internal control of cash

The following procedures were recently installed by Pine Creek Company:

a. Along with petty cash expense receipts for postage, office supplies, etc., several post-dated employee checks are in the petty cash fund.

b. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.

c. At the end of each day, all cash receipts are placed in the bank’s night depository.

d. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.

e. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.

f. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.

g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier.

The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.

h. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.

Instructions

Indicate whether each of the procedures of internal control over cash represents

(1) a strength or (2) a weakness. For each weakness, indicate why it exists.

PR 7-5A Bank reconciliation and entries

Oneida Furniture Company deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of June 30 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.

CASH ACCOUNT:

Balance as of June 1 $9,317.40

CASH RECEIPTS FOR MONTH OF JUNE $9,524.16

DUPLICATE DEPOSIT TICKETS:

Date and amount of each deposit in June:

Date Amount Date Amount Date Amount

June 1 $1,080.50 June 10 $ 896.61 June 22 $ 897.34

3 854.17 15 882.95 24 942.71

8 845.00 17 1,607.64 30 1,517.24

CHECKS WRITTEN:

Number and amount of each check issued in June:

Check No. Amount Check No. Amount Check No. Amount

740 $237.50 747 Void 754 $ 449.75

741 495.15 748 $450.90 755 272.75

742 501.90 749 640.13 756 113.95

743 671.30 750 276.77 757 407.95

744 560.88 751 299.37 758 259.60

745 117.25 752 537.01 759 901.50

746 298.66 753 380.95 760 486.39

Total amount of checks issued in June $8,359.66

BANK RECONCILIATION FOR PRECEDING MONTH:

Oneida Furniture Company

Bank Reconciliation

May 31, 20

Cash balance according to bank statement . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,447.20

Add deposit for May 31, not recorded by bank. . . . . . . . . . . . . . . . . . . . . . . 690.25

$10,137.45

Deduct outstanding checks:

No. 731 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $162.15

  736 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.95

  738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251.40

  739 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.55 820.05

Adjusted balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,317.40

Cash balance according to company’s records . . . . . . . . . . . . . . . . . . . . . . . $ 9,352.50

Deduct service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.10

Adjusted balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,317.40

AMERICAN NATIONAL BANK OF CHICAGO

CHICAGO, IL 60603 (312)441-1239MEMBER FDIC

ACCOUNT NUMBER FROM 6/01/20– TO 6/30/20–

BALANCE 9,447.20

DEPOSITS 8,691.77

WITHDRAWALS 8,014.37

OTHER DEBITS

AND CREDITS 3,370.00CR

NEW BALANCE 13,494.609

20

4 ONEIDA FURNITURE COMPANY

* – – – CHECKS AND OTHER DEBITS – – – * – – DEPOSITS – – * – DATE – * – – BALANCE– – *

No.731 162.15 No.736 345.95 690.25 6/01 9,629.35

No.739 60.55 No.740 237.50 1,080.50 6/02 10,411.80

No.741 495.15 No.742 501.90 854.17 6/04 10,268.92

No.743 671.30 No.744 506.88 840.50 6/09 9,931.24

No.745 117.25 No.746 298.66 MS 3,500.00 6/09 13,015.33

No.748 450.90 No.749 640.13 MS 210.00 6/09 12,134.30

No.750 276.77 No.751 299.37 896.61 6/11 12,454.77

No.752 537.01 No.753 380.95 882.95 6/16 12,419.76

No.754 449.75 No.755 272.75 1,606.74 6/18 13,304.00

No.757 407.95 No.759 901.50 897.34 6/23 12,891.89

    942.71 6/25 13,834.60

   NSF 300.00 6/28 13,534.60

   SC 40.00 6/30 13,494.60

EC –– ERROR CORRECTION OD –– OVERDRAFT

MS –– MISCELLANEOUS PS –– PAYMENT STOPPED

NSF –– NOT SUFFICIENT FUNDS SC –– SERVICE CHARGE

* * * * * * * * *

THE RECONCILEMENT OF THIS STATEMENT WITH YOUR RECORDS IS ESSENTIAL.

ANY ERROR OR EXCEPTION SHOULD BE REPORTED IMMEDIATELY.

Instructions

1. Prepare a bank reconciliation as of June 30. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.

2. Journalize the necessary entries. The accounts have not been closed.

3. What is the amount of Cash that should appear on the balance sheet as of June 30?

4. Assume that a canceled check for $270 has been incorrectly recorded by the bank as $720. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.

PR 8-1A Entries related to uncollectible accounts

The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31:

Feb. 17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible.

Apr. 11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account.

July 6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets.

Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account.

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers,

$6,700.

 31. Based on an analysis of the $1,200,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.

Instructions

1. Record the January 1 credit balance of $40,000 in a T account for Allowance for

Doubtful Accounts.

2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:

Allowance for Doubtful Accounts

Bad Debt Expense

3. Determine the expected net realizable value of the accounts receivable as of December 31.

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¾ of 1% of the net sales of $7,500,000 for the year, determine the following:

a. Bad debt expense for the year.

b. Balance in the allowance account after the adjustment of December 31.

c. Expected net realizable value of the accounts receivable as of December 31.

PR 8-6A Sales and notes receivable transactions

The following were selected from among the transactions completed by Sorento Co. during the current year. Sorento Co. sells and installs home and business security systems.

Jan. 5. Loaned $17,500 cash to Marc Jager, receiving a 90-day, 8% note.

Feb. 4. Sold merchandise on account to Tedra & Co., $19,000. The cost of the merchandise sold was $11,000.

 13. Sold merchandise on account to Centennial Co., $30,000. The cost of merchandise sold was $17,600.

Mar. 6. Accepted a 60-day, 6% note for $19,000 from Tedra & Co. on account.

 14. Accepted a 60-day, 9% note for $30,000 from Centennial Co. on account.

Apr. 5. Received the interest due from Marc Jager and a new 120-day, 9% note as a renewal of the loan of January 5. (Record both the debit and the credit to the notes receivable account.)

May 5. Received from Tedra & Co. the amount due on the note of March 6.

 13. Centennial Co. dishonored its note dated March 14.

July 12. Received from Centennial Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.

Aug. 3. Received from Marc Jager the amount due on his note of April 5.

Sept. 7. Sold merchandise on account to Lock-It Co., $9,000. The cost of the merchandise sold was $5,000.

 17. Received from Lock-It Co. the amount of the invoice of September 7, less 1% discount.

Instructions

Journalize the transactions.