156. Diamond Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement
for October 2013 indicated the following:
Balance, October 31, 2013
$29,700
Bank service charges for October
80
Interest earned during October
120
NSF Check from a customer which had been previously deposited by Diamond
230
Collection of note ($4,000) and the related interest ($100) from Diamond’s
customer
4,100
An analysis of canceled checks and deposits and the records of Diamond revealed the following items:
Checking account balance per Diamond’s accounting records
$26,040
Outstanding checks as of October 31
2,950
Deposits in transit on October 31
3,110
Error in recording check # 627 issued by Diamond
90
The correct amount of check # 627 is $980, but it was recorded as a cash disbursement of $890. The check was issued to pay for merchandise
purchased. The check was written correctly and appeared on the bank statement correctly.
A)
Prepare a bank reconciliation in proper form for October 31, 2013.
B)
What amount would Diamond report its cash balance on its October 31, 2013, balance sheet?
A)
Bank Reconciliation
October 31, 2013
Cash balance from the bank statement
$29,700
Add: deposits in transit
3,110
Less: outstanding checks
(2,950)
Adjusted cash balance
$29,860
Cash balance from company records
$26,040
Add: interest earned
Add: note and interest collected by the bank
4100
Less: NSF check
(230)
Less: bank service charges
(80)
Less: correction of error
(90)
Adjusted cash balance
$29,860
$29,860
157. Deal Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for
December 2012 indicated the following:
Balance, December 31, 2012
$7,920
Bank service charges for December
20
Interest earned during December
30
NSF Check from a customer which had been previously deposited by Deal
32
Collection of note ($1,000) and the related interest ($40) from Deal’s customer
1040
An analysis of canceled checks and deposits and the records of Deal revealed the following items:
Checking account balance per Deal’s accounting records
$7,170
Outstanding checks as of December 31
952
Deposits in transit on December 31
1,310
Error in recording check # 267 issued by Deal
90
The correct amount of check # 267 is $340, but it was recorded as a cash disbursement of $430. The check was issued to pay for merchandise
purchased. The check was written correctly and appeared on the bank statement correctly.
A)
Prepare a bank reconciliation in proper form for December 31, 2012.
B)
What amount would Deal report its cash balance on its December 31, 2012, balance sheet?
C)
What adjusting entries will Deal record as a result of this bank reconciliation process?
158. Discount Muffler Company is preparing its bank reconciliation for June 30, 2013. Its bank statement and
general ledger T-account for its checking account are presented below:
Best Bank
41 N. Main Street
Account Statement
Best, GA 32664
June 30, 2013
Member FDIC
Discount Muffler
Co.
Acct. 00709561
161 N. Hill Street
Best, GA 32664
Previous
Checks
Deposits
Current
Balance
and Debits
and Credits
Balance
$9,675.20
$10,685.26
$7,175.10
$6,165.04
Checks and Debits
Deposits and Credits
Daily Balance
Date
No.
Amount
Date
Amount
Date
Amount
6/03/13
1983
182.00
6/03/13
9493.20
6/04/13
1984
217.26
6/04/13
2673.10
6/04/13
11949.04
6/06/13
1985
1075.00
6/06/13
10874.04
6/07/13
1986
37.50
6/07/13
4500.00
6/07/13
15336.54
6/10/13
1987
826.00
6/10/13
14510.54
6/11/13
1988
50.00
6/11/13
14460.54
6/12/13
1989
2670.00
6/12/13
1990
67.90
6/12/13
11722.64
6/13/13
1991
890.00
6/13/13
10832.64
6/14/13
1992
27.50
6/14/13
10805.14
6/17/13
1993
111.00
6/17/13
10694.14
6/18/13
DM
380.00
6/18/13
10314.14
6/19/13
1994
60.00
6/19/13
1995
510.00
6/19/13
9744.14
6/20/13
1996
30.00
6/20/13
9714.14
6/21/13
1997
1600.00
6/21/13
8114.14
6/24/13
1998
78.00
6/24/13
8036.14
6/25/13
NSF
200.00
6/25/13
7836.14
6/26/13
1999
208.80
6/26/13
7627.34
6/27/13
2000
1250.00
6/27/13
6377.34
6/28/13
2002
175.00
6/28/13
6202.34
6/30/13
2003
25.30
6/30/13
INT 2.00
6/30/13
SC
14.00
6/30/13
6165.04
Symbols:
DM
CM
INT
NSF
SC
Debit
Credit
Interest
Non-
Service
Memo-
Memo
Earned
sufficient
Charge
utility bill
funds
Discount Muffler
Company
Cash
Amount
Amount
Date
Deposited
Check #
Disbursed
Beg. Bal.
8200.94
5/31/13
1986
37.50
6/01/13
2673.10
1987
826.00
6/05/13
4500.00
1988
50.00
6/30/13
300.00
1989
2670.00
1990
67.90
1991
890.00
1992
27.50
1993
111.00
1994
60.00
1995
510.00
1996
30.00
1997
1600.00
1998
87.00
1999
208.80
2000
1250.00
2001
93.00
2002
175.00
2003
25.30
2004
72.50
2005
891.00
6/30/13
5991.54
A)
Prepare a bank reconciliation in proper form for June. Note that the beginning balance was correctly reconciled at the end of the
previous month, and that all outstanding checks (numbered 1983, 1984, and 1985) and deposits in transit from the previous month
cleared the bank during May.
B)
How much cash will the company report on its June 30 balance sheet?
C)
What adjusting entries will the company record as a result of this bank reconciliation process? Assume that the bank correctly
recorded all transactions, and that any errors noted in the reconciliation process involve transactions on credit.
159. Dovetail Company is preparing its bank reconciliation for July 31, 2013. Its bank statement and general
ledger T-account for its checking account are presented below:
First Yard Bank
41 N. First Street
Account Statement
Headon, MA 72594
July 31, 2013
Member FDIC
Dovetail Company
Acct. 004-706037
168 N. Oak Street
Headon, MA 72594
Previous
Checks
Deposits
Current
Balance
and Debits
and Credits
Balance
$10,753.40
$18,831.26
$29,526.75
$21,448.89
Checks and Debits
Deposits and Credits
Daily Balance
Date
No.
Amount
Date
Amount
Date
Amount
7/03/13
744
162.00
7/03/13
10591.40
7/04/13
745
227.26
7/04/13
12674.10
7/04/13
23038.24
7/06/13
746
1175.00
7/06/13
21863.24
7/07/13
747
637.50
7/07/13
5500.00
7/07/13
26725.74
7/10/13
748
5526.00
7/10/13
21199.74
7/11/13
749
510.00
7/11/13
20689.74
7/12/13
750
69.90
7/12/13
20619.84
7/13/13
751
3710.00
7/13/13
435.00
7/13/13
17344.84
7/14/13
752
287.50
7/14/13
17057.34
7/17/13
753
11.00
7/17/13
17046.34
7/18/13
DM
284.00
7/18/13
870.00
7/18/13
17632.34
7/19/13
754
500.00
7/19/13
17132.34
7/20/13
755
2060.00
7/20/13
15072.34
7/21/13
756
1680.00
7/21/13
975.00
7/21/13
14367.34
7/24/13
757
78.00
7/24/13
14289.34
7/25/13
NSF
200.00
7/25/13
98.00
7/25/13
14187.34
7/26/13
759
208.80
7/26/13
8961.50
7/26/13
22940.04
7/27/13
760
1290.00
7/27/13
21650.04
7/28/13
762
75.00
7/28/13
21575.04
7/31/13
764
45.30
7/31/13
INT 13.15
7/31/13
SC
94.00
7/31/13
21448.89
Symbols:
DM
CM
INT
NSF
SC
Debit
Credit
Interest
Non-
Service
Memo-
Memo
Earned
sufficient
Charge
utility bill
funds
Dovetail Company
Cash
Amount
Amount
Date
Deposited
Check #
Disbursed
Beg. Bal.
9189.14
7/01/13
747
637.50
7/01/13
12674.10
748
5526.00
749
510.00
750
69.90
7/06/13
5500.00
751
3710.00
752
287.50
753
11.00
754
500.00
7/12/13
435.00
755
206.00
756
1680.00
757
78.00
7/17/13
870.00
758
1600.00
7/20/13
975.00
759
208.80
760
1290.00
7/24/13
98.00
761
1250.00
7/25/13
8961.50
762
75.00
763
135.00
764
45.30
7/31/13
300.00
765
72.50
766
891.00
7/31/13
20219.24
A)
Prepare a bank reconciliation in proper form for July. Note that the beginning balance was correctly reconciled at the end of the
previous month, and that all outstanding checks (numbered 744, 745, and 746) and deposits in transit from last month cleared the
bank this month.
B)
How much cash would the company report on its July 31 balance sheet?
C)
What adjusting entries will the company record as a result of this bank reconciliation process? Assume that the bank correctly
reported all transactions, and that any errors noted in the reconciliation process involve transactions on credit.
160. The accountant prepared the firm’s bank reconciliation and noted several reconciling items as listed below.
Indicate whether the firm should add or subtract each item below on its balance of cash or on its bank balance.
Bank
Company
Reconciling Items
Balance
Balance
1.
Deposits in Transit
2.
NSF checks
3.
Check recorded twice by the company
4.
Interest earned
5.
Outstanding checks
6.
Bank service charges
7.
Bank debit memos
8.
Bank credit memos
Bank
Company
1.
Deposits in Transit
Add
2.
NSF checks
Subtract
3.
Check recorded twice by the company
Add
4.
Interest earned
Add
5.
Outstanding checks
Subtract
6.
Bank service charges
Subtract
7.
Bank debit memos
Subtract
8.
Bank credit memos
Add
161. The accountant prepared the firm’s bank reconciliation and noted the following adjustments to the
company records for its checking account. In the table below, indicate the impact on the accounting equation of
recording the various adjusting journal entries for these items by inserting an “I” for increase or “D” for
decrease. It is possible that an adjustment both increases and decreases an element of the accounting equation,
as in the case of the first adjustment which has been completed as an example.
Stockholders’
Adjustments to company records
Assets
Liabilities
Equity
1.
NSF checks
I, D
2.
Check for utilities recorded twice by the company
3.
Interest earned
4.
Bank service charges
5.
Bank debit memos for payment of rent
6.
Bank credit memos for collection of a note receivable
162. On April 1, 2012, a company established a petty cash fund for $300. By the end of the month, the petty
cash custodian requested reimbursement of $225 for the following expenditures from the fund:
Office supplies
$58
Overtime meals
61
Postage
75
Miscellaneous
31
Record the entries to a) establish the petty cash fund; and b) replenish the fund and recognize expenses at the end of April.
Date
Accounts
Debit
Credit
Petty Cash Fund
300
Cash
300
b)
Office Supplies Expense
58
Postage Expense
75
Miscellaneous Expense
92
Cash
225
Stockholders’
Adjustments to company records
Assets
Liabilities
Equity
1.
NSF checks
I, D
2.
Check for utilities recorded twice by the company
I
I
3.
Interest earned
I
I
4.
Bank service charges
D
D
5.
Bank debit memos for payment of rent
D
D
6.
Bank credit memos for collection of a note receivable
I, D
163. A petty cash fund for $300 was established on May 1. By the end of the month, the petty cash custodian
requested reimbursement of $222 for the following expenditures from the fund:
Office supplies
$68
Deliveries
30
Fuel
56
Postage
68
Record the entries to a) establish the petty cash fund; b) replenish the fund as of the end of May and c) increase the fund balance to $500.
164. Dow Electronics established a petty cash fund to pay for small, incidental expenditures incurred at the
office. The fund is handled by a trustworthy custodian. At the end of the month, the fund is replenished. On
September 30, the petty cash fund contained $13 in cash and the following receipts:
Office supplies
$87
Delivery fees
35
Repairs
67
Postage
48
Record journal entries to: a) establish the petty cash fund; b) replenish the fund and recognize expenses at the end of September; and c) increase the
fund balance to $300.
a)
Petty Cash Fund
250
Cash
250
b)
Office Supplies Expense
87
Delivery Expense
35
Repairs Expense
67
Postage Expense
48
Cash
237
a)
Petty Cash Fund
300
Cash
300
b)
Office Supplies Expense
68
Delivery Expense
30
Fuel Expense
56
Postage Expense
68
Cash
222
Petty Cash Fund
200
Cash
200
165. During April, Downtown Iron Works engaged in the following transactions involving it petty cash fund:
Date
Description
Amount
April 1
Established the petty cash fund by issuing a check to the fund’s custodian.
$250
April 4
The custodian paid for freight charges on new equipment
125
April 13
The custodian paid for postage services on the mailing of blueprints.
50
April 21
The custodian paid for office supplies.
25
April 25
The custodian requested reimbursement of the petty cash expenditures during the month and
receives a check to replenish the fund.
?
Prepare the journal entries necessary to record the company’s petty cash transactions.
166. What is meant by the term “cash equivalents”?
167. What adjustments are often necessary after the reconciliation of a bank account?
Date
Accounts
Debit
Credit
April 1
Petty Cash Fund
250
Cash
250
April 30
Delivery Expense
125
Postage Expense
50
Office Supplies
25
Cash
168. Why is cash management necessary?
169. Explain how a company can control small cash payments that are made in cash rather than by check.
170. Explain some internal control procedures that a fast food restaurant like McDonald’s may use to control
cash receipts.
171. “You Decide” Essay
You are an entrepreneur about to open a coffee and internet cafe near your college campus. You have decided
to accept cash and credit and will use college student employees. While you plan to be at the shop during most
hours that the business will be open, you have made one of the student employees your assistant manager to
manage in your absence.
Describe at least five procedures that you might use to provide adequate internal control over cash and credit
sales and bank deposits.
172. The following information is provided for a company that manufactures bicycles. The factory foreman
determines when orders for materials are necessary. The orders are sent to the purchasing department that
places orders with the vendors recommended by the factory foreman. When the materials are received, they are
immediately delivered to a central storeroom. When invoices are received for the items purchased, they are sent
to the accounting department for payment. The accounting department compares the invoices with purchase
orders. If the two documents are in agreement, the invoice is approved for payment. The accounting department
prepares checks that are signed by the company treasurer.
Recommend three or four improvements in the company’s procedures for purchasing and paying for purchases
of materials that will provide better internal control.
173. Explain how checking accounts, bank statements, and a bank reconciliation are used to help a company
control its cash.
174. An effective system of internal control is critical to protecting a company’s investment in cash. Identify the
five control activities and provide one example that relates to each control as it would be applied to cash.
175. “You Decide” Essay
You have just accepted a part-time job at one of the campus eateries. During your training the manager was
called away to deal with some crisis and asked one of your co-workers to complete your training on using the
cash register. The co-worker proceeds to tell you that if the money in the register drawer doesn’t equal the total
on the cash register tape, you will be responsible for the difference. If there is a cash shortage, you must make
up the shortage out of your own pocket but if there is excess cash, you may keep the overage. Proudly, with the
wink of an eye, she states, “I was short one time, right after I started working here. But I made sure, if you know
what I mean, that I would never be short again.”
A) Evaluate this control. Is it strong or weak? What kind of behavior will it encourage?
B) Do you have a professional obligation to report your co-worker to management? Explain.