Accounting Problem

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Ch. 7

The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $166,436. The bank statement indicated a balance of $195,688 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

a.	Checks outstanding totaled $19,427.
b.	A deposit of $12,300, representing receipts of June 30, had been made too late to appear on the bank statement.
c.	The bank collected $26,500 on a $25,000 note, including interest of $1,500.
d.	A check for $4,000 returned with the statement had been incorrectly recorded by Pala Medical Co. as $400. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
e.	A check drawn for $195 had been erroneously charged by the bank as $915.
f.	Bank service charges for June amounted to $55.

Required:

Prepare a bank reconciliation.

Journalize the necessary entries.

If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?

CHART OF ACCOUNTS

Pala Medical Co.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
131	Notes Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
181	Land
191	Office Equipment
192	Accumulated Depreciation-Office Equipment
193	Store Equipment
194	Accumulated Depreciation-Store Equipment

	LIABILITIES
211	Accounts Payable-Skyline Supply Co.
221	Notes Payable
222	Interest Payable
231	Salaries Payable
241	Sales Tax Payable
	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue
	EXPENSES
510	Cost of Goods Sold
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Insurance Expense
534	Office Supplies Expense
535	Rent Expense
536	Repairs Expense
537	Selling Expenses
538	Store Supplies Expense
561	Depreciation Expense-Office Equipment
562	Depreciation Expense-Store Equipment
590	Miscellaneous Expense
710	Interest Expense

Labels and Amount Descriptions

Labels
For the Month Ended June 30, 20Y1
June 30, 20Y1
Amount Descriptions
Adjusted balance
Bank error in charging check as $915 instead of $195
Bank service charges
Deposit in transit on June 30
Error in recording check
Note collected by bank, including $1,500 interest
Outstanding checks
Total additions
Total deductions

Bank Reconciliation

1. Prepare a bank reconciliation.

Bank Reconciliation Instructions

Pala Medical Co.

Bank Reconciliation


1	Cash balance according to bank statement
2
3
4
5
6
7
8	Cash balance according to company’s records
9
10
11
12
13

General Journal

2. Journalize the necessary entries.

General Journal Instructions

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6

Final Question

3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?

Part 2

The cash account for Coastal Bike Co. at October 1, 20Y9, indicated a balance of $5,140. During October, the total cash deposited was $39,175, and checks written totaled $40,520. The bank statement indicated a balance of $8,980 on October 31, 20Y9. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

a.	Checks outstanding totaled $3,260.
b.	A deposit of $2,450 representing receipts of October 31 had been made too late to appear on the bank statement.
c.	The bank had collected for Coastal Bike Co. $5,300 on a note left for collection. The face of the note was $5,000.
d.	A check for $460 returned with the statement had been incorrectly charged by the bank as $640.
e.	A check for $430 returned with the statement had been recorded by Coastal Bike Co. as $340. The check was for the payment of an obligation to Rack Pro Co. on account.
f.	Bank service charges for October amounted to $50.
g.	A check for $605 from Bay View Condos was returned by the bank due to insufficient funds.
	Required:
1.	Prepare a bank reconciliation as of October 31, 20Y9.
2.	Journalize the necessary entries.
3.	If a balance sheet were prepared for Coastal Bike Co. on October 31, 20Y9, what amount should be reported as cash?

Chart of Accounts

CHART OF ACCOUNTS

Coastal Bike Co.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable-Bay View Condos
131	Notes Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
181	Land
191	Office Equipment
192	Accumulated Depreciation-Office Equipment
193	Store Equipment
194	Accumulated Depreciation-Store Equipment

	LIABILITIES
211	Accounts Payable-Rack Pro Co.
221	Notes Payable
222	Interest Payable
231	Salaries Payable
241	Sales Tax Payable
	EQUITY
310	Common Stock
311	Retained Earnings
312	Dividends

	REVENUE
410	Sales
610	Interest Revenue
	EXPENSES
510	Cost of Goods Sold
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Insurance Expense
534	Office Supplies Expense
535	Rent Expense
536	Repairs Expense
537	Selling Expenses
538	Store Supplies Expense
561	Depreciation Expense-Office Equipment
562	Depreciation Expense-Store Equipment
590	Miscellaneous Expense
710	Interest Expense

Labels and Amount Descriptions

Labels
For the Month Ended October 31, 20Y9
October 31, 20Y9
Amount Descriptions
Adjusted balance
Bank error in charging check as $640 instead of $460
Bank service charges
Check returned because of insufficient funds
Deposit in transit on October 31
Error in recording check
Note collected by bank, including $300 interest
Outstanding checks
Total additions
Total deductions

Bank Reconciliation

1. Prepare a bank reconciliation as of October 31, 20Y9.

Bank Reconciliation Instructions

Coastal Bike Co.

Bank Reconciliation


1	Cash balance according to bank statement
2
3
4
5
6
7
8	Cash balance according to company’s records
9
10
11
12
13
14

General Journal

2. Journalize the necessary entries.

General Journal Instructions

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7

Final Question

3. If a balance sheet were prepared for Coastal Bike Co. on October 31, 20Y9, what amount should be reported as cash?