Bank Reconciliation

Dominican University Department of Accounting

Accounting 310 Name__ __Solution_____ Mr. Pollastrini Exam I Fall, 2009

Problem Possible Points Actual Points

I 40

II 20

III _40

Total 100

I. The Gold Company prepares monthly reconciliations of the bank and book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as reductions in cash receipts--and when later redeposited as regular cash receipts. In preparing the October 31 reconciliations, the following information is available:

1. Cash balance per the bank statement on September 30 was $101,000; cash balance per the books before the September reconciliation was prepared was $93,520. 2. October cash receipts per the bank statement were $313,225; October cash receipts per the books were $308,585. 3. October cash disbursements per the bank statement were $310,025; October cash disbursements per the books were $306,605. 4. Deposits in transit were $9,200 on September 30 and $11,100 on October 31. 5. Bank service charges were $80 for September and $75 for October. 6. Outstanding checks were $17,300 on September 30 and $16,400 on October 31. 7. NSF checks were returned with the September bank statement in the amount of $490 and with the October bank statement in the amount of $525. 8. The bank collected a note for the Gold Company during October in

the amount of $2,700. The face of the note was $2,500. 9. A check received on account during September for $5,400 was recorded on the books as $4,500. 10. A check written during October for $3,200 was recorded on the books as $3,700. The check was in payment for merchandise purchased on account. 11. The bank credited a September deposit of $8,700 to the Gold Company's account for $7,000. The bank corrected the error in October. 12. A check written by another customer of the bank was debited to the Gold Company's account during October for $2,500. The bank corrected the error in October. 13. Interest on the Gold Company's money market fund is mailed directly to the bank by the Gold Company's mutual fund. Interest was $750 for September and $800 for October.

Required: 1. Prepare a four column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Gold Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31.1. Oct. Oct. _ 9/30_ _ Rec._ _Disb._ _10/31_ Balance per bank 101,000 313,225 310,025 104,200 Deposit in transit-Sept. 9,200 ( 9,200) Deposit in transit-Oct. 11,100 11,100 Outstanding checks-Sept. ( 17,300) ( 17,300) Outstanding checks-Oct. 16,400 ( 16,400) Sept. deposit error 1,700 ( 1,700) Oct. check error ( 2,500) ( 2,500) NSF checks-Oct. _ _ ( 525) ( 525) _ _ 94,600 310,400 306,100 98,900

Balance per books 93,520 308,585 306,605 95,500 Service charges-Sept. ( 80) ( 80) Service charges-Oct. 75 ( 75) NSF checks-Sept. ( 490) 490 NSF checks-Oct. ( 525) ( 525) Note collection 2,700 2,700 Sept. receipt error 900 ( 900) Oct. check error ( 500) 500 Interest income-Sept. 750 ( 750) Interest income-Oct. _ _ _ 800 _ 800 94,600 310,400 306,100 98,900

2. Service Charge Expense 75 Cash 75

Accounts Receivable 525 Cash 525

Cash 2,700 Notes Receivable 2,500 Interest Income 200

Cash 500 Accounts Payable 500

Cash 800 Interest Income 800

3. 98,900

II. On September 1, 2009 the Gray Company sold accounts receivable amounting to $900,000 to the White Company on a notification basis without recourse. The White Company assesses a finance charge of 7% of the total accounts receivable factored and retains an amount equal to 2% of the total accounts receivable factored to cover cash discounts, returns, and allowances. During September the White Company collected accounts receivable in the amount of $550,000 less cash discounts of $5,000 and allowances of $9,500 for returned merchandise. During October the White Company collected accounts receivable in the amount of $350,000 less a $25,000 account which was written off as uncollectible. During October the Gray Company and the White Company made final settlement under the factoring agreement.

Required: 1. Prepare the necessary entries on the books of the Gray Company to record the above information. 2. Prepare the necessary entries on the books of the White Company to record the above information.

1. Cash 819,000 Loss on Sale of Receivables 63,000 (7% x 900,000) Due from White 18,000 (2% x 900,000) Accounts Receivable 900,000

Sales Discount 5,000 Sales Returns and Allowances 9,500 Due from White 14,500

Cash 3,500

Due from White 3,500 (18,000 – 5,000 – 9,500)

2. Accounts Receivable 900,000 Finance Revenue 63,000 Due to Gray 18,000 Cash 819,000

Cash 535,500 Due to Gray 14,500 Accounts Receivable 550,000

Cash 325,000 Allowance for Uncollectible Accounts 25,000 Accounts Receivable 350,000

Due to Gray 3,500 Cash 3,500

III. On January 1, 2009 the Silver Company sold land costing $275,000 for a $50,000 downpayment and a $350,000, three-year, 6% note. The accrued interest on the note was to be paid on December 31 of 2009, 2010, and 2011, and the face of the note was to be repaid in full on December 31, 2011. The prevailing rate of interest for similar loans is 11%.

Required: 1. Prepare the necessary entry to record the sale of the land. 2. Prepare the necessary entries for the note on December 31 of 2009, 2010, and 2011.1. Cash 50,000 Notes Receivable 350,000 Discount on Notes Receivable 42,765 (350,000 – 21,000 x 2.62432 – 350,000 x .73119) Land 275,000 Gain on Sale of Land 82,235

2. 2009: Cash 21,000 Interest Income 21,000

Discount on Notes Receivable 12,796 Interest Income 12,796 (33,796 – 21,000)

2010: Cash 21,000 Interest Income 21,000


2011: Cash 371,000 Interest Income 21,000 Notes Receivable 350,000


Amortization Schedules: Face Interest (6%): Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2009 350,000 + 21,000 - 21,000 = 350,000 2010 350,000 + 21,000 - 21,000 = 350,000 2011 350,000 + 21,000 - 371,000 = ---

Interest Income 2009 = 6% x 350,000 = 21,000 Interest Income 2010 = 6% x 350,000 = 21,000 Interest Income 2011 = 6% x 350,000 = 21,000

Market Interest (11%): Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2009 307,235 + 33,796 - 21,000 = 320,031 2010 320,031 + 35,203 - 21,000 = 334,234 2011 334,234 + 36,766 - 371,000 = ---



Accounting 310 Name__ __Solution_____ Mr. Pollastrini Exam I Fall, 2008


I 40

II 20

III _40

Total 100

I. The Green Company prepares monthly reconciliations of the bank and book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as a reduction of cash receipts--and when later redeposited as a regular cash receipt. In preparing the October 31 reconciliations, the following information is available:

1. Cash balance per the bank statement on September 30 was $260,850; cash balance per the books before the September reconciliation was prepared was $252,500. 2. October cash receipts per the bank statement were $484,200; October cash receipts per the books were $482,800. 3. October cash disbursements per the bank statement were $516,100; October cash disbursements per the books were $510,000. 4. Deposits in transit were $5,000 on September 30 and $6,500 on October 31. 5. Bank service charges were $250 for September and $300 for October. 6. Outstanding checks were $11,000 on September 30 and $9,500 on October 31. 7. NSF checks were returned with the September bank statement in the amount of $700 and with the October bank statement in the amount of $950. 8. The bank collected a note for the Green Company during October in the amount of $3,100. The face of the note was $3,000. 9. A check written during September for $600 was recorded on the books as $500. The check was in payment for merchandise purchased on account. 10. A check received on account during September for $8,600 was recorded on the books as $6,800. 11. The bank credited the Green Company's account in September with a $3,500 deposit made by another bank customer. The bank corrected the error in October. 12. The bank credited an October deposit of $8,900 to the Green Company's account for $9,800. 13. Interest on a loan the Green Company has with the bank is deducted directly from its account each month by the bank. Interest was $1,900 for September and $2,100 for October.

Required: 1. Prepare a four column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Green Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31.

1. Oct. Oct. _ 9/30_ _ Rec._ _Disb._ _10/31_ Balance per bank 260,850 484,200 516,100 228,950 Deposit in transit-Sept. 5,000 ( 5,000) Deposit in transit-Oct. 6,500 6,500 Outstanding checks-Sept. ( 11,000) ( 11,000) Outstanding checks-Oct. 9,500 ( 9,500) Sept. deposit error ( 3,500) ( 3,500) Oct. deposit error ( 900) ( 900) NSF checks-Oct. _ _ ( 950) ( 950) _ _ 251,350 483,850 510,150 225,050

Balance per books 252,500 482,800 510,000 225,300 Service charges-Sept. ( 250) ( 250) Service charges-Oct. 300 ( 300) NSF checks-Sept. ( 700) 700 NSF checks-Oct. ( 950) ( 950) Note collection 3,100 3,100 Sept. check error ( 100) ( 100) Sept. receipt error 1,800 ( 1,800) Interest expense-Sept. ( 1,900) ( 1,900) Interest expense-Oct. _ _ _ _ _ 2,100 ( 2,100) 251,350 483,850 510,150 225,050



Cash 3,100 Notes Receivable 3,000 Interest Income 100

Interest Expense 2,100 Cash 2,100

3. 225,050

II. On May 1, 2008 the White Company sold accounts receivable amounting to $350,000 to the Blue Company on a notification basis with recourse. The Blue Company assesses a finance charge of 6% of the total accounts receivable factored and retains an amount equal to 2% of the total accounts receivable to cover cash discounts, returns, allowances, and uncollectibles. During May the Blue Company collected accounts receivable in the amount of $225,000 less cash discounts of $2,500 and allowances of $1,000 for returned merchandise. During June the Blue Company collected accounts receivable in the amount of $125,000 less a $3,000 account which was written off as uncollectible. During July the Blue Company and the White Company made final settlement under the factoring agreement. The recourse obligation had a fair value of $2,800 on May 1, 2008.

Required: 1. Prepare the necessary entries on the books of the White Company to record the above information. 2. Prepare the necessary entries on the books of the Blue Company to record the above information.

1. Cash 322,000 Loss on Sale of Receivables 23,800 (6% x 350,000 + 2,800) Due from Blue 7,000 (2% x 350,000) Accounts Receivable 350,000 Recourse Liability 2,800

Sales Discount 2,500 Sales Returns and Allowances 1,000 Due from Blue 3,500

Recourse Liability 3,000 Due from Blue 3,000

Cash 500 Due from Blue 500 (7,000 – 2,500 – 1,000 – 3,000)

Loss on Sale of Receivables 200 Recourse Liability 200 (2,800 – 3,000)

2. Accounts Receivable 350,000 Finance Revenue 21,000 Due to White 7,000 Cash 322,000

Cash 221,500 Due to White 3,500 Accounts Receivable 225,000

Cash 122,000 Due to White 3,000 Accounts Receivable 125,000

Due to White 500 Cash 500

III. On January 1, 2008 the Blue Company sold land costing $225,000 for a $45,000 downpayment and a $223,817, three-year, 10% note. The note was to be repaid in three annual installments of $90,000 on December 31 of 2008, 2009, and 2010. On January 1, 2008 the Blue Company sold equipment costing $475,000 for a $75,000 downpayment and a three-year, noninterest-bearing note for $600,000. The note was to be repaid in full on Deceber 31, 2010. The prevailing rate of interest for similar loans is 10%.

Required: 1. Prepare the necessary entries to record the sale of the land and the sale of the equipment. 2. Prepare the necessary entries for the notes on December 31 of 2008, 2009, 2010.

1. Cash 45,000 Notes Receivable 223,817 Land 225,000 Gain on Sale of Land 43,817

Cash 75,000 Notes Receivable 600,000 Discount on Notes Receivable 149,214 (600,000 – 600,000 x .75131) Equipment 475,000 Gain on Sale of Equipment 50,786

2. Interest-bearing Note: 2008: Cash 90,000 Interest Income 22,382 Notes Receivable 67,618

2009: Cash 90,000 Interest Income 15,620 Notes Receivable 74,380

2010: Cash 90,000 Interest Receivable 8,182 Notes receivable 81,818

Noninterest-bearing Note: 2008: Discount on Notes Receivable 45,079 Interest Income 45,466

2009: Discount on Notes Receivable 49,587 Interest Income 49,587

2010: Cash 600,000 Notes Receivable 600,000

Discount on Notes Receivable 54,545 Interest Income 54,545

Amortization Schedules: Interest-bearing Note: Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2008 223,817 + 22,382 - 90,000 = 156,199 2009 156,199 + 15,620 - 90,000 = 81,819 2010 81,819 + 8,182 - 90,000 = 1


Noninterest-bearing Note: Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2008 450,786 + 45,079 - --- = 495,865 2009 495,865 + 49,587 - --- = 545,452 2010 545,452 + 54,545 - 600,000 = ( 3)



Accounting 310 Name_ ___Solution_____ Mr. Pollastrini Exam I Fall, 2007


I 40

II 30

III _30

Total 100

I. The Brown Company prepares monthly reconciliations of the bank and book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as reductions in cash receipts--and when later redeposited as regular cash receipts. In preparing the October 31 reconciliations, the following information is available:

1. Cash balance per the bank statement on September 30 was $205,100; cash balance per the books before the September reconciliation was prepared was $195,990. 2. October cash receipts per the bank statement were $684,835; October cash receipts per the books were $688,470. 3. October cash disbursements per the bank statement were $666,135; October cash disbursements per the books were $665,415. 4. Deposits in transit were $21,000 on September 30 and $23,700 on October 31. 5. Bank service charges were $225 for September and $210 for October. 6. Outstanding checks were $31,400 on September 30 and $32,300 on October 31. 7. NSF checks were returned with the September bank statement in the amount of $545 and with the October bank statement in the amount of $635. 8. The bank collected a note for the Brown Company during September in the amount of $3,180. The face of the note was $3,000. 9. A check written during October for $4,000 was recorded on the books as 5,000. The check was in payment for merchandise purchased on account. 10. A check received on account during October for $4,500 was recorded on the books as $5,400. 11. The bank debited the Brown Company's account during September with a $300 check written by another bank customer. The bank corrected the error in October. 12. The bank credited the Brown Company's account during October with a $2,300 deposit made by another bank customer. The bank corrected the error during October. 13. Interest on a loan the Brown Company has with the bank is deducted directly from its account each month by the bank. Interest was $3,400 for September and $3,100 for October. Required: 1. Prepare a four-column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Brown Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31.

1. Oct. Oct. _ 9/30_ _ Rec._ _Disb._ _10/31_ Balance per bank 205,100 684,835 666,135 223,800 Deposit in transit-Sept. 21,000 ( 21,000) Deposit in transit-Oct. 23,700 23,700 Outstanding checks-Sept. ( 31,400) ( 31,400) Outstanding checks-Oct. 32,300 ( 32,300) Sept. check error 300 ( 300) Oct. deposit error ( 2,300) ( 2,300) NSF checks-Oct. _ _ ( 635) ( 635) _ _ 195,000 684,300 664,100 215,200

Balance per books 195,990 688,470 665,415 219,045 Service charges-Sept. ( 225) ( 225) Service charges-Oct. 210 ( 210) NSF checks-Sept. ( 545) 545 NSF checks-Oct. ( 635) ( 635) Note collection 3,180 ( 3,180) Oct. check error ( 1,000) 1,000 Oct. receipt error ( 900) ( 900) Interest expense-Sept. ( 3,400) ( 3,400) Interest expense-Oct. _ _ _ _ _ 3,100 ( 3,100) 195,000 684,300 664,100 215,200



Cash 1,000 Accounts Payable 1,000


Interest Expense 3,100 Cash 3,100

3. 215,200

II. On August 1, 2007 the Green Company assigned accounts receivable amounting to $600,000 to the Brown Company. The Brown Company advanced to the Green Company 75% of the assigned accounts receivable less a finance charge of 2% of the assigned accounts receivable in return for the Green Company's $450,000 note. The Brown Company charges interest of .8% per month on the beginning balance of the note. The Green Company remits to the Blue Company at the end of each month the total collections on the assigned accounts receivable for the month. During August assigned accounts receivable in the amount of $80,000 were collected less cash discounts of $1,400; in addition, credit in the amount of $10,000 was granted on assigned accounts receivable for returned merchandise. During September assigned accounts receivable in the amount of $178,000 were collected. During October the remaining assigned accounts receivable were collected with the exception of $15,000 of assigned accounts receivable which were written off as uncollectible.

Required: 1. Prepare the necessary entries on the books of the Green Company to record the above information. 2. Prepare the necessary entries on the books of the Brown Company to record the above information.

1. Cash 438,000 Finance Expense 12,000 (2% x 600,000) Notes Payable 450,000

Cash 78,600 Sales Discount 1,400 Sales Returns and Allowances 10,000 Accounts Receivable 90,000

Interest Expense 3,600 (0.8% x 450,000) Notes Payable 75,000 Cash 78,600

Cash 178,000 Accounts Receivable 178,000


Cash 317,000 Allowance for Uncollectible Accounts 15,000 Accounts Receivable 332,000


2. Notes Receivable 450,000 Finance Revenue 12,000 Cash 438,000

Cash 78,600 Interest Income 3,600 Notes Receivable 75,000



III. On January 1, 2007 the Black Company sold land costing $90,000 for a $15,000 downpayment and a $125,000, three-year, 4% note. The note plus accrued interest was to be repaid in full on December 31, 2009. The prevailing rate of interest for similar loans is 9%.

Required: 1. Prepare the necessary entry to record the sale of the land. 2. Prepare the necessary entries for the note on December 31 of 2007, 2008, and 2009.

1. Cash 15,000 Notes Receivable 125,000 Discount on Notes Receivable 16,425 (125,000 – 140,608 x .77218) Land 90,000 Gain on Sale of Land 33,575

2. 2007: Interest Receivable 5,000 Interest Income 5,000


2008: Interest Receivable 5,200 Interest Income 5,200


2009: Interest Receivable 5,408 Interest Income 5,408


Cash 140,608 Notes receivable 125,000 Interest Receivable 15,608

Amortization Schedules: Face Interest (4%): Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2007 125,000 + 5,000 - --- = 130,000 2008 130,000 + 5,200 - --- = 135,200 2009 135,200 + 5,408 - 140,608 = ---


Market Interest (9%): Beginning Ending _ Year _ _Balance_ _Interest _Payment_ _Balance_ 2007 108,575 + 9,772 - --- = 118,347 2008 118,347 + 10,651 - --- = 128,998 2009 128,998 + 11,610 - 140,608 = ---


Documents

Bank Reconciliation