(Bank Reconciliation and Adjusting Entries) Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records.
June 30 Bank Reconciliation Statement
Balance per bank
Add: Deposit in transit
Less: Outstanding checks
Balance per books
Month of July Results
Balance July 31
July note collected (not included in July deposits)
July bank service charge
July NSF check from a customer, returned by the bank (recorded by bank as a charge)
(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.
(b) Prepare the general journal entry or entries to correct the Cash account.
The correct balance is $9,900.
A bank reconciliation statement can be defined as the statement prepared by the business entity to correct the balance of the cash account of the business entity.
Balance as per bank passbook
Deposit in Transit
Correct Bank balance
Balance as per book
Collection of notes
Correct cash balance
Calculation of deposit in transit:
Deposit as per book
Less: deposit as per bank
Add: Deposit in transit as per reconciliation
Deposit in transit
Calculation of outstanding checks:
Checks issued as per book
Less: Checks cleared by bank in July
Add: Outstanding checks in BRS
Accounts and Explanation
Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000. This balance consists of the following items:
Due from regular customer
Refund receivable on prior year’s income taxes (an established claim)
Travel advance to employees
Loan to wholly owned subsidiary
Advance to creditor for goods ordered
Accounts receivables assigned security for loans payable
Notes receivable past due plus interest on these notes
Illustrate how these items should be shown in the balance sheet as of December 31.
Part 1: On July 1, 2017, Wallace Company, a calendar-year company, sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Wallace Company will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2018.
When should Wallace Company report interest revenue from the note receivable? Discuss the rationale for your answer.
Part 2: On December 31, 2017, Wallace Company had significant amounts of accounts receivable as a result of credit sales to its customers. Wallace uses the allowance method based on credit sales to estimate bad debts. Past experience indicates a reliable estimate of uncollectible accounts can be developed based on an aging analysis of receivable balances. This pattern is expected to continue.
(a) Discuss the rationale for using the allowance method based on the balance in the trade receivables accounts.
(b) How should Wallace Company report the allowance for doubtful accounts on its balance sheet at December 31, 2017? Also, describe the alternatives, if any, for presentation of bad debt expense in Wallace Company’s 2017 income statement.
Use the information presented in BE7-5 for Wilton, Inc.
(a) Instead of an Allowance for Doubtful Accounts Balance of $2,400 credit, the balance was $1,900 debit. Assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expenses.
(b) Instead of estimating uncollectible based on a percentage of receivables, assume Wilton prepares an aging schedule that estimates total uncollectible accounts at $24,600. (Assume an allowance of $2,400 credit.) Prepare the entry to record bad debt expenses.
BE7-5 (L03) Wilton, Inc. had net sales in 2017 of $1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.
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