Question

The cash account for Brentwood Bike Co. at May 1 indicated a balance of $14,770. During May, the total cash deposited was $73,880 and checks written totaled $68,600. The bank statement indicated a balance of $25,050 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
Checks outstanding totaled $11,160.
A deposit of $9,090, representing receipts of May 31, had been made too late to appear on the bank statement.
The bank had collected for Brentwood Bike Co. $4,800 on a note left for collection. The face of the note was $4,430.
A check for $270 returned with the statement had been incorrectly charged by the bank as $720.
A check for $520 returned with the statement had been recorded by Brentwood Bike Co. as $250. The check was for the payment of an obligation to Adkins Co. on account.
Bank service charges for May amounted to $40. A check for $1,110 from Jennings Co. was returned by the bank because of insufficient funds.
A check for $1,120 from Jennings Co. was returned by the bank because of insufficient funds.
Instructions:
1. Prepare a bank reconciliation as of May 31.
2. Journalize the necessary entries (a) that increase cash and (b) that decrease cash. The accounts have not been closed.
3. If a balance sheet were prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?

Answer 1

Answer:

1. Prepare a bank reconciliation as of May 31.

bank statement $25,050

+ deposits in transit $9,090

- outstanding checks ($11,160)

+ error in charging check check $450

reconciled bank statement $23,430

cash account balance May 1 $14,770

+ deposits $73,880

- checks drawn ($68,600)

+ note collected $4,800

- error in recording check ($270)

- bank fees ($40)

- NSF check ($1,110)

reconciled cash account $23,430

2. Journalize the necessary entries (a) that increase cash and (b) that decrease cash. The accounts have not been closed.

Since we were not given any details about the deposits and checks, I will adjust them against income summary account.

Dr Cash 73,880

    Cr Income summary 73,880

Dr income summary 68,600

    Cr Cash 68,600

Dr Cash 4,800

    Cr Notes receivable 4,430

    Cr Interest revenue 370

Dr Income summary 270

    Cr Cash 270

Dr Bank fees 40

    Cr Cash 40

Dr Accounts receivable 1,110

    Cr Cash 1,110

3. If a balance sheet were prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?

$23,430