Question

Han’s Supplies’ bank statement contained a $180 NSF check that one of its customers had written to pay for supplies purchased.

Required

a.

Show the effects of recognizing the NSF check on the financial statements by recording the appropriate amounts in a horizontal statements model like the following one: (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity and NA to indicate the element is not affected by the event. Enter any decreases to account balances with a minus sign.)

HAN’S SUPPLIES

Statements Model

Assets

=

Liabilities

+

Stockholders' Equity

Revenue

–

Expense

=

Net Income

Cash Flow

Cash

+

Accounts Receivable

b.

Is the recognition of the NSF check on Han’s books an asset source, use, or exchange transaction?

  

	Asset source
	Asset use
	Asset exchange

c.

Suppose the customer redeems the check by giving Han $200 cash in exchange for the bad check. The additional $20 paid a service fee charged by Han. Show the effects on the financial statements in the horizontal statements model. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity and NA to indicate the element is not affected by the event. Enter any decreases to account balances with a minus sign.)

HAN’S SUPPLIES

Statements Model

Assets

=

Liabilities

+

Stockholders' Equity

Revenue

–

Expense

=

Net Income

Cash Flow

Cash

+

Accounts Receivable

d.

Is the receipt of cash referenced in Requirement c an asset source, use, or exchange transaction?

	$180 Asset source, $20 Asset use
	$200 Asset use, $20 Asset source
	$180 Asset use, $20 Asset exchange
	$200 Asset exchange, $20 Asset source
	$180 Asset exchange, $20 Asset source
	$180 Asset source, $20 Asset exchange

e.	Record in general journal form the adjusting entry for the NSF check and the entry for redemption of the check by the customer. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Note: Enter debits before credits.

Transaction a: record entry for recognizing the NSF check.

Transaction	General Journal	Debit	Credit
a.

Journal entry worksheet

Note: Enter debits before credits.

Transaction c: record the entry for redemption of check by the customer by giving $200 in cash to Han which includes an additional $20 service fee.

Transaction	General Journal	Debit	Credit
c.

Answer 1

a
HAN’S SUPPLIES
Statements Model
Assets		Liabilities	Stockholders' Equity	Revenue	Expense	Net Income	Cash Flow
Cash	Accounts Receivable
-180	180						-180	OA
b
Asset exchange
c
HAN’S SUPPLIES
Statements Model
Assets		Liabilities	Stockholders' Equity	Revenue	Expense	Net Income	Cash Flow
Cash	Accounts Receivable
200	-180		20	20		20	200	OA
d
$180 Asset exchange, $20 Asset source
e
a	Accounts Receivable	180
	Cash		180
c	Cash	200
	Accounts Receivable		180
	Miscellaneous income		20