Question

The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The...

The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of $388,600 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

Checks outstanding totaled $61,280.

A deposit of $42,500, representing receipts of April 30, had been made too late to appear on the bank statement.

The bank collected $42,000 on a $40,000 note, including interest of $2,000.

A check for $7,600 returned with the statement had been incorrectly recorded by American Medical Co. as $760. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.

A check drawn for $240 had been erroneously charged by the bank as $420.

Bank service charges for April amounted to $145.

Instructions

1. Prepare a bank reconciliation.

2. Journalize the necessary entries. The accounts have not been closed.

3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?

Homework Answers

Answer #1

SOLUTION

1. Bank reconciliation statement-

Particulars Amount ($)
Balance as per bank stattement 388,600
Add: Deposit in transit 42,500
Add: Error in recording the check (420-240) 180
431,280
Less: Outstanding checks (61,280)
Adjusted balance as per Bank statement 370,000
Balance as per books 334,985
Add: Note collected 40,000
Add: Interest collected 2,000
376,985
Less: Error in recording check (7,600-760) (6,840)
Less: Service charges levied (145)
Adjusted balanace as per books 370,000

2. Journal entries-

S.No. Accounts titles and Explanation Debit ($) Credit ($)
1. Cash 42,000
Notes receivable 40,000
Interest revenue 2,000
2. Accounts payable 6,840
Cash 6,840
3. Service charges expense 145
Cash 145

3. Amount to be reported as cash is $370,000.

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