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Chapter 7: 16BE (page 364)

Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books.

(a) Deposit in transit \(5,500.

(d) Outstanding checks \)7,422.

(b) Bank service charges \(25.

(e) NSF check returned \)377.

(c) Interest credited to Horton鈥檚 account $31.

Short Answer

Expert verified

Item

Classification

(a) Deposit in transit $5,500.

Added to balance as per bank statement.

(b) Bank service charges $25.

Deducted from the balance as per books.

(c) Interest credited to Horton鈥檚 account $31.

Added to balance as per books.

(d) Outstanding checks $7,422.

Deducted from the balance as per bank statement.

(e) NSF check returned $377.

Deducted from the balance as per the book.

Step by step solution

01

Definition of Bank Passbook

A bank passbook can be defined as thediary reflecting all the deposits, withdrawals, and any other transaction occurring from the bank account.

02

Representation of each item

(a) Deposit in transit will increase the bank account balance. Therefore, it is added to the balance of the bank statement.

(b) Bank service charges reduce the bank balance; therefore, it is also deducted from the balance as per books.

(c) Interest credited to the account will increase the bank balance; therefore, it is also added to the balance as per books.

(d) Outstanding checks reduced the balance of the book balance. Therefore, it is also deducted from the balance of the bank statement.

(e) NSF checks returned by the bank will not be credited to the bank account. Therefore, it is deducted from the book balance.

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Most popular questions from this chapter

What are the basic problems that occur in the valuation of accounts receivable?

What is 鈥渋mputed interest鈥�? In what situations is it necessary to impute an interest rate for notes receivable? What are the considerations in imputing an appropriate interest rate?

From inception of operations to December 31, 2017, Fortner Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Fortner鈥檚 usual credit terms are net 30 days.

The balance in Allowance for Doubtful Accounts was \(130,000 at January 1, 2017. During 2017, credit sales totalled \)9,000,000, the provision for doubtful accounts was determined to be \(180,000, \)90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to \(15,000. Fortner installed a computer system in November 2017, and aging of accounts receivable was prepared for the first time as of December 31, 2017. A summary of the aging is as follows.

Classification by month of sale

Balance in each category

Estimated % uncollectible

November-December 2017

\)1,080,000

2%

July-October

650,000

10%

January-June

420,000

25%

Prior to 1/1/17

150,000

80%

\(2,300,000

Based on the review of collectibility of the account balances in the 鈥減rior to 1/1/17鈥� aging category, additional receivables totaling \)60,000 were written off as of December 31, 2017. The 80% uncollectible estimate applies to the remaining \(90,000 in the category. Effective with the year ended December 31, 2017, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Instructions

(a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2017. Show supporting computations in good form. (Hint: In computing the 12/31/17 allowance, subtract the \)60,000 write-off.)

(b) Prepare the journal entry for the year-end adjustment to Allowance for Doubtful Accounts balance as of December 31, 2017.

(Journalizing Various Receivable Transactions) Presented below is information related to James Garfield Corp., which sells merchandise with terms 2/10, net 60. Garfield records its sales and receivables net.

July 1 James Garfield Corp. sold to Warren Harding Co. merchandise having a sales price of \(8,000.

5 Accounts receivable of \)9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)

9 Specific accounts receivable of \(9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of \)6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)

Dec. 29 Warren Harding Co. notifies Garfield that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

Instructions

Prepare all necessary entries in general journal form for Garfield Corp

Discuss the accounting for sales allowances and how they relate to the concept of variable consideration.
See all solutions

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