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Chapter 7: Question E7-23 (page 369)

(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.

1. Coins and Currency

\(15.20

2. Postage Stamps

2.90

3. An I.O.U from Cunningham, an employee, for cash advance

40

4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF

34

5. Vouchers for the following:

Stamps

20

Two Rose Bowl tickets for Nick Fonzarelli

170

Printer cartridge

14.35

204.35

\)296.45

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.

Short Answer

Expert verified

Cash short and over of the business entity equals$6.45.

Step by step solution

01

Definition of Prepaid Expenses

The expenses incurred by the business entity for any service or product that will be received in a future period is known as prepaid expense. It is reported as an asset of the business.

02

Journal Entry to Record the reimbursement of Petty Cash Funds

Date

Accounts and Explanation

Debit $

Credit $

Accounts receivables$40+$34

$74

Maintenance expenses

$14.35

Drawings

$170

Postage expenses$20+$2路90

$17.10

Prepaid expenses (postage)

$2.90

Cash short and over (balancing figure)

$6.45

Cash$300+$15路20

$284.80

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Most popular questions from this chapter

(Journalizing Various Receivable Transactions) The trial balance before adjustment for Phil Collins Company shows the following balances.

Debit

Credit

Accounts receivables

\(82,000

Allowance for doubtful accounts

\)2,120

Sales revenue

\(430,000

Instructions

Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)

1. To obtain additional cash, Collins factors without recourse \)25,000 of accounts receivable with Stills Finance. The finance charge is 10% of the amount factored.

2. To obtain a 1-year loan of \(55,000, Collins pledges \)65,000 of specific receivable accounts to Crosby Financial. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial.

3. The company wants to maintain the Allowance for Doubtful Accounts at 5% of gross accounts receivable.

4. Based on an aging analysis, an allowance of \(5,800 should be reported. Assume the allowance has a credit balance of \)1,100.

(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

\(7,000

Add: Deposit in transit

1,540

Less: Outstanding checks

(2,000)

Balance per books

\)6,540

Month of July Results

Per Bank

Per Books

Balance July 31

\(8,650

\)9,250

July Deposits

5,000

5,810

July Checks

4,000

3,100

July note collected (not included in July deposits)

1,000

-

July bank service charge

15

-

July NSF check from a customer, returned by the bank (recorded by bank as a charge)

335

-

Instructions

(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.

Answer

The following are a series of unrelated situations. 1. Halen Company鈥檚 unadjusted trial balance at December 31, 2017, included the following accounts.

Debit \(

Credit \)

Accounts receivables

\(53,000

Allowance for doubtful accounts

4,000

Net sales

\)1,200,000

Halen Company estimates its bad debt expense to be 7% of gross accounts receivable. Determine its bad debt expense for 2017.

2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2017, disclosed the following.

Amounts estimated to be uncollectible

\(180,000

Accounts receivables

1,750,000

Allowance for doubtful accounts (per books)

125,000

What is the net realizable value of Stuart鈥檚 receivables at December 31, 2017?

3. Shore Co. provides for doubtful accounts based on 4% of gross accounts receivable, The following data are available for 2017.

Credit sales during 2017

\)4,400,000

Bad debt expenses

57,000

Allowance for doubtful accounts 1/1/17

17,000

Collection of accounts written off in prior years (Customer credit was re-established)

8,000

Customer accounts written off as uncollectible during 2017

30,000

What is the balance in Allowance for Doubtful Accounts at December 31, 2017?

4. At the end of its first year of operations, December 31, 2017, Darden Inc. reported the following information.

Accounts receivable, net of allowance for doubtful accounts

\(950,000

Customer accounts written off as uncollectible during 2017

24,000

Bad debt expense for 2017

84,000

What should be the balance in accounts receivable at December 31, 2017, before subtracting the allowance for doubtful accounts?

5. The following accounts were taken from Bullock Inc.鈥檚 trial balance at December 31, 2017.

Debit

Credit

Net credit sales

\)750,000

Allowance for doubtful accounts

$14,000

Accounts receivables

310,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2017.

Instructions

Answer the questions relating to each of the five independent situations as requested.

Presented below are a number of independent situations.

Instructions

For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.

1. Checking account balance \(925,000; certificate of deposit \)1,400,000; cash advance to subsidiary of \(980,000; utility deposit paid to gas company \)180.

2. Checking account balance \(600,000; an overdraft in special checking account at same bank as normal checking account of \)17,000; cash held in a bond sinking fund \(200,000; petty cash fund \)300; coins and currency on hand \(1,350.

3. Checking account balance \)590,000; postdated check from customer \(11,000; cash restricted due to maintaining compensating balance requirement of \)100,000; certified check from customer \(9,800; postage stamps on hand \)620.

4. Checking account balance at bank \(37,000; money market balance at mutual fund (has checking privileges) \)48,000; NSF check received from customer \(800.

5. Checking account balance \)700,000; cash restricted for future plant expansion \(500,000; short-term Treasury bills \)180,000; cash advance received from customer \(900 (not included in checking account balance); cash advance of \)7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.

GROUPWORK (Income Effects of Receivables Transactions) Sandburg Company requires additional cash for its business. Sandburg has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions.

1. On July 1, 2017, Sandburg assigned \(400,000 of accounts receivable to Keller Finance Company. Sandburg received an advance from Keller of 80% of the assigned accounts receivable less a commission of 3% on the advance. Prior to December 31, 2017, Sandburg collected \)220,000 on the assigned accounts receivable, and remitted \(232,720 to Keller, \)12,720 of which represented interest on the advance from Keller.

2. On December 1, 2017, Sandburg sold \(300,000 of net accounts receivable to Wunsch Company for \)270,000. The receivables were sold outright on a without recourse basis.

3. On December 31, 2017, an advance of \(120,000 was received from First Bank by pledging \)160,000 of Sandburg鈥檚 accounts receivable. Sandburg鈥檚 first payment to First Bank is due on January 30, 2018.

Instructions

Prepare a schedule showing the income statement effects for the year ended December 31, 2017, as a result of the above facts.
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