Question

Challenge Exercise 3- Chapter 7

Expands on: E7-11

LO:  3

The following information pertains to Two Guys Video Company.

1. Cash balance per bank, July 31, $7,363.

2. July bank service charge not recorded by the depositor $22.

3. The bank erroneously charged another company’s $700 check against Two Guys’ account.

4. Cash balance per books, July 31, $8,784.

5. The bank charged Two Guys account $350 for a customer’s NSF check.

6. Deposits in transit, July 31, $2,200.

7. Two Guys recorded a cash receipt from a customer as $32. The bank correctly recorded it at $23.

8. Bank collected a $1,250 note for Two Guys in July, plus interest $36, less fee $20. The collection has not been recorded by Two Guys and no interest has been accrued.

9. Outstanding checks, July 31, $594.

Instructions:

(a) Prepare a bank reconciliation for July 31.

(b) Journalize the adjusting entries for July 31 on the books of Two Guys Video Company.

Answer 1

a)
TWO GUYS COMPANY
Bank Reconciliation
31-Jul
Cash balance per bank statement		$   7,363.00
Add:
Deposit in trasit	$  2,200.00
Bank Error	$     700.00	$   2,900.00
		$ 10,263.00
Less: Outstanding checks		$    (594.00)
Adjusted cash balance per bank		$   9,669.00
Cash balance per books		$   8,784.00
Add: Collection of note receivable ($1,250 + $36 accrued interest - $20 collection fee)		$   1,266.00
		$ 10,050.00
Less: Bank service charge	$       22.00
NSF Cheque	$     350.00
Book error  (32-23)	$         9.00	$    (381.00)
Adjusted cash balance per books		$   9,669.00
b)
Account Titles and Explanation	Debit	Credit
Cash	1266
Miscellaneous Expense (collection fee)	20
Notes Receivable		1250
Interest Revenue		36
Miscellaneous Expense (Bank service charge)	$       22.00
Cash		$        22.00
Accounts Receivable	$     350.00
Cash		$      350.00
Rent Revenue	$         9.00
Cash		$          9.00