Question

a.    Based on your review of the cash balances, you note that there was an overdraft of $12,000 in one of your bank accounts. However, there are many bank accounts at the specific bank where the account with the overdraft is deposited. The total cash at this bank equaled a debit balance of $180,000. The previous accountant moved the overdraft to Accounts Payable. You also note the Board of Directors has restricted $65,000 of cash for future expansion. This $65,000 is part of the cash balance. The future expansion will not occur for several more years.

b.    Based on your inquiries, you note that $35,000 of accounts receivable had been written off during the year. The clerk had debited bad debt expense for $35,000 and credited Accounts Receivable for $35,000. When $8,500 of accounts previously written off had been collected, the accountant debited cash and credited sales. The company uses the allowance method based on the aging of accounts receivable. Based on this method, Accounting Creations determines that uncollectible accounts are $46,600 at the end of 2018

c.    On April 1, 2018, Accounting Creationsrenewed a 16-month insurance policy for $15,000. All cash was paid at the time the policy was signed and insurance expense was increased. All other transactions involving insurance were properly recorded.

*Adjust the Entries*

Answer 1

Solution:

Adjusting Journal entries

Event no	Account titles and explanation	Debit($)	Credit($)
1.	Bank overdraft A/c Dr	$12,000
	To Bank A/c		$12,000
	(To record the over draft)
2.	Cash restricted A/c Dr	$65,000
	To Bank A/c		$65,000
	(To record the cash restricted for future expansion)
3.	Sales A/c Dr	$8,500
	To Bad debt recovered A/c		$8,500
	(To record the sales as correct A/c)
4.	Provision of bad debt A/c Dr	$46,900
	To Accounts receivables A/c		$46,900
	(To record the bad debts provision)
5.	Expense on insurance A/c Dr	$15,000
	To Bank A/c		$15,000
	(To record the insurance policy)