Question

On December 1, 2012, Bluemound Company had the following account balances.

	Debits		Credits
Cash	$18,200	Accumulated Depreciation—
Notes Receivable	2,200	Equipment	$ 3,000
Accounts Receivable	7,500	Accounts Payable	6,100
Inventory	16,000	Owner’s Capital	64,400
Prepaid Insurance	1,600		$73,500
Equipment	28,000
	$73,500

During December, the company completed the following transactions.

Dec.	7	Received $3,600 cash from customers in payment of account (no discount allowed).
	12	Purchased merchandise on account from Klump Co. $12,000, terms 1/10, n/30.
	17	Sold merchandise on account $15,000, terms 2/10, n/30. The cost of the merchandise
		sold was $10,000.
	19	Paid salaries $2,500.
	22	Paid Klump Co. in full, less discount.
	26	Received collections in full, less discounts, from customers billed on December 17.

Adjustment data:

1. Depreciation $200 per month.

2. Insurance expired $400.

Instructions

(a) Journalize the December transactions. (Assume a perpetual inventory system.)

(b) Enter the December 1 balances in the ledger T accounts and post the December transactions.

Use Cost of Goods Sold, Depreciation Expense, Insurance Expense, Salaries and Wages Expense, Sales Revenue, and Sales Discounts.

(c) The statement from Jackson County Bank on December 31 showed a balance of $21,994. A comparison of the bank statement with the Cash account revealed the following facts.

1. The bank collected a note receivable of $2,200 for Bluemound Company on December 15.

2. The December 31 receipts of $2,736 were not included in the bank deposits for December.

The company deposited these receipts in a night deposit vault on December 31.

3. Checks outstanding on December 31 totaled $1,210.

4. On December 31, the bank statement showed a NSF charge of $800 for a check received by the company from L. Shur, a customer, on account.

Prepare a bank reconciliation as of December 31 based on the available information

(d) Journalize the adjusting entries resulting from the bank reconciliation and adjustment data.

(e) Post the adjusting entries to the ledger T accounts.

(f) Prepare an adjusted trial balance.

(g) Prepare an income statement for December and a classified balance sheet at December 31.

Answer 1

(a) Journalisation of December transactions

Date Particulars Debit Credit

Dec.7 Cash Account Dr. 3,600

To Accounts Receivable Account 3,600

(being cash received from customers in payment of account)

Dec.12 Purchases Account Dr. 12,000

To Accounts Payable (Klump Co.) Account 12,000

(being merchandise purchased from Klump Co.)

Dec.17 Accounts Receivable Account    Dr. 15,000

To Sales Account 15,000

(being merchandise sold on account)

Dec.19 Salaries Account Dr. 2,500

To Cash Account 2,500

(being salaries paid)

Dec.22 Accounts Payable (Klump Co.) Account Dr. 12,000

To Discount Received Account (12,000 x 1%) 120

To Cash Account (12,000 - 120) 11,880

(being amount paid to Klump Co. less 1% discount)

Dec.26 Cash Account (15,000 - 300) Dr. 14,700

Discount Allowed Accoount (15,000 x 2%) Dr. 300

To Acccounts Receivable Account 15,000

(being amount received from customers less 2% discount)

Dec.31 Depreciation Account (200 x 12) Dr. 2,400

To Accumulated Depreciation Account 2,400

(being yearly depreciation transferred to Accumulated Depreciation Account)

Dec.31 Insurance Account Dr. 400

To Prepaid Insurance Account 400

(being insurance expired of amount 400)