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Chapter 4 and 5 LC Questions

The document discusses bank reconciliation procedures, including the treatment of service fees, deposits in transit, and outstanding cheques, along with calculations for corrected cash balances. It also covers Kazungu Corp.'s credit sales, cash collections, and the estimation of uncollectible accounts using both the income statement and aging methods. Additionally, it addresses the direct write-off and allowance methods for bad debts and their impact on financial statements.

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14 views3 pages

Chapter 4 and 5 LC Questions

The document discusses bank reconciliation procedures, including the treatment of service fees, deposits in transit, and outstanding cheques, along with calculations for corrected cash balances. It also covers Kazungu Corp.'s credit sales, cash collections, and the estimation of uncollectible accounts using both the income statement and aging methods. Additionally, it addresses the direct write-off and allowance methods for bad debts and their impact on financial statements.

Uploaded by

norris.yim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 4

A bank monthly service fee charge of $50 appeared on the bank statement. What is the
treatment?

If a deposit in transit of $400 is recorded as $4,000, what is the treatment in the bank
reconciliation?

The following information was available to the accountant of Midland Company when preparing
the monthly bank reconciliation:
Outstanding cheques: #643 for $502
#651 for $43
Bank service charges $ 25
Deposits in transit $190
Customer note receivable collected by bank (i.e., bank credit) $500
Cash balance per bank statement $975
Cash balance per books (prior to reconciliation) $145

What is the corrected cash balance following completion of the reconciliation?

The cash account shows a balance of $42,000 before reconciliation. The bank statement
does not include a deposit of $2,300 made on the last day of the month. The bank
statement shows a collection by the bank of $940 and a customer's cheque for $220 was
returned because it was NSF. A customer's cheque for $450 was recorded on the books as
$540, and a cheque written for $79 was recorded as $97. The correct balance in the cash
account was:

For which of the following errors should the appropriate amount be added to the balance per
bank on a bank reconciliation?
a. A returned $200 cheque recorded by the bank as $20
b. Cheque for $43 recorded as $34 by the company
c. Cheque for $35 recorded as $53 by the company
d. Deposit of $500 recorded by the bank as $50
e. Outstanding cheque of $400
Chapter 5
Kazungu Corp. makes all sales on credit. The following information is available for the company
for January:
Credit Sales $ 2,000,000
Cash collections during the period $ 2,300,000
Beg. Bal. in Accounts Receivable $ 1,000,000
Accounts written off as uncollectible $ 30,000
Beg. Bal. in allowance account $ 20,000 (Debit)

Calculate the ending balance in the Allowance Account and the Net Realizable Value of
Accounts Receivable if Kazungu estimates that 4% of sales will be uncollectible (income
statement method or % of sales method).

If instead, Kazungu used the aging method (balance sheet method) and had the following
schedule of outstanding accounts as at the end of January:
Amount Percent
Due within 30 days $500,000 1%
Past due 30-90 days $150,000 5%
Past due more than 90 days $ 20,000 50%

Calculate the Bad Debt Expense for January and the N.RV. of Accounts Receivable.
Under the direct write-off method, the entry to record the estimated bad debts:
a. is not done
b. includes a credit to Allowance for Uncollectible Accounts
c. includes a debit to Allowance for Uncollectible Accounts
d. includes a debit to Bad Debt Expense

Under the allowance method for estimating uncollectible accounts, the entry to write off an
account:
a. reduces total assets
b. reduces net income
c. increases net income
d. has no effect on total assets

When an account is written off using the direct write-off method, total assets will:
a. remain the same
b. increase
c. decrease
d. cannot be determined

Smart-T Corporation uses the aging-of-accounts-receivable method to estimate uncollectible


receivables. At year end Smart-T estimates that $4,750 of its accounts receivable will be
uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance
of $200. Bad debt expense to be reported on the income statement is:
a. $4,750
b. $4,550
c. $4,950
d. $200

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