Bill’s Lawn Care Mini Practice Part 4 In June, Bill commented to you that he cou
ID: 2467612 • Letter: B
Question
Bill’s Lawn Care Mini Practice Part 4
In June, Bill commented to you that he could never figure out his bank statement, “it never matches the
balance in my accounting records” he tells you. So you explain that a bank reconciliation is a tool used
to balance the bank statement to the accounting books. He gives you his bank statement for June, 2014
(shown below). The general ledger shows a balance for the account cash of $14,319.00 on June 30,
2014 (detail transactions below). Bill’s business only has one checking account and no other cash
accounts.
Bill has begun to have problems collecting some of his credit accounts and is considering writing off a
couple of customer account balances. He asks you how these bad debts should be recorded and has
asked you to begin recording bad debt using the allowance method for June, 2014. Selected account
balances at the end of June, 2014 are:
Sales $7,200
Sales on Credit $2,900
Accounts Receivable $3,200
As a result of increased focus on collecting accounts receivable, Bill has decided to extend credit for one
customer, Alan Jones, who owes Bill’s Lawn Care $500. Bill and Alan have agreed to a 90-day 6% note
for $500 issued on June 5, 2014.
Instructions:
1. Using the bank statement and the general ledger, prepare a bank reconciliation for Bill’s Lawn
Care as of June 30, 2014. Record the necessary journal entries to adjust the books for the
appropriate reconciling items. Start with Page 6 for the journal entries. Explanations are
optional.
2. Using the information given above, calculate the amount of bad debt using:
Using the chart of accounts, record the journal entry for bad debt expense for Bill’s Lawn Care
using the percentage of sales on credit method.
3. Using the note receivable information above and the chart of accounts, record the following
entries in the general journal (continue these entries on Page 6):
a. Percentage of Sales on Credit = 1.5%
b. Percentage of Accounts Receivable = 1%
a. Receipt of the note in payment of the accounts receivable balance.
b. Adjusting entry at the end of June, 2014 for the note receivable. (Round interest
calculations to two decimals)
c. Assume that Alan pays the note and interest in full on the due date, record the necessary
journal entry. Assume that interest has been accrued at the end of each month.
d. Assume that Alan defaults on the note and interest on the due date, record the necessary
journal entry. Assume that interest has been accrued at the end of each month.
CHECKING ACCOUNT DETAIL:
DATE
TRANSACTION
TYPE & NUMBER
AMOUNT
BALANCE
BEGINNING BALANCE
$12,850.00
6/2/2014
CHECK #1570
226.00
12,624.00
6/5/2014
CHECK #1571
83.00
12,541.00
6/6/2014
EFT #43
127.00
12,414.00
6/10/2014
DEPOSIT #104
1,550.00
13,964.00
6/15/2014
CHECK #1572
145.00
13,819.00
6/15/2014
CHECK #1573
185.00
13,634.00
6/20/2014
DEPOSIT #105
885.00
14,519.00
6/24/2014
EFT #44
143.00
14,376.00
6/28/2014
CHECK #1574
87.00
14,289.00
6/28/2014
CHECK #1575
95.00
14,194.00
6/30/2014
DEPOSIT #106
425.00
14,619.00
6/30/2014
CHECK #1576
155.00
14,464.00
6/30/2014
CHECK #1577
145.00
$14,319.00
BANK STATEMENT:
FIRST NATIONAL BANK
ACCOUNT SUMMARY JUNE 30, 2014
BEGINNING BALANCE
$12,850.00
PAYMENTS
$1,021.00
DEPOSITS
2,440.00
FEES
20.00
ENDING BALANCE
$14,249.00
PAYMENTS
DATE
REFERENCE
AMOUNT
6/5/2014
1570
$266.00
6/9/2014
1571
83.00
6/10/2014
43
127.00
6/19/2014
1572
145.00
6/28/2014
1573
185.00
6/28/2014
NSF
120.00
6/30/2014
1575
95.00
TOTAL PAYMENTS
$1,021.00
DEPOSITS
DATE
REFERENCE
AMOUNT
6/11/2014
104
$1,550.00
6/23/2014
105
885.00
6/30/2014
INTEREST
5.00
TOTAL DEPOSITS
$2,440.00
FEES
6/30/2014
SVC CHG
$20.00
TOTAL FEES
$20.00
Additional Information: Check #1570 was written for $266.00, but was recorded incorrectly in the general ledger. The check was for fuel.
Bill’s Lawn Care
Chart of Accounts
Classification
Account Number
Account Name
ASSETS
101
Cash
110
Accounts Receivable
112
Allowance for Doubtful Accounts
115
Notes Receivable
116
Interest Receivable
120
Supplies
130
Prepaid Insurance
140
Inventory
150
Equipment
155
Accumulated Depreciation – Equipment
LIABILITIES
201
Accounts Payable
220
Notes Payable
225
Interest Payable
OWNER’S EQUITY
301
Owner’s Capital
305
Owner’s Drawings
310
Income Summary
REVENUES
401
Lawn Service Revenue
410
Sales Revenue
415
Sales Returns and Allowances
420
Interest Income
COST OF GOODS SOLD
501
Purchases
505
Purchase Returns and Allowances
EXPENSES
620
Supplies Expense
630
Fuel Expense
640
Repair and Maintenance Expense
650
Advertising Expense
660
Insurance Expense
670
Depreciation Expense
680
Interest Expense
690
Bad Debt Expense
695
Miscellaneous Expense
Please answer for the following
Bank reconciliation
General Ledger
Bad Debt Calculations
Notes Receivable Calculation
DATE
TRANSACTION
TYPE & NUMBER
AMOUNT
BALANCE
BEGINNING BALANCE
$12,850.00
6/2/2014
CHECK #1570
226.00
12,624.00
6/5/2014
CHECK #1571
83.00
12,541.00
6/6/2014
EFT #43
127.00
12,414.00
6/10/2014
DEPOSIT #104
1,550.00
13,964.00
6/15/2014
CHECK #1572
145.00
13,819.00
6/15/2014
CHECK #1573
185.00
13,634.00
6/20/2014
DEPOSIT #105
885.00
14,519.00
6/24/2014
EFT #44
143.00
14,376.00
6/28/2014
CHECK #1574
87.00
14,289.00
6/28/2014
CHECK #1575
95.00
14,194.00
6/30/2014
DEPOSIT #106
425.00
14,619.00
6/30/2014
CHECK #1576
155.00
14,464.00
6/30/2014
CHECK #1577
145.00
$14,319.00
Explanation / Answer
Balance as per bank 14,249
Less: o/s checks
143
87
155
145 -530
Add:
Deposit in transit 425
Adjusted balance 14,144
Balance as per books 14,319
Less:
Bank service charges -20
NSF -120
Check error -40
Add: interest received $5
Adjusted balance 14,144
Entries
Interest expense
20
To Cash
20
Account receivable
120
To Cash
120
Accounts payable
40
To cash
40
Interest income
5
To Cash
5
Bad debts expense
43.50
To Allowance for bad debts
(2900@1.5%)
43.50
Bad debts expense
32
To Allowance for bad debts
(3,200 @1%)
32
Notes receivable
$500
To Accounts receivable
500
Interest receivable
2.05
To interest income
(500@6%*25/365(
2.05
Cash
507.40
To Note receivable
500
To interest receivable
7.15
To interest income
.25
A/c receivable
507.15
To Notes receivable
500
To interest receivable
7.15
Balance as per bank 14,249
Less: o/s checks
143
87
155
145 -530
Add:
Deposit in transit 425
Adjusted balance 14,144
Balance as per books 14,319
Less:
Bank service charges -20
NSF -120
Check error -40
Add: interest received $5
Adjusted balance 14,144
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