Bank Reconciliation and Entries The cash account for Pala Medical Co. at June 30

Question

Bank Reconciliation and Entries

The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $9,165. The bank statement indicated a balance of $10,470 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

Checks outstanding totaled $3,770.

A deposit of $3,930, representing receipts of June 30, had been made too late to appear on the bank statement.

The bank collected $2,040 on a $1,940 note, including interest of $100.

A check for $770 returned with the statement had been incorrectly recorded by Pala Medical Co. as $700. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.

A check drawn for $50 had been erroneously charged by the bank as $500.

Bank service charges for June amounted to $55.

Required:

1. Prepare a bank reconciliation.

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?

Explanation / Answer

Pala Medical Co Bank Reconciliation June 30, 20Y1 Cash balance according to bank statement $10,470.00 Adjustments Deduct: Outstanding checks -$3,770.00 Add: Deposit in transit $3,930.00 Add: Bank error ($500-$50) $450.00 Total adjustments $610.00 Adjusted balance $11,080.00 Cash balance according to company's records $9,165.00 Adjustments Add: Note collected by bank $1,940.00 Add: Interest on note $100.00 Less: Error in recording of on account payment -$70.00 Less: Bank service charges -$55.00 Total adjustments $1,915.00 Adjusted balance $11,080.00 Journal Entry Account Tittle & Explanation Debit Credit Cash $2,040.00 Note receivable $1,940.00 Interest income $100.00 Accounts payable $70.00 Cash $70.00 Bank charges $55.00 Cash $55.00 3. Balance will show adjusted cash balance which is $11080

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