Explain that a bank reconciliation is a tool used to balance the bank statement to the accounting books.

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:
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.
Using the information given above, calculate the amount of bad debt using:
Percentage of Sales on Credit = 1.5%
Percentage of Accounts Receivable = 1%
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.
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):
Receipt of the note in payment of the accounts receivable balance.
Adjusting entry at the end of June, 2014 for the note receivable. (Round interest calculations to two decimals)
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.
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.
Please note that the calculation pages in the Excel template are required and graded. Please show your work on those pages.
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
ASSETS REVENUES
101 Cash 401 Lawn Service Revenue
110 Accounts Receivable 410 Sales Revenue
112 Allowance for Doubtful Accounts 415 Sales Returns and Allowances
115 Notes Receivable 420 Interest Income
116 Interest Receivable
120 Supplies COST OF GOODS SOLD
130 Prepaid Insurance 501 Purchases
140 Inventory 505 Purchase Returns and Allowances
150 Equipment
155 Accumulated Depreciation – Equipment
EXPENSES
LIABILITIES 620 Supplies Expense
201 Accounts Payable 630 Fuel Expense
220 Notes Payable 640 Repair and Maintenance Expense
225 Interest Payable 650 Advertising Expense
660 Insurance Expense
OWNER’S EQUITY 670 Depreciation Expense
301 Owner’s Capital 680 Interest Expense
305 Owner’s Drawings 690 Bad Debt Expense
310 Income Summary 695 Miscellaneous Expense

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