Chapter 7 EX 7-03

The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $97,456. The bank statement indicated a balance of $127,960 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

A.	Checks outstanding totaled $30,050.
B.	A deposit of $19,720, representing receipts of June 30, had been made too late to appear on the bank statement.
C.	The bank collected $22,149 on a $20,700 note, including interest of $1,449.
D.	A check for $1,450 returned with the statement had been incorrectly recorded by Pala Medical Co. as $145. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
E.	A check drawn for $290 had been erroneously charged by the bank as $920.
F.	Bank service charges for June amounted to $40.

Instructions

1.

Prepare a bank reconciliation. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

2.

Journalize the necessary entries. Refer to the Chart of Accounts for exact wording of account titles.

3.

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

CHART OF ACCOUNTS

Pala Medical Co.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
131	Notes Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
181	Land
191	Office Equipment
192	Accumulated Depreciation-Office Equipment
193	Store Equipment
194	Accumulated Depreciation-Store Equipment

	LIABILITIES
211	Accounts Payable-Skyline Supply Co.
221	Notes Payable
222	Interest Payable
231	Salaries Payable
241	Sales Tax Payable

EQUITY

310

Common Stock

311

Retained Earnings

312

Dividends

313

Income Summary

Amount Descriptions

Adjusted balance

Bank error in charging check as $290 instead of $920

Bank error in charging check as $920 instead of $290

Bank service charges

Check for $920 returned because of insufficient funds

Deposit of June 30, not recorded by bank

Error in recording check

Error in recording June 30 deposit

Outstanding checks

Proceeds of note collected by bank, including $1,449 interest

Total adjustments

1. Prepare a bank reconciliation. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Question not attempted.

Pala Medical Co.

Bank Reconciliation

June 30, 20Y1

1	Cash balance according to bank statement
2	Adjustments:
3
4
5
6
7
8
9	Cash balance according to companys records
10	Adjustments:
11
12
13
14
15

Solution

Pala Medical Co.

Bank Reconciliation

June 30, 20Y1

1	Cash balance according to bank statement
2	Adjustments:
3
4
5
6
7
8
9	Cash balance according to companys records
10	Adjustments:
11
12
13
14
15

2. Journalize the necessary entries. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 1

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6

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

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Insurance Expense
534	Office Supplies Expense
535	Rent Expense
536	Repairs Expense
537	Selling Expenses
538	Store Supplies Expense
561	Depreciation Expense-Office Equipment
562	Depreciation Expense-Store Equipment
590	Miscellaneous Expense
710	Interest Expense