QUESTION ONE (20 MARKS)

A.Why do businesses need to make a bank reconciliation statement and give six examples of the common activities that necessitate a bank reconciliation statement?

B.On December 1, 2014, Fullerton Company had the following account balances.

Debit Credit

Cash18,200

Notes Receivable2,200

Accounts Receivable7, 500

Inventory16, 000

Prepaid Insurance1, 600

Equipment28, 000

Accumulated Depreciation -Equip3, 000

Accounts Payables6, 100

Owners Capital64, 400

During December, the company completed the following transactions.

December.

7th

Received K3,600 cash from customers in payment of account (no discount allowed).

12th

Purchased merchandise on account from Vance Co. K12,000, terms 1/10, n/30.

17th

Sold merchandise on account K16,000, terms 2/10, n/30. The cost of the merchandise sold was K10,000.

19th

Paid salaries K2,200.

22nd

Paid Vance Co. in full, less discount.

26th

Received collections in full, less discounts, from customers billed on December 17.

31st

Received K2,700 cash from customers in payment of account (no discount allowed).

Adjustment data:

1.Depreciation K200 per month.

2.Insurance expired K400.

Requirements

(i)Journalize the December transactions.

(ii)Enter the December 1 balances in the ledger T-accounts and post the December transactions.

(iii)The statement from Jackson County Bank on December 31 showed a balance of K26, 130. A comparison of the bank statement with the Cash account revealed the following facts.

1.The bank collected a note receivable of K2, 200 for Fullerton Company on December 15.

2.The December 31 receipts were deposited in a night deposit vault on December 31. These deposits were recorded by the bank in January.

3.Checks outstanding on December 31 totaled K1,210.

4.On December 31, the bank statement showed an NSF charge of K680 for a check received by the company from L. Bryan, a customer, on account.

Make a bank reconciliation as of December 31 based on the available information. (Hint:The cash balance per books is K26, 100.)

(iv)Journalize the adjusting entries resulting from the bank reconciliation and adjustment data.

(v)Post the adjusting entries to the ledger T-accounts.

(vi)Make an adjusted trial balance.