Bank Reconciliation and Fixed Asset Questions

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BTB110
Bank Reconciliation and Fixed Asset Questions
Prepare a Bank Reconciliation:
The August 31, 2003 bank statement of Hurry Fine Clothes has just arrived from the
Bank of Montreal. To prepare the Hurry Fine Clothes bank reconciliation, you gather the
following data:
a.The Hurry Fine Clothes Cash account shows a balance of $4,121.14 on August 31.
b.The bank statement includes two charges for returned cheques from customers. One
is a $395 cheque received from Shoreline Advertising and deposited on August 20,
returned by Shoreline’s bank with the imprint “Unauthorized Signature”. The other is an
NSF cheque in the amount of $146.67 received from Lipsey, Inc. The cheque had been
deposited on August 17.
c.Hurry Fine Clothes pays rent ($850) and insurance ($290) by EFT (electronic funds
transfer).
d.The following Hurry Fine Clothescheques are outstanding at August 31:
ChequeNumber
237
288
291
292
293
294
295
Amount
$ 46.10
286.00
578.05
11.87
609.51
8.88
101.63
e.The bank statement includes a deposit of $1,191.17, collected by the bank on behalf of
Hurry Fine Clothes.
f.The bank statement shows that Hurry Fine Clothes earned $38.19 in interest on its
bank balance in August. This amount was added to the Hurry Fine Clothes account by
the bank.
g.The bank statement lists a $10.50 subtraction for the bank service charge.
h.On August 31, the Hurry Fine Clothes treasurer deposited $316.15 but this deposit
does not appear on the bank statement.
i.The bank statement includes a $500 deposit that Hurry Fine Clothes did not make.
The bank had erroneously credited the Hurry Fine Clothes account for another bank
customer’s deposit.
j.The August 31 bank balance is $5,484.22.
All About Fixed Asset Acquisition, Betterments/Repairs and Amortization
The cost of a fixed asset is considered to be the sum of all the costs incurred to bring the
asset to its intended purpose net of discounts. These are capital costs.
The cost of property, plant, and equipment is the purchase price, taxes, purchase
commissions and all other costs incurred to acquire an asset and ready it for its intended
use.
The cost of land includes the purchase price, brokerage commission, survey fees, legal
fees, and any property taxes in arrears. Also included is the cost of grading land, and for
demolishing or removing any unwanted buildings.
If an exiting building is purchased, its cost includes the purchase price, brokerage
commission, sales and other taxes (NOT GST), plus the cost to renovate and repair the
building.
The cost of machinery and equipment includes the purchase price, transportation
charges, insurance while in transit, PST, purchase commission, installation costs, and
costs for testing the asset before it is used.
Betterments or Repairs
When a company makes a capital asset expenditure on an asset that it already owns, it
must decide whether that expenditure is a betterment, or whether it should be
categorized as a repair.
Expenditures that increase the capacity or efficiency of the asset, or extend its useful life
are called betterments and should be capitalized (i.e., added to the cost of the asset).
Expenditures that merely maintain the asset in its exiting condition or restore the asset to
good working order are called repairs, and these costs are matched against revenue.
Be aware that in many instances, the difference between betterments and repairs is a
matter of opinion. When doubt exists many companies tend to err on the side of
expense.
Amortization
Amortization (or depreciation) is considered to be the allocation of a capital asset’s cost
over the asset’s useful life.
Methods used to calculate amortization are straight-line, and double declining balance
methods.
Fixed Asset Problems:
On January 2, 2001, Sparling Haulage purchased a used dump truck at a total cost of
$63,000. Before placing the truck into service, the company spent $2200 painting it,
$800 replacing tires, and $4000 overhauling the engine. Jack Sparling, the owner,
estimates the truck will remain in service for 6 years and have a residual value of
$16,000. Prepare an amortization schedule for the truck using each of the straight-line
method and the double declining balance method, showing asset cost, amortization
expense, accumulated amortization and asset book value.
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