Chapter 7 Solutions
EXERCISE 7-7
(a)
VERWEY COMPANY
Bank Reconciliation
November 30
Cash balance per bank statement .................................................
$8,509
Add: Deposits in transit ................................................................
01,575
10,084
Less: Outstanding cheques ..........................................................
0 2,449
Adjusted cash balance per bank ...................................................
$7,635
Cash balance per books .................................................
$7,005
Add: Correction of error in cheque No. 373 ................
$ 90
EFT deposits ......................................................
883
973
7,978
Less: Bank service charge ............................................
$ 24
NSF cheque ........................................................
319
343
Adjusted cash balance per books .................................................
$7,635
(b)
Nov.
30
30
Cash ....................................................
973
Office Supplies .............................
90
Accounts Receivable ...................
883
Bank Charges Expense .....................
24
Account Receivable ...........................
319
Cash...............................................
343
EXERCISE 7-8
(a)
Deposit in transit on May 31: $1,353
(b)
Other adjustments:



Interest earned of $32 must be added to the balance per books.
EFT deposit of $849 must be added to the balance per books
The error in the May 20th deposit must be corrected on the books;
therefore the balance per books must decrease by $9 ($954 - $945).
EXERCISE 7-9
(a)
Outstanding cheques on May 31st:
No.
No.
No.
(b)
255
261
264
$ 262
867
650
$1,779
Other adjustments:
 Decrease balance per books $54 for service charges recorded by bank.
 Increase balance per books $450 for error in cheque 260—should be $50
not $500.
 Decrease balance per books for NSF cheque of $395.
EXERCISE 7-10
(a)
HIDDEN VALLEY COMPANY
Bank Reconciliation
May 31
Cash balance per bank statement .................................................
$7,664
Add: Deposits in transit ................................................................
, 1,353
9,017
Less: Outstanding cheques ..........................................................
1,779
Adjusted cash balance per bank ...................................................
$7,238
Cash balance per books .................................................................
$6,365
Add:
Interest earned ...................................................................
Error correction: Cheque # 260 ........................................
EFT Deposit ........................................................................
32
450
849
7,696
Less:
Bank service charge ..........................................
Error correction: May 20 deposit ($954 - $945)
9
NSF cheque ........................................................................
Adjusted cash balance per books .................................
54
395
$7,238
(b)
May.
31 Cash ($32 + $450 + $849) ....................
1,331
Interest Revenue ............................
Accounts Payable ..........................
Accounts Receivable (EFT)...........
32
450
849
31 Bank Charges Expense ......................
54
Accounts Receivable (error) ..............
Accounts Receivable (NSF)................
9
395
Cash ($54 + $9 + $395) ..................
458
PROBLEM 7-4A
(a)
June
1
8
8
15
15
Petty Cash ..........................................
Cash...............................................
150
Cash ....................................................
Debit Card Expense (52 X $0.50) .. 26
Credit Card Expense
($6,400 x 2.75%) ............................
Sales ..............................................
15,548
Freight Out .........................................
Postage Expense ...............................
Advertising Expense .........................
Miscellaneous Expense.....................
Cash Over and Short .........................
Cash ($150 - $9) ............................
42
28
57
10
4
Cash ....................................................
Debit Card Expense (78 X $0.50) .. 39
Credit Card Expense
($8,000 x 2.75%) ............................
Sales ..............................................
17,941
Petty Cash ($250 - $150) ....................
Drawings.............................................
Office Supplies Expense ...................
100
50
77
150
176
15,750
141
220
18,200
Coffee Supplies Expense ..................
Cash Over And Short.........................
Cash ($250 - $4) ............................
20
1
246
PROBLEM 7-4A (Continued)
(b) The advantage of accepting debit and bank credit card transactions as
opposed to accepting only cash and personal cheques from customers is
that the company knows immediately if the customer has enough money in
the bank to pay for their purchases. A second advantage is that it will likely
increase sales if customers can use debit or credit cards. The disadvantage
is that the bank charges a fee on all transactions using debit and credit
cards.
(c)
The benefit of having a petty cash fund is that it can be used to pay
relatively small amounts, while still maintaining control. Some expenses are
best made by cash rather than by cheque because of the nature of the
expense–there are some instances where either a cheque is not accepted or
it is not practical to issue a cheque. The cost-benefit principle justifies
paying some expenses with cash rather than issuing a cheque.
There are a number of internal controls over the petty cash fund that Gamba
should follow:
 One person should be appointed the petty cash custodian and will be
responsible for the fund.
 A prenumbered petty cash receipt should be signed by the custodian
and the individual receiving payment for each payment from the fund.
 The treasurer’s office should examine all payments and stamps
supporting documents to indicate they were paid when the fund is
replenished.
 Surprise counts should be made at any time to determine whether the
fund is intact.
PROBLEM 7-5A
(a)
Jan.
2
15
31
Feb.
1
15
28
Petty Cash ..........................................
Cash...............................................
200
Freight Out .........................................
Postage Expense ...............................
Office Supplies Expense ...................
Miscellaneous Expense.....................
Cash Over and Short .........................
Cash ($200 - $13) ..........................
84
42
47
12
2
Freight Out .........................................
Charitable Contributions Expense40
Postage Expense ...............................
Miscellaneous Expense.....................
Cash Over and Short ....................
Cash ($200 - $5) ............................
86
Petty Cash ..........................................
Cash...............................................
100
Freight Out .........................................
Entertainment Expense .....................
Postage Expense ...............................
Merchandise Inventory ......................
Miscellaneous Expense.....................
Cash Over and Short .........................
Cash ($300 - $58) ..........................
36
53
33
60
54
6
Postage Expense ...............................
Travel Expense ..................................
Freight Out .........................................
Office Supplies Expense ...................
Cash Over and Short ....................
Cash ($250 - $63) ..........................
Petty Cash ($300 - $250) ..............
95
46
44
57
200
187
28
44
3
195
100
242
5
187
50
PROBLEM 7-5A (Continued)
(b)
Date
Jan.
Feb.
Explanation
2
1
28
(c)
Petty Cash
Ref.
Debit
Credit
200
100
Balance
200
300
50
250
Some expenses are made from petty cash rather than by cheque because of
the nature of the expense–there are some instances where either a cheque
is not accepted or it is not practical to issue a cheque. The cost-benefit
principle justifies paying some expenses with cash rather than issuing a
cheque.
There are internal controls over payments from petty cash. A custodian is
responsible for the fund. A prenumbered petty cash receipt signed by the
custodian and the individual receiving payment is required for each
payment from the fund. The treasurer’s office examines all payments and
stamps supporting documents to indicate they were paid when the fund is
replenished. Surprise counts can be made at any time to determine whether
the fund is intact.
PROBLEM 7-6A
(a)
AGRICULTURAL GENETICS COMPANY
Bank Reconciliation
May 31, 2008
Cash balance per bank statement .................................................
Add: Deposit in transit................................................
$1,141
Bank error, May 12 deposit ($638 - $386)
252
Less: Outstanding cheques
[($233 + $732 + $813 + $401)] ............................................
Adjusted cash balance per bank ...................................................
Cash balance per books .................................................................
Add: Error in recording cheque No. 1151
($855 - $585) .......................................................
$ 270
EFT collections ..................................................
2,382
Interest revenue .................................................
24
Less: NSF cheque and service charge .........................
$820
Error in recording cheque No. 1192
($1,387 - $1,738) .................................................
351
Bank service charge ..........................................
50
Adjusted cash balance per books .................................................
(b)
May
31
31
31
31
31
31
Cash ....................................................
Accounts Payable—L. Kingston .
270
Cash ....................................................
Accounts Receivable ...................
2,382
Cash ....................................................
Interest Revenue ..........................
24
Accounts Receivable—P. Dell ..........
Cash...............................................
820
Computer Equipment ........................
Cash...............................................
351
Bank Charges Expense .....................
Cash...............................................
50
$11,689
1,393
13,082
2,179
$10,903
$ 9,448
2,676
12,124
1,221
$10,903
270
2,382
24
820
351
50
Check: $9,448 + $270 + $2,382 + $24 - $820 - $351 - $50 = $10,903 adjusted
cash balance
PROBLEM 7-7A
(a)
Cash balance per books, November 30, 2008
(from Nov. 30 bank reconciliation) .................................
Add: Cash receipts ............................................................
Less: Cash payments ........................................................
Unadjusted cash balance per books,
December 31, 2008...........................................................
$10,216
16,830
14,816
$12,230
(b)
HUANG COMPANY
Bank Reconciliation
December 31, 2008
Cash balance per bank statement ..............................................
$19,155
Add: Deposits in transit .............................................................
1,198
20,353
Less: Outstanding cheques
No. 3470 ..............................................
$1,100
No. 3474 ..............................................
1,050
No. 3478 ...................................................................
No. 3481 ..............................................
538
807
No. 3484 ...................................................................
No. 3486 ..............................................
1,274
1,390
6,159
Adjusted cash balance per bank................................................
$14,194
Cash balance per books .............................................................
$12,230
Add: EFT collected by bank .....................................................
3,145
15,375
Less: NSF cheque ...............................................
$1,027
Error in recording cheque No. 3485
($541 - $441) ..............................................................
100
Bank service charges .................................................
Error in Dec. 21st deposit
45
($2,954 - $2,945) ....................................
9
1,181
Adjusted cash balance per books ..............................................
$14,194
PROBLEM 7-7A (Continued)
(c)
Dec.
31
31
Cash ....................................................
3,145
Accounts Receivable ....................................
3,080
Interest Revenue ...........................................
65
Accounts Receivable—Hilo Holdings
1,027
Cash ....................................................................
31
Accounts Payable ..............................
1,027
100
Cash...............................................
31
Bank Charges Expense .....................
100
45
Cash...............................................
31
Accounts Receivable .........................
Cash...............................................
45
9
9
Check: $12,230 + $3,145 - $1,027 - $100 - $45 - $9 = $14,194 adjusted cash balance