Week #4 Practice Problems

Problem #1: Lucas Nursery received its bank statement for the month of July with an ending balance of $11,065.00. Lucas Nursery determined that check #598 for $125.00 and check #601 for $375.00 were both outstanding. Also, a $7,500.00 deposit for July 30th was in transit as of the end of the month. Florida Bank also collected a $5,000.00 notes receivable on July 1st that was issued January 1st at 12% annual interest. No interest revenue has been accrued on this note and Florida Bank charged a $15.00 fee for the collection service. The companys morning reports resulted in a bank service charge of $20.00 and a customer check for $75.00 was returned with the statement marked NSF. The ending balance of the Lucas Nurserys cash account is $12,875.00.

Prepare a bank/account reconciliation and record any necessary journal entries for the reconciliation.

ANS:

Bank balance July 31:$11,065.00

Add deposits in transit7,500.00

Less outstanding checks125.00

375.00 (500.00)

Adjusted balance - bank:$18,065.00

Company balance July 31:$12,875.00

Add N/R5,000.00

Interest Revenue300.00

Less collection fee(15.00)5,285.00

Less morning report fee(20.00)

Less NSF check(75.00)

Adjusted balance - company$18,065.00

Jul 31Cash5,285.00

Bank Service Charge Expense15.00

Notes Receivable5,000.00

Interest Revenue300.00

Jul 31Bank Service Charge Expense20.00

Cash20.00

Jul 31Accounts Receivable75.00

Cash75.00

Problem #2: Marion Enterprises established a $100.00 Petty Cash Account on February 3rd to relieve the burden on Accounting.

(a) Prepare the journal entry to record the establishment of the petty cash fund.

(b) On February 11th, Marion Enterprises had the following receipts for its petty cash fund: mail and postage of $36.75, contributions and donations of $15.25, meals and entertainment of $35.50 and $12.75 in cash. Prepare the journal entries to replenish Marion Enterprises petty cash fund.

(c) On February 12th Marion Enterprises decided to increase petty cash to $200.00. Journalize this event.

ANS:(a) Feb 3Petty Cash 100.00

Cash 100.00

(b) Feb 11Mail and Postage Expense 36.75

Contributions and Donations Expense15.25

Meals and Entertainment Expense 35.50

Cash Over and Under0.25

Cash 87.25

(c) Feb 12Petty Cash 100.00

Cash 100.00

Problem #3: Gator Office Supplies uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected account balances at December 31, 2013, and December 31, 2014, appear below:12/31/1312/31/14Net Credit Sales$400,000$500,000Accounts Receivable60,00080,000Allowance for Doubtful Accounts5,200?

Instructions(a)Record the following events in 2014.Aug.10Determined that the account of Jordan Hanks for $800 is uncollectible.Sept.12Determined that the account of Pamela Canton for $3,700 is uncollectible.Oct.10Received a check for $500 as payment on account from Jordan Hanks, whose account had previously been written off as uncollectible. She indicated the remainder of her account would be paid in November.Nov.15Received a check for $300 from Jordan Hanks as payment on her account.(b)Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2014.(c)What is the balance of Allowance for Doubtful Accounts at December 31, 2014?

ANSWER TO PROBLEM #3 (a)Aug.10Allowance for Doubtful Accounts800Accounts ReceivableJordan Hanks800(To write off Jordan Hanks account)Sept.12Allowance for Doubtful Accounts3,700Accounts ReceivablePamela Canton3,700(To write off Pamela Cantons account)Oct.10Accounts Receivable Jordan Hanks800Allowance for Doubtful Accounts800(To reinstate Jordan Hanks account previously written off)Cash500Accounts Receivable Jordan Hanks500(To record collection on account)Nov.15Cash300Accounts Receivable Jordan Hanks300(To record collection on account)

(b)Dec.31Bad Debts Expense ($500,000 1%)5,000Allowance for Doubtful Accounts5,000(To record estimate of uncollectible accounts)

(c)Balance of Allowance for Doubtful Accounts at December 31, 2013, is $6,500 ($5,200 $800 $3,700 + $800 + $5,000).

Problem #4:

Paris Plumbing Supply has the following transaction related to notes receivable during the last 2 months of 2013. Nov.1Loaned $30,000 cash to Jennifer Anton on a 1-year, 10% note. Dec.11Sold goods to be Jim Huntley, Inc., receiving a $9,000, 90-day, 8% note. 16Received a $4,000, 6-month, 9% note in exchange for Mary Fenton's outstanding accounts receivable. 31Accrued interest revenue on all notes receivable.

Instructions(a)Journalize the above transactions for Paris Plumbing Supply. Round interest to the nearest dollar.(b)Record the collection of the Jennifer Anton note at its maturity in 2014.(c)Assume Jennifer Anton dishonors its note at its maturity in 2014; Paris Plumbing Supply expects to eventually collect the note. Record Paris entry to dishonor the Anton note.

ANSWER TO PROBLEM #4 (a)2013Nov.1Notes Receivable30,000Cash30,000

Dec.11Notes Receivable9,000Sales Revenue9,000

16Notes Receivable4,000Accounts Receivable Fenton4,000

31Interest Receivable396Interest Revenue396*

Calculation of interest revenue:Anton's note:$30,000 10% 2/12 = $500Huntley's note:9,000 8% 20/360 = 40Fenton's note:4,000 9% 15/360 = 15Total accrued interest$565

(b)2013Nov.1Cash33,000 Interest Receivable500 Interest Revenue2,500* Notes Receivable30,000 *($30,000 10% 10/12)(c)2013Nov.1Accounts Receivable33,000Interest Receivable500Interest Revenue2,500*Notes Receivable30,000*($30,000 10% 10/12)

Problem #5

At the beginning of January, Macro Sales borrowed $15,000 cash on a note payable from Seminole Financial Institution with terms 90 days, 8%. Both Macro Sales and Seminole Financial Institution use a 360 day year for interest calculations. Macro Sales makes adjusting entries at the end of each calendar quarter. Prepare the journal entries for Macro Sales to record the initiation of the loan, the recognition of interest expense for the quarter and the payment of the note on its due date (round to the even dollar).

ANSWER TO PROBLEM #5

Jan 1st Cash15,000

Notes Payable Seminole Financial15,000

Mar 31st Interest Expense297

Interest Payable297

Apr 2nd Notes Payable15000

Interest Payable297

Interest Expense3

Cash15,300

Problem #6

Jacksonville Supply, Inc. pays its employees semimonthly. The summary of the payroll for December 31 indicated the following:

Salary expense$120,000

Federal income tax withheld20,000

Of the payroll, $40,000 is subject to social security tax of 6%; $120,000 is subject to Medicare tax of 1.5%; $10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. Present the journal entries for payroll tax expense if the employees are paid (a) December 31 of the current year, (b) January 2 of the following year.

ANSWER TO PROBLEM #6

(a)Social Security Tax, 6% on $40,000$2,400

Medicare Tax, 1.5% on $120,0001,800

State Unemployment, 4.3% on $10,000430

Federal Unemployment, .8% on $10,000 80

Total Payroll Tax Expense$4,710

Payroll Tax Expense4,710

Social Security Tax Payable2,400

Medicare Tax Payable1,800

State Unemployment Tax Payable430

Federal Unemployment Tax Payable80

(b)Social Security Tax, 6% on $120,000$ 7,200

Medicare Tax, 1.5% on $120,0001,800

State Unemployment Tax, 4.3% on $120,0005,160

Federal Unemployment Tax, .8% on $120,000 960

Total Payroll Tax Expense$15,120

Payroll Tax Expense15,120

Social Security Tax Payable7,200

Medicare Tax Payable1,800

State Unemployment Tax Payable5,160

Federal Unemployment Tax Payable960