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ACCT5001 S1 2010

Self-Study Solutions

Week 8

Ch.7: Q7, Q8, E7.3, PSA7.2, PSA7.4, PSA7.5, PSA7.6, & PSA7.7

7.

8.

ACCT5001 S1 2010

Self-Study Solutions

Week 8

PROBLEM SET A 7.2

KONA Ltd

Accounts receivables are amounts owed by customers on account. They result from
the sale of goods and services in the normal course of business operations (i.e. in
trade). Notes receivable represent claims that are evidenced by formal instruments of
credit.
Soo Eng should realise that the decrease in the recoverable amount occurs when
estimated uncollectables are recognised in an adjusting entry. The write-off of an
uncollectable account reduces both accounts receivable and the allowance for doubtful
accounts by the same amount. Thus, the recoverable amount does not change.

Bank Reconciliation Statement


31 December 2010

Balance as per bank statement

19,580.00

Add: Outstanding deposit

1,190.40
20,770.40

EXERCISE 7.3
Less: Unpresented cheques

Shoe City Ltd

No. Amount
(a)

Balance as per bank statement


Add:

Less:

Outstanding deposits

Unpresented cheques

708.00

3474

1,050.00

5,100.20

3478

538.20

3481

807.40

3484

832.00

3486

1,389.50

$4,770.20

Dishonoured cheque

$516.00

Bank charges

30.00

Adjusted cash balance per books

(b)

720.10

$4,224.20

Cash balance per books


Less:

3470

(876.00)

Balance as per Cash at Bank account (1)

(1)

$4,392.20

5,337.20

Balance as per Cash at Bank account

15,433.20

Original balance of Cash at Bank account

13,034.30

455.00
$4,224.20

Transposition error (deposit 20/12: 2945-2954)

(In general journal form)

(9.00)

Transposition error (cheque#3485: 540.8-450.8)


Accounts Receivable

516.00

Cash at Bank

516.00

Bank Charges

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

Collection of note

3,145.00

NSF cheque (A. Jordan)

(647.10)

Adjusted balance of Cash at Bank Account:

30.00

Cash at Bank

(90.00)

15,433.20

30.00

27/04/2010

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

27/04/2010

ACCT5001 S1 2010

Self-Study Solutions

Week 8

ACCT5001 S1 2010

Self-Study Solutions

Week 8

PROBLEM SET A 7.4


(a)

(b)
Dec. 31

31

Computec Ltd

Cash3,145.00
Bank Fees
....................................................................... 15.00
Notes Receivable ....................................................
Interest Revenue .....................................................

3,000.00
160.00

Accounts ReceivableA. Jordan.......................................... 647.10


Cash ..............................................................

647.10

Bank Reconciliation Statement


31 May 2011

Balance as per bank statement


31

Accounts Payable....................................................................... 90.00


Cash ..............................................................

Dec. 31 Accounts Receivable.................................................................. 9.00


Cash ..............................................................

Add:
90.00

$7,784.60

Outstanding deposits

$836.15

Bank error teller cheque

600.00

1,436.15
9,220.75

9.00

Less: Unpresented cheques

(1,276.25)

Balance as per Cash at Bank account (1)

$7,944.50

(1)

$5,681.50

Original Cash at Bank balance per books


Add:

Collection of note receivable

3,060.00
8,741.50

Less: Dishonoured cheque

($700.00)

Error in 12 May deposit (CRJ)

(10.00)

Error in recording cheque no. 1181

(27.00)

Bank cheque printing charge

(60.00)

Adjusted Cash at Bank account balance

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

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ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

(797.00)
$7,944.50

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ACCT5001 S1 2010

(b)

Self-Study Solutions

Week 8

(In general journal form)

ACCT5001 S1 2010

Self-Study Solutions

Week 8

PROBLEM SET A 7.5


Burlington Theatre
(a)

Date

Account Titles and Explanation

May 31 Cash at Bank

Debit

Credit

3,060

Bank Charges

Principles

Application to Burlington Theatre

Establishment of responsibility.

Only cashiers are authorised to sell tickets. Only


the manager and cashier can handle cash.

Segregation of duties.

The duties of receiving cash and admitting


customers are assigned to the cashier and to the
doorperson. The manager maintains custody of
the cash, and the company accountant records
the cash.

Documentation procedures.
27

Tickets are pre-numbered. Cash count sheets are


prepared. Deposit slips are prepared.

60

Physical, mechanical, and electronic A safe is used for the storage of cash and a
controls.
machine is used to issue tickets.

20

Note Receivable

3,000

Interest Revenue

80

31 Accounts Receivable W Hoad

700

Cash at Bank

700

31 Sales

10

Cash at Bank

10

31 Accounts Payable M Helms

27

Cash at Bank

31 Bank Charges

60

Cash at Bank

Independent internal verification.

(b)

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

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Cash counts are made by the manager at the end


of each cashiers shift. Daily comparisons are
made by the company treasurer.

Actions by the doorperson and cashier to misappropriate cash include:


(1)

Instead of tearing the tickets, the doorperson could return the tickets to the
cashier who could resell them, and the two could divide the cash.

(2)

The cashier could issue a lower priced ticket than paid for and the doorperson
would admit the customer. The difference between the ticket issued and the
cash received could be divided between the doorperson and cashier.

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

27/04/2010

ACCT5001 S1 2010

Self-Study Solutions

Week 8

ACCT5001 S1 2010

Self-Study Solutions

Week 8

PROBLEM SET A 7.6


(1)

Mar.

Phuang Ltd

(a)

Dec.

31

Bad Debts Expense .............................................25,450


Allowance for Doubtful Debts ..................................
($37,450 $12,000)

(2)

May

25,450

May
(a) & (b)
(c)
Bad Debts
Expense

Dec. 31
Balance

Date

Particular

31/12/2010

Allowance for Doubtful Debt

Dr

Cr

$25,450

Dr

Cr

2011
31 Allowance for Doubtful Debts ............................500
Accounts Receivable ....................................

500

31 Accounts Receivable.........................................500
Allowance for Doubtful
Debts....................................................

500

31 Cash ................................................................500
Accounts Receivable ....................................

500

2011
Bad Debts Expense .............................................31,100
Allowance for Doubtful Debts ..................................
($30,300 + $800)

31,100

$25,450

Allowance
for Doubtful
Debt

Balance

Date

Particular

31/12/2010

Balance

31/12/2010

Bad Debts Expense

31/3/2011

Accounts Receivable
(Bad Debts Write-off)

31/5/2011

Accounts Receivable
(Reverse Bad Debts WriteOff)

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

Dr

Cr

Dr

Cr
$12,000

$25,450

$500

$36,950

$500

27/04/2010

$37,450

$37,450

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

27/04/2010

ACCT5001 S1 2010

Self-Study Solutions

Week 8

PROBLEM SET A 7.7


Taringa Ltd
(a)

$58,000.

(b)

$14,000 [($920,000 X 5%) $32,000].

(c)

$69,000 [(920,000 X 5%) + $23,000].

(d)

Under the direct write-off method, accounts receivable are overstated because future
estimated write-offs are not anticipatedwrite-offs are journalised as they occur. In
contrast, under the allowance method, anticipated write-offs are estimated and
reduce the ending accounts receivable balance. The resulting estimated balance of
accounts receivable, stated at recoverable amount, then represents the future
benefits to be recovered from the accounts receivable asset ie, cash.

ACCT5001 S1 2010 Week 8 Self-Study Solutions.doc

27/04/2010