Bill’s Lawn Care Mini Practice Part 4

Bill’s Lawn Care Mini Practice Part 4

In June, Bill commented to you that he could never figure out his bank statement, “it never matches the balance in my accounting records” he tells you. So you explain that a bank reconciliation is a tool used to balance the bank statement to the accounting books. He gives you his bank statement for June, 2014 (shown below). The general ledger shows a balance for the account cash of $14,319.00 on June 30, 2014 (detail transactions below). Bill’s business only has one checking account and no other cash accounts.

Bill has begun to have problems collecting some of his credit accounts and is considering writing off a couple of customer account balances. He asks you how these bad debts should be recorded and has asked you to begin recording bad debt using the allowance method for June, 2014. Selected account balances at the end of June, 2014 are:

Sales	$7.200
Sales on Credit	2,900
Accounts Receivable	3,200

As a result of increased focus on collecting accounts receivable, Bill has decided to extend credit for one customer, Alan Jones, who owes Bill’s Lawn Care $500. Bill and Alan have agreed to a 90-day 6% note for $500 issued on June 5, 2014.

Instructions:

1. Using the bank statement and the general ledger, prepare a bank reconciliation for Bill’s Lawn Care as of June 30, 2014. Record the necessary journal entries to adjust the books for the appropriate reconciling items. Start with Page 6 for the journal entries. Explanations are optional.

2. Using the information given above, calculate the amount of bad debt using:

a. Percentage of Sales on Credit = 1.5%

b. Percentage of Accounts Receivable = 1%

Using the chart of accounts, record the journal entry for bad debt expense for Bill’s Lawn Care using the percentage of sales on credit method.

3. Using the note receivable information above and the chart of accounts, record the following entries in the general journal (continue these entries on Page 6):

a. Receipt of the note in payment of the accounts receivable balance.

b. Adjusting entry at the end of June, 2014 for the note receivable. (Round interest calculations to two decimals)

c. Assume that Alan pays the note and interest in full on the due date, record the necessary journal entry. Assume that interest has been accrued at the end of each month.

d. Assume that Alan defaults on the note and interest on the due date, record the necessary journal entry. Assume that interest has been accrued at the end of each month.

Please note that the calculation pages in the Excel template are required and graded. Please show your work on those pages.

CHECKING ACCOUNT DETAIL:

DATE	TRANSACTION TYPE & NUMBER	AMOUNT	BALANCE
BEGINNING BALANCE	$12,850.00
6/2/2014	CHECK #1570	226.00	12,624.00
6/5/2014	CHECK #1571	83.00	12,541.00
6/6/2014	EFT #43	127.00	12,414.00
6/10/2014	DEPOSIT #104	1,550.00	13,964.00
6/15/2014	CHECK #1572	145.00	13,819.00
6/15/2014	CHECK #1573	185.00	13,634.00
6/20/2014	DEPOSIT #105	885.00	14,519.00
6/24/2014	EFT #44	143.00	14,376.00
6/28/2014	CHECK #1574	87.00	14,289.00
6/28/2014	CHECK #1575	95.00	14,194.00
6/30/2014	DEPOSIT #106	425.00	14,619.00
6/30/2014	CHECK #1576	155.00	14,464.00
6/30/2014	CHECK #1577	145.00	$14,319.00

BANK STATEMENT:

FIRST NATIONAL BANK
ACCOUNT SUMMARY JUNE 30, 2014
BEGINNING BALANCE	$12,850.00
PAYMENTS	$1,021.00
DEPOSITS	2,440.00
FEES	20.00
ENDING BALANCE	$14,249.00
PAYMENTS
DATE	REFERENCE	AMOUNT
6/5/2014	1570	$266.00
6/9/2014	1571	83.00
6/10/2014	43	127.00
6/19/2014	1572	145.00
6/28/2014	1573	185.00
6/28/2014	NSF	120.00
6/30/2014	1575	95.00
TOTAL PAYMENTS		$1,021.00
DEPOSITS
DATE	REFERENCE	AMOUNT
6/11/2014	104	$1,550.00
6/23/2014	105	885.00
6/30/2014	INTEREST	5.00
TOTAL DEPOSITS		$2,440.00
FEES
6/30/2014	SVC CHG	$20.00
TOTAL FEES		$20.00

Additional Information: Check #1570 was written for $266.00, but was recorded incorrectly in the general ledger. The check was for fuel.

BILL’S LAWN CARE

CHART OF ACCOUNTS

ASSETS REVENUES

101 Cash 401 Lawn Service Revenue

110 Accounts Receivable 410 Sales Revenue

112 Allowance for Doubtful Accounts 415 Sales Returns and Allowances

115 Notes Receivable 420 Interest Income

116 Interest Receivable

120 Supplies COST OF GOODS SOLD

130 Prepaid Insurance 501 Purchases

140 Inventory 505 Purchase Returns and Allowances

150 Equipment

155 Accumulated Depreciation – Equipment

EXPENSES

LIABILITIES 620 Supplies Expense

201 Accounts Payable 630 Fuel Expense

220 Notes Payable 640 Repair and Maintenance Expense

225 Interest Payable 650 Advertising Expense

660 Insurance Expense

OWNER’S EQUITY 670 Depreciation Expense

301 Owner’s Capital 680 Interest Expense

305 Owner’s Drawings 690 Bad Debt Expense

310 Income Summary 695 Miscellaneous Expense