On May 31, the Cash in Bank account of Wallace Company, a sole proprietorship, h

Question

On May 31, the Cash in Bank account of Wallace Company, a sole proprietorship, had a balance of $6,000.50. On that date, the bank statement indicated a balance of $7,868.50. A comparison of returned checks and bank advices revealed the following:

Deposits in transit May 31 totaled $2,603.05

Outstanding checks May 31 totaled $3,077.25

The bank added to the account $19.80 of interest income earned by Wallace during May.

The bank collected a $2,400 note receivable for Wallace and charged a $30 collection fee. Both items appear on the bank statement.

Bank service charges in addition to the collection fee, not yet recorded were $40.00.

Included with the returned checks is a memo indicating that L. Ryder's check for $686.00 had been returned NSF. Ryder, a customer, had sent the check to pay an account of $700.00 less a discount of 2%

Wallace Company incorrectly recorded the payment of an account payable as $360.00 the check was for $630.00.

Required

a. Prepare a bank reconciliation for Wallace Company at May 31.

b. Prepare the journal entry (or entries) necessary to bring the Cash in Bank account into agreement with the reconciled cash balance on the bank reconciliation.

Explanation / Answer

Bank reconciliation Bank balance 7868.5 Add Deposit in transit 2603.05 Less Outstanding checks 3077.25 Adjusted bank balance 7394.3 Cash balance 6000.5 Add Notes receivable 2400 Interest earned 19.8 2419.8 Less Service fees 30 Bank charges 40 NSF check 686 Error in recording (630-360) 270 1026 Adjusted cash balance 7394.3 Journal entries Bank charges 40 Service charges 30 Accounts payable 686               Cash 756 Cash 2419.8           Interest earned 19.8           Notes receivable 2400

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