Question

The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of $388,600 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

A. Checks outstanding totaled $61,280.
B. A deposit of $42,500, representing receipts of April 30, had been made too late to appear on the bank statement.
C. The bank collected $42,000 on a $40,000 note, including interest of $2,000.
D. A check for $7,600 returned with the statement had been incorrectly recorded by American Medical Co. as $760. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.
E. A check drawn for $240 had been erroneously charged by the bank as $420.
F. Bank service charges for April amounted to $145.

Amount Descriptions
Bank error in charging check as $240 instead of $420
Bank error in charging check as $420 instead of $240
Bank service charges
Check for $420 returned because of insufficient funds
Deposit of April 30, not recorded by bank
Error in recording check
Error in recording April 30 deposit
Outstanding checks
Note and interest collected by bank
Instructions
1. Prepare a bank reconciliation. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries."Deduct:" or "Add:" will automatically appear if it is required.
2. Journalize the necessary entries. The accounts have not been closed. Refer to the Chart of Accounts for exact wording of account titles.
3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?

Answer 1

1. Bank reconciliation statement = $370,000

Step-by-step explanation:

Requirement A :

American Medical Company

Bank reconciliation statement

As at April 30, 20XX

Cash balance according to bank statement = 388,600

Add: Deposit in transit = 42,500

Bank error ($420-$240) = 180

= 431,280

Less: outstanding check = (61,280)

Adjusted balance = $370,000

Cash balance as per book = $334,985

Add: Note collection plus interest (40,000+2000) = $42,000

$376,985

Less: Error in check = $(6840)

Bank service charge = $(145)

Adjusted balance as per cash book $370,000

Requirement B

Since note collection from the receivables and accounts payable with miscellaneous expense have not been closed, we need to record those entries on the journal books

1.

Cash Debit $42,000

Note receivable Credit $40,000

Interest revenue Credit $2,000

2.

Accounts payable Debit $6840

Miscellaneous expense $145

Cash Credit $6985

Requirement C

As we know, the bank amount and the cash amount are the same in the balance sheet. Therefore, the bank reconciliation statement amount should be reported as the cash of the balance sheet.

Therefore, the cash balance will be $370,000 if a balance sheet is prepared for American Medical Company as of April 30.