Question

The Cash account in the general ledger of Hendry Corporation shows a balance of $96,990 at Short Comprehensive December 31,2011 (prior to performing a bank reconciliation). The company's bank statement Problem shows a balance of $100,560 at the same date. An examination of the bank statement reveals the following: 1. Deposits in transit amount to $24,600. 2. Bank service charges total $200. 3. Outstanding checks total $31,700. 4. A \$3,600 check marked "NSF" from Kent Company (one of Hendry Corporation's customers) was returned to Hendry Corporation by the bank. This was the only NSF check that Hendry Corporation received during 2011. 5. A canceled check (no. 244) written by Hendry Corporation in the amount of $1,250 for office equipment was incorrectly recorded in the general ledger as a debit to Office Equipment of $1,520, and a credit to Cash of $1,520. In addition to the above information, Hendry Corporation owns the following assets at December 31, 2011: (1) money market accounts totaling $75,000, (2) $3,000 of high-grade, 90 -day, commercial paper, and (3) highly liquid stock investments valued at $86,000 at December 31, 2011 (these investments originally cost Hendry Corporation $116,000 ). On December 1, 2011, Hendry Corporation sold an unused warehouse to Moran Industries for $100,000. Hendry accepted a six-month, $100,000,6 percent note receivable from Moran. The note, plus accrued interest, is due in full on May 31, 2012. Hendry Corporation adjusts for accrued interest revenue monthly. Hendry Corporation uses the income statement approach to compute its uncollectible accounts expense. The general ledger had reported Accounts Receivable of $2,150,000 at January 1, 2011 . At that time, the Allowance for Doubtful Accounts had a credit balance of $40,000. Throughout 2011 , the company wrote off actual accounts receivable of $140,000 and collected $21,213,600 on account from credit customers (this amount includes the $3,600 NSF check received from Kent Company). Credit sales for the year ended December 31, 2011, totaled $20,000,000. Of these credit sales, 2 percent were estimated to eventually become uncollectible. Prepare Hendry Corporation's bank reconciliation dated December 31, 2011, and provide the journal entry necessary to update the company's general ledger balances.

Answer 1

To perform the bank reconciliation for Hendry Corporation, various adjustments such as deposits in transit, outstanding checks, bank service charges, the NSF check, and the misrecorded office equipment check must be considered. The adjusted bank statement balance is $89,930, and the reconciled general ledger cash account balance is $92,920. The necessary journal entry to correct the ledger involves debiting Bank Service Charges, Accounts Receivable, and Office Equipment, while crediting Cash by the total adjustment amount.

Step-by-step explanation:

Bank Reconciliation and General Ledger Update for Hendry Corporation

The process of performing a bank reconciliation involves adjusting the balance in the company's bank statement to reflect the true available cash balance. For Hendry Corporation as of December 31, 2011, the bank statement shows a balance of $100,560. Below are the adjustments needed:

• Add deposits in transit of $24,600.
• Subtract outstanding checks totaling $31,700.
• Subtract bank service charges of $200.
• Subtract the NSF check of $3,600 received from Kent Company.
• Correct the error for the misrecorded check (no. 244), by adjusting the office equipment and cash by $270 (the difference between the recorded amount of $1,520 and the actual amount of $1,250).

The correct cash balance after these adjustments will be:

1. Start with the bank statement balance: $100,560.
2. Add deposits in transit: $100,560 + $24,600 = $125,160.
3. Subtract outstanding checks: $125,160 - $31,700 = $93,460.
4. Subtract bank service charges: $93,460 - $200 = $93,260.
5. Subtract NSF check: $93,260 - $3,600 = $89,660.
6. Add/Subtract correction for check no. 244: $89,660 + $270 = $89,930.

Therefore, the adjusted bank statement balance is $89,930.

Next, the company's general ledger shows a cash account balance of $96,990. This needs to be reconciled with the bank's adjusted balance:

1. Cash account balance per ledger: $96,990.
2. Subtract bank service charges: $96,990 - $200 = $96,790.
3. Subtract NSF check: $96,790 - $3,600 = $93,190.
4. Add/Subtract correction for check no. 244: $93,190 - $270 = $92,920.

After reconciling the ledger, the adjusted cash balance in the ledger is $92,920.

The journal entry necessary to update the general ledger balances would be as follows:

• Debit Bank Service Charges: $200
• Debit Accounts Receivable: $3,600
• Debit Office Equipment: $270
• Credit Cash: $4,070 (sum of the debits)