Week #4 Practice Problems

Problem #1: Lucas Nursery received its bank statement for the month of July with an ending balance of
$11,065.00. Lucas Nursery determined that check #598 for $125.00 and check #601 for $375.00 were both
outstanding. Also, a $7,500.00 deposit for July 30th was in transit as of the end of the month. Florida Bank
also collected a $5,000.00 notes receivable on July 1st that was issued January 1st at 12% annual interest. No
interest revenue has been accrued on this note and Florida Bank charged a $15.00 fee for the collection service.
The companys morning reports resulted in a bank service charge of $20.00 and a customer check for $75.00
was returned with the statement marked NSF. The ending balance of the Lucas Nurserys cash account is
$12,875.00.
Prepare a bank/account reconciliation and record any necessary journal entries for the reconciliation.
ANS:
Bank balance July 31:
Add deposits in transit
Less outstanding checks

$11,065.00
7,500.00
125.00
375.00

Adjusted balance - bank:

Company balance July 31:

Add N/R
Interest Revenue
Less collection fee
Less morning report fee
Less NSF check
Adjusted balance - company
Jul 31

Jul 31

Jul 31

(500.00)
$18,065.00

$12,875.00
5,000.00
300.00
(15.00)

Cash
Bank Service Charge Expense
Notes Receivable
Interest Revenue

5,285.00
15.00

Bank Service Charge Expense

Cash

20.00

Accounts Receivable
Cash

75.00

5,285.00
(20.00)
(75.00)
$18,065.00

5,000.00
300.00

20.00

75.00

Problem #2:

Marion Enterprises established a $100.00 Petty Cash Account on February 3 rd to relieve the
burden on Accounting.
(a) Prepare the journal entry to record the establishment of the petty cash fund.

(b) On February 11th, Marion Enterprises had the following receipts for its petty cash fund: mail and
postage of $36.75, contributions and donations of $15.25, meals and entertainment of $35.50 and $12.75
in cash. Prepare the journal entries to replenish Marion Enterprises petty cash fund.
(c) On February 12th Marion Enterprises decided to increase petty cash to $200.00. Journalize this
event.
ANS:
(a) Feb 3

(b) Feb 11

(c) Feb 12

Petty Cash
Cash

100.00
100.00

Mail and Postage Expense

Contributions and Donations Expense
Meals and Entertainment Expense
Cash Over and Under
Cash

36.75
15.25
35.50
0.25
87.25

Petty Cash
Cash

100.00
100.00

Problem #3: Gator Office Supplies uses the allowance method in accounting for uncollectible
accounts. Past experience indicates that 1% of net credit sales will eventually be uncollectible.
Selected account balances at December 31, 2013, and December 31, 2014, appear below:
Net Credit Sales
Accounts Receivable
Allowance for Doubtful Accounts

12/31/13
$400,000
60,000
5,200

12/31/14
$500,000
80,000
?

Instructions

(a) Record the following events in 2014.

Aug. 10
Determined that the account of Jordan Hanks for $800 is uncollectible.
Sept. 12
Determined that the account of Pamela Canton for $3,700 is uncollectible.
Oct. 10
Received a check for $500 as payment on account from Jordan Hanks, whose
account had previously been written off as uncollectible. She indicated the
remainder of her account would be paid in November.
Nov. 15
Received a check for $300 from Jordan Hanks as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended
December 31, 2014.

(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2014?
ANSWER TO PROBLEM #3
(a) Aug. 10
Allowance for Doubtful Accounts................................
Accounts ReceivableJordan Hanks..................
(To write off Jordan Hanks account)
Sept. 12

Oct. 10

Nov. 15

(b) Dec. 31

800
800

Allowance for Doubtful Accounts................................

Accounts ReceivablePamela Canton...............
(To write off Pamela Cantons account)

3,700

Accounts Receivable Jordan Hanks..........................

Allowance for Doubtful Accounts.......................
(To reinstate Jordan Hanks account previously
written off)

800

Cash...............................................................................
Accounts Receivable Jordan Hanks.................
(To record collection on account)

500

Cash...............................................................................
Accounts Receivable Jordan Hanks.................
(To record collection on account)

300

Bad Debts Expense ($500,000 1%)...........................

Allowance for Doubtful Accounts.......................
(To record estimate of uncollectible accounts)

5,000

3,700

800

500

300

5,000

(c) Balance of Allowance for Doubtful Accounts at December 31, 2013, is $6,500 ($5,200
$800 $3,700 + $800 + $5,000).

Problem #4:
Paris Plumbing Supply has the following transaction related to notes receivable during the last 2
months of 2013.
Nov. 1
Dec. 11
16
31

Loaned $30,000 cash to Jennifer Anton on a 1-year, 10% note.

Sold goods to be Jim Huntley, Inc., receiving a $9,000, 90-day, 8% note.
Received a $4,000, 6-month, 9% note in exchange for Mary Fenton's outstanding
accounts receivable.
Accrued interest revenue on all notes receivable.

Instructions
(a) Journalize the above transactions for Paris Plumbing Supply. Round interest to the nearest
dollar.
(b) Record the collection of the Jennifer Anton note at its maturity in 2014.

(c) Assume Jennifer Anton dishonors its note at its maturity in 2014; Paris Plumbing Supply
expects to eventually collect the note. Record Paris entry to dishonor the Anton note.

ANSWER TO PROBLEM #4
(a)
2013
Nov. 1 Notes Receivable..............................................................
Cash...........................................................................

30,000
30,000

Dec. 11 Notes Receivable..............................................................

Sales Revenue...................................................

9,000

16 Notes Receivable..............................................................
Accounts Receivable Fenton.........................

4,000

31 Interest Receivable............................................................
Interest Revenue...............................................

396

Calculation of interest revenue:

Anton's note:
Huntley's note:
Fenton's note:
Total accrued interest
(b)
Nov.

(c)
Nov.

9,000
4,000
396*

$30,000 10% 2/12 = $500

9,000 8% 20/360 = 40
4,000 9% 15/360 = 15
$565

2013
1 Cash...................................................................................
Interest Receivable.........................................................
Interest Revenue.............................................................
Notes Receivable............................................................
*($30,000 10% 10/12)
2013
1 Accounts Receivable.........................................................
Interest Receivable.................................................................
Interest Revenue....................................................................
Notes Receivable...................................................................
*($30,000 10% 10/12)

33,000
500
2,500*
30,000

33,000
500
2,500*
30,000

Problem #5
At the beginning of January, Macro Sales borrowed $15,000 cash on a note payable from Seminole
Financial Institution with terms 90 days, 8%. Both Macro Sales and Seminole Financial Institution use a
360 day year for interest calculations. Macro Sales makes adjusting entries at the end of each calendar
quarter. Prepare the journal entries for Macro Sales to record the initiation of the loan, the recognition of
interest expense for the quarter and the payment of the note on its due date (round to the even dollar).

ANSWER TO PROBLEM #5
Jan 1st

Mar 31st

Apr 2nd

Cash
Notes Payable Seminole Financial

15,000
15,000

Interest Expense
Interest Payable

297

Notes Payable
Interest Payable
Interest Expense
Cash

15000

297

297
3
15,300

Problem #6
Jacksonville Supply, Inc. pays its employees semimonthly. The summary of the payroll for December 31
indicated the following:
Salary expense
Federal income tax withheld

$120,000
20,000

Of the payroll, $40,000 is subject to social security tax of 6%; $120,000 is subject to Medicare tax of
1.5%; $10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%.
Present the journal entries for payroll tax expense if the employees are paid (a) December 31 of the
current year, (b) January 2 of the following year.

ANSWER TO PROBLEM #6
(a)
Social Security Tax, 6% on $40,000
Medicare Tax, 1.5% on $120,000
State Unemployment, 4.3% on $10,000
Federal Unemployment, .8% on $10,000
Total Payroll Tax Expense
Payroll Tax Expense
Social Security Tax Payable
Medicare Tax Payable
State Unemployment Tax Payable
Federal Unemployment Tax Payable
(b)
Social Security Tax, 6% on $120,000
Medicare Tax, 1.5% on $120,000
State Unemployment Tax, 4.3% on $120,000
Federal Unemployment Tax, .8% on $120,000
Total Payroll Tax Expense
Payroll Tax Expense
Social Security Tax Payable
Medicare Tax Payable
State Unemployment Tax Payable
Federal Unemployment Tax Payable

$2,400
1,800
430
80
$4,710
4,710
2,400
1,800
430
80
$ 7,200
1,800
5,160
960
$15,120
15,120
7,200
1,800
5,160
960