Question

The bank statement for the checking account of Management Systems Inc. (MSI) showed a December 31, 2021, balance of $14,632.12. Information that might be useful in preparing a bank reconciliation is as follows:
a. Outstanding checks were $1,320.25.
b. The December 31, 2021, cash receipts of $575 were not deposited in the bank until January 2, 2022.
c. One check written in payment of rent for $246 was correctly recorded by the bank but was recorded by MSI as a $264 disbursement.
d. In accordance with prior authorization, the bank withdrew $450 directly from the checking account as payment on a note payable. The interest portion of that payment was $350. MSI has made no entry to record the automatic payment.
e. Bank service charges of $14 were listed on the bank statement.
f. A deposit of $875 was recorded by the bank on December 13, but it did not belong to MSI. The deposit should have been made to the checking account of MIS, Inc.
g. The bank statement included a charge of $85 for an NSF check. The check was returned with the bank statement and the company will seek payment from the customer.
h. MSI maintains a $200 petty cash fund that was appropriately reimbursed at the end of December.
i. According to instructions from MSI on December 30, the bank withdrew $10,000 from the account and purchased U.S. Treasury bills for MSI. MSI recorded the transaction in its books on December 31 when it received notice from the bank. Half of the Treasury bills mature in two months and the other half in six months.
Required:
1. Prepare a bank reconciliation for the MSI checking account at December 31, 2021. You will have to compute the balance per books.
2. Prepare any necessary adjusting journal entries indicated.
3. What amount would MSI report as cash and cash equivalents in the current asset section of the December 31, 2021, balance sheet?

Answer 1

Answer:

1)

Bank account reconciliation:

Bank account balance $14,632.12

- outstanding checks ($1,320.25)

+ deposits in transit $575

- mistaken deposit, MIS, Inc. ($875)

adjusted bank account balance $13,011.87

Cash account reconciliation:

Cash account balance $23,742.87

+ error in check (rent) $18

- note paid by bank ($450)

- bank service charges ($14)

- NSF check ($85)

- petty cash fund ($200)

- investment in T-bills ($10,000)

adjusted cash account balance $13,011.87

2)

Dr Cash 18

    Cr Rent expense 18

Dr Notes payable 100

Dr Interest expense - notes payable 350

    Cr Cash 450

Dr Bank service charges 14

    Cr Cash 14

Dr Accounts receivable 85

    Cr Cash 85 (NSF check)

Dr Office expenses 200

    Cr Petty cash fund 200

Dr Petty cash fund 200

    Cr Cash 200

Dr Investment in Treasury Bills (2 months) 5,000

Dr Investment in Treasury Bills (6 months) 5,000

    Cr Cash 10,000

3)

Current assets:

Cash $13,011.87

Petty cash fund $200

Investment in Treasury Bills (2 months) $5,000

Investment in Treasury Bills (6 months) $5,000

total cash and cash equivalents $23,211.87