A company reports the following beginning inventory and purchases for the month of January.

On
January 26, the company sold 360 units at a price of $8 and accepted the customer’s Suntrust Bank
Card. Suntrust charges a 4% fee.

Units Unit cost

Beginning inventory on January 320 $6.00
1
Purchase on January 9 85 6.40
Purchase on January 25 110 6.60

On 3 January company installed automatic scorekeeping equipment with an invoice cost of $180,000.
The electrical work required for the installation costs $8,000, and $3,000 for delivery. The automatic
scorekeeping equipment’s useful life is estimated at 10 years, or 363,000 units of product, with a $6,000
residual value.

On 28 January company sold equipment that cost $138,750, with accumulated depreciation of $81,000
for cash at $46,500.

On 31 January the accountant estimated the balance of the Allowance for Doubtful Accounts using an
aging of account receivable. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a
$1,000 debit.

Accounts Receivable Age of Accounts Receivable Expected Percent Uncollectible

$396,400 Not yet due 2.0%
277,800 1 to 30 days past due 4.0
48,000 31 to 60 days past due 8.5
6,600 61 to 90 days past due 39.0
2,800 Over 90 days past due 82.0

1. Prepare all transactions and adjusting entries above assuming the company uses a perpetual
inventory system as FIFO and the double-declining-balance method.
2. The company’s cash account shows a $32,878.30 debit balance and its bank statement shows
$46,822.40 on deposit at the close of business on January 31. Prepare its bank reconciliation
using the following information.
a. Check No. 1242 for $410.40, Check No. 1273 for $4,589.30, and Check No. 1282 for $400 are
outstanding checks as of January 31.
b. Check No. 1267 had been correctly drawn for $3,456 to pay for office suppliers but was
erroneously entered in the accounting records as $3,465.
c. The bank statement shows a $762.50 NSF check received from a customer in payment of its
account. The statement also shows a $99 bank fee in miscellaneous expenses for check
printing. The company has not yet recorded these transactions.
d. The bank statement shows that the bank collected $18,980 cash on a note receivable for the
company. The company did not record this transaction before receiving the statement.
e. The company's January 31 daily cash receipts of $9,583.10 were placed in the bank’s night
depository on that date but did not appear on the January 31 bank statement.
ANWERS:
1. January 3rd:

Equipment Purchase:
Debit Equipment: $180,000
Debit Installation Costs: $8,000
Debit Delivery Costs: $3,000
Credit Cash: $191,000
January 9th:

Purchase:
Debit Inventory: $546 (85 units * $6.40)
Credit Accounts Payable: $546
January 25th:

Purchase:
Debit Inventory: $726 (110 units * $6.60)
Credit Accounts Payable: $726
January 26th:

Sale (FIFO):
Credit Sales Revenue: $2,880 (360 units * $8)
Debit Cost of Goods Sold: $2,160 (360 units * $6) (assuming 320 units from beginning
inventory and 40 units from January 9th purchase were sold)
Sales Discount:
Debit Cash: $2,731.20 (2,880 * (1 - 4%))
Credit Sales Discounts: $148.80
January 28th:

Equipment Disposal:
Debit Accumulated Depreciation: $81,000
Credit Equipment: $138,750
Debit Loss on Disposal: $12,250 (138,750 - 81,000 - 46,500)
Credit Cash: $46,500
January 31st (Adjusting Entries):

Depreciation (Double-Declining Balance):

Rate = (2 * 100%) / 10 years = 20% per year
Depreciation expense for first year = 20% * $191,000 = $38,200
Debit Depreciation Expense: $38,200
Credit Accumulated Depreciation: $38,200
Bad Debt Expense:
Debit Bad Debt Expense: $XXX (refer to calculation below)
Credit Allowance for Doubtful Accounts: $XXX (refer to calculation below)
Calculation of Bad Debt Expense:

Not yet due: $396,400 * 2% = $7,928

1-30 days: $277,800 * 4% = $11,112
31-60 days: $48,000 * 8.5% = $4,080
61-90 days: $6,600 * 39% = $2,574
Over 90 days: $2,800 * 82% = $2,304
Total Bad Debt Expense: $7,928 + $11,112 + $4,080 + $2,574 + $2,304 = $28,000
2. Balance per Bank Statement: $46,822.40
-Add:
Deposit in Transit: $9,583.10
Adjusted Balance: $56,405.50
-Deduct:
Outstanding Checks:
+Check No. 1242: $410.40
+Check No. 1273: $4,589.30
+Check No. 1282: $400.0
Bank Service Charge: $99.00
NSF Check: $762.50

Balance per Books: $50,144.30

Discrepancy: ($6,261.20)