QUESTION One (5 MARKS)

Gulf Company established a petty cash fund in April of the current year and
experienced the following transactions affecting the fund during April. Counted

Required:
Prepare journal entries to establish the fund on April 1, to replenish it on April 25,
and to record the increase in the fund on April 25.
Question 1

Due to the increasing number of the transactions in the business, Ameera and Company decided
to set-up a petty cash fund to be operated by a junior staff, Mariam.

On January 1, 2020 the petty cash fund was set-up for AED 700. On January 25, the petty cash
fund was replenished. The balance in the fund was AED 65 and the following receipts were by
Mariam:

Meals Expense 150

Supplies Expense 175
Cleaning expense 70
Postage Expense 85
Delivery Expense 120
Sundry Expense 25

The petty cash fund was increased to AED 800 on January 31.

Required

Prepare the journal entries to record all the above transactions.

Ameera & Company, Petty Cash

Date Account Name Debit Credit
1-Jan Petty Cash 700
Cash 700
To set up petty cash fund
Meals Expense 150
25 Jan Supplies Expense 175
Cleaning expense 70
Postage Expense 85
Delivery Expense 120
Sundry expense 25
Cash over and Short 10
Cash 635
To reimburse petty cash fund

31 Jan Petty Cash 100

Cash 100
To increase petty cash to 800
QUESTION Two: (10 MARKS)

The following information is available to reconcile Cloy Company's book balance

of cash with its bank statement cash balance as of June 30.

The June 30 cash balance according to the accounting records is $58,542, and the
bank statement cash balance for that date is $68,047.

a. The bank erroneously cleared a $395 check against the account in June that was
not issued by Cloy. The check documentation included with the bank statement
indicates the check was actually issued by Clare Co.

b. On June 30, the bank issued a credit memorandum for $35 interest earned on
Cloy's account.

c. When the June checks are compared with entries in the accounting records, it is
found that Check No. 1727 had been correctly drawn for $1,450 to pay for
advertising but was erroneously entered in the accounting records as $1,540.

d. A credit memorandum indicates that the bank collected $9,000 cash on a note
receivable for Cloy, deducted a $30 collection fee, and credited the balance to the
company's Cash account. Cloy did not record this transaction before receiving the
statement.
e. A debit memorandum of $895 is enclosed with the bank statement for an NSF
check for $870 received from a customer. The bank assessed a $25 fee for
processing it.
f. Cloy's June 30 daily cash receipts of $6,325 were placed in the bank's night
depository on that date, but do not appear on the June 30 bank statement.
g. Cloy's June 30 cash disbursements journal indicates that Check No. 1737 for
$4,830 and Check No. 1740 for $3,280 were both written and entered in the
accounting records, but are not among the canceled checks.

h. A debit memorandum for $85.00 indicates the bank deducted the annual lock
box fee for the company.

1. Prepare the bank reconciliation for this company as of June 30.

Question 2
The January 30 bank statement of Moharam Trading Corporation shows a balance of
AED26,850. The general ledger book balance shows a balance of AED9,000.
1. A AED1,500 deposit was placed in the night depository after banking hours on January 30.
2. Outstanding checks written totaled AED5,230.
3. The bank collected AED11,000 owed to Moharam Trading on a Note Receivable.
Additionally, it collected AED100 of interest on this note.
4. Moharam Trading paid a telephone bill for the month of January with check #75 for
AED2,680, but recorded the check in its books for AED2,860.
5. The bank returned a customer’s NSF check to Moharam Trading for AED4,910.
6. The bank charged a AED350 commission for an international transfer of funds by Moharam
Trading during the month of January.
7. The bank recorded a AED900 deposit made by Moharam Trading as a AED9,000 deposit

Required
Prepare a bank reconciliation at January 30, 2019.

Answer
 Moharam Trading Company
Bank reconciliation statement, January 30, 2019
Balance as per bank 26,850 Balance as per books 9,000
Deposit in transit 1,500 Note Receivable including 11,100
interest
Outstanding checks (5,230) Recording error 180
Bank error (8,100) NSF Check (4,910)
Bank Service Charges (350)
$15,020 $15,020

QUESTION Three:

Alpha company that uses the percent of sales to account for its bad debts had credit sales of
$740,000 in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the
company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company
wrote off, as uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2,
Marshall Fresh unexpectedly paid his account in full.

Required:

Assuming Alpha Company applies the allowance method in accounting for uncollectible
accounts. Prepare the necessary journal entries:
(a) On December 31, Year 1, to reflect the estimate of bad debts expense.
(b) On June 1, Year 2, to write off the bad debt.
(c) On December 21, Year 2, to record the unexpected collection.

Year 1
Dec. 31 Bad Debts Expense 11,100
Allowance for Doubtful Accounts 11,100
($740,000 * .015)
Year 2
June 1 Allowance for Doubtful Accounts 720
Accounts Receivable–Marshall Fresh 720

Dec. 21 Accounts Receivable–Marshall Fresh 720

Allowance for Doubtful Accounts 720
 21 Cash 720
Accounts Receivable–Marshall Fresh 720
QUESTION Four:

Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On
May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A.
Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On
July 10,

Required: Journalize the entry or entries to write off the accounts receivable and the journal
entry Gideon makes to record the recovery of the bad debt:

Bad debts expense 2,000

Accounts Receivable—A. Hopkins 2,000
Accounts Receivable—A. Hopkins 2,000
Bad debts expense 2,000
Cash 2,000
Accounts Receivable—A. Hopkins 2,000

Question 3
Part a
Al-Wafa Company, a retailer, applies the direct write-off method in accounting for uncollectible
accounts.
January 17, Al-Wafa determines that it cannot collect AED 550 of its accounts receivable from a
customer named Mubarak.
February 5, Mubarak unexpectedly pays its account in full to Al-Wafa Company, which then
records its recovery of this bad debt.
Required
Prepare journal entries to record the above transactions.
Date Debit Credit
Jan. 17 Bad debt 550
Accounts receivables 550
To write off the bad debt
Feb. 5 Accounts receivables 550
Bad debt 550
To re-instate the debt
Cash 550
Accounts receivables 550
To record payment received
Question 3
Part b
Hassan & Sons, a retailer applies the allowance method in accounting for uncollectible accounts.
12 December 2019, Hassan & Sons estimates AED 4,500 of its accounts receivable are
uncollectible.
14 January 2020 Hassan & Sons determines that it cannot collect AED 1,500 of its accounts
receivable from a customer named Khadija & Co.
5 February 2020 Khadija & Co unexpectedly pays its account in full to Hassan & Sons, which
then records its recovery of this bad debt.
Required
Prepare journal entries to record all the above transactions.
Date Debit Credit
12 Dec. 19 Bad debt 4,500
Allowance for bad debt 4,500
To record the estimate of bad debt
14 Jan 20 Allowance for bad debt 1,500
Accounts receivables 1,500
To write off the debt
5 Feb. 20 Accounts receivables 1,500
Allowance for bad debts 1,500
Reinstate the debt
5 Feb. 20 Cash 1,500
Accounts receivables 1,500
Recording payment received