Question

The Cash account in the general ledger of Lyco Corporation showed a balance of $21,749 at December 31 (but prior to performing a bank reconciliation). The company's bank statement showed a balance of $22,000 at the same date. The only reconciling items consisted of (1) a $5,000 deposit in transit, (2) a bank service charge of $200, (3) outstanding checks totaling $9,000, (4) a $3,000 check marked "NSF" from Susque Company, one of Lyco's customers, and (5) a check written for office supplies in the amount of $1,832, recorded by the company's bookkeeper as a debit to Office Supplies of $1,283, and a credit to Cash of $1,283 In addition to the above information, Lyco owned the following financial assets at December 31: (1) a money market account of $60,000, (2) $3,000 of high-grade, 120-day commercial paper, and (3) $5,000 of highly liquid investments. a. Prepare the company's December 31 bank reconciliation. (Amounts to be deducted should be indicated by a minus sign. Items to be added should be selected first and followed by the items to be deducted. Omit the "S" sign in your response.) EA (Click to select) (Click to select) (Click to select) (Click to select) Adjusted cash balance, December $ (Click to select) (Click to select) (Click to select) Adjusted cash balance, December 31 $ b. Determine the amount at which cash and cash equivalents will be reported in the company's statement of financial position dated December 31. (Omit the "S" sign in your response.) Cash and cash equivalents c. Prepare the necessary journal entry to update the accounting records. (Omit the "$" sign in your response.) General Journal Debit Credit (Click to select) (Click to select) (Click to select) (Click to select)

Answer 1

Bank Reconciliation is a statement, which reconciles the difference between the balance shown on the bank statement and the balance shown in the depositor's cash account. When payments are made by the company through checks, the company records it as payment and decreases its cash balance. But, if the customer presents the check after the recording period, it may not be shown on the bank statement for the current period and this leads to a difference in the bank statement and a cash account. In the same manner, there may be deposits in transit. These differences are called as Timing differences. So, these differences are explained through a bank reconciliation statement. 1 Lyco Corporation Bank Reconciliation December, 31 Particulars Amount Cash balance according to bank statement $ 22,000 Add: Deposit in Transit $ 5,000 Add: Entry wrongly made by bookkeeper ($1832 - $1283) $ 549 Deduct: Outstanding Cheque $ (9,000) Adjusted Cash balance $ 18,549 Cash balance acording to company's records Deduct: NSF Cheque by Susque Company Deduct: Bank service charges Adjusted Cash Balance $ 21,749 $ (3,000) $ (200) $ 18,549

2 Cash is the most liquid asset compared to other assets. So, companies invest cash in safe and highly liquid investments like money market account and Treasury bills, etc, which are almost same as cash. So, these investments are called as cash equivalents. To have called them as cash equivalents, they must be highly liquid investments and shall be matured within 90 days of acquisition. Therefore, Cash and Cash equivalents: Adjusted cash Balance as on December 31 Add: Money Market Account Add: Highly Liquid Investment 18,549 60,000 5,000 83,549 3 Credit ($) b) Journal entry to update the accounting records Date Acount title ad explanation 31-Dec Accounts receivable-Susque Company Bank service Charge Cash (To record the adjusting entry) Debit ($) $ 3,000 $ 200 $ 3,200