Treatment of NSF checkRankin Stationery’s bank statement contained a $250 NSF check that o...

Treatment of NSF check

Rankin Stationery’s bank statement contained a $250 NSF check that one of its customers had written to pay for supplies purchased.

a. Show the effects of recognizing the NSF check on the financial statements by recording the appropriate amounts in a horizontal statements model like the following one:

b. Is the recognition of the NSF check on Rankin’s books an asset source, use, or exchange transaction?

c. Suppose the customer redeems the check by giving Rankin $270 cash in exchange for the bad check. The additional $20 paid a service fee charged by Rankin. Show the effects on the financial statements in the horizontal statements model in Requirement a.

d. Is the receipt of cash referenced in Requirement c an asset source, use, or exchange transaction?

e. Record in general journal form the adjusting entry for the NSF check and the entry for redemption of the check by the customer.