E8-7

Setterstrom Company established a petty cash fund on May 1, cashing a

check for $100. The company reimbursed the fund on June 1 and July 1
with the following results.

June 1: Cash in fund $1.75. Receipts: delivery expense $31.25; postage

expense $39.00; and miscellaneous expense $25.00.

July 1: Cash in fund $3.25. Receipts: delivery expense $21.00;

entertainment expense $51.00; and miscellaneous expense $24.75.

On July 10, Setterstrom increased the fund from $100 to $130.

May 1 Petty Cash ...................................................... 100.00

Cash .......................................................... 100.00

June 1 Delivery Expense ........................................... 31.25

Postage Expense ........................................... 39.00
Miscellaneous Expense ................................. 25.00
Cash Over and Short...................................... 3.00
Cash........................................................... 98.25

July 1 Delivery Expense ........................................... 21.00

Entertainment Expense ................................. 51.00
Miscellaneous Expense ................................. 24.75
Cash .......................................................... 96.75

July 10 Petty Cash ...................................................... 30.00

Cash .......................................................... 30.00
 PROBLEM 8-2A

Forney Company maintains a petty cash fund for small expenditures.

The following transactions occurred over a 2-month period.

July 1 Established petty cash fund by writing a check on Scranton

Bank for $200.

15 Replenished the petty cash fund by writing a check for $196.00. On

this date the fund consisted of $4.00 in cash and the following petty cash
receipts: freight-out $92.00, postage expense $42.40, entertainment
expense $46.60, and miscellaneous expense $11.20.

31 Replenished the petty cash fund by writing a check for $192.00. At

this date, the fund consisted of $8.00 in cash and the following petty
cash receipts: freight-out $82.10,
charitable contributions expense $45.00, postage expense $25.50, and
miscellaneous expense $39.40.

Aug. 15 Replenished the petty cash fund by writing a check for

$187.00. On this date, the fund consisted of $13.00 in cash and the
following petty cash receipts: freight-out $77.60, entertainment expense
$43.00, postage expense $33.00, and miscellaneous expense $37.00.

16 Increased the amount of the petty cash fund to $300 by writing a

check for $100.

31 Replenished petty cash fund by writing a check for $284.00. On

this date, the fund consisted of $16 in cash and the following petty cash :
postage expense $140.00, travel expense $95.60, and freight-out $47.10.

Instructions
(a) Journalize the petty cash transactions.
(b) Post to the Petty Cash account.
(c) What internal control features exist in a petty cash fund?

(a) July 1 Petty Cash .............................................. 200.00

Cash ................................................ 200.00
 15 Freight-Out ............................................. 92.00
Postage Expense ................................... 42.40
Entertainment Expense ......................... 46.60
Miscellaneous Expense ......................... 11.20
Cash Over and Short ............................. 3.80
Cash ................................................ 196.00

31 Freight-Out ............................................. 82.10

Charitable Contribution Expense .......... 45.00
Postage Expense ................................... 25.50
Miscellaneous Expense ......................... 39.40
Cash ................................................ 192.00

Aug. 15 Freight-Out ............................................. 77.60

Entertainment Expense ......................... 43.00
Postage Expense ................................... 33.00
Miscellaneous Expense ......................... 37.00
Cash Over and Short ...................... 3.60
Cash ................................................ 187.00

16 Petty Cash .............................................. 100.00

Cash ................................................ 100.00

31 Postage Expense ................................... 140.00

Travel Expense ....................................... 95.60
Freight-Out ............................................. 47.10
Cash Over and Short ............................. 1.30
Cash ................................................ 284.00

(b)
Petty Cash
Date Explanation Ref. Debit Credit Balance
July 1 CP 200 200
Aug. 16 CP 100 300
EXERCISE 8-11

The following information pertains to Crane Video Company.

1. Cash balance per bank, July 31, $7,263.

2. July bank service charge not recorded by the depositor $28.
3. Cash balance per books, July 31, $7,284.
4. Deposits in transit, July 31, $1,300.
5. Bank collected $700 note for Crane in July, plus interest $36, less fee
$20. The collection has not been recorded by Crane, and no interest has
been accrued.
6. Outstanding checks, July 31, $591.
Instructions
(a) Prepare a bank reconciliation at July 31.
(b) Journalize the adjusting entries at July 31 on the books of Crane
Video Company.
(a) CRANE VIDEO COMPANY
Bank Reconciliation
July 31

Cash balance per bank statement .................................... $7,263

Add: Deposits in transit .................................................. 1,300
8,563
Less: Outstanding checks ............................................... 591
Adjusted cash balance per bank ...................................... $7,972

Cash balance per books .................................................... $7,284

Add: Collection of note receivable
($700 plus accrued interest $36,
less collection fee $20)........................................... 716
8,000
Less: Bank service charge ............................................... 28
Adjusted cash balance per books .................................... $7,972

(b) July 31 Cash ................................................................... 716

Miscellaneous Expense .................................... 20
Notes Receivable....................................... 700
Interest Revenue ....................................... 36

31 Miscellaneous Expense .................................... 28

Cash ........................................................... 28
 PROBLEM 8-3A

On May 31, 2012, Reber Company had a cash balance per books of
$6,781.50 The bank statement from New York State Bank on that date
showed a balance of $6,404.60 A comparison of the statement with the
cash account revealed the following facts.

1. The statement included a debit memo of $40 for the printing of

additional company checks.

2. Cash sales of $836.15 on May 12 were deposited in the bank. The cash
receipts journal entry and the deposit slip were incorrectly made for
$886.15. The bank credited Reber Company for the correct amount.

3. Outstanding checks at May 31 totaled $576.25. Deposits in transit were

$2,416.15

4. On May 18, the company issued check No. 1181 for $685 to Lynda
Carsen on account. The check, which cleared the bank in May, was
incorrectly journalized and posted by Reber Company for $658.

5. A $3,000 note receivable was collected by the bank for Reber

Company on May 31 plus $80 interest. The bank charged a collection fee
of $20. No interest has been accrued on the note.

6. Included with the cancelled checks was a check issued by Sinter

Company to Ted Company for $800 that was incorrectly charged to
Reber Company by the bank.

7. On May 31, the bank statement showed an NSF charge of $680 for a
check issued by Sue Bennett, a customer, to Reber Company on
account.

Instructions
(a) Prepare the bank reconciliation at May 31, 2012.
(b) Prepare the necessary adjusting entries for Reber Company at May
31, 2012.
(a) REBER COMPANY
Bank Reconciliation
May 31, 2014

Cash balance per bank statement ................... $6,404.60

Add: Deposit in transit ................................... $2,416.15
Bank error—Stiner check ...................... 800.00 3,216.15
9,620.75
Less: Outstanding checks .............................. 576.25
Adjusted cash balance per bank ..................... $9,044.50
Cash balance per books ................................... $6,781.50
Add: Collection of note receivable
($3,000 note plus $80 interest
less $20 fee) ........................................... 3,060.00
9,841.50
Less: NSF check .............................................. $ 680.00
Error in May 12 deposit
($886.15 – $836.15) ............................ 50.00
Error in recording check No. 1181........ 27.00*
Check printing charge ........................... 40.00 797.00
Adjusted cash balance per books ................... $9,044.50

*$685 – $658

(b) May 31 Cash .............................................................. 3,060

Miscellaneous Expense ............................... 20
Notes Receivable.................................. 3,000
Interest Revenue .................................. 80
31 Accounts Receivable—Sue Allison ............ 680
Cash ...................................................... 680

31 Sales Revenue ............................................. 50

Cash ...................................................... 50
31 Accounts Payable—Lynda Carsen ............. 27
Cash ...................................................... 27
31 Miscellaneous Expense ............................... 40
Cash ...................................................... 40
EXERCISE 8-14

Wynn Company has recorded the following items in its ! Financial

records:

Cash in bank $ 42,000

Cash in plant expansion fund 100,000
Cash on hand 12,000
Highly liquid investments 34,000
Petty cash 500
Receivables from customers 89,000
Stock investments 61,000

The highly liquid investments had maturities of 3 months or less when

they were purchased. The stock investments will be sold in the next 6 to
12 months. The plant expansion project will begin in 3 years.

Instructions :

(a) What amount should Wynn report as “Cash and cash equivalents” on
its balance sheet?

(b) Where should the items not included in part (a) be reported on the
balance sheet?

(c) What disclosures should Wynn make in its ! financial statements

concerning “cash and cash equivalents”?

(a) Cash and cash equivalents should be reported at $88,500.

Cash in bank .................................................... $42,000
Cash on hand .................................................. 12,000
Petty cash ........................................................ 500
Highly liquid investments ............................... 34,000
$88,500
(b) “Cash in plant expansion fund” should be reported as part of long-term
investments (a noncurrent asset). “Receivables from customers” should
be reported as accounts receivable in the current assets. “Stock
investments” should also be reported in the current assets.