Acc300 Principles of Accounting: Week 5 (PE-2, E7-5, E7-6, E7-9)

Acc300 Principles of Accounting
Week 5

In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities. During the year, the following transactions occurred.
Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage fees of $1,000.
Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage fees of $500.
Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.80 per share on the NJF common stock.
Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage fees of $350.
Sept. 1 Received $2 per share cash dividend on the SEK common stock.
Oct. 1 Received the semiannual interest on the CRT bonds.
Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees.
At December 31, the fair values of the NJF and SEK common stocks were $39 and $30 per share, respectively.

1. Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.)
2. Prepare the adjusting entry at December 31, 2012, to report the investments at fair value. All securities are considered to be trading securities.
3. Show the balance sheet presentation of investment securities at December 31, 2012.
4. Identify the income statement accounts and give the statement classification of each account.

At Reyes Company, checks are not prenumbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertaining to goods purchased for resale. Prior to payment, the purchasing agent determines that the goods have been received and verifies the mathematical accuracy of the vendor’s invoice. After payment, the invoice is filed by vendor and the purchasing agent records the payment in the cash disbursements journal. The treasurer pays all other bills following approval by authorized employees. After payment, the treasurer stamps all bills “paid,” files them by payment date, and records the checks in the cash disbursements journal. Reyes Company maintains one checking account that is reconciled by the treasurer.

1. List the weaknesses in internal control over cash disbursements.
2. Identify improvements for correcting these weaknesses.

Tasha Orin is unable to reconcile the bank balance at January 31. Tasha’s reconciliation is shown here.
Cash balance per bank $3,677.20
Add: NSF check 450.00
Less: Bank service charge 28.00
Adjusted balance per bank $4,099.20
Cash balance per books $3,975.20
Less: Deposits in transit 590.00
Add: Outstanding checks 770.00
Adjusted balance per books $4,155.20

1. What is the proper adjusted cash balance per bank?
2. What is the proper adjusted cash balance per books?
3. Prepare the adjusting journal entries necessary to determine the adjusted cash balance per books.

This information relates to the Cash account in the ledger of Hawkins Company.
• Balance September 1—$16,400; Cash deposited—$64,000
• Balance September 30—$17,600; Checks written—$62,800
The September bank statement shows a balance of $16,500 at September 30 and the following memoranda.
Credits Debits
Collection of $1,800 note plus interest $30 $1,830 NSF check: H. Juno $560
Interest earned on checking account 45 Safety deposit box rent 60
At September 30, deposits in transit were $4,738 and outstanding checks totaled $2,383.

1. Prepare the bank reconciliation at September 30, 2012.
2. Prepare the adjusting entries at September 30, assuming (1) the NSF check was from a customer on account, and (2) no interest had been accrued on the note.
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