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Principles of Accounting

Question 1: (4 Marks)

A. What is a bank reconciliation and why is it important for companies to do it periodically?

B. Prepare a Bank Reconciliation Statement for XYZ company that has:

Bank statement of $9,000.
Cash account of $7,500.
Additional information for the reconciliation:

Deposit in transit.
NSF Check.
Outstanding check.
Collections made by the bank.
Required: provide an amount of each information to bring the adjusted balances to be equal.

Question 2: (3 Marks) Assume that you have a company. And the management estimates that 2.5% of sales will be uncollectible. Give any amount of sales and prepare the journal entry using the percent of sales method.

Question 3: (5 Marks)

Ahmed Co. purchased a machine in 2024 for 50,000 that has a useful life of 5 years with a salvage value of 5,000. Calculate the depreciation expense, accumulated depreciation, book value throughout its useful life using:

1- Straight-line Method.

2- Units of Production Method if the machine produces 100,000 units. Here is a table of units produced each year:

First

Second

Third

Fourth

Fifth

23,000

25,000

30,000

22,000

3- Double Declining Balance Method.

Question 4: (3 Marks) On June 1, 2024, ABC Company signed a $25,000, 120-day, 6% note payable to cover a past due account payable.
a. What is the total amount of interest to be paid on this note?
b. Prepare ABC Company's general journal entry to record the issuance of the note payable
c. Prepare ABC Company's general journal entry to record the payment of the note on
September 29, 2024.

Full Answer Section

B. Bank Reconciliation Statement

Item	Bank Statement Balance	Book Balance	Adjustment
Balance per Bank Statement	$9,000
Add: Deposit in Transit		$X	$X
Less: Outstanding Checks		$Y	$Y
Adjusted Balance
Balance per Books	$7,500
Add: Collections made by bank		$Z	$Z
Less: NSF Check		$W	$W
Adjusted Balance

To equalize the adjusted balances, you need to determine the values of X, Y, Z, and W based on the specific information provided.

Question 2: Allowance for Doubtful Accounts

Given: Sales = $X Estimated Uncollectible Accounts: 2.5% of Sales

Journal Entry:

Account Titles and Explanation	Debit	Credit
Bad Debt Expense	$0.025X
Allowance for Doubtful Accounts		$0.025X
To record estimated bad debt expense

Question 3: Depreciation Expense

1. Straight-Line Method

Annual Depreciation: ($50,000 - $5,000) / 5 = $9,000 per year

2. Units of Production Method

Depreciation per Unit: ($50,000 - $5,000) / 100,000 units = $0.45 per unit

Year	Units Produced	Depreciation Expense	Accumulated Depreciation	Book Value
1	23,000	$10,350	$10,350	$39,650
2	25,000	$11,250	$21,600	$28,400
3	-	$0	$21,600	$28,400
4	30,000	$13,500	$35,100	$14,900
5	22,000	$9,900	$45,000	$5,000

3. Double-Declining Balance Method

Depreciation Rate: (1 / 5) * 2 = 40%

Year	Depreciation Expense	Accumulated Depreciation	Book Value
1	$20,000 (40% * $50,000)	$20,000	$30,000
2	$12,000 (40% * $30,000)	$32,000	$18,000
3	$7,200 (40% * $18,000)	$39,200	$10,800
4	$4,320 (40% * $10,800)	$43,520	$6,480
5	$2,480 (Remaining Book Value - Salvage Value)	$46,000	$5,000

Question 4: Note Payable

a. Total Interest:

Interest = Principal * Rate * Time
Interest = $25,000 * 6% * (120/360) = $500

b. Journal Entry for Issuance:

Account Titles and Explanation	Debit	Credit
Cash	25,000
Notes Payable		25,000
To record issuance of note payable

c. Journal Entry for Payment:

Account Titles and Explanation	Debit	Credit
Notes Payable	25,000
Interest Expense	500
Cash		25,500

Sample Answer

Question 1: Bank Reconciliation

A. What is a bank reconciliation and why is it important for companies to do it periodically?

A bank reconciliation is a process that compares the cash balance in a company's accounting records to the cash balance reported by the bank. It's a crucial step in ensuring the accuracy of financial records. By reconciling the two balances, companies can identify discrepancies, errors, and potential fraud.