Could you please tell me how to find the answers to this question? The Cash acco
ID: 2378842 • Letter: C
Question
Could you please tell me how to find the answers to this 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 stock investments.
I'm trying to get the adjusted cash balance for a bank reconciliation. I don't understand what I'm doing wrong.
My thoughts are that the Error Corrections is $549 (1832-1283), but the computer is saying that's wrong.
I also think that the NSF check is $3000, but the computer's saying THAT'S wrong.
I would think that the bank service charge is $200, but the computer says that's wrong also.
My guess for outstanding checks is $9000. Is it a computer error or am I just totally jacked up? I read the chapter twice and I think I'm doing it right? If anyone can help, I would really appreciate it. I've been on this problem for an hour now and it's driving me crazy!
Explanation / Answer
You must first understand the definitions of the terms Cash and Cash Equivalents:
Cash comprises:
Cash on hand: Demand deposits net of bank overdrafts
Cash equivalents: Short term highly liquid investments readily convertible into cash
As for your question:
Balance at bank after reconciliation - $18,000
120 day commercial paper -- $ 3,000
stock investments --- $ 5,000
That leaves money market account of $60,000 which could be included only if it meets the definition of cash equivalents