Question 1

On 1 November 2015, Jupiter Limited released an application offer document to the public
for the issue of $1,000,000 of 8% p.a. 3 year debentures with an issue date of 1 January
2016. Interest is payable yearly on 31 December each year.

Required:

Prepare the journal entries to record:

a) the issue of debenture

b) the 31 December 2016 interest payment

c) the 31 December 2017 interest payment

Solution:

1 November 2015 to 1 January 2016

Cash trust 1,000,000

Application-Debentures 1,000,000
To record receipt of application monies

1 January 2016

Cash at bank 1,000,000

Cash Trust 1,000,000
To record transfer of application monies on allotment

Application-Debentures 1,000,000
Debentures (liability) 1,000,000
To record allotment of debentures

31 December 2016

Debenture interest expense 80,000

Cash at bank 80,000
To record interest payment = 8% x 1,000,000

31 December 2017

Debenture interest expense 80,000

Cash at bank 80,000
To record interest payment = 8% x 1,000,000
Question 2

The 31 May bank statement of Marlow Furniture has just arrived from First Bank. To
prepare the bank reconciliation, you gather the following data:

1. The 31 May bank balance is $19,209.82.

2. The bank statement includes two charges for returned cheques from customers. One is
a $67.50 dishonoured cheque received from Sarah Batten and deposited on 19 May.
The other is a $195.03 cheque received from Lara Masters and deposited on 21 May. It
was returned due to “Unauthorised Signature.”

3. The following Marlow cheques are outstanding at 31 May:

Cheque No. Amount
616 $403.00
802 74.25
806 36.60
809 161.38
810 229.05
811 48.91

4. Marlow collects from a few customers by EFT. The May bank statement lists a $200
deposit for a collection on account from customer Jack Oates.

5. The bank statement includes two special deposits: $899.14, for dividend revenue, and
$16.86, the interest revenue Marlow earned on its bank balance during May.

6. The bank statement lists a $6.25 subtraction for the bank service charge.

7. On 31 May, the Marlow financial controller deposited $381.14, but this deposit does not
appear on the bank statement.

8. The bank statement includes a $410.00 deduction for a cheque drawn by Marimont
Freight. Marlow notified the bank of this bank error.

9. Marlow’s Cash at Bank account shows a balance of $18,200.55 on 31 May.

Required: Prepare the bank reconciliation for Marlow Furniture at 31 May.

 Marlow Furniture Market
Bank Reconciliation
31 May
Balance per Bank, 31 May $19,209.82
Add: Deposit of 31 August in transit 381.14
Bank error Cheque not drawn by Marlow Furniture 410.00
20,000.96
Less: Outstanding cheques
$403.00 + $74.25 + $36.60 + $161.38 + $229.05 + $48.91 (953.19)

Adjusted bank balance, 31 May $19,047.77

Marlow Furniture Market

Adjustments to Cash at Bank
31 May
Balance per Books, 31 May $18,200.55
Add: Bank collection of dividend revenue $ 899.14
Interest revenue earned on bank balance 16.86
EFT collection 200.00 1,116.00
19,316.55
Less: Returned cheque due to unauthorised signature $ 195.03
Dishonoured cheque 67.50
Service charge 6.25 (268.78)
Adjusted book balance, 31 May $19,047.77
Question 3

At 30 September, Kangaroo Mountain Flagpoles had Accounts Receivable of $28,000 and

Allowance for Bad Debts of $1,000. During October, Kangaroo Mountain recorded:

a. Sales of $180,000 ($160,000 on credit; $20,000 for cash)

b. Collections on account, $130 000.
c. Bad debt expense, estimated as 2% of credit sales
d. Write-offs of bad debts, $ 2,400.

Required:

Journalise sales, collections, bad debt expense by the allowance method (percentage-of-
sales method), and write-offs of bad debts during October.
 Journal
POST.
DATE ACCOUNTS REF. DEBIT CREDIT
Oct. Cash at bank 20,000
Accounts receivable 160,000
Sales revenue 180,000

Oct. Cash at bank 130,000

Accounts receivable 130,000

Oct. Bad debts expense ($160,000 × .02) 3,200

Allowance for bad debts 3,200

Oct. Allowance for bad debts 2,400

Accounts receivable 2,400