Bank Reconciliation:

Unadjusted to Adjusted Balances Format

In auditing the HECTOR COMPANY, you obtained the bank statement, canceled checks, and
other

memoranda which relate to the company’s bank account for December 2018. In reconciling the
bank

balance with that shown on the company's books, you observed the facts set forth below;

(1) Balance per bank statement, Dec. 31, 2018 P47,174

(2) Balance per books, Dec. 31, 2018 19,289

(3) Outstanding checks, Dec. 31, 2018 63,000

(4) Receipts of Dec. 31, 2018, deposited Jan. 2, 2019 6,260

(5) Service charge for November, per bank

memo of Dec. 15, 2018 1,000

(6) Proceeds of bank loan, Dec, 15, 2018,

discounted for 3 months at 18% per

annum, omitted from company books 47,750

(7) Deposit of Dec. 22,2018, omitted from

Bank statement 9,170

(8) Check of Milano company, returned on

Dec. 21, 2018, for absence of counter-signature

and redeposited with complete signature on

Jan. 3, 2019, no entry on the books having been

made for the return or redeposit 77,320

(9) Error on bank statement in entering deposit

of Dec. 18, 2018:

Correct amount PI,600

Entered in statement 160 1,440

(10) Check No. 021261 of Yek Company,

charged by bank in error to

company's account 13,600

(11) Proceeds of note of Harthur Co.,

collected by bank, Dec. 10, 2018, not

entered in cash book (principal amount of

P25,OOO plus interest of P 1,125

less collection fee) 25,625

(12) Erroneous debit memo of Dec. 28, 2018,

to charge companys account with

settlement of bank loan which was paid by

check no. 112170 on same date 5,000

(13) Error on bank statement in entering

deposit of Dec. 4, 2018:

Entered as P14,200.62

Correct amount 12,400.62 1,800

(14) Deposit of Bunso Co. of Dec. 2,

credited in error to this company 3,500

1. What is the principal amount of the loan obtained from bank in December?

A. P50,OOO C. P48,125

B. P47,750 D. P49,625

2. What amount of prepaid interest should on Hectors December 31, 2018, statement

A. P2,250 C. P375

B. P0 D. P1,875

3. The amount of collection fee

A. P625 C. P500
B. P1,625 D. P0

4. What is the adjusted Cash in bank balance as of December 31, 2018?

A. P14,344 C. PI 7,944

B. P11,464 D. P9,344

5. The Cash in bank per ledger as of December 31, 2018, should be increased (decreased) by

A. P4,945 C. P(4,945)

B. P5,945 D. P(5,945)

SOLUTION 1-23

1. Proceeds = Principal -Interest

47,750=P - (Px180/0 x 3/12)

47,750=P - 0.045P

47/750=0.955 P

P= 47,750 + 0.955

P= P50,000

Answer: A

2. Prepaid interest, Dec.31 (2/250 x 2.5/3) PI ,875

3. Principal

Interest income

Maturity value

Proceeds

Answer: C

4. Book Bank

Unadjusted balances P19,289 P47,174

Outstanding checks (63,000)

Receipts of 12/31/18, deposited 1/02/19 6,260

Service charge for November (1,000)

Proceeds ofbank loan 47,750

Deposit of 12/22/18, omitted from bank

Statement 9,170

Check of Milano Company, charged back (77,320)

Error in entering deposit of 12/18/18 1,440

Check of Yek Company charged in

error to Hector Company 13,600

Proceeds of note of Harthur Co. 25,625

Erroneous debit memo of 12/28/18,

charged by bank in settlement

of loan paid by check no. 112170 5,000

Error in entering deposit of 12/04/18 (1,800)

Deposit of Bunso Co., credited in error

to Hector Company _________ (3,500)

ADJUSTED BALANCES P14,344 P14,344

Answer: A

5. Adjusted Cash in bank balance (see no, 4) P14,344

Cash in bank balance per ledger 19,289

Net credit adjustment— decrease P 4,945