The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of $388,600 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:Checks outstanding totaled $61,280.A deposit of $42,500, representing receipts of April 30, had been made too late to appear on the bank statement. The bank collected $42,000 on a $40,000 note, including interest of $2,000.A check for $7,600 returned with the statement had been incorrectly recorded by American Medical Co. as $760. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account. A check drawn for $240 had been erroneously charged by the bank as $420.Bank service charges for April amounted to $145.Instructions1. Prepare a bank reconciliation.2. Journalize the necessary entries. The accounts have not been closed.3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?

1. Cash balance according to bank statement $370,000

Cash balance according to company’s records $370,000

2. a.April 30

Dr Cash$42,000

Cr Notes Receivable $40,000

Cr Interest Income / Interest Revenue $2,000

b.April 30

Dr Accounts Payable - Targhee Supply Co $6,840

Dr Miscellaneous Expenses [Bank service charge]$145

Cr Cash $6,985

3. $370,000

Explanation:

1. Preparation of a bank reconciliation

AMERICAN MEDICAL COMPANY

Bank Reconciliation

April 30

Cash balance according to bank statement $388,600

Add: Deposit of April 30, Not recorded by bank$42,500

Add: Bank Error in Charging check as $420 instead of $240 [$420 - $240]$180

Deduct: Outstanding Checks $61,280

Adjusted balance $370,000

Cash balance according to company’s records $334,985

Add: Note and Interest Collected by bank $42,000

Deduct: Error in Recording Check [$7,600 - $760]$6,840

Deduct: Bank Service Charges$145

Adjusted balance $370,000

2. Preparation of Journal entries.

Journal entries

a.April 30

Dr Cash$42,000

Cr Notes Receivable $40,000

Cr Interest Income / Interest Revenue $2,000

b.April 30

Dr Accounts Payable - Targhee Supply Co [$7,600 - $760]$6,840

Dr Miscellaneous Expenses [Bank service charge]$145

Cr Cash $6,985

($6,840+$145)

3. Based on the information given If a balance sheet is prepared for American Medical Co. on April 30, the amount that should be reported as cash will be $370,000

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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