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Kookie
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| Posted: 03 Nov 2010 at 06:01 | IP Logged
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cpa-00363
The following is Gold Corps June 30 trial balance:
Cash Overdraft
..
10,000
Accounts Rec
.35,000
Inventory
58,000
Prepaid Expenses
12,000
Land held for resale
100,000
PP&E
...95,000
Accounts Payable
.
...32,000
Common Stock
25,000
APIC
150,000
Retained Earnings
....83,000
Additional Information:
Checks amounting to $30,000 were written to vendors and recorded on June 29 resulting in a cash overdraft of $10,000. The checks were mailed on July 9.
Land held for resale was sold for cash on July 15.
Gold issued its financial statements on July 31.
In its June 30 Balance Sheet, what amount should Gold report as current assets?
Answer is 225,000 current assets in June 30 Balance Sheet:
<10> ----->> cash overdraft
30----->>ADD BACK: checks not mailed until July 9
35
58
12
100
Total current assets = 225
I understand the ADD BACK of the checks not yet mailed by Balance Sheet date
but now Im confused as to why the overdraft is not reversed as well??? These two items should go in tandem, correct? If the checks are not yet expensed/considered a decrease in cash
.thenthere has been no overdraft in cash by June 30th??? Correct?
Im sure Im missing something here in rationalizing this problem. Help??
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BEC 77
REG 73, 67, 80
FAR 63, 71, 67, 70, 80
PRAISE GOD--I'M DONE!!! :-)
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ccaml
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| Posted: 03 Nov 2010 at 08:29 | IP Logged
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<10> ----->> cash overdraft "Deduct from Cash"
30----->>ADD BACK:
checks not mailed until July 9
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Kookie
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| Posted: 03 Nov 2010 at 10:18 | IP Logged
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ccaml wrote:
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<10> ----->> cash overdraft "Deduct from Cash"
30----->>ADD BACK: checks not mailed until July 9
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Yes the bolded is correct per the solution in Becker.
^^What I mean is---I understood HOW they got the answer. What I need a better understanding of is WHY they deducted the <$10> from cash if they added back the checks not yet mailed (+30)? It seems to me that there is no overdraft...yet??? Hope my question makes sense...if not please let me know and I'll try my best to rephrase. Any more help out there? Thanks in advance! :-)
__________________
AUD 79, 80
BEC 77
REG 73, 67, 80
FAR 63, 71, 67, 70, 80
PRAISE GOD--I'M DONE!!! :-)
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FARleft
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| Posted: 03 Nov 2010 at 11:28 | IP Logged
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Here is the reasoning behind the deduction of the overdraft.
The checks were recorded on June 29 for $30,000 which immediately created an over draft of ($10,000). However the checks were actually mailed on July 9.
So at June 30, the checks should be added back because they were not a part of payments made in June. The overdraft is deducted because the payments were not made until July (which would have caused the overdraft in July).
When the the $30,000 is added back, it is as if the overdraft never occurred at June 30.
They are making thing right by reversing the transaction (Checks) and the overdraft that was caused by the checks on June 29, should also be reversed.
Focus on what should "have been" if the checks were not deducted in June.
Hope this helps.
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LosingIt
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| Posted: 03 Nov 2010 at 12:24 | IP Logged
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I'm with you Kookie. It doesn't make sense to me either. If on June 28 the cash balance is, let's say, $20,000 and on the 29th you cut checks for $30,000 this will give you the $10,000 overdraft. Since the checks was not mailed until the next period, an entry would be processed to "reverse" the $30,000 checks still in possession as of June 29 bringing the account back up to the $20,000. Why does anything have to be done with the $10,000?
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BEC-75;REG-80;AUD-72/85;FAR-62/68/70/75
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Topic: Current Assets: Cash overdraft
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