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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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SOLUTION TO EXERCISE 7-6

  1. Deposits in transit at October 31, 2014:

    images

  2. Outstanding checks at October 31, 2014:

    images

  3. Check No. 532 was recorded on the depositor's books for $106 when it should have been recorded for the correct amount of $160.
  4. The DM for $30 on October 31 will need to be recorded on the depositor's books. (The DM is likely for bank service charges for October.)

Approach and Explanation:

  1. To identify the deposits in transit at October 31:
    1. Compare the deposits in transit at September 30 (per the company's bank reconciliation at that date) with the October bank statement. If the deposit did not get recorded by the bank during October, it is to be considered a deposit in transit at October 31. (It would be extremely rare for a particular deposit to be listed as a deposit in transit on two successive bank reconciliations because it would indicate the deposit was lost in the mail or lost in the bank's facilities or a victim of some strange fate or possibly related to an irregularity.)

      For Molly's Folly, the $2,000 and $1,600 items deposited at the end of September (deposits in transit at September 30, 2014) both were recorded by the bank in early October as expected.

    2. Compare the deposits made during October per company records with the October deposits per the bank's records. ...

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