Chapter 4 Critical Thinking Case 2 Reconciling the Campbells' Checking Account

Caleb and Eva Campbell are college students who opened their first joint checking account at the American Bank on September 14, 2015. They've just received their first bank statement for the period ending October 5, 2015. The statement and checkbook ledger are shown in the table below.

CALEB & EVA CAMPBELL 2128 E. ARBOR ST. DENVER, COLORADO			THE AMERICAN BANK 800-000-0000 STATEMENT PERIOD SEPT. 6 - OCT. 5, 2015
	Opening Balance	Total Deposits for Period		Total Checks/ Withdrawals for Period	Ending Balance
	$0.00	$569.25		$473.86	$95.39
Date	Withdrawals (Debits)			Deposits (Credits)	Balance
Sept. 14				$360.00	$360.00
Sept. 15				97.00	457.00
Sept. 25	$45.20			9.25	421.05
Oct. 1				103.00	524.05
Oct. 1	3.00 BC				521.05
Oct. 4	65.90	$49.76	$45.00		$360.39
Oct. 5	265.00				95.39
RT=Returned Check		DM=Debit Memo		BC=Bank Charges
FC=Finance Charges		CM=Credit Memo

Checkbook Ledger
Check Number	Date 2015	Details	3	Check Amount	Deposit Amount	Account Balance
-	Sept. 14	Cash-gift from birthday			$360.00	$360.00
-	Sept. 15	Caleb's wages			97.00	457.00
101	Sept. 24	Kroger's-groceries		$45.20		411.80
102	Sept. 27	Telephone bill		28.82		382.98
-	Oct. 1	Caleb's wages			103.00	485.98
103	Oct. 1	Univ. Bk. Sto.-college books		65.90		420.08
104	Oct. 1	Walmart-sewing material		16.69		403.39
105	Oct. 1	B. Hadley-apartment rent		265.00		138.39
106	Oct. 2	Anthem-health insurance		17.79		120.60
107	Oct. 3	Kroger's-groceries		49.76		70.84
108	Oct. 4	Cash: gas, entertain., laundry		45.00		25.84
-	Oct. 5	Eva's salary			$450.91	$476.75

From this information, prepare a bank reconciliation for the Campbells as of October 5, 2015, using a form like the one in Worksheet 4.1. Enter all answers as positive values. Leave no cell blank, enter "0" wherever required. Round the answers to the nearest cent. Enter your answers in the given order of Check numbers.

CHECKING ACCOUNT RECONCILIATION

For the Month of October, 2015

Accountholder Name(s): Caleb and Eva Campbell

Type of Account: Checking Account - American Bank

1.

Ending balance shown on bank statement

$

Add up checks and withdrawals still outstanding:

Check Number or Date	Amount	Check Number or Date	Amount
	$
	$
	$
TOTAL			$

2.

Deduct total checks/withdrawals still outstanding from bank balance

-

$

Add up deposits still outstanding:

Date	Amount	Date	Amount
10/5/15	$
TOTAL			$

3.

Add total deposits still outstanding to bank balance

+

$

A.

Adjusted Bank Balance

$

4.

Ending balance shown in checkbook

$

5.

Deduct any bank service charges for the period

-

$

6.

Add interest earned for the period

+

$

B.

New Checkbook Balance

$

Note: Your account is reconciled when line A equals line B.

Given the new checkbook balance calculated under Question 1, determine the net adjustment, if any, adjustments will the Campbells need to make in their checkbook ledger. Enter the answers as positive value. Round the answer to the nearest cent. $

If the Campbells earned interest on their idle balances because the account is a money market deposit account, what impact would this have on the reconciliation process? The effect of the interest earnings would have been a(n) increase in both bank and checkbook balances. Explain.

Chapter 4 Critical Thinking Case 1 June Xu's Savings and Banking Plans

June Xu is a registered nurse who earns $3,250 per month after taxes. She has been reviewing her savings strategies and current banking arrangements to determine if she should make any changes. June has a regular checking account that charges her a flat fee per month, writes an average of 18 checks a month, and carries an average balance of $795 (although it has fallen below $750 during 3 months of the past year). Her only other account is a money market deposit account with a balance of $4,250. She tries to make regular monthly deposits of $50-$100 into her money market account but has done so only about every other month.

Of the many checking accounts June's bank offers, here are the three that best suit her needs.

Regular checking, per-item plan: Service charge of $2 per month plus 40 cents per check.

Regular checking, flat-fee plan (the one June currently has): Monthly fee of $6 regardless of how many checks written. With either of these regular checking accounts, she can avoid any charges by keeping a minimum daily balance of $750.

Interest checking: Monthly service charge of $8; interest of 3%, compounded daily (refer to Exhibit 4.8). With a minimum balance of $1,500, the monthly charge is waived.

June's bank also offers CDs for a minimum deposit of $500; the current annual interest rates are 3.5% for 6 months, 3.75% for 1 year, and 4% for 2 years.

Calculate the annual cost of each of the three accounts, assuming that June's banking habits remain the same. Round the answers to the nearest cent. Do not round your intermediate calculations.

Regular checking, per-item plan		$
Regular checking, flat fee plan		$
Interest checking		$

Which plan would you recommend? Regular checking, flat fee plan

Should June consider opening the interest checking account and increasing her minimum balance to at least $1,500 to avoid service charges? Yes

What other advice would you give June about her checking account and savings strategy?

Chapter 4 Financial Planning Exercise 6 Checking account reconciliation

Use Worksheet 4.1. Carlos Perez has a NOW account at the First State Bank. His checkbook ledger lists the following checks:

Check Numbers	Amount
654	$206.05
658	55.18
662	103.00
668	99.06
670	6.09
671	50.43
672	24.90
673	32.14
674	44.50
675	30.00
676	30.00
677	111.23
678	38.04
679	97.99
680	486.89
681	43.50
682	74.97
683	98.56

Carlos also made the following withdrawals and deposits at an ATM near his home:

Date		Amount		Transaction
11/1		$50.00		withdrawal
11/2		$525.60		deposit
11/6		$100.00		deposit
11/14		$75.00		withdrawal
11/21		$525.83		deposit
11/24		$150.00		withdrawal
11/27		$225.00		withdrawal
11/30		$400.57		deposit

Carlos' checkbook ledger shows an ending balance of $286.54. He has just received his bank statement for the month of November. It shows an ending balance of $622.44; it also shows that he earned interest for November of $3.98, had a check service charge of $8 for the month, and had another $12 charge for a returned check. His bank statement indicates the following checks have cleared: 654, 662, 672, 674, 675, 676, 677, 678, 679, and 681. ATM withdrawals on 11/1 and 11/14 and deposits on 11/2 and 11/6 have cleared; no other checks or ATM activities are listed on his statement, so anything remaining should be treated as outstanding. Use a checking account reconciliation form like the one in Worksheet 4.1 to reconcile Carlos' checking account. Round your answers to the nearest cent. Enter all answers as positive values. Enter your answers in the given order of Check numbers.

CHECKING ACCOUNT RECONCILIATION

For the Month of November, 2015

Accountholder Name(s): Carlos Perez

Type of Account: NOW Account - First State Bank

1.

Ending balance shown on bank statement

$

Add up checks and withdrawals still outstanding:

Check Number or Date	Amount
	$
	$
	$
	$
	$
	$
	$
	$
ATM 11-24	$
ATM 11-27	$
TOTAL	$

2.

Deduct total checks/withdrawals still outstanding from bank balance

-

$

Add up deposits still outstanding:

Date	Amount
11/21/15	$
11/30/15	$
TOTAL	$

3.

Add total deposits still outstanding to bank balance

+

$

A.

Adjusted Bank Balance

$

4.

Ending balance shown in checkbook

$

5.

Deduct any bank service charges for the period

-

$

6.

Add interest earned for the period

+

$

B.

New Checkbook Balance

$

Note: Your account is reconciled when line A equals line B.

Chapter 4

Financial Planning Exercise 5 Calculating the net costs of checking accounts

Determine the annual net cost of these checking accounts. A "-" sign must precede any negative net cost answers. Round your intermediate calculations to two decimal places.

Monthly fee $6, check-processing fee of 20 cents, average of 30 checks written per month. Round the answer to the nearest cent. $

Annual interest of 3.5% paid if balance exceeds $600, $8 monthly fee if account falls below minimum balance, average monthly balance $650, account falls below $600 during 4 months. Round the answer to the nearest cent. $