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chapter 6
Cash and
Highly-Liquid Investments
goals discussion
goals
achievement
fill
in the blanks multiple
choice
problems
check list and key terms
Select the appropriate response.
1. The Cash account on the balance sheet should not include which of the following items?
a. Travel
advances to employees
b. Currency
c. Money orders
d. Deposits in transit
2. A credit memorandum accompanying a bank statement would occur for which of the following items?
a. A
previously deposited customer check which was returned NSF.
b. Bank service charges for the month.
c. The proceeds of a note collected by
the bank are deposited to the account.
d. Each of the above.
3. When reconciling the ending cash balance per the bank statement to the correct adjusted cash balance, how would deposits in transit be handled?
a. Added
to the balance per the bank statement.
b. Subtracted from the balance per the
bank statement.
c. Added to the balance per company records.
d. Ignored.
4. A bank reconciliation sometimes points to the need for adjusting entries. In general, the source of the adjustments is:
a. the
reconciliation of the ending balance per the bank statement to the adjusted cash
balance.
b. the reconciliation of the cash balance
per the company records to the adjusted cash balance.
c. both a and b.
d. none of the above.
5. Malory Company provides the following information about the month-end bank reconciliation:
| Ending cash per bank statement | $1,367 |
| Ending cash per company records | 7,383 |
| Monthly bank service charge | 25 |
| Deposits in transit at month-end | 8,345 |
| Outstanding checks at month-end | 2,399 |
| Customer check returned NSF | 45 |
The correct ending cash balance is:
a.
$4,914
b. $7,268
c. $7,313
d. $7,383
6. Malory Company provides the following information about the month-end bank reconciliation:
| Ending cash per bank statement | $1,367 |
| Ending cash per company records | 7,383 |
| Monthly bank service charge | 25 |
| Deposits in transit at month-end | 8,345 |
| Outstanding checks at month-end | 2,399 |
| Customer check returned NSF | 45 |
What journal entry should be recorded to cause the company records to be correct?
a.
Cash
70
Cash Short &
Over
70
b.
Miscellaneous
Expense
70
Cash
70
c.
Miscellaneous
Expense
25
Accounts
Receivable
45
Cash
70
d.
Miscellaneous Expense 2,399
Cash
2,399
7. When using a petty cash system, the replenishment of the fund would normally include a debit to:
a. Cash.
b. Petty Cash.
c. Revenues.
d. None of the above.
8. The trading securities owned by a company are:
a.
reported on the balance sheet as a current asset.
b. reported on the balance sheet as a
noncurrent asset.
c. reported on the balance sheet as a contra-equity account.
d. reported on the balance sheet as a reduction of liabilities.
9. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. What amount should be reported as a charge against income in Lenton's income statement for the first year of operation?
a. $0
b. $10,000
c. $20,000
d. $30,000
10. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. The journal entry to record the decline in market value would include:
a. a debit
to Unrealized Loss on Trading Securities.
b. a credit to Unrealized Gain on
Trading Securities.
c. a debit to Trading Securities.
d. At least two of the above.
1. a. Travel advances to employees are really a nontrade receivable -- the employee either has to return the money or provide an accounting to indicate how the money was spent. Currency and money orders are both cash because they are acceptable to a bank for deposit and can be used to satisfy debts. Deposits in transit are cash; the bank simply has not posted the deposit to a specific account.
2. c. A credit memorandum issued by a bank indicates that a bank account has been increased. Of the noted items, only answer "c" relates to a transaction which increases cash.
3. a. Deposits in transit must be added to the balance per the bank statement. These are amounts of cash which belong to the company, but which have not as yet been recorded by the bank. The balance per company records should already include these amounts, so answer "c" is incorrect.
4. b. The cash balance per company records is the amount of cash in the general ledger account before the reconciliation. The correct amount of cash actually possessed by the firm is the adjusted cash balance, per the reconciliation. Logically, the reconciliation of the cash balance per company records to the correct amount of cash points to the need for a journal entry to update the Cash account.
5. c. The correct ending cash balance is $7,313:
| Ending balance per bank statement | $1,367 |
| Add: Deposits in transit | 8,345 |
| Deduct: Outstanding checks | (2,399) |
| Adjusted cash balance: bank | $7,313 |
| Ending balance per company records | $7,383 |
|
Deduct: NSF Check -- 45 Service charge -- 25 |
(70) |
| Adjusted cash balance: company records | $7,313 |
6. c. The correct entry is based on the reconciliation of the ending cash balance per company records to the adjusted cash balance:
|
45 |
||||
|
25 |
||||
|
70 |
||||
| To record adjustments necessitated by bank reconciliation |
7. d. Various expense accounts are debited and Cash is credited.
8. a. Trading securities are normally reported as current assets.
9. b. Aggregate cost equals $111,000 ($50,000 + $35,000 + $26,000). Aggregate market value equals $101,000 ($60,000 + $17,000 + $24,000). The $10,000 difference is a decline which is reported as an unrealized loss.
10. a. The appropriate entry is to debit Unrealized Loss on Trading Securities and credit Trading Securities for $10,000. Choice "a" is the only correct choice.