Cash and Receivables

Which of the following items would be added to the book balance on a bank reconciliation?
c.Interest paid by the bank
Which of these is NOT one of the most common reasons for differences between the bank
cash balance and the book cash balance?
d.All of these are common reasons
Customers who do NOT pay for the merchandise that they bought on credit are referred to
as
a.bad debts.
On October 1, Mark's Car Service borrows €900,000 from First Bank on a 3-month,
€900,000, 10% notes. What entry must Mark's Car Service make on December 31 before
financial statements are prepared?
d.
Interest Expense 22,500
Interest Payable 22,500
The interest charged on a $240,000,000 note payable, at the rate of 6%, on a 90-day note
would be
a.$3,600,000
Chilly Company issued a four-year interest-bearing note payable for €800,000 on January
1, 2011. Each January the company is required to pay €200,000 on the note. How will this
note be reported on the December 31, 2012 statement of financial position?
a.Long-term debt, €600,000; Long-term debt due within one year, €200,000.
b.Long-term debt, €400,000; Long-term debt due within one year, €200,000.
c.Long-term debt, €800,000.
d.Long-term debt, €400,000.
Dana Company's December 31, 2012, financial statements showed the following:
Sales revenue $750,000
Average receivables 125,000
Cost of goods sold 555,000
Average inventory 215,000
Net income 105,000
Average total assets 1,220,000
Given the information above, Dana Company's average collection period (rounded) for
2012 was
c.61 days
A U.S. company makes a sale to a Brazilian company for 10,000 reals on March 15. The
Brazilian company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S. company
will record the sale on March 15 as
b.$5,290
Control of Cash
Listed below are five procedures followed by Alpha Corporation related with cash.
1
Payments are paid with checks numbered randomly.
.
2
A bank reconciliation is prepared monthly.
.
3 Anita writes checks and also records cash payment journal entries.
.
4 Total cash receipts are compared to bank deposits daily by someone who has no other cash

. responsibilities.
5
Jacob, the controller, deposits all cash receipt in banks daily.
.
Indicate whether each procedure is an example of good internal control or of weak internal
control. If it is an example of good internal control, indicate which internal control
procedure is being followed. If it is an example of weak internal control, indicate which
internal control procedure is violated.
IC Strength
or
Procedure Related Internal Control Procedures
Weakness
1. Weakness Payment of all expenditures by prenumbered checks
2. Strength Preparing a bank reconciliation regularly
Separation of duties in handling of cash and
3. Weakness
accounting or cash
4. Weakness Daily deposit all cash receipts in banks
5. Strength Daily deposit all cash receipts in banks
Sales Discounts is which type of account?

d.Contra-revenue
Internal Control of Cash

Sargent Company is a medium-sized merchandising firm. Below are the company's internal
control procedures of cash.
a. The founder's sister serves as an accountant and a cashier as well.
The company pays for operating activities by checks except for small amount
b.
payments.
c. The company prepares bank reconciliation semiannually.
Cash receipts are not deposited to banks until next morning because the cashier is too
d.
busy.
Each and every payment must be approved according to the company's line of
e.
authority.
a. A medium-sized firm appoints the founder's sister as the accountant as well as cashier
of the company. Indicate the weakness or violation if any?
(a) There is no weakness or violation. The role of the accountant and cashier can be
performed by the same individual. This in fact increases the accountabilty of the
founder.
(b) The role of the accountant and cashier cannot be performed by the same individual.

It violates the principle of segregation of duties.
(c) The role of the accountant should not be related to the founder of the organization.

There is conflict of interest.
(d) None of the above.
(b)
b. A medium-sized firm prepares a bank reconciliation statement semiannually. Indicate

the weakness or violation if any?
(a) The errors in the transactions can be detected early.
(b) The possibility of errors can be minimized and controlled if it is prepared

semiannually.
(c) Error detection is not possible and the statement needs to be prepared monthly.
(d) The statements can even be reconciled every year.
(a)
c. A medium-sized firm deposits the cash receipts to the bank on the next day of the
transaction. Indicate the weakness or violation if any?
(a) The possibility of theft is quite high, and it is risky to deposit the cash on the next

day.
(b) The decision to deposit the cash next day does not indicate any weakness but is a

procedure laid out and followed by the firm and works in their favor.
(c) The deposit of cash requires the approval of the owner, which is causing delay in

deposits.
(d) Cash should always be deposited the next day after recounting and checking next

morning.
(d)
Bank Reconciliation
Shiller Company received a bank statement showing the account balance $268,500, which is different
from the amount shown in Shiller’s general ledger. The following events account for the discrepancy
between the balance per books and the balance per bank statement:
1. Deposit in transit $38,500
2. Outstanding checks $40,000
3. Bank charge for collecting notes receivable $8,400
4. Other bank charges $550
What should be the correct account balance as of the end of November?
$ 190,000 267000
On October 1, Mark's Car Service borrows €900,000 from First Bank on a 3-month,
€900,000, 10% notes. The entry by Mark's Car Service to record payment of the note and
accrued interest on January 1 is
a.
Notes Payable 900,000
Cash 922,500
b.
Cash 922,500
c.
Cash 990,000
d.
Cash 922,500
Following are the account balances from the December 31 trial balance of Lark Company:
Accounts Receivable $60,000
Allowance for Bad Debts 2,400 (dr)
Sales Revenue 405,000
Sales Returns and Allowances 15,000
If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to
record the estimate of bad debts would include a debit to Bad Debt Expense for
a.$8,400
b.$6,000
c.$6,240
d.$3,600
Investing in stocks or bonds of another company is a(n)

b.investing activity.
Assume the following facts for Erich Company: the month-end bank statement shows a
balance of $27,200; outstanding checks totaled $2,000; a deposit of $8,000 is in transit at
month-end; and a check for $400 was erroneously charged against the account by the
bank. What is the correct cash balance at the end of the month?
a.$33,600
The direct write-off method of accounting for bad debts

d.often fails to match bad debt losses with sales for the same period.
Which of the following accounts would normally be found on the statement of

comprehensive income?
d.Sales Discounts
Cash Fraud
Mac Faber was the controller of the Lewiston National Bank. In his position as controller, he was in
charge of all accounting functions. He wrote cashier’s checks for the bank and reconciled the bank
statements. He alone could approve exceptions to credit limits for bank customers, and even the
internal auditors reported to him. Unknown to the bank, Mac had recently divorced and was
supporting two households. In addition, many of his personal investments had soured, including a
major farm implement dealership that had lost $40,000 in the last year. Several months after Mac had
left the bank for another job, it was discovered that a vendor had paid twice and that the second
payment had been deposited in Mac’s personal account. Because Mac was not there to cover his
tracks (as he had been on previous occasions), an investigation ensued. It was determined that Mac
had used his position in the bank to steal $117,000 over a period of two years. Mac was prosecuted
and sentenced to 30 months in a federal penitentiary.
Required:
1-a. In a bank, a person who is in charge of the accounting function used a cashier’s check to reconcile
the statement. Identify the internal control weakness in the given situation.
a. The bank lacks segregation of duties.
b. The cash bank and passbook can be reconciled using any method.
c. The process of issuing a cashier's check for reconciling the statement is an accepted
accounting practice, so there is no internal control weakness.
d. None of the above.
a.
1-b. In a bank, a person who is in charge of the accounting function had powers to
approve exceptions to credit limit for bank customers and internal auditors reported to
him. Does this indicate any violation or internal control weakness.
a. No, This does not indicate any weakness or violation as long as the owners of the
bank approve of it.
b. It is unfair that each category of customers gets different credit limits.
c. It is risky and leads to approval of extremely high outstanding personal loans and
credit balance and the internal auditors cannot independently report such weakness
due to the reporting structure.
d. Due to single control, the efficiency of recovery of loans and credits may be high.
c.
1-c. In a bank, the internal auditor and accountant are the same. Does this indicate any violation of
internal control procedures.
a. The audit committee and auditors should not report to the accountant but should
report to a subset of board of directors to avoid conflict of interest and free and fair
reporting.
b. The internal auditor and accountant should be the same person, this indicates a
robust internal control procedure.
c. The flow of work from recording to auditing will happen simultaneously and can help
in cutting costs.
d. None of the above.
a.
2. In a bank, the accountant commits lots of fraud in handling the cash, and it is found that personal
financial pressure led him into such activities. Does this indicate a violation or weakness of the
internal control system.
a. Due to personal pressure, he is just borrowing money from his work place. There is no violation.
b. His acts are unethical and legally punishable. Yes there is a violation.
c. It is ethical to use office funds for personal use as long as interest is paid on the sums of money
taken.
d. Paying a fine and settling the stolen cash reduce the risk of punishment.
b.
On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a 4-

month, $300,000, 5% note. What entry must Ray’s Cleaning Service make on December
31 before financial statements are prepared?
a.
Petty Cash Fund

At the beginning of this month, Friedman Company established a petty cash fund with the amount of
$10,000. At the end of this month, it was found that the balance of this fund was $490, but the
documents to support the payments for stamps were lost:
1. Utilities expenses $4,400
2. Office supplies expenses $1,810
3. Taxi and transportation expenses $2,050
4. Stamp expenses?
Assuming that the balance of the petty cash fund is correct, what is the amount for the stamp
expenses?
$ 1250
For each of the business activities listed below, state whether it is an operating, an
investing or a financing activity.
a. Purchasing equipment Investing
b. Selling stock Financing
c. Purchasing inventory for resale Operating
d. Paying utility bills Operating
e. Borrowing money from a bank Financing
f. Purchasing land Investing
g. Selling goods for a profit Operating
h. Buying stock from another company Financing
i. Paying salaries to employees Operating
j. Performing services in a service company Operating
You have just analyzed customers' accounts receivable through an "aging" process and
have determined that $3,000 of the accounts receivable are probably uncollectible. Noting
that your trial balance shows an Allowance for Bad Debts with a debit balance of $100,
what is the correct adjusting entry?
a.
Bad Debt Expense 2,900
Allowance for Bad Debts 2,900
b.
c.
d.
Payment for Various Expenses

Assume that HTC Corporation had the following transactions in July: paid one year
insurance of NT$36,000 on July 1 for their managers; paid the rent of the office
NT$100,000 for July on July 1; purchase office stationery for NT$1,500 on July 5; paid
wages NT$1,000,000 of June on July 10.
Record the entries needed in July. If an amount box does not require an entry, leave it
blank.
July 1 Prepaid Insurance 36,000
Prepaid Rent 100,000
Cash 136,000
July 5 Miscellaneous Expense 1,500

Cash 1,500
July 10 Wages Payable 1,000,000

Cash 1,000,000
July 31 ...
...
July 31 ...
.. …
The difference between gross sales and net sales is

b.sales discounts and sales returns and allowances.
NYU City Bank agrees to lend Givens Adam's Company ¥800,000 on January 1. Givens
Adam's Company signs a ¥800,000, 4%, 9-month note. The entry made by Givens Adam's
Company on January 1 to record the proceeds and issuance of the note is
a.
Cash 800,000
b.
Cash 800,000
c.
Expense 24,000
Cash 776,000
d.
Cash 800,000
Which type of the major activities of a business are best described as those events involve
the purchase of assets for use in the business?
a.Investing activities
On January 1, 2017, Hill Company, a calendar-year company, issued $5,000,000 of notes

payable, of which $800,000 is due on January 1 for each of the next four years. The
proper statement of financial position presentation on December 31, 2017, is
d.Current Liabilities, $800,000; Non-current Liabilities, $4,200,000.
The interest charged on a $800,000,000 note payable, at the rate of 6%, on a 2-month
note would be
d.$8,000,000
Allowance for Bad Debts is an example of a(n)

a.contra account.
Ward Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.
No. of Days Probability
Amount
Outstanding of Collection
0-31 days $500,000 0.98
31-60 days 200,000 0.90
Over 60 days 100,000 0.80
The following additional information is available for the current year:
Net credit sales for the year $4,000,000
Allowance for bad debts:
Balance, January 1 45,000 (cr.)
Balance before adjustment, December 31 2,000 (cr.)
If Ward bases its estimate of bad debts on the aging of accounts receivable, Bad Debt
Expense for the current year ending December 31 is
b.$48,000
When the allowance method is used to account for uncollectible accounts, the net amount
of accounts receivable
a.increases when an account is written off as uncollectible.
b.decreases when an account is written off as uncollectible.
c.stays the same when an account is written off as uncollectible.
d.is sometimes increased and sometimes decreased when an account is written off as
uncollectible.
Raven Company had the following account balances Sales Revenue, $100,000; Sales
Returns and Allowances, $2,400; Sales Discounts, 2,400; and Bad Debts, $400. Given
these balances, the amount of net sales is
c.$95,200
The direct write-off method

b.is only acceptable if bad debts are small, insignificant amounts.
Journalizing Entries from a Bank Reconciliation

Shiller Company received a bank statement showing the account balance $268,500, which
is different from the amount shown in Shiller’s general ledger. The following events
account for the discrepancy between the balance per books and the balance per bank
statement:
Prepare the journal entries to adjust to the correct balance. If an amount box does not
require an entry, leave it blank.
Cash
Accounts
Receivable
Determining Where the Cash Went

Kim Lee, the bookkeeper for Briton Company, had never missed a day’s work for the past
10 years until last week. Since that time, he has not been located. You now suspect that
Kim may have embezzled money from the company. The following bank reconciliation,
prepared by Kim last month, is available to help you determine if a theft occurred:
Briton Company
Bank Reconciliation for August 2017
Prepared by Kim Lee
Balance per bank statement $192,056 Balance per books $169,598
Additions to bank balance: Additions to book balance:
Deposits in transit 8,000 Note collected by bank 250
Interest earned 600
Deductions from bank Deductions from book
balance: balance:
Outstanding checks: NSF check (1,800)
#201 (19,200) Bank service charges (48)
#204 (5,000)
#205 (4,058)
#295 (195)
#565 (1,920)
#567 (615)
#568 (468)
Adjusted bank balance $168,600 Adjusted book balance $168,600
In examining the bank reconciliation, you decide to review canceled checks returned by
the bank. You find that check stubs for check nos. 201, 204, 205, and 295 indicate that
these checks were supposedly voided when written. All other bank reconciliation data have
been verified as correct.
1. Compute the amount suspected stolen by Kim.
$ 28,453
2.a. A bookkeeper of the company accounted for the money stolen by him as outstanding
checks. The book keeping and reconciling of the account was taken care of by the same
person. Identify the weakness or violation.
(a) This is an inherent weakness and it is not possible to detect the error.
(b) There is no violation or weakness of internal control here. The bookkeeper has

borrowed the money and will return it by end of the accounting period.
(c) Such situations can be avoided by plugging the loopholes of the internal control
system. There should be segregation of duties. Book keeping and reconciling should
not be done by the same person.
(c)
2.b. A bookkeeper of the company has the responsibility of both recording and reconciling
the transactions.Identify the internal control weakness or violation if any?
(a) The chance of frauds is much higher when there is lack of segregation of duties.
(b) This method is cost effective and chances of detecting errors is enhanced when both

recording and reconciliation is handled by the same person.
(c) Rework can be avoided as the recording and reconciliation can be done

simultaneously.
(a)
The journal entry

Accounts Receivable xxx
Allowance for Bad Debts xxx
would be made when
a.estimated uncollectible receivables are too low.
b.a previously defaulted customer pays the outstanding balance.
c.a customer pays the account balance.
d.a customer defaults on the account.
Abbott Company wrote a check for $660, but recorded it in the accounting records as
$606. This error would require an adjustment on the bank reconciliation of
a.deducting $54 from the balance per the bank statement.
b.adding $54 to the balance per the books.
c.adding $54 to the balance per the bank statement.
d.deducting $54 from the balance per the books.
Charles Company sells foods wholesale. On May 15, Edwards sold 400 cases of beans to
Robin Company for $8 per case with terms of 2/10, n/30. On May 25, Robin Company paid
Charles the full amount due. Given these data, the entry to record the sale of beans on
May 15 would include a
d.Debit to Accounts Receivable of $3,200
Alco Corporation's accountant wrote a check to a supplier for $15,000. He then wrote
himself a check for $5,000. For the first check he deducted $15,000 from the books, for
the second check he wrote "void" in the check register. How would the accountant conceal
his theft on the bank reconciliation?
a.Understate NSF checks
b.Overstate deposits in transit
c.Overstate outstanding checks
d.Understate outstanding checks
On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-

bearing note. If Ursula Company is preparing financial statements at December 31, 2015,
the adjusting entry for accrued interest will include a
b.Debit to Interest Expense of $1,250.
Bank Reconciliation
Shiller Company received a bank statement showing the account balance $268,500, which
is different from the amount shown in Shiller’s general ledger. The following events
account for the discrepancy between the balance per books and the balance per bank
statement:
What would be the account balance according to Shiller's general ledger?
$ 275,950
Which of the following factors are used to compute the average collection period of
accounts receivable?
d.Accounts receivable turnover and 365 days
The following information is available for Bridges Company:

Bridges Company
Partial Balance Sheet
December 31, 2017 and 2016
2017 2016
Accounts receivable $500,000 $470,000
Allowance for bad debts (25,000) (20,000)
Net accounts receivable $475,000 $450,000
Inventories at lower of cost or market $600,000 $550,000

Bridges Company
Partial Statement of Comprehensive Income
For the Years Ended December 31, 2017 and 2016
2017 2016
Net credit sales $2,500,000 $2,200,000
Net cash sales 500,000 400,000
Net sales $3,000,000 $2,600,000
Cost of goods sold $2,000,000 $1,800,000
Selling, general, and administrative expenses 300,000 270,000
Other expenses 50,000 30,000
Total operating expenses $2,350,000 $2,100,000
The accounts receivable turnover for 2017 is computed as follows:

a.$3,000,000 ÷ $485,000
b.$3,000,000 ÷ $462,500
c.$2,500,000 ÷ $475,000
d.$2,500,000 ÷ $462,500
For the month of December, the records of Scrooge Corporation show the following
information:
Cash received on accounts receivable $45,000
Cash sales 30,000
Accounts receivable, December 1 80,000
Accounts receivable, December 31 75,000
Accounts receivable written off 2,000
The corporation uses the direct write-off method in accounting for uncollectible accounts
receivable. What are the gross sales for the month of December?
d.$72,000
If a company's accounts receivable turnover ratio is 8.0 times, cost of goods sold is
$360,000, and sales revenue is $480,000, the average accounts receivable balance must
have been
b.$60,000
Wilbur Company's monthly bank statement showed an ending balance of $36,928. The
bank reconciliation included a deposit in transit, $3,274; outstanding checks, $4,340; an
"NSF" check, $1,576; a bank service charge, $50; and proceeds of a customer's note
collected by the bank, $4,600. The correct cash balance at the end of the month is
d.$35,862
When the direct write-off method of recognizing bad debt expense is used, which of the
following accounts would NOT be used?
a.Allowance for bad debts
b.Accounts receivable
c.Bad debt expense
d.All of these accounts are used in the direct write-off method
Which type of the major activities of a business are best described as those events that
raise money by means other than operations?
b.Financing activities
Bad Debt Expense is classified as a(n)
a.administrative expense.
b.cost of sales expense.
c.other expense.
d.selling expense.
The two methods of accounting for bad debts are the direct write-off method and the
allowance method. When comparing the two, which of the following is true?
a. The direct write-off method requires two separate entries to write off an
uncollectible account
b. The direct write-off method is exact and also better illustrates the matching
principle
c. The allowance method is less exact but it better illustrates the matching principle
d. The direct write-off method is theoretically superior
Classifying Major Business Activities

Classify each of the following business activities as an operating, an investing, or a
financing activity.
Business Activity Type of Activity
a. Acquiring inventory for resale Operating
b. Buying and selling stocks and bonds of other companies Investing
c. Selling shares of stock to investors for cash Financing
d. Selling products or services Operating
e. Buying property, plant, or equipment Investing
f. Acquiring and paying for other operating items Operating
g. Selling property, plant, or equipment Investing
h. Borrowing cash from creditors Financing
On December 31, 2012, Seau Inc.'s financial statements showed the following:
Average accounts receivable 24,000
Net income 12,600
Total assets 1,128,000
Given the information above and assuming a 365-day business year, what was Seau's
average collection period (rounded) during 2012?
c.49 days
Journal Entries from a Bank Reconciliation

Company G received a bank statement at the end of the month. The statement contained
the following.
Ending balance $61,000
Bank service charge for the month 275
Interest earned and added by the bank to the account balance 195
In comparing the bank statement to its own cash records, the company found the
following:
Deposits made but not yet recorded by the bank $14,300
Checks written and mailed but not yet recorded by the bank 26,700
Before making any adjustments suggested by the bank statement, the cash balance
according to the books is $48,680.
Record all journal entries necessary on the company’s books to adjust the reported cash
balance in response to the receipt of the bank statement. If an amount box does not
Cash ??
?? ??
?? ??
?? ??
When a specific customer's account is written off by a company using the allowance
method, the effect on net income and the net realizable value of the accounts receivable is
Net Income Net Realizable Value of Accounts Receivable
a.
None None
b.
Decrease Decrease
c.
Increase Increase
d.
Decrease None
NYU City Bank agrees to lend Adam’s Company ¥800,000 on January 1. Givens Adam’s
Company signs a $800,000, 4%, 9-month note. What entry will Givens Adam’s Company
make to pay off the note and interest at maturity assuming that interest has been accrued
to September 30?
a.

Cash 824,000
b.

Cash 824,000
c.

Cash 824,000
d.

Cash 824,000
Classification of Business Activities

Lucas Company had the following transactions in March:
a. Purchasing inventory on account
b. Borrowing cash from a bank
c. Cash sales of merchandise
d. Disposal of a truck
e. Paying employees’ salaries
1. Classify each of the above transactions as an operating, investing or financing activity.
a. Operating activity
b. Financing activity
c. Operating activity
d. Investing activity
e. Operating activity
2. Which of the above transactions has an immediate effect on cash balance of Lucas Company?
Cash sales of merchandise
When reconciling a bank statement, direct deposits are

c.added to the balance per the books.
Bank Reconciliation and Journal Entries

Thaler Company received a bank statement showing the account balance $388,500 as of
the end of December. The following events account for the discrepancy between the
balance per books and the balance per bank statement:
3. NSF $15,000
1. What would be the account balance according to Thaler’s general ledger?
$ …. 387,000?
2. Prepare journal entries to adjust to the correct balance. If an amount box does not
….
Selling additional shares of stock is a(n)

a.financing activity.
During the month, Wilson received a $1,200 check from Richard for the purchase of his
1994 Ford. Wilson deposited the check in his bank account. At the end of the month,
Wilson received his monthly bank statement along with Richard's check returned and
marked "NSF." What should Wilson do when reconciling his bank statement?
a.Subtract $1,200 from the cash balance per the books
b.Subtract $1,200 from the cash balance per the bank statement
c.Add $1,200 to the cash balance per the books
d.Add $1,200 to the cash balance per the bank statement
Jones Company, a customer, has been authorized to return $1,000 of goods purchased on
account. The journal entry to record this transaction is
b.

Accounts Receivable 1,000
1. Cash per the accounting records at January 31 amounted to $228,909; the bank
statement on this same date showed a balance of $204,008.
2. The canceled checks returned by the bank included a check written by DeVoe Company
for $6,987 that had been deducted from Benson’s account in error.
3. Deposits in transit as of January 31, 2017, amounted to $33,442.

4. The following amounts were adjustments to Benson Company’s account on the bank
statement:
a. Service charges of $64.
b. An NSF check of $4,100.
c. Interest earned on the account, $110.
5. Checks written by Benson Company that have not yet cleared the bank include four
checks totaling $19,582.
Prepare a bank reconciliation for Benson Company at January 31, 2017, using the
information shown above.
Benson Company
Bank Reconciliation
January 31, 2017
Balance per Bank Statement $ 204,008
Additions to Bank Balance:
Check in Error 6,987
Deposits in Transit 33,442
Total $ 244,437
Deductions from Bank
Balance:
Outstanding Checks 19,582
Adjusted Bank Balance $ 224,855
Balance per Books $ 228,909

Additions to Book Balance:
Interest Earned 110
Total $ 229,019
Deductions from Book
Balance:
Service Charges 64
NSF Check 4,100
Adjusted Book Balance $ 224,855
Reconciling Book and Bank Balances

Jensen Company has just received the September 30, 2017, bank statement summarized
in the following schedule:
Charges Deposits Balance
Balance, September 1 $5,100
Deposits recorded during September $27,000 32,100
Checks cleared during September $27,300 4,800
NSF check, J. J. Jones 50 4,750
Bank service charges 10 4,740
Balance, September 30 4,740
Cash on hand (recorded on Jensen’s books but not deposited) on September 1 and
September 30 amounted to $200. There were no deposits in transit or checks outstanding
at September 1, 2017. The cash account for September reflected the following:
Cash
Sept. 1 Balance 5,300 Sept. Checks 28,000
Sept. Deposits 29,500
Answer the following questions. (Hint: It may be helpful to prepare a complete bank
reconciliation. If an amount box does not require an entry, leave it blank.)
1 What is the ending balance per the cash account before adjustments?
$ 6,800
2. What adjustments should be added to the depositor’s books?
$ 4,870
3. What is the total amount of the deductions from the depositor’s books?
$ 60
4. What is the total amount to be added to the bank’s balance?
$ 27,000
5. What is the total amount to be deducted from the bank’s balance?
$ 27,300
The ratio that is an attempt to determine how many times, in a year, a company collects
its receivables is the
a.Inventory turnover
b.Accounts receivable collected
c.Average collection period
d.Accounts receivable turnover
Thorpe Company has prepared the following partial bank reconciliation for January 2017:
Ending balance per bank statement $37,400 Balance per books $38,930
Deposit in transit 6,800 Interest earned ?
Outstanding checks (5,100) Service charge (153)
NSF check (187)
Adjusted balance $39,100 $39,100
Given this information, how much interest was earned? (Assume there are no other
adjustments.)
d.$510
Preparing a Bank Reconciliation

The records of Derma Corporation show the following bank statement information for
December:
1. Bank balance, December 31, 2017, $87,450
2. Service charges for December, $50
3. Rent collected by bank, $1,000
4. Note receivable collected by bank (including $300 interest), $2,300
5. December check returned marked NSF (check was a payment of an account
receivable), $200
6. Bank erroneously reduced Derma’s account for a check written by Dunna Company,
$1,000
7. Cash account balance, December 31, 2017, $81,200
8. Outstanding checks, $9,200
9. Deposits in transit, $5,000
1. Prepare a bank reconciliation for December.
Derma Corporation
Bank Reconciliation
December 31, 2017
Balance per Bank Statement $ 87,450
Additions to Bank Balance:
Deposits in Transit 5,000
Bank Error 1,000
Total $ 93,450
Deductions from Bank Balance:
Outstanding Checks 9,200
Adjusted Bank Balance $ 84,250
Balance per Books $ 81,200

Additions to Book Balance:
Rent Collected 1,000
Note Collected 2,300
Total $ 84,500
Deductions from Book Balance:
Bank Error 200
Service Charges 50
Adjusted Book Balance $ 84,250
2. Prepare the entry to correct the cash account as of December 31, 2017. If an amount
box does not require an entry, leave it blank.
At the end of the month, a company's Cash account indicates a balance of $9,820. Upon
receiving a bank statement, the following amounts are used in the bank reconciliation:
deposit in transit, $2,400; outstanding checks, $926; bank service charge, $28; NSF
check, $425; proceeds of a customer's note collected by the bank, $4,097. Given this
information, what is the corrected Cash balance?
d.$13,464
Using the allowance method, the journal entry required to adjust the accounting records
when an amount is collected that had previously been written off as uncollectible would
probably include a credit to
a.Allowance for Bad Debts.
b.Notes Receivable.
c.Bad Debt Expense.
d.Cash.
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S.
company will receive cash on May 1 of
b.$4,800
Penn Inc. reported an allowance for bad debts of $30,000 (debit) at December 31, before
performing an aging of accounts receivable. As a result of the aging, Penn Inc. determined
that an estimated $52,000 of the December 31, accounts receivable would prove
uncollectible. The adjusting entry required at December 31, would be
a.

b.

c.

d.

Control of Cash
Which one of the following is not an important control associated with cash?
d.The cash balance must never fall below the sum of inventory and accounts
receivable.
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S. company
will record a foreign currency gain (loss) of
a.$490
b.($240)
c.($490)
d.$0
Which of the following statements describe the three most common cash controls that
companies use to safeguard cash?
1. Unification of duties in handling and controlling cash – When the handling of cash is
combined with the recording of cash, it becomes more difficult for theft or errors to
occur. If different employees handle cash and records cash then the cash itself could
be stolen and records falsified to cover up the theft.
2. Weekly deposits of all cash receipts – This control ensures that personal responsibility
for the handling of cash is assigned to the person responsible for making the deposits.
It also prevents that accumulation of large amounts of cash.
3. Payment of all expenditures by prenumbered check – By making payments with
prenumbered checks, payments are well documented. Payments made with pocket
cash are easily forgotten and easily concealed.
a.2 and 3 only
b.2 only
c.3 only
d.1 and 3 only
On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-

bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the
payment of the note on July 1, 2014, will include a
a.Debit to Notes Payable of $13,750.
b.Debit to Interest Payable of $3,750.
c.Debit to Interest Expense of $3,750.
d.Credit to Cash of $100,000.
Petty Cash Fund

Volvo Company established a petty cash fund on June 1, cashing a check for €100. During
June, the petty cash receipts are as followed:
June 4 Stamp inventory, €10
15 Miscellaneous expense, €15
20 Freight-out, €20
28 Office supplies, €8
The fund was replenished on June 30, and the fund contained €45. On July 1, the company
decided to increase the amount of the fund to €120.
Prepare journal entries to record transactions during June 1 to July 1. If an amount box
does not require an entry, leave it blank.
June 1 Petty Cash 100
Cash 100
June 30 Postage Expense 10

Miscellaneous Expense 15
Freight-out 20
Cash
... dr
... cr
July 1 Petty Cash dr

Cash cr
Fluctuations between the sale date and the settlement date of a foreign currency
transaction are
c.recognized as exchange gains or losses.
On December 31, 2012, Seau Inc.'s financial statements showed the following:
Average accounts receivable 24,000
Net income 12,600
Total assets 1,128,000
Given the information above and assuming a 365-day business year, what was Seau's
accounts receivable turnover during 2012?
b.7.5
On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a 4-

month, $300,000, 5% note. The entry by Ray’s Cleaning Service to record payment of the
note and accrued interest on January 1 is
a.

Cash 305,000
b.

Cash 315,000
c.

Cash 305,000
d.

Cash 305,000
Bank Reconciliation
Company G received a bank statement at the end of the month. The statement contained
the following.
Ending balance $61,000
Bank service charge for the month 275
Interest earned and added by the bank to the account balance 195
In comparing the bank statement to its own cash records, the company found the
following:
Deposits made but not yet recorded by the bank $14,300
Checks written and mailed but not yet recorded by the bank 26,700
Before making any adjustments suggested by the bank statement, the cash balance
according to the books is $48,680.
What is the correct cash balance as of the end of the month?
Which of the following is NOT a cash control procedure?

a.Invest excess cash in high-yielding securities

Milton Company has just received the following monthly bank statement for June 2017.
Date Checks Deposits Balance
June 1 $25,000
June 2 $150 24,850
June 3 $6,000 30,850
June 4 750 30,100
June 5 1,500 28,600
June 7 6,070 22,530
June 9 8,000 30,530
June 10 3,660 26,870
June 11 2,690 24,180
June 12 9,000 33,180
June 13 550 32,630
June 17 7,500 25,130
June 20 5,500 30,630
June 21 650 29,980
June 22 700 29,280
June 23 5,175† 34,455
June 25 1,000 33,455
June 30 60* 33,395
Totals $25,280 $33,675
*Bank service charge
†Note collected, including $175 interest
Data from the cash account of Milton Company for June are as follows:
June 1 balances $20,440
Checks written: Deposits:
June 1 $1,500 June 2 $6,000
4 6,700 5 8,000
6 2,690 10 9,000
8 550 18 5,500
9 7,500 30 6,000
12 650 $34,500
19 700
22 1,000
26 1,100
27 1,360
$23,750
At the end of May, Milton had three checks outstanding for a total of $4,560. All three
checks were processed by the bank during June. There were no deposits outstanding at
the end of May. It was discovered during the reconciliation process that a check for
$6,070, written on June 4 for supplies, was improperly recorded on the books as $6,700.
An analysis and aging of the accounts receivable of Kaiten Company at December 31

revealed the following data:
Accounts receivable $475,000
Allowance for bad debts (before adjustment) 25,000 (cr.)
Accounts Receivable estimated to be uncollectible 32,000
The net realizable value of the accounts receivable at December 31 should be
a.$443,000
Assume that TOTO Corporation had the following transactions in July, 2017: paid one year
insurance of NT$72,000 on July 1 for their managers; paid the rent of the office
NT$200,000 for July on July 1; purchase office stationery for NT$3,000 on July 5; paid
wages NT$2,000,000 of June on July 10.
Record the entries needed in July, 2017. If an amount box does not require an entry, leave
it blank.
Taiwan Bank and Trust agrees to lend the TSC Company €8,000,000 on January 1, 2018.
TSC Company signs a €8,000,000, 4%, 9-month note. What entry will TSC Company make
to pay off the note and interest at maturity assuming that no interest has been accrued
since June 30?
a.

Notes Payable 8,000,000
Cash 8,240,000
b.

Cash 8,240,000
c.

Cash 8,160,000
d.

Cash 8,240,000
The following information is available for Binford Company:

The May 2017 bank statement showed the following:
Balance, May 1 $21,000.00
Canceled checks 13,904.20
Deposits 16,489.65
Interest earned by Binford 28.75
Bank service charge 18.00
Balance, May 31 $23,596.20
Binford Company's cash accounts showed the following for May:

Balance, May 1 $20,971.25
Debits 22,700.60
Credits 22,886.54
Balance, May 31 20,785.31
Outstanding checks totaled $9,100.14.
Deposits in transit totaled $8,000.00.
The bank statement reveals that Binford Company's account has been reduced by $100. The company
had deposited a $100 check from one of its customers, which was subsequently returned to Binford's
bank and marked "Not Sufficient Funds."
The bank collected an $1,800 note for Binford Company. The company was not aware of the
collection until receiving the bank statement.
Prepare a bank reconciliation for May 31, 2017. Round your answers to two decimal places.
Based on the aging of its accounts receivable at December 31, Charman Company
determined that the net realizable value of the receivables at that date is $304,000.
Additional information is as follows:
Accounts receivable at December 31 384,000

Allowance for bad debts at January 1 51,200 (cr.)
Accounts written off as uncollectible during the year 35,200
Charman's Bad Debt Expense for the year ended December 31 is
a.$38,400
Dana Company's December 31, 2012, financial statements showed the following:
Average receivables 125,000
Net income 105,000
Average total assets 1,220,000
Given the information above, Dana Company's accounts receivable turnover ratio for 2012
was
b.6.0
Selling property, plant, and equipment is a(n)

a.investing activity.
b.financing activity.
c.operating activity.
d.revenue activity.
When a U.S. company enters into a credit sales transaction denominated in a foreign
currency, the transaction must be recorded in U.S. dollars. The exchange is measured at
the exchange rate on the
a.date of sale.
In preparing its bank reconciliation for the month of February, Jesse Company has
available the following information:
Balance per bank statement, February 28 $20,025

Deposit in transit, February 28 3,125
Outstanding checks, February 28 2,875
Check erroneously deducted by bank from Jesse's account, 25
February 10
Bank service charges for February 25
What is the corrected cash balance at February 28?

d.$20,300
Mitchell Company has the following information from its records and from the May bank
statement:
Cash balance per books $40,000
Ending cash balance per bank statement 50,000
Deposits made, not received by bank 12,000
Checks written, not processed by bank 20,000
Interest earned on bank account 100
Bank service charge 140
Direct deposit by customer (on account receivable) 2,040
Based on this information prepare a bank reconciliation for May.
Balance per bank $ 50,000 Balance per books $ 40,000

Add: Interest earned on
Add: Deposits in transit 12,000 100
account
Less: Outstanding checks 20,000 Add: Direct deposit 2040
Less: Service charge 140
Adjusted bank balance $ 42,000 Adjusted book balance $42,000
Internal Control Structure

Below are six descriptions of internal control problems. Select the internal control principle
that is most related to the problem described.
1 The person who is authorized to sign checks approves purchase orders for Segregation of

. payment. duties
2 Cash shortages are not discovered because there are no daily cash counts by

. supervisors.
3 The same person opens incoming mail and posts the accounts receivable Segregation of

. subsidiary ledger. duties
4 Adequate
. Some cash payments are not recorded because checks are not prenumbered. documents and
records
5 A clothing store is experiencing a high level of inventory shortages because
. people try on clothing and walk out of the store without paying for the
merchandise.
6 Segregation of
Three people handle cash sales from the same cash register drawer.
. duties
Bank Reconciliation
According to the books of Alexander Company, the cash balance on October 31, 2017 was
$50,000, while the bank statement showed $65,185. After inspection, the company found
that the following events reconcile the difference:
1. NSF $6,000
4. Bank charge $3,300
5. Interest revenue 85
Required:
1. Prepare a bank reconciliation.
NYU City Bank agrees to lend Givens Adam’s Company ¥800,000 on January 1. Givens
Adam’s Company signs a ¥800,000, 4%, 9-month note. What is the adjusting entry
required if Givens Brick Company prepares financial statements on June 30?
c.

Samson Corporation had sales of $1,000,000 during 2012, of which 80 percent were on
credit. On December 31, 2012, Accounts Receivable totaled $80,000 and Allowance for
Bad Debts had a debit balance of $1,200. Given this information, if uncollectible
receivables are estimated to be 3 percent of accounts receivable, the adjusting entry as of
December 31, 2012, to account for bad debts would include a
a.credit to Allowance for Bad Debts of $2,400.
b.debit to Bad Debt Expense of $1,200.
c.debit to Bad Debt Expense of $3,600.
d.debit to Bad Debt Expense of $2,400.
TSC Company signs a €8,000,000, 4%, 9-month note. Assuming that monthly accruals are
not made, what adjusting entry is required if TSC Company prepares financial statements
on June 30?
a.

Buying inventory is an example of a(n)

c.operating activity.
When the allowance method of recognizing bad debt expense is used, the entries at the
time of collection of a small account previously written off would
a.decrease Allowance for Bad Debts.
b.increase Allowance for Bad Debts.
c.increase net income.
d.decrease net income.
The direct write-off method

a.is more precise than the allowance method.
b.is the only acceptable method allowed under generally accepted accounting
principles.
c.results in a better matching of costs with revenues than the allowance method.
d.is used only by large companies.
Based on the aging of its accounts receivable at December 31, Dudikoff Company
determined that the net realizable value of the receivables at that date is $760,000.
Additional information is as follows:
Accounts receivable at December 31 $880,000
Allowance for bad debts at December 31 (unadjusted) 28,000 (cr.)
Dudikoff's Bad Debt Expense for the year ended December 31 is
a.$28,000
b.$80,000
c.$92,000
d.$148,000
Gordie Co. reported an Allowance for Bad Debts of $20,000 (credit) at December 31,
before performing an aging of accounts receivable. As a result of the aging, Gordie
determined that an estimated $28,000 of the December 31, accounts receivable would
prove uncollectible. The adjusting entry required at December 31, would be
a.

b.

c.

d.

Vanilla Company established a petty cash fund on June 1, 2017 cashing a check for €200.
During June, the petty cash receipts are as followed:
June 4 Stamp inventory, €20
15 Miscellaneous expense, €30
20 Freight-out, €40
28 Office supplies, €16
The fund was replenished on June 30, and the fund contained €90. On July 1, the company
decided to increase the amount of the fund to €240.
Prepare journal entries to record transactions during from June 1, 2017 to July 1, 2017. If
an amount box does not require an entry, leave it blank.
Steel Company is a medium-size merchandising firm. Below are the company's internal
control procedures of cash.
1. The founder's sister serves as an accountant and a cashier as well.
2. The company pays for operating activities by checks except for small amount
payments.
3. The company prepares bank reconciliation semi-annually.
4. Cash receipts are not deposited to banks until next morning because the cashier is too
busy.
5. Each and every payment must be approved according to the company's line of
authority.
Which statement(s) above indicate weaknesses in their procedures?
a.1 only
b.1 and 3 only
c.2, 4 and 5 only
d.1, 3 and 4 only
The ratio that shows how long it takes for a company to collect its receivables is the
a.Average collection period
Amy Company sold $8,000 of merchandise to Tory Turnbull with terms 2/10, n/30. If Tory
paid for all of the merchandise within the discount period, the journal entry that Amy will
make to record the collection of cash would include a
c.Debit to Sales Discounts of $160
TSC Company signs a €8,000,000, 4%, 9-month note. The entry made by TSC Company
on January 1 to record the proceeds and issuance of the note is
a.

Cash 8,000,000
b.

Cash 7,776,000
c.
Cash 8,000,000
d.

Cash 8,000,000
Goofy Golf, sells high-quality golf clubs. On May 9, Goofy Golf sold five sets of golf clubs at
a price of $500 each. Each set was sold for $100 cash and the rest on credit. On June 9,
Goofy Golf collected the rest of the cash on the sale. The journal entry to record the
collection of cash on June 9 is
a.
Cash 2,000
Purchases Discounts
Assume that Kingston bookstore decided to buy 150 books at NT$350 per book on April 5.
The credit terms were 2/10, n/30. Kingston paid half the price on April 10; the others were
paid on April 20.
Make journal entries needed at each date. If an amount box does not require an entry,
leave it blank.
Apr. 5 Inventory 52,500
Accounts Payable 52,500
Apr. 10 Accounts Payable 26, 250?

Cash
Inventory
Apr. 20 Accounts Payable 26,250

Cash
Selling products or services is a(n)

b.operating activity.
A U.S. company entered into a sales transaction with a Japanese company on September
15 for 200,000 yen. The U.S. company prepares quarterly financial statements. The
Japanese company will pay for the sale on November 20. The exchange rates were as
follows:
1 Yen
September 15 $0.0125
September 30 0.0109
November 20 0.0114
Prepare the appropriate journal entries to record the sale, the quarterly adjustment, and
the collection. If an amount box does not require an entry, leave it blank.
September 15: 2500
2500
September 30:

November 20:

Sales Returns and Allowances is which type of account?

a.Contra-revenue
When the direct write-off method of recognizing bad debt expense is used, the entry to
write off a specific customer account would
a.decrease the accounts receivable balance and decrease net income.
The major activities of a business include all BUT which of the following?
a.Earning activities

1. Cash per the accounting records at January 31 amounted to $228,909; the bank
statement on this same date showed a balance of $204,008.
2. The canceled checks returned by the bank included a check written by DeVoe Company
for $6,987 that had been deducted from Bend’s account in error.
3. Deposits in transit as of January 31, 2017, amounted to $33,442.
4. The following amounts were adjustments to Bend Company’s account on the bank
statement:
1. Service charges of $64.
2. An NSF check of $4,100.
3. Interest earned on the account, $110.
5. Checks written by Bend Company that have not yet been cleared by the bank include
four checks totaling $19,582.
Prepare a bank reconciliation for Bend Company at January 31, 2017, using the
information shown above.
Samson Corporation had sales of $1,000,000 during 2012, of which 60 percent were on
credit. On December 31, 2012, Accounts Receivable totaled $80,000, and Allowance for
Bad Debts had a credit balance of $1,200. Given this information, if uncollectible
receivables are estimated to be 3 percent of accounts receivable, the adjusting entry as of
December 31, 2012, to account for bad debts would include a
a.debit to Bad Debt Expense of $2,400.
b.debit to Bad Debt Expense of $3,600.
c.credit to Bad Debt Expense of $1,200.
d.credit to Allowance for Bad Debts of $1,200.
In preparing a bank reconciliation, interest paid by the bank on the account is

d.added to the book balance
Which type of the major activities of a business are best described as those events that
are associated with the primary purpose of a business?
c.Operating activities
Following are the account balances from the December 31 trial balance of Lark Company:
Accounts Receivable $60,000
Allowance for Bad Debts 2,400 (cr)
Sales Revenue 405,000
If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to
record the estimate of bad debts would include a debit to Bad Debt Expense for
a.$3,600
b.$6,000
c.$6,240
d.$5,760
Purchases Returns and Allowances

Assume that Kingston bookstore decided to buy 150 books at NT$350 per book on April 5.
The credit terms were 2/10, n/30. Kingston paid half the price on April 10; the others were
paid on April 20.
Assume that Kingston found 10 books to have significant defects and decided to return
these 10 books on April 8. It also found other 15 books to have small defects and asked
for an allowance of NT$20 per defective books.
Make the entry on April 8 to record the returns and allowances. If an amount box does not
Apr. 8

To record the

return.
Apr. 8

To record the

allowance.
In preparing a monthly bank reconciliation, which of the following items would be added to
the balance reported on the bank statement to arrive at the correct cash balance?
b.Deposits in transit
Which of the following demonstrates that a company is managing its receivables well?
a.The company is losing interest that could be earned by investing.
b.The company has cash to pay its bills.
c.The company is cash poor.
d.The company has many short term loans with high interest.
Which of the following accounts would normally be found on the statement of

comprehensive income?
b.Sales Returns and Allowances
In calculating a company's accounts receivable turnover ratio, which of the following sets
of factors would be used?
c.Sales revenue and average accounts receivable
When the allowance method of recognizing bad debt expense is used, the entry to record
the write-off of a specific uncollectible account would decrease
b.Allowance for Bad Debts.
Bank statements provide information about all of the following EXCEPT

d.Errors made by the company
Petty Cash Fund

(a) A small amount of discretionary cash that is maintained to make small payments is
termed as petty cash fund .
(b) Cash fund help(s) the organization to deposit major amount of cash into the bank
account and a small portion on hand to make small payments.

Cash and Receivables

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Which of the following items would be added to the book balance on a bank reconciliation?

c.Interest paid by the bank

Sales Discounts is which type of account?

Internal Control of Cash

b. A medium-sized firm prepares a bank reconciliation statement semiannually. Indicate

Investing in stocks or bonds of another company is a(n)

The direct write-off method of accounting for bad debts

Which of the following accounts would normally be found on the statement of

On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a 4-

Petty Cash Fund

Payment for Various Expenses

July 5 Miscellaneous Expense 1,500

July 10 Wages Payable 1,000,000

The difference between gross sales and net sales is

On January 1, 2017, Hill Company, a calendar-year company, issued $5,000,000 of notes

Allowance for Bad Debts is an example of a(n)

The direct write-off method

Journalizing Entries from a Bank Reconciliation

Determining Where the Cash Went

The journal entry

On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-

The following information is available for Bridges Company:

The accounts receivable turnover for 2017 is computed as follows:

Classifying Major Business Activities

Journal Entries from a Bank Reconciliation

Interest Payable 16,000

Notes Payable 824,000

Notes Payable 800,000

Interest Expense 24,000

Classification of Business Activities

When reconciling a bank statement, direct deposits are

Bank Reconciliation and Journal Entries

Selling additional shares of stock is a(n)

Sales Returns and Allowances 1,000

3. Deposits in transit as of January 31, 2017, amounted to $33,442.

Balance per Books $ 228,909

Reconciling Book and Bank Balances

Preparing a Bank Reconciliation

Balance per Books $ 81,200

Allowance for Bad Debts 52,000

Bad Debt Expense 52,000

Allowance for Bad Debts 82,000

Bad Debt Expense 82,000

On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-

Petty Cash Fund

June 30 Postage Expense 10

July 1 Petty Cash dr

On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a 4-

Notes Payable 300,000

Notes Payable 300,000

Notes Payable 305,000

Notes Payable 300,000

Which of the following is NOT a cash control procedure?

Preparing a Bank Reconciliation

An analysis and aging of the accounts receivable of Kaiten Company at December 31

Interest Payable 160,000

Notes Payable 8,240,000

Notes Payable 8,000,000

Notes Payable 8,000,000

The following information is available for Binford Company:

Binford Company's cash accounts showed the following for May:

Accounts receivable at December 31 384,000