Question 1

Lori's Company has the following items: cash in a checking account,$1,000; cash in a savings account,$4,000; high-grade government securities due in one month,$3,586; accounts receivable,$3,000; cash in a compensating balance agreement,$3,200.How much should appear as Cash and Cash Equivalents on the balance sheet?

Accepted Answer

Cash and Cash Equivalents include cash in checking accounts, cash in savings accounts, and investments in highly liquid and marketable securities. Therefore, the total amount of Cash and Cash Equivalents for Lori's Company is the sum of all the amounts listed except for accounts receivable, which is not a type of cash or cash equivalent. Thus, $1,000 + $4,000 + $3,586 + $3,200 = $11,786, which is closest to option B.

Question 2

Jim's Company has the following items: cash in a checking account,$1,000; cash in a savings account,$4,000; high-grade government securities due in one month,$3,586; accounts receivable,$3,000; cash pledged as collateral for a loan,$10,000.How much should appear as Restricted Cash on the balance sheet?

Accepted Answer

Cash pledged as collateral for a loan is restricted cash.

Question 3

Cash and cash equivalents do NOT include:

Accepted Answer

Cash and cash equivalents are short-term, highly liquid investments that can be easily converted into cash with little to no risk of a significant change in value. While time deposits, petty cash, and bank checking accounts are all examples of cash equivalents, high-grade U.S. government securities maturing in 5 years are considered short-term investments but not cash equivalents because they are subject to market fluctuations and cannot be easily converted into cash without incurring a loss.

Question 4

A compensating balance maintained for a loan increases the actual interest rate on a loan.

Accepted Answer

A compensating balance is a requirement by some lenders where the borrower has to maintain a certain percentage of the loan amount in a separate account. This reduces the amount of money the borrower can access, which increases the effective cost of the loan and raises the actual interest rate.

Question 5

In a cash budget,if the cash available before financing falls below the budgeted balance:

Accepted Answer

If the cash available before financing falls below the budgeted balance, it means that the company does not have enough cash to cover its expenses and may face a cash shortage. In this case, the company will need additional financing to meet its obligations. This could be in the form of a loan, line of credit, or equity financing. The company should also re-evaluate its cash management practices and look for ways to improve its cash position. Reducing cash receipts or investing excess cash may not be enough to address the underlying cash flow issue. Bankruptcy is not necessarily the immediate outcome, but it could be a possibility if the company fails to address its cash flow problems in a timely and effective manner.

Question 6

The Nichols Company borrowed $12,000 from the bank and agreed to keep $3,000 on deposit at all times.The stated rate of interest on the loan is 10%.What is the real rate of interest?

Accepted Answer

The real rate of interest is the effective interest rate that the borrower pays after accounting for any fees or requirements, such as the deposit requirement in this case.

We can start by calculating the interest paid on the $12,000 loan at the stated rate of 10%:

$12,000 x 0.10 = $1,200

However, the borrower must keep $3,000 on deposit at all times, which reduces the amount available to use from the loan. Therefore, the effective loan amount is only $9,000:

$12,000 - $3,000 = $9,000

Now, we can calculate the real rate of interest by dividing the interest paid by the effective loan amount:

$1,200 ÷ $9,000 = 0.1333 or 13.33%

Therefore, the best choice is C, 13.3%.

Question 7

The cash-budget can span any length of time.

Accepted Answer

The cash-budget can be prepared for any interval of time, such as daily, weekly, monthly, quarterly, or annually.

Question 8

When reporting cash on the balance sheet,companies:

Accepted Answer

Companies typically combine cash and cash equivalents on the balance sheet because cash equivalents are highly liquid investments that are easily converted to cash, such as money market funds and short-term certificates of deposit. Combining these two categories provides a clearer picture of a company's overall cash position. The other options (A, B, and C) are not standard practices for reporting cash on the balance sheet.

Question 9

When preparing a cash budget,the budgeted balance is:

Accepted Answer

The answer of When preparing a cash budget,the budgeted balance...

Question 10

In the cash budget,examples of cash disbursements do NOT include:

Accepted Answer

Cash disbursements include payments that reduce cash balances such as purchasing inventory, paying operating expenses, and paying dividends. Depreciation expense is a non-cash expense and does not affect the company's cash balance. Therefore, option D is not an example of cash disbursements.

Question 11

The beginning cash balance is $3,000,estimated cash receipts are $105,000,and estimated cash disbursements are $111,000.How much cash must be borrowed to have a desired ending balance of $5,000?

Accepted Answer

The total cash available is $3,000 (beginning balance) + $105,000 (receipts) = $108,000. The total cash needed is $111,000 (disbursements) + $5,000 (desired ending balance) = $116,000. Therefore, $116,000 - $108,000 = $8,000 must be borrowed.

Question 12

A cash budget does all of the following EXCEPT:

Accepted Answer

A cash budget helps manage cash flow and determine if borrowing is necessary, and it can also determine if there will be excess cash for investing. However, it does not assess the riskiness of a new product.

Question 13

A company has a beginning cash balance of $3,000.For the year,the company estimates cash disbursements of $85,900.It has a desired ending cash balance of $5,500 and anticipates no new financing.The estimated cash receipts are:

Accepted Answer

The answer of A company has a beginning cash balance...

Question 14

In the cash budget,the beginning balance Cash plus budgeted cash receipts minus ________,equals Cash available before new financing.

Accepted Answer

The beginning balance Cash plus budgeted cash receipts minus budgeted cash disbursements equals Cash available before new financing.

Question 15

Zeman Company uses a cash budget.The budgeted cash balance is $6,000,000.The company has budgeted cash disbursements of $5,200,000 and budgeted cash receipts of $10,000,000.The beginning balance of cash is $0.What amount of additional financing is required?

Accepted Answer

The answer of Zeman Company uses a cash budget.The budgeted...

Question 16

Kulvekowski Company uses a cash budget.The beginning cash balance is $1,000,000.The budgeted cash balance is $1,000,000.The company has budgeted cash disbursements of $500,000 and budgeted cash receipts of $1,600,000.What amount of cash is available for investing?

Accepted Answer

The cash available for investing is calculated as beginning cash balance + budgeted cash receipts - budgeted cash disbursements. Therefore, $1,000,000 + $1,600,000 - $500,000 = $2,100,000. Since the budgeted cash balance is $1,000,000, the excess cash available for investing is $2,100,000 - $1,000,000 = $1,100,000.

Question 17

Cash equivalents include accounts receivable expected to be collected within 90 days or less.

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less, not accounts receivable.

Question 18

In the cash budget,additional financing is needed if:

Accepted Answer

In the cash budget, if the budgeted cash balance exceeds the cash available before new financing, it means that the company is not generating enough cash to cover its expenses and may need additional financing to continue its operations. Therefore, option B is the correct choice. Options A, C, and D are incorrect because they do not accurately represent the need for additional financing.

Question 19

Managers control cash receipts and disbursements,as well as the ending cash balance,through a(n):

Accepted Answer

A cash budget is a financial plan that outlines estimated cash inflows and outflows for a specific period, typically a month or a year. It helps managers to have better control over their cash receipts and disbursements, as well as to forecast the ending cash balance for the period. The sales budget and operating budget may provide useful information for a cash budget, but do not directly control cash receipts and disbursements. The statement of cash flows is a financial statement that summarizes the changes in a company's cash and cash equivalents during a period, but it does not provide a forward-looking plan for cash management.

Question 20

A recent cash budget showed estimated cash receipts of $159,000,estimated cash disbursements of $155,000,and a desired ending cash balance of $6,000,with no borrowing of funds.The beginning cash balance was:

Accepted Answer

To find the beginning cash balance, we need to use the formula:

Beginning cash balance + Estimated cash receipts - Estimated cash disbursements = Desired ending cash balance

Substituting the given values, we get:

Beginning cash balance + $159,000 - $155,000 = $6,000

Simplifying this equation, we get:

Beginning cash balance = $6,000 - $159,000 + $155,000
Beginning cash balance = $2,000

Therefore, the correct answer is A) $2,000.

Quiz 4: Internal Control Cash