Question 1

As of December 31, 2009, Valley Company has $16,920 cash in its checking account, as well as several other items listed below: What amount should be shown in Valley's December 31, 2009, balance sheet as "Cash and cash equivalents"?

Accepted Answer

Cash and cash equivalents include cash in checking and savings accounts, as well as short-term investments that can be easily converted to cash. Therefore, we need to add the amounts of cash in checking account ($16,920), savings account ($12,000), money market account ($20,000), and short-term investments ($21,200). 
Thus, the total amount of cash and cash equivalents on Valley Company's December 31, 2009 balance sheet is $70,120.

Question 2

The journal entry made by Salem to record this transaction on November 1, 2010, includes:

Accepted Answer

The transaction involves recording a note receivable, which is typically recorded at its principal amount, $900,000 in this case.

Question 3

The accounting records of Golden Company showed cash of $15,250 at June 30. The balance per the bank statement at June 30 was $15,125. The only reconciling items were deposits in transit of $3,200, outstanding checks totaling $4,100, an NSF check for $1,000 returned by the bank which Golden had not yet charged back to the customer, and a bank service charge of $25. The preparation of a bank reconciliation should indicate cash owned by Golden at June 30 in the amount of:

Accepted Answer

The answer of The accounting records of Golden Company showed...

Question 4

The proper adjusting entry at December 31, 2009, with regard to this note receivable includes a:

Accepted Answer

The adjusting entry for a note receivable at the end of the period includes recognizing the interest earned but not yet received. Therefore, the proper adjusting entry would be a debit to Accrued Interest Receivable (which represents the interest earned but not received) for $6,067. This entry would increase the receivable balance on the balance sheet and increase interest revenue on the income statement. None of the other options are correct as they do not reflect the recognition of earned interest.

Question 5

On May 1, 2011 (maturity date), the note is collected in full by Salem Corporation. Assuming a fiscal year-end of December 31, Salem recognizes which of the following in its income statement for 2011 with regard to this note?

Accepted Answer

The note was issued on May 1, 2010, and collected on May 1, 2011. The interest revenue for 2011 would be for the period from January 1, 2011, to May 1, 2011, which is 4 months. Assuming the interest rate is 12% annually on a $900,000 note, the interest for 4 months is $900,000 * 12% * (4/12) = $36,000. However, since the question asks for the interest recognized in 2011, and the options provided do not match this calculation, the closest option is $18,000, which might be due to a different interest rate or calculation error in the options.

Question 6

Jensen's entry to record the collection of this note at maturity includes a:

Accepted Answer

Since the note has matured, Jensen needs to record the collection of the note by debiting Cash for $140,400 (principal amount) and crediting Notes Receivable for $140,400. Additionally, Jensen should credit Accrued Interest Receivable for $6,067, which is the amount of interest that has been earned but not yet collected. Therefore, the correct answer is A.

Question 7

While preparing a bank reconciliation, an accountant discovered that a $426 check returned with the bank statement had been recorded erroneously in the depositor's accounting records as $462. In preparing the bank reconciliation the appropriate action to correct this error would be to:

Accepted Answer

The check was recorded as $462 instead of $426, an overstatement by $36. To correct this, $36 should be added to the depositor's records.

Question 8

What is the adjusted cash balance in the September 30 bank reconciliation?

Accepted Answer

The adjusted cash balance is calculated by starting with the ledger balance of $12,596, subtracting the bank service charge of $16, and adding the deposit in transit, which is the difference needed to reconcile the ledger balance with the bank statement balance after accounting for outstanding checks. The calculation is $12,596 - $16 + ($16,253 - $12,596 - $6,740) = $12,580.

Question 9

The journal entry on January 1 to record establishment of the petty cash fund includes a:

Accepted Answer

The establishment of a petty cash fund involves transferring cash from the main cash account to the petty cash account, which requires a credit to Cash and a debit to Petty Cash.

Question 10

Assuming the maker of the note defaults on May 1, 2011, Salem will record on this date:

Accepted Answer

When the maker of the note defaults, Salem will record an account receivable in the full amount of $927,000 ($900,000 principal + $27,000 interest accrued to date). Additionally, Salem will record interest revenue of $18,000 (since interest revenue is earned on the outstanding principal balance of the note, which is $900,000).

Question 11

When the maker of a note defaults:

Accepted Answer

When the maker of a note defaults, an account receivable is recorded in the amount of the principal plus interest through the maturity date as per the terms of the note. Interest earned for the current period may not be recorded, but any previously recorded interest receivable is not written off as a loss due to default.

Question 12

What is the total amount of the outstanding checks at June 30?

Accepted Answer

The total amount of outstanding checks is calculated by adding up the amounts of all checks that have been issued but not yet cleared by the bank as of June 30.

Question 13

Red Pine, Inc. established a $400 petty cash fund several months ago and replenishes it at the end of each month. During the first two weeks of March, $185 was disbursed from the petty cash box for miscellaneous items. If a surprise count of the fund is made on March 15, the petty cash box should contain:

Accepted Answer

Since $185 has been disbursed from the petty cash box during the first two weeks of March, the amount left in the box would be $215 ($400 - $185). Therefore, the petty cash box should contain $215 in cash and receipts for $185 in expenditures on March 15. Option A is incorrect because it doesn't account for the disbursement made in March. Option B is incorrect because it only includes the remaining amount in the petty cash box and not the receipts for the disbursement. Option C is incorrect because it assumes that the same amount of $400 is added to the petty cash fund each month, regardless of the disbursement made.

Question 14

On January 1, Wong Company established a petty cash fund of $300. The journal entry to record the replenishment of the fund for $260 at the end of January includes:

Accepted Answer

The replenishment of the petty cash fund involves crediting Cash for the amount replenished, which is $260 in this case. The expenses incurred would be debited to their respective accounts, not to Petty Cash.

Question 15

A bank statement shows a balance of $8,445 at June 30. A bank reconciliation is prepared and includes outstanding checks of $2,790, deposits in transit of $1,350, and a bank service charge of $30. Among the paid checks returned by the bank was check no. 900 in the amount of $600, which the company had erroneously recorded in the accounting records as $60. The "adjusted cash balance" at June 30 is:

Accepted Answer

Starting balance: $8,445

Add: Deposits in transit: $1,350

Adjusted balance: $9,795

Deduct: Outstanding checks: $2,790

Adjusted balance: $7,005

Deduct: Bank service charge: $30

Adjusted balance: $6,975

Add: Increase in balance due to corrected check amount: $540 ($600 - $60)

Adjusted balance: $7,515

Therefore, the adjusted cash balance at June 30 is $7,005 (Option C).

Question 16

Upon completion of the bank reconciliation, a journal entry will be required to update the depositor's accounting records. This entry will include a:

Accepted Answer

The answer of Upon completion of the bank reconciliation, a...

Question 17

What is the amount of the deposit in transit?

Accepted Answer

The amount of the deposit in transit can be calculated by subtracting the ending balance according to the bank statement ($62,321) from the adjusted balance per books ($65,388) and adding any outstanding checks ($600 and $4,421) and then subtracting any deposits in transit. Solving this equation results in $3,067 as the deposit in transit.

Question 18

Cardinal Company's bank statement showed a balance at May 31 of $180,974. The only reconciling items consisted of a large number of outstanding checks totaling $51,847. At May 31, what balance should Cardinal's Cash account show?

Accepted Answer

To find the balance in Cardinal's Cash account, we must subtract the outstanding checks from the bank statement balance. Therefore, the balance in Cardinal's Cash account on May 31 should be:

$180,974 - $51,847 = $129,127

Therefore, the correct answer is choice B.

Question 19

Salem's balance sheet at December 31, 2010 includes which of the following as a result of the sale of land on November 1?

Accepted Answer

The sale of land resulted in a notes receivable of $900,000. Since the sale occurred on November 1 and the balance sheet is as of December 31, interest for two months (November and December) would have accrued, resulting in an interest receivable of $9,000.

Question 20

What is the "adjusted cash balance" at June 30?

Accepted Answer

The adjusted cash balance can be calculated as follows:

Beginning balance: $2,000 
Add: deposits in transit ($2,000) 
Less: outstanding checks ($700 + $500) 
Less: bank service charge ($35) 
Adjusted cash balance: $3,093

Therefore, the answer is B.

Quiz 7: Financial Assets