Question 1

Which of the following items would cause cash per the bank statement to be larger than the balance of cash shown in the accounting records?

Accepted Answer

The answer of Which of the following items would cause...

Question 2

When reading a bank statement,which

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The answer of When reading a bank statement,which
...

Question 3

In preparing the bank reconciliation,certain transactions recorded by the depositor may not have been recorded by the bank.Which of the following is an example of this type of transaction?

Accepted Answer

Outstanding checks are checks that have been issued by the depositor but have not yet been presented for payment to the bank. Therefore, they will not appear on the bank statement, but will need to be recorded by the depositor when preparing the bank reconciliation. Service charges, credit for interest earned, and charges for NSF checks will all appear on the bank statement and will be included in the preparation of the bank reconciliation.

Question 4

The adjustment of available for sale marketable securities to their current market value affects:

Accepted Answer

The adjustment of available for sale marketable securities to their current market value affects the balance sheet, specifically the "available for sale investments" line in the assets section. This adjustment does not affect the income statement or cash flow statement.

Question 5

Enclosed with the bank statement received by Sydney Company at October 31 was an NSF check for $300.No entry has yet been made by the company to reflect the bank's action in charging back the NSF check.During preparation of the bank reconciliation,the NSF check should be:

Accepted Answer

The NSF (Non-Sufficient Funds) check should be deducted from the balance per the depositor's records because it represents money that the company thought it had received but actually did not due to the check bouncing. This adjustment is necessary to reflect the true available cash balance in the company's records.

Question 6

A bank statement shows a balance of $8,445 at June 30.The 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
Outstanding checks: $2,790
Deposits in Transit: $1,350
Adjusted balance (before accounting error correction): $6,005 (8,445 - 2,790 + 1,350)

Add back erroneously recorded amount: $600 - $60 = $540
Adjusted balance (after accounting error correction): $6,545 ($6,005 + $540)

Subtract bank service charge: $6,545 - $30 = $7,015

Therefore, the "adjusted cash balance" at June 30 is $7,005, which is choice letter C.

Question 7

While preparing the 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 error was made in the depositor's records by recording the check for more than it was. To correct this, $36 (the difference between $462 and $426) should be subtracted from the depositor's records. However, since the question asks for the appropriate action to correct this error in preparing the bank reconciliation, and the options provided do not include subtracting from the depositor's records, the closest correct action is to add $36 to the balance per the depositor's records. This effectively corrects the overstatement of the payment.

Question 8

Marketable securities are:

Accepted Answer

Marketable securities are investments that are easily and quickly converted to cash, hence they are almost as liquid as cash. They are recorded at fair value, which may be greater or less than their original cost, and sold for a gain when the cash received is greater than the cost basis. Marketable securities are usually listed after cash and cash equivalents on the balance sheet.

Question 9

In preparing a bank reconciliation,a service charge shown on the bank statement should be:

Accepted Answer

Service charges shown on the bank statement are expenses that the bank has charged the account but are not yet recorded by the depositor. Therefore, they should be deducted from the balance per the depositor's records to reflect the true amount of funds available.

Question 10

The financial statements of Baxter Corporation include an Unrealized Holding Gain on Investments.This item:

Accepted Answer

An unrealized holding gain on investments indicates that the marketable securities held by Baxter have a current market value higher than cost, but it has not yet been sold. It is reported as a part of other comprehensive income and included in the equity section of the balance sheet. It is not included in the income statement because it is not a realized gain. It is not shown as a reduction in total stockholders' equity because it adds to the equity section. It also does not necessarily indicate that Baxter sold marketable securities during the period at a gain.

Question 11

When preparing a bank reconciliation,deposits in transit will:

Accepted Answer

Deposits in transit are amounts that have been recorded by the company but not yet reflected on the bank statement. Therefore, they increase the balance per the bank statement when reconciling, as they are added to the bank's balance to match the company's records.

Question 12

Which of the following items would cause cash per the bank statement to be smaller than the balance of cash shown in the accounting records?

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The answer of Which of the following items would cause...

Question 13

The valuation principle of "fair value accounting" applied to investments classified as available for sale securities:

Accepted Answer

Fair value accounting for available for sale securities requires companies to adjust the carrying value of these investments to their current market value, which enhances the usefulness of the balance sheet in evaluating the financial position of the business. It does not affect the current period income statement. Fair value accounting applies to investments classified as available for sale securities, not inventories or capital stock accounts.

Question 14

When a bank reconciliation has been satisfactorily completed,the only related entries to be made in the depositor's records are:

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The answer of When a bank reconciliation has been satisfactorily...

Question 15

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

The answer of Cardinal Company's bank statement showed a balance...

Question 16

All the following are steps included in the preparation of the bank reconciliation except:

Accepted Answer

All other steps (A, B, and D) are included in the preparation of the bank reconciliation. Deducting any debit memoranda from the balance on the bank statement is not a step in the process; instead, it is a factor that affects the balance on the bank statement that needs to be taken into account in the reconciliation process.

Question 17

With available for-sale securities,unrealized holding gains and losses are:

Accepted Answer

Unrealized holding gains and losses on available-for-sale securities are reported in the stockholders' equity section of the balance sheet, specifically in other comprehensive income, until they are realized.

Question 18

Which of the following transactions will appear in the bank statement but generally not have been recorded by the depositor?

Accepted Answer

Service charges are fees charged by the bank for maintaining the account and providing services such as check printing, ATM usage, or overdraft protection. These charges are deducted directly from the account by the bank and are not recorded by the depositor, so they will appear in the bank statement but not in the checkbook. Outstanding checks and deposits in transit, on the other hand, are items that have been recorded by the depositor but have not cleared the bank yet, so they may not appear in the bank statement immediately.

Question 19

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 the bank reconciliation should indicate that Golden's adjusted cash balance at June 30 is:

Accepted Answer

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

Question 20

An NSF check returned by the bank should be entered in the depositor's accounting records by a debit to:

Accepted Answer

When an NSF check is returned by the bank, it means that the customer's payment was not accepted and therefore the amount of the check is still owed to the depositor. This amount should be recorded as Accounts Receivable because it represents a debt owed to the company.

Quiz 7: Financial Assets