Deck 7: Financial Assets

Question 1

Deposits in transit would not appear on a company's bank reconciliation but would appear on the company's bank statement.

Answer 1

False

Question 2

Restricted cash may be available to meet the normal operating needs of a company.

Answer 2

False

Question 3

A line of credit is an advance agreement by a bank to lend a company any amount of money up to a specified limit.

Answer 3

True

Question 4

Charges for depositing NSF checks are an example of a transaction that has been recorded by the depositor but may not have been recorded by the bank.

Question 5

If the account Cash Over and Short has a debit balance,it is reported in the balance sheet as a current asset.

Question 6

A compensating balance is often required by a bank as a condition for granting a loan.

Question 7

The term "financial asset" is synonymous with the term "cash equivalent."

Question 8

Cash equivalents are the most liquid of all assets.

Question 9

An example of good internal control over cash is to have the person responsible for physically handling all cash perform the bank statement reconciliations.

Question 10

Service charges are an example of a transaction that appears in the bank statement but which may not yet have been recorded by the company.

Question 11

A line of credit creates a liability for the borrower when it is granted by the bank.

Question 12

Entries made in the general journal after preparing a bank reconciliation are called closing entries.

Question 13

Financial assets describe not just cash,but all assets that are easily and directly convertible into known amounts of cash,except marketable securities.

Question 14

Internal control is strengthened by a policy of making payments by check,from cash receipts,or from a petty cash fund.

Question 15

Financial assets may be current or long-term assets.

Question 16

The first step in a bank reconciliation is to update the depositor's accounting records for any deposits in transit.

Question 17

U.S.Treasury bills that mature within a period of four to six months are cash equivalents.

Question 18

Compensating balances are not included in the amount of cash listed on a balance sheet.

Question 19

Cash equivalents include money market funds,U.S.Treasury bills,and high-grade commercial paper that mature within 90 days of acquisition.

Question 20

Internal control will aid in achieving accurate accounting for cash transactions.

Question 21

Short-term investments in marketable securities may not be reported in the balance sheet at values higher than original cost.

Question 22

Gains (or losses)on sales of marketable securities,as well as any unrealized holding gains (or losses)on investments in available for sale securities,are reported in the income statement.

Question 23

An account receivable that arose from normal sales activity has a 16-month credit term.This receivable will be classified as a noncurrent asset.

Question 24

The Allowance for Doubtful Accounts is called a valuation account,or contra-asset account,and normally has a credit balance.

Question 25

To "write-off" an account receivable is to reduce the balance of the customer's account to zero.

Question 26

One of the major steps in achieving internal control over accounts receivable is that the Billing department reviews the sales order,the customer's credit file,and decides whether and how much credit should be extended.

Question 27

The income statement approach used to estimate uncollectible receivables uses a percentage of net sales without considering the current balance in the Allowance account.

Question 28

The balance shown on a bank statement is always less than the month-end balance of a company's cash account in the general ledger.

Question 29

An unrealized holding loss on available-for-sale securities will reduce net income.

Question 30

Effective internal control over receivables is designed to ensure that customers' payments are promptly deposited.

Question 31

The direct write-off method is more conservative than the allowance method for valuation of receivables.

Question 32

In order to maximize sales and profits,effective internal control over receivables ensures that credit is extended to all customers who request credit.

Question 33

In order for a company's accounting records to be up-to-date and accurate after a bank reconciliation has been completed,journal entries should be made for any service charges by the bank and for deposits in transit.

Question 34

In the bank reconciliation,every adjustment to the balance per depositor's records requires a journal entry.

Question 35

If the allowance method is used,the recovery of an account receivable previously written-off results in a gain being recorded on the income statement.

Question 36

Marketable securities include investments in bonds and in the capital stocks of publicly traded corporations.

Question 37

An unrealized holding gain on available for sale securities will increase shareholders' equity.

Question 38

When doing a bank reconciliation,an NSF check will reduce the bank's balance.

Question 39

A basic characteristic of all marketable securities is that they can be purchased or sold quickly and easily at quoted market prices.

Question 40

Dividend revenue and interest revenue are reported in the income statement as a component of a company's net income.

Question 41

When the direct write-off method is used to recognize uncollectible accounts expense,an Allowance for Doubtful Accounts is not required.

Question 42

If the note receivable bears interest,the amount debited to Notes Receivable is for the maturity amount of the note.

Question 43

When interest is collected,it is debited to the Interest Revenue account and credited to the Notes Receivable account.

Question 44

When an Allowance for Doubtful Accounts is used,accounts receivable are valued in the balance sheet at their estimated net realizable value.

Question 45

Each of these categories of assets is normally shown in the balance sheet at current value,except:

A)Inventories.
B)Accounts receivable.
C)Short-term investments in marketable securities.
D)Cash.

Question 46

The maker of a note is the party to whom payment is to be made.

Question 47

Factoring allows a business to obtain immediate cash instead of waiting to collect the account receivable.

Question 48

A major purpose of using an Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales that caused the expense.

Question 49

Industries with relatively high accounts receivable turnover rates include restaurants and hotels.

Question 50

The lower the accounts receivable turnover rate,the longer a company must wait to collect from its credit customers.

Question 51

The Allowance for Doubtful Accounts should be listed on the balance sheet as a current liability.

Question 52

The Allowance for Doubtful Accounts is a contra-asset account and appears on the balance sheet.

Question 53

The higher a company's accounts receivable turnover rate,the more liquid the company's receivables.

Question 54

When a company makes a sale by accepting a bank-issued credit card from the customer,the sale is recorded as a cash sale.

Question 55

In general,the longer an account receivable is outstanding,the greater the likelihood it will be collected.

Question 56

If the maker of a note defaults,an entry is made to debit Accounts Receivable and credit Notes Receivable.

Question 57

Which of the following is not considered a cash equivalent?

A)U.S.Treasury bills
B)Money market funds
C)Accounts receivable
D)High-grade commercial paper

Question 58

The term cash equivalent refers to:

A)An item such as a money order,travelers' check,or check from a customer.
B)An account receivable from a reliable customer who has always paid bills within the discount period.
C)A guaranteed line of credit at the company's bank.
D)Very liquid short-term investments such as U.S.Treasury Bills and commercial paper.

Question 59

Financial assets:

A)Only consist of cash and cash equivalents.
B)Are reported at cost in the balance sheet.
C)Include short-term investments in marketable securities and receivables,as well as cash.
D)Are not very productive assets and should be kept to a minimum in a well-managed company.

Question 60

Financial assets include all of the following except:

A)Cash.
B)Marketable securities.
C)Inventories.
D)Accounts receivable.

Question 61

As of December 31,2018,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 31,2018,balance sheet as "Cash and cash equivalents"?

A)$53,200
B)$70,120
C)$130,120
D)$113,200

Question 62

The unused portion of a line of credit:

A)Is reported as a current liability in the balance sheet.
B)Decreases a company's liquidity.
C)Can be used at any time by drawing a check on a special bank account.
D)Requires a compensating balance in order to keep the line of credit open.

Question 63

Which of the following practices best illustrates efficient management of cash?

A)The accountant records all cash receipts and payments when reconciling the bank account at the end of each month.
B)Management arranges for a loan to cover projected cash shortages during the production phase of the business cycle each year.
C)Cash budgets (forecasts)are prepared only one month in advance in order to avoid the need for constant revision.
D)All cash resources are held in the checking account to maximize liquidity.

Question 64

The bookkeeper prepared a check for $68 but accidentally recorded it as $86.When preparing the bank reconciliation,this should be corrected by:

A)Adding $18 to the bank balance.
B)Subtracting $18 from the bank balance.
C)Adding $18 to the book balance.
D)Subtracting $18 from the book balance.

Question 65

When preparing a bank reconciliation,outstanding checks will:

A)Increase the balance per depositor's records.
B)Decrease the balance per depositor's records.
C)Increase the balance per the bank statement.
D)Decrease the balance per the bank statement.

Question 66

In handling of daily cash transactions,a few minor errors inevitably will occur.Which of the following is used to adjust the accounting records for these small errors?

A)The bank reconciliation
B)The Petty Cash account
C)The Cash Over and Short account
D)The cash budget

Question 67

With a line of credit,a liability arises:

A)As soon as the line is created.
B)As soon as any money is borrowed.
C)Upon repayment of the debt.
D)At the maturity date.

Question 68

Which of the following items on a bank reconciliation would have been known to the depositor before the bank statement arrived?

A)Bank service charges
B)An NSF check
C)A credit for interest earned
D)A deposit in transit

Question 69

As of December 31,2018,Chippewa Company has $26,440 cash in its checking account,as well as several other items listed below: What amount should be shown in Chippewa's December 31,2018,balance sheet as "Cash and cash equivalents"?

A)$30,040
B)$139,640
C)$209,640
D)$59,640

Question 70

After preparing a bank reconciliation,a journal entry would be required for which of the following:

A)A deposit in transit.
B)A check for $48 given to a supplier but not yet recorded by the company's bank.
C)Interest earned on the company's checking account.
D)A deposit made by a company with a similar name and credited to your account.

Question 71

When short-term investments appear in the balance sheet at their current market values,it is an exception to the ________ principle.

A)Revenue recognition
B)Matching
C)Cost
D)Relevance

Question 72

A bank reconciliation explains the differences between:

A)Cash receipts and cash disbursements for the period.
B)The balance of cash in the bank and the budgeted expenditures for the upcoming accounting period.
C)The balance per bank statement and the cash balance per the accounting records of the depositor.
D)The balance per bank statement and cash expected to be on hand according to the cash forecast.

Question 73

Efficient management of cash includes which of the following concepts?

A)Pay each bill as soon as the invoice is received.
B)Deposit all cash receipts and make all cash disbursements at the end of each week.
C)Prepare a control listing of cash receipts at the time and place the money is received.
D)Pay suppliers in cash out of cash sales receipts before depositing them in the bank.

Question 74

Which of the following is not a basic means of achieving internal control over cash receipts?

A)Separate the functions of cash handling and maintenance of accounting records.
B)Prepare a daily listing of cash received through the mail.
C)Deposit all cash receipts daily in the petty cash fund.
D)Promptly reconcile bank statements with the accounting records.

Question 75

In reconciling a bank statement,which of the following items could cause the cash per the bank statement to be greater than the balance of cash shown in the depositor's accounting records?

A)An outstanding check
B)A check returned to the depositor marked NSF
C)Check 457 written for $643 was recorded by the depositor as $463
D)A bank service charge

Question 76

The purpose of establishing a petty cash fund is to:

A)Achieve internal control over small cash disbursements not made by check.
B)Keep track of expenditures paid out of cash receipts from customers prior to deposit.
C)Ensure that the amount of cash in the bank does not become excessive.
D)Keep enough cash on hand in the office to cover all normal operating expenses of the business for a period of time.

Question 77

Which of the following does not contribute toward achieving internal control over cash?

A)The practice of making small cash disbursements directly from the current day's cash receipts
B)The preparation of cash budgets
C)The use of a petty cash fund
D)The practice of approving every expenditure before the cash disbursement is made

Question 78

When preparing a bank reconciliation,an NSF check will:

A)Increase the balance per depositor's records.
B)Decrease the balance per depositor's records.
C)Increase the balance per the bank statement.
D)Decrease the balance per the bank statement.

Question 79

A good system of internal control will include all of the following except:

A)Preparing a pro-forma financial statement on a monthly basis.
B)Separating the handling of cash from the maintenance of accounting records.
C)Making all major payments by check.
D)Reconciling bank statements with accounting records.

Question 80

Which of the following is not an example of internal control over cash?

A)Preparation of a cash budget
B)Daily deposits of cash receipts at the bank
C)Combining the functions of signing checks with the approval of expenditures
D)Preparation of bank reconciliation