Accounting Chap7a

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?

$129,127. (1880,974-51,847= 129,127)

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

False

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

False

Financial assets may be current or long-term assets.

False

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.

False

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

False

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.

False

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

False

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

False

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

True

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

True

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

True

The term cash equivalent refers to:

Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.

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

False

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

True

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:

$14,225. (15,250-25-1000=14,225)

The Cash account in the records of Hensley, Incorporated showed a balance of $4,150 at June 30. The bank statement, however, showed a balance of $6,350 at the same date. The only reconciling items consisted of a $700 deposit in transit, a bank service charge of $10, and a large number of outstanding checks. What is the "adjusted cash balance" at June 30?

$4,140.

A bank statement shows a balance of $9,335 at June 30. The bank reconciliation is prepared and includes outstanding checks of $2,810, deposits in transit of $1,130, and a bank service charge of $10. Among the paid checks returned by the bank was check number 900 in the amount of $410, which the company had erroneously recorded in the accounting records as $60. The "adjusted cash balance" at June 30 is:

$7,655.(9,335-2,810+1130=7,655)

As of December 31, Year 1, Valley Company has $16,920 cash in its checking account, as well as several other items listed below: Bank credit card slips signed by customers$ 1,400Money market fund balance$ 10,000Investment in U.S. Treasury bills, mature within 90 days$ 40,000Checks received from customers, but not yet deposited in the bank$ 1,800Investment in 4,500 shares of Coca-Cola capital stock$ 60,000 What amount should be shown in Valley's December 31, Year 1, balance sheet as "Cash and cash equivalents"?

$70,120

As of December 31, Year 1, Valley Company has $13,870 cash in its checking account, as well as several other items listed below: Bank credit card slips signed by customers$ 1,450Money market fund balance$ 29,000Investment in U.S. Treasury bills, mature within 90 days$ 40,000Checks received from customers, but not yet deposited in the bank$ 1,760Investment in 4,500 shares of Coca-Cola capital stock$ 58,000 What amount should be shown in Valley's December 31, Year 1, balance sheet as "Cash and cash equivalents"?

$86,080.

Cardinal Company's bank statement showed a balance at May 31 of $204,400. The only reconciling items consisted of a large number of outstanding checks totaling $64,570. At May 31, what balance should Cardinal's Cash account show?

139,830 (204,400-64,570= 139,830)

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

Accounts Receivable.

Which of the following is not considered a cash equivalent?

Accounts receivable

The purpose of establishing a petty cash fund is to:

Achieve internal control over small cash disbursements not made by check.

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:

Add $36 to the balance per the depositor's records.

The Cash account in the records of Hensley, Incorporated showed a balance of $3,100 at June 30. The bank statement, however, showed a balance of $3,900 at the same date. The only reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and a large number of outstanding checks. Upon completion of the bank reconciliation, a journal entry will be required to update the depositor's accounting records. This entry will include a:

Debit to Bank Service Charge Expense for $7.

When preparing a bank reconciliation, an NSF check will:

Decrease the balance per depositor's records.

When preparing a bank reconciliation, outstanding checks will:

Decrease the balance per the bank statement.

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

Deducted from the balance per the depositor's records.

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

Deposit all cash receipts daily in the petty cash fund.

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?

Deposits in transit

Financial assets:

Include short-term investments in marketable securities and receivables, as well as cash.

When preparing a bank reconciliation, deposits in transit will:

Increase the balance per the bank statement.

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

Interest earned on the company's checking account.

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

Inventories.

Financial assets include all of the following except:

Inventories.

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

Service charges.

A bank reconciliation explains the differences between:

The balance per bank statement and the cash balance per the accounting records of the depositor.

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

The practice of making small cash disbursements directly from the current day's cash receipts

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

To record items that explain the difference between the balance per the accounting records and the adjusted cash balance.