Deck 4: Cash, Short-Term Investments and Accounts Receivable

Question 1

Any investment in a short-term security that has 90 days or less to maturity when purchased is

A) an account receivable.
B) a cash equivalent.
C) cash.
D) a certificate of deposit.
E) inventory.

Answer 1

a cash equivalent.

Question 2

Which of the following is(are) cash equivalents?

Answer 2

C

Question 3

Which of the following is the most liquid asset?

A) Accounts Receivable
B) Cash
C) Certificate of Deposit
D) Inventory
E) Investment in Microsoft Corp.

Answer 3

Cash

Question 4

Which of the following is the least liquid asset?

A) Accounts Receivable
B) Cash
C) Certificate of Deposit
D) Inventory
E) Investment in Microsoft Corp.

Question 5

A short-term U.S. government obligation with a term of one year or less is a(an)

A) accounts receivable.
B) certificate of deposit.
C) inventory.
D) note receivable.
E) treasury bill.

Question 6

Which of the following statements about petty cash funds is true?

A) The size of petty cash funds depends on business needs and is usually large enough so that the company can pay its bills for at least one week.
B) A journal entry is made each time as petty cash is disbursed.
C) At any time, the total of the cash and the receipts in the petty cash box should total the amount originally put into the petty cash fund.
D) No source documentation is necessary to create the journal entry that supports the petty cash replenishment.
E) Both a and c are true.

Question 7

A schedule that presents the differences between the bank statement and cash account so that an accurate balance can be determined for a specific time is a

A) bank reconciliation.
B) trial balance.
C) list of outstanding checks.
D) check register.
E) petty cash reconciliation.

Question 8

When preparing a bank reconciliation,

A) deposits in transit should be added to the general ledger cash account balance.
B) NSF checks that customers' banks returned to the company should be added to the general ledger cash account balance.
C) deposits not recorded by a depositor should be added to the bank balance.
D) outstanding checks should be subtracted from the general ledger cash account balance.
E) direct bank drafts should be subtracted from the general ledger cash account balance.

Question 9

Use the following information to answer questions :
While preparing the October 2010 bank reconciliation, Flores Inc.'s accountant identified the following items:


-What is the net effect of the reconciling items on the general ledger cash account balance?

A) $(456.50)
B) $(631.50)
C) $(1,088.00)
D) $343.50
E) $175.00

Question 10

Use the following information to answer questions :
While preparing the October 2010 bank reconciliation, Flores Inc.'s accountant identified the following items:


-What is the net effect of the reconciling items on the bank balance?

A) $831.50
B) $(1,031.50)
C) $(1,088.00)
D) $(631.50)
E) $(400.00)

Question 11

Klein Co.'s accountant recorded check 140 as $70 in the general ledger rather than the actual check amount of $700. Check 140 cleared the bank during July. The bank deducted check 142 as $900 instead of $90 on the company's July bank statement. If these are the only two reconciling items, the bank reconciliation will show which of the following adjustments?

Question 12

After the preparation of the bank reconciliation, a company needs to make

A) journal entries for the amounts on the bank statement.
B) journal entries for all items contained on the bank reconciliation.
C) journal entries for all items contained on the bank side of the bank reconciliation.
D) journal entries for all items contained on the general ledger cash account side of the reconciliation.
E) no journal entries since all items will eventually clear through the bank.

Question 13

Stock and bond investments that are purchased to minimize excess cash and to generate a return greater than what could be earned on an interest-bearing checking account are called

A) available-for-sale securities.
B) government securities.
C) held-to-maturity securities.
D) long-term securities.
E) treasury bills.

Question 14

During 2010, ABC Corp. purchased the following three short-term investments:
ABC should recognize its short-term investments on the December 31 balance sheet at which of the following amounts?

A) $59,550
B) $60,000
C) $61,725
D) $62,175
E) none of the above

Question 15

The agreement between a buyer and seller about the timing of the buyer's payments and any discount available to the buyer for early payment reflect the

A) credit terms.
B) sales allowance.
C) sales order.
D) sales discount.
E) sales return.

Question 16

A reduction in price offered to customers to entice them to pay their account balances on a timely basis is a

A) debit term.
B) sales allowance.
C) sales order.
D) sales discount.
E) sales return.

Question 17

A reduction in price offered to customers to persuade them to keep damaged or defective merchandise is a

A) credit term.
B) sales allowance.
C) sales order.
D) sales discount.
E) sales return.

Question 18

A refund paid to a customer who brings damaged or defective merchandise back to the seller is a

A) credit term.
B) sales allowance.
C) sales order.
D) sales discount.
E) sales return.

Question 19

Which of the following are contra-revenue accounts?

Question 20

On October 1, B. Olshansky bought $1,000 of merchandise and was granted credit terms of 2/10, n/30. If Olshansky pays for these goods on each of the dates indicated, the amount paid will be

Question 21

On April 1, 2010, Dozier Inc. purchased 1,000 handkerchiefs at a cost of $1.50 per unit and subject to credit terms 3/10, net 45. Dozier remitted full payment on April 9, 2010. The total purchase price of the handkerchiefs was

A) $1,350.
B) $1,455.
C) $1,500.
D) $1,545.
E) $1,650.

Question 22

Romo Corp. made a $3,000 sale with terms of 2/10, n/30. The customer remitted payment within the discount period. How will Romo record the receipt of that payment?

A)
B)
C)
D)
E) none of the above

Question 23

Recording an uncollectible account receivable as a bad debt expense when it is determined that the account receivable will not be collected

A) is called the allowance method.
B) is called the direct write-off method.
C) is the most acceptable expense recognition method under GAAP.
D) provides the best matching of revenues and expenses.
E) b, c, and d are correct.

Question 24

Joyner Distribution is estimating its uncollectible accounts expense at December 31, 2010 based on the following information:
Sixty percent of Joyner's total sales for 2010 are credit sales. Based on past experience, Joyner estimates that 5% of credit sales will be uncollectible. What is uncollectible accounts expense for 2010?

A) $100,000
B) $125,000
C) $200,000
D) $300,000
E) $500,000

Question 25

Use the following information to answer questions
Foley Industries is estimating its allowance for uncollectible accounts at December 31, 2010 based on the following information:

Seventy percent of Foley's total sales for 2010 are on credit. Foley has always estimated that 5% of credit sales will be uncollectible.

-What is the balance in the Allowance for Uncollectible Accounts before the uncollectible accounts estimate entry is made on December 31, 2010?

A) $ 30,000 credit
B) $ 30,000 debit
C) $300,000 debit
D) $300,000 credit
E) none of the above

Question 26

Use the following information to answer questions
Foley Industries is estimating its allowance for uncollectible accounts at December 31, 2010 based on the following information:

Seventy percent of Foley's total sales for 2010 are on credit. Foley has always estimated that 5% of credit sales will be uncollectible.

-What is the balance in the Allowance for Uncollectible Accounts after the uncollectible accounts estimate entry is made on December 31, 2010?

A) $300,000 credit
B) $320,000 credit
C) $350,000 credit
D) $680,000 credit
E) none of the above

Question 27

Manning Co. had an account receivable from Ny Giant for $3,500 and determined that Giant would be unable to pay that debt. Manning decided to write off Giant's account. At the date of the write-off, total Accounts Receivable were $531,000 and the Allowance for Uncollectible Accounts was $26,800. Manning would make which of the following entries to record the write-off?

A)
B)
C)

D)
E)

Question 28

In November 2009, Steeler Inc. wrote off a $3,800 account receivable from P. Burg. In May 2010, Burg remitted $1,500 of his account receivable to Steeler Inc. How would Steeler Inc. record the remittance?

A)
B)
C)
D)
E)

Question 29

Use the following information to answer questions
On February 1, 2010, Kern Corporation bought $5,000 of paints and brushes from Mobile Incorporated. Credit terms were 3/10, net 45. On March 15, Kern was unable to pay its outstanding invoice and had Mobile Inc. transfer the outstanding balance to a 10%, 180-day note receivable. Interest is due on the note's maturity date.

-What is the maturity date of Kern's note to Mobile Inc.?

A) July 30, 2010
B) August 1, 2010
C) July 31, 2010
D) September 11, 2010
E) September 15, 2010

Question 30

Use the following information to answer questions
On February 1, 2010, Kern Corporation bought $5,000 of paints and brushes from Mobile Incorporated. Credit terms were 3/10, net 45. On March 15, Kern was unable to pay its outstanding invoice and had Mobile Inc. transfer the outstanding balance to a 10%, 180-day note receivable. Interest is due on the note's maturity date.

-How much must Kern remit to Mobile on the maturity date (assuming a 360-day year)?

A) $5,000.00
B) $5,242.50
C) $5,250.00
D) $5,335.00
E) $5,500.00

Question 31

Measures that express the relationship or interrelationships between or among two or more financial statement items are

A) benchmarks.
B) financial ratios.
C) horizontal trends.
D) regression analyses.
E) vertical trends.

Question 32

Accounts receivable may be used as collateral for borrowings in a process called

A) pledging.
B) underwriting.
C) amortizing.
D) hedging.
E) none of the above.

Question 33

Goldburg Theaters recently extinguished $1,000,000 of long-term debt with cash. This transaction will

A) increase Goldburg's quick ratio.
B) increase Goldburg's quick assets.
C) enhance Goldburg's liquidity.
D) not affect Goldburg's current liabilities.
E) cause Goldburg's accounts receivable turnover ratio to decrease.

Question 34

A company's quick ratio would include

A) inventory in the numerator and accounts payable in the denominator.
B) cash in the numerator and retained earnings in the denominator.
C) accounts receivable in the numerator and common stock in the denominator.
D) prepaid supplies in the numerator and 3-month notes payable in the dominator.
E) accounts receivable in the numerator and 9-month notes payable in the denominator.

Question 35

Quick assets include

Question 36

The following information is from McCaine Corporation's year-end 2009 and 2010 general ledger account information:

What is McCaine's accounts receivable turnover ratio for 2010?

A) 5.7
B) 5.8
C) 6.1
D) 6.7
E) 15.6

Question 37

The formula to calculate the age of accounts receivable is

A) 360 ÷ (Net credit sales ÷ Average accounts receivable)
B) 360 days ÷ (Net income ÷ Average accounts receivable)
C) (Net credit sales ÷ Average accounts receivable) ÷ 360 days
D) Average accounts receivable ÷ 360 days
E) Net credit sales ÷ 360 days

Question 38

The appropriate amount of cash for an organization to have on hand is between 5% and 10% of total assets.

Question 39

Investments in stocks or bonds of another company qualify as cash equivalents.

Question 40

The difference between the purchase price of a treasury bill and the amount that is paid at maturity is the interest earned on the bill.

Question 41

The journal entry to create a petty cash fund involves a debit to Cash and a credit to Retained Earnings.

Question 42

Each of a company's bank accounts must be shown as a separate line item on the balance sheet.

Question 43

The actual amount of cash to be shown as an asset on a company's balance sheet is the amount of cash contained in the year-end bank statement.

Question 44

At the balance sheet date, both gains and losses may be recognized on short-term investments.

Question 45

Recording a $15 check as having been written for $150 will require an addition to the cash account on the bank reconciliation.

Question 46

If Durango Co. writes an NSF check for $100, it will need to subtract that $100 from its bank account balance on the bank reconciliation.

Question 47

A credit term of 2/10, n/30 states that customers will receive a 2% discount if they pay outstanding invoices within 30 days.

Question 48

On the balance sheet, Accounts Receivable is reduced by the contra-accounts of Sales Discounts, Sales Returns and Allowances, and Allowance for Uncollectible Accounts.

Question 49

Merchants being paid from national credit card companies generally receive payment immediately in an amount equal to the total of the credit card slips.

Question 50

Credit card companies generally pay amounts owed to retailers on a more timely basis than do individual customers.

Question 51

A promisory note is a legal document that formally recognizes a debt owed by one party to another party.

Question 52

A 90-day note receivable that is dated on April 30 comes due on July 29.

Question 53

Pledged accounts receivable should not be disclosed in a company's financial statements.

Question 54

Financial ratios are measures that express the relationship or interrelationships between, or among, two or more financial statement items.

Question 55

Short-term investments are quick assets.

Question 56

Assuming a 360-day year, the age of receivables for a company with an accounts receivable turnover ratio of 4.5 is 80 days.

Question 57

The age of accounts receivables indicates the credit terms granted by a company.

Question 58

The following are recent transactions and other events involving Urbina Corporation.

Required:
Journalize each of these transactions or events in Urbina's accounting records.

Question 59

Gray Corporation recently received its March 2010 bank statement, started its monthly bank reconciliation, and noticed the following reconciling items.


Additional Information
• Excluding the reconciling items noted above, Gray's cash account balance per general ledger is $1,987.50, and its cash balance per bank statement is $327.50.
• When Check #127 was issued to buy office supplies, the check was mistakenly recorded as $70 rather than $700. Gray has used all the office supplies purchased with check #127.
• Gray believes that the customer who gave the NSF check will pay the company in the near future.
Required:
a. Prepare Gray's March 2010 bank reconciliation.
b. Prepare any necessary journal entries to adjust Gray's cash account balance per general ledger.

Question 60

The following information is available related to O Inc.'s bank account:

Required:
a. Prepare a bank reconciliation for April.
b. Prepare any necessary journal entries for O Inc. for April's bank reconciliation.

Question 61

The following information is available for Cluff Corporation, which estimates uncollectible accounts based on sales at year-end.
January 1 Customer purchased $10,000 of merchandise on credit with terms 2/10, net 60.
January 4 Customer purchased merchandise for $20,000 cash.
January 9 Customer who purchased merchandise on January 1 remitted appropriate cash payment.
January 10 Customer who purchased merchandise on January 4 returned $3,000 of goods for a refund.
January 15 Wrote off an uncollectible account receivable of $2,000.
January 17 Customer purchased $10,000 of merchandise with his WorldCard. WorldCard deducts a 3% fee when remitting the charges made by its customer to vendors.
January 20 Cluff receives the appropriate cash payment from WorldCard related to January 17 transaction.
January 22 A customer who had purchased $5,000 of merchandise with credit terms of 2/10, net 30 on December 10 requested that Cluff transfer the account to an 8%, 4-month note. The note is signed and exchanged.
Required:
Journalize each of these transactions or events in Cluff's accounting records.

Question 62

The following transactions involve Lusk Enterprises, which uses a percentage of credit sales method to estimate uncollectible accounts expense. Assume that the company records its uncollectibles estimate monthly.
April 1 Wrote off an uncollectible account of $20,000.
April 4 A customer whose $4,000 account was written off last year made restituition to Lusk at the rate of $0.30 on the dollar.
April 30 Lusk estimates that 1% of all credit sales will be uncollectible. Credit sales for April were $1,600,000
Required:
Journalize each of these transactions in Lusk's accounting records.

Question 63

On June 1, Ellison Co. performed $10,000 of services on account for Kendra Corp. On July 1, Kendra asked Ellison to exchange its account for a 3-month, 12% note, which Ellison did. Kendra paid the note in full.
Required:
Prepare and date all necessary entries for Ellison Co.

Question 64

Imar Corp.'s 2009 and 2010 balance sheets and income statements follow.

?
Sixty percent of Imar's net sales are net credit sales.
Required:
a. Calculate Imar's net credit sales for 2010. (Round to the nearest $100.)
b. Calculate Imar's quick ratio for 2010.
c. Calculate Imar's average accounts receivable for 2010.
d. Calculate Imar's accounts receivable turnover ratio.
e. Calculate the average age of Imar's receivables. Assume a 360-day year and round to the nearest day.