Accounting Chapter 4 4 A company provides services on account. Indicate how this transaction would affect the following five financial statement items

149. Madison Company’s cash ledger reports the following for the month ending March 31,

2012.

Information from March’s bank statement and company records reveals the following

additional information:

a. The ending cash balance recorded in the bank statement is $6,790.

b. Cash receipts of $2,100 from 3/26-3/31 are outstanding.

c. Checks 545 and 547 are outstanding.

d. The deposit on 3/11 included a customer’s check for $400 that did not clear the bank (NSF

check).

e. Check 543 was written for $2,800 for office supplies in March. The bank properly recorded

the check for this amount.

f. An automatic withdrawal for March rent was made on March 4 for $1,500.

g. Madison’s checking account earns interest based on the average daily balance. The amount

of interest earned for March is $50.

h. Last year, one of Madison’s top executives borrowed $4,000 from Madison. On March 24,

the executive paid $4,200 ($4,000 borrowed amount plus $200 interest) directly to the bank in

payment for the borrowing.

i. The bank charged the following service fees: $30 for NSF check, $10 for automatic

withdrawal for rent payment, and $20 for collection of the loan amount from the executive.

Prepare a bank reconciliation for March 31, 2012, and record the necessary cash adjustments.

150. Describe the procedures used to reconcile a company’s cash balance.

Listed below are six terms followed by a list of phrases that describe or characterize the

terms. Match each phrase with the best term by placing the letter designating the term in the

space provided

Terms:

a. Bank service fees

b. Deposits outstanding

c. Interest earned

d. NSF checks

e. Company error

f. Checks outstanding

151. ____ Fees imposed by the bank to the company for providing routine services.

152. ____ Checks written to the company that are returned by the bank as not having adequate

funds.

153. ____ The company recorded a deposit twice.

154. ____ Checks written by the company but not yet recorded by the bank.

155. ____ Cash receipts received by the company but not yet recorded by the bank.

156. ____ Money earned on the average daily balance of the checking account.

157. Regarding a bank reconciliation, which one of the following is an item recorded by the

company but not by the bank?

a. Checks outstanding.

b. Interest earned.

c. Service charges.

d. NSF checks.

158. The following information pertains to Sooner Company’s cash balance and bank

reconciliation as of August 31:

What is the correct cash balance for Sooner Company?

a. $7,150.

b. $5,150.

c. $7,650.

d. $7,250.

159. A company establishes a petty cash fund for $400. By the end of the month, employees

had made the following expenditures from the fund: supplies, $150; fuel for deliveries, $120;

postage, $75; miscellaneous, $35. Record the entry to recognize expenditures from the petty

cash fund.

160. A company establishes a $400 petty cash fund on August 3 to pay for minor cash

expenditures. The fund is replenished at the end of each month. At the end of August, the

fund contains $40 in cash and the following receipts:

Record the establishment of the petty cash fund on August 3, the expenditures of the fund,

and replenishment on August 31.

161. A company provides services on account during the current year totaling $400,000. By

the end of the year, $350,000 of this amount had been received. In addition, $75,000 was

received on account from customers for services provided in the prior year. Determine the

amount of operating cash flows the company will report as received from customers in the

current year.

162. During the current year, a company provides services on account for $100,000. By the

end of the year, $60,000 of this amount had been received. In addition, cash payments for the

year were employees’ salaries, $50,000; office supplies, $10,000; and utilities $20,000.

Determine the amount of operating cash flows the company will report in the current year.

163. During the current year, a company purchases equipment for $250,000, paying $50,000

immediately and promising to pay the remainder within 30 days after the end of the year.

Determine the amount of investing cash flows the company will report in the current year.

164. At the beginning of the current year, a company issued stock for $100,000 and borrowed

$50,000 from the bank. By the end of the year, the company had provided services of $80,000

for cash, paid employee salaries of $30,000, and paid utilities of $10,000. Determine the

amount of financing cash flows the company will report in the current year.

165. During the year, a company issues common stock for $50,000 and repays previously

borrowed amounts of $75,000. In addition, the company pays dividends of $5,000 to

stockholders. Determine the amount of financing cash flows the company will report in the

current year.

166. Consider the following transactions:

1. Pay employees’ salaries.

2. Repay borrowing to the bank.

3. Purchase equipment with note payable.

4. Provide services to customers on account.

5. Pay dividends to stockholders.

6. Collect cash from customers for services provided.

7. Purchase supplies on account.

8. Pay for supplies purchased in transaction 7 above.

167. A company had the following transactions during the year:

1. Paid rent for the next two years, $8,000.

2. Purchased office supplies on account, $2,400.

3. Purchased equipment, paying $12,000 cash and issuing a note payable for $4,000.

4. Borrowed from the bank, $6,000.

5. Paid employee salaries, $7,200.

6. Paid $2,000 on account related to transaction 2 above.

7. Paid dividends to stockholders, $2,800.

8. Sold land for $10,000 that was purchased in a prior year for $7,500.

9. Collected cash from customers for services provided, $25,700.

Calculate cash flows from operating activities, investing activities, and financing activities.

168. Below is a summary of all the transactions of Sampson Consulting for the month of

April 2012.

Prepare a statement of cash flows for the month of April, properly classifying each of the

transactions into operating, investing, and financing activities. The cash balance at the

beginning of April is $14,800.

169. What is the purpose of the statement of cash flows? List the three major categories of

cash flows and give an example of a cash transaction for each category.

170. What is the link between the balance sheet and the statement of cash flows? Describe the

operating, investing, and financing sections of the statement of cash flows.

Listed below are six terms followed by a list of phrases that describe or characterize the

terms. Match each phrase with the best term by placing the letter designating the term in the

space provided.

Terms:

a. Cash inflow from operating activities

b. Cash outflow from financing activities

c. Cash outflow from operating activities

d. Cash inflow from investing activities

e. Cash inflow from financing activities

f. Cash outflow from investing activities

171. ____ Pay dividends to stockholders.

172. ____ Pay salaries to employees.

173. ____ Purchase equipment.

174. ____ Receive payment from customers.

175. ____ Issue common stock.

176. ____ Sell office building.

177. Consider the following cash flow items:

Pay amount owed to bank for previous borrowing.

Pay utility costs.

Purchase equipment to be used in operations.

Purchase office supplies.

Pay one year of rent in advance.

Pay workers’ salaries.

Pay for research and development costs.

Pay taxes to the IRS.

Sell common stock to investors.

How many of these cash flow items involve investing activities?

a. Zero.

b. One.

c. Two.

d. Three.

178. Consider the following cash flow items: