178.
Watins, Inc.’s 2015 income statement reported net sales of $5,000,000. Watin’s average
accounts receivable during 2015 amounted to $450,000. Using 360 days to a year, Watin’s:
179.
Assuming a 365 day year, Bush Industries calculated an average of 47 days to collect its
accounts receivable in 2015. During 2015, Bush’s accounts receivable turnover rate:
Essay Questions
180.
Financial assets
(a.) Briefly explain what is meant by the term “financial assets.”
(b.) List the three major categories of assets comprising a company’s financial assets. For
each category, indicate the basis for valuation in the balance sheet.
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181.
Match the following terms with the explanations below. If no term fits the explanation
write none
_________ (1) A means of accounting for uncollectibles which does not recognize any
expense until specific receivables are determined to be worthless.
_________ (2) An account showing the amount of estimated uncollectible receivables.
_________ (3) The process of estimating uncollectible accounts by classifying accounts
receivables by age groups.
_________ (4) Dividing net sales by average receivables to create a ratio to measure the
liquidity of accounts receivable.
_________ (5) Very short-term liquid investments which must mature within 90 days of
acquisition.
_________ (6) Cash and assets convertible directly into known amounts of cash.
_________ (7) An account showing the difference between the cost of an investment in
marketable securities and its market value.
_________ (8) The value of a note at its maturity date.
_________ (9) Highly liquid investments that can be sold in organized securities
exchanges.
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182.
Financial assets-effects of transactions
Five events involving financial assets are described below:
(a.) Sold merchandise on account.
(b.) Sold available for sale marketable securities at a gain. Cash proceeds from the sale
were equal to the current market value of the securities reflected in the last balance
sheet.
(c.) Collected an account receivable.
(d.) Adjusted the allowance for doubtful accounts to reflect the portion of accounts
receivable estimated to be uncollectible at year-end.
(e.) Made the fair value accounting adjustment reducing the balance in the available for
sale marketable securities account to reflect a decrease in the market value of securities
owned.
Indicate the effects of each independent transaction or adjusting entry upon the financial
measurements shown in the column headings below. Use the code letters, I for increase,
D for decrease, and NE for no effect.
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183.
Financial assets—effects of transactions
Five events involving financial assets are described below:
(a.) Received dividends earned on investment in marketable securities.
(b.) Invested excess cash in marketable securities.
(c.) Determined that a specific account receivable is worthless and wrote it off against the
allowance for doubtful accounts.
(d.) Made sale of merchandise for cash.
(e.) Sold available for sale marketable securities at a loss. Cash proceeds from the sale
were equal to the current market value reflected in the last balance sheet.
Indicate the effects of each independent transaction or adjusting entry upon the financial
measurements shown in the column headings below. Use the code letters, I for increase,
D for decrease, and NE for no effect.
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184.
Accounting terminology
Listed below are nine technical accounting terms emphasized in this chapter.
Fair value accounting
Factoring
Direct write-off
Financial asset
Cash equivalent
Bank reconciliation
Allowance for doubtful accounts
Accounts receivable turnover
Uncollectible accounts expense
Each of the following statements may (or may not) describe one of these technical terms.
In the space provided below each statement, indicate the accounting term described, or
answer “None” if the statement does not correctly describe any of the terms.
______ a. A transaction in which a business sells its accounts receivables to a financial
institution.
______ b. An estimate of the portion of year-end accounts receivable that ultimately will
turn out to be uncollectible.
______ c. Schedule explaining any differences between cash balances appearing in the
accounting records and in the monthly bank statement.
______ d. Balance sheet valuation standard applicable to investments in marketable
securities.
______ e. Cash and assets convertible directly into known amounts of cash, such as
marketable securities and receivables.
______ f. A ratio, computed by dividing 365 days by average receivables, that indicates the
liquidity of the receivables.
______ g. Method of accounting for uncollectible receivables that fails to match revenues
and expenses.
185.
Cash management
(a.) What is meant by the term “cash management“?
(b.) Identify at least three basic objectives of effective cash management.
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186.
Internal control over cash transactions
Listed below are seven errors or problems that might occur in the processing of cash
transactions. Also shown is a separate list of internal control procedures. Indicate the
internal control procedure that should prevent the error or problem from occurring. If none
of the control procedures would effectively prevent the error, place an X in the space
provided.
Possible Error or Problem
_______ 1. A purchase invoice was paid even though the merchandise was never received.
_______ 2. An employee issued a credit memorandum for a nonexistent sales return in
order to conceal his theft of the amount received in payment of an account receivable.
_______ 3. Management is unaware that blank checks are being issued for unauthorized
expenditures by the official designated to sign checks.
_______ 4. A salesclerk collects the full selling price from a customer but rings up the sale
at less than actual price and pockets the difference.
_______ 5. Several days’ cash receipts are lost in a fire.
_______ 6. A new employee often gives customers an incorrect amount of change.
_______ 7. No one has discovered that amounts deposited in the company’s bank account
by the cashier over the last few years are frequently smaller than amounts forwarded to
him from the mailroom or sales department.
Internal Control Procedures
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187.
Internal control over cash transactions
(a.) Describe two measures contributing to strong internal control over
cash
receipts
.
(b.) Describe two measures contributing to effective internal control over
cash
disbursements
.
188.
Reporting cash in the balance sheet
(a.) The first asset shown in the balance sheet of many companies is labeled “cash and
cash equivalents.” Explain the term “cash equivalent” and give two examples. Why are
cash and cash equivalents listed
first
in the balance sheet?
(b.) The December bank statement for Kowal Publishing Co. reports a balance of
$13,847.59 at December 31, 2015. Kowal’s accounting records, however, show a balance
of $15,245.47 in the same bank account prior to preparation of the bank reconciliation.
Which amount should be included in the amount of cash reported in Kowal’s balance
sheet at December 31, 2015? Explain your answer.
189.
Bank reconciliation—classification
Indicate how the following items would be treated in a bank reconciliation. You may
choose from the following answers:
(A) Deducted from the balance per accounting records.
(B) Added to balance per accounting records.
(C) Deducted from balance per bank statement.
(D) Added to balance per bank statement.
190.
Bank reconciliation—classification
Indicate how the following items would be treated in Aladdin’s, Inc.’s bank reconciliation.
Choose from the following answers:
(a.) Deducted from the balance per accounting records.
(b.) Added to balance per accounting records.
(c.) Deducted from balance per bank statement.
(d.) Added to balance per bank statement.
191.
Bank reconciliation—computation and journal entry
The Cash account in the ledger of Arnaz Company showed a balance of $13,307 at March
31. The bank statement, however, showed a balance of $9,936 at the same date. The only
reconciling items consisted of a $4,902 deposit in transit, a bank service charge of $36,
outstanding checks totaling $2,600, and an NSF check from L. Ball, one of Arnaz’
customers.
(a) What is the amount of the adjusted cash balance on March 31?
(b) What is the amount of the NSF check?
(c) Record the journal entry necessary, if any, to adjust Arnaz Company’s accounting
records at March 31: (An explanation is not required; a single compound journal entry is
acceptable.)