Chapter 6: Cash and Receivables
104. On October 1, Robins’s Online Sales sold goods for $50,000 and accepted a six-month noninterest-bearing note.
Current interest rates were 10%. The December 31 adjusting entry should be
a.
Interest Receivable 2,500
Interest Revenue 2,500
b.
Discount on Notes Receivable 1,250
Interest Revenue 1,250
c.
Discount on Notes Receivable 2,500
Interest Receivable 2,500
d.
Interest Revenue 1,250
Discount on Notes Receivable 1,250
b
1
Moderate
ACCT.WHAL.16.6.7 – LO: 6.1
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
105. On May 17, Bruno Olive Co. accepted a $6,500, 8%, 90-day note from a customer. On June 11, the note was
discounted at 10%. At maturity date, the note was dishonored and the bank charged a $25 protest fee. The amount
that Bruno Olive Co. would debit to Notes Receivable Dishonored is
a.
$6,655.00
b.
$6,535.29
c.
$6,525.00
d.
$6,130.00
Chapter 6: Cash and Receivables
106. Which statement concerning notes receivable is false?
a.
Notes receivable initially should be recorded at the present value of the future cash receipts.
b.
All notes implicitly include interest.
c.
The account Discount on Notes Receivable is a contra-revenue account .
d.
The account Notes Receivable Dishonored is an asset account.
c
1
Easy
ACCT.WHAL.16.6.7 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
107. When a company sells a customer’s note to a bank, the discount period is the length of time
a.
from the date of discount to the date of sale.
b.
from the date of sale to the issue date.
c.
from the date of discount to the maturity date.
d.
from the date of discount to the issue date.
c
1
Easy
ACCT.WHAL.16.6.7 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
108. When a company sells a customer’s note to a bank, the discount rate is
a.
the interest rate charged by the bank.
b.
the interest rate charged to the customer.
c.
an unstated implicit interest rate.
d.
the effective annual interest rate.
a
1
Easy
ACCT.WHAL.16.6.7 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
109. The entry to replenish the petty cash fund for $250 of various minor expenses would include a
a.
debit to Petty Cash for $250.
b.
debit to Cash for $250.
c.
credit to Petty Cash for $250.
d.
credit to Cash for $250.
d
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
110. Assume that the custodian of a $500 petty cash fund has $62 in currency plus $412 in receipts at the end of the
month. The entry to replenish the petty cash fund will include
a.
a credit to Cash for $412.
b.
a credit to Cash Short and Over for $26.
c.
a debit to Petty Cash for $438.
d.
a credit to Cash for $438.
d
1
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
111. What type of account is Cash Short and Over?
a.
Asset
b.
Liability
c.
Deferred revenue
d.
Expense
d
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG – BUSPROG: Analytic
United States – Ohio – Default City – AICPA – FN-Decision Modeling
112. After completing the bank reconciliation, which of the following reconciling items would require an adjusting
journal entry on the company’s books?
a.
outstanding checks
b.
service charges
c.
deposits in transit
d.
cash on hand
b
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
113. Brad’s Market’s accountant is preparing its May bank reconciliation and has collected the following data:
Per Books
Per Bank
May 1 balance
$11,600
$10,000
May deposits
24,600
21,200
May checks
27,800
29,000
Note collected (includes 10% interest)
—
4,400
May service charge
—
20
May 31 balance
8,400
6,580
Additionally, deposits in transit and outstanding checks from April’s reconciliation were $4,400 and $2,800,
respectively.
The correct balance for Cash at May 31 should be
a.
$10,960
b.
$12,780
c.
$11,180
d.
$13,980
b
1
Moderate
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
114. On a bank reconciliation, customers’ checks that are returned for lack of funds would be
a.
deducted from the balance per company records.
b.
deducted from the balance per bank statement.
c.
added to the balance per bank statement.
d.
added to the balance per company records.
a
1
Moderate
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
115. When preparing a bank reconciliation, outstanding checks would be
a.
added to the balance per bank statement.
b.
added to the balance per company records
c.
deducted from the balance per bank statement
d.
deducted from the balance per company records
c
1
Moderate
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
116. Joan Bell, Inc. uses the bank reconciliation form that arrives at a corrected cash balance. Bank service charges will be
a.
deducted from the book balance.
b.
added to the bank balance.
c.
added to the book balance.
d.
deducted from the bank balance.
a
1
Moderate
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
117. Hunter’s, Inc. reported a balance of $1,410 in its cash account at the end of the month. There were $1,200 of deposits
in transit and $1,150 of checks outstanding. The bank statement showed a balance of $1,510, service charges of $70,
and the collection of a note plus interest. The note had a face value of $170. How much interest did the bank collect
for the company?
a.
$ 30
b.
$ 50
c.
$290
d.
$390
118. Deposits made directly by the bank would be
a.
added to the company’s records.
b.
deducted from the company’s records.
c.
added to the bank statement balance.
d.
deducted from the bank statement balance.
a
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
119. When completing the bank reconciliation, deposits in transit would be
a.
added to the company’s records.
b.
deducted from the company’s records.
c.
added to the bank statement balance.
d.
deducted from the bank statement balance.
c
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
120. After the company completes the bank reconciliation, it makes journal entries for adjustments
a.
it made to the bank statement balance only.
b.
it made to the company records only.
c.
it made to both the bank statement and the company records.
d.
made on the statement of cash flows.
b
1
Easy
ACCT.WHAL.16.6.8 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
121. Emma Co.’s records reveal the following data at year-end:
Commercial paper maturing in four months. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,600
Uncashed tax refund check. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,000
Petty cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155
Certificates of deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,675
Balance in Union Savings and Loan savings account . . . . . . . . . . . . . . . . . . . . .
3,000
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Balance in United Bank checking account. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(250)
Treasury notes maturing in six months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2450
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
650
Postdated customer check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175
Employee travel advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195
Treasury bill maturing in one month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,500
Required:
Compute the correct amount of cash and cash equivalents that will appear as a current asset on Emma Co.’s balance
sheet.
Cash ($1,000 + $155 + $3,000 + $650)
Cash equivalents
Total
1
Challenging
ACCT.WHAL.16.6.1 – LO: 6.1
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
122. Littlestown Corporation reports the following information:
Balance in National Bank checking account . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,155
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,600
Petty cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
425
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,325
Employees’ IOUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225
Balance in Society Bank checking account . . . . . . . . . . . . . . . . . . . . . . . . . . .
(300)
Customer’s postdated check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175
Balance in Peoples Savings and Loan savings account . . . . . . . . . . . . . . . . . . .
9,500
Required:
Compute the correct amount of cash that will appear as a current asset on Littlestown Corporation’s balance sheet.
123. Below is a list of items. Classify each into one of the following balance sheet categories:
a.
Cash
c.
Short-term Investments
b.
Receivables
d.
Other
_____
1
Savings account
_____
2
Sinking Fund
_____
3
Checking account
_____
4
Postage stamps
_____
5
Treasury bills maturing in six months
_____
6
Foreign Currencies on deposit in foreign banks
_____
7
Certificate of deposit maturing in five years
_____
8
Common stock of another company (to be sold by December
31, this year)
_____
9
Compensating balances held in long-term borrowing
arrangements
_____
10
Travel Advances
1
a
3
a
5
c
7
d
9
d
2
d
4
d
6
a
8
c
10
d
1
Easy
ACCT.WHAL.16.6.1 – LO: 6.1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
124. Based on the following information as of December 31:
Postdated check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 750
Employee travel advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450
Checking account balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,500
Savings account balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,500
Bank overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
750
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,500
Petty cash fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250
Bank draft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,250
Required:
Compute the total amount that will appear for current assets on the December 31 balance sheet.
125. The Boise Tractor Company hired a new auditor DeBruins & Co. Upon review of their accounting records DeBruins
made some suggestions regarding the information classified in the single account titled Accounts Receivable. The
auditors found the following:
Accounts Receivable (trade)
$ 78,875
Advances to Employees
2,475
Deposit to guarantee performance
19,000
Utility Deposit
750
Notes Receivable (trade) due in 2 years
14,500
Interest Receivable, due in 6 months
1,250
Required:
1) Prepare the journal entry to separate the items into their proper accounts.
2) How should the items be reflected on Boise Tractors balance sheet?
Non-trade Receivables
Employee Advances Receivable
Notes Receivable
Interest Receivable
Accounts Receivable
Accounts Receivable (trade)
Current Asset, Trade Receivable
Advances to Employees
Current Asset, Nontrade receivable
Utility Deposit
Long term asset, Nontrade Receivable
years
1
Moderate
ACCT.WHAL.16.6.3 – LO: 6.4
United States – BUSPROG: Communication
United States – OH – Default City – AICPA: FN-Decision Modeling
126. The following are transactions of the Morrison Company:
a.
On November 5, sold merchandise on account for $46,000 with terms of 3/15, n/30.
b.
On November 20, payment was received on $32,000 worth of merchandise sold on
November 5.
c.
On December 5, further collections were made on $8,000 of merchandise sold on
November 5.
d.
On December 8, merchandise sold for $4,000 on November 5 was returned by the
purchaser and credit was granted by Morrison Company.
Required:
Consider the journal entry required for each transaction a-d. In the spaces below, record the appropriate dollar
amounts to be debited or credited on the appropriate line for each account under the gross price and net price
methods.. Indicate that the amount is a debit or credit by placing a (Dr) or (Cr) after the amount. Leave spaces blank
for any accounts NOT affected by a transaction.
a. To record sale on Nov. 5:
Gross Price
Net Price
Method
Method
Cash
________
________
Accounts Receivable
________
________
Sales
________
________
Sales Discounts
________
________
Allowance for Sales Discounts
________
________
Sales Discounts Not Taken
________
________
Sales Returns and Allowances
________
________
b. To record payment received on Nov. 20:
Gross Price
Net Price
Method
Method
Cash
________
________
Accounts Receivable
________
________
Sales
________
________
Sales Discounts
________
________
Allowance for Sales Discounts
________
________
Sales Discounts Not Taken
________
________
Sales Returns and Allowances
________
________
Chapter 6: Cash and Receivables
c. To record payment received on Dec. 5:
Gross Price
Net Price
Method
Method
Cash
________
________
Accounts Receivable
________
________
Sales
________
________
Sales Discounts
________
________
Allowance for Sales Discounts
________
________
Sales Discounts Not Taken
________
________
Sales Returns and Allowances
________
________
d. To record sales return on Dec. 8:
Gross Price
Net Price
Method
Method
Cash
________
________
Accounts Receivable
________
________
Sales
________
________
Sales Discounts
________
________
Allowance for Sales Discounts
________
________
Sales Discounts Not Taken
________
________
Sales Returns and Allowances
________
________
Net Price
127. On August 2 Banger Mash Company sold merchandise to the Boise Potato Company in the amount of $6,500 with
terms of 3/10 n/30, f.o.b. shipping. An invoice in the amount of $180 was received by Boise Potato for the freight.
On August 12 Banger Mash received the money due for the merchandise purchased.
Required:
1) Prepare the journal entries for the sale and subsequent collection from the customer for Banger Mash using the
gross method.
2) Prepare the journal entries for the sale and subsequent collection from the customer for Banger Mash using the net
method.
3) Prepare the journal entry to record payment using the net method and assuming Boise did not pay the invoice due
until August 25.
128. Lockern Co. records estimated future sales returns and allowances. Total sales amount to $1,550,000, and, in the
past, sales returns and allowances have been 2 1/2% of sales.
Required:
Prepare journal entries to:
a.
Record the estimated sales returns and allowances.
b.
Record the return of $1,000 of defective furniture.
1
ACCT.WHAL.16.6.4 – LO: 6.1
United States – BUSPORG: Analytic
129. Movie Set Up Company’s trial balance before adjustment included the following information:
Debit
Credit
Accounts receivable
$1,245,000
Allowance for doubtful accounts
18,245
Sales
$10,510,000
Sales returns and allowances
48,000
Prepare journal entries assuming that the estimate of uncollectibles is determined by taking:
(1) 3.5% of gross accounts receivable
(2) 0.5% of net sales.
130. Stacie, Inc. sold goods for $76,000 with terms of 2/10, n/30 on May 1.
Required:
Prepare journal entries for the following:
a.
The sale on May 1, assuming the gross price method is used.
b.
The sale on May 1, assuming the net price method is used.
c.
Receipt of payment, assuming collection is made on May 31 and the net price method is
used.
d.
Receipt of payment, assuming collection is made on May 9 and the gross price is used.
ACCT.WHAL.16.6.4 – LO: 6.1
United States – BUSPORG: Analytic
131. Gazoo Co. sold goods with a list price of $45,000 (gross billings) on terms of 2/10, n/30 on December 14, 2014.
Accounts receivable and sales were recorded using the net method. By December 23, Gazoo had collected on
$25,000 (gross billings) of these receivables. On January 2, additional collections were made on sales of $5,000
(gross billings) and sales returns and allowances of $3,000 (gross billings) were granted by Gazoo. On January 15,
2015, all remaining balances were collected.
Required:
Prepare journal entries for the following:
a.
Collections received by December 23, net method of accounting for sales discounts.
b.
Any required adjustment, December 31, net method.
c.
Sales returns and allowances granted on January 2, net method.
d.
Collections received on January 15, net method.
1
Challenging
ACCT.WHAL.16.6.4 – LO: 6.1
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
132. Bailey’s Manufacturing Company is looking at changing their method of reporting bad debts expense. In past years
the company has been able to use the direct write off method but have experienced significant growth in recent
years. The accountants have prepared the following aging schedule based upon their current accounts receivable
volume.
Balance
Age of Receivable
Estimated
Percentage
Uncollectible
$245,000
Under 30 days
0.75%
135,600
30-60 days
3.50%
55,660
61-120 days
20%
32,500
121-240 days
35%
28,750
214-360 days
45%
18,750
over 360 days
60%
$516,260
Current Account Balances
Allowanced for
Uncollectible Accounts $ 4,568Cr
Net Credit Sales
$ 1,678,975
Cash Sales
1,453,650
Total Sales
3,132,625
Accounts Receivable
$ 516,260
Required:
1) Using the above information compute the estimated amount of uncollectible receivables.
2) Prepare the journal entry to record the estimated uncollectibles.
3) Instead of the aging method compute the estimated bad debts to be:
a) 2.5% of net credit sales.
b) 3.5% of gross accounts receivable
$1,837.50
12,937.50
Allowance for Doubtful Accounts
# 53,278 – 4,568
133. The following information is provided:
Unadjusted balance in Allowance for Doubtful Accounts
$ 1,100
(debit)
Accounts Receivable, December 31
245,500
Sales Returns and Allowances
5,500
Sales
850,000
Sales Discounts
15,000
Required:
a.
Prepare the adjusting entry if bad debts are estimated to be 1.5% of net sales.
b.
Compute the amount of the adjusting entry if bad debts are estimated to be 3% of ending
accounts receivable.
* answers rounded*
1
Challenging
ACCT.WHAL.16.6.5 – LO: 6.5
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
1
Challenging
ACCT.WHAL.16.6.5 – LO: 6.5
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement