B.Ex. 7.8 a.
____________
*Supplemental Topic, “Accounting for Marketable Securities.”
Accounts receivable turnover rate (net sales/average accounts
receivable):
Molson Coors : $5,170/$517 = 10.0 times
Anheuser-Busch InBev: $39,046/$2,606 = 15.0 times
B.Ex. 7.10
All sales by long distance carriers, such as Sprint Nextel Corporation, are made on
account. In contrast, the majority of sales made by grocery chains, such as Weis
the other hand, generate a large volume of credit sales from individuals. Generally
a. Balance per bank statement at September 30 ……………………….. 3,400$
Add: Deposit made by your parents on October 2 ………………….. 2,400
5
,
800$
Deduct outstandin
g
checks:
Ex. 7.2 a.
b.
SOLUTIONS TO EXERCISES
Ex. 7.1
Financial assets are cash and other assets that are readily convertible into known
amounts of cash.
Cash and cash equivalents are reported in the balance sheet at face value.
Marketable securities are reported at market value, whereas accounts receivable are
Ex. 7.3 a.
There were several controls lacking at White Electric Supply which made it
possible for the bookkeeper to embezzle nearly $416,000 in less than five years.
First, not only did the bookkeeper prepare the company’s bank reconciliation
each month, but she also had complete control over all cash receipts and
Ex. 7.4 a.
(3)
(4)
The fraudulent actions by D. J. Fletcher would not cause the general ledger to be
out of balance, nor would these actions prevent the subsidiary ledger for accounts
receivable from agreeing with the control account. Equal debits and credits have
been posted for each transaction recorded.
Note to instructor: The exercise calls for only three specific actions to strengthen internal control.
The above list of four is not exhaustive; others could be cited.
The employee who opens the mail should prepare a list of amounts
The total of each day’s cash receipts recorded by the accounting department
should be compared with the amount of the daily bank deposit by the
cashier.
Ex 7.5 a. $ 15,200
Add: Undeposited receipts of December 31 ………………
10,000
$ 25,200
No. $ 1,000
3,000
Adjusted cash balance ……………………………………
Balance per depositor’s records …………………………
Service charges ……………………………………
Jane Jones check returned NSF ……………………
Adjusted cash balance, as above …………………………
Accounts Receivable (Jane Jones) …………………………
Bank Service Charges ………………………………………
c.
Balance per bank statement ………………………………
The $25 service charge most likely resulted from the $775 check drawn by Jane
Less: Outstanding checks
620……………………………………………
630……………………………………………
returned by bank.
Cash …………………………………………………
641……………………………………………
Ex. 7.6
(2)
If the company is certain it will not need any of the $100,000 in the form of cash for at
least 90 days, putting the entire amount in Discover Bank’s 90-day CD may be its best
Valuation at market value is not a departure from the principle of objectivity.
The quotation of up-to-date market prices enables companies to measure
market values with considerable objectivity.
b. 155,000 155,000
To increase balance in allowance account to required
$84,000:
Uncollectible Accounts Expense ……………………………
…
Allowance for Doubtful Accounts…………………
…
2.5% of net credit sales ($8,000,000 x 2.5% = $200,000).
…
…
Total Net Operating Non Operating
Transaction Assets Income Cash Flow Cash Flow
Ex. 7.10
a.
b.
h.
Cash earmarked for a special purpose is not available to pay current liabilities and,
Ex. 7.11
Cash equivalents normally are not shown separately in financial statements. Rather, they
are combined with other types of cash and reported under the caption, “Cash and Cash
Equivalents.” A note to the statements often shows the breakdown of this asset category.
statement. If the income statement is prepared in a multiple-step format, these gains and
losses are classified as nonoperating activities, and appear after the determination of income
from operations.
Transfers between cash and cash equivalents are not reported in financial statements. For
financial statement purposes, cash and cash equivalents are regarded as a single type of