1. The Cash account on the balance sheet should not include which of the following items?

a. Travel advances to employees

b. Currency

c. Money orders

d. Deposits in transit

Answera. Travel advances to employees are really a nontrade receivable -- the employee either has to return the money or provide an accounting to indicate how the money was spent. Currency and money orders are both cash because they are acceptable to a bank for deposit and can be used to satisfy debts. Deposits in transit are cash; the bank simply has not posted the deposit to a specific account.

 

2. A credit memorandum accompanying a bank statement would occur for which of the following items?

a. A previously deposited customer check which was returned NSF.

b. Bank service charges for the month.

c. The proceeds of a note collected by the bank are deposited to the account.

d. Each of the above.

Answerc. A credit memorandum issued by a bank indicates that a bank account has been increased. Of the noted items, only answer "c" relates to a transaction which increases cash.

 

3. When reconciling the ending cash balance per the bank statement to the correct adjusted cash balance, how would deposits in transit be handled?

a. Added to the balance per the bank statement.

b. Subtracted from the balance per the bank statement.

c. Added to the balance per company records.

d. Ignored.

Answera. Deposits in transit must be added to the balance per the bank statement. These are amounts of cash which belong to the company, but which have not as yet been recorded by the bank. The balance per company records should already include these amounts, so answer "c" is incorrect.

 

4. A bank reconciliation sometimes points to the need for adjusting entries. In general, the source of the adjustments is:

a. the reconciliation of the ending balance per the bank statement to the adjusted cash balance.

b. the reconciliation of the cash balance per the company records to the adjusted cash balance.

c. both a and b.

d. none of the above.

Answerb. The cash balance per company records is the amount of cash in the general ledger account before the reconciliation. The correct amount of cash actually possessed by the firm is the adjusted cash balance, per the reconciliation. Logically, the reconciliation of the cash balance per company records to the correct amount of cash points to the need for a journal entry to update the Cash account.

 

5. Malory Company provides the following information about the month-end bank reconciliation:

The correct ending cash balance is:

a. $4,914

b. $7,268

c. $7,313

d. $7,383

Answer

 

6. Malory Company provides the following information about the month-end bank reconciliation:

What journal entry should be recorded to cause the company records to be correct?

a.	Cash			70
		Cash Short & Over				70
b.	Miscellaneous Expense			70
		Cash				70
c.	Miscellaneous Expense			25
	Accounts Receivable			45
		Cash				70
d.	Miscellaneous Expense			2,399
		Cash				2,399

Answer

 

7. When using a petty cash system, the replenishment of the fund would normally include a debit to:

a. Cash.

b. Petty Cash.

c. Revenues.

d. None of the above.

Answerd. Various expense accounts are debited and Cash is credited.

 

8. The trading securities owned by a company are:

a. reported on the balance sheet as a current asset.

b. reported on the balance sheet as a noncurrent asset.

c. reported on the balance sheet as a contra-equity account.

d. reported on the balance sheet as a reduction of liabilities.

Answera. Trading securities are normally reported as current assets.

 

9. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. What amount should be reported as a charge against income in Lenton's income statement for the first year of operation?

a. $0

b. $10,000

c. $20,000

d. $30,000

Answerb. Aggregate cost equals $111,000 ($50,000 + $35,000 + $26,000). Aggregate market value equals $101,000 ($60,000 + $17,000 + $24,000). The $10,000 difference is a decline which is reported as an unrealized loss.

 

10. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. The journal entry to record the decline in market value would include:

a. a debit to Unrealized Loss on Trading Securities.

b. a credit to Unrealized Gain on Trading Securities.

c. a debit to Trading Securities.

d. At least two of the above.

Answera. The appropriate entry is to debit Unrealized Loss on Trading Securities and credit Trading Securities for $10,000. Choice "a" is the only correct choice.