PE 6-1.

Classifying Major Business Activities

Classify each of the following business activities as an operating, an investing, or a financing activity.

Business Activity Type of Activity

a. Acquiring inventory for resale Operating
b. Buying and selling stocks and bonds of other companies Investing
c. Selling shares of stock to investors for cash Financing
d. Selling products or services Operating
e. Buying property, plant, or equipment Investing
f. Acquiring and paying for other operating items Operating
g. Selling property, plant, or equipment Investing
h. Borrowing cash from creditors Financing

PE 6-2. Control of Cash

Which one of the following is not an important control associated with cash?

a. The cash balance must never fall below the sum of inventory and accounts receivable.

b. All cash receipts must be deposited daily.

c. All cash expenditures must be made with prenumbered checks.

d. The handling of cash must be separated from the recording of cash.

PE 6-3. Petty Cash Fund

(a) A small amount of discretionary cash that is maintained to make small payments is termed as
petty cash fund .

(b) _____________ help(s) the organization to deposit major amount of cash into the bank
account and a small portion on hand to make small payments.
PE 6-4. Petty Cash Fund

At the beginning of this month, Friedman Company established a petty cash fund with the
amount of $10,000. At the end of this month, it was found that the balance of this fund was $490,
but the documents to support the payments for stamps were lost:

a. Utilities expenses $4,400

b. Office supplies expenses $1,810
c. Taxi and transportation expenses $2,050
d. Stamp expenses?

Assuming that the balance of the petty cash fund is correct, what is the amount for the stamp
expenses? $1250

PE 6-5. Bank Reconciliation

Shiller Company received a bank statement showing the account balance $268,500, which is
different from the amount shown in Shiller’s general ledger. The following events account for
the discrepancy between the balance per books and the balance per bank statement:

a. Deposit in transit $38,500

b. Outstanding checks $40,000
c. Bank charge for collecting notes receivable $8,400
d. Other bank charges $550

What would be the account balance according to Shiller's general ledger? $275,950

PE 6-6. Bank Reconciliation

Shiller Company received a bank statement showing the account balance $268,500, which is
different from the amount shown in Shiller’s general ledger. The following events account for
the discrepancy between the balance per books and the balance per bank statement:

a. Deposit in transit $38,500

b. Outstanding checks $40,000
c. Bank charge for collecting notes receivable $8,400
d. Other bank charges $550

What should be the correct account balance as of the end of November? $267,000
PE 6-7. Journalizing Entries from a Bank Reconciliation

Shiller Company received a bank statement showing the account balance $268,500, which is
different from the amount shown in Shiller’s general ledger. The following events account for
the discrepancy between the balance per books and the balance per bank statement:

a. Deposit in transit $38,500

b. Outstanding checks $40,000
c. Bank charge for collecting notes receivable $8,400
d. Other bank charges $550

Prepare the journal entries to adjust to the correct balance. If an amount box does not require an
entry, leave it blank.

Bank Charges 8,950

Cash 8,950

PE 6-8. Bank Reconciliation

Company G received a bank statement at the end of the month. The statement contained the
following.

Ending balance $61,000

Bank service charge for the month 275
Interest earned and added by the bank to the account balance 195

In comparing the bank statement to its own cash records, the company found the following:

Deposits made but not yet recorded by the bank $14,300

Checks written and mailed but not yet recorded by the bank 26,700

Before making any adjustments suggested by the bank statement, the cash balance according to
the books is $48,680.

What is the correct cash balance as of the end of the month? $48,600

Verify this amount by reconciling the bank statement with the cash balance on the books.
PE 6-8 Cont.

PE 6-9. Journal Entries from a Bank Reconciliation

Company G received a bank statement at the end of the month. The statement contained the
following.

Ending balance $61,000

Bank service charge for the month 275
Interest earned and added by the bank to the account balance 195

In comparing the bank statement to its own cash records, the company found the following:

Deposits made but not yet recorded by the bank $14,300

Checks written and mailed but not yet recorded by the bank 26,700

Before making any adjustments suggested by the bank statement, the cash balance according to
the books is $48,680.

Record all journal entries necessary on the company’s books to adjust the reported cash balance
in response to the receipt of the bank statement. If an amount box does not require an entry, leave
it blank.

Service Charge
Cash 195 275
Expense
Interest 195 Cash 275
Revenue
PE 6-10. Bank Reconciliation and Journal Entries

Thaler Company received a bank statement showing the account balance $388,500 as of the end
of December. The following events account for the discrepancy between the balance per books
and the balance per bank statement:

a. Deposit in transit $38,500

b. Outstanding checks $40,000
c. NSF $15,000

1. What would be the account balance according to Thaler’s general ledger? 402,000

2. Prepare journal entries to adjust to the correct balance. If an amount box does not require an
entry, leave it blank.

Accounts Receivable 15,000

Cash 15,000

P 6-1.

Cash Fraud

Mac Faber was the controller of the Lewiston National Bank. In his position as controller, he was
in charge of all accounting functions. He wrote cashier’s checks for the bank and reconciled the
bank statements. He alone could approve exceptions to credit limits for bank customers, and
even the internal auditors reported to him. Unknown to the bank, Mac had recently divorced and
was supporting two households. In addition, many of his personal investments had soured,
including a major farm implement dealership that had lost $40,000 in the last year. Several
months after Mac had left the bank for another job, it was discovered that a vendor had paid
twice and that the second payment had been deposited in Mac’s personal account. Because Mac
was not there to cover his tracks (as he had been on previous occasions), an investigation ensued.
It was determined that Mac had used his position in the bank to steal $117,000 over a period of
two years. Mac was prosecuted and sentenced to 30 months in a federal penitentiary.

Required:

1-a. In a bank, a person who is in charge of the accounting function used a cashier’s check to
reconcile the statement. Identify the internal control weakness in the given situation.

a. The bank lacks segregation of duties.

b. The cash bank and passbook can be reconciled using any method.
c. The process of issuing a cashier's check for reconciling the statement is an accepted
accounting practice, so there is no internal control weakness.
d. None of the above.
a.

1-b. In a bank, a person who is in charge of the accounting function had powers to approve
exceptions to credit limit for bank customers and internal auditors reported to him. Does this
indicate any violation or internal control weakness.

a. No, This does not indicate any weakness or violation as long as the owners of the bank
approve of it.
b. It is unfair that each category of customers gets different credit limits.
c. It is risky and leads to approval of extremely high outstanding personal loans and credit
balance and the internal auditors cannot independently report such weakness due to the
reporting structure.
d. Due to single control, the efficiency of recovery of loans and credits may be high.

c.

1-c. In a bank, the internal auditor and accountant are the same. Does this indicate any violation
of internal control procedures.

a. The audit committee and auditors should not report to the accountant but should report to
a subset of board of directors to avoid conflict of interest and free and fair reporting.
b. The internal auditor and accountant should be the same person, this indicates a robust
internal control procedure.
c. The flow of work from recording to auditing will happen simultaneously and can help in
cutting costs.
d. None of the above.

a.

2. In a bank, the accountant commits lots of fraud in handling the cash, and it is found that
personal financial pressure led him into such activities. Does this indicate a violation or
weakness of the internal control system.

a. Due to personal pressure, he is just borrowing money from his work place. There is no
violation.
b. His acts are unethical and legally punishable. Yes there is a violation.
c. It is ethical to use office funds for personal use as long as interest is paid on the sums of
money taken.
d. Paying a fine and settling the stolen cash reduce the risk of punishment.

b.
P 6-2. Internal Control Structure

Below are six descriptions of internal control problems. Select the internal control principle that
is most related to the problem described.

1. The person who is authorized to sign checks approves purchase Proper procedures or
orders for payment. authorizations
2. Cash shortages are not discovered because there are no daily Independent check on
cash counts by supervisors. performance
3. The same person opens incoming mail and posts the accounts
receivable subsidiary ledger. Segregation of duties
4. Some cash payments are not recorded because checks are not Proper procedures or
prenumbered. authorizations
5. A clothing store is experiencing a high level of inventory
shortages because people try on clothing and walk out of the Physical control over
store without paying for the merchandise. assets and records
6. Three people handle cash sales from the same cash register
drawer. Segregation of duties

P 6-4. Determining Where the Cash Went

Kim Lee, the bookkeeper for Briton Company, had never missed a day’s work for the past 10
years until last week. Since that time, he has not been located. You now suspect that Kim may
have embezzled money from the company. The following bank reconciliation, prepared by Kim
last month, is available to help you determine if a theft occurred:

Briton Company
Bank Reconciliation for August 2017
Prepared by Kim Lee
Balance per bank statement $192,056 Balance per books $169,598
Additions to bank balance: Additions to book balance:
Deposits in transit 8,000 Note collected by bank 250
Interest earned 600
Deductions from bank balance: Deductions from book balance:
Outstanding checks: NSF check (1,800)
#201 (19,200) Bank service charges (48)
#204 (5,000)
#205 (4,058)
#295 (195)
#565 (1,920)
#567 (615)
#568 (468)
Adjusted bank balance $168,600 Adjusted book balance $168,600

In examining the bank reconciliation, you decide to review canceled checks returned by the
bank. You find that check stubs for check nos. 201, 204, 205, and 295 indicate that these checks
were supposedly voided when written. All other bank reconciliation data have been verified as
correct.

1. Compute the amount suspected stolen by Kim. 28,453

2.a. A bookkeeper of the company accounted for the money stolen by him as outstanding checks.
The book keeping and reconciling of the account was taken care of by the same person. Identify
the weakness or violation.

(a) This is an inherent weakness and it is not possible to detect the error.
(b) There is no violation or weakness of internal control here. The bookkeeper has borrowed
the money and will return it by end of the accounting period.
(c) Such situations can be avoided by plugging the loopholes of the internal control system.
There should be segregation of duties. Book keeping and reconciling should not be done
by the same person.
(d) None of the above.

(c)

2.b. A bookkeeper of the company has the responsibility of both recording and reconciling the
transactions.Identify the internal control weakness or violation if any?

(a) The chance of frauds is much higher when there is lack of segregation of duties.
(b) This method is cost effective and chances of detecting errors is enhanced when both
recording and reconciliation is handled by the same person.
(c) Rework can be avoided as the recording and reconciliation can be done simultaneously.
(d) None of the above.

(a)

E 6-1. Classification of Business Activities

Lucas Company had the following transactions in March:

a. Purchasing inventory on account

b. Borrowing cash from a bank
c. Cash sales of merchandise
d. Disposal of a truck
e. Paying employees’ salaries

1. Classify each of the above transactions as an operating, investing or financing activity.

a. Operating activity
b. Financing activity
c. Operating activity
d. Investing activity
e. Operating activity

2. Which of the above transactions has an immediate effect on cash balance of Lucas Company?

Cash sales of merchandise

E 6-2. Internal Control of Cash

Sargent Company is a medium-sized merchandising firm. Below are the company's internal control procedures of
cash.

a. The founder's sister serves as an accountant and a cashier as well.

b. The company pays for operating activities by checks except for small amount payments.
c. The company prepares bank reconciliation semiannually.
d. Cash receipts are not deposited to banks until next morning because the cashier is too busy.
e. Each and every payment must be approved according to the company's line of authority.

a. A medium-sized firm appoints the founder's sister as the accountant as well as cashier of the
company. Indicate the weakness or violation if any?

(a) There is no weakness or violation. The role of the accountant and cashier can be performed
by the same individual. This in fact increases the accountabilty of the founder.
(b) The role of the accountant and cashier cannot be performed by the same individual. It
violates the principle of segregation of duties.
(c) The role of the accountant should not be related to the founder of the organization. There is
conflict of interest.
(d) None of the above.

(b)

b. A medium-sized firm prepares a bank reconciliation statement semiannually. Indicate the

weakness or violation if any?

(a) The errors in the transactions can be detected early.

(b) The possibility of errors can be minimized and controlled if it is prepared semiannually.
(c) Error detection is not possible and the statement needs to be prepared monthly.
(d) The statements can even be reconciled every year.

(c)

c. A medium-sized firm deposits the cash receipts to the bank on the next day of the transaction.
Indicate the weakness or violation if any?

(a) The possibility of theft is quite high, and it is risky to deposit the cash on the next day.
(b) The decision to deposit the cash next day does not indicate any weakness but is a
procedure laid out and followed by the firm and works in their favor.
(c) The deposit of cash requires the approval of the owner, which is causing delay in deposits.
(d) Cash should always be deposited the next day after recounting and checking next morning.

(b)

E 6-3. Control of Cash

Listed below are five procedures followed by Alpha Corporation related with cash.

1. Payments are paid with checks numbered randomly.

2. A bank reconciliation is prepared monthly.
3. Anita writes checks and also records cash payment journal entries.
Total cash receipts are compared to bank deposits daily by someone who has no other cash
4.
responsibilities.
5. Jacob, the controller, deposits all cash receipt in banks daily.

Indicate whether each procedure is an example of good internal control or of weak internal
control. If it is an example of good internal control, indicate which internal control procedure is
being followed. If it is an example of weak internal control, indicate which internal control
procedure is violated.

IC Strength
or
Procedure Weakness Related Internal Control Procedures
1. Weakness Payment of all expenditures by prenumbered checks
2. Strength Preparing a bank reconciliation regularly
Separation of duties in handling of cash and accounting or
3. Weakness
cash
Separation of duties in handling of cash and accounting or
4. Strength
cash
5. Strength Daily deposit all cash receipts in banks
E 6-4. Purchases Discounts

Assume that Kingston bookstore decided to buy 150 books at NT$350 per book on April 5. The
credit terms were 2/10, n/30. Kingston paid half the price on April 10; the others were paid on
April 20.

Make journal entries needed at each date. If an amount box does not require an entry, leave it
blank.

Apr. 5 Inventory 52500

Accounts Payable 52500

Apr. 10 Accounts Payable 26250

Cash 25725

Inventory 525

Apr. 20 Accounts Payable 26250

Cash 26250

E 6-5. Purchases Returns and Allowances

Assume that Kingston bookstore decided to buy 150 books at NT$350 per book on April 5. The
credit terms were 2/10, n/30. Kingston paid half the price on April 10; the others were paid on
April 20.

Assume that Kingston found 10 books to have significant defects and decided to return these 10
books on April 8. It also found other 15 books to have small defects and asked for an allowance
of NT$20 per defective books.

Make the entry on April 8 to record the returns and allowances. If an amount box does not
require an entry, leave it blank.

Apr. 8 Accounts Payable 3500

Inventory 3500

To record the return.

Apr. 8 Accounts Payable 300

Inventory 300

To record the allowance.

E 6-6. Payment for Various Expenses

Assume that HTC Corporation had the following transactions in July: paid one year insurance of
NT$36,000 on July 1 for their managers; paid the rent of the office NT$100,000 for July on July
1; purchase office stationery for NT$1,500 on July 5; paid wages NT$1,000,000 of June on July
10.

Record the entries needed in July. If an amount box does not require an entry, leave it blank.

E 6-7. Petty Cash Fund

Volvo Company established a petty cash fund on June 1, cashing a check for €100. During June,
the petty cash receipts are as followed:

June 4 Stamp inventory, €10

15 Miscellaneous expense, €15
20 Freight-out, €20
28 Office supplies, €8

The fund was replenished on June 30, and the fund contained €45. On July 1, the company
decided to increase the amount of the fund to €120.

Prepare journal entries to record transactions during June 1 to July 1. If an amount box does not
require an entry, leave it blank.
E 6-7. Cont.

E 6-8. Preparing a Bank Reconciliation

1. Cash per the accounting records at January 31 amounted to $228,909; the bank statement on
this same date showed a balance of $204,008.

2. The canceled checks returned by the bank included a check written by DeVoe Company for
$6,987 that had been deducted from Bend’s account in error.

3. Deposits in transit as of January 31, 2017, amounted to $33,442.

4. The following amounts were adjustments to Bend Company’s account on the bank statement:

a. Service charges of $64.

b. An NSF check of $4,100.
c. Interest earned on the account, $110.

5. Checks written by Bend Company that have not yet been cleared by the bank include four
checks totaling $19,582.

Prepare a bank reconciliation for Bend Company at January 31, 2017, using the information
shown above.
E 6-9. Preparing a Bank Reconciliation

The records of Derma Corporation show the following bank statement information for
December:

a. Bank balance, December 31, 2017, $87,450

b. Service charges for December, $50
c. Rent collected by bank, $1,000
d. Note receivable collected by bank (including $300 interest), $2,300
e. December check returned marked NSF (check was a payment of an account receivable),
$200
f. Bank erroneously reduced Derma’s account for a check written by Dunna Company,
$1,000
g. Cash account balance, December 31, 2017, $81,200
h. Outstanding checks, $9,200
i. Deposits in transit, $5,000

1. Prepare a bank reconciliation for December.

2. Prepare the entry to correct the cash account as of December 31, 2017. If an amount box does not
require an entry, leave it blank.

E 6-10. Reconciling Book and Bank Balances

Jensen Company has just received the September 30, 2017, bank statement summarized in the
following schedule:

Charges Deposits Balance

Balance, September 1 $5,100
Deposits recorded during September $27,000 32,100
Checks cleared during September $27,300 4,800
NSF check, J. J. Jones 50 4,750
Bank service charges 10 4,740
Balance, September 30 4,740

Cash on hand (recorded on Jensen’s books but not deposited) on September 1 and September 30
amounted to $200. There were no deposits in transit or checks outstanding at September 1, 2017.
The cash account for September reflected the following:

Cash
Sept. 1 Balance 5,300 Sept. Checks 28,000
Sept. Deposits 29,500

Answer the following questions. (Hint: It may be helpful to prepare a complete bank
reconciliation. If an amount box does not require an entry, leave it blank.)

1 What is the ending balance per the cash account before adjustments? 6,800

2. What adjustments should be added to the depositor’s books? 0

3. What is the total amount of the deductions from the depositor’s books? 260

4. What is the total amount to be added to the bank’s balance? 2,500

5. What is the total amount to be deducted from the bank’s balance? 700
MC.06.01. The major activities of a business include all BUT which of the following?

a. Earning activities
b. Investing activities
c. Operating activities
d. Financing activities

MC.06.02. Which type of the major activities of a business are best described as those events
that raise money by means other than operations?

a. Investing activities
b. Operating activities
c. Earning activities
d. Financing activities

MC.06.03. Which type of the major activities of a business are best described as those events
involve the purchase of assets for use in the business?

a. Operating activities
b. Investing activities
c. Financing activities
d. Earning activities

MC.06.04. Which type of the major activities of a business are best described as those events
that are associated with the primary purpose of a business?

a. Earning activities
b. Operating activities
c. Investing activities
d. Financing activities
MC.06.05. Buying inventory is an example of a(n)

a. investing activity.
b. operating activity.
c. revenue activity.
d. financing activity.

MC.06.06.

Selling property, plant, and equipment is a(n)

a. operating activity.
b. investing activity.
c. revenue activity.
d. financing activity.

MC.06.07.

Selling additional shares of stock is a(n)

a. revenue activity.
b. financing activity.
c. operating activity.
d. investing activity.

MC.06.08.

Selling products or services is a(n)

a. revenue activity.
b. operating activity.
c. financing activity.
d. investing activity.
MC.06.09. Investing in stocks or bonds of another company is a(n)

a. investing activity.
b. revenue activity.
c. operating activity.
d. financing activity.

MC.06.10. Which of the following is NOT a cash control procedure?

a. Deposit all cash receipts daily

b. Make all cash disbursements by check
c. Invest excess cash in high-yielding securities
d. Separate the handling and recording of cash

MC.06.11. Bank statements provide information about all of the following EXCEPT

a. Errors made by the company

b. Bank charges for the period
c. Checks cleared during the period
d. NSF checks

MC.06.12. Which of the following items would be added to the book balance on a bank
reconciliation?

a. Deposits in transit
b. A check written for $63 entered as $36 in the accounting records
c. Interest paid by the bank
d. Outstanding checks

MC.06.13. When reconciling a bank statement, direct deposits are

a. subtracted from the balance per the bank.

b. subtracted from the balance per the books.
c. added to the balance per the bank.
 d. added to the balance per the books.

MC.06.14. Alco Corporation's accountant wrote a check to a supplier for $15,000. He then wrote
himself a check for $5,000. For the first check he deducted $15,000 from the books, for the
second check he wrote "void" in the check register. How would the accountant conceal his theft
on the bank reconciliation?

a. Understate NSF checks

b. Understate outstanding checks
c. Overstate deposits in transit
d. Overstate outstanding checks

MC.06.15. In preparing a bank reconciliation, interest paid by the bank on the account is

a. subtracted from the book balance.

b. added to the book balance.
c. added to the bank balance.
d. subtracted from the bank balance.

MC.06.16. In preparing a monthly bank reconciliation, which of the following items would be
added to the balance reported on the bank statement to arrive at the correct cash balance?

a. Bank service charge

b. Deposits in transit
c. Outstanding checks
d. A customer's note collected by the bank on behalf of the depositor

MC.06.17. Which of these is NOT one of the most common reasons for differences between the
bank cash balance and the book cash balance?

a. Deposits in transit
b. Time period differences
c. Accounting errors
d. All of these are common reasons
MC.06.18. Wilbur Company's monthly bank statement showed an ending balance of $36,928.
The bank reconciliation included a deposit in transit, $3,274; outstanding checks, $4,340; an
"NSF" check, $1,576; a bank service charge, $50; and proceeds of a customer's note collected by
the bank, $4,600. The correct cash balance at the end of the month is

a. $35,862
b. $37,484
c. $40,202
d. $40,462

MC.06.19. During the month, Wilson received a $1,200 check from Richard for the purchase of
his 1994 Ford. Wilson deposited the check in his bank account. At the end of the month, Wilson
received his monthly bank statement along with Richard's check returned and marked "NSF."
What should Wilson do when reconciling his bank statement?

a. Add $1,200 to the cash balance per the bank statement

b. Subtract $1,200 from the cash balance per the books
c. Subtract $1,200 from the cash balance per the bank statement
d. Add $1,200 to the cash balance per the books

MC.06.20. At the end of the month, a company's Cash account indicates a balance of $9,820.
Upon receiving a bank statement, the following amounts are used in the bank reconciliation:
deposit in transit, $2,400; outstanding checks, $926; bank service charge, $28; NSF check, $425;
proceeds of a customer's note collected by the bank, $4,097. Given this information, what is the
corrected Cash balance?

a. $14,392
b. $11,993
c. $11,294
d. $13,464

MC.06.21. Thorpe Company has prepared the following partial bank reconciliation for January
2017:

Ending balance per bank statement $37,400 Balance per books $38,930
Deposit in transit 6,800 Interest earned ?
Outstanding checks (5,100) Service charge (153)
NSF check (187)
Adjusted balance $39,100 $39,100

Given this information, how much interest was earned? (Assume there are no other adjustments.)

a. $680
b. $340
c. $510
d. $170

MC.06.22. Abbott Company wrote a check for $660, but recorded it in the accounting records as
$606. This error would require an adjustment on the bank reconciliation of

a. adding $54 to the balance per the books.

b. deducting $54 from the balance per the books.
c. deducting $54 from the balance per the bank statement.
d. adding $54 to the balance per the bank statement.

MC.06.23. Assume the following facts for Erich Company: the month-end bank statement shows
a balance of $27,200; outstanding checks totaled $2,000; a deposit of $8,000 is in transit at
month-end; and a check for $400 was erroneously charged against the account by the bank. What
is the correct cash balance at the end of the month?

a. $46,400
b. $45,600
c. $33,600
d. $34,400

MC.06.24. In preparing its bank reconciliation for the month of February, Jesse Company has
available the following information:

Balance per bank statement, February 28 $20,025

Deposit in transit, February 28 3,125
Outstanding checks, February 28 2,875
Check erroneously deducted by bank from Jesse's account, 25
February 10
Bank service charges for February 25

What is the corrected cash balance at February 28?

a. $20,175
b. $20,050
c. $20,025
d. $20,300

MC.06.25. Which of the following accounts would normally be found on the statement of
comprehensive income?

a. Cash
b. Unearned Service Revenues
c. Rent Payable
d. Sales Returns and Allowances

MC.06.26. Which of the following accounts would normally be found on the statement of
comprehensive income?

a. Accounts Receivable
b. Sales Discounts
c. Unearned Service Revenues
d. Taxes Payable

MC.06.27. Sales Discounts is which type of account?

a. Contra-expense
b. Contra-revenue
c. Revenue
 d. Expense

MC.06.28. Sales Returns and Allowances is which type of account?

a. Contra-expense
b. Revenue
c. Expense
d. Contra-revenue

MC.06.29. The difference between gross sales and net sales is

a. selling and administrative expenses.

b. cost of goods sold.
c. sales discounts and sales returns and allowances.
d. gross margin.

MC.06.30. Goofy Golf, sells high-quality golf clubs. On May 9, Goofy Golf sold five sets of
golf clubs at a price of $500 each. Each set was sold for $100 cash and the rest on credit. On
June 9, Goofy Golf collected the rest of the cash on the sale. The journal entry to record the
collection of cash on June 9 is

a.
Cash 2,000
Sales Revenue 2,000
b.
Cash 2,000
Accounts Receivable 2,000
c.
Accounts Receivable 2,000
Cash 2,000
d.
Accounts Receivable 2,000
Sales Revenue 2,000
MC.06.31. Charles Company sells foods wholesale. On May 15, Edwards sold 400 cases of
beans to Robin Company for $8 per case with terms of 2/10, n/30. On May 25, Robin Company
paid Charles the full amount due. Given these data, the entry to record the sale of beans on May
15 would include a

a. Debit to Sales Revenue of $3,200

b. Debit to Accounts Receivable of $3,200
c. Credit to Sales Revenue of $3,136
d. Credit to Cash of $3,200

MC.06.32. Amy Company sold $8,000 of merchandise to Tory Turnbull with terms 2/10, n/30.
If Tory paid for all of the merchandise within the discount period, the journal entry that Amy will
make to record the collection of cash would include a

a. Debit to Cash of $8,000

b. Credit to Sales Discounts of $160
c. Credit to Cash of $7,840
d. Debit to Sales Discounts of $160

MC.06.33. Jones Company, a customer, has been authorized to return $1,000 of goods
purchased on account. The journal entry to record this transaction is

a.
Sales 1,000
Sales Returns and Allowances 1,000
b.
Sales Returns and Allowances 1,000
Inventory 1,000
c.
Sales Returns and Allowances 1,000
Accounts Receivable 1,000
d.
Accounts Receivable 1,000
Sales Returns and Allowances 1,000
MC.06.34. Raven Company had the following account balances Sales Revenue, $100,000; Sales
Returns and Allowances, $2,400; Sales Discounts, 2,400; and Bad Debts, $400. Given these
balances, the amount of net sales is

a. $95,200
b. $98,000
c. $100,000
d. $95,600

MC.06.35. Customers who do NOT pay for the merchandise that they bought on credit are
referred to as

a. lost sales revenue.

b. unpaid transactions.
c. bad debts.
d. delinquent accounts

MC.06.36. Bad Debt Expense is classified as a(n)

a. selling expense.
b. cost of sales expense.
c. other expense.
d. administrative expense.

MC.06.37. The direct write-off method

a. complies with the matching principle.

b. is only acceptable if bad debts are small, insignificant amounts.
c. is the primary method used to recognize Bad Debt Expense.
d. is acceptable from a theoretical point of view.
MC.06.38. When the direct write-off method of recognizing bad debt expense is used, which of
the following accounts would NOT be used?

a. Accounts receivable
b. Bad debt expense
c. Allowance for bad debts
d. All of these accounts are used in the direct write-off method

MC.06.39. The direct write-off method of accounting for bad debts

a. requires that losses from bad debts be recorded in the period in which sales are made.
b. is subject to a significant amount of estimation error.
c. causes accounts receivable to appear on the balance sheet at their estimated net realizable
value.
d. often fails to match bad debt losses with sales for the same period.

MC.06.40. The direct write-off method

a. is used only by large companies.

b. results in a better matching of costs with revenues than the allowance method.
c. is the only acceptable method allowed under generally accepted accounting principles.
d. is more precise than the allowance method.

MC.06.41. When the direct write-off method of recognizing bad debt expense is used, the entry
to write off a specific customer account would

a. increase the accounts receivable balance and increase net income.

b. increase net income.
c. have no effect on net income.
d. decrease the accounts receivable balance and decrease net income.
MC.06.42. For the month of December, the records of Scrooge Corporation show the following
information:

Cash received on accounts receivable $45,000

Cash sales 30,000
Accounts receivable, December 1 80,000
Accounts receivable, December 31 75,000
Accounts receivable written off 2,000

The corporation uses the direct write-off method in accounting for uncollectible accounts
receivable. What are the gross sales for the month of December?

a. $59,000
b. $60,000
c. $72,000
d. $61,000

MC.06.43. When the allowance method of recognizing bad debt expense is used, the entry to
record the write-off of a specific uncollectible account would decrease

a. net income.
b. Allowance for Bad Debts.
c. working capital.
d. net realizable value of accounts receivable.

MC.06.44. When the allowance method of recognizing bad debt expense is used, the entries at
the time of collection of a small account previously written off would

a. decrease net income.

b. decrease Allowance for Bad Debts.
c. increase Allowance for Bad Debts.
d. increase net income.
MC.06.45. Allowance for Bad Debts is an example of a(n)

a. control account.
b. contra account.
c. expense account.
d. adjunct account.

MC.06.46. The two methods of accounting for bad debts are the direct write-off method and the
allowance method. When comparing the two, which of the following is true?

The direct write-off method requires two separate entries to write off an uncollectible
account
The allowance method is less exact but it better illustrates the matching principle
The direct write-off method is exact and also better illustrates the matching principle
The direct write-off method is theoretically superior

MC.06.47. Using the allowance method, the journal entry required to adjust the accounting
records when an amount is collected that had previously been written off as uncollectible would
probably include a credit to

a. Cash.
b. Allowance for Bad Debts.
c. Bad Debt Expense.
d. Notes Receivable.

MC.06.48. When the allowance method is used to account for uncollectible accounts, the net
amount of accounts receivable

a. stays the same when an account is written off as uncollectible.

b. is sometimes increased and sometimes decreased when an account is written off as
uncollectible.
c. increases when an account is written off as uncollectible.
d. decreases when an account is written off as uncollectible.
MC.06.49. The journal entry

Accounts Receivable xxx

Allowance for Bad Debts xxx

would be made when

a. estimated uncollectible receivables are too low.

b. a previously defaulted customer pays the outstanding balance.
c. a customer defaults on the account.
d. a customer pays the account balance.

MC.06.50. When a specific customer's account is written off by a company using the allowance
method, the effect on net income and the net realizable value of the accounts receivable is

Net Income Net Realizable Value of Accounts Receivable

a.
None None
b.
Decrease Decrease
c.
Increase Increase
d.
Decrease None

MC.06.51. Based on the aging of its accounts receivable at December 31, Charman Company
determined that the net realizable value of the receivables at that date is $304,000. Additional
information is as follows:

Accounts receivable at December 31 384,000

Allowance for bad debts at January 1 51,200 (cr.)
Accounts written off as uncollectible during the year 35,200

Charman's Bad Debt Expense for the year ended December 31 is

a. $38,400
 b. $48,000
c. $32,000
d. $64,000

MC.06.52. Following are the account balances from the December 31 trial balance of Lark
Company:

Accounts Receivable $60,000

Allowance for Bad Debts 2,400 (cr)
Sales Revenue 405,000
Sales Returns and Allowances 15,000

If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to record the
estimate of bad debts would include a debit to Bad Debt Expense for

a. $5,760
b. $6,000
c. $3,600
d. $6,240

MC.06.53. Following are the account balances from the December 31 trial balance of Lark
Company:

Accounts Receivable $60,000

Allowance for Bad Debts 2,400 (dr)
Sales Revenue 405,000
Sales Returns and Allowances 15,000

If 10 percent of the Accounts Receivable is estimated to be uncollectible, the entry to record the
estimate of bad debts would include a debit to Bad Debt Expense for

a. $6,240
b. $3,600
c. $6,000
d. $8,400
MC.06.54. Samson Corporation had sales of $1,000,000 during 2012, of which 60 percent were
on credit. On December 31, 2012, Accounts Receivable totaled $80,000, and Allowance for Bad
Debts had a credit balance of $1,200. Given this information, if uncollectible receivables are
estimated to be 3 percent of accounts receivable, the adjusting entry as of December 31, 2012, to
account for bad debts would include a

a. credit to Allowance for Bad Debts of $1,200.

b. debit to Bad Debt Expense of $2,400.
c. credit to Bad Debt Expense of $1,200.
d. debit to Bad Debt Expense of $3,600.

MC.06.55. You have just analyzed customers' accounts receivable through an "aging" process
and have determined that $3,000 of the accounts receivable are probably uncollectible. Noting
that your trial balance shows an Allowance for Bad Debts with a debit balance of $100, what is
the correct adjusting entry?

a.
Bad Debt Expense 2,900
Allowance for Bad Debts 2,900
b.
Bad Debt Expense 3,100
Allowance for Bad Debts 3,100
c.
Allowance for Bad Debts 3,100
Bad Debt Expense 3,100
d.
Allowance for Bad Debts 3,000
Bad Debt Expense 3,000

MC.06.56. Samson Corporation had sales of $1,000,000 during 2012, of which 80 percent were
on credit. On December 31, 2012, Accounts Receivable totaled $80,000 and Allowance for Bad
Debts had a debit balance of $1,200. Given this information, if uncollectible receivables are
estimated to be 3 percent of accounts receivable, the adjusting entry as of December 31, 2012, to
account for bad debts would include a

a. debit to Bad Debt Expense of $2,400.

b. debit to Bad Debt Expense of $1,200.
 c. debit to Bad Debt Expense of $3,600.
d. credit to Allowance for Bad Debts of $2,400.

MC.06.57. An analysis and aging of the accounts receivable of Kaiten Company at December 31
revealed the following data:

Accounts receivable $475,000

Allowance for bad debts (before adjustment) 25,000 (cr.)
Accounts Receivable estimated to be uncollectible 32,000

The net realizable value of the accounts receivable at December 31 should be

a. $450,000
b. $418,000
c. $443,000
d. $475,000

MC.06.58. Ward Company uses the allowance method of accounting for bad debts. The
following summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.

No. of Days Probability

Amount
Outstanding of Collection
0-31 days $500,000 0.98
31-60 days 200,000 0.90
Over 60 days 100,000 0.80

The following additional information is available for the current year:

Net credit sales for the year $4,000,000

Allowance for bad debts:
Balance, January 1 45,000 (cr.)
Balance before adjustment, December 31 2,000 (cr.)

If Ward bases its estimate of bad debts on the aging of accounts receivable, Bad Debt Expense
for the current year ending December 31 is
 a. $52,000
b. $50,000
c. $47,000
d. $48,000

MC.06.59. Based on the aging of its accounts receivable at December 31, Dudikoff Company
determined that the net realizable value of the receivables at that date is $760,000. Additional
information is as follows:

Accounts receivable at December 31 $880,000

Allowance for bad debts at December 31 (unadjusted) 28,000 (cr.)

Dudikoff's Bad Debt Expense for the year ended December 31 is

a. $80,000
b. $92,000
c. $28,000
d. $148,000

MC.06.60. Penn Inc. reported an allowance for bad debts of $30,000 (debit) at December 31,
before performing an aging of accounts receivable. As a result of the aging, Penn Inc. determined
that an estimated $52,000 of the December 31, accounts receivable would prove uncollectible.
The adjusting entry required at December 31, would be

a.
Allowance for Bad Debts 82,000
Bad Debt Expense 82,000
b.
Allowance for Bad Debts 52,000
Accounts Receivable 52,000
c.
Bad Debt Expense 52,000
Allowance for Bad Debts 52,000
d.
Bad Debt Expense 82,000
 Allowance for Bad Debts 82,000

MC.06.61. In preparing a monthly bank reconciliation, which of the following items would be
added to the balance reported on the bank statement to arrive at the correct cash balance?

a. Bank service charge

b. Deposits in transit
c. Outstanding checks
d. A customer's note collected by the bank on behalf of the depositor

MC.06.62. Which of the following demonstrates that a company is managing its receivables
well?

a. The company has cash to pay its bills.

b. The company has many short term loans with high interest.
c. The company is losing interest that could be earned by investing.
d. The company is cash poor.

MC.06.63. In calculating a company's accounts receivable turnover ratio, which of the following
sets of factors would be used?

a. Sales revenue and average accounts receivable

b. Net income and average accounts receivable
c. Total assets and average accounts receivable
d. Total accounts receivable and sales revenue

MC.06.64. The ratio that is an attempt to determine how many times, in a year, a company
collects its receivables is the

a. Inventory turnover
b. Accounts receivable collected
c. Average collection period
d. Accounts receivable turnover
MC.06.65. The ratio that shows how long it takes for a company to collect its receivables is the

a. Average collection period

b. Accounts receivable turnover
c. Number of days in receivables
d. Accounts receivable collected

MC.06.66. Which of the following factors are used to compute the average collection period of
accounts receivable?

a. Inventory turnover and 365 days

b. Accounts receivable turnover and 365 days
c. Net sales and average inventory
d. Average accounts receivable and cost of goods sold

MC.06.67. Dana Company's December 31, 2012, financial statements showed the following:

Sales revenue $750,000

Average receivables 125,000
Cost of goods sold 555,000
Average inventory 215,000
Net income 105,000
Average total assets 1,220,000

Given the information above, Dana Company's accounts receivable turnover ratio for 2012 was

a. 4.4
b. 8.0
c. 7.1
d. 6.0

MC.06.68. Dana Company's December 31, 2012, financial statements showed the following:

Sales revenue $750,000

Average receivables 125,000
Cost of goods sold 555,000
Average inventory 215,000
Net income 105,000
Average total assets 1,220,000

Given the information above, Dana Company's average collection period (rounded) for 2012 was

a. 52 days
b. 46 days
c. 83 days
d. 61 days

MC.06.69. If a company's accounts receivable turnover ratio is 8.0 times, cost of goods sold is
$360,000, and sales revenue is $480,000, the average accounts receivable balance must have
been

a. $160,000
b. $120,000
c. $60,000
d. $80,000

MC.06.70. On December 31, 2012, Seau Inc.'s financial statements showed the following:

Sales revenue $180,000

Average accounts receivable 24,000
Cost of goods sold 108,000
Average inventory 14,400
Net income 12,600
Total assets 1,128,000

Given the information above and assuming a 365-day business year, what was Seau's average
collection period (rounded) during 2012?

a. 41 days
b. 56 days
c. 49 days
 d. 53 days

MC.06.71. On December 31, 2012, Seau Inc.'s financial statements showed the following:

Sales revenue $180,000

Average accounts receivable 24,000
Cost of goods sold 108,000
Average inventory 14,400
Net income 12,600
Total assets 1,128,000

Given the information above and assuming a 365-day business year, what was Seau's accounts
receivable turnover during 2012?

a. 6.5
b. 12.5
c. 7.5
d. 8.9

MC.06.72. The following information is available for Bridges Company:

Bridges Company
Partial Balance Sheet
December 31, 2017 and 2016
2017 2016
Accounts receivable $500,000 $470,000
Allowance for bad debts (25,000) (20,000)
Net accounts receivable $475,000 $450,000
Inventories at lower of cost or market $600,000 $550,000

Bridges Company
Partial Statement of Comprehensive Income
For the Years Ended December 31, 2017 and 2016
2017 2016
Net credit sales $2,500,000 $2,200,000
Net cash sales 500,000 400,000
Net sales $3,000,000 $2,600,000
Cost of goods sold $2,000,000 $1,800,000
Selling, general, and administrative expenses 300,000 270,000
Other expenses 50,000 30,000
Total operating expenses $2,350,000 $2,100,000

The accounts receivable turnover for 2017 is computed as follows:

a. $3,000,000 ÷ $485,000
b. $3,000,000 ÷ $462,500
c. $2,500,000 ÷ $462,500
d. $2,500,000 ÷ $475,000

MC.06.73. NYU City Bank agrees to lend Givens Adam's Company ¥800,000 on January 1.
Givens Adam's Company signs a ¥800,000, 4%, 9-month note. The entry made by Givens
Adam's Company on January 1 to record the proceeds and issuance of the note is

a.
Cash 800,000
Interest Expense 24,000
Notes Payable 800,000
Interest Payable 24,000
b.
Cash 800,000
Interest Expense 24,000
Notes Payable 824,000
c.
Expense 24,000
Cash 776,000
Notes Payable 800,000
d.
Cash 800,000
Notes Payable 800,000
MC.06.74. NYU City Bank agrees to lend Givens Adam’s Company ¥800,000 on January 1.
Givens Adam’s Company signs a ¥800,000, 4%, 9-month note. What is the adjusting entry
required if Givens Brick Company prepares financial statements on June 30?

a.
Interest Expense 16,000
Cash 16,000
b.
Interest Payable 16,000
Interest Expense 16,000
c.
Interest Payable 16,000
Cash 16,000
d.
Interest Expense 16,000
Notes Payable 16,000

MC.06.75. NYU City Bank agrees to lend Adam’s Company ¥800,000 on January 1. Givens
Adam’s Company signs a $800,000, 4%, 9-month note. What entry will Givens Adam’s
Company make to pay off the note and interest at maturity assuming that interest has been
accrued to September 30?

a.
Interest Payable 16,000
Notes Payable 800,000
Interest Expense 8,000
Cash 824,000
b.
Notes Payable 800,000
Interest Payable 24,000
Cash 824,000
c.
Interest Expense 24,000
Notes Payable 800,000
 Cash 824,000
d.
Notes Payable 824,000
Cash 824,000

MC.06.76. On October 1, Mark's Car Service borrows €900,000 from First Bank on a 3-month,
€900,000, 10% notes. What entry must Mark's Car Service make on December 31 before
financial statements are prepared?

a.
Interest Expense 22,500
Notes Payable 22,500
b.
Interest Expense 22,500
Interest Payable 22,500
c.
Interest Payable 22,500
Interest Expense 22,500
d.
Interest Expense 90,000
Interest Payable 90,000

MC.06.77. On October 1, Mark's Car Service borrows €900,000 from First Bank on a 3-month,
€900,000, 10% notes. The entry by Mark's Car Service to record payment of the note and
accrued interest on January 1 is

a.
Notes Payable 900,000
Interest Payable 22,500
Cash 922,500
b.
Notes Payable 922,500
Cash 922,500
 c.
Notes Payable 900,000
Interest Expense 22,500
Cash 922,500
d.
Notes Payable 900,000
Interest Payable 90,000
Cash 990,000

MC.06.78. On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a
4-month, $300,000, 5% note. What entry must Ray’s Cleaning Service make on December 31
before financial statements are prepared?

a.
Interest Expense 15,000
Interest Payable 15,000
b.
Interest Expense 5,000
Interest Payable 5,000
c.
Interest Expense 5,000
Notes Payable 5,000
d.
Interest Payable 5,000
Interest Expense 5,000

MC.06.79. On September 1, Ray’s Cleaning Service borrows $300,000 from Taiwan Bank on a
4-month, $300,000, 5% note. The entry by Ray’s Cleaning Service to record payment of the note
and accrued interest on January 1 is

a.
Notes Payable 300,000
Interest Payable 15,000
 Cash 315,000
b.
Notes Payable 300,000
Interest Payable 5,000
Cash 305,000
c.
Notes Payable 300,000
Interest Expense 5,000
Cash 305,000
d.
Notes Payable 305,000
Cash 305,000

MC.06.80. The interest charged on a $240,000,000 note payable, at the rate of 6%, on a 90-day
note would be

a. $1,200,000
b. $3,600,000
c. $14,400,000
d. $7,200,000

MC.06.81. The interest charged on a $800,000,000 note payable, at the rate of 6%, on a 2-month
note would be

a. $3,000,000
b. $4,000,000
c. $8,000,000
d. $48,000,000

MC.06.82. On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-
bearing note. If Ursula Company is preparing financial statements at December 31, 2015, the
adjusting entry for accrued interest will include a
 a. Credit to Notes Payable of $1,250.
b. Debit to Interest Expense of $3,750.
c. Debit to Interest Expense of $1,250.
d. Credit to Interest Payable of $5,000.

MC.06.83. On October 1, 2015, Ursula Company issued an $100,000, 5%, nine-month interest-
bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of
the note on July 1, 2014, will include a

a. Credit to Cash of $100,000.

b. Debit to Interest Payable of $3,750.
c. Debit to Interest Expense of $3,750.
d. Debit to Notes Payable of $13,750.

MC.06.84. Taiwan Bank and Trust agrees to lend the TSC Company €8,000,000 on January 1,
2018. TSC Company signs a €8,000,000, 4%, 9-month note. The entry made by TSC Company
on January 1 to record the proceeds and issuance of the note is

a.
Cash 8,000,000
Notes Payable 8,000,000
b.
Interest Expense 240,000
Cash 8,000,000
Notes Payable 8,000,000
Interest Payable 240,000
c.
Interest Expense 240,000
Cash 8,000,000
Notes Payable 8,240,000
d.
Interest Expense 240,000
Cash 7,776,000
 Notes Payable 8,000,000

MC.06.85. Taiwan Bank and Trust agrees to lend the TSC Company €8,000,000 on January 1,
2018. TSC Company signs a €8,000,000, 4%, 9-month note. Assuming that monthly accruals are
not made, what adjusting entry is required if TSC Company prepares financial statements on
June 30?

a.
Interest Expense 240,000
Interest Payable 240,000
b.
Interest Expense 160,000
Interest Payable 160,000
c.
Interest Payable 160,000
Interest Expense 160,000
d.
Interest Expense 160,000
Cash 160,000

MC.06.86. Taiwan Bank and Trust agrees to lend the TSC Company €8,000,000 on January 1,
2018. TSC Company signs a €8,000,000, 4%, 9-month note. What entry will TSC Company
make to pay off the note and interest at maturity assuming that no interest has been accrued since
June 30?

a.
Interest Payable 160,000
Notes Payable 8,000,000
Interest Expense 80,000
Cash 8,240,000
b.
Notes Payable 8,240,000
Cash 8,240,000
c.
Notes Payable 8,000,000
Interest Payable 160,000
Cash 8,160,000
d.
Notes Payable 8,000,000
Interest Payable 240,000
Cash 8,240,000

MC.06.87. On January 1, 2017, Hill Company, a calendar-year company, issued $5,000,000 of

notes payable, of which $800,000 is due on January 1 for each of the next four years. The proper
statement of financial position presentation on December 31, 2017, is

a. Current Liabilities, $400,000; Non-current Liabilities, $4,600,000.

b. Non-current Liabilities, $5,000,000.
c. Current Liabilities, $800,000; Non-current Liabilities, $4,200,000.
d. Current Liabilities, $5,000,000.

MC.06.88. Chilly Company issued a four-year interest-bearing note payable for €800,000 on
January 1, 2011. Each January the company is required to pay €200,000 on the note. How will
this note be reported on the December 31, 2012 statement of financial position?

a. Long-term debt, €800,000.

b. Long-term debt, €400,000; Long-term debt due within one year, €200,000.
c. Long-term debt, €600,000; Long-term debt due within one year, €200,000.
d. Long-term debt, €400,000.

MC.06.89. When a U.S. company enters into a credit sales transaction denominated in a foreign
currency, the transaction must be recorded in U.S. dollars. The exchange is measured at the
exchange rate on the

a. date of record.
b. date of conversion.
c. date of sale.
d. date of collection.
MC.06.90. Fluctuations between the sale date and the settlement date of a foreign currency
transaction are

a. recognized as adjustments to Stockholders' Equity.

b. not recognized.
c. recognized as increases or decreases in Sales Revenue.
d. recognized as exchange gains or losses.

MC.06.91. A U.S. company makes a sale to a Brazilian company for 10,000 reals on March 15.
The Brazilian company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S. company will
record the sale on March 15 as

a. $5,050
b. $5,290
c. $4,800
d. None of these are correct

MC.06.92. A U.S. company makes a sale to a Brazilian company for 10,000 reals on March 15.
The Brazilian company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S. company will
receive cash on May 1 of

a. $5,050
b. $4,800
c. $5,290
d. None of these are correct
MC.06.93. A U.S. company makes a sale to a Brazilian company for 10,000 reals on March 15.
The Brazilian company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529
and on May 1 is 1 real = $0.480. The average rate was 1 real = $0.505. The U.S. company will
record a foreign currency gain (loss) of

a. $490
b. ($490)
c. ($240)
d. $0

PR.06.01. For each of the business activities listed below, state whether it is an operating, an
investing or a financing activity.

a. Purchasing equipment Investing

b. Selling stock Financing
c. Purchasing inventory for resale Operating
d. Paying utility bills Operating
e. Borrowing money from a bank Financing
f. Purchasing land Investing
g. Selling goods for a profit Operating
h. Buying stock from another company Investing
i. Paying salaries to employees Operating
j. Performing services in a service company Operating

PR.06.02. Mitchell Company has the following information from its records and from the May
bank statement:

Cash balance per books $40,000

Ending cash balance per bank statement 50,000
Deposits made, not received by bank 12,000
Checks written, not processed by bank 20,000
Interest earned on bank account 100
Bank service charge 140
Direct deposit by customer (on account receivable) 2,040
Based on this information prepare a bank reconciliation for May.

PR.06.03. The following information is available for Binford Company:

• The May 2017 bank statement showed the following:

Balance, May 1 $21,000.00

Canceled checks 13,904.20
Deposits 16,489.65
Interest earned by Binford 28.75
Bank service charge 18.00
Balance, May 31 $23,596.20

•
• Binford Company's cash accounts showed the following for May:

Balance, May 1 $20,971.25

Debits 22,700.60
Credits 22,886.54
Balance, May 31 20,785.31

•
• Outstanding checks totaled $9,100.14.
• Deposits in transit totaled $8,000.00.
• The bank statement reveals that Binford Company's account has been reduced by $100.
The company had deposited a $100 check from one of its customers, which was
subsequently returned to Binford's bank and marked "Not Sufficient Funds."
• The bank collected an $1,800 note for Binford Company. The company was not aware of
the collection until receiving the bank statement.

Prepare a bank reconciliation for May 31, 2017. Round your answers to two decimal places.
PR.06.04. Which of the following statements describe the three most common cash controls that
companies use to safeguard cash?

1. Unification of duties in handling and controlling cash – When the handling of cash is
combined with the recording of cash, it becomes more difficult for theft or errors to
occur. If different employees handle cash and records cash then the cash itself could be
stolen and records falsified to cover up the theft.
2. Weekly deposits of all cash receipts – This control ensures that personal responsibility for
the handling of cash is assigned to the person responsible for making the deposits. It also
prevents that accumulation of large amounts of cash.
3. Payment of all expenditures by prenumbered check – By making payments with
prenumbered checks, payments are well documented. Payments made with pocket cash
are easily forgotten and easily concealed.

a. 2 only
b. 3 only
c. 2 and 3 only
d. 1 and 3 only

PR.06.05. Steel Company is a medium-size merchandising firm. Below are the company's
internal control procedures of cash.

1. The founder's sister serves as an accountant and a cashier as well.

2. The company pays for operating activities by checks except for small amount payments.
3. The company prepares bank reconciliation semi-annually.
4. Cash receipts are not deposited to banks until next morning because the cashier is too
busy.
5. Each and every payment must be approved according to the company's line of authority.

Which statement(s) above indicate weaknesses in their procedures?

 a. 1, 3 and 4 only
b. 1 only
c. 1 and 3 only
d. 2, 4 and 5 only

PR.06.06. Assume that TOTO Corporation had the following transactions in July, 2017: paid
one year insurance of NT$72,000 on July 1 for their managers; paid the rent of the office
NT$200,000 for July on July 1; purchase office stationery for NT$3,000 on July 5; paid wages
NT$2,000,000 of June on July 10.

Record the entries needed in July, 2017. If an amount box does not require an entry, leave it
blank.

PR.06.07. Vanilla Company established a petty cash fund on June 1, 2017 cashing a check for
€200. During June, the petty cash receipts are as followed:

June 4 Stamp inventory, €20

15 Miscellaneous expense, €30
20 Freight-out, €40
28 Office supplies, €16

The fund was replenished on June 30, and the fund contained €90. On July 1, the company
decided to increase the amount of the fund to €240.
Prepare journal entries to record transactions during from June 1, 2017 to July 1, 2017. If an
amount box does not require an entry, leave it blank.

PR.06.08. 1. Cash per the accounting records at January 31 amounted to $228,909; the bank
statement on this same date showed a balance of $204,008.

2. The canceled checks returned by the bank included a check written by DeVoe Company for
$6,987 that had been deducted from Benson’s account in error.

3. Deposits in transit as of January 31, 2017, amounted to $33,442.

4. The following amounts were adjustments to Benson Company’s account on the bank
statement:

a. Service charges of $64.

b. An NSF check of $4,100.
c. Interest earned on the account, $110.

5. Checks written by Benson Company that have not yet cleared the bank include four checks
totaling $19,582.

Prepare a bank reconciliation for Benson Company at January 31, 2017, using the information
shown above
Benson Company
Bank Reconciliation
January 31, 2017
PR.06.11. A U.S. company entered into a sales transaction with a Japanese company on
September 15 for 200,000 yen. The U.S. company prepares quarterly financial statements. The
Japanese company will pay for the sale on November 20. The exchange rates were as follows:

1 Yen
September 15 $0.0125
September 30 0.0109
November 20 0.0114

Prepare the appropriate journal entries to record the sale, the quarterly adjustment, and the
collection. If an amount box does not require an entry, leave it blank.
P 6-3. ALGO. Preparing a Bank Reconciliation

Milton Company has just received the following monthly bank statement for June 2017.

Date Checks Deposits Balance

June 1 $24,000
June 2 $150 23,850
June 3 $6,000 29,850
June 4 750 29,100
June 5 1,500 27,600
June 7 9,050 18,550
June 9 8,000 26,550
June 10 3,660 22,890
June 11 2,690 20,200
June 12 9,000 29,200
June 13 550 28,650
June 17 7,500 21,150
June 20 5,500 26,650
June 21 650 26,000
June 22 700 25,300
June 23 3,105† 28,405
June 25 1,000 27,405
June 30 60* 27,345
Totals $28,260 $31,605

*Bank service charge

†Note collected, including $105 interest

Data from the cash account of Milton Company for June are as follows:

June 1 balances $19,440

Checks written: Deposits:
June 1 $1,500 June 2 $5,000
4 9,500 5 8,000
6 2,690 10 9,000
8 550 18 5,500
9 7,500 30 5,000
 12 650 $33,500
19 700
22 1,000
26 1,500
27 1,370
$26,960

At the end of May, Milton had three checks outstanding for a total of $4,560. All three checks
were processed by the bank during June. There were no deposits outstanding at the end of May.
It was discovered during the reconciliation process that a check for $9,050, written on June 4 for
supplies, was improperly recorded on the books as $9,500.

Required:

1. Determine the amount of deposits in transit at the end of June.

5000
$

2. Determine the amount of outstanding checks at the end of June.

2870
$

3. Prepare a June bank reconciliation.

4. Prepare the journal entries to correct the cash account. If an amount box does not require an entry,
leave it blank.

5-a. In an organization, the early discovery of errors is possible if the cash accounts are
reconciled monthly.

5-b. Errors in the bank accounts cannot be discovered in case they are not reconciled monthly .

P 6-5. ALGO. Bank Reconciliation

According to the books of Alexander Company, the cash balance on October 31, 2017 was
$40,000, while the bank statement showed $57,995. After inspection, the company found that the
following events reconcile the difference:

a. NSF $4,000
b. Outstanding checks $31,000
c. Deposit in transit $5,700
d. Bank charge $3,400
e. Interest revenue 95

Required:

1. Prepare a bank reconciliation.

2. Prepare journal entries to adjust to the correct balance. If an amount box does not require an
entry, leave it blank.