THEORIES Cash and Cash Equivalents; and Receivables (without Impairment)

Auditing and Assurance: Concepts and Applications 1

Which of the following is true regarding cash discounts?

a. Purchase discount is recognized under the gross price method at the time of purchase of goods

b. Purchase discounts lost is recorded under the gross price method when the cash discounts are

taken

c. Purchase discount lost is recorded under the net price method when the cash discounts are not taken

d. Purchase discount is recorded under the gross price method when the cash discounts are not

taken

C

Book credit error of current month corrected in the same month shall be:

a. Deducted from disbursements and deducted from ending cash balance.

b. Added to receipts and added to ending cash balance.

c. Deducted in receipts and deducted from ending cash balance.

d. Deducted from disbursements and deducted from receipts

D

An interest bearing note is recorded at face value when

a. The stated rate is greater than the prevailing market rate of interest

b. The stated rate is less than the prevailing market rate of interest

c. The stated rate approximates the prevailing market rate of interest

d. The stated rate is deemed unrealistic

C

When using the gross price method, cash discounts should be

a. Recorded when the discount is not taken

b. Recorded when the discount is taken

c. Recorded when the discount is offered

d. Ignored

B

Which of the following is not considered cash for financial reporting purposes?

a. Petty cash fund and cash in bank

b. Unrestricted compensating balances

c. Dividend, interest, tax and sinking fund

d. Traveler's check and postal money order

C

The petty cash fund account under the imprest fund system is debited

a. Only when the fund is created.

b. When the fund is created and every time it is replenished.

c. When the fund is created and when the fund is decreased.

d. When the fund is created and when the size of the fund is increased

D

Receivables denominated in foreign currency should be translated in the balance sheet at

a. Exchange rate on the date of the balance sheet

b. Exchange rate on date of the transaction

c. Average exchange rate during the year

d. Exchange rate at the beginning of the year

A

Jay Company factored its receivables without recourse with ABC Bank. Jay received cash as a result of this transaction which is best described as

a. A loan from ABC collateralized by Jay's accounts receivable

b. A loan from ABC to be repaid by the proceeds from Jay's accounts receivable

c. A sale of Jay's accounts receivable to ABC, with the risk of uncollectible accounts retained by Jay

d. A sale of Jay's accounts receivable to ABC, with the risk of uncollectible accounts transferred to ABC

D

The credit balance in customer's accounts should be

a. Netted against the debit balances in other customers' accounts

b. Presented separately as a current liability

c. Reported as a loss contingency

d. Reported as a valuation account to receivables

B

Which statement is true when the entity failed to prepare an adjusting entry for the unreplenished petty cash vouchers at the balance sheet date?

a. Overstatement of expenses

b. Understatement of petty cash fund

c. Understatement of cash in bank

d. Overstatement of current asset

D

If receivables are hypothecated against borrowings, the amount of receivables involved should be

a. Disclosed in the notes to the financial statements

b. Excluded from the total receivables, with disclosures

c. Excluded from the total receivables, with no disclosures

d. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowings

A

A Cash Over and Short account is

a. Not generally accepted

b. Debited when the petty cash fund proves out over

c. Debited when the petty cash fund proves out short and will ultimately be reclassified to either an "Expense" or a "Receivable"

d. A contra account to cash

C

Which of these adjustments would be shown as an addition to the cash balance per books in order to arrive at the correct cash balance?I. Deposits in transit ; II. Customer's check for P32,500 recorded in the books for P23,500 ; III. Note collected by bank in behalf of the company ; IV. Deposit of another company erroneously credited by bank to the company's account; V. No sufficient fund check charged back by bank ; VI. Company deposit for P32,500 recorded in the books for P23,500.

a. II, III, and VI

b. II and III

c. II, V and VI

d. III and VI

A

Which of the following is reported as cash in the statement of financial position?

a. Money market fund purchased on November 1, 2021 due on January 29, 2022.

b. Cash in Bank of Spain, Bank of Spain filed its bankruptcy on December 2, 2021.

c. Gift certificates received from one of its loyal suppliers.

d. Cash in Lisbon Bank, this bank account is restricted for disbursement of payroll only.

D

A compensating balance is best reflected by which of the following?

a. A savings account maintained at the bank equal to the amount of all outstanding loans

b. An amount of capital stock held in the company's treasury equal to outstanding loan commitments

c. A balance held in a time or demand deposit account that is equal to the interest currently due on a loan

d. The portion of any demand deposit, time deposit, or certificate of deposit maintained by an entity which constitute support for existing borrowing arrangements of the entity with a lending institution

D

Which of the following items does not fall under the category "Receivables "?

a. Loans to employees

b. Travel advances

c. Claims against insurance companies

d. Accrued interest on notes receivable

B

Which of the following would result to a decrease in accounts receivable of the seller and

decrease in accounts payable of the buyer in a sale of goods on account?

a. FOB Destination, freight prepaid

b. FOB Destination, freight collect

c. FOB Shipping point, freight prepaid

d. FOB Shipping point, freight collect

B

Bank service charges of the previous and current month in the proof of cash shall be:i.Deducted in books previous month cash balance – NSF check previous month ; ii.Deducted in books current month cash balance – NSF check previous month ; iii.Deducted in disbursements – NSF check previous month ; iv.Added in books disbursement – NSF check current month ;v.Deducted in books ending cash balance – NSF check current month

a. i,ii,iv and v only

b. i,iii, iv only

c. i,iii,iv and v only

d. i,ii,iii,iv and v

C

The assignor's equity in assigned accounts that is required to be disclosed in the notes is equal to the

a. Assigned accounts receivable

b. Bank loan balance

c. Assigned accounts receivable minus the bank loan balance

d. Bank loan balance minus the assigned accounts receivable

C

Which of the following forms of receivable financing do not result to a debit or credit to accounts receivable?

a. Pledging and Assignment

b. Factoring and Discounting

c. Discounting and Pledging

d. Assignment and Factoring

C