ACCT Exam 2

Fernandez Company had an accounts receivable balance of $150,000 on December 31, Year 2 and $175,000 on December 31, Year 3. The company wrote off $40,000 of accounts receivable during Year 3. Sales for Year 3 totaled $600,000, and all sales were on account.

The amount collected from customers on accounts receivable during Year 3 was:

A.

$575,000

B.

$531,000

C.

$535,000

D.

$600,000

C. 535,000

Choice "C" is correct. The general format of an account analysis is beginning, add, subtract, ending.

They provided the beginning and ending balances. They also provided sales; when something is sold on account, accounts receivable is increased so sales is an add in the account analysis format.

They also provided the amount of the bad debt write-off for the year; when an account is written off, accounts receivable is decreased so the write-off is a subtract. Cash collections is another subtract, and that is what they are asking for.

Beginning balance

150,000

Plus: Sales

600,000

Less: Collections

(535,000)

(originally a plug)

Less: Write-off of accounts

(40,000)

Ending balance

175,000

On its December 31, Year 2 balance sheet, Red Rock Candle Company reported accounts receivable of $855,000, net of an allowance for doubtful accounts of $45,000. On December 31, Year 3, Red Rock's balance sheet showed gross accounts receivable of $922,000 and Red Rock's income statement reported sales of $3,000,000. During the year, accounts receivable of $35,000 were written off and $18,000 were recovered. Based on past experience, 5% of Red Rock's ending accounts receivable are uncollectible. How much should Red Rock report as bad debt expense on its Year 3 income statement?

A.

$18,100

B.

$35,000

C.

$46,100

D.

$150,000

A. 18,100

Choice "A" is correct. Using the percentage of ending AR method, Red Rock's December 31, Year 3, allowance for doubtful accounts should be $46,100 ($922,000 × 5%). Bad debt expense can be determined using the company's beginning and ending allowance balances and the write-off and collection activity for the year:

Beginning Allowance

45,000

-

Write-offs

(35,000)

+

Recoveries

18,000

+

Bad debt expense

18,100

Ending Allowance

46,100

Which method of recording uncollectible accounts expense is consistent with accrual accounting?

Allowance

Direct Write-off

A.

Yes

Yes

B.

Yes

No

C.

No

Yes

D.

No

No

B. Yes, No

Choice "B" is correct. The allowance method is used to match expenses with revenues and to record the proper carrying amount for accounts receivable. The direct write-off method does not achieve these objectives.

When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account:

A.

Decreases both accounts receivable and the allowance for uncollectible accounts.

B.

Decreases accounts receivable and increases the allowance for uncollectible accounts.

C.

Increases the allowance for uncollectible accounts and decreases net income.

D.

Decreases both accounts receivable and net income.

A.Decreases both accounts receivable and the allowance for uncollectible accounts.

Choice "A" is correct, when the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account decreases both accounts receivable and the allowance for uncollectible accounts.

Debit (Dr)Credit (Cr)Allowance for uncollectible accounts

XX

Accounts receivable

XX

Inge Co. determined that the net value of its accounts receivable at December 31, Year 3, based on an aging of the receivables, was $325,000. Additional information is as follows:

Allowance for uncollectible accounts, 1/1/Yr 3

30,000

Uncollectible accounts written off during Year 3

18,000

Uncollectible accounts recovered during Year 3

2,000

Accounts receivable at 12/31/Yr 3

350,000

For Year 3, what would be Inge's uncollectible accounts expense?

A.

$5,000

B.

$11,000

C.

$15,000

D.

$21,000

B. 11,000

Choice "B" is correct.

Allowance for uncollectible accounts:

Beginning balance

30,000

Uncollectible accounts written off

(18,000)

Written-off accounts now collectible

2,000

Uncollectible accounts expense

?

Year-end balance

25,000

Thus, the expense (?) equals $11,000. Note that $350,000 accounts receivable less the allowance for uncollectible accounts balance equals the $325,000 net accounts receivable

On March 31, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following:

AgeAmountEstimateduncollectible

0-30 days

$60,000

5%

31-60 days

4,000

10%

Over 60 days

2,000

$1,400

What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet?

A.

$4,800

B.

$4,000

C.

$3,800

D.

$3,000

A. 4,800

Choice "A" is correct. If bad debts are based on accounts receivable, the result of the aging will be the balance in the allowance account.

$60,000 x 5%

3,000

$4,000 x 10%

400

Over 60 days

1,400

Total

4,800

Note: The bad debt expense for the year would be $3,800 ($4,800 - $1,000).

At the end of year one, Boller Co. had an ending balance in allowance for uncollectible accounts of $30,000. During year two, Boller wrote-off $40,000 of accounts receivable. At the end of year two, Boller had $300,000 in accounts receivable and determined that 8% of these would be uncollectible. What amount should be reported as uncollectible accounts expense on Boller's year two income statement?

A.

$64,000

B.

$34,000

C.

$24,000

D.

$14,000

B. 34,000

Choice "B" is correct. The beginning balance in the allowance account for year 2 is 30,000. The write-off decreases the allowance account balance to a negative 10,000. At year-end, the required allowance balance based on the percentage of receivables approach is a positive 24,000 (300,000 × 0.08). An adjusting entry of $34,000 must be recorded to increase the allowance balance to 24,000 at year-end. Dr. Uncollectible accounts expense 34,000, Cr. Allowance for uncollectible accounts 34,000. See T-account representation below.

Allowance forDoubtful Accounts |$30,000 $40,000 | |34,000← Plug|$24,000

Morris Co. determined that the net realizable value of its accounts receivable at December 31, was $435,000. This estimate was based on an aging schedule. Additional information is as follows:

Allowance for uncollectible accounts - January 1

229,000

Uncollectible accounts written off

61,000

Accounts written off in prior years recovered

26,000

Accounts receivable at December 31

700,000

What is Morris's uncollectible accounts expense for the year ended December 31?

A.

$97,000

B.

$123,000

C.

$61,000

D.

$71,000

D.71,000

Choice "D" is correct..

Beginning balance

229,000

Additions: recoveries

26,000

expense (squeeze)

71,000

Subtract: write-offs

(61,000)

Ending balance ($700,000 − 435,000)

265,000

Marr Co. had the following sales and accounts receivable balances, prior to any adjustments, at year-end:

Credit sales

10,000,000

Accounts receivable

3,000,000

Allowance for uncollectible accounts

50,000

Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year-end. By what amount should Marr adjust allowance for uncollectible accounts at year-end?

A.

$0

B.

$40,000

C.

$90,000

D.

$140,000

B. 40,000

Choice "B" is correct. Under the percentage-of-receivables method the ending balance in the allowance account is equal to the total estimated uncollectible amount. Marr Co. would have a balance of $90,000 ($3,000,000 x 3%) in its allowance for uncollectible accounts at year end. Using the BASE format the adjustment would equal:

Allowance for uncollectible accounts:

Beginning balance (given)

$50,000

Add expense (squeezed)

40,000

Subtotal (added up)

90,000

Subtract write offs (none given)

0

Ending balance (calculated)

$90,000

Marr Co. had the following sales and accounts receivable balances, prior to any adjustments at year end:

Credit sales

10,000,000

Accounts receivable

3,000,000

Allowance for uncollectible accounts (debit balance)

50,000

Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end. By what amount should Marr adjust its allowance for uncollectible accounts at year end?

A.

$0

B.

$40,000

C.

$90,000

D.

$140,000

D.140,000

Choice "D" is correct. Since Marr uses the percentage of accounts receivable method for estimating bad debts, the ending allowance is calculated by multiply 3% by $3,000,000, for a required allowance of $90,000.

Note that the unadjusted balance in the allowance account right now is a debit balance of $50,000. The allowance should be a credit balance, or contra-asset. A debit balance in the allowance account means that last year was a particularly bad year for Marr and they wrote off so many bad accounts receivable that they didn't have enough in their allowance to account for it all.

To adjust from a debit balance in the allowance account of $50,000 to a credit balance of $90,000, the following journal entry must be recorded:

Debit (Dr)Credit (Cr)Uncollectible Accounts Expense

140,000

Allowance for Uncollectible Accounts

140,000

($50,000) + $140,000 = $90,000

Trans Co. had the following balances at December 31, Year 1:

Cash in checking account

35,000

Cash in money market account

75,000

U.S. Treasury bill, purchased 11/1/Year 1, maturing 1/31/Year 2

350,000

U.S. Treasury bill, purchased 12/1/Year 1, maturing 3/31/Year 2

400,000

Trans's policy is to treat as cash equivalents all highly-liquid investments with a maturity of three months or less when purchased. What amount should Trans report as cash and cash equivalents in its December 31, Year 1, balance sheet?

A.

$110,000

B.

$385,000

C.

$460,000

D.

$860,000

C.460,000

Choice "C" is correct. Trans should report $460,000 as cash and cash equivalents in its December 31, Year 1, balance sheet.

Cash in checking account

35,000

Cash in money market account

75,000

U.S. Treasury bill maturing 1/31/Year 2

350,000

[Original maturity period of 3 months]

U.S. Treasury bill maturing 3/31/Year 2

−

[Original maturity period of 4 months]

Cash and cash quivalents

460,000

The following information pertains to Grey Co. at December 31, Year 1:

Checkbook balance

$12,000

Bank statement balance

16,000

Check drawn on Grey's account, payable to a vendor, dated and recorded12/31/Year 1 but not mailed until 1/10/Year 2

1,800

On Grey's December 31, Year 1, balance sheet, what amount should be reported as cash?

A.

$12,000

B.

$13,800

C.

$14,200

D.

$16,000b

B. 13,800

Choice "B" is correct. Since the check is not disbursed as of December 31, Year 1, it should be added back to the checkbook balance in determining the 12/31/Year 1 cash balance. Thus, the correct cash balance = $12,000 + $1,800 = $13,800.

At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank:

Checking account #101

175,000

Checking account #201

(10,000)

Money market account

25,000

90-day certificate of deposit, due 2/28/Year 2

50,000

180-day certificate of deposit, due 3/15/Year 2

80,000

Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents?

A.

$190,000

B.

$200,000

C.

$240,000

D.

$320,000

C. 240,000

Choice "C" is correct, $240,000 cash and cash equivalents in 12/31/Year 1 balance sheet.

First State Bank accounts

Cash andcash equivalents

Checking account #101

175,000

Checking account #201

(10,000)

Money market account

25,000

90-day CD, due 2/28/Year 2

50,000

180-day CD, due 3/15/Year 2

−

Total

240,000

Imperial Food's checkbook balance on December 31, Year 1, was $122,400. In addition, Imperial held the following items in its safe on December 31:

A check for $600 from Brewster, Inc., received December 30, Year 1, which was not included in the checkbook balance.

A non-sufficient funds check from Star Company in the amount of $800 that had been deposited at the bank, but was returned for lack of sufficient funds on December 29. The check was to be redeposited on January 3, Year 2. The original deposit has been included in the December 31 checkbook balance.

Coin and currency on hand amounted to $1,500.

The proper amount to be reported on Imperial Foods' balance sheet for cash at December 31, Year 1 is:

A.

$123,000

B.

$122,800

C.

$123,700

D.

$122,400

C.123,700

Choice "C" is correct.

Balance per books

122,400

Add check from Brewster, Inc. held but not yet deposited

600

Deduct NSF check from Star Co.

(800)

Add coin and currency on hand

1,500

123,700

The check from Brewster should be included, as Imperial Foods had received the funds prior to Dec. 31. The NSF check from Star Co. should not be included in the year-end balance; thus it should be deducted from the balance per books. All other cash items on hand should be included in the year-end balance.

Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:

Bank service charge

$10

Insufficient funds check

650

Checks outstanding

1,500

Deposits in transit

350

Check deposited by Hilltop and cleared by the bank for $125but improperly recorded by Hilltop as $152

What is the net cash balance after the reconciliation?

A.

$52,363

B.

$53,023

C.

$53,050

D.

$53,077

C. 53,050

Choice "C" is correct. This fact pattern provided us with the balance per the bank statement of $54,200. There are only two reconciling items for the balance per the bank statement, ignoring bank errors, and these are deposits in transit and outstanding checks.

Any other reconciling items, namely service charges, NSF checks, credit memos (customer collections via wire transfer), interest income, and errors made by the company are only reconciling items to the balance per the books or general ledger balance, and this balance was not provided here.

Therefore, starting with the $54,200, the only two things we can do are to add the deposits in transit of $350 and subtract the outstanding checks of $1,500. This yields us a corrected or adjusted cash balance of $53,050.

At June 30, Almond Co.'s cash balance was $10,012 before adjustments, while its ending bank statement balance was $10,772. Check number 101 was issued June 2 in the amount of $95, but was erroneously recorded in Almond's general ledger balance as $59. The check was correctly listed in the bank statement at $95. The bank statement also included a credit memo for interest earned in the amount of $35, and a debit memo for monthly service charges in the amount of $50. What was Almond's adjusted cash balance at June 30?

A.

$9,598

B.

$9,961

C.

$10,048

D.

$10,462

B.9,961

Choice "B" is correct. Almond's adjusted cash balance is computed as follows:

Adjusted cash balance = Unadjusted cash balance +/- bank errors + credit memos - service charges

Adjusted cash balance = $10,012 - ($95 - $59) + $35 - $50 = $9,961

Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to receiving its bank statement. Reconciliation of the bank statement reveals the following information:

Bank service charge: $15

Check deposited and returned for insufficient funds check: $120

Deposit recorded in the general ledger as $258 but should be $285

Checks outstanding: $1,800

After reconciling its bank statement, what amount should Alton report as its cash account balance?

A.

$30,338

B.

$30,392

C.

$32,138

D.

$32,192

D. 32,192

Choice "D" is correct. When the bank statement is received, all items that are unknown by Alton Co. should be recorded in the general ledger. The following adjustments should be made:

General ledger

32,300

Bank service charge

(15)

NSF Check

(120)

Book error

27

Adjusted cash

32,192

No adjustment is made for the outstanding checks because the cash balance per the general ledger already reflects the reduction in cash that occurred when the checks were recorded. Checks are considered outstanding when they have not cleared the bank, thereby reducing the bank balance.

Rune Co.'s checkbook balance on December 31 was $10,000. On that date, Rune held the following items in its safe:

$4,000 check payable to Rune, postdated January 3, and not included in the December 31 checkbook balance, in collection of a sale made in December.

$1,000 check payable to Rune, deposited December 15 and included in the December 31 checkbook balance, but returned by the bank on December 30 stamped "NSF." The check was redeposited on January 2, and cleared on January 9.

What amount should Rune report as cash in its December 31 balance sheet?

A.

$9,000

B.

$10,000

C.

$13,000

D.

$14,000

A. 9,000

Choice "A" is correct. Starting with the $10,000 checkbook balance, there are two transactions to consider:

$4,000 check. Because this check is dated January 3, it was correctly excluded from the checkbook balance.

$1,000 check. While the check was deposited and included in the December balance, it was returned as having non-sufficient funds (NSF) on December 30. The check was deposited and cleared in January, but as of the end of December, it is stamped NSF. So it should be excluded from the balance sheet.

Inch Co. had the following balances at December 31, Year 1:

Cash in checking account

35,000

Cash in money market account

75,000

U.S. Treasury bill, purchased 12/1/Year 1, maturing 2/28/Year 2

200,000

U.S. Treasury bill, purchased 12/1/Year 0, maturing 5/31/Year 2

150,000

Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of three months or less when purchased. What amount should Inch report as cash and cash equivalents in its December 31, Year 1, balance sheet?

A.

$110,000

B.

$235,000

C.

$310,000

D.

$460,000

C.310,000

Choice "C" is correct. The company's policy is to treat all highly-liquid investments with a maturity of three months or less when purchased as cash equivalents. The following items are therefore treated as cash and cash equivalents at December 31:

Cash in checking account

35,000

Cash in money market account

75,000

U.S. Treasury bill, purchased 12-1-Year 1 maturing 2-28-Year 2

200,000

Total

310,000

The $150,000 Treasury bill matures in five months after its purchase and does not qualify.

Cook Co. had the following balances at December 31, Year 2:

Cash in checking account

350,000

Cash in money market account

250,000

U.S. Treasury bill, purchased 12/1/Year 2, maturing 2/28/Year 3

800,000

U.S. Treasury bond, purchased 3/1/Year 2, maturing 2/28/Year 3

500,000

Cook's policy is to treat as cash equivalents all highly liquid investments with a maturity of three months or less when purchased. What amount should Cook report as cash and cash equivalents in its December 31, Year 2, balance sheet?

A.

$600,000

B.

$1,150,000

C.

$1,400,000

D.

$1,900,000

C. 1,400,000

Choice "C" is correct: $1,400,000 cash and cash equivalents.

Cash andcash equivalents

Cash in checking account

$ 350,000

Cash in money market account

250,000

U.S. Treasury bill, purchased 12/1/Year 2, maturing 2/28/Year 3 (90 days)

800,000

Total cash and cash equivalents

$ 1,400,000

The U.S. Treasury bond, purchased 3/1/Year 2, maturing 2/28/Year 3, is not a cash equivalent. At the purchase date, it was due in 365 days. Cash equivalents must mature in 90 days or less at the date of purchase.

Under the allowance method of recognizing uncollectibles the entry to record the write-off a specific account is to increase bad debt expense & decreases accounts receivable

True or False?

False

Hint: Allowance for Bad debt is a contra asset

Under the "allowance method" of recognizing uncollectable, the entry to record the write-off of a specific account does not change Net Income.

True or False?

True

Account receivable is reported at net realizable value, or the amount expected to be collected.

True or False?

True

The direct write-off method is consistent with accrual accounting and used for US GAAP financial reporting and tax purposes.

True or False?

False

Allowance for Uncollectable Accounts can have a debit balance when the write off exceeds the bad debt expense estimate.

True or False?

True

The income statement approach (% of net credit sales) under the allowance method is the preferred method of the FASB.

True or False?

False

Hint: FALSE, balance sheet approach

Trading securities are valued at original cost on the balance sheet

False

Hint: Fair value

The amount by which the fair value of available-for-sale securities exceed its cost should be accounted for in other comprehensive income.

True or False?

True

Available-for-sale securities are valued at original cost (which gets amortized) on the balance sheet

True or False?

False

Investment in debt securities should be classified as held-to-maturity securities if the reporting entity has both ability and intent to hold to maturity.

True or False?

True

A realized gain on company's available-for-sale securities should be reflected in the financial statements as other comprehensive income.

True or False?

False

An unrealized loss on a company's trading securities should be reflected in the financial statements as a non-operating income statement item.

True or False?

True

On December 31, 20X9, Ott Company had investments in trading securities as follows: Man Company Kemo, Inc. Fenn Corp. Cost $10,000 : 9,000 11,000 $30,000 Fair Value $ 8,000 11,000 2,000 $28,000 Ott's December 31, 20X9 balance sheet should report the trading securities as: a. 26,000 b. 28,000 c. $29,000 d. $30,000

B. 28,000

Ott Company should report its trading securities at fair value on the December 31, 20X9 balance sheet.

Total fair value of the trading securities:

8,000+11,000+2,000=28,0008,000+11,000+2,000=28,000

Correct answer: (b) $28,000

6. On January 2, 20X7, Adam Company purchased as a short-term investment 10,000 shares of Mill Corp's common stock for $40 a share. These securities were properly classified as trading. On December 31, 20X8, the market price of Mill's stock was $35 a share, reflecting a temporary decline in market price. On January 28, 20X9, Adam sold 8,000 shares of Mill stock for $30 a share. For the year ended December 31, 20X9, Adam should report a realized loss on the sale this trading security of: a. $100,000 b. $80,000 c. $60,000 d. $40,000

B.80,000

Adam Company originally purchased 10,000 shares at $40 per share, meaning the total cost was:

10,000×40=400,00010,000×40=400,000

On January 28, 20X9, Adam sold 8,000 shares at $30 per share, receiving:

8,000×30=240,0008,000×30=240,000

The original cost of those 8,000 shares was:

8,000×40=320,0008,000×40=320,000

Realized loss = Cost - Selling Price

320,000−240,000=80,000320,000−240,000=80,000

Correct answer: (b) $80,000

During 20X9, Scott Corporation purchased marketable securities as long-ter investments and classified then as available for sale. Pertinent data follow:

Scott appropriately carries these securities at market value. The amount of unrealized loss on these securities in Scott's 20X9 income statement should be:

Security: COST Market Value at 12/31/X9

D 36,000 40,000

E 80,000 60,000

F 180,000 186,000

296,000 286,000

a. 20,000

b. 14,000

c. 10,000

d. 0

d. 0

During 20X8, Wall Corporation purchased 2,000 shares of Hemp Corporation common stock for $31,500 as trading security. The market value of this investment was $29,500 at December 31, 20X8. Wall sold all of the Hemp Corp. stocks for $14 per share on December 15, 20X9, incurring $1,400 in brokerage commissions and taxes. On the sale, Wall should report a realized loss of:

a. 4,900

b. 3,500

c. 2,900

d. 1,500

a. 4,900

Use the following information for questions 5 and 6.

A trial balance before adjustments included the following:

$425,000 sales credit

Sales returns and allowance

$14,000 debit

Accounts receivable

43,000 debit

Allowance for doubtful accounts

760 credit

If the estimate of uncollectible accounts expense is made by taking 2% of NET sales, the amount of the adjustment is:

a. $6,700

b. $8,220

c. $8,500

d. $9,740

If the estimate of uncollectible accounts expense is made by taking 10% of gross account receivables, the amount of the adjustment is:

$3,540

$4,300

C.$4,224

d. $5,060

5. B. 8,220

6. A. 3,540

The cash account in the ledger shows a balance of $42,000 before reconciliation. The bank statement does not include a deposit of $2,300 made on the last day of the month.

The bank statement shows a collection by the bank of $940 and a customer's check for $220 was returned because it was NSF. A customer's check for $450 was recorded on the books as $540, and a check written for $79 was recorded as $97. The correct balance in the cash account was:

A. $42,612

B. $42,648

C. $42,828

D. $44,948

B. 42,648

Step 2: Adjust for items affecting the book balance

Bank Collection (Addition): +$940

NSF Check (Deduction): -$220

Check Recording Error (Customer check recorded as $540 instead of $450) → Overstatement, so we adjust down:

Correction: -($540 - $450) = -$90

Check Recording Error (Check recorded as $97 instead of $79) → Understatement, so we adjust up:

Correction: +($97 - $79) = +$18

Step 3: Compute the Correct Balance

42,000+940−220−90+18=42,64842,000+940−220−90+18=42,648

At December 31, 20X8, Kale Company had the following balances in ALL the accounts it maintains at First State Bank: Checking account #101 $175,000 Checking account #201 (overdraft) LESS: 10,000 Money market account 25,000 90-day certificate of deposit due 2/28/X9 50,000 180-day certificate of deposit due 3/15/X9 80,000 Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, 20X8 balance sheet, what amount should Kale report as cash and cash equivalents? A.$190,000 B.$200,000 C. $240,000 D. $320,000

C. 240,000

does not include the overdraft nor the 180 day certficate deposit due

During the year, Jantz Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $60,000 and the balance in the allowance account was $4,500. The net realizable value of accounts receivable after the write-off entry was:

A. 60,000

B. 59,000

C. 51,500

D. 55,500

D. 55,500

In preparing its August 31, 20X9, bank reconciliation, Ape Corporation has available the following information:

Balance per bank statement, 8/31/X9

Deposit in transit, 8/31/X9

$18,050

3,250

Return of customet's check for insufficient funds, 8/31/X9 X

600

Outstanding checks, 8/31/X9

2,750

Bank service charge for August

100

At August 31, 20X9, Apex's correct cash balance is:

$18,550

$17,950

$17,850

$17,550

A. 18,550

18,050+3,250-2,750=18,550

The following information pertains to Grey Company at December 31, 20X8:

Checkbook balance (Ledger)

$12,000

Bank statement balance

16,000

Check drawn on Grey's account, payable to a vendor, dated and

recorded 12/31/X8, but not mailed until 1/10/X9 (SEE NOTES ON PAGE 110: 1,800

On Grey's December 31, 20X8 balance sheet, what amount should be reported as cash?

B. 13,800

12,000+ 1,800=13,800

Hint: Add them because it has not yet been mailed out but we need to include this in our cash balance

Investments in equity securities that are actively traded must be classified as: I: Available for sale securities II.Held-to-maturity securities III: Trading securities a. I only b. ll only c. lll only d. l,ll,lll

C. lll only

Trading Securities (III): Actively traded equity securities must be classified as trading securities. These are bought and sold frequently to generate short-term profits, and they are reported at fair value with unrealized gains and losses recorded in net income.

Investments in debt securities should be classified as held-to-maturity securities if the reporting entity has the: a. Ability to mature yes; Intent to hold maturity Yes b. Ability to mature yes; Intent to hold maturity No c. Ability to mature no; Intent to hold maturity Yes d. Ability to mature no; Intent to hold maturity No

A. Yes, Yes

Debt securities can be classified as held-to-maturity (HTM) only if the entity both:

Has the intent to hold the securities until maturity and

Has the ability to hold the securities until maturity

If either condition is not met, the securities must be classified as either trading or available-for-sale (AFS) instead.

Investment in trading securities should be valued on the statement of financial position

a. Acquisition cost

b. Lower cost or market for the portfolio

c. Lower of cost or market for individual securities

d. fair value

D. Fair value

Trading securities are actively bought and sold for short-term profit and must be reported at their fair value on the statement of financial position (balance sheet). Any unrealized gains or losses are recognized in net income for the period.

The amount by which the fair value of a marketable security exceeds its cost should be accounted for in other comprehensive income when the security is classified as

Trading

Available-for-Sale

a.

No

No

b.

No

Yes

C.

Yes

Yes

d.

Yes

No

b. no trading, yes avilable for sale

Trading Securities: Unrealized gains or losses (difference between fair value and cost) are reported in net income, not other comprehensive income (OCI). (No for Trading)

Available-for-Sale (AFS) Securities: Unrealized gains or losses are reported in OCI until the securities are sold. (Yes for AFS)

Nola has a portion of marketable equity securities which it does intend to sell in the near term. How should Nola classify these securities, and how should it report unrealized gains and losses from these securities?Classify Asa

Trading securities

Available-For-Sale Securities

Trading securities

Available-For-Sale Securities

Report As A

Component of income from continuing operations

Component of other comprehensive income Component of other comprehensive income

Component of income from continuing operations

A. Classify as Trading securities; Report as a Component of income from continuing operations

At December 31, 20X9 Hull Corporation had the following marketable securities that were purchased during 20X9, its first year of operations. Securities A and B are classified as trading and securities Y & Z are available for sale (AFS).

Cost

Market

Unrealized gain (Loss)

In current assets: (Trading)

Security A

$ 90,000

$ 60,000

($30,000)

15,000

20,000

5.000

Totals

$105,000

$80,000

($25,000)

In noncurrent assets (AFS)

Security Y

$ 70,000

$

80,000

$ 10,000

Z

90,000

45,000

(45.000)

Totals

$160,000

$125,000

($35,000)

All market declines are considered temporary. A market adjustment at December 31, 20X9 should be established with a corresponding charge against

a. net income 60,000; oci 0

b. net income 30,000; oci 45,000

c. net income 25,000; oci 35,000

d. net income 25,000; oci 0

C. Net income 25,000; oci 35,000