chapter 9
A _________liability is typically due in 30-60 days.
current
What are EFTs? What are NSF checks?
EFTs = electronic funds transfer: used to transfer funds among parties without the use of paper
NSF checks = not sufficient funds also referred to as bounced or bad checks
Which cash flow activity is listed first on the statement of cash flows?
operating
Of the plant assets which one doesn't depreciate
Land
General Electric (GE) 7% bonds, maturing January 28, 2026, were issued at 111.12. Are these being issued at a premium or discount?
premium
What is one of the principles of cash management?
1) increase the speed of receivables collection
2) keep inventory levels low
3) monitor payment of liabilities
4) plan the timing of major expenditures
5) invest idle cash
What are the 4 stages of a company's life cycle?
1) Introductory phase
2) Growth phase
3) Maturity phase
4) Decline phase
Reebok Co. purchased equipment and incurred these costs:
Cash price $24,000
Sales taxes 1,200
Insurance during transit 200
Installation and testing 400
Total Costs $25,800
What amount should be recorded as the cost of equipment?
a) $24,000
b) $25,200
c) $25,400
d) $25,800
d) $25,800
**all of the costs were necessary expenditures to acquire the asset and make it ready for its intended use
Mint company issued $500,000, 15-year 7% bonds at 96.
Prepare the journal entry to record the sale of these bonds on January 1, 2025.
Jan. 1
Cash (500,000 x .96)= 480,000
Discount on Bonds pay. 20,000
Cr. Bonds Payable. 500,000
Give me an example of an internal control and define it.
Establishment of responsibility - control is most effective when only one person is responsible for a given task
Segregation of duties - different individuals should be responsible for related activities
Documentation procedures - companies should use prenumbered documents, and all documents should be accounted for
Physical controls - television monitors and garment sensors to deter theft
Independent internal verification - records periodically verified by an employee who is independent
Human resource controls - rotate employee's duties and require vacations
Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect method, what is net cash provided by operating activities?
a) $102,000
b) $112,000
c) $124,000
d) $136,000
d) $136,000
$132,000
+ $10,000
+ $6,000
- $12,000
= $136,000
Cuso Company purchased equipment on January 1, 2024, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2025, if the straight-line method of depreciation is used?
a) $80,000
b) $160,000
c) $78,000
d) $156,000
d) $156,000
** accumulated depreciation will be the sum of 2 years of depreciation expense, for 2024 and 2025. Annual depreciation = ($400,000 - $10,000)/5= $78,000. The sum of 2 years' depreciation is therefore $156,000 ($78,000 x 2) = $156,000
what is the equation for calculating interest on notes payable?
Interest= face value of note X annual interest rate X time in terms of years
What is the format/outline for preparing a bank reconciliation?
Per bank statement
Adjustments to the bank balance
+ deposits in transit
- outstanding checks
+/- bank errors
Per books
Adjustments to the book balance
+ EFT collections and other deposits
- NSF (bounced) checks
- service charges and other payments
+/- company errors
The following data are available for Retique:
Increase in accounts payable $40,000
Increase in bonds payable $100,000
Sale of investment $50,000
Issuance of common stock $60,000
Payment of cash dividends $30,000
Net cash provided by financing activities is:
a) $90,000
b) $130,000
c) $160,000
d) $170,000
b)$130,000
$100,000
+ $60,000
- $30,000
= $130,000
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2025. The machine was purchased for $80,000 on January 1, 2021, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale?
$18,000 loss
**first we need to calculate the book value
the accumulated depreciation as of June 30,2025 is [($80,000/10 years) x 4.5 years]= $36,000 (4.5 years is from January 2021- June 2025)
Thus, the cost of the machine less accumulated depreciation equals ($80,000 - $36,000) = $44,000
The loss recorded at the time of sale is ($26,000 - $44,000) = $18,000
Kelly Jones borrowed $15,000 on a 7-month, 8% notes from Gem State Bank to open her business, JC's coffee house. The money was borrowed on June 1, 2025, and the note matures January 1, 2026.
a) prepare the entry to record the receipt of the funds from the loan.
b) prepare the entry to accrue the interest on June 30.
a)
Cash 15,000
Notes payable 15,000
b)
Interest expense 100
Interest payable 100
($15,000 x .08 x 1/12)
prepare a bank reconciliation for Howard Company.
balance sept. 1 - $16,400; checks deposited $64,000
balance sept. 30 - $17,600; checks written $62,800
The September bank statement shows a balance of $16,500 at September 30 and the following memoranda.
Credits:
collection from customer of EFT $1,830
Interest earned on checking acct. $45
Debits:
NSF checks $560
Safety deposit box rent $60
At September 30, deposits in transit were $4,738 and outstanding checks totaled $2,383.
Bank Reconciliation Illustrated
September 30, 2025
Cash balance per bank statement $16,500
add: deposits in transit + 4,738
less: outstanding checks - 2,383
adjusted cash balance per bank stmt. $18,855
Cash balance per books $17,600
add:EFTs + 1,830
add: interest earned on checking acct. + 45
less: NSF checks - 560
less: safety deposit box rent - 60
Adjusted cash balance per books $18,855
Sosa Company reported net income of $190,000 for 2025. Sosa also reported a depreciation expense of $35,000 and a loss of $5,000 on the disposal of plant assets. The comparative balance sheets show an increase in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable, and a $4,000 increase in prepaid expenses.
Prepare the operating activities section of the statement of cash flows for 2025. Use the indirect method.
Net income $190,000
Adjustments:
1) noncash charges
Depreciation expense + 35,000
2) gains and losses
Loss on disposal of plant assets + 5,000
3) changes in current assets and current liabilities
increase in accts. rec. - 15,000
increase in accts. payable + 17,000
increase in prepaid exp. - 4,000
Net income provided by operating activities
228,000