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Question ISTQ3

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 384

Short Answer

3. Which of the following statements is false?

(a) Receivables include equity securities purchased by the company.

(b) Receivables include credit card receivables.

(c) Receivables include amounts owed by employees as a result of company loans to employees.

(d) Receivables include amounts resulting from transactions with customers.

The correct option is a.

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Step by Step Solution

Definition of Credit Card

The card that allows customers to make purchases without instant cash payment is known as a credit card. The customer has to repay the amount in a future period and the applicable interest and other charges.

Explanation for Correct option

Receivables do not include the equity securities purchased by the company. Such securities must be included in the investment section of the balance sheet. Thus, statement a is false.

Explanation for Incorrect Option

(b) Receivables also records the customer’s credit card amount due. Thus, statement b is true.

(c) Any loan advanced to the employee of the business entity will be reported as receivables on the company’s balance sheet. Thus, statement c is true.

(d) Receivable also includes the amount due from the customer regarding credit sales made. Thus, statement d is true.

Most popular questions for Business-studies Textbooks

(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi’s review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2017. He has collected the following information from Nottleman’s bookkeeper for this task.

Petty Cash

1. The petty cash fund was established on May 10, 2017, in the amount of $250.

2. Expenditures from the fund by the custodian as of May 31, 2017, were evidenced by approved receipts for the following.

Postage expenses

$33.00

Mailing Labels and Other Supplies

65.00

I.O.U from employees

30.00

Shipping charges

57.45

Newspaper advertising

22.80

Miscellaneous expenses

15.35

On May 31, 2017, the petty cash fund was replenished and increased to $300; currency and coin in the fund at that time totaled $26.40.

Bank Reconciliation

THIRD NATIONAL BANK

BANK STATEMENT

Disbursements

Receipts

Balance

Balance 1 May, 2017

$8,769

Deposits

$28,000

Note payment direct from customer ($30)

930

Check clearing during May

$31,150

Bank service charges

27

Balance 31 May, 2017

6,522

Nottleman’s Cash Account

Balance 1 May 2017

$8,850

Deposit during May 2017

31,000

Checks written during May 2017

(31,835)

Deposits in transit are determined to be $3,000, and checks outstanding at May 31 total $850. Cash on hand (besides petty cash) at May 31, 2017, is $246.

Instructions

(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.

(b) Prepare a bank reconciliation dated May 31, 2017, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the May 31, 2017, balance sheet?

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