Banking and Finance Quiz

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What is a compensating balance related to?

A temporary investment as collateral for a loan

A balance in a payroll checking account

A fund in a bank account that cannot be spent

A minimum deposit required to be maintained in connection with a borrowing arrangement (correct)

What is a characteristic of a cash equivalent?

It is a type of stock investment with a high market value

It is a type of loan with a high interest rate

It is a long-term investment with a fixed interest rate

It is a short-term, highly liquid investment readily convertible into a known amount of cash (correct)

How long does an investment need to mature to be considered a cash equivalent?

90 days or less (correct)

Less than 6 months

Less than 60 days

Less than 30 days

What is NOT classified as cash and cash equivalents?

Redeemable preference shares due in 60 days Signup and view all the answers

What is true about a compensating balance?

It is classified separately as a current asset Signup and view all the answers

What is the primary characteristic of a cash equivalent?

It is so near maturity that it presents insignificant risk of change in interest rate Signup and view all the answers

What is the major purpose of an imprest petty cash fund?

To effectively control cash disbursements Signup and view all the answers

Which of the following is not a cash equivalent?

Commercial papers due for repayment in 90 days Signup and view all the answers

What is the internal control feature specific to petty cash?

Imprest system Signup and view all the answers

In reimbursing the imprest petty cash fund, which of the following statements is true?

Petty cash is credited Signup and view all the answers

A petty cash fund is primarily used for?

Making minor disbursements of coin and currency Signup and view all the answers

When is the imprest petty cash fund account debited?

When the fund is created and every time it is replenished Signup and view all the answers

How are entire receivables classified?

As current with disclosure of the amount not realizable within one year Signup and view all the answers

In the case of long-term real estate installment sales, how are the receivables shown?

With the portion due in one year as current and the balance as noncurrent Signup and view all the answers

Which accounting principle primarily supports the use of allowance for doubtful accounts?

Conservatism Signup and view all the answers

Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?

It provides improved matching of bad debt expense with revenue Signup and view all the answers

When would an entry debiting accounts receivable and crediting allowance for doubtful accounts be made?

When a customer defaults on the account Signup and view all the answers

Which method is more theoretically correct for recording cash discounts related to accounts receivable?

Net method Signup and view all the answers

What cost is excluded from the cost of inventory?

Irrecoverable purchase tax Signup and view all the answers

Which of the following costs should not be included in the cost of inventory?

Salaries of sales staff Signup and view all the answers

What is included in the cost of bringing inventory to its present location and condition?

Abnormal freight in Signup and view all the answers

What type of property must be classified as inventory?

Merchandise purchased by a retailer Signup and view all the answers

How should a property developer classify properties held for sale in the ordinary course of business?

Inventory Signup and view all the answers

How should factory supplies to be consumed in the production process be reported?

Inventory Signup and view all the answers

What is the equation that represents the concept of goods to be accounted for?

Beginning inventory plus net purchases Signup and view all the answers

What is the purpose of the gross profit method in relation to inventory valuation?

To estimate the cost of goods sold Signup and view all the answers

What is an advantage of the retail inventory method?

It permits entities to avoid taking an annual physical inventory Signup and view all the answers

How are markdowns typically treated in the computation of the cost to retail ratio using the retail method?

They are ignored in the computation Signup and view all the answers

What is the purpose of comparing the amount of purchases and sales from one period to the next?

To identify trends and anomalies in inventory management Signup and view all the answers

What is the relationship between the sum of beginning inventory and net purchases, and the goods not sold?

They are equal Signup and view all the answers