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Financial Accounting: A User Perspective, Sixth Canadian Edition Hoskin, Fizzell, Cherry
CHAPTER 6
Cash, Short-term Investments, and
Accounts and Notes Receivable
ASSESSING YOUR RECALL SOLUTIONS
6-1 The unit-of-measure assumption in accounting means that

elements of the financial statements are to be measured using a
common unit. That unit in Canada is the dollar. In most
countries the unit-of-measure is the domestic currency.
6-2 Purchasing power risk is present for cash because when cash is
held during periods of inflation the purchasing power of the dollar
decreases. For example, if $100 is held in cash during a year of
a price increase of 10% the $100 will buy 10% fewer goods and
services at the end of the year, than at the beginning. Inventory,
on the other hand, is not fixed in terms of the number of dollars
that it represents. The value of the inventory can fluctuate with
changing prices. If $100 worth of inventory was held during a
year in which prices increased 10% it is possible that the price of
the inventory could be raised to $110 to compensate. There may
be supply and demand reasons why the price of inventory could
not be raised to the full $110. If this is so then the inventory may
be subject to some purchasing power risk but not to the same
degree as cash.
6-3 Management is responsible for safeguarding the assets of a

company. It establishes policies and procedures to help protect
and manage assets like cash, inventory, supplies, buildings, and
equipment. These policies and procedures form part of a
company’s internal control system. Internal controls are
particularly important for cash, to ensure that cash is not lost or
stolen, and to ensure cash balances are properly managed. If
stolen, cash cannot usually be specifically traced back to the
company from which it was taken. If a company has too little
cash, this can lead to operational difficulties, or at worst,
Solutions Manual 6-1 Chapter 6

Copyright © 2011 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is strictly prohibited.
bankruptcy. Having too much cash is also not good

management practice since cash is an asset that usually earns
little return (bank deposit interest rate).
An effective control system should include the following

measures:
1. Physical measures to guard against theft. For cash, these
may include locks, safes, and frequent deposits.
2. Separation of duties so that one person is not responsible
for too many tasks, allowing an employee to both commit a
crime and cover up the existence of the crime. With
respect to cash, separation of duties would have one
employee receiving cash, another authorized to write
cheques, and a third responsible for recording transactions
in the accounting records. In addition, cheques may
require more than one employees’ signature.
3. An effective record-keeping system to ensure that all
transactions are recorded on a timely basis, only
authorized transactions are recorded and employees are
properly trained to reduce errors.
6-4 It is hard to segregate jobs and responsibilities when you have

only one or two office employees. Few employees tend to know
everything about the organization.
6-5 Purpose of a bank reconciliation is to ensure that any differences

between the accounting records for cash and the bank records
are identified and explained.
6-6 The primary consideration in deciding if an investment should be

classified as current or non-current is management’s intention. If
management intends to hold the investment for more than one
year, the investment should be classified as non-current.
Otherwise, the investment should be classified as current as long
as it can be sold.
6-7 The most commonly used valuation method for short-term

investments is the current market value or fair value.

6-8 A realized gain or loss occurs when a temporary investment is

actually sold at a price above (gain) or below (loss) its acquisition
cost. An unrealized gain or loss for temporary investments
occurs when the value of the investment has changed and is
adjusted in the accounting records to reflect the new valuation,
even though no transaction has occurred. The loss or gain won’t
be realized, until the investment is actually sold.
6-9 Investments in equity instruments are reported on the statement

of financial position at fair value (or their current market value).
However, investments in debt instruments that have fixed cash
payments and a maturity date can be carried at cost if the
company intends to hold the investment to maturity and if the
company is financially capable of waiting that long to convert the
investment to cash.
6-10 Allowance for Doubtful Accounts is a contra account to Accounts

Receivable. It reduces the aggregate amount of the accounts
receivable by the anticipated effects of uncollectible accounts.
The allowance for doubtful accounts has a credit balance
because its purpose is to show that the debit balance amount in
the accounts receivable will not be fully collected.
6-11 Percentage of sales method:
The bad debt expense for the period is estimated by multiplying

the credit sales for the period by an appropriate percentage. The
percentage is usually determined based on the company’s
collection history.
Aging of accounts receivable method:
Management estimates a percentage relationship between the

amount of receivables and the expected write off of uncollectible
accounts.
6-12 The direct write-off method recognizes bad debt expense (loss)
in the period in which the receivable is determined to be
unrecoverable, not necessarily in the period in which the original
sale was made. This creates a matching problem. The

allowance method estimates and records the bad debt expense

in the period of the original sale.
6-13 This method provides a proper matching of the revenues and

expenses (bad debt expense) from the sale and is the method
that is most consistent with accounting standards. The direct
write-off method can be used if the results of applying it are not
materially different from the results of applying the allowance
method.
6-14 Accounts receivable are amounts owed from customers as a

result of the normal business transactions of selling goods and
services on credit. There is usually no formal written agreement
of the terms, other than the details noted on the sales invoice.
The time period is usually short, and interest is not usually
charged. However, interest may be required if the customer
does not make payment within the specified time period.
A note receivable is evidenced by a formal agreement, referred

to as a promissory note. This is a written contract between the
two parties, the maker and the payee, describing the specific
amount to be paid by the maker either on demand of the payee,
or at a definite date in the future, and describing any interest.
Notes receivable generally take longer to mature than accounts
receivable, but usually less than one year.
6-15 Two ratios that measure liquidity are the current ratio and the
quick ratio. Both compare current assets to current liabilities,
with the current ratio comparing total current assets and the quick
ratio comparing total current assets less inventories and prepaid
expenses. Both provide information on the ability of the company
to pay its current liabilities, with the quick ratio providing more
conservative information.
6-16 The accounts receivable turnover ratio measures the “turnover”

of the accounts receivable in a year. This measures the average
number of times the total accounts receivable could have been
collected in full during the year. This ratio provides a measure of
the efficiency of the collection of the accounts receivable, with
larger ratios indicating faster collections, on average.


APPLYING YOUR KNOWLEDGE SOLUTIONS
6-17
Grace Ho
Bank Reconciliation
Balance per bank statement $1,543

Less: Outstanding cheques (251)
Adjusted cash balance $1,292
Balance per cheque book $1,287

Add: Electronic deposit 100
1,387
Less: Error in recording cheque
($86–$68) $ 18
NSF cheque 50
NSF cheque fee 15
(83)
1,304
Less: Monthly service charge (12*)
* This is the amount that makes the adjusted cash balance per the
cheque book equal the adjusted cash balance per the bank statement.

6-18 a.
Infinity Emporium Company
Bank Reconciliation
March 31

Add: Outstanding deposit 12,240
$78,984
Less: Outstanding cheques (4,560)
Balance per accounting records $71,952

Add: Collection of note receivable 3,600
75,552
Less: Service charge 24
NSF cheque 204
Loan payment 900 (1,128)
b. At March 31, the company has cash available of $74,424

(although the actual cash in the bank is $66,744).
c. Because the outstanding deposit (or deposit in transit) had not

been recorded by the bank, the balance reported on the bank
statement was too low and the adjusted/corrected balance was
higher.
Similarly, because the collection of the note receivable by the

bank had not been recorded by the company, the balance
reported in the accounting records was too low and the
adjusted/corrected balance was higher.

d. Bank service charges (SE) 24

Cash (A) 24
Cash (A) 3,600

Notes receivable (A) 3,600
Accounts receivable (A) 204

Cash (A) 204
Loan payable (L) 900

Cash (A) 900
6-19 a. not included in the bank reconciliation because both

Henri and the bank have recorded the transaction
b. deducted from cash account balance
c. deducted from cash account balance
d. added to cash balance
e. deducted from bank balance
f. deducted from cash account balance
g. deducted from bank balance
h. not included in the bank reconciliation because both

Henri and the bank have recorded the transactions
i. added to bank balance
j. not included in bank reconciliation because both Henri and

the bank have recorded the transaction
k. deducted from cash balance

6-20 a.
Kinte Products Limited
Bank Reconciliation
October 31, 2011
Balance per the bank statement $42,301

Add: Correction of bank error
in recording cheque 27
(1,336)
(2,286) (5,613)
Balance per the accounting records $38,755

Add: CRA tax refund 420
Less: Service charge (34)
Less: NSF cheque (376)
Less: Correction of company error
in recording deposit (600)
b. Bank service charges (SE) 34

Cash (A) 34
Cash (A) 1,200

Note receivable (A) 1,000
Interest revenue (SE) 200
Cash (A) 420

Tax refund receivable (A) 420

Cash (A) 376
Sales (SE) 600

Cash (A) 600

6-21 a.
Comet Company
Bank Reconciliation
April 30, 2011

$9,113
Bank Error (360) (3,480)
Balance per general ledger $4,643

5,658
Less: Service charge 25
b. Should have reported $ 5,633 as the cash balance.
c. Bank service charges (SE) 25

Cash (A) 254
Cash (A) 1,015

6-22 a. Investment Cost Fair Value

Green Company $10,000 $9,500
White Company 10,000 11,000
$20,000 $20,500
The investments will be reported on the statement of

financial position at their fair value of $20,500.
b. On the statement of earnings, an unrealized gain of $500 will

be reported, due to the increase in the value of the investments.

On the statement of financial position, this gain will increase the

retained earnings balance by $500.
6-23 a. Dividend revenue = (100 x $4) + (200 x $1.50) = $700
b. Looking at dividends only, the return on investments =

$700 / $20,000 = 3.5%. This represents the return for a four-
month period, which produces an annualized rate of return of
approximately 10.5%. (In many cases, however, dividends are
distributed only once per year. If that is the case, then the
company will not achieve its target of 10%.)
Looking at the total return on the investments, including the

change in their market value (i.e., the capital gain or loss) as well
as the dividends received, the company had a return of $1,200.
The $500 gain from the increase in the market value of the
investments (in 6-22, above) combined with the $700 of dividend
revenue results in an overall return of $1,200 on these
investments. This equates to a return of 6% during the four-
month period, or approximately 18% on an annualized basis.
Thus, on the basis of total return the company has exceeded its
target rate of 10% (although it should be noted that the capital
gain is unrealized and might “evaporate” later in the year).

6-24 a. Notes:
• We are reporting the temporary investments using their
fair market values.
• Brokerage fees are added to the cost of shares
purchased (or subtracted from the proceeds from
shares sold), rather than reported as expenses.
2011
July 20 Investment in Signal Corp 1 (A) 101,000
Cash (A) 101,000
Sept. 13 Dividends receivable (A) 2,500

Dividend income (SE) 2,500
Oct. 9 Cash (A) 2,500

Dividends receivable (A) 2,500
Dec. 31 Investment in Signal Corp. (A) 24,000

Unrealized gain on
investments (SE) 24,000
2012
Jan. 19 Cash 2 (A) 121,275
Loss on sale of investments 3 (SE) 3,725
Investment in Signal Corp (A) 125,000
1
($20.00 x 5,000) x 1.01 = $101,000
2
$24.50 x 5,000 = $122,500
$122,500 x 99% = $121,275
3
($101,000 + $24,000) – $121,275 = $3,725
b. At December 31, 2011, the investments would appear on the

statement of financial position at their fair value of $125,000
(5,000 x $25.00 per share).
c. 2011 – unrealized gain of $24,000.

2012 – realized loss of $3,725.
d. ($2,500 + $24,000 – $3,725) ÷ $101,000 = 22.5%

6-25 a. The investments are reported at their fair values on

each statement of financial position date:
Sept $410,000
Oct 480,000
Nov 510,000
Dec 250,000
b.
Sept. __ Short-term Investments (A) 450,000
Cash (A) 450,000
Sept. 30 Unrealized loss on short-term investments 40,000

(SE)
Temporary Investments (A) 40,000
$410,000 market value – $450,000 book

value = –$40,000 [i.e., a loss]
Oct. __ Short-term Investments (A) 50,000

Cash (A) 50,000
Oct. 31 Short-term investments (A) 20,000

Unrealized gain on short-term
$480,000 market value – ($410,000 +

$50,000) book value = +$20,000 [i.e., a
gain]
Nov. __ Short-term Investments (A) 20,000

Cash (A) 20,000
Nov. 30 Short-term investments (A) 10,000

Unrealized gain on short-term
$510,000 market value – ($480,000 +
$20,000) book value = +$10,000 [i.e., a
gain]

Dec. __ Short-term Investments (A) 20,000

Cash (A) 20,000
Dec. 31 Unrealized loss on Short-term investments 0

(SE)
Short-term Investments (A) 0
$530,000 market value – ($510,000 +

20,000) book value = $0 [i.e., no entry
necessary]
c. $10,000 loss ($530,000 fair value – $540,000 cost)
6-26 a. Investment Cost Market

Jack $26,000 $29,000
Queen 14,000 8,000
King 20,000 19,000
$60,000 $56,000
Aggregate cost $ 60,000

Aggregate market value 56,000
Unrealized loss $ 4,000
At December 31, the investments would be reported at their

fair market value of $56,000.
b. On the statement of earnings, an unrealized loss on the

valuation of short-term investments will be reported, in the
amount of $4,000. The effect is a decrease in net earnings,
which will decrease the retained earnings balance on the
statement of financial position.
6-27 a. Dividend revenue = (500 x $4) + (500 x $2) + (500 x $3) =

$4,500
b. Looking at dividends only, the return on investments = $4,500 /

$60,000 = 7.5%. Given that the investments were owned for half a
year, this equates to an annualized return of 15%. (In many cases,
however, dividends are distributed only once per year. If that is the

case with these investments, then Upper Company would not earn a
dividend return of 15% per year.)
Looking at the total return on the investments, including the

change in their fair market value (i.e., the capital gain or loss) as
well as the dividends received, the company had an overall
return of $500 [i.e., $4,000 loss (in 6-26 above) + $4,500]. $500 /
$60,000 = 0.83%. This represents a return for only six months,
and would be equivalent to an annual rate of 1.66%. Upper
Company, therefore, did not achieve its goal of earning a 12%
annual return on its investments (although it should be noted that
the capital loss is unrealized and might “evaporate” later in the
year).
6-28 a.
2011
Feb. __ Short-term Investments (A) 80,000
Cash (A) 80,000
March __ Short-term Investments (A) 45,000

Cash (A) 45,000
June __ Short-term Investments (A) 22,000

Cash (A) 22,000
Dec. 31 Unrealized Loss (SE) 5,000

Short-term Investments (A) 5,000
($70,000 + $45,000 + $32,000)

fair market value –
($80,000 + $40,000 + $22,000)
book value = -$5,000 loss

b.
2012
Dec. __ Cash (A) 9,400
Dividend Income (SE) 9,400
($7,000 + $1,000 + $1,400) =
$9,400
Dec. 31 Short-term Investments (A) 11,000

Unrealized gain (SE) 11,000
($72,000 + $56,000 + $25,000)

fair market value –
($70,000 + $40,000 + $32,000)
book value = $11,000 gain
c.
On the Statement of Earnings:
2011 2012
Net earnings (excluding earnings
from investments) $90,000 $110,000
Dividend income 0 9,400
Unrealized gain (loss) from
change in fair market value of
short-term investments (5,000) 11,000
Net earnings $85,000 $130,400
On the Statement of Financial Position:

2011 2012
Short-term investments (at fair
market values) 142,000 153,000
d. Investors typically look for two sources of return on equity

investments, dividend income and capital appreciation. Thus, it is
important to consider the total returns from the investment in order
to properly evaluate the performance.

6-29 a. Bad debts expense = 3% of credit sales

= 3% x ($900,000 - $150,000)
= $22,500
b. Allowance for doubtful accounts

0.03 x ($900,000 – $150,000) = $22,500
Less: amount written-off (10,000)
Allowance for doubtful accounts $12,500
c. Gross accounts receivable

($900,000–$150,000) – $675,000 – $10,000 = $65,000
Less: allowance for doubtful accounts (12,500)
Net accounts receivable $52,500
d. The balance in the allowance for doubtful accounts might not

be reasonable if the collectability of Dundee’s receivables is not
reflective of the industry. This could occur if Dundee’s customers
are less reliable, or if Dundee’s policies for checking and
extending credit are more lenient. Furthermore, setting up an
allowance for doubtful accounts based on a percentage of credit
sales is unlikely to result in a close estimate of the accounts that
will actually be uncollectible. Instead, basing the allowance for
doubtful accounts upon specific customer balances that are
overdue (i.e. an aging schedule) might result in a better valuation
of accounts receivable.
Establishing a reasonable allowance is particularly difficult in the

first year of operations. Dundee will be better able to assess
reasonableness after a few years history comparing its record of
uncollectible accounts to the industry average.
6-30 a. Accounts receivable (A) 820,000

Sales (SE) 820,000
Cash (A) 780,000

Accounts receivable (A) 780,000
Allowance for doubtful accounts (XA) 6,000

Accounts Receivable (A) 850

Allowance for doubtful accounts (XA) 850
Cash (A) 850

Bad debts expense (SE) 8,200

b. Accounts receivable, December 31, 2012 $154,000

($120,000+$820,000–$780,000–$6,000+$850–$850)
Less: Allowance for doubtful accounts
($4,200 + $8,200 – $6,000 + $850) (7,250)
Accounts receivable, net $146,750
c. Bad debts expense for year: $8,200.
6-31 a. 2011

Sales (SE) 200,000
(credit sales for year: $50,000 ÷ 0.25 = $200,000)
Cash (A) 150,000

Accounts receivable (SE) 150,000
Bad debt expense (SE) 3,000

Allowance for doubtful accounts (A) 3,000
($200,000 x 0.015 = $3,000)

2012
(write off account J. Morgan judged uncollectible)

Cash (A) 500
(record subsequent collection of J. Morgan
account that was previously written off)
b. Accounts receivable, December 31, 2011 $50,000

($200,000–$150,000)
Less: Allowance for doubtful accounts (3,000)
6-32 a. $105,000 + $80,000 – $95,000 = $90,000
b. The company’s net receivables were not affected by the write-

off of accounts. This is because the write-off journal entry affects
allowance for doubtful accounts and accounts receivable and the
adjusting amounts cancel each other out, resulting in no net
effect.
c. The company’s net earnings was not directly affected by the

write-off of accounts in 2012. This is because the write-off journal
entry affects the allowance for doubtful accounts and accounts
receivable, both Statement of Financial Position accounts.
6-33 a. Bad Debt Expense 25,840

Allowance for Doubtful Accounts 25,840

($34,840 – $9,000 = $25,840)
b.
2012
Mar. 1 Allowance for Doubtful Accounts 800
Accounts Receivable 800
Sept. 1 Accounts Receivable 800

Allowance for Doubtful 800
Accounts
Cash 800
Accounts Receivable 800
c. Dec. 31
Bad Debt Expense 34,500
Allowance for Doubtful
Accounts 34,500
($33,500 + $1,000 = $34,500)
6-34 a. December $91,000 x 0.02 = 1,820

November $26,040 x 0.12 = 3,125
Sept. & Oct. $16,700 x 0.25 = 4,175
July & Aug. $8,960 x 0.40 = 3,584
$12,704
b. Bad Debt Expense 9,064

($12,704 – $3,640 = $9,064)
6-35 a.
1) Accounts Receivable 8,448,000

Cash 2,112,000
Sales 10,560,000
2) Cash 7,284,000
Accounts Receivable 7,284,000
3) Allowance for Doubtful Accounts 78,000

Accounts Receivable 78,000
4) Accounts Receivable 8,100

Cash 8,100
b. Accounts Receivable Allowance for Doubtful Accounts

1,193,400 7,284,000 78,000 81,648
8,448,000 78,000 8,100
8,100 8,100
2,279,400 11,748
c. Bad Debt Expense 81,252

($93,000 – $11,748 = $81,252)
d. Accounts Receivable 2,279,400

Less: Allowance for
Doubtful Accounts 93,000 2,186,000
6-36 a. and b.
Accounts Receivable Allowance for Doubtful Accounts

900,000 4,900,000 70,000 55,000

5,800,000 70,000 6,000
6,000 6,000
1,730,000 9,000
c. Bad Debt Expense $80,000 + $9,000 = $89,000
6-37 a.
aged days: <30 days $150,000 x 0.04 = 6,000
aged days: 31-45 days $50,000 x 0.07 = 3,500
aged days: 46-90 days $75,000 x 0.10 = 7,500
aged days: >90 days $100,000 x 0.25 = 25,000
$42,000
Bad Debt Expense 23,000

($42,000 – $19,000 = $23,000)
b. I would reject this recommendation as it would further delay

the receipt of cash for the company, and it is unlikely that their
suppliers will all agree to extend the company's credit by another
30 days. In addition, it appears that there is a significant spike in
the amount of uncollectible amount of receivables as they get
past 90 days old, which will be only 30 days past their proposed
due date, thus likely increasing the amount if uncollectable
account. The expected increased sales may be counteracted by
an increased amount of uncollectible accounts, thus actually
deteriorating the company's net earnings, rather than increasing
it.
c. The company should consider attempting to collect their

receivable more aggressively between the 31-90 day window,
since it appears that the receivables that are not yet collected
after 90 days show a significant increase in the proportion that is
uncollectible.
6-38 a. i. $3,000,000 x 0.02 = $60,000
ii. $3,000,000 x 0.02 = $60,000

b. i. $40,000 – $5,000 = $35,000
ii. $40,000 + $5,000 = $45,000
c. $60,000 (i.e., the value of the accounts that were written off
during the year)
d. The matching concept requires that when a company

recognizes revenue from sales, it must also recognize all the
expenses relating to those sales. The allowance method does
this, by recognizing the bad debts expense in the period in which
the sale occurs and providing an allowance for future write-offs.
Thus, it provides a better measure of periodic income than the
direct write-off method.
Also, under the allowance method the accounts receivable are

presented on the balance sheet at a realistic amount (their net
realizable value), representing the amount that is actually
expected to be collectible. By contrast, the direct write-off method
simply reports the receivables at their gross amount, and
therefore overstates their value.
6-39 a. i. $34,000 + $6,000 = $40,000
ii. $450,000 – $34,000 = $416,000

b. i. $34,000 – $6,000 = $28,000
ii. $450,000 – $34,000 = $416,000
c. i. $35,000
ii. $450,000 – $29,000 = $421,000
d. i $35,000
ii. $450,000 – $41,000 = $409,000
e. $17,500 (i.e., the value of the accounts that were written off
during the year)
f. $450,000
g. The matching concept requires that when a company

recognizes revenue from sales, it must also recognize all the
expenses relating to those sales. The allowance method does
this, by recognizing the bad debts expense in the period in which
the sale occurs. As a result, it provides a better measurement of
periodic income than the direct write-off method.
Also, under the allowance method the accounts receivable are

presented on the balance sheet at a realistic amount (their net
realizable value), representing the amount that is actually
expected to be collectible. The direct write-off method, on the
other hand, simply reports the receivables at their gross amount
and therefore overstates their value.

6-40 a. $6,000 x 0.08 x 8/12 = $320
b. Notes Receivable 6,000

c. Interest Receivable 160

Interest Revenue 160
$6,000 x 0.08 x 4/12 = $160
d. Cash 6,320
Notes Receivable 6,000
Interest Receivable 160
Interest Revenue 160
6-41 a.
Feb. 1 Note receivable (A) 18,040
Equipment (A) 18,040
June 30 Interest receivable (A) 677

($18,040 x .09 x 5/12 = $677)
b. The statement of financial position would report the note

receivable as an asset in the amount of $18,040 and there would
also be an asset for interest receivable in the amount of $677.
The statement of earnings would report $677 as interest revenue.
6-42 a. interest earned by December 31: $2,800 x .08 x 3/12 = $56

interest earned by the time the note is due:

$2,800 x .08 x 4/12 = $75
b.
2011
Oct. 1 Note receivable (A) 2,800
Cash (A) 2,800
Dec. 31 Interest receivable (A) 56

2012
Jan.31 Cash (A) 2,875
Interest receivable (A) 56
6-43 a.
June 1 Note receivable (A) 14,000
June 30 Interest receivable (A) 105

($14,000 x .09 x 1/12 = $105)
b.
Cash (A) 14,945
Interest receivable (A) 105
($14,000 x .09 x 8/12 = $840)
6-44 a.
Current ratio = 40,000 + 130,000 + 18,000 + 390,000 + 35,000
85,000 + 37,000 + 45,000 + 10,000 + 90,000

= $613,000
$267,000
= 2.3
Quick ratio = $40,000 + $130,000 + $18,000

$267,000
= 0.7
b. The company has exceeded its target of 2.2 for the current
ratio, but did not meet its target of 0.9 for the quick ratio. In fact,
the quick ratio is worse this year than last, having dropped from
0.8 last year to 0.7 for the current year.
c. The company could improve its current position by

reducing its substantial investment in inventory. Reducing the
inventory level would free up some cash and thus enable the
company to reduce its short-term liabilities, which would improve
its current ratio somewhat and dramatically improve its quick
ratio.
The risk associated with reducing the amount of inventory that
the company carries is that there may be a negative effect on
sales.

6-45 a.
Classic Ltd.
Statement of Financial Position
As of October 31
2011 2010
Current Assets
Cash $67,200 $50,400
Accounts receivable 64,400 51,800
Inventory 315,000 322,000
Prepaid expenses 2,800 4,200
Total current assets 449,400 428,400
Non-current Assets
Capital assets 350,000 343,000
Less: accumulated depreciation (123,200) (117,600)
Net capital assets 226,800 225,400
Total Assets $676,200 $653,800
Current Liabilities
Accounts payable $77,000 $68,600
Wages payable 36,400 33,600
Taxes payable 19,600 16,800
Unearned revenue 67,200 56,000
Total current liabilities 200,200 175,000
Non-current Liabilities
Bank loan 322,000 336,000
Total Liabilities 522,200 511,000
Shareholders’ Equity
Common shares 70,000 70,000
Retained earnings 84,000 72,800
Total shareholders’ equity 154,000 142,800
Total Liabilities and Shareholders’ Equity $676,200 $653,800
b. 2010 working capital = $428,400 – $175,000 = $253,400

2011 working capital = $449,400 – $200,200 = $249,200
The company’s working capital position deteriorated slightly
during 2011.

c. 2010 current ratio = $428,400 / $175,000 = 2.45

2011 current ratio = $449,400 / $200,200 = 2.24
The company’s current ratio deteriorated during 2011.
d. 2010 quick ratio = $102,200 / $175,000 = 0.58

2011 quick ratio = $131,600 / $200,200 = 0.66
The company’s quick ratio improved during 2011.
e. The amount of working capital decreased by less than 2%

([$253,400 – $249,200] / $253,400 = 1.7%), which is not
significant.
The current ratio decreased by less than 9% ([2.45 – 2.24] / 2.45

= 8.6%). Since the current ratio was, and still is, above the “rule
of thumb” safety level of 2, this decrease is not very significant.
The quick ratio increased by almost 14% ([0.66 - 0.58] / 0.58 =

13.8%). Since the quick ratio was, and still is, below the “rule of
thumb” safety level of 1, this increase is quite significant.
We would therefore conclude that the most significant change

was the improvement in the quick ratio and, overall, the
company’s liquidity position has improved somewhat.
f. Classic’s management should prepare a careful analysis of

projected cash flows to determine if it needs to take action to
avoid future difficulties. In addition, it should compare its current
working capital position and overall liquidity to other companies in
the same industry, as well as to prior years.

USER PERSPECTIVE SOLUTIONS
6-46 As an auditor you would review a company’s internal control

system to assess the policies and procedures in place to protect
and manage assets. This will help you assess the possibility of
fraud or error occurring in the financial statements, and may
affect the work you perform in the audit. If the company’s
internal control system affecting an area of the financial
statements is strong, there is a smaller likelihood that the
financial statements are misstated. The auditors’ time may thus
be spent more efficiently testing other areas of the financial
statements.
It is necessary to review internal controls each year to identify

any changes and to determine how effectively the controls have
worked for the current year.
6-47 Bank reconciliations are important for the management of cash

because they keep the company up-to-date in terms of recording
all transactions that affect its cash balance. In doing so, the
company can assess its need for cash, or perhaps plan short-
term investments in order to earn a return on excess cash. Bank
reconciliations are also a good internal control over cash
because their basic function is to reconcile independent records
of the same bank account.
6-48 The company has likely arranged a line of credit with the bank.
This allows the company to maintain a negative cash position—
the bank will cover all cheques written and charge the company
interest on any overdrawn balances. I should not immediately be
concerned. This is a legitimate business arrangement, as cash
held is a low-earning asset (because banks typically pay very
little interest on deposit balances).
I should calculate liquidity ratios: current ratio, quick ratio, and

accounts receivable turnover ratio, in order to more clearly
understand the company’s position. If the company sells
inventory quickly and collects cash quickly, the bank overdraft
may indicate wise cash management.

6-49 A loan officer is likely to be interested in the market value of

short-term investments because this method provides a better
indication of the cash that will be available to settle the loan than
the historical cost basis. The use of market value might be
preferred over the use of the lower of cost and market method
because this method is consistent regarding both upward and
downward fluctuations in the market, and reflects the realizable
value of the short-term investments at the statement of financial
position date. On the other hand, the lower of cost and market
method results in the minimum realizable amount from selling the
short-term investments, and is a more conservative estimate of
the cash that will be available for settlement of the loan.
6-50 As a shareholder I will be interested in the market value of short-

term investments because this provides an indication of the cash
that will be available when the investments are sold (likely within
one year) and any gains/losses from changes in the market value
that will affect net earnings.
The cash flow information can assist in evaluating the company’s

liquidity and the potential for dividends. A measurement of net
earnings that includes investment gains may better help predict
future income and share price.
Knowing the original cost of the investments would allow you to

evaluate management’s investment performance – this
information is also available from the gains/losses (both realized
and unrealized) shown on the statement of earnings.
6-51 A stock option plan that rewards managers for achieving a

certain level of reported net earnings has the potential to
influence management’s assessment of the collectability of its
accounts receivable. For example, if management determines
that the year-end balance of accounts receivable is collectible in
full, then no bad debt expense is booked, and the reported net
earnings are higher as a result.
6-52 a.

Accounts receivable (A) 2,300,000

Sales (SE) 2,300,000
Cash (A) 2,250,000

Accounts receivable (A) 2,250,000

Bad debt expense (SE) 46,000

($2,300,000 x 2% = $46,000)
b. Statement of Financial Position, December 31, 2012
Accounts receivable1 $262,000

Allowance for doubtful accounts2 (26,000)
1
$250,000 + $2,300,000 – $2,250,000 – $38,000 = $262,000
2
$18,000 + $46,000 – $38,000 = $26,000
c. The only information available in evaluating the adequacy of

Ontario’s allowance for doubtful accounts at December 31, 2012
is the value of the receivables written-off during 2013, the ending
balance in receivables, and prior year-end information. In this
case, bad debt expense of $46,000 was recorded and, as of
December 31, 2012, $38,000 of accounts have been written-off.
It would be very useful to analyze the remaining balance in
accounts receivable to arrive at an estimate of the additional
amount that is uncollectible. An allowance of $26,000 remains at
December 31, 2012, while $18,000 remained at December 31,
2011. Based on the accounts receivable balance at those
related points in time, the allowance as a percentage of accounts
receivable was 7.2% (2011) and 9.9% (2012), representing
approximately a 2.7% increase in the allowance percentage. It
appears that the amounts of bad debt expense and allowance for
doubtful accounts might be adequate based on the available
information. Further analysis might reveal that an adjustment
(additional charge) is appropriate.

6-53 a.
2011 2010 2009
Allowance for doubtful
accounts $128.9 $121.9 $118.0
Total accounts receivable
(gross) $1,598.7 $1,352.5 $1,162.8
% considered uncollectible 8.06% 9.01% 10.15%
b.
Bad debt expense $312.4 $271.5 $267.0

Sales $12,661.8 $11,367.8 $10,420.0
Bad debt expense as a % of
sales 2.47% 2.39% 2.56%
c. Although the actual number of write-offs in dollars has

fluctuated during the three-year period, the highest percentage
of accounts written off in relation to either accounts receivable
or operating revenues was in 2009. It appears from the
following analysis that Lowrate improved considerably in 2010
and is doing roughly the same in 2011:
2011 2010 2009

Accounts written off ÷ sales 2.41% 2.35% 2.85%
Accounts written off ÷ total
accounts receivable (gross) 19.10% 19.79% 25.52%
d. Lowrate Communications records revenue and an account

receivable when it bills its customers. Since customers are not
liable for calls that were not made by the customers due to car
phone theft, cloning, etc., Lowrate removes these charges from
the customers’ accounts and must reduce receivables. At the
same time, the company must record a reduction in recorded
revenue, reduce the allowance for doubtful accounts, or
establish an expense account (bad debt). Another option would
be to establish one or more separate expense accounts in
which these losses are recorded, to track them more closely. It
is not readily apparent from the financial data presented how
Lowrate handles this situation. However, if it is handled through

the allowance for doubtful accounts, we would expect the

amounts reported as bad debts, the allowance for doubtful
accounts, and the amount actually written off to increase.

READING AND INTERPRETING

PUBLISHED FINANCIAL STATEMENTS SOLUTIONS
6-54 a. Readily Marketable means that the securities in question are

very liquid such that that can be converted into cash quickly at a
reasonable price. Marketable securities are very liquid as they
tend to have maturities of less than one year. The presence of
such investments leads us to believe that Qantas is in the habit
of investing its temporarily excess cash to obtain a higher rate of
return as opposed to just accepting its bank’s rate of interest,
which is considered to be a sound cash management practice.
b. As suggested above, the attraction of a short-term

investment is that it typically offers a rate of return higher than
which can be achieved by simply leaving temporarily excess
cash in a bank savings account.
6-55 a. Marketable securities are different than cash equivalents;

therefore, they must be shown separately on the balance sheet.
Cash equivalents are items that can readily be converted into
cash. They are investments whose term is short, typically three
months or less. On the other hand, marketable securities are
investments that can be readily converted into cash, but whose
term may be as long as a year thus exceeded the three month
threshold associated with cash equivalents. Thus, we can
assume that that the short-term investments included as cash
equivalents by Leon’s are likely less than three months in term.
b. i. 2008 Current Ratio = $264,777 / $129,585 = 2.0
2009 Current Ratio = $287,317 / $122,558 = 2.3
ii. 2008 Quick Ratio = $169,566 / $129,585 = 1.3
2009 Quick Ratio = $202,227 / $122,558 = 1.6
iii. 2008 Accounts Receivable Turnover = $740,376 / $30,291 =

24.44

2009 Accounts Receivable Turnover = $703,180 / $31,501

= 22.32
c. The trends for both the current ratio and the quick ratio are
improving. In addition, both ratios are close to or better than the
norm e.g., 2 to 1 for the current ratio and 1 to 1 for the quick
ratio.
6-56 The fact that there is a high degree of concentration of accounts

receivable in this situation would not increase the credit risk of
this company, since almost all of its receivables are attributed to
provincial government liquor authorities. This means that the
chance of collecting all of its outstanding accounts receivable is
excellent. Thus, the credit risk is very low to almost zero for this
company.
6-57 a. Percentage uncollectible in 2008 = $1,663/($64,570 +

$1,663)
= 2.5%
Percentage uncollectible in 2009 = $1,761/($70,354 + $1,761)

= 2.4%
This trend is slightly favourable, as it indicates that a smaller

portion of the accounts receivable are considered
uncollectible in 2009.
b. 2008 Accounts receivable turnover rate = $512,037 / $66,233

= 7.7 times per year
2009 Accounts receivable turnover rate = $505,991 / $72,115

= 7.0 times per year
This trend is unfavourable, as it indicates that the accounts

receivable are being collected and replaced at a slower rate in
2009.
c. 2008 Average collection period = 365 / 7.7 = 47.4 days

2009 Average collection period = 365 / 7 = 52.1 days

This trend is also unfavourable, as it indicates that it is taking the

company longer, on average, to collect its receivables in 2009.
The average receivables collection period reveals basically the

same information as the accounts receivable turnover rate, but
expresses it differently and in a way that many people find easier
to interpret. Therefore, although the average collection period
data contains essentially the same information as the receivables
turnover rate data, it may present it more effectively and thereby
provide additional insights in that it tends to be more
understandable to the user.
6-58 a. 2010 Accounts Receivable/Revenue = $80.7 / $2,016.6

= 4%
2009 Accounts Receivable/revenue = $71.6 / $1,956.7

= 3.6%
b. Uncertainties with accounts receivable are that the customer
might return the goods for credit, the customer might request a
price adjustment if the goods are damaged in shipment, or the
customer might pay less than what is listed on the invoice if a
discount is allowed for prompt payment. All these factors can
affect the certainty of collecting accounts receivable and
complicate the determination of the appropriate valuation
amount. On the other hand, an asset is impaired when its
carrying amount exceeds its recoverable amount. Once a
company has determined that an asset is impaired, it can write
down the asset or classify it as an asset for sale. Assets will be
written down if the company keeps on using this asset.
c. To the extent that using impairment rather than uncollectibility

will result in a lower valuation of accounts receivable, this would
be reflective of the qualitative characteristic of conservatism.
6-59 a. i. Current ratio:

2009 $188,250 / $83,137 = 2.26

2008 $221,128 / $116,443 = 1.90
ii. Quick ratio:

2009 $62,794 / $83,137 = 0.76
2008 $70,950 / $116,443 = 0.61
iii. Accounts receivable turnover rate:

2009 $627,186 / $59,553 = 10.53
2008 $615,993 / $63,873 = 9.64
Average collection period (not required):

2009 365 / 10.53 = 34.66 days
2008 365 / 9.64 = 37.86 days
b. Both of the current and quick ratios are trending upward which
brings them closer to the norms of 2 and 1, respectively. In
addition, High Liner is collecting its accounts receivable in a more
efficient manner in 2009 as compared to the previous year.

BEYOND THE BOOK SOLUTIONS
6-60 Answers to this question will depend on the company selected.

CASE SOLUTIONS
6-63 Versa Tools Inc.
Memorandum
To: Arthur Henderson

Re: Internal controls and cash balances
Arthur,
Protection and control of cash is key to the success of any

business. Because of its very nature, cash is particularly
susceptible to theft and internal controls must therefore be
established to protect and manage a company’s cash balances.
After having reviewed the operations of Versa Tools Inc. I have
identified several weaknesses in internal controls related to cash
that should be corrected.
i. Currently, you employ only one person in the accounting

department, which does not allow for a proper separation of
duties. When one person is responsible for receiving cash,
recording cash receipts and disbursements, and depositing
cash in the bank, there is an increased possibility that fraud
could occur. Where possible, you should try to separate
these duties so that a different employee is responsible for
receiving the cash, recording the accounting transactions,
and depositing the cash in the bank. With different
employees performing these duties, collusion would have
to occur among employees for a theft to be perpetuated. I
realize that due to the size of your business a proper
segregation of duties may be impossible. As a
compensating control, I recommend that management
continue to review all cash transactions on a regular basis.
ii. Currently, cash is not being deposited on a regular basis

and is easily accessible by anyone in the main office area.
You should ensure that cash is physically protected. This
would include depositing cash receipts on a daily basis and

keeping any cash that is maintained on the premises in a

locked till or safe.
iii. The current accountant has no formal training and is not

entering transactions into the computer system on a regular
basis. This increases the chance that mistakes and
omissions will occur. In a strong system of internal control,
management should establish an effective record keeping
system that includes ensuring that all employees are
properly trained and educated in the system.
iv. A bank reconciliation ensures that the company’s

accounting records agree with the bank statement. Due to
the lack of controls in other areas, the preparation of
monthly bank reconciliations is essential for Versa Tools.
The bank reconciliation should be performed by someone
other than the person responsible for the record keeping
function, and should be reviewed regularly by
management.
Implementing these controls will greatly improve the ability of

Versa Tools to protect its cash balances. With proper controls in
place you should have more time to concentrate on expanding
the business.

6-64 a.
Balance per bank statement $18,380.00
Add: Outstanding deposit /
Undeposited receipts 4,845.51*
23,225.51
Less: Outstanding cheques
(241.75)
(258.25)
(190.71)
(226.80)
(165.28) (1,082.79)
Corrected cash balance $22,142.72
Balance per accounting records $21,892.72

Add: Collection of note receivable 300.00
22,192.72
Less: Bank service charges (50.00)
Corrected cash balance $22,142.72
* This is the amount required to make the bank reconciliation

balance.
Rob took $4,845.51 – $3,845.51 = $1,000.00
b. Rob did not include two outstanding cheques, for $241.75 +

$258.25, in the reconciliation. The combined effect of these two
omissions was $500.
In addition, Rob treated the collection of the note receivable of

$300 and the service charges of $50 as adjustments to the bank
statement balance, when they should have been adjustments to
the company’s cash balance. The net total for these items was
$250. However, because they were included in the wrong
portion of the reconciliation (i.e., as adjustments to the bank’s
balance, rather than to the company’s balance) this resulted in
an error of twice that amount, or $500.

c. The company should segregate the collection and

disbursements of cash and have the bank reconciliation done
by the general manager.
6-65 Sanjay Supplies Limited

Sanjay is experiencing a steady increase in sales, from $12,700
to $14,100 to $17,100 over the three years, but its cash and
cash equivalents are steadily decreasing, from $250 ($210 +
$40) in 2011 to $20 in 2013. . The main reasons for this are the
large increases in accounts receivable and inventories.
The accounts receivable turnover is steadily decreasing, from
10.8 to 9.3 to 8.6. This might indicate that Sanjay is either
increasing its sales by granting easier credit or is experiencing
serious problems in its accounts receivable department,
especially in collections. Accounts receivable increased by 68%
during the three-year period, while sales on credit increased by
only 35%. Sanjay management should review this situation and
take corrective action.
Management should also determine why inventories are
increasing so rapidly. Inventories increased by more than 56%
during the three years, while sales on credit increased by only
35%. By reducing inventory levels, Sanjay could reduce its
storage and handling costs, and the financing costs of having
cash tied up in inventory. However, the cost savings from
reduced inventory levels must be weighed against the risk of lost
sales if customer demand cannot be met, and potential lost
savings if Sanjay does not take advantage of bulk purchase
discounts, or does not purchase in advance of supplier price
increases.
It should also be noted that accounts payable decreased during
the three-year period. This is unusual, during a period when
sales and inventories have increased, and should also be
investigated.
Finally, other short-term liabilities have remained exactly the
same throughout the three-year period, even though the

company has grown. Management may wish to consider the

nature of this short term liability.
6-66 Bestway International
The CEO is correct that many assets are recorded at cost. This
is done because historical cost is objective and verifiable based
on the amount actually paid at the time of acquisition. Short-term
investments, however, are to be accounted for at their market
value, rather than historical cost.
Unlike attempting to estimate the market value of other assets,

such as buildings, the market value of short-term investments is
readily available from prices quotes from stock exchanges. The
market value is more relevant to users of financial statements
than historical cost since users are interested in the value of
these investments if they were converted to cash (sold).
Revenue recognition criteria state that revenue should be
recognized in the period in which it was earned. In this case, the
unrealized gain occurred in 2011 and should reflect on the 2011
statement of earnings.
6-67 Heritage Mill Works
a. Under current accounting standards (IFRS / Candian private

enterprise generally accepted accounting principles), bad debt
expense should be prepared using the allowance method and the
percentage of credit sales.
Credit sales = $3,450,000 x 90% = $3,105,000
Since the industry is strong and houses are selling, it is

reasonable to assume that the percentage of bad debts will be in
the lower end of the historical range. Therefore we will use 2%
(note: students can use any number here, but they must
adequately support their choice).
Bad Debt Expense = credit sales x bad debt percentage

= $3,105,000 x .02 = $62,100

The 2% estimate is more reasonable due to the strong

economy, in poor economic times; the rate to use should be 4%.
b. The company wrote off $73,400 / $3,105,000 = 2.3 %, which is

within the range of historic write-off percentages experienced. It
appears that from this new information, the % of bad debts
should be increased to approximately 2.5% (i.e. (2%+4%)/2 avg.
= 2.5% a more reasonable estimate.
c. If a company’s credit policy is too restrictive it risks losing sales

by not granting credit to good customers. Customers may
purchase lumber from other suppliers who will grant them credit.
However, if credit is granted too easily, the company risks
incurring a high level of uncollectible accounts. It is this trade off
between losing sales and incurring large bad debts that must be
managed in determining an appropriate credit policy.
d. Utilizing notes receivable may be appropriate as they collect

interest on the note. It is also advantageous for the contractors
as they have more time to pay their bills.
e. Using less liberal credit terms, consider receiving a deposit
prior to delivery of merchandise inventory. Credit check to ensure
that the customers are capable of meeting their obligations, also
set up control procedures that customers that exceed their credit
limit are not shipped any goods until their account is paid.

CRITICAL THINKING QUESTIONS SOLUTIONS
6-68
a. The gross amount of accounts receivable was $92,970 (=
$86,466 + $6,504) at the end of 2009 and $69,047 (= $67,058 +
$1,989) at the end of 2008. This was an increase of $23,923, or
approximately 34.6%.
b. In addition, the allowance for doubtful accounts increased

by $4,515, or approximately 327%. As a percentage of the gross
receivables, the allowance increased from approximately 3.0% of
the receivables at the end of 2008 to 7.5% at the end of 2009.
c. This change may have come about for a number of

reasons, such as:
i. As historical data accumulated for the company, it may

have found that its estimates for bad debts had been too
low.
ii. There may have been a downswing in the economy, or in

Sierra’s sector of it, meaning that there should be more
bankruptcies among Sierra’s customers.
iii. The company may have loosened its credit granting

policies to increase the number of risky customers, and/or
relaxed its billing and collection procedures.

6-69 a.
Internal Control Considerations Application to MegaMax Theatre

Effective record-keeping system Only the cashiers are authorized to
(including proper authorization sell tickets. Only the manager and
and documentation). cashiers can handle cash. The tickets
are pre-numbered. Cash count sheets
are prepared and initialed. Deposit
slips are prepared. Copies are used
for verification and recording.
Separation of duties. The duties of receiving cash and

admitting customers are separately
assigned, to the cashier and the
doorperson. The manager maintains
custody of the cash, while the
accountant records receipt of the
cash.
Physical measures to safeguard A safe is used to hold cash during the
assets. day. Cash is deposited at the end of
each day. Locked machines are used
to hold and issue the tickets.
Independent Cash counts are made by the
reconciliation/verification. manager at the end of each shift.
Daily comparisons are made by the
controller.
b. Weaknesses in the internal control system that could enable a

cashier and/or doorperson and cashier to misappropriate cash
include:
There is no mention of the torn ticket stubs (which are supposed

to be dropped into a locked box) being checked. These should at
the very least be subject to periodic spot-checks against the
number of people in the theatre and the amount of cash collected.
Discrepancies between the amount received by each cashier and

the number of tickets issued are not discussed with the cashiers
until their next shift. This may make it very difficult to determine

the reasons behind the discrepancies and how they should be

resolved.
Possible abuses by cashiers and doorpersons include:
i. The cashier and doorperson could agree to let friends

into the theatre without purchasing tickets, in exchange
for "under the table" payments.
ii. Instead of tearing the tickets in half, the doorperson could

return the tickets to the cashier who could resell them,
and the two could divide the extra cash.
iii. The cashier could issue less expensive tickets than what
the customers paid for, and arrange with the doorperson
to admit the customers (collusion). The difference
between the value of the tickets issued and the cash
received could later be divided between the cashier and
the doorperson.

Legal Notice
Copyright
Copyright © 2011 by John Wiley & Sons Canada, Ltd. or related

companies. All rights reserved.
The data contained in these files are protected by copyright. This

manual is furnished under licence and may be used only in accordance
with the terms of such licence.
The material provided herein may not be downloaded, reproduced,

stored in a retrieval system, modified, made available on a network,
used to create derivative works, or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, scanning, or
otherwise without the prior written permission of John Wiley & Sons
Canada, Ltd.

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(download pdf) Financial Accounting A User Perspective Canadian 6th Edition Hoskin Solutions Manual full chapter

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ASSESSING YOUR RECALL SOLUTIONS

6-1 The unit-of-measure assumption in accounting means that

6-3 Management is responsible for safeguarding the assets of a

Solutions Manual 6-1 Chapter 6

bankruptcy. Having too much cash is also not good

An effective control system should include the following

6-4 It is hard to segregate jobs and responsibilities when you have

6-5 Purpose of a bank reconciliation is to ensure that any differences

6-6 The primary consideration in deciding if an investment should be

6-7 The most commonly used valuation method for short-term

Solutions Manual 6-2 Chapter 6

6-8 A realized gain or loss occurs when a temporary investment is

6-9 Investments in equity instruments are reported on the statement

6-10 Allowance for Doubtful Accounts is a contra account to Accounts

6-11 Percentage of sales method:

The bad debt expense for the period is estimated by multiplying

Aging of accounts receivable method:

Management estimates a percentage relationship between the

Solutions Manual 6-3 Chapter 6

allowance method estimates and records the bad debt expense

6-13 This method provides a proper matching of the revenues and

6-14 Accounts receivable are amounts owed from customers as a

A note receivable is evidenced by a formal agreement, referred

6-16 The accounts receivable turnover ratio measures the “turnover”

Solutions Manual 6-4 Chapter 6

Solutions Manual 6-5 Chapter 6

APPLYING YOUR KNOWLEDGE SOLUTIONS

Balance per bank statement $1,543

Adjusted cash balance $1,292

Balance per cheque book $1,287

Solutions Manual 6-6 Chapter 6

Balance per bank statement $66,744

Balance per accounting records $71,952

b. At March 31, the company has cash available of $74,424

c. Because the outstanding deposit (or deposit in transit) had not

Similarly, because the collection of the note receivable by the

Solutions Manual 6-7 Chapter 6

d. Bank service charges (SE) 24

Cash (A) 3,600

Accounts receivable (A) 204

Loan payable (L) 900

6-19 a. not included in the bank reconciliation because both

b. deducted from cash account balance

c. deducted from cash account balance

d. added to cash balance

e. deducted from bank balance

f. deducted from cash account balance

g. deducted from bank balance

h. not included in the bank reconciliation because both

i. added to bank balance

j. not included in bank reconciliation because both Henri and

k. deducted from cash balance

Solutions Manual 6-8 Chapter 6

Balance per the bank statement $42,301