20A bank will only continue a credit line for one of its small business customers if the small business can keep an acid-test greater than 1. The company's reported current accounts are as follows:⚫ Cash: $6,000• Accounts receivable (net): $19,000• Inventory: $8,000• Short-term investment: $4,500⚫ Current liabilities: $17,000Which decision should the bank make?Close the credit line because the acid-test ratio is 0.45.Close the credit line because the acid-test ratio is 0.58.Maintain the credit line because the acid-test ratio is 2.21.Maintain the credit line because the acid-test ratio is 1.74.

Answered: 20 A bank will only continue a credit…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 23MC: Orion Rentals is unable to collect on a note worth $25,000 and has accumulated interest of $250. It...

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Which of the following statements about the company's financial operations and financial decisions is FALSE? If your company overdraws its checking account, the Global Community Bank will automatically issue your company a 1-year loan in an amount sufficient to bring your ending cash balance up to zero. The interest rate charged on overdraft loans is always 2% above whatever interest rate your company would otherwise pay on a 1-year loan from the GCB (for example, if your company's B credit rating entitled your company to a 1-year loan carrying a 6.5% interest rate, then the interest rate on a 1-year overdraft loan would be 8.5%). If the company needs to secure additional capital, it can take out loans with 1-year, 5-year. and/or 10-year terms from the Global Community Bank and/or it can issue new shares of common stock. The company's banking arrangement with the Global Community Bank calls for the company to be paid interest on any positive cash balance in the company checking…
Orion Rentals is unable to collect on a note worth $25,000 and has accumulated interest of $250. It convert this note and interest to accounts receivable. After some time, Orion is still unable to collect the debt and it decides to sell the converted note to a collection agency. The collection agency will pay only 20% of the value of accounts receivable to Orion. What is the amount of cash paid to Orion from the collection agency? A. $5,000 B. $5,050 C. $20,000 D. $19,950
Researching GAAP Situation Hamilton Company operates in an industry with numerous competitors. It is experiencing a shortage of cash and decides to obtain money from a large bank by using some of its receivables as collateral. Hamilton pledges 5100,000 of its receivables, is charged a 12% fee on this amount, and notifies these credit customers to make their payments directly to the bank. Hamilton transfers the receivables to the bank, and the bank assumes the servicing activities, but Hamilton is responsible for all bad debts which it reasonably estimates to be 2% of the receivables amount. When the balance of the receivables pledged is reduced to 3,000, Hamilton is required to repurchase the receivables, notify the remaining credit customers to make payments to it, and reassume the servicing activities. The bank has the right to sell the receivables, except to Hamiltons major competitor. Hamiltons president has asked you how to account for (and record) this transaction. Directions Research the related generally accepted accounting principles and prepare a short memo to the president that answers his question. Cite your reference and applicable paragraph numbers.
22.) Credit memos from the bank Select one: a. decrease a bank customer's account b. are used to show a bank service charge c. show that a company has deposited a customer's NSF check d. show that the bank has collected a note receivable for the customer 23.) If merchandise sells for $3,500 on account, with terms of 3/15, n/45, and the cost of the inventory sold is $2,100, the journal entry for the receipt of the customer’s payment on account within the discount period under the gross method would include Select one: a. a credit to Cash for $3,395 b. a credit to Accounts Receivable for $3,395 c. a debit to Sales of $105 d. a credit to Sales Discounts for $105 26.) The direct write-off method of accounting for uncollectible accounts Select one: a. emphasizes balance sheet relationships b. is often used by small companies and companies with few receivables c. emphasizes cash realizable value d. emphasizes the matching of expenses with revenues
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7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Nick, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities
On March 31,2020, XXX Company receive its bank statement. However, the closing balance of the account was unreadable. Attempts to contact the bank after hours did not secure the desired information. The following data are available in preparing a bank reconciliation: February 28,book balance Note collected by bank 1,460,000 100,000 Interest earned on note 10,000 NSF check of customer 130,000 Bank service charge on NSF check 2,000 Other bank services 3,000 Outstanding checks Deposit of February 28 placed in night depository 222,000 95,000 Check issued by YYY Company charged to XXX's Account 20,000 10. What is the cash balance per bank statement?
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The bank that you own has the following balance sheet: Assets Liabilities $ 60 million Deposits $120 million Bank capital $420 million Reserves $500 million $100 million Securities Loans a) Record a bookkeeping immediately after the bank suffers a deposit outflow of $50 million when a required reserve ratio on deposits is 10%. What problem do you see on the T-account after the event? Assets Liabilities Reserves Deposits Bank capital Securities Loans b) What action(s) you want to take to rectify the situation? Make your suggestion(s) in terms of the T-account and explain them. Assets Liabilities
7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Tim, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) (Dollars) 1,800,000 Liabilities Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Rosa, who immediately uses the funds to write a check to Nick. Nick deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls…
Assume that banks holds no excess reserves and the public holds no currency: A. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%. B. How much do deposits and loans change for the banking system when the process is completed? Show computation and the entire banking system's final T-account. C. Suppose the Central Bank sells $5 billion to ABC Bank. Determine what happens to checkable deposits of the entire banking system after the sale and completion of the multiple deposit creation process. Determine the change in checkable deposit in the banking system and show the T-account of the banking system.
While preparing its bank reconciliation, Maynard Company determined that its bank had collected a $650 account receivable for the company and deducted a $25 collection fee. Which of the following shows the effect of this transaction on the financial statements? Assets = A. (25) B. 625 C. (25) D. 625 Multiple Choice Balance Sheet Liabilities + N/A N/A N/A N/A Option C Option B Option A Option D Stockholders Equity (25) 625 (25) 625 Revenue N/A 650 N/A 650 Income Statement Expense = Net Income Statement of Cash Flows 25 625 OA 25 650 OA 25 650 OA 25 625 OA (25) 625 (25) 625

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