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Study Questions: Intermediate Accounting

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The solution helps solve multiple intermediate accounting study questions.

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_____ 1. On January 1, 2007, Mann Company borrows $2,000,000 from National Bank at 11% annual interest. In addition, Mann is required to keep a compensatory balance of $200,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Mann pays on its $2,000,000 loan is
a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.

$2,000,000 × .11 = $220,000
$200,000 × (.11 - .05) = 12,000
Interest $232,000
$232,000 ÷ $2,000,000 = .116 = 11.6%.

____ 2. Hamilton Company has cash in bank of $10,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Hamilton should report cash of
a. $9,000.
b. $10,000.
c. $12,000.
d. $13,000.

The $3,000 is restricted cash which means it is not available to the company, the same applies to the overdraft because it is not cash that the company actually owns. The use of the overdraft would be accompanied by a liability

____ 3. Horvath Company has the following items at year-end:
Cash in bank $20,000
Petty cash 300
Short-term paper with maturity of 2 months 5,500
Postdated checks 1,400
Horvath should report cash and cash equivalents of
a. $20,000.
b. $20,300.
c. $25,800.
d. $27,200.

$20,000 + $300 + $5,500 = ...

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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