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annae84
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Posted: 21 Nov 2009 at 21:39 | IP Logged  

Hi, this is question from AICPA released questions.  Can anybody please clarify why we donít net two balances to find amount of cash on the B/S? Thank you!

 

31.

Smith Co. has a checking account at Small Bank and an interest-bearing savings account at Big Bank.

On December 31, year 1, the bank reconciliations for Smith are as follows:

 

Big Bank

Bank balance $150,000

Deposit in transit 5,000

Book balance 155,000

 

Small Bank

Bank balance $1,500

Outstanding checks (8,500)

Book balance (7,000)

 

What amount should be classified as cash on Smith's balance sheet at December 31, year 1?

a. $148,000

b. $151,000

c. $155,000

d. $156,000

 

I would say it's 148,000..

ANSWER:

Choice "c" is correct. The amount that should be classified as cash on Smith's balance sheet is the

$155,000 book balance in the Big Bank account, which can be reconciled to the bank balance as follows:

$155,000 (book balance) = $150,000 + $5,000 (adjusted bank balance)

The $7,000 negative balance (overdraft) in the Small Bank account should be reported

on the balance

sheet as a current liability. Note that the Small Bank balance is reconciled as follows:

$-7,000 (book balance) = $1,500 - $8,500 (adjusted bank balance)



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joecjr
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Posted: 21 Nov 2009 at 21:49 | IP Logged  

you can only net the two bank balances to determine cash when BOTH checking accounts are from the SAME bank. 

Big Bank and Small bank are 2 different banks so

Big bank cash is $155

and Small bank is overdrawn so it is a liability.



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annae84
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Posted: 21 Nov 2009 at 22:46 | IP Logged  

Thank you for a good explanation. It's not in the book,  at least I don't remeber that Becker ever mention this.

 



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joecjr
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Posted: 21 Nov 2009 at 23:30 | IP Logged  

good luck on Monday, I am going on Tuesday, VERY nervous.

__________________
FAR [83] 1109 Yaeger
AUD [90] 0510 Roger CPA
BEC [76] 0810 Yaeger/Gleim
REG [80] 1110 Yaeger
Done 12/16/2010
1year & 4months

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annae84
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Posted: 22 Nov 2009 at 02:53 | IP Logged  

Good luck to you too. You shouldn't be very nervous, I am sure you know everything.. did you take final tests (in case you are using becker)?

I can't worry anymore. I studied for 2 months straight. Tomorrow I am going to go over MCQ AGAIN, over sims, and over notes.  



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