Question

1. Karl Corp. is preparing a schedule of cash receipts and disbursements for Year 4. Which of the following items should be included?

I.Borrowing funds from a bank on a note payable taken out in August Year 4 and agreeing co pay the principal and interest in July Year 5

II.Dividends declared in October Year 4 co be paid in January Year 5 co shareholders of record as of December Year 4

(A)I only, (B)II only ,(C)Both I and II, (D)Neither I nor II

2. Which of the following would NOT be included in a statement of cash receipts -and disbursements for Kraig Corporation in Year 2?

I.A purchase order issued in December Year 2 for items co be delivered in January Year 3

II.The amount of uncollectible customer accounts for Year 2

(A)I only, (B)II only ,(C)Both I and II , (D)Neither I or II

3. Sandra Inc. forecasted first quarter sales of I0,000 units, second quarter sales of 15,000 units, third quarter sales of 14,000 units, and fourth quarter sales of 17,000 units at $4 per unit.. Past experience has shown chat 70 percent of the sales will be in cash and 30 percent will be on credit. All credit sales are collected in the following quarter, and none are collectible. What amount of cash is forecasted to be collected in the second quarter?

(A) $54,000 (B) $42,000 (C) $30,000 (D) $28,500

Answer 1

Answer to Question 1

Correct answer is option (A). Only the first transaction will be entered in the cash receipt and disbursement ledger, i.e. a receipt entry for loan funds received from the bank.

Answer to Question 2

Correct answer is option C. Both entries will not be entered in cash disbursement register. For issue of purchase order, there will be no accounting entry till the time money is paid and/or material received. For uncollectible customer, the accounting impact will be on receivables and the profit and loss account. This transaction too, will not attract any cash impact

Answer to question 3:

Total collections in quarter 2 will be:

30% sales of quarter 1, i.e. (10,000*4*30%)

30% sales of quarter 1, i.e. (10,000*4*30%)	12,000
70% of sales of quarter 2, i.e. 15,000*4*70%	42,000
Total	51,200

However, the question states that none of the credit sales are collectible. Therefore, the amount of USD 12,000 (representing 30% sales of quarter 1 will not be collectible. Therefore, only the amount of 42,000 will be collected and therefore, should be cash forecasted to be collected. Option B. If the entire amount of credit sales is collectible, the correct option will be option A