T/F Questions

The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences.

Sales Discounts is a revenue account with a credit balance.

Multiple Choice:

Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was
a. 6.25%
b. 10.00%
c. 10.26%
d. 9.75%

On January 1, 2007, the Kings Corporation issued 10% bonds with a face value of $100,000. The bonds are sold for $96,000. The bonds pay interest semiannually on June 30 and Decemeber 31 and the maturity date is December 31, 2011. Kings records straight line amortization of the bond discount. The bond interest expenses for the year ended Decemeber 31, 2007 is?

1. True. The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences. This can include items such as outstanding checks or deposits in transit.

2. False. Sales Discounts is a contra revenue account with a debit balance. It is used to record discounts given to customers for prompt payment.

3. To calculate the discount rate, we can use the formula: Discount Rate = (Discount / Face Value) * (360 / Days to Maturity)

Given:
Proceeds = $48,750
Face Value = $50,000
Days to Maturity = 90
360-day year

Using the formula:
Discount Rate = (48,750 / 50,000) * (360 / 90)

Simplifying the calculation:
Discount Rate = (0.9750) * (4)

Discount Rate = 3.9

Therefore, the discount rate used by the bank in computing the proceeds was approximately 3.9%.

None of the options provided match this answer.

T/F questions:

1. True - The main reason that the bank statement cash balance and the company's cash balance do not initially balance is due to timing differences. This can happen due to factors like outstanding checks or deposit in transit.

2. False - Sales Discounts is a contra revenue account and normally has a debit balance. It is used to record the discounts given to customers for early payment.

Multiple-choice question:

To determine the discount rate used to compute the proceeds from discounting a note, we can use the formula:

Discount Rate = (Discount / Face Value) x (360 / Days)

Given:
Discount = $50,000 - $48,750 = $1,250
Face Value = $50,000
Days = 90

Plugging in the values into the formula:

Discount Rate = ($1,250 / $50,000) x (360 / 90) = 0.025 x 4 = 0.1 = 10%

Therefore, the correct answer is (b) 10.00%.