12. The following information was taken from Hurlbert Company cash budget for th
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Question
12. The following information was taken from Hurlbert Company cash budget for the month June Beginning cash balance Cash receipts Cash disbursements If the company has a policy of maintaining an end of the month cash balance of S60,000, the amount the company would have to borrow is A) $36,000. B) $15,000. C) $24,000. D) SO. S69,000 93,000 117,000 13. Prom the standpoint of the issuing company, a disaae ofusing bonds as a means of long-term financing is that A) bond interest is deductible for tax purposes. B) interest must be paid on a periodic basis regardless of earnings. C) income to stockholders may increase as a result of trading on the equity. D) the bondholders do not have voting rights. Which of these describes the major difference between stocks and bonds? A) B) C) 14. Stocks are cheaper than bonds. Bonds represent a safer investment than stocks. Stockholders own a piece of the company while bondholders have loaned money to the company Companies have to pay back stockholders but not bondholders. D) 15. Gross profit equals the difference between net income and operating expenses net sales revenue and cost of goods sold. sales revenue and operating expenses. sales revenue and cost of goods sold plus operating expenses. A) B) C) D) 16. The control principle related to not having the same person authorize and pay for goods is known as A) establishment of responsibility B) independent internal verification. C) separation of duties. D) rotation of duties.Explanation / Answer
12. Ending Cash Balance = Opening Cash balance + Cash Receipts - Cash Disbursements
= 69000 + 93000 - 117000 = $45,000
But required ending cash balance is $60,000.
Hence, the company will have to borrow 60000 - 45000 = $15,000
13. From the standpoint of issuing company, a disadvantage of using bonds as a means of long-term financing is that interest must be paid on a periodic basis regardless of earnings.
A is an advantage to the issuing company whereas C & D are from bondholders & stockholders point of view.
14. The major difference between stocks and bonds is that bonds represent a safer investment than stocks.
Option A is wrong as bonds are cheaper than stocks. Option D is wrong as companies have to pay back to the bondholders and not stockholders. Option C is wrong as only equity stockholders are owners of the company.
15. The answer is B : Gross profit equals the difference between net sales revenue and cost of goods sold.
Sales
- COGS
= Gross Profit
- Selling, general & admin expenses
= Operating Income
+ Interest & Dividend income
- Interest Expense
+/- Non-operating gains/ (losses)
= Income from continuing operations before tax
- Provision for income tax
= Income from continuing operations
+/- Gains/ (losses) on discontinued operations & extraordinary events
= Net Income
16. The control principle related to not having the same person authorize and pay for goods is known as separation of duties.
Segregation of duties : Duties are assigned in a manner that ensures that no one person is in a position to both commit and conceal an irregularity/ fraud.
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