Final answer:
The amount prepared by the company for the petty cash fund is not provided. However, we discussed the classifications of M1 and M2 money supply components, such as traveler's checks, physical currency, checking accounts, and money market accounts. Additionally, we calculated that the firm's accounting profit is $50,000 by subtracting total expenses from sales revenue.
Step-by-step explanation:
Understanding the Petty Cash Fund and Financial Classifications
The company prepared a check to establish the petty cash fund, but the exact amount isn't clear from the information provided. To deduce this, we would typically look at the company's financial policy regarding petty cash funds or the actual financial transaction records. However, the list of items provided relates to the concepts of M1 and M2, which are components of the money supply in the United States economy.
M1 includes the most liquid forms of money, such as cash and checking account balances, while M2 includes M1 along with savings deposits, small time deposits (certificates of deposit), and non-institutional money market funds.
- a. A $5,000 line of credit is not part of M1 or M2, as it represents potential borrowing power rather than actual money.
- b. $50 worth of traveler's checks are part of M1, as they are easily convertible to cash and used for payments.
- c. $1 in quarters in your pocket is part of M1 since it's physical currency.
- d. $1200 in your checking account is part of M1, being readily available for transactions.
- e. $2000 in a money market account is part of M2 as it's a type of account that offers high liquidity but typically comes with restrictions on the number of transactions you can make.
As for the self-check question, the firm's accounting profit can be calculated by subtracting the total expenses from the sales revenue. That would be $1,000,000 (revenue) - ($600,000 + $150,000 + $200,000) in expenses, giving us an accounting profit of $50,000.