Question

Han's Supplies's bank statement contained a $340 NSF check that one of its customers had written to pay for supplies purchased. Required: a. \& c. Show the effects of the following transactions on the financial statements in the horizontal statements model. (o) Recognize the NSF check, (c) Customer redeems the check by giving Hans $360 cash in exchange for the bad check. The additional $20 was a service fee charged by Hans. Note: Enter any decreases to account balances with a minus sign. For changes on the 5 tatement of Cash Flows, Indicate whether the item is an operating activity (OA), investing activity (IA). financing activity (FA), or leave the cell blank if there is no effect. b. Is the recognition of the NSF check on Han's books an asset source, use, or exchange transaction? Asset source Asset use Asset exchange d. Select which of the following is the correct answer. Asset exchange is $360. Asset source is $360. Asset use is $360. Asset exchange is $340 and Asset source is $20. Asset source is $340 and Asset use is $20. Asset exchange is $360 and Asset use is $20.

Answer 1

a. The recognition of the NSF check: The Cash account decreases by $340, reflected as an Asset use transaction. The Accounts Receivable account decreases by $340, considered an Asset source transaction.

c. Customer redeems the check: Cash increases by $360, reflecting an Asset exchange transaction. A service fee of $20 increases the Miscellaneous Revenue account, indicating an Asset source transaction.

b. The recognition of the NSF check on Han's books is an asset use transaction.

d. The correct answer is: Asset exchange is $360 and Asset use is $20.

Step-by-step explanation:

a. The recognition of the NSF check leads to a decrease in the Cash account by $340, reflecting the cash outflow and categorized as an Asset use transaction on the Statement of Cash Flows. Simultaneously, the Accounts Receivable account decreases by $340, representing a reduction in the company's expected future cash flow, categorized as an Asset source transaction.

c. When the customer redeems the previously bounced check by giving Han's Supplies $360 in cash (the original amount of the check plus an additional $20 as a service fee), the Cash account increases by $360, indicating an Asset exchange transaction on the Statement of Cash Flows. The additional $20 service fee is recognized as revenue, leading to an increase in the Miscellaneous Revenue account, considered an Asset source transaction.

b. The recognition of the NSF check on Han's books is classified as an asset use transaction since it involves a reduction in the company's cash reserves, specifically from the Cash account.

d. Among the given options, the correct classification is Asset exchange of $360 and Asset use of $20. This reflects the $360 exchange of cash from the customer to cover the previously bounced check and the $20 service fee, categorized as an asset source transaction.