Linville Company Gathered the Following Reconciling Information in Preparing Its

question 114

Multiple Choice

Linville Company gathered the following reconciling information in preparing its April bank reconciliation: $\begin{array}{lr}\text { Cash balance per books, } 4 / 30 & \$ 17,600 \\\text { Deposits in transit } & 2,400 \\\text { Notes receivable (face, } \$ 5,000 \text { ) and interest collected by bank } & 5,920 \\\text { Bank charge for check printing } & 30 \\\text { Outstanding checks } & 12,000 \\\text { NSF check } & 1,120\end{array}$ Use the following tabular analysis to determine the required adjustment for the notes receivable to Linville's accounts assuming that no interest has been accrued:

• A)Increase Cash $5920 decrease Notes Receivable $5920.
• B)Decrease Cash $5920 increase Interest Expense $920 decrease Notes Payable $5000.
• C)Increase Cash $5920 increase Interest Revenue $920 decrease Notes Receivable $5000.
• D)No adjustment is needed because the bank collected the note.

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Definitions:

Financial Distress

A condition in which a company cannot generate the revenues or income necessary to meet its financial obligations, which may lead to bankruptcy.

MM Propositions

The Modigliani-Miller propositions, which are foundational theorems in corporate finance, asserting that under certain conditions, the value of a firm is unaffected by its capital structure.

Optimal Capital Structure

The best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital.

Leverage

The use of borrowed funds with the aim to increase the potential return of an investment.