Question

True or False

9. The lower of cost or market (LCM) rule violates the historical cost principle.

10. A six-month certificate of deposit would be considered to be a cash equivalent.

11. If collection of accounts receivable is assured, then accounts receivable are considered to be cash equivalent.

12. When reconciling a bank, the company does not have to prepare an adjustment entry for outstanding checks.

Answer 1

9)The statement is True

since under LCM method ,inventory is recorded at lower of cost or market value ,the principal violates historical cost principle since inventory can possibly reported at market value if market value is lower than cost

10)The statement is true

certificate of deposit maturing within six months is considered as cash equivalent.

11)The statement is false

Treasury bills ,money market fund ,commercial paper ,marketable securities maturing within 6 months are considered as cash equivalent

so accounts receivable even assured are not considered as cash equivalent

12)The statement is True

since outstanding checks are those which are recorded in books but not cleared the bank ,so no adjusting entry is made when reconciling bank.(since already recorded book)