PRACTICE SET
Cash and Cash Equivalents
1.
A company’s records reveal the following data at year-end:
Commercial Paper Maturing in Four Months
Uncashed Tax Refund Check
Petty Cash
Certificates of Deposit
Balance in Union Savings and Loan Savings Account
Postage
Balance in United Bank Checking Account
P1,200,000
550,000
100,000
1,000,000
2,500,000
50,000
(250,000)
Treasury Notes Maturing in Six Months
Cash on Hand
Postdated Customer Check
Employee Travel Advance
Treasury Bill Maturing in One Month
2,200,000
500,000
125,000
75,000
2,500,000
What is the correct amount of cash and cash equivalents that will appear as a
current asset on Ester Co.’s balance sheet?
a. P6,050,000
b. P6,150,000
c. P6,225,000
d. P6,275,000
2. The books of ABC Co. show the following balances at December 31, 20x1:
Cash on hand
Cash in Bank – current account
Cash in Bank – peso savings deposit
Cash in Bank – dollar deposit (unrestricted)
Cash in Bank – dollar deposit (restricted)
Cash in 3-month money-market account
3-month unrestricted time deposit
Treasury bill, purchased 11/1/20x1, maturing
2/14/20x2
Treasury bond, purchased 3/1/20x1, maturing
2/28/20x2
Treasury note, purchased 12/1/20x1, maturing
2/28/20x2
Unused Credit Line
Redeemable preference shares, purchased
12/1/20x1,
due on 3/1/20x2
Treasury shares, purchased 12/1/20x1, to be
reissued on
1/5/20x2
Sinking fund
₱ 400,000
1,200,000
5,000,000
$ 100,000
250,000
₱ 500,000
$ 20,000
₱1,600,000
1,000,000
400,000
4,000,000
740,000
200,000
400,000
Additional information:
●
●
●
●
●
Cash on hand includes a ₱40,000 check payable to ABC Co. dated December
29, 20x1.
During December 20x0, check amounting to ₱30,000 was drawn against the
Cash in bank - current account in payment of accounts payable. The check
remains outstanding as of December 31, 20x1.
The Cash in Bank – peso savings deposit includes ₱800,000 security bond on a
pending labor litigation, in favor of a previous employee. The establishment of
the bond is mandated by a court of law.
The Cash in Bank – peso savings deposit also includes a compensating balance
amounting to ₱500,000 which is not legally restricted.
The Cash in Bank – dollar deposit (unrestricted) account includes interest of
$4,000, net of tax, directly credited to ABC Co.’s account. The exchange rate
at year-end is $1 is to ₱45.
How much is the cash and cash equivalents to be reported in the 20x1 financial
statements?
a.
b.
c.
d.
14,720,000
19,520,000
12,430,000
12,870,000
ANSWERS AND SOLUTION:
1.
Company’s
Uncashed Tax Refund Check
Petty Cash
Balance in Union Savings and Loan Savings Account
Cash on Hand
Treasury Bill Maturing in One Month
A.
Commercial Paper Maturing in Four Months
Would not qualify Cash Equivalents (PAS 7.6)
- Short term
- Highly liquid investments
- That are readily convertible to known amounts of cash
- Which are subject to an insignificant risk of changes in value
Only debt instruments acquired within 3 months or less before their
maturity date can qualify as cash equivalents.
Examples of Cash equivalents
● (3 Months or Less ) Date of Acquisition Before Maturity Date
550,000
100,000
2,500,000
500,000
2,500,000
6,150,000
- Treasury bills, notes or bonds acquired within 3 months or less before their
maturity date
Money market instrument or commercial paper acquired within 3 months or less
before their maturity date
● (3 Months or Less ) Term of the Instrument
-3 month-time deposit
B.
Certificates of Deposit
Normally classified as investment
C.
Postage and Employee Travel Advance
Items NOT included as Cash
● Post-dated checks
● IOUs or advances to employees
● Cash funds not available for use in current operations (e.g.
sinking fund)
● Postage stamps
D. Treasury Notes Maturing in Six Months
Only debt instruments acquired within 3 months or less before their maturity
date can qualify as cash equivalents.
E.
Postdated Customer Check
Postdated Check Received From a Customer
Postdated Check Drawn
Unreleased/ Undelivered check
Stale checks
2.
Exclude from cash
Include in cash
Include in cash
Include in cash
ABC Co
Cash on hand
Cash in Bank – current account
Cash in Bank – peso savings deposit (5,000,000 less
800,000 restriction)
Cash in Bank – dollar deposit (unrestricted) (100,000
x 45)
Cash in 3-month money-market account
3-month unrestricted time deposit (20,000 x45)
Treasury note, purchased 12/1/20x1, maturing
2/28/20x2
Redeemable preference shares, purchased
12/1/20x1, due on 3/1/20x2
Outstanding check
400,000
1,200,000
4,200,000
4,500,000
500,000
900,000
400,000
740,000
30,000
12,870,000