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CASH AND CASH Equivalents prob solu
accounting information system (Marinduque State College)
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CASH AND CASH EQUIVALENTS
PROBLEM 12-1 (AICPA ADAPTED)
Tranvia Company had the following balances on December 31, 2021:
Cash in checking account
Cash in money market account
Treasury bill, purchased November 1, 2021 maturing
January 31, 2022
Time deposit purchased December 1, 2021 maturing
March 31, 2022
350,000
750,000
3,500,000
4,000,000
What amount should be reported as cash and cash equivalents on December 31, 2021?
a.
b.
c.
d.
1,100,000
3,850,000
4,600,000
8,600,000
Solution 12-1 Answer c
Cash in checking account
Cash in money market account
Treasury bill, purchased November 1, 2021 maturing
January 31, 2022
Total cash and cash equivalents
350,000
750,000
3,500,000
4,600,000
Under PAS 7, treasury bills, money market placement and time deposit normally qualify as cash
equivalents only when they have a short maturity of three months or less from the date of
acquisition.
In the absence of specific term, money market account is short-term investment of three months
or less.
The treasury bill is classified as cash equivalent because the term is three months.
The time deposit is not a cash equivalent because the term is four months.
PROBLEM 12-2 (AICPA ADAPTED)
Pygmalion Company had the following balances on December 31, 2021:
Cash in bank- current account
Cash in bank- payroll account
5,000,000
1,000,000
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Cash on hand
Cash in bank- restricted account for building construction
expected to be disbursed in 2022
Time deposit, purchased December 15, 2021 and due
March 15, 2022
500,000
3,000,000
2,000,000
The cash on hand included a P200,000 check payable to Pygmalion, dated January 15, 2022.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a.
b.
c.
d.
6,300,000
8,300,000
6,500,000
8,700,000
Solution 12-2 Answer b
Cash in bank- current account
Cash in bank- payroll account
Cash on hand (500,000 – 200,000 postdated customer
check)
Time deposit
Total cash and cash equivalents
5,000,000
1,000,000
300,000
2,000,000
8,300,000
The cash in bank set aside for payroll is included in cash because it is for the payment of current
liability.
The cash on hand is reduced by the postdated check payable to Pygmalion. The postdated check
should be reverted to accounts receivable.
The time deposit is a cash equivalent because the term is three months.
The cash in bank restricted for building construction is classified as a noncurrent investment
because it is set aside for the acquisition of a noncurrent asset and not for the payment of a
current liability.
PROBLEM 12-3 (AICPA ADAPTED)
Thor Company provided the following data on December 31, 2021:
Checkbook balance
Bank statement balance
Check drawn on Thor’s account, payable to supplier,
dated and recorded on December 31, 2021 but not
mailed until January 15, 2022
4,000,000
5,000,000
500,000
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Sinking fund cash
2,000,000
On December 31, 2021, what amount should be reported as “ cash” under current assets?
a.
b.
c.
d.
4,500,000
5,500,000
3,500,000
6,500,000
Solution 12-3 Answer a
Checkbook balance
Undelivered check drawn on Thor’s account
Adjusted cash balance
4,000,000
500,000
4,500,000
The undelivered check is restored to the cash balance by debiting cash and crediting accounts
payable.
The sinking fund cash is a noncurrent investment because it is set aside for the payment of bond
payable which is a noncurrent liability.
PROBLEM 12-4 (IAA)
At year-end, Myra Company reported cash and cash equivalents which comprised the following:
Cash on hand
Demand deposit
Certificate of deposit
Postdated customer check
Petty cash fund
Traveler’s check
Manager’s check
Money order
What total amount should be reported as “cash” at year-end?
a.
b.
c.
d.
7,000,000
4,800,000
6,800,000
5,000,000
Solution 12-4 Answer d
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500,000
4,000,000
2,000,000
300,000
50,000
200,000
100,000
150,000
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Cash on hand
Demand deposit
Petty cash fund
Traveler’s check
Manager’s check
Money order
Total cash
500,000
4,000,000
50,000
200,000
100,000
150,000
5,000,000
Technically, the certificate of deposit is a cash equivalent.
The postdated customer check is reverted to accounts receivable.
PROBLEM 12-5 (IAA)
Everlast Company reported he following information at year-end:




Share investments of P1,000,000 that are very actively traded in stock market.
Government treasury bills of P2,000,000 with a 10-year term but purchased on December
31 at which time they had two months to go until maturity.
Cash of P3,400,000 in the form of coin, currency, saving account and checking account.
Commercial papers of P1,500,000 with term of nine months but purchased on December
31 at which time they had three months to go until maturity.
1. What total amount should be reported as cash?
a. 3,400,000
b. 4,900,000
c. 4,400,000
d. 5,400,000
2. What total amount should be reported as cash equivalents?
a. 2,000,000
b. 1,500,000
c. 3.500,000
d. 4,500,000
Solution 12-5 Question 1 Answer a Question 2 Answer c
Cash- coin, currency, saving and checking
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3,400,000
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Government treasury bills
Commercial papers
Total cash equivalents
2,000,000
1,500,000
3,500,000
The share investments cannot qualify as cash equivalents because although very actively traded
the investments do not have a maturity.
The commercial papers are actually money market placements.
PROBLEM 12-6 (AICPA ADAPTED)
Burr Company had the following account balances at year end.
Cash on bank
Cash on hand
Cash restricted for addition to plant expected to be disbursed
next year
2,250,000
125,000
1,600,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement.
The compensating balance is not legally restricted as to withdrawal.
What total amount of cash should be reported under current assets at year-end?
a.
b.
c.
d.
1,775,000
2,250,000
2.375,000
3.975,000
Solution 12-6 Answer c
Cash in bank
Cash on hand
Total cash
2,250,000
125,000
2,375,000
A compensating balance is a minimum checking or demand deposit account balance that must
be maintained in connection with a borrowing arrangement in bank.
The compensating balance is part of cash if it is not legally restricted as to withdrawal.
Otherwise, if it is legally restricted, the compensating balance is excluded from the amount
shown as “cash”, and shown separately as current or noncurrent asset depending on the bank
loan to which it is related.
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If the related bank loan is short-term, the restricted compensating balance is a current asset.
if the related bank loan is long-term, the restricted compensating balance is a noncurrent asset.
PROBLEM 12-7 (AICPA ADAPTED)
On December 31, 2021, West Company had the following cash balances:
Cash on bank- current account
Petty cash fund- all funds were reimbursed at year-end
Time deposit due February 1, 2022
Time deposit in bank closed by BSP
1,800,000
50,000
250,000
1,000,000
Cash in bank included P600,000 of compensating balance against short-term borrowing
arrangement on December 31, 2021. The compensating balance is legally restricted as to
withdrawal.
On December 31, 2021, what total amount should be reported as cash and cash equivalents?
a.
b.
c.
d.
2,500,000
1,250,000
2,100,000
1,500,000
Solution 12-7 Answer d
Cash in bank (1,800,000 – 600,000 compensating balance)
Petty cash fund
Time deposit
Total cash
1,200,000
50,000
250,000
1,500,000
Since the compensating balance is legally restricted, it is excluded from the amount shown as
cash.
In this case, the compensating balance is shown as “cash held as compensating balance” as a
current asset because the related loan is short term.
The problem is silent on the term of the time deposit.
It is assumed that the term is three months or less, this being is normal banking practice.
Accordingly, the time deposit is a cash equivalent.
The time deposit in bank closed by BSP is a noncurrent asset.
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PROBLEM 12-8 (AICPA ADAPTED)
Ral Company reported the checkbook balance on December 31, 2021 at P5,000,000 and held the
following items on same date:
Check payable to Ral, dated January 2, 2022 in payment of a
sale made in December 2021, not included in December
31 checkbook balance
Check payable to Ral, deposited December 15 and included
in December 31 checkbook balance, but returned by bank
on December 30 stamped “NSF”. The check was
redeposited on January 2, 2022 and cleared on January 9,
2022
Check drawn on Ral’s account, payable to a vendor, dated
and recorded in Ral’s books on December 31,2021 but
not mailed until January 10, 2022
Certificate of time deposit
1,800,000
500,000
300,000
1,000,000
What amount should be reported as cash on December 31, 2021?
a.
b.
c.
d.
4,800,000
5,300,000
6,500,000
5,800,000
Solution 12-8 Answer a
Checkbook balance
NSF customer check
Undelivered company check
Adjusted cash balance
5,000,000
(500,000)
300,000
4,800,000
The customer check of P2,000,000 payable to Ral is properly not included in cash because it is
postdated January 2, 2022.
The NSF customer check of P500,000 should be reverted to accounts receivable on December
31, 2021 because it was redeposited after December 31, 2021.
The check of P300,000 drawn by Ral is undelivered on December 31, 2021. Thus, the
undelivered check is restored to cash by debiting cash and crediting accounts payable.
The certificate of time deposit is technically a cash equivalent.
PROBLEM 12-9 (PHICPA ADPATED)
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Starex Company proided the following information on December 31, 2021:
Checking account at Meterobank
Employee’s postdated check
Foreign bank account unregistered and in equivalent pesos
IOU from company president
NSF customer check
Petty cash fund, expense receipts P40,000
Postage stamps
Treasury bonds
Value added tax account
3,000,000
120,000
2,500,000
500,000
100,000
50,000
10,000
500,000
1,500,000
What amount should be reposted as unrestricted cash on December 31, 2021?
a.
b.
c.
d.
7,050,000
5,500,000
7,010,000
5,510,000
Solution 12-9 Answer c
Checking account at Metrobank
Foreign bank account unrestricted
Petty cash fund (50,000 – 40,000)
Value added tax account
Total unrestricted cash
3,000,000
2,500,000
10,000
1,500,000
7,010,000
PROBLEM 12-10 (PHICPA ADAPTED)
Times Company reported petty cash fund which comprised:
Coins and currencies
Paid vouchers for expenses
Customer check returned by bank marked “NSF”
Check drawn to the order of petty cash custodian
3,000,000
2,500,000
10,000
1,500,000
What amount should be reported as petty cash fund?
a.
b.
c.
d.
3,300
7,000
6,000
9,000
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Solution 12-10 Answer c
Coins and currencies
Check drawn to the order of the petty cash custodian
Petty cash fund to be reported
3,300
2,700
6,000
The check drawn to the order of the petty cash custodian is actually a replenishment check and
therefore part of cash.
PROBLEM 12-11 (PHILCPA ADAPTED)
Liwanag Company reported an imprest petty cash fund of P50,000 with the following details:
Currencies
Petty cash vouchers
Gasoline payment for delivery equipment
Medical supplies for employees
Repairs of office equipment
Loans to employees
A check drawn by the entity payable to the order of Grace de
la Cruz, petty cash custodian, representing her salary
An employee check returned by the bank for insufficiency of
fund
A sheet of paper with names of several employees together
with contribution for a birthday gift of co-employee.
Attached to the sheet of paper is a currency of
20,000
2,000
3,000
1,000
1,500
3,500
15,000
3,000
5,000
What amount of petty cash fund should be reported in the statemen of financial position?
a.
b.
c.
d.
42,000
27,000
37,000
22,000
Solution 12-11 Answer c
Currencies
Coins
Check drawn to the order of the petty cash custodian
20,000
2,000
15,000
37,000
The check drawn payable to the order of the petty cash custodian representing her salary is
actually an accommodation check.
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Thus, the amount is included as part of cash.
PROBLEM 12-12 (PHICPA ADAPTED)
On December 1,2021, Hazel Company established petty cash fund of P50,000. On December 31,
2021, the petty cash fund comprised the following information:
Coins and currencies
Petty cash vouchers for miscellaneous expenses
6,000
46,000
The petty cash fund was replenished on December 31, 2021.
What entry should Hazel make on December 31, 2021 to record the replenishment of petty cash
fund?
a.
Petty cash
Cash
Cash short and over
46,000
Miscellaneous expenses
Cash
Cash short and over
46,000
Miscellaneous expenses
Cash short and over
Cash
44,000
2,000
Miscellaneous expense
Petty cash
Cash short and over
46,000
44,000
2,000
b.
44,000
2,000
c.
46,000
d.
44,000
2,000
Solution 12-12 Answer b
Miscellaneous expenses
Cash
Cash short and over
46,000
44,000
2,000
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Composition of petty cash fund
Petty cash fund
Cash over
52,000
50,000
2,000
PROBLEM 12-13 (AICPA ADAPTED)
Campbell Company had the following account balances on December 31, 2021:
Petty cash fund
Cash on hand
Cash in bank- current account
Cash in bank-payroll account
Cash in bank- sinking fund
Cash in bank- restricted account for plant addition and
expected to be disbursed in 2022
Treasury bills
50,000
500,000
4,000,000
1,200,000
2,000,000
1,500,000
1,000,000
The petty cash fund included unreplenished December 2021 petty cash expense vouchers P5,000
and employee IOU P5,000.
The cash on hand included a P100,000 customer check payable to Campbell dated January
15,2022.
In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance
of P200,000 in the unrestricted current bank account.
The bond sinking fund is set aside to settle bonds payable due on December 31, 2022.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a.
b.
c.
d.
8,640,000
7,440,000
7,640,000
5,640,000
Solution 12-13 Answer a
Petty cash fund
Cash on hand
Current account
Payroll account
Sinking fund
Treasury bills
Total cash and cash equivalents
40,000
400,000
4,000,000
1,200,000
2,000,000
1,000,000
8,640,000
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Petty cash fund
Unreplenished petty cash vouchers
Employee IOU
Adjusted petty cash
Cash on hand
Customer check postdated January 31, 2022
Adjusted cash on hand
50,000
(5,000)
(5,000)
40,000
500,000
(100,000)
400,000
The customer postdated check should be reverted to accounts receivable.
The minimum balance of P200,000 to be maintained in the current account is included in cash
because the current account is unrestricted.
The sinking fund is included in cash and cash equivalents because the related bond payable is
already due within one year from the end of reporting period.
The classification of a cash fund should parallel the classification of the related liability.
The cash in bank restricted for plant addition is classified as noncurrent regardless of the
expected year of disbursement.
PROBLEM 12-14 (IAA)
Yasmin Company provided the following information on December 31, 2021:
Petty cash fund
Current account- First Bank
Current account- Second Bank (overdraft)
Money market placement- Third Bank
Time deposit- Fourth Bank


50,000
4,000,000
(250,000)
1,000,000
2,000,000
A check for P100,000 was drawn against First Bank current account dated and recorded
December 29, 2021 but delivered to payee on January 15, 2022.
The Fourth Bank time deposit is set aside for land acquisition in early January 2022.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a.
b.
c.
d.
5,050,000
5,150,000
4,900,000
4,150,000
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Solution 12-14 Answer b
Petty cash fund
Current account- First Bank (4,000,000 + 100,000)
Money market placement
Total cash and cash equivalents
50,000
4,100,000
1,000,000
5,150,000
The undelivered check drawn against First Bank is restored to cash in bank by debiting cash in
bank and crediting accounts payable.
In the absence of specific term, money market placement is short-term investment of three
months or less.
The Fourth Bank time deposit is a noncurrent asset because it is set aside for the acquisition of
a noncurrent asset.
The bank overdraft is a current liability because it is in a different bank. Otherwise, the bank
overdraft overdraft is netted if it is in the same bank.
PROBLEM 12-15 (PHICPA ADAPTED)
Kaye Company provided the following information on December 31, 2021:
Cash on hand
Philippine Bank current account
Manila Bank current account No. 1
Manila Bank current account No. 2 (bank overdraft)
BDO saving account set aside for bond payable due
December 31, 2023
Asia Bank saving account for equipment acquisition
Asia Bank time deposit, 90 days
Treasury bills
200,000
5,000,000
4,000,000
(500,000)
3,000,000
250,000
2,000,000
1,000,000
Included among the checks drawn by the entity against the Philippine Bank current account and
recorded in December 2021 are:


Check written and dated December 23, 2021 and delivered to payee on January 3, 2022,
P100,000
Check written December 23, 2021, dated January 30, 2022 delivered to payee on
December 28, 2021, P150,000.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a. 11,950,000
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b. 12,450,000
c. 14,950,000
d. 10,950,000
Solution 12-15 Answer a
Cash on hand
Philippine Bank current account
Manila Bank current account, net of bank overdraft in same
bank
Asia Bank time deposit
Treasury bills
200,000
5,250,000
3,500,000
2,000,000
1,950,000
Philippine Bank current account
Undelivered check
Postdated check delivered
Adjusted balance
5,000,000
100,000
150,000
5,250,000
The BDO saving account is not included in cash because the bond payabe matures in more than
one year.
In the absence of any contrary statement, the treasury bills are considered cash equivalent.
PROBLEM 12-16 (IAA)
On December 31, 2021, Erika Company reported cash account balance per ledger of P9,500,000
which included the following:
Cash in bank- demand deposit
Time deposit- 30 days
NSF check of customer
Money market placement due on June 30, 2022
Saving deposit
IOU from an employee
Pension fund
Customer check dated January 31, 2022
Customer check outstanding for 18 months

3,000,000
500,000
200,000
2,000,000
1,000,000
300,000
1,500,000
600,000
400,000
9,500,000
Check of P100,000 in payment of accounts payable was dated and recorded on December
31, 2021 but mailed to creditors on January 15, 2022.
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

Check of P300,000 dated January 31,2022 in payment of accounts payable was recorded
and mailed December 31, 2021.
The cash receipts journal was held open until January 15, 2022, during which time
P200,000 was collected and recorded on December 31, 2021.
What total amount should be reported as cash and cash equivalents on December 31, 2021?
a.
b.
c.
d.
4,700,000
6,700,000
4,900,000
5,100,000
Solution 12-6 Answer a
Cash in bank- demand deposit
Time deposit- 30 days
Saving deposit
Total cash and cash equivalents
3,200,000
500,000
1,000,000
4,700,000
Cash in bank-demand deposit
Undelivered check dated and recorded on December 31,
2021 but mailed on January 31,2022
Check postdated January 31, 2022 recorded on December
31, 2021
Collections during January 2022 recorded on December 31,
2021
Adjusted cash in bank
3,000,000
100,000
300,000
(200,000)
3,200,000
The undelivered check and postdated check should be restored to cash by debiting cash in bank
and crediting accounts payable.
The window dressing of collections during January 2022 should be reversed by debiting
accounts receivable and crediting cash in bank.
The NSF customer check, postdated customer check dated January 31, 2022 and the customer
check outstanding for 18 months should be reverted to accounts receivable.
The money market placement is not a cash equivalent because the term is more than 3 months.
The IOU from an employee is classified as a receivable.
The pension fund is a noncurrent investment.
PROBLEM 12-17 (IAA)
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On December 31, 2021, Roma Company reported cash of P9,950,000 which comprise the
following:
Undeposited collections
Cash in bank- BDO checking account
Undeposited NSF check received from customer, dated
December 1, 2021
Undeposited check from a customer, dated January 15, 2022
Cash in bank- BDO fund for payroll
Cash in bank- BDO money market instrument, 90 days
Cash in foreign bank restricted
Cash in bank- BDO value added tax account
Total
600,000
4,000,000
150,000
250,000
1,000,000
2,000,000
1,500,000
450,000
9,950,000
On December 31, 2021, what total amount should be reported as cash and cash equivalents?
a.
b.
c.
d.
7,600,000
8,200,000
6,050,000
8,050,000
Solution 12-17 Answer d
Undeposited collections
BDO checking account
BDO payroll fund
BDO money market
BDO value added tax account
Total cash and cash equivalents
600,000
4,000,000
1,000,000
2,000,000
450,000
8,050,000
The NSF customer check and the postdated customer check dated January 15, 2022 should be
reverted to accounts receivable.
The restricted cash in foreign bank is classified as noncurrent.
The BDO money market instrument is a cash equivalent because the term is 90 days or three
months.
The BDO value added tax account is included in cash because it is for the payment of current
liability.
PROBLEM 12-18 (ACP)
Love Company reported the following information in relation to cash on December 31, 2021:
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





Checkbook balance, P4,000,000
Undeposited collections, P400,000
A customer check amounting to P200,000 dated January 2, 2022 was included in the
December 31, 2021 checkbook balance.
Another customer check for P500,000 deposited on December 22, 2021 was included in
the checkbook balance but returned by the bank for insufficiency of fund.
This check was redeposited on December 6,2021 and cleared two days later.
A P400,000 check payable to supplier dated and recorded on December 30,2021 was
mailed on January 16,2022.
A petty cash fund of P50,000 comprised the following on December 31, 2021.
Coins and currencies
Petty cash vouchers
Refundable deposit for returnable containers

5,000
40,000
5,000
50,000
A check of P40,000 was drawn on December 31, 2021 payable to Petty Cash.
1. What amount should be reported as adjusted cash in bank on December 31, 2021?
a. 4,600,000
b. 4,200,000
c. 4.400,000
d. 3,700,000
2. What total amount should be reported as cash on December 31, 2021?
a. 4,645,000
b. 4,845,000
c. 4,600,000
d. 4,650,000
Solution 12-18
Question 1 Answer b
Checkbook balance
Postdated customer check erroneously included
Undelivered check payable to supplier
Adjusted cash in bank
4,000,000
(200,000)
400,000
4,200,000
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The NSF check is redeposited and cleared before December 31, 2021. Thus, the same is not
deducted anymore from the checkbook balance.
The undelivered check payable to supplier should be restored to the cash balance by debiting
cash in bank and crediting accounts payable.
Question 2 Answer a
Cash in bank
Cash on hand- undeposited collections
Petty cash fund
Total cash
Coins and currencies
Replenishment check
Total petty cash
4,200,000
400,000
45,000
4,645,000
5,000
40,000
45,000
The refundable deposit for returnable containers as current asset.
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