Chapter 2
CASH AND CASH EQUIVALENTS
THEORY
MULTIPLE CHOICE:
1. Cash includes
a. Money only
b. Money and negotiable instruments
c. Any negotiable instrument including promissory notes.
d. Money and any instrument that is immediately payable in money and acceptable by the
bank for deposit and immediate credit.
2. To be reported as “cash and cash equivalents”, the cash equivalent must be
a. Deposited in a financial institution, particularly a bank
b. Available for the redemption of preference shares or bonds
c. can be freely used in current operations
d. Set aside for acquisition of construction of items of property, plant and equipment
3. Which of the following should be presented as cash in the statement of financial position?
a. Postdated checks received
b. IOUs from officers to be deducted from their salaries of the following month
c. Undelivered checks
d. NSF checks
4. Which of the following cannot be shown as part of cash in the current assets section of the
statement of financial position?
a. Cash in special checking account for payroll
b. Compensating balances
c. Cash deposited with utility company
d. Customer’s checks
5. Unreleased checks
a. Are outstanding checks
b. Are treated as certified checks
c. Are part of the payor’s cash balance
d. Should be a book-reconciling item since the bank has deducted this amount at arriving
at the cash balance in the bank statement.
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6. Which of the following should not be considered cash?
a. Petty cash fund
b. Money orders
c. Coin, currency and funds awaiting deposits
d. Postdated checks
7. Which of the following is incorrect with regard to the valuation of cash and cash equivalents?
a. Cash is valued at face value
b. Cash denominated in foreign currency is translated using the closing rate
c. Cash equivalents include interest that is to be received
d. cash deposited in a bank that has filed for bankruptcy should be written down to its net
realizable value.
8. Deposits in foreign countries that are also subject to certain foreign exchange restrictions
should be
a. Valued at current exchange rates and shown as current assets
b. Valued at historical exchange rates and presented as noncurrent assets
c. Valued at current exchange rates and presented as noncurrent assets
d. Valued at historical exchange rates and presented as current assets
9. Which of the following should be considered cash equivalents?
a. Certificates of deposit
b. Money market with checking account privileges
c. Legally restricted compensating balances
d. Postdated checks
10. Travel advances should be reported as
a. Supplies.
b. Cash because they represent the equivalent of money.
c. Investments.
d. None of these.
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PROBLEM SOLVING
Exercise 2 – 1
As of December 31, 2020, Grimmie Company’s general ledger reported a total cash balance of
₱695,000. Breakdown of the amount is as follows:
Currencies and coins awaiting deposit
Checking account balance
NSF Check returned by the bank
Undeposited receipts, including a postdated check of ₱35,000
Savings account balance
IOUs signed by personnel
₱ 45,000
185,000
40,000
160,000
250,000
15,000
What amount should be reported as “cash” on Grimmie’s Statement of Financial Position as of
December 31, 2020?
Exercise 2 – 2
Hatch Company shows the following account balances in its financial records as of December
31, 2020:
Cashier’s check
IOU from the president’s sister
Bank draft
Traveler’s check
Undeposited checks (includes a ₱100,000 check not accepted by the bank
due to lack of countersignature)
Money order
Petty cash fund (bills and coins of ₱4,000)
Checking account- Unibank
Checking account- Tribank
Savings account- Unibank
Postage stamps
What is the cash balance to be reported on the statement of financial position?
Exercise 2 – 3
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₱ 46,000
65,000
40,000
40,000
220,000
50,000
12,000
450,000
(85,000)
325,000
6,500
Striker Company has the following balances at fiscal year ended September 30, 2020:
Cash in checking account per bank statement (₱26,000 check is still not
presented to the bank by the payee)
Cash in money market account – 120 days
Treasury bill, purchased August 1, 2020 maturing October 30, 2020
Treasury note, purchased September 1, 2020 maturing December 15, 2020
₱100,000
200,000
600,000
800,000
What amount should Striker Company report as cash and cash equivalents in its September 30,
2020 statement of financial position?
Exercise 2 – 4
Aguas Company reported total cash and cash equivalents of ₱5,465,000 on December 31, 2020,
which includes the following:
Two 180-day certificates of deposit, totaling
Check dated January 6, 2021 amounting to
Cash accumulated in special fund that will be used for plant expansion
Commercial paper due in 100 days
Currency and coins in petty cash fund (including unreplenished vouchers of ₱2,500)
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₱ 650,000
225,000
1,200,000
1,000,000
16,000
Aguas Company has agreed to maintain a cash balance of ₱450,000 which will not be available
for withdrawal to ensure future credit availability. The said amount was included in the balance
above.
What is the total amount that Aguas Company should report as “cash and cash equivalents” in
the current assets section of the statement of financial position on December 31, 2020?
Exercise 2 – 5
The statement of financial position of Mandela Company as of December 31, 2020 shows cash
balance of ₱900,000. It was found to include the following items:
Currencies and coins on hand
Notes receivable in the possession of a collection agency
Customer’s check, dated February 1, 2021, not yet presented to the bank
Customer’s checks returned by bank marked “NSF”
Postal money orders from clients
Petty cash fund (includes vouchers worth ₱2,500 for transportation expenses)
₱ 80,000
150,000
45,000
60,000
70,000
10,000
Mandela drew a check for ₱145,000 against its checking account last December 28, 2020
representing payment for a subscription contract. The said check was only delivered January 2 of
the following year. What is the correct cash balance of Mandela Company as of December 31,
2020?
Exercise 2 – 6
David Company’s checkbook balance on December 31, 2020 was ₱1,200,000. In addition, David
Company supplied the following information as of December 31:
Check drawn on David Co.’s account in payment of a transaction with a vendor,
dated and recorded December 31 but not mailed until January 6.
Check payable to David Co., deposited December 23, excluded from the December
31 checkbook balance because it was returned by bank on December 28, stamped
“NSF”. The check was redeposited on the same day and cleared on
December 29, 2020.
Check payable to David Co. for goods sold to a client, dated January 4, 2021 still
on hand. The said check was included in the checkbook balance above.
₱ 300,000
50,000
150,000
What is the proper amount to be shown as cash on David Co.’s statement of financial position on
December 31, 2020?
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Exercise 2 – 7
The cash balance of Mendoza Company consists of the following on December 31, 2020:
Cash on hand, including stale check of ₱60,000 and postdated check of ₱30,000
Cash in bank, net of bank overdraft of ₱40,000 in a checking account with
another bank
Petty cash, including unreplenished receipts of ₱12,500
Savings deposits, earmarked for plant expansion
₱650,000
450,000
18,000
550,000
What is the correct cash balance?
Exercise 2 – 8
Wimbledon Company provided the following information regarding the composition of its cash
account on December 31, 2020:
Checking account- BPI
Savings account- BPI
Cash on hand
Travel advances of employee to be paid through salary deduction
Separate cash fund, restricted for the retirement of long-term assets
₱1,200,000
1,500,000
10,000
120,000
1,000,000
Savings account includes ₱200,000 holdout against short-term borrowing arrangements. In the
current assets section of Wimbledon Co.’s December 31, 2019 statement of financial position, how
much should be reported as cash?
Exercise 2 – 9
Hechter Company’s checkbook balance as of December 31, 2020 was ₱1,750,000. On the same
date, Hechter had the following items on its safe, together with 18 blank checks:
a. A ₱70,000 check payable to Hechter Co., dated January 2, 2021 that was included in the
December 31 checkbook balance.
b. A ₱300,000 check payable to a supplier and drawn on Hechter Co.’s account that was dated
and recorded December 31 but not mailed until January 3, 2021.
What amount of cash should Hechter Co. report on its December 31, 2020 statement of financial
position?
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Exercise 2 – 10
The cash account of Pistachio Co. showed a ledger balance of ₱158,794 on June 30. The bank
statement on the same date showed a balance of ₱166,100. Upon comparing the bank statement
with the cash records, the following facts were determined:
a. June bank service charge was ₱1,000.
b. A bank memo stated that a note having a face value of ₱48,000 and interest of ₱1,440 had been
collected on June 29, and the bank had made a charge of ₱220 on the collection. No entry had
been made on Pistachio’s books when the note was collected.
c. Receipts for June 30 for ₱135,600 were not deposited until July 2.
d. Checks outstanding on June 30 totaled ₱85,442.
e. The bank had charged Pistachio’s account for a customer’s uncollectible check amounting to
₱10,128.
f. A customer’s check for ₱3,600 had been entered as ₱2,400 in the cash receipts journal by
Pistachio on June 15.
g. Check No. 742 in the amount of ₱19,640 had been entered in the cash journal as ₱16,760, and
Check No. 747 in the amount of ₱2,328 had been entered as ₱23,380. Both checks had been
issued to pay for purchases of equipment.
Prepare bank reconciliation statement.
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