Cash and Cash Equivalents

A. LESSON PREVIEW/REVIEW
1. Reversing entries are
I. normally prepared for prepaid, accrued, and estimated items.
II. necessary to achieve a proper matching of revenue and expense.
III. desirable to exercise consistency and establish standardized procedures.

a. I
b. II
c. III
d. I and II

2. Adjusting entries that may be reversed include

a. all accrued revenues.
b. those that debit an asset or credit a liability.
c. all accrued expenses.
d. all of these.

3. Which of the following errors may be revealed by a trial balance?

a. A debit to salaries expense was posted in the ledger as a debit to insurance expense.
b. Expense already incurred was not recorded.
c. The debit and credit posting of a credit sale were omitted.
d. The credit posting of a payment of account payable was omitted.

Skill-building Activities
Part I. Modified True or False. Write TRUE if the statement is correct; Otherwise, write FALSE and
change the underlined word to make the statement correct.

1. Money that is readily available for restricted use can be presented as part of cash. FALSE,
UNRESTRICTED
2. Cash includes cash on hand and cash in the bank. TRUE
3. Checks are always presented as part of cash. FALSE, NOT ALWAYS
4. Post-dated checks and IOUs are not part of cash for financial reporting purposes. TRUE
5. Money market instruments are considered as cash for financial reporting purposes. FALSE, CASH
EQUIVALENT
6. Cash is measured at fair value. FALSE, FACE VALUE
7. Manager’s check and Certified check are considered as cash. TRUE
8. Money orders are considered as cash for financial reporting purposes. TRUE
9. Shares of stocks or equity instruments can qualify as cash equivalents. FALSE, CANNOT
10. Redeemable preference shares acquired 3 months or less before redemption date can qualify as
cash equivalents. TRUE
Part II. Multiple Choice.
1. The following information is provided for Iloilo Corp.:
 The commercial savings account of P 1,200,000 and a commercial checking account balance of
P1,800,000 are held at PS bank.
 A separate cash fund in the amount of P 3,000,000 is restricted for the retirement of a long-
term debt.
 Petty cash fund of P10,000.
 An IOU from a company officer of 45,000.
* Currency and coin on hand amounted to P 15,000.
* Iloilo Corp. Has agreed to maintain a cash balance of P200,000 at all times at PS bank to
ensure future credit availability.

Compute for the cash and cash equivalents to be reported in the Dec. 31, 2019 statement of financial
position

a. 3,025,000 b. 3,000,000 c. 2,755,000 d. None of the above

2. Guim Co. Provides the following information as of Dec. 31, 2019:

Demand deposit account P2,000,000
Time deposit- 30 days 1,000,000
NSF check of customer 40,000
Money market placement due June 30, 2020 1,500,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check outstanding for 18 mos. 40,000

Compute for the cash and cash equivalents to be reported in the Dec. 31, 2019 statement of financial
position
a. 3,010,000 b. 3,000,000 c. 4,500,000 d. None of the above

3. Which of the following statements is incorrect?

a. Cash that is restricted within one year from the end of the reporting period should be included in noncurrent
assets.
b. Cash funds that are specifically for the retirement of long-term debts not maturing currently should be
excluded from current assets and shown as a noncurrent investment.
c. Investments that can be liquidated at once and with little risk of loss of principal may be classified as cash
equivalent and included in the caption “Cash and cash equivalents”.
d. Cash and cash equivalents is always presented as the first line item in the statement of financial
position

4. Which of the following may qualify as cash equivalent?

a. Investment in ordinary shares acquired on Dec. 31, 2019, expected to be sold within the next three months.
b. Treasury notes acquired on Nov. 1, 2019 maturing on March 31, 2020.
c. One -year money market placements.
d. Investment in redeemable preference shares acquired on Dec. 1, 2019, maturing on Feb. 28, 2020.
5. The amount reported as "Cash" on a company's statement of financial position normally should exclude

a. Post-dated checks that are payable to the company.

b. cash in a payroll account
c. undelivered checks written and signed by the company
d. petty cash

6. The “cash” account in Gina company’s ledger on December 31;2015 showed a balance of 525,000 which
included the following;

Petty cash fund 5, 000 undeposited receipts, including a post-dated check of 10.000 130,000
Cash in bank 250,000
Cash in sinking fund 100,000
Vouchers paid out of collections, not yet recorded 25,000
IOUs signed by employees 15,000
Total 525,000

At what amount should Gina company report as “cash” on the December 31, 2015 statement of financial
position?
a. 525,000 b. 375,000 c. 475,000 d. None of the above

7. Maria Co. had the following account balances at Dec. 31, 2016

Cash in bank 2,250,000

Cash on hand 125,000
Cash legally restricted for addition to plant and
expected to be disbursed in 2017 1,600,000
Cash in bank includes P600,000 compensating balances against short term borrowing arrangements. The
compensating balances are legally restricted as to withdrawal by Maria. Total cash should be reported at

a. 1,850,000 b. 1,775,000 c. 3,800,000 d. None of the above

8. On December 31, 2009, West Company had the following cash balances:

Cash in banks P1,800,000

Petty cash funds (all funds were reimbursed on 12/31/09) 50,000
Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements at
December 31, 2009. The compensating balances are not legally restricted as to withdrawal by the West.

In the current assets section of West's December 31, 2009, balance sheet (statement of financial position),
what total amount should be reported as cash?

a. 1,800,000 b. 1,850,000 c. P1,580,000 d. None of the above

9. Global Inc. provided the following information as of Dec. 31, 2019

 Employee’s NSF check 10,000
Postage stamps 2,000
IOU from president 50,000
Traveller’s check 20,000
Money order 60,000
Petty cash fund (expense receipts of P5,000) 15,000

What is the cash balance to be reported on the statement of financial position?

a. 95,000 b. 85,000 c. 90,000 d. None of the above

10. The cash balance of Fiona Co. consists of the following on Dec. 31, 207

Cash on hand including customer post-dated check 10,000 250,000

Petty cash, including IOU from employee of 5,000 20,000
Saving deposit, earmarked for acquisition of machinery 200,000

What is the correct cash balance?

a. 200,000 b. 215,000 c. 255,000 d. None of the above

11. Tarlac Corporation provided the information for the year ended Dec. 31, 2019

Treasury bills, due 3/30/20 (purchased 12/29/19) 200,000

Treasury bills, due 1/31/20 (purchased 2/29/19) 300,000
Money order 50,000
IOU from controller’s sister 30,000
Credit memo from a vendor for a purchase return 20,000
Money market placement (due June 30, 2020) 100,000

What are the cash and cash equivalents to be reported on the statement of financial position?

a. 350,000 b. 550,000 c.250,000 d. None of the above

12. XYZ Co. Holds the following short-term investments as of Dec. 31, 20x1:
1- year Treasury bill maturing on March 30, 20x2, acquired on July 1, 20x1, 500,000.
1- year Treasury bill maturing on March 30, 20x2, acquired on Dec. 1, 20x1, 600,000.
1- year Treasury bill maturing on April 1, 20x2, acquired on Dec. 31, 20x1, 700,000

How much will be the total cash equivalents as of Dec. 31, 20x1?
a. 500,000 b. 1.200,000 c.700,000 d. None of the above

13. YZ Co. Holds the following short-term investments as of Dec. 31, 20x1:

Treasury shares P 500,000

Redeemable preference shares purchased 1 month. Before maturity 200,000
Certified check 100,000
Manager’s check 50,000
Change fund 5,000
Treasury bill, purchased 12/31/20x1, maturing 2/28/20x2 30,000

What is the cash to be reported on the statement of financial position?

a. 135,000 b. 255,000 c. 155,000 d. None of the above

14. Given the same information as above in # 13, What are the cash and cash equivalents to be reported on
the statement of financial position?

a. 485,000 b. 285,000 c. 385,000 d. None of the above

15. Global Inc. provided the following information as of Dec. 31, 2019

Employee’s NSF check P10,000

IOU from president 50,000
Traveler’s check 20,000
Money order 60,000
Petty cash fund (expense receipts of P5,000) 15,000
Treasury bill, purchased 12/31/20x1, maturing 2/28/20x2 30,000
Cashier’s checks 20,000
Treasury bill, purchased 12/31/2019, maturing 1/31/2020 350,000

What are the cash and cash equivalents to be reported on the statement of financial position?

a. 380,000 b. 210,000 c. 490,000 d. None of the above

Part III.

1. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Post-dated checks and I.O.U.’s

2. Which of the following is considered cash?

a. Certificates of deposit (CDs)
b. Money market checking accounts
c. Money market savings certificates
d. Post-dated checks

3. Travel advances should be reported as

a. Supplies
b. Cash because they represent the equivalent of money
c. Investments
d. None of these
4. Which of the following items should not be included in the Cash caption on the balance sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand

5. All of the following may be included under the heading of “cash” except
a. Currency
b. Money market funds
c. Checking account balance
d. Savings account balance

6. In which account are post-dated checks received classified?

a. Receivables.
b. Prepaid expenses.
c. Cash.
d. Payables.

7. In which account are postage stamps classified?

a. Cash.
b. Office supplies.
c. Receivables.
d. Inventory.

8. What is a compensating balance?

a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
d. Minimum deposits required to be maintained in connection with a borrowing arrangement.

9. Under which section of the balance sheet is “cash restricted for plant expansion” reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Stockholders’ equity.

10. A cash equivalent is a short-term, highly liquid investment that is readily convertible into Known
amounts of cash and
a. Is acceptable as a means to pay current liabilities
b. Has a current market value that is greater than its original cost
c. Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation
d. Is so near its maturity that it presents insignificant risk of changes in interest rates
Check for Understanding
1. The following were taken from the records of SML Co. As of Dec. 31, 20x1:

Checks drawn but not yet issued to payees P 120,000

Customers’ checks dated Jan. 15, 20x2 35,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s dated Jan 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries held by the treasurer 14,000
Petty cash fund (fully replenished) 10,000

Requirement: How much of the items listed above will be included in SML’s Dec. 31, 20x1 cash? 330,000
2. The records of ABC Co. Showed the following:

Treasury bill acquired on Nov. 1, 20x1 , maturing on Jan. 31, 20x2 300,000
Money market placement to RCBC trust made on Dec. 31, 20x1 maturing on August 31, 20x2 800,000
Investment in redeemable preference shares of XYZ Inc. redeemable on March 31, 20x2 , purchased on Dec.
31, 20x1 1,500,000
Three-month time deposit with UCPB unrestricted for withdrawal 950,000
Investment in equity securities in DEF Co., purchased Dec. 31, 20x1 to be sold on Jan 5, 20x2 450,000

How much of the items listed above will be included in ABC Co.’s Dec 31, 20x1 cash equivalents? 2,750,000

3. Trans Co. had the following balances at December 31, 2009:

Cash in checking account P 35,000

Cash in money market account 75,000
Treasury bill, purchased 11/1/2009, maturing 1/31/2010 350,000
Treasury bill, purchased 12/1/2009, maturing 3/31/2010 400,000
Tran’s policy is to treat as cash equivalents all highly liquid investments with a maturity of three months or
less when purchased.

What amount should Trans report as cash and cash equivalents in its December 31,
2009, balance sheet (statement of financial position)? ________________

Computation:
Cash in checking account P 35,000
Cash in money market account 75,000
Treasury bill, purchased 11/1/2009, maturing 1/31/2010 350,000
P 460,000

4. The cash balance of CAPSIZE OVERTURN Co. comprises the following:

Cash on hand 300,000

Cash in bank – savings – BPI 600,000
Cash in bank – current – BPI (240,000)
Cash in bank – deposit in escrow – Metrobank 300,000
Cash in bank – current – Metrobank ( 60,000)
Cash in bank – current – BDO ( 90,000)
Total 810,000

Additional information:
Cash on hand includes undeposited collections of P60,000.
The cash in bank – savings maintained at BPI includes a P150,000 compensating balance which is not restricted.

What amount of cash is reported in the financial statements? 660,000

5. On December 31, 2009, West Company had the following cash balances:

Cash in banks P1,800,000

Petty cash funds (all funds were reimbursed on 12/31/09) 50,000
Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements at
December 31, 2009. The compensating balances are not legally restricted as to withdrawal by the West.

In the current assets section of West's December 31, 2009, balance sheet (statement of financial position),
what total amount should be reported as cash? 1,850,000

6. Caloocan Corp. Had the following records for the year ended Dec. 31, 2019
Current account at Metrobank P 2,000,000

Payroll account 500,000

Foreign bank account (restricted) P 1,000,000
Postage stamps 1,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money market instrument-90 days 60,000

How much is the cash to be reported on Dec. 31, 2019? 2,550,000

7. Laguna Corp. contains the following records for the year ended Dec. 31, 2019

Money order P 30,000

Treasury bills, due 3/30/ 2020, (purchased 12/29/19) 200,000
Treasury bills, due 1/31/2020 (purchased 2/15/19) 300,000
Money market instrument- 90 days 100,000
Savings account 500,000

Compute for the cash to be reported on Dec. 31, 2019 statement of financial position P530,000

8. Given the same information in No. 7 (Laguna Corp.), how much is classified as cash equivalents only for
the year ended Dec. 31, 2019? P 300,000

9. Given the same information in No. 7 (Laguna Corp.), how much is classified as cash and cash