Cash and Cash Equivalents Quiz

Which cash fund is included from the cash and cash equivalent balance?

• Fund set aside for acquisition of equipment and machinery.

   

• Fund set up in a bank exclusively for payment of employees’ compensation.

• Fund for the redemption of preference shares.

• Fund established for settlement of long-term obligations.

The following statements relate to cash. Which statement is true?

• The term “cash equivalent” refer to demand credit instruments such as money order and bank drafts.

• The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all normal operating expenses for a period of time.

• Classification of a restricted cash balance as current or noncurrent should parallel the classification of the related obligation for which the cash was restricted.

• Compensating balance required by a bank should always be excluded from “cash and cash equivalent”.

At December 31 of the current year, an entity had cash accounts at three different banks. One account balance is segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should three accounts be reported in the December 31 classified balance sheet?

• The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

   

• The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.

• The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.

• The segregated and regular accounts should be reported as current assets net of the overdraft.

Burr Company had the following account balances at December 31, year 2: Cash in banks P2,250,000 Cash on hand P125,000 Cash legally restricted for additions to plant (expected to be disbursed in year 3) P1,600,000 Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr's December 31, year 2 balance sheet, total cash should be reported at

•  1,775,000

•  2,250,000

• 2,375,000

• 3,975,000

Trans Co. had the following balances at December 31, year 2:

Cash in checking account P35,000

Cash in money market account P75,000 Treasury bill, purchased 11/1/Year 2, maturing 1/31/Year 3, P350,000

Treasury bill, purchased 12/1/Year 2, maturing 3/31/Year 3, P400,000

Trans'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, Year 2 balance sheet?

•  110,000

• 385,000

• 460,000

• 860,000

Perth COMPANY reported the checkbook balance on December 31, Year 1 at P8,000,000. In addition, the entity held the following items in the safe on that date:

Check payable to Perth COMPANY, dated January 2, Year 2 in payment of a sale, not included in December 31 checkbook balance, P1,000,000

Check payable to Perth COMPANY, 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, Year 2 and cleared on January 5, Year 2, P3,000,000

Check drawn on Perth COMPANY account, dated and recorded on December 31, Year 1 but not mailed until January 15, Year 2, P2,500,000

Coins and currencies on hand P800,000 Three-month money market instruments P1,500,000

What is the correct amount of cash on December 31, Year 1?

• 7,500,000

• 9,300,000

• 9,800,000

• 8,300,000

As of December 31 of the current year, an entity had various checks and papers in its safe. Which item should not be included in its cash account in the year-ended balance sheet?

• US $20,000 cash.

• Past due promissory note issued in favor of the entity by its President.

• Another entity's P150,000 check payable to the entity dated December 15 of the current year.

• The entity's undelivered check payable to a supplier dated December 31 of the current year.

Which item should be excluded from cash and cash equivalent on the current year-end balance sheet of an entity?

• The minimum cash balance in the entity's current account which is maintained to avoid service charges.

• A check issued by the entity on December 27 of the current year but dated January 15 next year.

• Time deposit which matures in one year.

• A customer's check denominated in a foreign currency.

A cash in bank with credit balance that should not be offset against other bank account in another bank.

• Bank draft

• Stale check

• Compensating balance

• Bank overdraft

In order to be classified as cash equivalents, an investment must have a maturity period of

• Less than 6 months

• 6 to 12 months

• 3 to 6 months

• 3 months or less