9.-cash-and-cash-equivalents

9 CASH AND CASH EQUIVALENTS Problem 9-1 (ACP) Pygmalion Company had the following account balances on December 31, 2012: Cash in bank – current account Cash in bank – payroll account Cash on hand Cash in bank – restricted account for building Construction expected to be disbursed in 2013 Time deposit, purchased December 15, 2012 and Due March 15, 2013

5,000,000 1,000,000 500,000 3,000,000 2,000,000

The cash on hand includes a P200,000 check payable to Pygmalion, dated January 15, 2013. What should be reported as “cash and cash equivalents” on December 31,2012? a. b. c. d.

6,300,000 8,300,000 6,500,000 8,700,000

Solution 9-1 Answer b Cash in bank - current account Cash in bank – payroll account Cash on hand (500,000-200,000) 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 classified as cash equivalent because the term is three months. 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.

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 9-2 (AICPA Adapted) The following data pertain to Thor Company on December 31, 2009: Checkbook balance Bank statement balance Check drawn on Thor’s account, payable to supplier, dated and recorded on December 31, 2012, but not mailed until January 15,2013 Cash in sinking fund

4,000,000 5,000,000

500,000 2,000,000

On December 31, 2009, 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 9-2 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 cash in sinking is noncurrent investment because it is set aside for the payment of noncurrent liability. Problem 9-3 (IAA) Everlast Company reported the following information as of the end of the current year. 



Investment securities of P1,000,000. These securities are share investments in entities that are traded in the Philippine Stock Exchange. As a result, the shares are very actively traded in the market. Investment securities of P2,000,000. These securities are government treasury bills. The treasury bills have 10-year term and purchased on December 31 at which time they had two months to go until they mature.

 

Cash of P3, 400,000 in the form of coin, currency, saving account and checking account. Investment securities of P1,500,000. These securities are commercial papers. The term of the papers is nine months and they were purchased on December 31 at which time they had three months to go until they mature.

What amount should be reported as cash and cash equivalents at the end of the current year? a. b. c. d.

5,400,000 6,400,000 6,900,000 7,900,000

Solution 9-3 Answer c Government treasury bills Cash Commercial papers Total cash and cash equivalents

2,000,000 3,400,000 1,500,000 6,900,000

The share investments cannot qualify as cash equivalents because although they are very actively traded they do not have a maturity. The commercial papers are actually money market placements. Since the remaining term is three months from the date of acquisition, the commercial papers are considered cash equivalents. Problem 9-4 (ACP) On December 31, 2012, the cash account of Roel Company showed the following details: Undeposited collections 60,000 Cash in Bank – PCIB checking account 500,000 Cash in Bank – PNB (overdraft) (50,000) Undeposited check received from customer, Dated December 1, 2012 15,000 Undeposited check from customer dated January 15, 2012 25,000 Cash in Bank – PCIB (fund for payroll) 150,000 Cash in Bank – PCIB (saving deposit) 100,000 Cash in Bank – PCIB (money market instrument, 90days) 2,000,000 Cash in foreign bank (restricted) 100,000 IOUs from officers 30,000 Sinking fund cash 450,000 Listed shares held as trading investment 120,000

On December 31, 2012, what total amount should be reported as “cash and cash equivalents”? a. 2,660,000 b. 2,810,000 c. 2,770,000 d. 810,000 Solution 9-4 Answer b Undeposited collections PCIB checking account PCIB payroll fund PCIB saving deposit PCIB money market Total cash and cash equivalents

60,000 500,000 150,000 100,000 2,000,000 2,810,000

Problem 9-5 (AICPA Adapted) Burr Company had the following account balances at December 31, 2012: Cash in bank Cash on hand Cash restricted for addition to plant (expected to be disbursed in 2013)

2,250,000 125,000 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement. The compensating balance is not legally restricted as to withdrawal by Burr. In the current December 31, 2012 statement of financial position, what total cash should be reported under current assets? a. b. c. d.

1,775,000 2,250,000 2,375,000 3,975,000

Solution 9-5 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 borrowing arrangement with a bank. The compensating balance is part of cash if it’s not legally restricted as to withdrawal. Otherwise, if it’s 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. Problem 9-6 (AICPA Adapted) On December 31, 2009, West Company had he following cash balances: Cash in bank Pretty cash fund (all funds were reimbursed on 12/31/2012) Time deposit (due February 1, 2013)

1,800,000 50,000 250,000

Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement at December 31, 2012. The compensating balance is legally restricted as to withdrawal by West. In the December 31, 2012 statement of financial position, what total amount should be reported as cash and cash equivalents? a. 1,850,000 b. 1,250,000 c. 2,100,000 d. 1,500,000 Solution 9-6 Answer d Cash in bank (1,800,000-600,000) Pretty 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 term of the time deposit is not given. It is assumed that it is three months or less, this being the normal banking practice. Accordingly, the time deposit is a cash equivalent.

Problem 9-7 (AICPA Adapted) Campbell Company had the following account balances on December 31, 2012. Petty cash fund Cash in bank – current account Cash in bank – sinking fund Cash on Hand Cash in Bank- restricted account for plant addition, Expected to be disbursed in 2013 Treasury bills

50,000 4,000,000 2,000,000 500,000 1,500,000 1,000,000

The pretty cash fund includes unreplenished December 2012 petty cash expense vouchers of P10,000 and employee IOU of P5, 000. The cash on hand includes a P100,000 check payable to Campbell dated January 15, 2013. In exchange for a guaranteed line of credit, Campbell has agreed to maintain a minimum balance of P200,000 in its unrestricted current bank account. The sinking fund is set aside to settle a bond payable that is due on June 30, 2013. What total amount should be reported as “cash and cash equivalents” on December 31, 2012? a. b. c. d.

7,435,000 5,435,000 4,435,000 5,535,000

Solution 9-7 Answer a Petty cash fund (50,000 – 15,000) Current account Sinking fund Cash on hand (500,000 – 100,000) Treasury bills Total cash and cash equivalents

35,000 4,000,000 2,000,000 400,000 1,000,000 7, 435, 000

The sinking fund is included in cash and cash equivalents because the bond payable is already due within one year from the end of the reporting period. The classification of a cash fund should parallel the classification of the related liability.

Problem 9-8 (PHILCPA Adapted) The cash account in ABC Company’s ledger showed a balance at December 31, 2012 of P4,415,000 which consisted of the following: Petty cash fund 24,000 Undeposited receipts, including a postdated customer Check for P70,000 1,220,000 Cash in Allied Bank, per bank statement, with A check for 40,000 still outstanding 2,245,000 Bond sinking fund 850,000 Vouchers paid out of collections, not yet recorded 43,000 IOUs signed by employees, taken from collections 33,000 4,415,000 What amount should be reported as cash in the December 31, 2012 statement of financial position? a. b. c. d.

3,379,000 3,419,000 3,489,000 3,449,000

Solution 9-8 Answer a Petty cash fund Undeposited receipts (1,220,000 – 70,000) Cash in Allied bank (2,245,000 – 40,000)

24,000 1,150,000 2,205,000 3,379,000

The postdated customer check of P70,000 should be reverted to accounts receivable. The outstanding check of P40,000 is deducted from the Cash in Allied Bank because the cash balance given is per bank statement. The bond sinking fund is shown as a noncurrent investment. The vouchers paid should be recorded as expenses. The IOUs should be shown as advances to employees. Problem 9-9 (PHILCPA Adapted) The cash account in the current assets of the statement of financial position of Tawiran Company consisted of the following: Bond sinking fund cash 1,500,000 Checking account in FEBTC (A P320,000 check is still outstanding per bank statement) 3,155,000

Currency and coins awaiting deposit Deposit in a bank closed by BSP Petty cash fund (of which P10,000 in is the form Of paid vouchers) Receivables from officers and employees

1,135,000 500,000 50,000 175,000 6,515,000

The correct cash balance should be a. b. c. d.

4,440,000 4,330,000 4,830,000 5,830,000

Solution 9-9 Answer b FEBTC Currency and coins Petty cash fund (50,000 – 10,000)

3,155,000 1,135,000 40,000 4,330,000

The outstanding check of P320,000 is not deducted from the FEBTC checking account because the FEBTC account is believed to be the balance per book. The term “bank statement” appearing on the problem simply signifies that the outstanding check was determined from the bank statement. It does not mean that the checking account in FEBTC is the balance per bank statement. The deposit in bank closed by BSP is shown as noncurrent asset. Problem 9-10 (PHILCPA Adapted) Islander Company provided the following information with respect to its cash and cash equivalents on December 31, 2012. Checking account at First Bank Checking account at Second Bank Treasury bonds Payroll account Value added tax account Foreign bank account – restricted (in equivalent pesos) Postage stamps Employee’s postdated check

(200,000) 3,500,000 1,000,000 500,000 400,000 2,000,000 50,000 300,000

IOU from president’s brother Credit memo from a vendor for a purchase return Traveler’s check Not-sufficient-fund check Petty cash fund (P20, 000 in currency and expense Receipts for P30, 000) Money order

750,000 80,000 300,000 150,000 50,000 180,000

What is the amount should be reported as unrestricted cash on December 31, 2012? a. 5,900,000 b. 4,600,000 c. 4,900,000 d. 6,900,000 Solution 9-10 Answer c Checking account at Second Bank Payroll account Value added tax account Traveler’s check Petty cash fund Money order Total unrestricted cash

3,500,000 500,000 400,000 300,000 20,000 180,000 4,900,000

Problem 9-11 (AICPA Adapted) Ral Company’s checkbook balance on December 31, 2012 was P5,000,000. In addition, Ral held the following items in its safe on that date: Check payable to Ral, dated January 2,2013 in payment of a sale made in December 2012, 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, 2013 and cleared on January 9, 2013 Check drawn on Ral’s account, payable to a vendor, dated and recorded in Ral’s books on December 31, 2012 but not mailed until January 10, 2013

2,000,000

500,000

300,000

What amount to be reported as “cash” on December 31, 2012? a. 4,800,000 b. 5,300,000 c. 6,500,000 d. 6,800,000 Solution 9-11 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, 2013. The NSF customer check of P500, 000 should be reverted to accounts receivable on December 31, 2012 because it was redeposited after December 31, 2012. The check of P300,000 drawn by Ra los undelivered on December 31,2012. Thus, the undelivered check is restored to cash by debiting cash and crediting accounts payable.

Problem 9-12 (ACP) The checkbook balance of Dove Company on December 31, 2012 was P4,000,000. Data about certain cash items follow:  A customer check amounting to P200,000 dated January 2, 2013 was included in the December 31,2012 checkbook balance.  Another customer check for P500,000 deposited on December 22, 2012 was included in its checkbook balance but returned by the bank for insufficiency of fund. This check was redeposited on December 26, 2012 and cleared two days later.  A P400, 000 check payable to supplier dated and recorded on December 30, 2012 was mailed on January 16, 2013.  A petty cash fund of P50,000 with the following summary on December 31, 2012: Coins and currencies 5,000 Petty cash vouchers 43,000 Return value of 20 cases of soft drinks 2,000 50,000  A check of P43,000 was drawn on December 31,2012 payable to Petty Cash. What is the amount to be reported as “cash” on December 31, 2012? a. 4,248,000 b. 4,200,000 c. 4,205,000

d. 3,748,000 Solution 9-12 Answer a Checkbook balance Postdated customer check Undelivered check payable to supplier Adjusted cash in bank Petty cash: Coins and currencies Replenishment check Total

4,000,000 (200,000) 400,000 4,200,000 5,000 43,000

48,000 4,248,000

The return value of the soft drink bottles is shown as refundable deposit as a current asset. The NSF check is redeposited and cleared before December 31, 2012. Thus, the same is not deducted anymore from the checkbook balance. Problem 9-13 (PHILCPA Adapted) Account of the petty cash fund of Timex Company showed its composition as follows: Coins and currency Paid vouchers: Transportation Gasoline Office Supplies Postage stamps Due from employees Managers check returned by bank marked “NSF” Check drawn by the entity to the order of petty cash custodian

3,300 600 400 500 300 1,200

3,000 1,000 2,700

What is the correct amount of the petty cash fund for statement presentation purposes? a. b. c. d.

10,000 7,000 6,000 9,000

Solution 9-13 Answer c Coins and currency Check drawn by the entity to the order Of the petty cash custodian

3,300 2,700 6,000

The check drawn by the entity to the order of the petty cash custodian is actually a replenishment check and therefore part of cash. Problem 9-14 (PHILCPA Adapted) The petty cash fund of Liwanag Company on December 31, 2012, is composed of the following: Currencies Coins Petty cash vouchers: Gasoline payments 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’s check returned by the bank for in sufficiency of funds A sheet of paper with names of several employees together with contribution for a birthday gift of a 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

The petty cash general ledger account has an imprest balance of P50, 000. What is the amount of petty cash fund that should be reported in the statement of financial position on December 31, 2012? a. b. c. d.

42,000 27,000 37,000 22,000

Solution 9-14 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. Thus, it is included as part of cash. Problem 9-15 (ACP) The December 31, 2012 trial balance of Yasmin Company included the following accounts: 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



The petty cash fund includes unreplenished December 2012 petty cash expense vouchers for P15,000 and an employee check for P5,000 dated January 31, 2013.  A check for P100,000 was drawn against First Bank current account dated and recorded December 29, 2012 but delivered to payee on January 15, 2013.  The Fourth Bank time deposit is set aside for land acquisition in early January 2013. What total amount should be reported as “cash and cash equivalents” on December 31, 2012? a. 5,130,000 b. 5,150,000 c. 4,130,000 d. 4,880,000 Solution 9-15 Answer a Petty cash fund (50,000 – 15,000 – 5,000) Current account – First Bank (4,000,000 + 100,000) Money market placement Total cash and cash equivalents

30,000 4,100,000 1,000,000 5,130,000

In the absence of specific term, money market placement, time deposit and treasury bills are short-term investment of three months or less and therefore qualify as cash equivalents.

Problem 9-16 (IAA) On December 31, 2012, Erika Company’s “cash account” balance per ledger of P3,600,000 included the following: Demand deposit Time deposit – 30 days NSF check of customer Monet market placement due on June 30, 2013 Saving deposit IOU from an employee Pension fund Petty cash fund Customer check outstanding for 18 months

  

1,500,000 500,000 20,000 1,000,000 50,000 30,000 400,000 10,000 30,000 3,600,000

Check of P100,000 in payment of accounts payable was dated and recorded on December 31, 2012 but mailed to creditors on January 15, 2013. Check of P50,000 dated January 31, 2013 in payment of accounts payable was recorded and mailed December 31, 2012. The entity uses the calendar year. The cash receipts journal was held open until January 15, 2013, during which time P200,000 was collected and recorded on December 31, 2012.

What amount should be reported as “cash and cash equivalents” on December 31, 2012? a. b. c. d.

2,010,000 1,960,000 1,860,000 1,510,000

Solution 9-16 Answer a Demand deposit (see computation below) Time deposit – 30 days Saving deposit Petty cash fund Total cash and cash equivalents

1,450,000 500,000 50,000 10,000 2,010,000

Demand deposit per book Undelivered check Postdated check delivered

1,500,000 100,000 50,000

Window dressing of collection Adjusted balance

(200,000) 1,450,000

Problem 9-17 (PHILCPA Adapted) The December 31, 2012 trial balance o Karla Company included the following accounts: Cash on hand Petty cash fund Security bank current account PNB Current Account No. 1 PNB Current Account No. 2 BSP Treasury bill – 60 days BPI time deposit – 30 days    

500,000 20,000 1,000,000 400,000 (50,000) 3,000,000 2,000,000

The cash on hand includes a customer postdated check of P100,000 and postal money order of P40,000. The petty cash fund includes unreplenished petty cash vouchers for P2,000 and an employee check for P3,000 dated January 31, 2013. A check for P200,000 was drawn against Security Bank account, dated January 15, 2013, delivered to the payee and recorded December 31, 2012. The BPI time deposit is set aside for acquisition of land to be used as a factory site.

What total amount of cash and cash equivalents should be reported in the statement of financial position on December 31, 2012? a. b. c. d.

4,965,000 6,965,000 4,765,000 1,965,000

Solution 9-17 Answer a Cash on hand (500,000 - 100,000) Petty cash fund (20,000 - 2,000 - 3,000) Security Bank current account (1,000,000 + 200,000) PNB current account No. 1 PNB current account No. 2 BSP treasury bill – 60 days Total cash and cash equivalents

400,000 15,000 1,200,000 400,000 (50,000) 3,000,000 4,965,000

Problem 9-18 (PHILCPA Adapted) The December 31, 2012 trial balance of Celine Company includes the following accounts: Cash on hand Petty cash fund Philippine Bank current account Manila Bank current account City Bank current account Asia Bank Saving account Asia Bank time deposit, 90 days 





200,000 20,000 5,000,000 4,000,000 (100,000) 250,000 2,000,000

Cash on hand includes the following items: Customer’s check for P35,000 returned by bank December 26, 2012 due to insufficient fund but subsequently redeposited and cleared by the bank on January 10, 2013. Customer’s check for P15,000 dated January 10, 2013, received December 23, 2012. The petty cash fund consisted of the following items as of December 31, 2012. Currency and coins 5,000 IOUs from an officer 2,000 Unreplenished petty cash vouchers 12,000 19,000 Included among the checks drawn by Celine against the Philippine Bank current account and recorded in December 2012 are the following: Check written and dated December 23, 2012 and delivered to payee on January 3, 2013, P25,000. Check written December 26, 2012, dated January 30, 2013, delivered to payee on December 28, 2012, P45,000.



The credit balance in City Bank current account represents checks drawn in excess of the deposit balance which are still outstanding at December 31, 2012.



The saving account in Asia Bank has been set aside by the board of directors for the acquisition of equipment. This amount is expected to be disbursed in the next 3 months from the end of the reporting period.

What total amount should be reported as cash and cash equivalents on December 31, 2012? a. 11,125,000 b. 11,225,000

c. 11,155,000 d. 11,205,000 Solution 9-18 Answer b Cash on hand (200,000-35,000-15,000) Petty cash fund Philippine Bank current (5,000,000+25,000+45,000) Manila Bank current Asia Bank time deposit Total cash and cash equivalents

150,000 5,000 5,070,000 4,000,000 2,000,000 11,225,000