CHAPTER 12 CASH AND CASH EQUIVALENTS Problem 12-1 (AICPA Adapted) Tranvia Company had the following balances on December 31,201. Cash in checking account 350,000 Cash in money market account 750,000 Treasury bill, purchased November 12021 maturing January 31, 2022 3,500,000 Time deposit purchased December 1, 2021 maturing March 31, 2022 4,000,000 What amount should be reported as cash and cash equivalents on December 31, 20217. a. 1,100,000 b. 3,850,000 c. 4,600,000 d. 8,600,000 Solution 12-1 Answer c Cash in checking account 350,000 Cash in money market account 750,000 Treasury bill purchased November 1, 2021 maturing January 31, 2022 3,500,000 Total cash and cash equivalents 4,600,000 Under PAS 7, treasury bills, money market placement and time deposit normally qualify as cash equivalents only when they havea short maturity of three months or less from the date of acquisition. Inthe absence of specific term, money market account is short-ter™ investment of three months or less. f Se The treasury bill is classified as cash equi: term is Bn equivalent because the The time deposit is not a cash equivalent because the term is four months. 148Problem 12-2 (AICPA Adapted) Pygmalion Company had the following balances on Decembér 31,2021: Cash in bank ~ current account 5,000,000 Cash in bank ~ payroll account 1,000,000 Cash on hand 500,000 Cash in bank ~ restricted account for building Construction expected to be disbursed in 2022 3,000,000 Time deposit, purchased December 15, 2021 and due March 15, 2022 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, 20214 a. 6,300,000 b. 8,300,000 ¢. 6,500,000 d. 8,700,000 Solution 12-2 Answer b Cash in bank — current account 5,000,000 Cash in bank - payroll account 1,000,000 Cash on hand (500,000 - 200,000 postdated customer check) 300,000 Time deposit 2,000,000 Total cash and cash equivalents 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 @noncurrent asset and not for the payment of acurrent liability. 149Problem 12-3 (AICPA Adapted) ded the following data on December 31, Thor Company provi 2021: 4, Checkbook balance 5 petysel Bank statement balance si ,000,000 Check drawn on Thor’s account, payable to supplier, dated and recorded on December 31, 2021 but not mailed until January 15, 2022 5 500,000 Sinking fund cash 000,000 On December 31, 2021, what amount should be reported as “cash” under current assets? a. 4,500,000 b. 5,500,000 c. 3,500,000 d. 6,500,000 Solution 12-3 Answer a Checkbook balance 4,000,000 Undelivered check drawn on Thor’s account 500,000 Adjusted cash balance 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 itis set aside for the payment of bond payable which is a noncurrent liability. 150Problem 12-4 (LAA) At year-end, Myra Company reported cash and cash equivalents which comprised the following: i Cash on hand 500,000 » Demand deposit 4,000,000 Certificate of deposit 2,000,000 Postdated customer check 300,000 Petty cash fund 50,000 Traveler’s check 200,000 Manager’s check 100,000 Money order 150,000 What total amount should be-reported as “cash” at-year-end? 7,000,000 4,800,000 6,800,000 5,000,000 aeop Solution 12-4 Answer d Cash on hand 500,000 Demand deposit 4,000,000 Petty cash fund 50,000 Traveler’s check 200,000 Manager’s check 100,000 Money order 150,090, Total cash 5,000,000 Technically, the certificate of deposit is a cash equivalent. The postdated customer check is reverted to accounts receivable. 151Problem 12-5 (IAA) Everlast Company reported the following information at year-end: * Share investments of P1,000,000 that are very actively traded in the 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. What total amount should be reported as cash? 3,400,000 b. 4,900,000 c. 4,400,000 d. 5,400,000 What total amount should be reported as cash equivalents? 2,000,000 1,500,000 3,500,000 4,500,000 p Boop Solution 12-5 Question 1 Answer a Question 2. Answer c Cash — Coin, currency, saving and checking 3,400,000 Government treasury bills 2,000,000 Commercial papers 1,500,000 Total cash equivalents 3,5 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. 152Problem 12-6 (AICPA Adapted) + Burr Company had the following account balances at year-end: Cash in bank 2,250,000 Cash on hand 125,000 Cash restricted for addition to plant and expected to be disbursed next year 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? 1,775,000 2,250,000 2,375,000 3,975,000 pO oP Solution 12-6 Answer c Cash in bank 2,250,000 Cash on hand 125,000 Total cash 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 with a 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. Uf 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 153Problem 12-7 (AICPA Adapted) On December 31, 2021, West Company had the following cash balackont . 1,800,009 ‘ he it account = Cash ink race inbred atyearend 3000 Time deposit due February 1, 2022 1,000,000 Time deposit in bank closed by BSP Cash in bank included P600,000 of ‘compensating ne short-term borrowing arrangement oD December at 2 i 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. 2,500,000 b. 1,250,000 c. 2,100,000 d. 1,500,000 Solution 12-7 Answer d Cash in bank (1,800,000 — 600,000 compensating balance) 1,200,000 Petty cash fund 50,000 Time deposit 250,000 . Total cash 1,500,000 Since the compensating balance is /egally 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. {t is assumed that the term is three months or less, this being the normal banking practice. Accordingly, the time deposit is a cash equivalent. The time deposit in bank closed by BSP is a noncurrent asset. 154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 a included in December 31 checkbook balance 2,000,000 Check payable to Ral, deposited December 15 and included in December 31 checkbook balance, but retuned by bank on December 30 stamped “NSF.” The check was tedeposited on January 2, 2022 and cleared on January 9, 2022 500,000 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 300,000 Certificate of time deposit 1,000,000 What amount should be reported as cash on December 31, 2021? a. 4,800,000 b. 5,300,000 c. 6,500,000 d. 5,800,000 Solution 12-8 Answer a Checkbook balance 5,000,000 NSF customer check (500,000) Undelivered company check 300,000 Adjusted cash balance 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. 155Checking account at Metrobank 3,000,099 -Employee’s postdated check _ 7 ; 120,009, Foreign bank account unrestricted and in equivalent pesos 2,500,009 IOU from company president 7 NSF customercheck ig Petty cash fund, expense receipts P40,000 50,009 Postage stamps 10,009 Treasury bonds 500,009 Value added tax account 1,500,009 What amount should be reposted as unrestricted cash on Deg 31, 20219 sinter a. 7,050,000 b. 5,500,000 c. 77010'000 d. 5,510,000 Solution 12-9 Answer ¢ Checking account at Metrobank 3.000009 Foreign bank account unrestric ,000,( Petty cash fund (50,000 — 40,000) 2a000 Value added tax account 41,0. 605 Total unrestricted cash 701 010,000 i Problem 12-10 (PHILCPA Adapted) Timex Company reported petty cash fund which comprised: Coins and currencies 3300 Paid vouchers for expenses 37000 Customer check returned by bank marked “NSF” - e 2,700 Check drawn to the order of petty cash custodian What amount should be reported as petty cash fund ? a. 3,300 : 7,000 c. 6,000 d. 9,000 Solution 12-10 Answer c Coins and currencies 3,300 Clieck drawn to the order of the petty cash custodian 2,700 Petty cash fund to be reported 6,000 The check drawn to the order ofthe petty cash custodian is actully a replenishment check and therefore eotof ‘cash. x a 156Problem 12-11 (PHILCPA Adapted) Liwanag Company reported an imprest petty cash fund of P50,000 with the following details: Currencies i 20,000 Coins 2,000 Petty cash vouchers: Gasoline payments for delivery equipment 3,000 Medical supplies for employees 1,000 Repairs of office equipment 1,500 Loans to employees 3,500 A check drawn by the entity payable to the order of Grace de la Cruz, petty cash custodian, representing her salary 15,000 An employee check returned by the bank for insufficiency of fund 3,000 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 5,000 ‘What amount of petty cash fund should be reported in the statement of financial position? 42,000 . 27,000 37,000 22,000 Bese Solution 12-11 Answer c Currencies ea Coins : Check drawn to the order of the petty cash custodian 15,000 37,000 drawn payable to the order of the petty cash custodian ee Terselary is actually an accommodation check. Thus, the amount is included as part of cash. 157Problem 12-12 (PHILCPA Adapted) stablished a petty cash fund On December 1,2021, Hazel Company ¢ och fund comprised of P50,000. On. ‘December 31, 2021, the petty the following information: 6,000 Coins and currencies 46005 Petty cash vouchers for miscellaneous expenses 5 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 46,000 Cash 44,000 *Cash short and over 2,000 b. Miscellaneous expenses 46,000 Cash ; 44,000 Cash short and over 2,000 c. Miscellaneous expenses 44,000 Cash short and over 2,000 E Cash 46,000 d. Miscellaneous expenses 46,000 Petty cash 44,000 Cash short and over 2,000 Solution 12-12 Answer b Miscellaneous expenses 46,000 Cash 44,000 Cash short and over 2,000 Composition of petty cash fund 52,000 Petty cash fund 50,000 30,000 Cash over _2,000 158Problem 12-13 (AICPA Adapted) ‘ aaa Company had the following account balances on December 31,2021: Petty cash fund 50,000 Cash on hand ‘ 500,000 Cash in bank — current account 4,000,000 Cash in bank ~ payroll account 1,200,000 Cash in bank ~ sinking fund 2,000,000 Cash in bank ~ restricted account for plant addition and ‘expected to be disbursed in 2022 1,500,000 Treasury bills 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, 20217 8,640,000 7,440,000 7,640,000 5,640,000 pe TP 159Solution 12-13 Answer a Petty cash fund 40,000 Cash on hand 400,000 Current account 4,000,000 Payroll account 1,200,000 Sinking fund 2,000,000 Treasury bills 1,000,000 Total cash and cash equivalents 8,640,000 Petty cash fund 50,000 Unreplenished petty cash vouchers ( 5,000) Employee IOU (_5,000) Adjusted petty cash 40,000 Cash on hand 500,000 Customer check postdated January 31, 2022 (100,000) Adjusted cash on hand 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 the 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. 160Problem 12-14 (Aa) Yamin Company Provided the following infrmaton on December 3, Petty cash fund 50,000 Current account ~ First Bank 4, 00,000 Current account ~ Second Bank (overdraft) ( 250,000) Money market placement - Third Bank 1,000,000 Time deposit - Fourth Bank 2,000,000 * A check for P100,000 was drawn against Fi ; igainst First Bank current account dated and recorded December 29, 2021 but delivered to payee on January 15, 2022, * The Fourth Bank time deposit i i isition i early January 2002, leposit is set aside for land acquisition in What total amount should be reported i CaDecabe sen reported as cash and cash equivalents a. 5,050,000 b. 5,150,000 c. 4,900,000 d. 4,150,000 Solution 12-14 Answer b Petty cash fund 50,000 Current account — First Bank (4,000,000 + 100,000) 4,100,000 Money market placement 1,000,000 Total cash and cash equivalents 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 is netted ifit is in the same bank. 161Problem 12-15 (PHILCPA Adapted) Kaye Company provided the following information on December 31, “2021: Cash on hand 5, Aooie: Phutippmebank current scout ; 000,000 Manila Bank current account No. peat Manila Bank current account No. 2 (bank overdraft) (500,000) BDO saving account set aside for bond payable due 3,000,000 December 31, 2023 : ae ” 0,000 -Asia Bank saving account for equipment acquisition 2,000°000 Asia Bank time deposit, 90 days 1000000 Treasury bills luded the checks drawn by the entity against the Philippine Bank curerent secount and recorded in December 2021 are: * Check written and dated December 23, 2021 and delivered to yee on January 3, 2022, P100,000. . Peck written December 23, 2021, dated January 30, 2022 delivered to payee on December 28, 2021, P1 $0,000. . What total amount should be repoted as cash and cash equivalents on December 31, 2021? a. 11,950,000 b. 12,450,000 c. 14,950,000 d. 10,950,000 Solution 12-15 Answer a Cash on hand 200,000 Philippine Bank current account 5,250,000 Manila Bank current account, net of bank overdraft in same bank 3,500,000 Asia Bank time deposit 2,000,000 Treasury bills 1,000,000 Total cash and cash equivalents 11,950,000 Philippine Bank current account 5,000,000 Undelivered check 100,000 Postdated check delivered 150,000 Adjusted balance . 5,250,000 The BDO saving account is not included in cash because the bond payable matures in more than one ‘year. #5 ihe In the absence of any contrary statement, the’ tre: bills are considered cash equivalent. a ses 162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 ‘3,000,000 Time deposit - 30 days 500,000 NSF check of customer 200,000 Money market placement due on June 30,2022 . 2,000,000 Saving deposit 1,000,000 IOU from an employee 300,000 Pension fund 1,500,000 Customer check dated January 31, 2022 600,000 Customer check outstanding for 18 months 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. * 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. 4,700,000 b. 6,700,000 c. 4,900,000 d. 5,100,000 163Solution 12-16 Answer a Cash in bank — demand deposit 3,200,009 Time deposit - 30 days 500,000 Saving deposit 1,000,000 Total cash and cash equivalent: 4,700, cash and cash equivalents 4,700,000 Cash in bank — demand deposit 3,000,000 Undelivered check dated and recorded on December 31, 2021 but mailed on January 31, 2022 100,000 Check postdated January 31, 2022 recorded on December 31, 2021 300,000 Collections during January 2022 recorded on December 31, 2021 200,000) Adjusted cash in bank 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 Ch 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. 164°Problem 12-17 (LAA) * OnDecember 31,2021, Roma which comprised the following: Undeposited collections Company reported cash of P9,950,000 Cash in bank —-BDO checking account 4 000.000 Undeposited NSF check received from customer, ee dated December 1, 2021 ; 150,000 Undeposited check from a customer, dated : January 15, 2022 ; 250,000 Cash in bank — BDO fund for payroll 1,000,000 Cash in bank — BDO money market instrument, 90 days 2,000,000 Cash in foreign bank restricted 1,500,000 Cash in bank — BDO value added tax account 450,000 Total : 9,950,000 On December 31, 2021, what total amount should be Teported as cash and cash equivalents? a. 7,600,000 . b. 8,200,000 c. 6,050,000 d. 8,050,000 Solution 12-17 Answer d Undeposited collections 600,000 BDO checking account 4,000,000 BDO payroll fund 1,000,000 BDO money market 2,000,000 BDO value added tax account 450,000 Total cash and cash equivalents 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. 165Problem 12-18 (ACP) Love Company reported the following information in relation to cash ° -- onDecember 31,2021: * * * 2s Checkbook balance, 4,000,000. Undeposited collections, P400,000. ing to 200,000 dated January 2,2022 ber 31,2021 checkbook balance. 500,000 deposited on December heckbook balance but returned by Acustomer check amounti was included in the Decem! Another customer check for! 22, 2021 was included in the ¢ the bank for insufficiency of fund. This check was redeposited on December 2 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: 6, 2021 and cleared Coins and currencies 5,000 Petty cash vouchers 40,000 Refundable deposit for returnable containers ‘| 5,000 50,000 Acheck of P40,000 was drawn on December 31, 2021 payable _ to Petty Cash. . 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 ‘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. 4,650,000 166Solution 12-18 Question 1 Answer b Checiost balance 4,000,000 Postdated customer check er; i 200,000 Undelivered check payable to applet Cons “Zoo Adjusted cash in bank 4,200,000 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 tothe * cash balance by debiting cash in bank and crediting accounts payable. Question 2 Answer a Cash in bank * 4,200,000 Cash on hand — undeposited collections 400,000 Petty cash fund 45,000 Total cash 4,645,000 Coins and currencies . 5,000 Replenishment check 40,000 Total petty cash 45,000 The refundable deposit for returnable containers is classified as current asset. i 167