Cash and cash equivalents

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. Postdated checks and I.O.U.'s
(Adapted)

2. Which of the following may properly be included as part of cash to be reported

in the December 31, 200A statement of financial position?
a. Treasury bills maturing on March 31, 200B, acquired on December 1, 200A.
b. Customer’s check dated January 1, 200B and sent to bank for deposit on
December 31, 200A.
c. Shares of stocks to be sold on the first week of January 200B.
d. Preference shares with mandatory redemption and acquired three months
prior to redemption date.

3. Bank overdrafts, if material, should be

a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
(Adapted)

4. Deposits held as compensating balances

a. usually do not earn interest.
b. if legally restricted and held against short-term credit may be included as
cash.
c. if legally restricted and held against long-term credit may be included
among current assets.
d. none of these.
(Adapted)

5. The effect of compensating balance is

a. to provide greater security for the borrower
b. to decrease the yield on the loan to the lender
c. to increase the yield on the loan to the borrower
d. to increase the yield on the loan to the lender.
(Adapted)

6. Which of the following statements is incorrect?

a. Cash which is restricted and not available for use within one year of the
reporting period should be included in noncurrent assets.
b. Cash in a demand deposit account, being held 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 which 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. Compensating balances are cash amounts that are not immediately
accessible by the owner.
e. Cash and cash equivalents is always presented first in statement of
financial position when presenting current and non-current classifications.

7. Alaking received cash to be held in trust for Ambit under an escrow

agreement. Such cash should be presented in Alaking’s financial statements as
a. part of cash
b. a liability
c. an asset and a liability
d. an off-balance sheet item but disclosed in the notes

8. These are short-term, highly liquid investments that are so near their maturity
that they represent insignificant risk of changes in value due to changes in
interest rates.
a. Cash and Cash equivalents c. Treasury notes
b. Treasury bills d. Cash equivalents

9. When the bank receives cash from a depositor, the cash should be credited to
a. Cash c. Accounts payable
b. Cash in bank d. Deposit liability

10. Devin Co.'s cash balance in its balance sheet is P1,300,000, of which
P300,000 is identified as a compensating balance. In addition, Devin has
classified cash of P250,000 that has been restricted for future expansion plans
as "other assets". Which of the following should Devin disclose in notes to its
financial statements?
(Item #1) Compensating balance; (Item #2) Restricted cash
a. Yes, Yes b. Yes, No c. No, Yes d. No, No
(AICPA)

11. Which of the following is/are true about "compensating balances?"

I. They are reserve balances maintained for emergency spending
requirements.
II. If compensating balances are legally restricted, they must be segregated
on the balance sheet.
III. Compensating balances are overstated if "floats" are included as part of
the cash.
a. II only b. I & III c. I, II & III d. II & III
(Adapted)

12. Which of the following best qualifies as a "cash equivalent?"

a. A firm's investment in "held to maturity" government treasury bonds that
mature in 5 years.
b. A firm's equity investment in an unconsolidated subsidiary of a privately
held firm.
c. A firm's investment in government treasury bills.
d. All of these answers.
(Adapted)

13. Float refers to:

a. the number of days that a bank will allow a corporation to hold a negative
balance in its checking account before charging fees for the negative
balance.
b. the companies bank balance in excess of its working capital needs.
c. the receivable balance on the books of the corporation.
d. checks issued but not yet paid by a bank.
(Adapted)

14. On an entity’s December 31, 20x1 statement of financial position which of

the following items should be included in the amount reported as cash?
I. A check payable to the enterprise, dated January 2, 20x2, in payment of a
sale made in December 20x1.
II. A check drawn on the enterprise’s account, payable to a vendor, dated and
recorded in the company’s books on December 31, 20x1 but not mailed
until January 10, 2002.
a. I only b. II only c. I and II only d. Neither I nor II
(Adapted)

15. The amount reported as "Cash" on a company's balance sheet normally

should exclude
a. postdated 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
(Adapted)

16. Which of the following would not be classified as cash?

a. Personal checks c. Cashier’s checks
b. Traveler’s checks d. Postdated checks
(Adapted)
17. On October 31, 2003, Dingo, Inc. had cash accounts at three different
banks. One account balance is segregated solely for a November 15, 2003
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 these accounts be reported in
Dingo’s October 31, 2003 classified balance sheet?
a. 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.
b. The segregated and regular accounts should be reported as current assets,
and the overdraft should be reported as a current liability.
c. 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.
d. The segregated and regular accounts should be reported as current assets
net of the overdraft.
(Adapted)

18. Compensating balance agreements that do not legally restrict the amount
of funds shown on the balance sheet should:
a. be reported in the current asset section
b. be reported in the Long-term investment section
c. be reported in the other asset section
d. be reported in the footnotes
(Adapted)

19. Bank overdraft