CHAPTER 13

CASH AND CASH

Basic problems EQUIVALENTS
Problem 13-1 (AICPA Adapted)
Tranvia Company had the
following balances on December 31,2017:
Cash checking account
in
Cash in money market account 350,000
Treasury bill, purchased November 1, 2017 750,000
maturing January 31,2018 3,500,000
Timedeposit purchased December 1, 2017
maturing March 3 1, 2018 4,000,000
What amount should be reported cash and cash
December 31, 2017?
as
equivalents on
a. 1,100,000
b 3,850,000
c 4,600,000
d. 8,600,000

Solution 13-1 Answer c

Cash in checking account 350,000
Cash in money market account 750,000
Treasury bill purchased November 1, 2017
maturing January 3 , 2018
3500.000
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 have ashort maturity
of three months or less from the date of acquisition.
In the absence ofspecificterm, money market account is short-term
investment of three months or less.
The treasury bill is classified as cash equivalent because the term is
three months.
The time deposit is nota cash equivalent because the tem is four months.

161
Problem 13-2 (AICPA Adapted)
ygmalion Company had the following balances on December31, 2017:
Cash in bank current account
-
5,000,000
Cash in bank 1,000,000
payroll account 500,000
Cash on hand
Cash in bank restricted
-

account for building

construction expected to be disbursed in 2018 3,000,000
imeduedeposit, purchased December 15, 2017 and 2,000,000
March 15, 2018
The cash on hand included a P200,000 check payable to Pygmalion,
dated January 15, 2018.
What total amount should be reported as cash and cash equivalents on
December 31,2017?
a. 6,300,000
b. 8,300,000
c. 6,500,000
d. 8,700,000

Solution 13-2 Answer b

Cash in bank - current account
Cash in bank - payroll account 5,000,000
1,000,000
Cash on hand (500,000 -200,000 postdated
customer check)
Time deposit 300,000
2,000,000
Total cash and cash equivalents
8,300,000
The cash in bank set aside for payroll is included in
for the payment
cash because it is
ofcurrent liability.
The cash on hand is reduced by the postdated check payable to
Pygmalion. The postdaled checK shouldbe reverted to accounts
receivable.

The time deposit is a cash equivalent because the

term is three months.
The cash in bank
restricted building tor
construction is
nCurrent investment because it is set aside for the classified as a
acquisition of
a noncurrent asser and not lor tne payment of a current liability.
162
Problem 13-3 (AICPA Adapted)
Thor Company provided the following data on December 31,
2017:

Checkbook balance 4,000,000

Bank statement balance 5,000,000
Check drawn on Thor's account, payable to supplier,
dated and recorded on December 31, 2017-but
not mailed until January 15, 2018 500,000
Cash in sinking fund 2,000,000

On December 31, 2017, 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 13-3 Answera

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.
investment because it is set aside for
The cash in sinking is anoncurrent
the payment of noncurrent liability.

163
 Problem 13-4 (IAA)
At year-end, Myra Company reported cash and cash equivalents

which comprisedthe following:

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?

a. 7,000,000
b. 4,800,000
C. 6,800,000
d 5,000,000
Solutio 13-4 Answer d

Cash on hand 500,000

Demand deposit 4,000,000
Petty cash fund
50,000
Traveler's check
Manager's check
200,000
Money order
100,000
150,000
Total cash
5,000,000
The certificate of deposit is ae cash equivalent.
The postdated customer check is reverted to accounts receivable.

164
 Problem 13-5 (LAA)
Everlast Company reported the
following
Share investments of P1,000,000 thatinformation
at year-end:

the stock market. nO are very actively traded in

matuRITY
Govermment treasury bills of P2.000.000 with a 10-year
purchased on tem but
December 31 at which time they had two months to
go until maturity.
Cash of P3,400,000 in the
and checking account. form of coin, currency, saving account
he of

mOneY nR keT
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.
1. What total amount should be reported as cash?
a. 3,400,000
b. 4,900,000
c. 4,400,000
d. 5,400,000
2. What total amount should be
reported as cash equivalents?
a. 2,000,000
b. 1,500,000
C 3,500,000
d. 4,500,000

Solution 13-5 Ouestion I 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 3,500,000
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.

165
Problem 13-6 (AICPA Adapted)
balances on December 31,
TCompany had the following account
2017:
Cash in bank 2,250,000
Cash on hand 125,000
Cash restricted for addition to plant and
expected to be disbursed in 2018 1,600,000

Cash in bank included P600,000 of compensating balance against

balance is not
ort-teim borrowing arrangement. The compensating
legally restricted as to withdrawal.
On December 31, 2017, what amount oftotal cash should be reported
under curTent assets?

a. 1,775,000
b. 2,250,000
2,375,000
d. 3,975,000

Solution 13-6 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 ofcash 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.

Tfao related bank loan is short-term, the restricted compensating

balance is a c u r r e n t asset.

related bank loan iS long-term. the restricted compensating

balance is a n o n c u r r e n t asset.

166
Problem 13-7(AICPA Adapted)
On December 31, 2017, West
balances: Company had the following cash
Cash in bank
Petty cash fund- all funds were 1,800,000
Time deposit due reimbursed on 12/31/2017 50,000
February 1,2018 250,000
Cash in bank included
P600,000 of
short-term borrowing arrangementcompensating balance against
on December 31, 2017. The
compensating balance is legally restricted as to
withdrawal.
On December 31, 2017, what
total amount should be reportedas
cash and cash equivalents?
a. 1,850,000
b. 1,250,000
c. 2,100,000
1,500,000
Solution 13-7 Answer d
Cash in bank (1,800,000-600,000) 1,200,000
Petty cash fund 50,000
Time deposit 250,000
Total cash 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 problem is silent on the term ofthe time deposit.
months or less, this being the
It is assumed that the term is three
nomal banking practice.
is a cash equivalent.
Accordingly, the time deposit
167
Problem 13-8 (PHILCPA Adapted)
on December
ABC Company reported cash account per ledger
, 2017 at P4,700,000 which consisted of the following
Petty cash fund 20,000
Undeposited receipts, including a postdated customer
check for P100,000 1,500,000
Cash in bank per bank statement, with
a check for
P200,000 still outstanding 2,500,000
Deposit in bank closed by BSP 500,000
Vouchers paid out of collections, not yet recorded 150,000
1OUs signed by employees, taken from collections 30.000
4,700,000

What amount should be reported as cash on December 31, 2017?

a 3,720,000
b. 3,900,000
c. 4,220,000
d. 4,020,000

Solution 13-8 Answer a

Petty cash fund 20,000
Undeposited receipts (1,500,000- 100,000) 1,400,000
Cash in bank (2,500,000-200,000) 2,300,000
3,720,000
The postdated customer check of P100,000 should be reverted to
accounts receivable.

The outstanding check of P200,000 is deducted from the cash in bank

because the cash in bank balance is per bank statement.
The deposit in bank closed by BSP i_ a noncurrent asset,
The vouchers paid should be recorded as expenses.
The 1OUs should be shown as advances to emplovees

168
Problem 13-9 (AICPA Adapted)
Ral Company reported the
checkbook balance on December 31,2017
at P5,000,000 and held the following items on same date:
Check payableofto Ral, dated January 2, 2018 in DOT
payment a sale made in December 2017, not
included in December31 checkbook balance 2,000,000
Check payable tó 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, 2018 and cleared on January 9, 2018 500,000
Check drawn on Ral's account, payable to a vendor, dated
and recorded in Ral's books on December 31, 2017
but not mailed until January 10,2018 300,000
Certificate of time deposit 1,000,000

What amount should be reported ascash on December 31, 2017?

4,800,000
b. 5,300,000
c. 6,500,000
d. 5,800,000

Solution 13-9 Answera

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

2018.
included in cash because itis postdated January 2,
to accounts
The NSF customer check of P500,000 should be reverted
was redeposited after
receivable on December 31, 2017 because it
December 31,2017.
undelivered on December 3 1,
The check of P300,000drawn by Ral is
check is restored to cash by debiting
2017. Thus, the undelivered
Cash and crediting accounts payable.

The time deposit is a cash equivalent.

certificate of

169
Problem 13-10 (PHILCPA Adapted)
Timex Company reported petty cash fund which comprised the
following:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager's
Check
check returned by bank marked "NSF" 1,000
drawn by the entity to the order
of petty cash custodian 2,700
What is the correct amount of
petty cash fund for statement
presentation purposes?
a. 10,000
b. 7,000
C. 6,000
d. 9,000

Solution 13-10 Answer c

Coins and currency
Check drawn by the 3,300
entity to the order
of the petty cash custodian
Correct amount of petty cash
2,700
6,000
The check drawn by the entity the order of the
to
custodian is actually a petty cash
replenishment check and therefore part of
cash.

170
 Problem 13-11 (PHLCPA Adapted)
LiwanagCompany reported an imprest petty cash fund
with the following details: of PS0,000
Currencies
Coins 20,000
Petty cash vouchers: 2,000
Gasoline payments for delivery
Medical supplies for employees equipment 3,000
1,000
Repairs of office equipment 1,500
Loans to employees
3,500
A check drawn by the entity
cHCY payable to the
order of Grace de la Cruz, petty cash
custodian, representing her salary 15,000
An employee's check returned by the bank
for insufficiency of funds 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?
a. 42,000
b. 27,000
37,000
d. 22,000

Solution I13-11 Answer c

Currencies 20,000
Coins 2,000
Check drawn to the order of the petty cash custodian 15,000
37,000

The check drawn payable to the order of the petty cash custodian
her salary is actually an accommodation check.
representing
Thus, the amount is included as part ofcash.
171
CHAPTER 14
CASH AND CASH EQUIVALENTS
Comprehensive problems
Problem 14-1 (AICPA Adapted)
Campbell Company had the following account balances on December
31,2017:
Petty cash fund 50,000
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 on hand S00,000
Cash in bank - restricted account for plant addition
and expected to be disbursed in 2018 1,500,000D
Treasury bills 1,000,000
The petty cash fund included unreplenished December 2017 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, 2018.

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 sinking fund is set aside to settle a bond

payable that is due on
June 30, 2018.

What total amount should be reported as cash and cash

equivalents on December 31, 20172

a. 8,640,000
b. 7,440,000
C. 7,640,000
d. 5,640,000

172
Solution 14-1 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, 2018 (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 bond payable is already due within one year from the end of the
reporting period.

The classification of a fund

cash 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.

173
 Problem 14-2 (LAA)
Yasmin Companyprovided the following information on December31,
2017:
Petty cash fund 50,000
Current account - First Bank 4,000,000
ument account Second Bank (overdraft) 250,000)
Money market placement- Third Bank 1,000,000
Time deposit Fourth Bank 2,000,000
December 2017
The petty cash fund included unreplenished petty
and an employee check for
cash expense vouchers for P15,000
PS,000 dated January 31, 2018.
A check for P100,000 was drawn against First Bank current
account dated and recorded December 29, 2017 but delivered to
payee on January 15, 2018.
*The Fourth Banktime deposit is set aside for land acquisition in
early January 2018.
What total amount should be reported as cash and cash equivalents
en December 31, 2017?
a 5,130,000
b. 5,150,000
C. 4,130,000
d. 4,880,000
Solution 14-2 Answer a
Petty cash fund (50,000 15,000-5,000) 30,000
Current account-First Bank (4,000,000 + 100,000) 4,100,000
Money market placement 1,000,0000
Total cash and cash equivalents
S,130,000
In the absence of specific term, money market
investment of three months or less.
placement is short-term
The Fourth Bank time depoSit is a noncurrent asset because it is set
aside for the acquisition of a noncurrent asset.
The bank overdratt is a current liability.

The undelivered check drawn against First Bank is restored to cash

in bank by debitng cash In bank and crediting accounts
payable.
174
Problem 14-3 (PHILCPA
Adapted)
Karla Company provided the
31,2017: following information on December
Cash on hand
Petty cash fund 500,000
20,000
Security Bank current account
PNB Current account No. 1 1,000,000
PNB Current account No. 2 400,000
BSP treasury bill 60 days (overdraft)
-
50,000)
3,000,000
*
The cash on hand included a customer
P100,000 and postal money order postdated check of
atenatamares of P40,000. -a
A check for P200,000 in
payment of account was drawn against
Security Bank account, dated January 15,2018, delivered to
the payee and recorded December
31, 2017.
What total amount of cash and cash equivalents should be
reported on December 31, 2017?

4,970,000
b. 6,970,000
C. 4,770,000
d. 1,970,000

Solution 14-3 Answer a

Cash on hand (500,000 - 100,000 postdated check)
400,000
Petty cash fund 20,000
Security Bank current account (1,000,000+200,000) 1,200,000
PNB current account No. 1 400,000
PNB current account No. 2 50,000)
BSP treasury bill - 60 days 3,000,000
Total cash and cash equivalents 4,970,000

The bank overdraft is netted because it is in the same bank.

The postdated check delivered of P200,000 drawn against Security

Bank is restored to cash in bank by debiting cash in bank and
crediting accounts payable.

175
Problem 14-4 (1AA)
On December 31, 2017, Erika Company reported cash accoun
balance per ledger of P3,600,000 which included the followino

Cash in bank - demand deposit

1,500,000
Time deposit 30 days
-

500,000
NSF check of customer 20,000
30, 2018
Money market placement due on June 1,000,000
Saving deposit 50,000
IOU from an employee 30,000
Pension fund 400,000
Petty cash fund 10,000
Customer check dated January 31, 2018 60,000
Customer check outstanding for 18 months 30,000
3,600,000
Check ofP100,000 in payment of accounts payable was dated
and recorded on December 31, 2017 but mailed to creditors
on January 15, 2018.

Check of P50,000 dated January 31, 2018 in payment of

accounts payable was recorded and mailed December 31,2017.
*
The cash receipts journal was held open until
January 15, 2018,
during which time P200,000 was collected and recorded on
December 31, 2017.

What total amount should be reported as cash and cash

equivalents on December 31,2017?

a 2,010,000
b. 1,960,000
c. 1,860,000
d. 1,510,000

176
 Solution 14-4 Answer a
Cash in bank -
demand deposit 1,450,0000
Time deposit -
30 days 500,000
Saving deposit 50,000
Petty cash fund 10,000
Total cash and cash equivalents 2,010,000

Cash in bank demand deposit

-

1,500,000
Undelivered check dated and recorded on
December 31, 2017 but mailed on January 31,2018 100,000
Check postdated January 31, 2018 recorded on
December 31, 2017 50,000
Collections during January 2017 recorded on
December 31, 2017 (200,000)
Adjusted cash in bank 1450,0000
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 2018 should be

reversed by debiting accounts receivable and crediting cash in bank

The NSF customer check, postdated customer check dated January

31,2018 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.

investment.
The pension fund isa noncurrent

177
 Problem 14-5 (PHILCPA Adapted)
information on DecenL
eline Company provided the following ember
31, 2017:
Cash on hand 200,000
Philippine Bank current account 5,000,000
Manila Bank current account 4,000,000
City Bank current account (bank overdraft) 100,000)
ASia Bank saving account for equipment acquisition 250,000
Asia Bank time deposit, 90 days 2,000,000
Included among the checks drawn by Celine against the Philippine Bank
current account and recorded in December 2017are:

Check written and dated December 23, 2017 and delivered to

payee on January 3, 2018, P100,000.
Check written December 26, 2017, dated January 30, 2018,
delivered to payee on December 28, 2017, P150,000.
Whattotal amount should be reported as cash and cash equivalents
on December 31, 2017?

a. 11,200,000
b. 11,450,000
C. 10,950,000
d. 11,700,000
Solution 14-5 Answer b
Cash on hand
200,000
Philippine Bank current (5,000,000+ 100,000+150,000) 5,250,000
Manila Bank current
4,000,000
Asia Bank time deposit
2,000,000
Total cash and cash equivalents
11,450,000
The undelivered check of P100,000 and the postdated check
delivered of P150,000 should be restored to cash in bank.
The bank overdraft is not "netted" against other
should be reported as current liabilitv. bank accounts but

The Asia Bank saving depoSit is a

noncurrent
it is for the acquisition of equipment. investment because

178
Problem 14-6 (LAA)
On December
31,2017,
with the following details Roma Company reported cash of P3,350,000
Undeposited collections
Cash in bank BD0 60,000
Cash in bank PNB checking account
-

-
500,000
(overdraft)
Undeposited NSF check 50,000)
received from customer,
dated December 1, 2017
Undeposited check from a customer, dated January 15, 2018 15,000
Cash in bank BDO fund for
-
. 25,000
Cash in bank BD0 saving payroll 150,000
deposit
Cash in bank BDO money market
- 100,000
Cash in instrument, 90 days 2,000,000
foreign
bank restricted 100,000
Cash in bank -

BDO value added tax account 450,000

Total
3,350,000
On December 31, 2017, what total amount should be reported as
cash and cash equivalents?
a. 2,910,000
b. 2,810,000
c. 2,760,000
d 3,260,000

Solution 14-6 Answer d

Undeposited collections 60,000
BDO checking account 500,000
BDO payroll fund 150,000
BDO saving deposit 100,000
BDO money market 2,000,000
BDO value added tax account 450,000
Total cash and cash equivalents 3,260,000
The PNBoverdraft is reported as a current liability.
check dated
The NSF customer check and the postdated
customer

receivable.
January 15,2018 should be revertedtoaccounts
bank is classified as noneurrent
The restricted cash in foreign

179
Problem 14-7 (ACP)
information n relation to cash
Company reported the following
LOve
on December 31, 2017:.
Checkbook balance, P4,000,000.
Undeposited collections, P400,000.
dated January 2, 2018
A customer check amounting to P200,000
checkbook balance.
was included in the December 31,2017

check for P500,000 deposited

on December
Another customer
balance but returned by
22, 2017 was included in the checkbook
the bank for insufficiency of fund.
2017 and cleared
This check was redeposited on December 26,
two days later.
A P400,000 check payable to supplier dated and recorded on
December 30, 2017 was mailed on January 16, 2018.

Apetty cash fund of P50,000comprised the following on December

31,2017:
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 31,2017 payable
to Petty Cash.
1. What is the adjusted cashinbank on December 31,20172
a. 4,600,000
b. 4,200,000
C. 4,400,000
d. 3,700,000
What total amount should be reported as
2. cash on December 31,2017?
a . 4,648,000
b. 3,700,000
c. 4,600,000
d. 4,148,000

180
Solution 14-7

Question 1 Answer b
Checkbook balance 4,000,000
Postdated customer check ( 200,000)
Undelivered check payable to supplier 400,000
Adjusted cash in bank 4,200,000

TheNSF check is redeposited and cleared before December 31,2017.

Thus, the same is not deducted anymore from the checkbook balance.

Question 2 Answer a
Petty cash fund:
Coins and currencies 5,000
Replenishment check 43,000

Total 48,000

The return value of the soft drink bottles is shown

as refundable deposit
as a current asset.

4,200,000
Cash in bank
400,000
Cash on hand undeposited collections
-

48,000
Petty cash fund
4,648,000
Total cash

181