Intermediate Accounting 1

Cash and cash equivalents

Theories:
1. Which of the following shall not be 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. IOUs

2. Which of the following is usually considered cash?

a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated checks

3. To be reported as “cash and cash equivalents”, the cash item must be

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

4. A cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amount of cash and
a. Is acceptable as a means to pay current liabilities
b. Has a current market value that is greater than its original cost
c. Bears an interest rate that is at least equal to the prime rate of interest at the date
of liquidation
d. Is so near its maturity that it presents insignificant risk of change in interest rate.

5. All of the following can be classified as cash and cash equivalents, except?
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft

6. Which of the following statements is incorrect concerning measurement of cash and cash
equivalents?
a. Cash is measured at fair value.
b. Cash in foreign currency is measured at the current exchange rate.
c. If a bank or financial institution holding the funds of the entity is in bankruptcy or
financial diYiculty, cash shall be written down to estimated realizable value.
d. Cash equivalents shall be measured at maturity value, meaning face value plus
interest.

Intermediate Accounting 1 – Cash and Cash Equivalents Part 1

7. If material, deposits in foreign bank which are subject to foreign exchange restriction shall
be classified
a. Separately as current asset, with appropriate disclosure.
b. Separately as noncurrent asset with appropriate disclosure.
c. Be written oY as an extraordinary loss.
d. As part of cash and cash equivalents.

8. Bank overdraft generally should be

a. Reported as a deduction from current assets.
b. Reported as a deduction from cash.
c. Netted against cash and a net cash amount reported.
d. Reported as a current liability.

9. What is a compensating balance?

a. saving account balance
b. margin account held with broker
c. Temporary investment serving as collateral for outstanding loan
d. Minimum deposit required to be maintained in connection with a borrowing
arrangement.

10. A compensating balance

a. Must be included in cash and cash equivalents.
b. Which is legally restricted and related to a long-term loan is classified as current
asset.
c. Which is legally restricted and related to a short-term loan is classified separately
as current asset.
d. Which is not legally restricted as to withdrawal is classified separately as current
asset.

Problem Solving:

1. On December 31, 2023, the cash and cash equivalents of Taboo Company had a total of
P3,500,000. An analysis showed the following details:
Undeposited collections P 60,000
Cash in bank – PCIB checking account 500,000
Cash in bank – PNB (overdraft) (50,000)
Undeposited NSF check received from customer, dated December 1, 2023 15,000
Undeposited check from a customer, dated January 15, 2024 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, 90 days) 2,000,000
Cash in foreign bank 100,000
IOUs from oYicers 30,000

Intermediate Accounting 1 – Cash and Cash Equivalents Part 1

 Sinking fund cash 450,000
Listed shared held as trading investment 120,000
Required:
Compute the total amount of cash and cash equivalents that should be reported in the
statement of financial position.

2. On December 31, 2023, Earnest Company provided the following data:

Cash in bank 1,500,000
Time deposit – 30 days 500,000
Money market placement due on June 30, 2024 1,000,000
Saving deposit in closed bank 50,000
Pension fund 400,000
Petty cash fund 10,000
• The cash in bank included customer check of P80,000 outstanding for 18 months.
• Check of P100,000 in payment of accounts payable was dated and recorded on
December 31, 2023 but mailed to creditors on January 15, 2024.
• Check of P50,000 dated January 31, 2024 in payment of accounts payable was
recorded and mailed December 31, 2023.
• The reporting period is the calendar year. The cash receipts journal was held open
until January 15, 2024 during which time P230,000 was collected and recorded on
December 31, 2023.
Required:
a. Prepare adjusting entries on December 31, 2023.
b. Compute the total amount of cash and cash equivalents that should be reported on
December 31, 2023.

3. The December 31, 2023 trial balance of Kamikaze Company included the following
accounts:
Cash on hand 500,000
Petty cash fund 20,000
Security bank current account 1,000,000
PNB Current account No. 1 400,000
PNB Current account No. 2 (50,000)
BSP treasury bill – 60 days 3,000,000
BPI time deposit – 90 days 2,000,000
• The cash on hand included a customer postdated check of P100,000 and postal
money order of P40,000.
• The petty cash fund included unreplenished petty cash vouchers for P2,000 and an
employee check for P3,000 dated January 31, 2024.
• The BPI time deposit is set aside for acquisition of land.
Required:
a. Prepare adjusting entries on December 31, 2023.
b. Compute the total amount of cash and cash equivalents.

Intermediate Accounting 1 – Cash and Cash Equivalents Part 1

4. The cash account of Karma Company on December 31, 2023 included the following:
Cash on hand P 500,000
Petty cash fund 20,000
Cash in bank 2,000,000
2,520,000
• Cash on hand included the following:
o Customer check of P40,000 returned by bank December 26, 2023 due to
insuYicient fund but subsequently redeposited and cleared by bank January
5, 2024.
o Customer check for P60,000 dated January 15, 2024 received December 22,
2023.
o Postal money orders received from customers, P50,000

• The petty cash fund consisted of the following items:

Currency and coins 1,000
Employees’ vales 3,000
Currency in envelope marked
“collections for Christmas party” 2,000
Check drawn by Karma payable to petty cashier 14,000
20,000

• Check written and dated December 22, 2023 and delivered to payee on January 5,
2024, P100,000.
• Check written December 26, 2023 and dated January 31, 2024 delivered to payee on
December 26, 2023, P150,000.
Required:
a. Prepare adjusting entries on December 31, 2023.
b. Compute the total cash on December 31, 2023.

5. The December 31, 2023 trial balance of Callous Company included the following
accounts:
Cash on hand P 200,000
Petty cash hand 20,000
Philippine bank current account 5,000,000
Manila bank current account 4,000,000
City bank current account (100,000)
Asia bank saving account 250,000
Asia bank time deposit, 90 days 2,000,000
• Cash on hand included the following items:
o Customer’s check for P35,000 returned by bank December 26, 2023 due to
insuYicient fund but subsequently redeposited and cleared by the bank on
January 10, 2024.

Intermediate Accounting 1 – Cash and Cash Equivalents Part 1

 o Customer’s check for P15,000 dated January 10 ,2024, received December
23, 2023.
• The petty cash fund consisted of the following items on December 31, 2023:
Currency and coins 5,000
IOUs from oYicers 2,000
Unreplenished petty cash vouchers 12,000
• Included among the checks drawn by Callous Company against the Philippine Bank
current account and recorded in December 2023 are the following:
o Check written and dated December 23, 2023 and delivered to payee on
January 3, 2024, P25,000.
o Check written December 26, 2023, dated January 30, 2024, delivered to payee
on December 28, 2023, P45,000
• The credit balance in City bank current account represents checks drawn in excess
of the deposit balance which are still outstanding on December 31, 2023.
• The saving account deposit in Asia Bank has been set aside by the Board of Directors
for acquisition of new equipment. This amount is expected to be disbursed in the next
3 months from the end of the reporting period.
Required:
a. Cash on hand
b. Petty cash fund
c. Philippine bank current account
d. Cash and cash equivalents
e. Adjusting entries on December 31, 2023.

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Intermediate Accounting 1 – Cash and Cash Equivalents Part 1