Assignment
Cash and Cash Equivalents
Intermediate Accounting, Part 1
Part 1. Alternate Response Type: True or false.
1. Money that is readily available for unrestricted use can be presented as part of cash.
2. Checks are always presented as part of cash.
3. Cash includes cash on hand and in bank.
4. Checks drawn and issued which are post-dated should decrease the cash account because these checks are
already delivered to payees.
5. Cash which is restricted and not available for use within one year of the reporting period should be included in
noncurrent assets.
6. Deposits held as compensating balances if legally restricted and held against short-term credit may be
included as cash.
7. Deposits held as compensating balances if legally restricted and held against long-term credit may be
included among current assets.
8. To qualify as cash equivalent, a short-term investment in debt securities must have a remaining term of at
most three months before its maturity date as of the date of acquiring the securities.
9. The bank reconciliation, as an internal control over cash receipts and disbursements, should be prepared on
a monthly basis and not only at the end of an annual period.
10. A entity acquires an investment in debt securities on November 30, 2018. The debt securities mature on
March 31, 2019. The debt securities qualify to be presented as part of current investments on the entity’s
2018 financial statements.
11. An entity has an outstanding investment in debt securities that would mature on January 31, 2019. The
investment was acquired on July 1, 2018. The debt securities qualify to be presented as part of cash
equivalents on the entity’s 2018 financial statements because the securities have remaining life of one month
as of the 2018 reporting period.
12. A compensating balance that is not legally restricted as to withdrawal can be included as part of cash and
cash equivalents.
13. A bank overdraft should always be offset from another bank account with a positive balance.
14. In most situations, the petty cash fund is reimbursed just prior to the year-end and an adjusting entry is made
to avoid the overstatement of cash and the understatement of expenses.
15. In replenishing a petty cash fund, debit individual expense accounts and credit petty cash fund.
Part 2: Problem Solving
Problem 1 KaraMia Company revealed the following information on December 31, 2018:
Cash on hand – undeposited collections P60,000
Cash in BPI checking account (includes P50,000 compensating balance against
short-term borrowing arrangement) 350,000
Cash in BDO Checking account (30,000)
Cash in BDO savings account 100,000
Cash in Robinson Bank’s Checking account 350,000
Cash in China Bank checking account (50,000)
Cash in BDO’s dollar savings account 100,000
Deposits in a foreign bank 500,000
Cash in money market account 750,000
180-day Treasury bill, purchased November 1, 2018 maturing January 31, 2019 3,500,000
180-day Treasury bill, due March 15, 2019 800,000
Time deposit purchased December 1, 2018 maturing March 31, 2019 4,000,000
Cash legally restricted for addition to plant expected to be disbursed in 2019 2,000,000
Postage stamps unused 5,000
Certificate of time deposit with maturity of 3 months 1,500,000
Commercial paper with maturity of 2 months 1,000,000
Postdated customers checks 200,000
Money order 50,000
Manager check 100,000
Traveler check 1,000,000
Cash in sinking fund set aside for payment of serial bonds ( An amount of P500,000
is due on June 30, 2019) 2,000,000
Investment in JFC share securities 1,000,000
Petty Cash Fund (includes unreplenished December 2018 petty cash expense
vouchers of P5,000 and employee IOU of P5,000) 50,000
Additional information:
1. A check drawn on KaraMia’s BPI Checking account, payable to supplier, P500,000, was dated and
recorded on December 31, 2017 but not mailed until January 31, 2019.
2. Check payable to KaraMia, deposited December 20, and included in the December 31 BDO checking
account balance, P50,000, but returned by bank on December 30, stamped “NSF”. The check was
redeposited January 2, 2019, and cleared January 3, 2019.
3. A check drawn and recorded against KaraMia’s Robinson Bank’s checking account of P50,000 remains
outstanding or uncleared as of December 31, 2018. The check is dated May 1, 2018.
4. The cash in BDO Savings account included a customer check of P10,000 outstanding for 18 months.
5. The investment in JFC shares are actively traded in the Philippine Stock Exchange.
Requirements:
1. Compute for the adjusted cash as of December 31, 2018.
2. Compute for the adjusted cash equivalents as of December 31, 2018.
3. Propose necessary adjusting entries on December 31, 2018.
Problem 2 The books of ABC Co. show the following balances at December 31, 2018:
Cash on hand P100,000
Money orders P10,000
Petty cash fund P20,000
Cash in China Bank’s peso savings deposit P2,000,000
Cash in Land Bank’s checking account P350,000
Cash in Bank of Philippine Island’s checking account (P20,000)
Cash in Metro Bank – dollar deposit (restricted until June 30, 2019) $100,000
Cash in BDO – dollar deposit (unrestricted) $20,000
Cash in money-market account P250,000
6-month Time Deposit P60,000
Treasury Bill, purchased October 1, 2018, maturing February 28, 2019 P800,000
Treasury Bond, purchased December 1, 2018 maturing February 28, 2019 P500,000
3-year Treasury Note, maturing on December 31, 2020. P200,000
Unused credit line P2,000,000
Redeemable preference shares, purchased November 1, 2018, due on February 1, 2019 P370,000
Treasury shares, purchased December 15, 2018, to be reissued on March 1, 2019 P50,000
Sinking Fund ( Its related liability is maturing on June 30, 2019) P200,000
Additional information:
• Cash on hand includes a P20,000 check payable to ABC Co. dated December 28, 2018.
• During December 2018, checks amounting to P60,000 and P40,000 were drawn and recorded against
the Cash in Land Bank’s checking account in payment of accounts payable. The P60,000 check is dated
January 15, 2019. The P40,000 check is dated and delivered on December 31, 2018.
• The Cash in China Bank- peso savings deposit includes a deposit in escrow in the amount of P340,000
and a compensating balance amounting to P250,000 which is legally restricted.
• The Cash in BDO includes interest of $400, net of tax, directly credited to ABC Co.’s account. The
exchange rate at year-end is $1 is to P52.35.
Requirements:
1. Compute for the total cash and cash equivalents to be reported in the 2018 financial statement.
2. Compute the total current assets to be reported in the 2018 financial statements.
3. Compute the total non-current assets to be reported in the 2018 financial statements.
4. Prepare the necessary adjusting entry/ies on December 31, 2018.
Problem 3 The accountant for Franz Inc. established a petty cash fund of P14,000. During Septembr, the fund
was depleted by the following disbursements:
Shipping expense P 7,400
Travel expense 2,400
Postage expense 2,300
Miscellaneous supplies 1,700
In addition to receipts for the above items, the petty cash box contained P80 in coins and an IOU of P80 from the
secretary handling the fund. The company uses a cash over and short and expense account, as needed. The
company decided to decrease the petty cash fund to 10,000.
Requirements:
1. Provide the entry to establish the petty cash fund.
2. Provide the entry to record disbursements as they occur (use a compound entry).
3. Provide the entry to replenish the petty cash fund.
4. Provide the entry to record the decrease in the petty cash fund.
Prepared by Sir Jerome and Sir Franz Macho