9

CASH AND CASH EQUIVALENTS

Problem 9-1 (ACP)

Pygmalion Company had the following account balances on December 31, 2012:

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 2013 3,000,000
Time deposit, purchased December 15, 2012 and
Due March 15, 2013 2,000,000

The cash on hand includes a P200,000 check payable to Pygmalion, dated January 15, 2013.
What should be reported as “cash and cash equivalents” on December 31,2012?

a. 6,300,000
b. 8,300,000
c. 6,500,000
d. 8,700,000

Solution 9-1 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) 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 classified as cash equivalent because the term is three months. Under PAS 7,
treasury bills, money market placement and time deposit normally qualify as cash equivalents only
when they have a short maturity of three months or less from the date of acquisition.
The cash in bank restricted for building construction is classified as a noncurrent investment because it
is set aside for the acquisition of a noncurrent asset and not for the payment of a current liability.

Problem 9-2 (AICPA Adapted)

The following data pertain to Thor Company on December 31, 2009:

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, 2012, but
not mailed until January 15,2013 500,000
Cash in sinking fund 2,000,000

On December 31, 2009, 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 9-2 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 cash in sinking is noncurrent investment because it is set aside for the payment of noncurrent
liability.

Problem 9-3 (IAA)

Everlast Company reported the following information as of the end of the current year.

 Investment securities of P1,000,000. These securities are share investments in entities that are
traded in the Philippine Stock Exchange. As a result, the shares are very actively traded in the
market.
 Investment securities of P2,000,000. These securities are government treasury bills. The treasury
bills have 10-year term and purchased on December 31 at which time they had two months to go
until they mature.
 Cash of P3, 400,000 in the form of coin, currency, saving account and checking account.
 Investment securities of P1,500,000. These securities are commercial papers. The term of the
papers is nine months and they were purchased on December 31 at which time they had three
months to go until they mature.

What amount should be reported as cash and cash equivalents at the end of the current year?

a. 5,400,000
b. 6,400,000
c. 6,900,000
d. 7,900,000

Solution 9-3 Answer c

Government treasury bills 2,000,000

Cash 3,400,000
Commercial papers 1,500,000
Total cash and cash equivalents 6,900,000

The share investments cannot qualify as cash equivalents because although they are very actively
traded they do not have a maturity.
The commercial papers are actually money market placements. Since the remaining term is three
months from the date of acquisition, the commercial papers are considered cash equivalents.

Problem 9-4 (ACP)

On December 31, 2012, the cash account of Roel Company showed the following details:

Undeposited collections 60,000

Cash in Bank – PCIB checking account 500,000
Cash in Bank – PNB (overdraft) (50,000)
Undeposited check received from customer, Dated December 1, 2012 15,000
Undeposited check from customer dated January 15, 2012 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 instrument, 90days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed shares held as trading investment 120,000
On December 31, 2012, what total amount should be reported as “cash and cash equivalents”?

a. 2,660,000
b. 2,810,000
c. 2,770,000
d. 810,000

Solution 9-4 Answer b

Undeposited collections 60,000
PCIB checking account 500,000
PCIB payroll fund 150,000
PCIB saving deposit 100,000
PCIB money market 2,000,000
Total cash and cash equivalents 2,810,000

Problem 9-5 (AICPA Adapted)

Burr Company had the following account balances at December 31, 2012:

Cash in bank 2,250,000

Cash on hand 125,000
Cash restricted for addition to plant
(expected to be disbursed in 2013) 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement.
The compensating balance is not legally restricted as to withdrawal by Burr.

In the current December 31, 2012 statement of financial position, what total cash should be reported
under current assets?

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

Solution 9-5 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 borrowing arrangement with a bank.

The compensating balance is part of cash if it’s not legally restricted as to withdrawal.

Otherwise, if it’s 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.

Problem 9-6 (AICPA Adapted)

On December 31, 2009, West Company had he following cash balances:

Cash in bank 1,800,000

Pretty cash fund (all funds were reimbursed on 12/31/2012) 50,000
Time deposit (due February 1, 2013) 250,000

Cash in bank includes P600,000 of compensating balance against short-term borrowing arrangement at
December 31, 2012. The compensating balance is legally restricted as to withdrawal by West.
In the December 31, 2012 statement of financial position, what total amount should be reported as cash
and cash equivalents?
a. 1,850,000
b. 1,250,000
c. 2,100,000
d. 1,500,000

Solution 9-6 Answer d

Cash in bank (1,800,000-600,000) 1,200,000

Pretty 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 term of the time deposit is not given. It is assumed that it is three months or less, this being the
normal banking practice. Accordingly, the time deposit is a cash equivalent.
Problem 9-7 (AICPA Adapted)

Campbell Company had the following account balances on December 31, 2012.

Petty cash fund 50,000

Cash in bank – current account 4,000,000
Cash in bank – sinking fund 2,000,000
Cash on Hand 500,000
Cash in Bank- restricted account for plant addition,
Expected to be disbursed in 2013 1,500,000
Treasury bills 1,000,000

The pretty cash fund includes unreplenished December 2012 petty cash expense vouchers of P10,000
and employee IOU of P5, 000. The cash on hand includes a P100,000 check payable to Campbell dated
January 15, 2013. In exchange for a guaranteed line of credit, Campbell has agreed to maintain a
minimum balance of P200,000 in its unrestricted current bank account. The sinking fund is set aside to
settle a bond payable that is due on June 30, 2013.

What total amount should be reported as “cash and cash equivalents” on December 31, 2012?

a. 7,435,000
b. 5,435,000
c. 4,435,000
d. 5,535,000

Solution 9-7 Answer a

Petty cash fund (50,000 – 15,000) 35,000

Current account 4,000,000
Sinking fund 2,000,000
Cash on hand (500,000 – 100,000) 400,000
Treasury bills 1,000,000
Total cash and cash equivalents 7, 435, 000

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 cash fund should parallel the classification of the related liability.
Problem 9-8 (PHILCPA Adapted)

The cash account in ABC Company’s ledger showed a balance at December 31, 2012 of P4,415,000
which consisted of the following:
Petty cash fund 24,000
Undeposited receipts, including a postdated customer
Check for P70,000 1,220,000
Cash in Allied Bank, per bank statement, with
A check for 40,000 still outstanding 2,245,000
Bond sinking fund 850,000
Vouchers paid out of collections, not yet recorded 43,000
IOUs signed by employees, taken from collections 33,000
4,415,000

What amount should be reported as cash in the December 31, 2012 statement of financial position?

a. 3,379,000
b. 3,419,000
c. 3,489,000
d. 3,449,000

Solution 9-8 Answer a

Petty cash fund 24,000

Undeposited receipts (1,220,000 – 70,000) 1,150,000
Cash in Allied bank (2,245,000 – 40,000) 2,205,000
3,379,000

The postdated customer check of P70,000 should be reverted to accounts receivable.

The outstanding check of P40,000 is deducted from the Cash in Allied Bank because the cash balance
given is per bank statement.
The bond sinking fund is shown as a noncurrent investment.
The vouchers paid should be recorded as expenses.
The IOUs should be shown as advances to employees.

Problem 9-9 (PHILCPA Adapted)

The cash account in the current assets of the statement of financial position of Tawiran Company
consisted of the following:
Bond sinking fund cash 1,500,000
Checking account in FEBTC (A P320,000 check is
still outstanding per bank statement) 3,155,000
Currency and coins awaiting deposit 1,135,000
Deposit in a bank closed by BSP 500,000
Petty cash fund (of which P10,000 in is the form
Of paid vouchers) 50,000
Receivables from officers and employees 175,000
6,515,000
The correct cash balance should be

a. 4,440,000
b. 4,330,000
c. 4,830,000
d. 5,830,000

Solution 9-9 Answer b

FEBTC 3,155,000
Currency and coins 1,135,000
Petty cash fund (50,000 – 10,000) 40,000
4,330,000

The outstanding check of P320,000 is not deducted from the FEBTC checking account because the FEBTC
account is believed to be the balance per book.

The term “bank statement” appearing on the problem simply signifies that the outstanding check was
determined from the bank statement. It does not mean that the checking account in FEBTC is the
balance per bank statement.

The deposit in bank closed by BSP is shown as noncurrent asset.

Problem 9-10 (PHILCPA Adapted)

Islander Company provided the following information with respect to its cash and cash equivalents on
December 31, 2012.

Checking account at First Bank (200,000)

Checking account at Second Bank 3,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account – restricted (in equivalent pesos) 2,000,000
Postage stamps 50,000
Employee’s postdated check 300,000
IOU from president’s brother 750,000
Credit memo from a vendor for a purchase return 80,000
Traveler’s check 300,000
Not-sufficient-fund check 150,000
Petty cash fund (P20, 000 in currency and expense
Receipts for P30, 000) 50,000
Money order 180,000

What is the amount should be reported as unrestricted cash on December 31, 2012?
a. 5,900,000
b. 4,600,000
c. 4,900,000
d. 6,900,000

Solution 9-10 Answer c

Checking account at Second Bank 3,500,000

Payroll account 500,000
Value added tax account 400,000
Traveler’s check 300,000
Petty cash fund 20,000
Money order 180,000
Total unrestricted cash 4,900,000

Problem 9-11 (AICPA Adapted)

Ral Company’s checkbook balance on December 31, 2012 was P5,000,000. In addition, Ral held the
following items in its safe on that date:

Check payable to Ral, dated January 2,2013 in

payment of a sale made in December 2012, not
included in December 31 checkbook balance 2,000,000
Check payable to 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, 2013 and cleared on January 9, 2013 500,000
Check drawn on Ral’s account, payable to a vendor, dated
and recorded in Ral’s books on December 31, 2012
but not mailed until January 10, 2013 300,000
What amount to be reported as “cash” on December 31, 2012?
a. 4,800,000
b. 5,300,000
c. 6,500,000
d. 6,800,000

Solution 9-11 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, 2013.
The NSF customer check of P500, 000 should be reverted to accounts receivable on December 31, 2012
because it was redeposited after December 31, 2012.
The check of P300,000 drawn by Ra los undelivered on December 31,2012. Thus, the undelivered check
is restored to cash by debiting cash and crediting accounts payable.

Problem 9-12 (ACP)

The checkbook balance of Dove Company on December 31, 2012 was P4,000,000. Data about certain
cash items follow:
 A customer check amounting to P200,000 dated January 2, 2013 was included in the December
31,2012 checkbook balance.
 Another customer check for P500,000 deposited on December 22, 2012 was included in its
checkbook balance but returned by the bank for insufficiency of fund. This check was redeposited
on December 26, 2012 and cleared two days later.
 A P400, 000 check payable to supplier dated and recorded on December 30, 2012 was mailed on
January 16, 2013.
 A petty cash fund of P50,000 with the following summary on December 31, 2012:
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 31,2012 payable to Petty Cash.
What is the amount to be reported as “cash” on December 31, 2012?
a. 4,248,000
b. 4,200,000
c. 4,205,000
d. 3,748,000

Solution 9-12 Answer a

Checkbook balance 4,000,000

Postdated customer check (200,000)
Undelivered check payable to supplier 400,000
Adjusted cash in bank 4,200,000
Petty cash:
Coins and currencies 5,000
Replenishment check 43,000 48,000

Total 4,248,000

The return value of the soft drink bottles is shown as refundable deposit as a current asset. The NSF
check is redeposited and cleared before December 31, 2012. Thus, the same is not deducted anymore
from the checkbook balance.

Problem 9-13 (PHILCPA Adapted)

Account of the petty cash fund of Timex Company showed its composition as follows:

Coins and currency 3,300

Paid vouchers:
Transportation 600
Gasoline 400
Office Supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Managers check returned by bank marked “NSF” 1,000
Check drawn by the entity to the order
of petty cash custodian 2,700

What is the correct amount of the petty cash fund for statement presentation purposes?

a. 10,000
b. 7,000
c. 6,000
d. 9,000
Solution 9-13 Answer c

Coins and currency 3,300

Check drawn by the entity to the order
Of the petty cash custodian 2,700
6,000

The check drawn by the entity to the order of the petty cash custodian is actually a replenishment check
and therefore part of cash.

Problem 9-14 (PHILCPA Adapted)

The petty cash fund of Liwanag Company on December 31, 2012, is composed of the following:

Currencies 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’s check returned by the bank
for in sufficiency 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

The petty cash general ledger account has an imprest balance of P50, 000. What is the amount of petty
cash fund that should be reported in the statement of financial position on December 31, 2012?

a. 42,000
b. 27,000
c. 37,000
d. 22,000
Solution 9-14 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 representing her salary is actually an
accommodation check. Thus, it is included as part of cash.

Problem 9-15 (ACP)

The December 31, 2012 trial balance of Yasmin Company included the following accounts:

Petty cash fund 50,000

Current account – First Bank 4,000,000
Current account – Second Bank (overdraft) (250,000)
Money market placement – Third bank 1,000,000
Time deposit - Fourth Bank 2,000,000

 The petty cash fund includes unreplenished December 2012 petty cash expense vouchers for
P15,000 and an employee check for P5,000 dated January 31, 2013.
 A check for P100,000 was drawn against First Bank current account dated and recorded December
29, 2012 but delivered to payee on January 15, 2013.
 The Fourth Bank time deposit is set aside for land acquisition in early January 2013.
What total amount should be reported as “cash and cash equivalents” on December 31, 2012?
a. 5,130,000
b. 5,150,000
c. 4,130,000
d. 4,880,000

Solution 9-15 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 1,000,000
Total cash and cash equivalents 5,130,000

In the absence of specific term, money market placement, time deposit and treasury bills are short-term
investment of three months or less and therefore qualify as cash equivalents.
Problem 9-16 (IAA)

On December 31, 2012, Erika Company’s “cash account” balance per ledger of P3,600,000 included the
following:

Demand deposit 1,500,000

Time deposit – 30 days 500,000
NSF check of customer 20,000
Monet market placement due on June 30, 2013 1,000,000
Saving deposit 50,000
IOU from an employee 30,000
Pension fund 400,000
Petty cash fund 10,000
Customer check outstanding for 18 months 30,000
3,600,000

 Check of P100,000 in payment of accounts payable was dated and recorded on December 31, 2012
but mailed to creditors on January 15, 2013.
 Check of P50,000 dated January 31, 2013 in payment of accounts payable was recorded and mailed
December 31, 2012.
 The entity uses the calendar year. The cash receipts journal was held open until January 15, 2013,
during which time P200,000 was collected and recorded on December 31, 2012.

What amount should be reported as “cash and cash equivalents” on December 31, 2012?

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

Solution 9-16 Answer a

Demand deposit (see computation below) 1,450,000

Time deposit – 30 days 500,000
Saving deposit 50,000
Petty cash fund 10,000
Total cash and cash equivalents 2,010,000

Demand deposit per book 1,500,000

Undelivered check 100,000
Postdated check delivered 50,000
Window dressing of collection (200,000)
Adjusted balance 1,450,000

Problem 9-17 (PHILCPA Adapted)

The December 31, 2012 trial balance o Karla 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 – 30 days 2,000,000

 The cash on hand includes a customer postdated check of P100,000 and postal money order of
P40,000.
 The petty cash fund includes unreplenished petty cash vouchers for P2,000 and an employee check
for P3,000 dated January 31, 2013.
 A check for P200,000 was drawn against Security Bank account, dated January 15, 2013, delivered to
the payee and recorded December 31, 2012.
 The BPI time deposit is set aside for acquisition of land to be used as a factory site.

What total amount of cash and cash equivalents should be reported in the statement of financial
position on December 31, 2012?

a. 4,965,000
b. 6,965,000
c. 4,765,000
d. 1,965,000

Solution 9-17 Answer a

Cash on hand (500,000 - 100,000) 400,000

Petty cash fund (20,000 - 2,000 - 3,000) 15,000
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 4,965,000
Problem 9-18 (PHILCPA Adapted)

The December 31, 2012 trial balance of Celine Company includes the following accounts:

Cash on hand 200,000

Petty cash fund 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 includes the following items:

Customer’s check for P35,000 returned by bank December 26, 2012 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 10, 2013.
Customer’s check for P15,000 dated January 10, 2013, received December 23, 2012.
 The petty cash fund consisted of the following items as of December 31, 2012.
Currency and coins 5,000
IOUs from an officer 2,000
Unreplenished petty cash vouchers 12,000
19,000

 Included among the checks drawn by Celine against the Philippine Bank current account and
recorded in December 2012 are the following:

Check written and dated December 23, 2012 and delivered to payee on January 3, 2013, P25,000.

Check written December 26, 2012, dated January 30, 2013, delivered to payee on December 28,
2012, P45,000.

 The credit balance in City Bank current account represents checks drawn in excess of the deposit
balance which are still outstanding at December 31, 2012.

 The saving account in Asia Bank has been set aside by the board of directors for the acquisition of
equipment. This amount is expected to be disbursed in the next 3 months from the end of the
reporting period.

What total amount should be reported as cash and cash equivalents on December 31, 2012?

a. 11,125,000
b. 11,225,000
 c. 11,155,000
d. 11,205,000

Solution 9-18 Answer b

Cash on hand (200,000-35,000-15,000) 150,000
Petty cash fund 5,000
Philippine Bank current (5,000,000+25,000+45,000) 5,070,000
Manila Bank current 4,000,000
Asia Bank time deposit 2,000,000
Total cash and cash equivalents 11,225,000