Cash and Equivalents Flashcards
- The following information pertains to Grey Co. at December 31, 20X3:
Checkbook balance $12,000
Bank statement balance $16,000
Check drawn on Grey’s account, payable to a vendor,
dated and recorded 12/31/X3 but not mailed until 1/10/X4 $1,800
On Grey’s December 31, 20X3, balance sheet, what amount should be reported as cash?
a
$12,000
b
$13,800
c
$14,200
d
$16,000
Correct! In most cases the amount reported as cash will be the checkbook balance unless there are adjustments due to unrecorded transactions or errors that are revealed when preparing a bank reconciliation.
When a check is written during a period but not mailed until after the end of the period, it is considered not to have been written and is added back to the checkbook balance.
As a result, cash will be reported at the checkbook balance of $12,000 plus the check of $1,800 mailed after year-end for a total of $13,800.
Mint Co.’s cash balance in its balance sheet is $1,300,000, of which $300,000 is identified as a compensating balance. Additionally, Mint has classified cash of $250,000 that has been restricted for future expansion plans as “other assets.” Which of the following should Mint disclose in notes to its financial statements?
a
Both compensating balance and restricted cash.
b
Compensating balance, not restricted cash.
c
Restricted cash, not compensating balance.
d
Neither compensating balance nor restricted cash.
“Separate disclosure shall be made of the cash and cash items which are restricted as to withdrawal or usage.” T Restricted cash should be disclosed, as well as the compensating balances restricted deposit required by the bank..
- The following are held by Smite Co.
Cash in checking account $20,000
Cash in bond sinking fund account $30,000
Post-dated check from customer dated one month from balance sheet date $250
Petty cash $200
Commercial paper (matures in two months) $7,000
Certificate of deposit (matures in six months) $5,000
What amount should be reported as cash and cash equivalents on Smite’s balance sheet?
a
$57,200
b
$32,200
c
$27,450
d
$27,200
Cash and equivalent: Cash and Petty Cash, commercial paper maturing in 2 months.
Cash in bond sinking fund is investment
post dated check is receivable
CD maturing in 6 months is not current since it is greater than 3 months.
$27,200 ($20,000+$200+$7,000).
- Greenway has a variety of financial instruments some of which are bonds of publicly-held entities. It is Greenway’s business model to hold the bonds for the purpose of collecting the scheduled cash flows, which consist exclusively of principal and interest payments. Under IFRS, Greenway will account for these bonds:
a
At fair value
b
At fair value or at amortized cost, whichever the company prefers
c
At amortized cost
d
At amortized cost unless the fair value option is elected
Under IFRS, a financial instrument is accounted for at amortized cost if the entity’s business model is to hold the asset to collect its scheduled cash flows and if those cash flows consist exclusively of principal and interest payments. All others are reported at fair value, which may not be elected.
This instrument will be accounted for at amortized cost.
When preparing a draft of its 20X0 balance sheet, Mont, Inc. reported net assets totaling $875,000. Included in the asset section of the balance sheet were the following:
Treasury stock of Mont, Inc. at cost, which approximates market
value on December 31 $24,000
Idle machinery $11,200
Cash surrender value of life insurance on corporate executives $13,700
Allowance for decline in market value of securities available for sale $8,400
At what amount should Mont’s net assets be reported in the December 31, 20X0, balance sheet?
a
$851,000
b
$850,000
c
$842,600
d
$834,500
Although idle machinery would be reclassified out of property, plant, and equipment and into some other asset category, it is still properly reported as an asset. The cash surrender value of the life insurance policies is also properly reported as an asset. The allowance for decline in market value of noncurrent equity securities is a contra asset account, reducing the investment in securities available for sale and is also appropriately included in the calculation of net assets.
Treasury stock is reported as a reduction of stockholders’ equity and should be excluded from assets. As a result, net assets will be reduced by $24,000 for the treasury stock, resulting in a balance of $851,000.
- Mirr, Inc. was incorporated on January 1, 20X0, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, 20X1. No additional activities affected owners’ equity in 20X0. Mirr’s liabilities increased to $120,000 by December 31, 20X0. On Mirr’s December 31, 20X0, balance sheet, total assets should be reported at
a
$885,000
b
$882,000
c
$878,000
d
$875,000
Correct! With an initial equity of $750,000, income of $18,000 and dividends of $3,000, Mirr would have total stockholders’ equity of $765,000 at 12/31/X0. With liabilities of $120,000, assets will equal the total of liabilities and stockholders’ equity, or $885,000.
- Gar, Inc.’s trial balance reflected the following liability account balances at December 31, 20X0:
Accounts payable $19,000 Bonds payable, due 20X1 $34,000 Deferred income tax payable $4,000 Discount on bonds payable $2,000 Dividends payable on 2/15/X1 $5,000 Income tax payable $9,000 Notes payable, due 1/19/X2 $6,000
The deferred income tax payable is based on temporary differences in depreciation that will reverse in 20X2 and 20X3. In Gar’s December 31, 20X0, balance sheet, the current liabilities total was
Incorrect. Current liabilities will include the accounts payable of $19,000, the bonds that are due within one year, net of discount, of $32,000, dividends payable of $5,000, and income taxes payable of $9,000. Since the deferred taxes relate to depreciation, the deferred income taxes payable will be noncurrent. In addition, the note payable in 20X2 is not due within one year and is also noncurrent. Total current liabilities are $65,000.
- The following trial balance of Mint Corp. at December 31, 20X1, has been adjusted except for income tax expense.
TRIAL BALANCE
December 31, 20X1
Dr. Cr.
Cash $600,000
Accounts receivable, net $3,500,000
Cost in excess of billings on long-term contracts $1,600,000
Billings in excess of costs on long-term contracts $700,000
Prepaid taxes $450,000
Property, plant, and equipment, net $1,480,000
Note payable - noncurrent $1,620,000
Common stock $750,000
Additional paid-in capital $2,000,000
Retained earnings - Unappropriated $900,000
Retained earnings - restricted for note payable $160,000
Earnings from long-term contracts $6,680,000
Costs and expenses $5,180,000
$12,810,000 $12,810,000
Other financial data for the year ended December 31, 20X1, are:
Mint uses the percentage-of-completion method to account for long-term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within 12 months.
During 20X1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expenses. There were no temporary or permanent differences, and Mint’s tax rate is 30%.
In Mint’s December 31, 20X1, balance sheet, what amount should be reported as total retained earnings?
a
$1,950,000
b
$2,110,000
c
$2,400,000
d
$2,560,000
Incorrect. Net income consists of earnings from long-term contracts of $6,680,000 and costs and expenses of $5,180,000 giving a pretax amount of $1,500,000. At 30%, taxes will be $450,000 reducing net income to $1,050,000. This will be added to the beginning balance of unappropriated retained earnings of $900,000, to give ending unappropriated retained earnings of $1,950,000. Retained earnings that are restricted are still considered part of retained earnings. As a result, total retained earnings will be $1,950,000 + $160,000, or $2,110,000.
The following trial balance of Mint Corp. at December 31, 20X1, has been adjusted except for income tax expense.
TRIAL BALANCE
December 31, 20X1
Dr. Cr.
Cash $600,000
Accounts receivable, net $3,500,000
Cost in excess of billings on long-term contracts $1,600,000
Billings in excess of costs on long-term contracts $700,000
Prepaid taxes $450,000
Property, plant, and equipment, net $1,480,000
Note payable - noncurrent $1,620,000
Common stock $750,000
Additional paid-in capital $2,000,000
Retained earnings - Unappropriated $900,000
Retained earnings - restricted for note payable $160,000
Earnings from long-term contracts $6,680,000
Costs and expenses $5,180,000
$12,810,000 $12,810,000
Other financial data for the year ended December 31, 20X1, are:
Mint uses the percentage-of-completion method to account for long-term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within 12 months.
During 20X1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expenses. There were no temporary or permanent differences, and Mint’s tax rate is 30%.
In Mint’s December 31, 20X1, balance sheet, what amount should be reported as total noncurrent liabilities?
Noncurrent liabilities will include only the noncurrent note payable of $1,620,000. Billings in excess of costs on long-term contracts of $700,000, would be reported as a current liability.
- The following trial balance of Mint Corp. at December 31, 20X1, has been adjusted except for income tax expense.
TRIAL BALANCE
December 31, 20X1
Dr. Cr.
Cash $600,000
Accounts receivable, net $3,500,000
Cost in excess of billings on long-term contracts $1,600,000
Billings in excess of costs on long-term contracts $700,000
Prepaid taxes $450,000
Property, plant, and equipment, net $1,480,000
Note payable - noncurrent $1,620,000
Common stock $750,000
Additional paid-in capital $2,000,000
Retained earnings - Unappropriated $900,000
Retained earnings - restricted for note payable $160,000
Earnings from long-term contracts $6,680,000
Costs and expenses $5,180,000
$12,810,000 $12,810,000
Other financial data for the year ended December 31, 20X1, are:
Mint uses the percentage-of-completion method to account for long-term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within 12 months.
During 20X1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expenses. There were no temporary or permanent differences, and Mint’s tax rate is 30%.
In Mint’s December 31, 20X1, balance sheet, what amount should be reported as total current assets?
a
$5,000,000
b
$5,450,000
c
$5,700,000
d
With earnings from long-term contracts of $6,680,000 and costs and expenses of $5,180,000, Mint has income of $1,500,000. At a tax rate of 30%, income tax expense will be $450,000. As a result, the prepaid taxes will be reclassified as income tax expense.
Current assets would include the cash of $600,000, accounts receivable of $3,500,000, and cost in excess of billings on long-term contracts of $1,600,000 for a total of $5,700,000.
- Rice Co. was incorporated on January 1, 20X1, with $500,000 from the issuance of stock and borrowed funds of $75,000. During the first year of operations, net income was $25,000. On December 15, Rice paid a $2,000 cash dividend. No additional activities affected owners’ equity in 20X1. At December 31, 20X1, Rice’s liabilities had increased to $94,000. In Rice’s December 31, 20X1, balance sheet, total assets should be reported at
a
$598,000
b
$600,000
c
$617,000
d
$692,000
With an initial equity of $500,000, income of $25,000 and dividends of $2,000, Rice would have total stockholders’ equity of $523,000 at 12/31/X1. With liabilities of $94,000, assets will equal the total of liabilities and stockholders’ equity or $617,000.
- Buc Co. receives deposits from its customers to protect itself against nonpayments for future services. These deposits should be classified by Buc as
a
A liability.
b
Revenue.
c
A deferred credit deducted from accounts receivable.
d
A contra account
! Revenues are not recognized until they are earned. Since deposits are received before the company provides goods or services, they are not earned. They do not represent payments against amounts that are owed to the company, so they would not be reported as a reduction of accounts receivable. Deposits received from customers are a form of unearned revenues and are reported as liabilities until such time as the company performs the services or provides the goods. At that time, they are reclassified from liabilities to revenues.
- The following is Gold Corp.’s June 30, 20X2, trial balance
Dr. Cr. Cash overdraft $10,000 Accounts receivable, net $35,000 Inventory $58,000 Prepaid expenses $12,000 Land held for resale $100,000 Property, plant, and equipment, net $95,000 Accounts payable and accrued expenses $32,000 Common stock $25,000 Additional paid-in capital $150,000 Retained earnings $83,000 $300,000 $300,000
Additional information:
Checks amounting to $30,000 were written to vendors and recorded on June 29, 20X2, resulting in a cash overdraft of $10,000. The checks were mailed on July 9, 20X2.
Land held for resale was sold for cash on July 15, 20X2.
Gold issued its financial statements on July 31, 20X2.
In its June 30, 20X2, balance sheet, what amount should Gold report as current assets?
a
$225,000
b
$205,000
c
$195,000
d
$125,000
The checks written on 6/29 and mailed on 7/9 would be treated as if they had not yet been written. This would increase the cash balance from a deficit of $10,000 to a positive balance of $20,000. In addition, the land held for resale would be reported as a current asset since it was actually sold shortly after the balance sheet date and prior to the issuance of the financial statements. As a result, total current assets would consist of cash of $20,000, net accounts receivable of $35,000, inventory of $58,000, prepaid expenses of $12,000, and land held for resale of $100,000, for a total of $225,000.
- Mill Co.’s trial balance included the following account balances at December 31, 20X2:
Accounts payable $15,000 Bonds payable, due 20X3 $25,000 Discount on bonds payable, due 20X3 $3,000 Dividends payable 1/31/X3 $8,000 Notes payable, due 20X4 $20,000
What amount should be included in the current liability section of Mill’s December 31, 20X2, balance sheet?
a
$45,000
b
$51,000
c
$65,000
d
$78,000
Current liabilities include accounts payable of $15,000, the bonds payable due within one year, net of discount, in the net amount of $22,000, and dividends payable of $8,000. The note payable is noncurrent since it is not due until 20X4. Total current liabilities are $45,000.
- Brite Corp. had the following liabilities at December 31, 20X3:
Accounts payable $55,000
Unsecured notes, 8%, due 7/1/X4 $400,000
Accrued expenses $35,000
Contingent liability $450,000
Deferred income tax liability $25,000
Senior bonds, 7%, due 3/31/X4 $1,000,000
The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit filed against Brite. Brite’s legal counsel expects the suit to be settled in 20X5, and has estimated that Brite will be liable for damages in the range of $450,000 to $750,000.
The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in 20X5.
What amount should Brite report in its December 31, 20X3, balance sheet for current liabilities?
a
$515,000
b
$940,000
c
$1,490,000
d
$1,515,000
Current liabilities will include accounts payable of $55,000, the unsecured notes due within one year of $400,000, accrued expenses of $35,000 and the senior bonds, also due within one year, of $1,000,000. The contingent liability is noncurrent since it will not be settled until 20X5. Likewise, the deferred taxes are noncurrent since they are not expected to reverse until 20X5. Total current liabilities are $1,490,000.
