Question

The controller of the Red Wing Corporation is in the process of preparing the company's 2016 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered: oints Book Balances in the company's accounts at the First National Bank; checking $13.500. "savings $22,100 b.Undeposited customer checks of $5,200. c. Currency and coins on hand of $580. d.Savings account at the East Bay Bank with a balance of $400,000. This account is being used to accumulate cash for future plant expansion (in 2018) e $20,000 in a checking account at the East Bay Bank. The balance in the account represents a 20% compensating balance for a $100,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2019, U.S. Treasury bills; 2-month maturity bills totaling $15,000, and 7 month bills totaling *$20,000. Required: 1 Determine the correct balance of cash and cash equivalents to be reported in the current asset section of the 2016 balance sheet. Cash and cash equivalents includes: Balance in checking on 18 Next > MacBook Pro W M

Answer 1

The amount to be reported in the financial statement is $56,380.

CASH AND CASH EQUIVALENTS
	First National Bank	East Bay Bank	Total
Balance in Checking Account	13500	0	13500
Undeposited customer checks			5200
Currency and Coins on Hand			580
Balance in Savings Account	22100	0	22100
US Treasury Bills			15000
Cash and Cash Equivalents			56380

(The presentation is tweaked for better understanding)

Notes to the working :

1. Balances available with First National Bank are unrestricted and shall form part of the cash and cash equivalents for the reporting purposes.

2. Undeposited Customer checks shall be part of cash and cash equivalents as they can be deposited and encashed as and when required.

3. Currency notes and coins are part of cash and cash equivalent financial statement line item.

4. The amount lying in East Bay Bank savings account shall be represented as a non-current asset in the financial statement as the same is earmarked for peculiar reason of expansion, further the same shall be used after the period of 1 year, the same should be reported as Non-current asset.

5.Amount lying in Checking account of  East Bay Bank is restricted in the nature of credit collateral, and hence cannot be used by the entity due to the restriction imposed by bank till the maturity of the loan, hence not to be part of Cash and Cash Equivalents.

6.Marketable securities which are due within the period of 90 days is classified as cash and cash equivalent. However, those of higher maturities shall be classified as 'Other Current Investments' in the financial statements. Therefore, 2-month maturity bills shall form part of cash and cash equivalents while those of 7-month maturity will not.