Exercise 7-1 The controller for Clint Metlock Co. is attempting to determine the

Question

Exercise 7-1 The controller for Clint Metlock Co. is attempting to determine the amount of cash to be reported on its December 31, 2017 balance sheet. The following information is provided. 1. Commercial savings account of $617,400 and a commercial checking account balance of $891,200 are held at First National Bank of Yojimbo. 2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Metlock to write checks on this balance, $5,217,600. 3. Travel advances of $197,300 for executive travel for the first quarter of next year (employee to reimburse through salary reduction) 4. A separate cash fund in the amount of $1,492,100 is restricted for the retirement of long-term debt. 5. Petty cash fund of $1,480. 6. An I.O.U. from Marianne Koch, a company customer, in the amount of $165,200 7. A bank overdraft of $112,900 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank. 8. The company has two certificates of deposit, each totaling $664,800. These CDs have a maturity of 120 days 9. Metlock has received a check that is dated January 12, 2018, in the amount of $135,070. 10. Metlock has agreed to maintain a cash balance of $490,000 at all times at First National Bank of Yojimbo to ensure future credit availability. 12. Currency and coin on hand amounted to $8,251 (a) Compute the amount of cash and cash equivalents to be reported on Metlock Co.'s balance sheet at December 31, 2017 The amount of Cash and Cash Equivalents reported on December 31, 2017 11. Metlock has purchased $1,962,300 of commercial paper of Sergio Leone Co. which is due in 60 days.

Explanation / Answer

Solution: The amount of cash and cash Equivalents reported on December 31, 2017      $8,698,231 Working Notes: The amount of cash and cash Equivalents included the following: Commercial savings account - First National Bank of Yojimbo $617,400 Commercial checking account - First National Bank of Yojimbo $891,200 Money market fund—Volonte $5,217,600 Petty cash $1,480 Commercial paper (cash equivalent) $1,962,300 Currency and coin on hand $8,251 Cash reported on December 31, 2017, balance sheet $8,698,231 Notes: cash and cash Equivalents is currency, coins, checks received but not yet deposited, checking accounts, petty cash, savings accounts, money market accounts, and short-term, highly liquid investments with a maturity of three months or less at the time of purchase such as U.S. treasury bills and commercial paper. The items included as cash and cash equivalents must also be unrestricted. these are not included in cash due to following reasons 3. Not include as it is expenses in advance, as it will be adjusted through salary reduction , next year 4. Restricted & long term debt , so it is beyond 3 month 6. IOU have no specific terms so, it can be received beyond three month 7. There is no deposit , so it is not included 8. it is of 120 days so, which is beyond 3 month . 9. it is dated January 12, 2018 which is beyond the reporting date 31st December, it would have included if dated before or of 31st December. 10. This is restricted Please feel free to ask if anything about above solution in comment section of the question.

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