Exercise 7-10 Exercise 7-10 A new accountant at Cullumber Ltée is trying to iden

Question

Exercise 7-10

Exercise 7-10

A new accountant at Cullumber Ltée is trying to identify which of the following amounts should be reported as cash and cash equivalents in the April 30 year-end statement of financial position: 1. Currency and coin totalling $127 in a locked box used for incidental cash transactions 2. A balance of $4,200 in the Royal Bank chequing account 3. A balance of $4,700 in the Royal Bank savings account 4. A $23,000 government treasury bill, due the next month, May 31 5. April-dated cheques worth $740 that Cullumber has received from customers but not yet deposited 6. A $170 cheque received from a customer in payment of its April account, but postdated to May 1 7. Over-the-counter receipts for April 30 consisting of $1,760 of currency and coin and $1,360 of cheques from customers, which were processed by the bank on May 1. 8. A $60 IOU from the company receptionist 9. Cash register floats of $480

Explanation / Answer

a. Cash Balance on 30th April 2017 = $127 + 4,200 + 4,700 + 23,000 + 740 + 1,760 + 480 = $35,007

b. The term cash and cash equivalents includes: 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.

1. Currency and coins are cash and cash equivalents as per the definition of Cash & Cash Equivalents

2. Balance in checking account is cash and cash equivalents as per the definition. Since they are readily available for use and are highly liquid.

3. Balance in savings account is cash and cash equivalents as given in the definition.

4. Treasury bills are short term instruments with maturity of less than 3 months and are therefore liquid investment. In the given case, bills are due next month only. It is to be treated as cash and cash equivalents.

5. Cheques received but not deposited in banks are cash and cash equivalents. Since they can be encashed anytime and are highly liquid.

6. Cheque received from the customer but is post dated is not to be treated as cash and cash equivalent as it cannot be treated as money until the date of check. Rather it will be considered as receivable in the books until deposited in bank.

7. Over the counter receipts in the form of currency and coins are cash and cash equivalents as defined in the statement but the cheques which have been deposited in bank but processed by bank on May 1 are not cash and cash equivalents as they have already been deposited in bank and will reflect in bank account head of company.

8. IOU is a signed document acknowledging a debt. It is not considered as cash and cash equivalent as it will be treated as receivable in the financial statements.

9. cash register floats is the amount placed in the cash register at the beginning of the period and is therefore, cash and cash equivalent.

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