Cash in banks $2,250,000 Cash on hand 125,000 Cash legally restricted for additi

Question

Cash in banks

$2,250,000

Cash on hand

125,000

Cash legally restricted for additions to plant (expected to be disbursed in Year 2)

1,600,000

Burr Company had the following account balances at December 31, Year 1:

Cash in banks

$2,250,000

Cash on hand

125,000

Cash legally restricted for additions to plant (expected to be disbursed in Year 2)

1,600,000

Cash in banks includes $600,000 of compensating balances related to short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In the current assets section of Burr’s December 31, Year 1, balance sheet, total cash should be reported at A. $2,250,000 B. $3,975,000 C. $1,775,000 D. $2,375,000

Explanation / Answer

Cash restricted legally and compensating balance is to be reported seperately.In the current assets section of Burr’s December 31, Year 1, balance sheet, total cash will include cash in Banks and Cash on hand excluding compensating balance.

Total cash = 2250000 + 125000 - 600000 = 1775000

Answer is

C. $1,775,000

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