Question

At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains...

At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank:

Checking account #101 $175,000
Checking account #201 (10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/Y2 50,000
180-day certificate of deposit, due 3/15/Y2 80,000


Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents?

a.

 $240,000

b.

 $190,000

c.

 $320,000

d.

 $200,000
Business   Accounting   
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Answer #1

Answer- The amount should Kale report as cash and cash equivalents on December 31, Year 1 balance sheet = $240000.

Explanation- Amount of cash and cash equivalents = Money market account+ 90-day certificate of deposit+ Checking account #101- Checking account #201

= $25000+$50000+($175000-$10000)

= $25000+$50000+$165000

= $240000

Where- Bank overdrafts (like account #201) are normally reported as a current liability. However, when available cash is present in another account in the same bank, as in this case, offsetting of both account is required. The 180-day certificate of deposit of $80000 is excluded cash and cash equivalents from because its original maturity was more than three months.

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