Question

E7-1.   (Determining Cash Balance)

(LO 1) The controller for Clint Eastwood 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 $600,000 and a commercial checking account balance of $900,000 are held at First National Bank of Yojimbo.

2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to write checks on this balance, $5,000,000.

3. Travel advances of $180,000 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 $1,500,000 is restricted for the retirement of long-term debt.

5. Petty cash fund of $1,000.

6. An I.O.U. from Marianne Koch, a company customer, in the amount of $190,000.

7. A bank overdraft of $110,000 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 $500,000. These CDs have a maturity of 120 days.

9. Eastwood has received a check that is dated January 12, 2018, in the amount of $125,000.

10. Eastwood has agreed to maintain a cash balance of $500,000 at all times at First National Bank of Yojimbo to ensure future credit availability.

11. Eastwood has purchased $2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.

12. Currency and coin on hand amounted to $7,700.

Instructions

(a)  Compute the amount of cash to be reported on Eastwood Co.'s balance sheet at December 31, 2017.

(b)  Indicate the proper reporting for items that are not reported as cash on the December 31, 2017, balance sheet.

Answer 1

(a) Amount of cash to be reported

1. Commercial saving account 600000

Commercial checking account 900000

(Commercial checking account

Balances are type of demand

Deposits.. so considered as cash

Equivalent )

2. Money market mutual fund 5000000

(Cash equivalent )

3. Travel advances are shown as advance in balance sheet.. hence not considered

4. Restricted cash fund for redeeming long term debts can't be considered as cash or equivalent since its maturity period will be more than one year

5. Petty cash 1000

6. IOU not a cash equivalent since it's not readily available as cash

7. Bank overdraft 110000

8. Certificate of deposits having maturity period more than three months will not be considered as cash or equivalent

9. Checks are not considered

10. Restricted fund 500000

11.commercial papers 2100000

12. Currency and coins 7700

TOTAL 9218700

(B) explanation for item that can't be reported as cash or equivalent

1. Travel advances given will be considered in loans and advances on balance sheet

2. Cash fund held for redemption of a long term debt will have a maturity period of more than 3 months.. hence not considered

3. Checks will not considered as cash till the date of maturity as there is always a chance of default