Specter Co. combines cash and cash equivalents on the balance sheet. Using the following information, determine...

Specter Co. combines cash and cash equivalents on the balance sheet. Using the following information, determine the amount reported on the year-end balance sheet for cash and cash equivalents.

$7,000 cash deposit in checking account.
$28,000 bond investment due in 20 years.
$7,000 U.S. Treasury bill due in 1 month.
$400, 3-year loan to an employee.
$1,800 of currency and coins.
$700 of accounts receivable.


Checking account:
Bond investment:
U.S. Treasury bill:
Loan to an employee:
Currency and coins:
Accounts receivable:
Cash and cash equivalents:

Solutions

Expert Solution

Amount of Cash and Cash Equivalents to be reported on the year end date:

Particulars	Amount (in $)	Reason
Checking Account	7,000	Readily realizable
Bond Investment	Nil	The bond is due in 20 yrs, hence not readily realizable
U.S. Treasury Bill	7,000	Due in 1 month
Loan to an Employee	Nil	The loan is for a period of more than 3 months
Currency and Coins	1,800	They are cash itself
Accounts Receivable	Nil	Accounts receivable is not considered as readily realizable
Total Cash and Cash Equivalents	15,800

Definition of Cash and Cash Equivalents: Money or Monies worth that are readily convertible into cash. Usually, where an instrument is to be realized for a period of over 3 months, it's not considered as readily convertible. Hence:

1. Bond Investment, which matures in 20 years;

2. Loan to an employee, which will be realized in 3 years and

3. Accounts receivable (since it would be prudent to assume that the receivable would be for a period exceeding 3 months)

would not be considered as Cash and Cash Equivalents.

ekkarill92 answered 6 months ago

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