Question 1

Cash equivalents are short-term, highly liquid investments with original maturities of one year or less.

Accepted Answer

Cash equivalents are short-term, highly liquid investments with original maturities of three months or less, not one year.

Question 2

Which of the following would not be included when valuing cash and cash equivalents on the balance sheet?

Accepted Answer

An overdraft on a company's checking account is a liability, not an asset, and therefore would not be included in cash and cash equivalents on the balance sheet.

Question 3

A trade discount reduces the list price for customers purchasing a large quantity of merchandise.

Accepted Answer

False

Question 4

Which of the following would be classified as a cash equivalent?

Accepted Answer

Treasury bills with a maturity of three months or less when purchased are considered cash equivalents because they are highly liquid and easily convertible to known amounts of cash.

Question 5

Bordelain Company has cash in bank of $20,000, restricted cash in a separate account of $6,000, and a bank overdraft in an account at another bank of $5,000. Bordelain should report cash of ________.

Accepted Answer

Cash should be reported as $20,000, which is the cash in the bank. Restricted cash and bank overdrafts are reported separately.

Question 6

Which of the following is considered to be cash (not a cash equivalent)?

Accepted Answer

A money order is considered cash because it is a prepaid financial instrument that can be used as a form of payment, similar to cash.

Question 7

How do accounting standards for bank overdrafts differ under U.S. GAAP and IFRS?

Accepted Answer

The answer of How do accounting standards for bank overdrafts...

Question 8

According to U.S. GAAP, checks written in excess of the balance of a bank account are deducted from the cash account on the balance sheet.

Accepted Answer

The answer of According to U.S. GAAP, checks written in...

Question 9

What is a bank overdraft?

Accepted Answer

A bank overdraft occurs when a company writes a check or makes a withdrawal that exceeds the available balance in its bank account, resulting in a negative cash balance.

Question 10

A compensating cash balance held as support of a credit agreement is not classified as cash on the balance sheet.

Accepted Answer

A compensating cash balance is typically classified as a restricted cash or a non-current asset, not as cash, because it is not available for general use.

Question 11

Under U.S. GAAP, bank overdraft should generally be reported as ________.

Accepted Answer

Under U.S. GAAP, bank overdrafts are typically reported as an increase in current liabilities because they represent an obligation to repay the overdrawn amount.

Question 12

Accounting standards require separate disclosure for cash and cash equivalents that are restricted from use in operations.

Accepted Answer

Accounting standards require that restricted cash and cash equivalents be separately disclosed to provide clarity on the liquidity and availability of funds for operational use.

Question 13

Cash equivalents may include Treasury bills and certificates of deposit.

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are easily convertible to known amounts of cash and have original maturities of three months or less. Treasury bills and certificates of deposit meet these criteria.

Question 14

Sales discounts are reductions granted to customers to encourage quick invoice payment.

Accepted Answer

Sales discounts are incentives offered by sellers to buyers to encourage prompt payment of invoices, typically within a specified period.

Question 15

What is a compensating balance?

Accepted Answer

A compensating balance is a minimum cash balance that a borrower is required to maintain in a bank account as part of a credit agreement with a lender.

Question 16

Under what circumstances may cash in a bank account be classified as a noncurrent asset?

Accepted Answer

The answer of Under what circumstances may cash in a...

Question 17

What is a cash equivalent?

Accepted Answer

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less.

Question 18

What is the balance sheet classification of a bank account whose fund balance is restricted for retirement of bonds that mature in six years?

Accepted Answer

The bank account with funds restricted for the retirement of bonds maturing in six years is classified as a noncurrent asset because it is not expected to be used within the next year.

Question 19

Which of the following must be disclosed in the footnotes to the financial statements?

Accepted Answer

The answer of Which of the following must be disclosed...

Question 20

Grisson Enterprises provides the following information: $$\begin{array} { | l | r | } 
\hline \text { Currency and coin } & 500 \
\hline \text { First Bank - Checking } & 5,000 \
\hline \text { Second Bank - Checking } & ( 700 ) \
\hline \text { First Bank - Savings* } & 30,000 \
\hline \text { 2-month CD } & 13,000 \
\hline 5 \text { month CD } & 11,000 \
\hline
\end{array}$$ * Restricted fund for bond retirement
Following U.S. GAAP, what is the dollar amount of Cash and Cash Equivalents reported on Grisson's balance sheet?

Accepted Answer

Cash and cash equivalents include currency, checking accounts, and short-term investments with maturities of three months or less. The restricted savings account and CDs with maturities over three months are excluded. Thus, the total is $500 (currency) + $5,000 (First Bank - Checking) - $700 (Second Bank - Checking) + $13,000 (2-month CD) = $18,500.

Quiz 9: Short-Term Operating Assets: Cash and Receivables