Cash and Cash Equivalents

1. These are short-term and highly liquid investments that are readily convertible to cash and so
near their maturity that they present insignificant risk of changer in value because of changes in
interest rates.
A. Accounts Receivable
B. Cash Equivalents
C. Inventory
D. Cash
2. Which is true in treating bank overdrafts?
a. If maintained in different banks, can be netted against other account if it is part of cash
management
b. If maintained in same bank, cannot be netted against the account with positive amount but
can be offset against restricted account.
c. If maintained in different banks, cannot be netted against other account if it is part of cash
management
d. If maintained in different banks, current asset or may be netted against other bank if
material.
3. It is the minimum checking account balance that must be maintained in connection with a
borrowing agreement with a bank.
A. Compensating Balance
B. Maintaining Balance
C. Average Daily Balance
D. Coordinating Balance
4. Which of the following statements is true?
I. Stale checks are reverted to cash by a Debit to Cash
II. IOUs are part of cash and cash equivalents
III. Equity securities can be classified as cash equivalents
a. I only
b. I and II only
c. I, II and III
d. All are incorrect
5. Items that may qualify as cash equivalents include the following, except:
a. Time Deposit
b. Money Market instrument or commercial paper
c. Treasury Bills, treasury notes and treasury bonds
d. All may qualify
6. The cash account of Mr. Smith on December 31, 2018 has a balance of P191,000 and it consists
of the following:

Bills and coins on hand P 52,780

Traveler’s Check 22,500
Credit Memo from suppliers for purchase returns 6,000
Postage stamps 150
Petty cash including paid cash vouchers of P1,700 2,000
Balance in Savings Account with a bank closed by BSP 37,000
Customer’s check dated January 15, 2019 5,000
Money order 500
IOU of an employee 600
Checking account Balance in BPI 30,000
Total P 156,530

The correct cash and cash equivalents balance on December 31, 2018 is:
a. 106,080
b. 101,780
c. 150,530
d. 106,800

Use the information for questions 7 and 8:

Alfonso Company is need of P 3,375,000 to finance its building expansion program. Alfonso is
currently negotiating a loan with RCBC which requires the company to maintain a compensating
balance of 5% of the loan principal deposit in a current account at the bank. Alfonso Inc.
currently maintains balance P 50,000 in its current account. The current account earns interest
4% per annum; the interest rate on the loan is 12% per annum.

7. Based on the above data, what is the principal amount of the loan?
a. P 3,375,000
b. P 3,325,000
c. P 3,500,000
d. P 3,480,000
8. What is the effective interest rate on the loan?
a. 8%
b. 12.91%
c. 12.30%
d. 12%
 Use the information for questions 9-13

The following data were taken from the records of June Company:
Undeposited collections:
September 30 5,000.00
October 31 7,000.00
Outstanding checks:
September 30 ?
October 31 6,000.00
Bank service charge, September 30
September 30 2,500.00
October 31 1,500.00
Customer’s notes collected, September 30
September 30 8,000.00
October 31 13,000.00
NSF returned this month redeposited also this month (no
journal entry was made on the books both on the return and
when it was redeposited) 3,000.00
Balances: 100,000.00
September 30 bank balance 91,500.00
September 30 book balance 139,500.00
October 31 book balance
October Transactions:
Receipts: 196,000.00
Book (2,000 thereof was paid out in currency) 200,000.00
Bank
Disbursements: ?
Book 150,000.00
Bank 5,000.00

Based on the above data, compute for the adjusted balances of the following:

9. Outstanding checks, September 30

a. 2,000
b. 8,000
c. 6,000
d. 4,000
10. Cash in bank balance, September 30
a. 97,000
b. 105,000
c. 99,500
d. 94,000
11. Cash receipts on October 31
a. 147,000
 b. 142,000
c. 148,000
d. 209,000
12. Cash disbursements on October 31
a. 147,000
b. 142,000
c. 148,000
d. 152,000
13. Cash in bank balance, October 31
a. 151,000
b. 157,000
c. 156,000
d. 141,000