The following is Gold Corp.

's June 30, 2004, trial balance:

Cash overdraft $ 10,000

Accounts receivable, net $ 35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Property, plant, and equipment, net. 95,000
Accounts payable and accrued expenses 32,000
Common stock 25,000
Additional paid-in capital 150,000
Retained earnings 83,000
_________ _________
$300,000 $300,000
======== ========

Additional information:

 Checks amounting to $30,000 were written to vendors and recorded on June 29,
2004, resulting in a cash overdraft of $10,000. The checks were mailed on July 9,
2004.
 Land held for resale was sold for cash on July 15, 2004.
 Gold issued its financial statements on July 31, 2004.

In its June 30, 2004, balance sheet, what amount should Gold report as current assets?

A. $225,000

Current assets are those assets expected to be consumed or realized in cash within
one year of the balance sheet date. There is no overdraft because the checks were not
sent as of the balance sheet date. Thus, the balance sheet should disclose $20,000 in
cash ($30,000 - $10,000).

The land held for resale is a current asset because it is expected to be sold in the next
year (and the corroboration of this expectation was known before the issuance of the
financial statements).

Cash $ 20,000
Net accounts receivable 35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Total current assets $225,000
B. $205,000

C. $195,000
 D. $125,000

This answer excludes the land held for resale. The land held for resale is a current
asset because it is expected to be sold in the next year (and the corroboration of this
expectation was known before the issuance of the financial statements).
Question #2 (AICPA.921113FAR-TH-FA)
On October 31, 2005, Dingo, Inc. had cash accounts at three different banks. One account
balance is segregated solely for a November 15, 2005, payment into a bond sinking fund. A
second account, used for branch operations, is overdrawn. The third account, used for
regular corporate operations, has a positive balance.

How should these accounts be reported in Dingo's October 31, 2005, classified balance
sheet?

A. The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset, and the overdraft should be reported as a current liability.
The accounts are with different banks. Thus, the accounts cannot be offset against one
another.

The overdraft is a liability because the bank honored a check or withdrawal causing
the account to be negative. The firm owes the bank this amount.

The regular corporate account is part of the cash account, a current asset. The
segregated account is a long-term investment. The cash in this asset is set aside for a
specific purpose. There is no intent to use the cash for ordinary operating purposes.
B. The segregated and regular accounts should be reported as current assets, and the overdraft
should be reported as a current liability.
C. The segregated account should be reported as a noncurrent asset, and the regular account
should be reported as a current asset net of the overdraft.
D. The segregated and regular accounts should be reported as current assets net of the
overdraft.
Question #3 (AICPA.051178FAR-FA)
The following are held by Smite Co.:
Cash in checking account $20,000
Cash in bond sinking fund account 30,000
Post-dated check from customer dated one month from balance sheet date 250
Petty cash 200
Commercial paper (matures in two months) 7,000
Certificate of deposit (matures in six months) 5,000

What amount should be reported as cash and cash equivalents on Smite's balance sheet?

A. $57,200

B. $32,200

The certificate of deposit is not a cash equivalent because it has a maturity exceeding
three months. A cash equivalent must have a maturity of three months or less to the
purchaser.
C. $27,450

D. $27,200
 The cash balance is $20,200: the sum of the checking account balance and the petty
cash. Because it has a maturity of less than three months, the only cash equivalent is
the $7,000 of commercial paper. The final sum of these two accounts is $27,200.
Question #4 (AICPA.940512FAR-FA)
The following information pertains to Grey Co. on December 31, 2003:
Checkbook balance $12,000

Bank statement balance 16,000

Check drawn on Grey's account, payable to a vendor, dated and recorded 12/31/03 but
1,800
not mailed until 1/10/04

On Grey's December 31, 2003 balance sheet, what amount should be reported as cash?

A. $12,000

B. $13,800

The correct cash balance is the balance per the checkbook ($12,000) plus the $1,800
check written to the vendor, for a total of $13,800.

This check reduced the balance in the checkbook but was not mailed. Thus, the
amount remains in Grey's cash balance at the end of the year. The bank statement
balance is not the correct balance because information about transactions affecting
cash near the end of the month, recorded by Grey, did not reach the bank by the cutoff
date.
C. $14,200

Incorrect on two counts. This answer deducts the $1,800 check from the bank
statement balance. The check should be added, not subtracted, to the checkbook
balance, not the bank statement balance. This check reduced the balance in the
checkbook but was not mailed. Thus, the amount remains in Grey's cash balance at
the end of the year. The bank statement balance is not the correct balance because
information about transactions affecting cash near the end of the month, recorded by
Grey, did not reach the bank by the cutoff date.
D. $16,000

Question #5 (AICPA.930510FAR-P1-FA)

Cook Co. had the following balances on December 31, 2004:

Cash in checking account $350,000

Cash in money market account 250,000

U.S. Treasury bill, purchased 12/1/04, maturing 2/28/05 800,000

U.S. Treasury bond, purchased 3/1/04, maturing 2/28/05 500,000

Cook's policy is to treat as cash equivalents all highly liquid investments with a maturity of
three months or less when purchased. What amount should Cook report as cash and cash
equivalents in its December 31, 2004, balance sheet?

A. $600,000
B. $1,150,000

C. $1,400,000

The first three items in the list are included in cash and cash equivalents. The total of
these items is $1,400,000 ($350,000 + $250,000 + $800,000).

Money market accounts are included in cash equivalents because they maintain a $1
per share value, and are readily convertible to cash (there is no maturity date). The
Treasury bill is a cash equivalent because it has an original maturity to the firm of
three months or less (12/1/04, maturing 2/28/05).

The Treasury bond matures within two months from the balance sheet date but did
not have an original maturity of less than three months. The original maturity is one
year, far in excess of the three month limit and thus the bond is not a cash equivalent.

The reason for the three month rule is to minimize price fluctuations due to interest
rate changes. A security with a fluctuating price is not "equivalent" to cash. One year
is too long a time to expect interest rates to remain stable.
D. $1,900,000

This answer includes the Treasury bond. The Treasury bond matures within two
months from the balance sheet date but did not have an original maturity of less than
three months. The original maturity is one year, far in excess of the three month limit
and thus the bond is not a cash equivalent.