The controller of the Red Wing Corporation is in the process of preparing the co

Question

The controller of the Red Wing Corporation is in the process of preparing the company’s 2018 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered:

Balances in the company’s accounts at the First National Bank; checking $15,500, savings $24,100.

Undeposited customer checks of $7,200.

Currency and coins on hand of $780.

Savings account at the East Bay Bank with a balance of $600,000. This account is being used to accumulate cash for future plant expansion (in 2020).

$45,000 in a checking account at the East Bay Bank. The balance in the account represents a 15% compensating balance for a $300,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2021.

U.S. Treasury bills; 2-month maturity bills totaling $35,000, and 7-month bills totaling $40,000.

Required:

1. Determine the correct balance of cash and cash equivalents to be reported in the current asset section of the 2018 balance sheet.

Explanation / Answer

The correct balance of cash and cash equivalents to be reported in the current asset section of the 2018 balance sheet will be calculated as follows:

Notes:

Savings account at the East Bay Bank and 7-month bills will be reported as investments not cash and cash equivalents.

$45,000 in a checking account at the East Bay Bank representing a 15% compensating balance for a $300,000 loan with the bank will not be reported as cash and cash equivalents because it cannot be used until the loan is repaid.

First National Bank; checking account 15,500 First National Bank; savings account 24,100 Undeposited customer checks 7,200 Currency and coins on hand 780 U.S. Treasury bills; 2-month maturity bills 35,000 Correct balance of cash and cash equivalents to be reported 82,580

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