The following information is available for Montrose Company at December 31: Cash in bank account $ 8,540 Petty cash $ 250 Short-term investment $ 10,400 Checks from customers $ 1,350 Equipment $ 805 Treasury bill maturing in 60 days $ 10,000 Money orders $ 290 A three-year certificate of deposit maturing in three years $ 6,000 Based on this information, the amounts considered Cash and Cash Equivalents, respectively on December 31 are:

A. Cash $8,790; Cash equivalents $26,400B. Cash $19,190; Cash equivalents $16,000C. Cash $10,430; Cash equivalents $20,400D. Cash $11,235; Cash equivalents $26,400E. Cash $8,540; Cash equivalents $22,290

Cash $10,430 ; Cash equivalents $20,400

Explanation.

Cash consist of all currencies in hand or any convertible asset which can be converted to cash immediately.

It is to be noted that the assets with high liquidity will be included in cash and cash equivalent balance. They can quickly be converted to cash and would normally have 90 or lesser days to mature.

Solution.

$

Cash in bank. 8,540

Petty cash. 250

Check from customer. 1,350

Money order. 290

Cash. 10,430

The check has a very short maturity period since it will clear within 3-4 working days.

Money order can be cashed immediately .

Therefore;

Cash value is $10,430

For cash equivalent,

Cash equivalent = Money market fund balance + Treasury bills maturing in 60days

Cash equivalents = $10,400 + $10,000

=$20,400.

The amounts considered as cash and cash equivalents as of 31 December are ;

Cash $10,430 , $20,400 respectively.

a

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