Question

At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account #101 $175,000 Checking account #201 (10,000) Money market account 25,000 90-day certificate of deposit, due 2/28/Y2 50,000 180-day certificate of deposit, due 3/15/Y2 80,000 Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents? a) $200,000 b) $190,000 c) $240,000 d) $320,000

Answer 1

Answer:

c) $240,000

Explanation:

The computation of the cash and cash equivalents are shown below:

= Checking account #101 - Checking account #201 + Money market account + 90-day certificate of deposit

= $175,000 - $10,000 + $25,000 + $50,000

= $240,000

Since the 180 days certificate of deposit has not come under the computation part as the maturity period of this period is more than the actual maturity given in the question i.e three months