Study Guides (390,000)
CA (150,000)
McMaster (9,000)
COMMERCE (1,000)
Min Hao (10)
Final

COMMERCE 3AB3 Lecture Notes - Lecture 6: Marianne Koch, Scotiabank, Petty CashExam


Department
Commerce
Course Code
COMMERCE 3AB3
Professor
Min Hao
Study Guide
Final

This preview shows pages 1-3. to view the full 39 pages of the document.
EXERCISE 7.1
a. Cash includes the following:
1.
Commercial savings account
First National Bank
$ 600,000
1.
Commercial chequing account
First National Bank
900,000
3.
Money market fundCommercial Bank of
Montreal
5,000,000
6.
Petty cash
3,000
8.
Cash floats (8 X $475 + 12 X $600)
11,000
12.
Currency and coin on hand
7,700
Cash reported on December 31, 2020,
statement of financial position
$6,521,700
b. Other items classified as follows:
1. The bank overdraft at the Royal Scotia Bank of $35,000 should be
reported as a current liability as there are is no available cash in
another account at Royal Scotia Bank available for offset.
2. The balance (at First National Bank of $100,000) requirement does
not affect the balance in cash. A note disclosure indicating the
arrangement and the amounts involved should be described in
the notes.
4. Travel advances should be reported as prepaid travel in the
amount of $18,000.
5. Cash restricted in the amount of $1,500,000 for the retirement of
long-term debt should be reported as a noncurrent asset
identified as “Cash restricted for retirement of long-term debt.”
7. An IOU from Marianne Koch should be reported as a receivable
from officer in the amount of $1,900.

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

EXERCISE 7.1 (CONTINUED)
9. Certificates of deposits of $500,000 each should be classified as
temporary investments (probably using the cost/amortized cost
model or the fair value through net income model). They cannot
be cash equivalents as the original maturities exceed 90 days.
10. The first postdated cheque of $25,000 should be reported as an
accounts receivable. The second postdated cheque of $11,500 is
for unearned revenue or customer deposits, and should not be
recognized until the cheque is deposited.
11. Commercial paper should be reported as temporary investments
(probably using the cost/amortized cost model or the fair value
through net income model) .
13. Investments in shares of Sortel should be classified with FV-NI
Investments at the fair value of $4,100.
c. The $100,000 balance in item 2 is called a compensating balance.
First National Bank would require Fashion to maintain a
compensating balance to support any existing or maturing
obligations and/or credit facilities that Fashion has with First
National Bank.
d. A potential lender to Fashion would be interested in Fashion’s
liquidity, solvency, and ability to service obligations. From the
perspective of a potential lender, it is important that Fashion
excludes the $1.5 million restricted cash from the amount of cash
reported, because the $1.5 million cannot be used by Fashion to
meet current obligations. Inclusion of the $1.5 million restricted
cash in the amount of cash reported would result in an
inaccurately reported liquidity position.
LO 2 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

EXERCISE 7.2
1. Cash balance of $625,000. Only the chequing account balance
should be reported as cash. The certificate of deposit of
$1,100,000 should be reported as a temporary investment, the
cash advance to subsidiary of $980,000 should be reported as a
receivable, and the utility deposit of $180 should be identified as
a receivable from the gas company.
2. Cash balance is $484,650 calculated as follows:
Chequing account balance
$500,000
Overdraft
(17,000)
Petty cash
300
Coin and currency
1,350
$484,650
Cash held in a bond sinking fund is restricted. Assuming the
bonds are noncurrent, the restricted cash is also reported as
noncurrent.
3. Cash balance is $549,800 calculated as follows:
$540,000
9,800
$549,800
The postdated cheque of $11,000 should be reported as a
receivable. Assuming the $100,000 cash restricted due to
compensating balance is not included in the chequing account
amount, it should be reported separately and classified as current
or noncurrent (depending on the nature of the arrangement). If the
$100,000 is included in the cash balance above and is correctly
classified as a current item, this restriction must be disclosed and
the nature of the restriction would be described in a note
indicating the type of arrangement and amount. Postage stamps
on hand are reported as part of supplies or prepaid expenses.
You're Reading a Preview

Unlock to view full version