Question

The controller for Clint Eastwood Co. is attempting to determine the amount of cash to be reported on its December 31, 2017, balance sheet. The following information is provided.

1. Commercial savings account of \(600,000 and a commercial checking account balance of \)900,000 are held at First National Bank of Yojimbo.

2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to write checks on this balance, \(5,000,000.

3. Travel advances of \)180,000 for executive travel for the first quarter of next year (employee to reimburse through salary reduction).

4. A separate cash fund in the amount of \(1,500,000 is restricted for the retirement of long-term debt.

5. Petty cash fund of \)1,000.

6. An I.O.U. from Marianne Koch, a company customer, in the amount of \(190,000.

7. A bank overdraft of \)110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank.

8. The company has two certificates of deposit, each totaling \(500,000. These CDs have a maturity of 120 days.

9. Eastwood has received a check that is dated January 12, 2018, in the amount of \)125,000.

10. Eastwood has agreed to maintain a cash balance of \(500,000 at all times at First National Bank of Yojimbo to ensure future credit availability.

11. Eastwood has purchased \)2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.

12. Currency and coin on hand amounted to $7,700.

Instructions

(a) Compute the amount of cash to be reported on Eastwood Co.’s balance sheet at December 31, 2017.

(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2017, balance sheet.

Short answer

1. Cash balance reported in the balance sheet equals $8,608,700.

2. All other items are classified as per their nature and liquidity. While the compensating balance does not appear on the balance sheet.

Step-by-step solution

Definition of Restricted Cash

Restricted cash can be defined as the cash held by the business entity for some specific purpose and cannot be used for any other purpose.

Amount of cash to be reported on the balance sheet

Particular	Amount $
Commercial saving account	$600,000
Commercial checking account	900,000
Money market funds	5,000,000
Petty cash	1,000
Commercial paper	2,100,000
Currency and coins on hand	7,700
Cash Balance	$8,608,700

Reporting other items

Item	Reported as
Travel advances	Receivables – employee
Restricted cash	Non-current assets (Restricted cash for the retirement of bonds)
IOU from Marianne Koch	Receivables
Bank overdraft	Current liabilities
Certificate of Deposits	Temporary investment
Check	Accounts receivables

Note: Compensation balance must be disclosed in the notes to the financial statement.