[SGAuditninja]

Hi.

Shouldn’t the answer be 250K? The checking account has a negative balance. It should be classified as a liability. Please let me know your thoughts. thanks

On December 31, 20X1, 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 February 28, 20X2 50,000
180-day certificate of deposit
due March 15, 20X2 80,000
Kale classifies investments with original maturities of three months or less as cash equivalents. On the December 31, 20X1, balance sheet, what amount should Kale report as cash and cash equivalents?

A.
$190,000

B.
$200,000

Correct C.
$240,000

D.
$320,000

[Q]

My answer is $240,000.
Checking account should be recorded net amount and classified as one account.
Bank balance with negative balance should classified as liability and offsetting is prohibited.

Bank balance and checking account are different.

[JRM]

When the accounts are with the same bank you have to net the two checking accounts. If it was at a different bank, then you would report a liability.

AUD - 79
BEC - 81
FAR - 83
REG - 76

AUD- 79

BEC - 71, 81

FAR- 83

Reg- 70,71, 76

 

[Anonymous]

JRM had said the key point. If the question says he two checking accounts are in different banks, you cannot net them, and need to report one as liability.

[SGAuditninja]

Thanks all!

[Author]

Replies