Choice "B" is correct. Cash is defined as actual unrestricted cash and cash equivalents are defined as short-term, liquid investments that are so near maturity (original maturity date was within three months of the purchase date) that the risk of changes in the value because of interest rate changes is insignificant.
| |
|---|
| Cash in checking account | $ 20,000 |
| Petty cash | 200 |
| Commercial paper (2-month maturity) | 7,000 |
| Cash and cash equivalents | $ 27,200 |
Choice "c" is incorrect. Cash and cash equivalents would not include the $30,000 in the bond sinking fund. Cash in a bond sinking fund is restricted cash.
Choice "d" is incorrect. The certificate of deposit with six months to maturity is not included in cash and cash equivalents because it does not meet the definition of a cash equivalent (maturity date within 3 months of the purchase date).
Choice "a" is incorrect. The post-dated check should not be included in cash and cash equivalents because it is dated after the balance sheet date.
