Question

Kaniper Company has the following items at year-end:

Cash in bank $35,000
Petty cash 300
Short-term paper with maturity of 2 months 5,500
Postdated checks 1,400
Kaniper should report cash and cash equivalents of
a. $35,000.
b. $35,300.
c. $40,800.
d. $42,200.

Answer 1

Kaniper Company should report cash and cash equivalents of $40,800, which is the sum of its cash in bank, petty cash, and short-term paper with maturity of 2 months. Postdated checks are excluded as they are not immediately available funds.

Step-by-step explanation:

The items Kaniper Company has at year-end need to be categorized to accurately report cash and cash equivalents. Cash and cash equivalents generally include items that are readily convertible to a known amount of cash and have an original maturity of three months or less when purchased. Using this definition:

• Cash in bank ($35,000) is considered as cash.
• Petty cash ($300) is considered as cash.
• Short-term paper with a maturity of 2 months ($5,500) is considered as cash equivalents since they have a short maturity period and can be easily converted into cash.
• Postdated checks ($1,400), however, are not included since they cannot be cashed until the date specified on the checks.

Therefore, when we sum up the cash ($35,000 + $300) and cash equivalents ($5,500), Kaniper should report cash and cash equivalents of $40,800 (Option c). Postdated checks are not included because they are not immediately available funds.