The Correct Answer and Explanation is:
The correct amount that Logistics Company will include in its year-end balance sheet as cash and cash equivalents is $350,000.
Explanation
To determine the correct amount for cash and cash equivalents on the balance sheet, we must analyze each item based on standard accounting definitions. The category “cash and cash equivalents” includes assets that are highly liquid and readily available for use in the company’s current operations.
First, we analyze the checking account balance of $382,000. Cash includes funds in bank accounts that are not restricted. The problem states that $47,000 of this balance is restricted as a compensating balance for a long-term loan. Since this cash is not available for general use, it must be excluded from the cash and cash equivalents total. The unrestricted portion of the checking account is calculated as $382,000 minus the $47,000 restricted amount, which equals $335,000. This $335,000 is included in the final calculation. The restricted $47,000 would be reported separately on the balance sheet as a non-current asset because it is tied to a long-term liability.
Next, we evaluate the Treasury bills of $15,000. Cash equivalents are short-term, highly liquid investments that are readily convertible to a known amount of cash and have an original maturity of three months or less from the date of purchase. The Treasury bills were purchased on November 1, 2024, and mature on January 30, 2025. The period from purchase to maturity is three months, which meets the criteria for a cash equivalent. Therefore, the entire $15,000 is included.
The long-term loan payable of $210,000 is a liability, not an asset, and is not part of the cash and cash equivalents calculation. Its only relevance is determining the classification of the restricted cash.
The final calculation is the sum of the unrestricted cash and the cash equivalents:
Unrestricted Cash: $335,000
Treasury Bills (Cash Equivalent): $15,000
Total Cash and Cash Equivalents: $335,000 + $15,000 = $350,000.
