Exercise 6 -2: The following items were taken from the financial records of Melv
ID: 2447582 • Letter: E
Question
Exercise 6 -2:
The following items were taken from the financial records of Melvin Construction Company.
$2,000 in a checking account.
$8,000 invested in a treasury note due to mature in 90 days.
$3,000 in a savings account that cannot be withdrawn until a $10,000 outstanding debt is paid off.
$18,000 invested in securities that will be sold in two years to finance an expansion of the plant.
$2,500 invested in IBM common shares. Management intends to liquidate this investment in less than six months.
$15,000 held in escrow by a bank, serving as earnest money that binds management to a real estate contract.
A $3,000 money order received in payment from a customer.
Classify each item as either (a) unrestricted cash, (b) restricted cash, or (c) investment.
Explanation / Answer
Transactions Classification $2,000 in a checking account. Unrestricted cash available for any use $8,000 invested in a treasury note due to mature in 90 days. Short-term investment $3,000 in a savings account that cannot be withdrawn until a $10,000 outstanding debt is paid off. Restricted cash - available for any use only after reirement of debt $18,000 invested in securities that will be sold in two years to finance an expansion of the plant. Restricted cash - intended for a purpose. $2,500 invested in IBM common shares. Management intends to liquidate this investment in less than six months. Short-term investment $15,000 held in escrow by a bank, serving as earnest money that binds management to a real estate contract. Restricted cash - held by a third party. Funds available for usee only after obligation is fulfilled. A $3,000 money order received in payment from a customer. Unrestricted cash available for any use