At December 31, Year 1, Kale Co. had the following balances in the accounts it maintains at First State Bank

 At December 31, Year 1, 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 2/28/Y2    50,000
180-day certificate of deposit, due 3/15/Y2    80,000
Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, Year 1, balance sheet, what amount should Kale report as cash and cash equivalents?

$190,000
$200,000
$240,000 Correctly
$320,000
 You Answered Correctly!
The 12/31/Y1 cash and cash equivalents balance is $240,000, as computed below.

Checking account #101    $175,000
Checking account #201    (10,000)
Money market account    25,000
90-day CD    50,000
Total cash and cash equivalents    $ 240,000
Bank overdrafts (like account #201) are normally reported as a current liability. However, when available cash is present in another account in the same bank, as in this case, offsetting is required. The money market account of $25,000 and the 90-day CD of $50,000 are considered cash equivalents because they had original maturities of three months or less. The 180-day CD of $80,000 is excluded because its original maturity was more than three months.