Tallent Corporation had the following account balances at December 31, Year 1

 Tallent Corporation had the following account balances at December 31, Year 1:



Cash on hand and in banks    $975,000
Cash legally restricted for additions to plant (expected to be disbursed in Year 3)    600,000
Bank certificates of deposit (due February 1, Year 2, purchased September 1, Year 1)    250,000


In the current assets section of Tallent’s December 31, Year 1, balance sheet, what total amount should be reported under the caption "cash and cash equivalents"?
$1,225,000
$ 975,000 Correct
$1,575,000
$1,825,000
 You Answered Correctly!
This answer is correct. Cash on hand and in banks in included in "cash and cash equivalents" because it is both unrestricted and readily available. Cash legally restricted for plant additions should be shown in the long-term assets section as an investment. Bank certificates of deposit ($250,000 due on February 1, Year 2) are excluded since the original maturity date was greater than three months. To qualify as cash, ASC Topic 305 requires that funds be available upon demand without restriction or penalty. However, to qualify as a cash equivalent, ASC Topic 305 requires the original maturity date to be three months or less from the date of purchase. Therefore, certificates of deposit or any other instruments having a original maturity date greater than three months from the date of purchase are not considered cash equivalents. Hence, Tallent’s cash and cash equivalents total $975,000, the amount of its cash on hand and in banks.