PetroChina Company Limited PetroChina Company Limited (CHN) reported the following information in a recent annual report.

Instructions

(a) What items other than coin and currency may be included in “cash”?

(b) What items may be included in “cash equivalents”?

(c) What are compensating balance arrangements, and how should they be reported in financial statements?

(d) What are the possible differences between cash equivalents and short-term (temporary)
investments?

(e) Assume that PetroChina has an agreement to transfer receivables to various banks. If the sale agreement meets the criteria for sale accounting, cash proceeds were RMB345 million, the carrying value of the receivables sold was RMB360 million, and the fair value of the recourse obligation was RMB15 million, what was the effect on income from the sale of receivables?

(f) Briefly discuss the impact of the transaction in

(e) on PetroChina’s liquidity.

Case 2 Meriter Group Meriter Group is a sports manufacturer. To continue to be successful, Meriter must generate new products, which requires significant amounts of cash. The following current asset and current liability information is from a recent Meriter statement of financial position. Following the Meriter data is the current asset and current liability information for Monitor, another major sports manufacturer.

Part 1 (Cash and Cash Equivalents)
Instructions

(a) What is the definition of a cash equivalent? Give some examples of cash equivalents. How do cash equivalents differ from other types of short-term investments?

(b) Calculate (1) the current ratio and (2) working capital for each company for the current year and discuss your results.

(c) Is it possible to have too many liquid assets?

Part 2 (Accounts Receivable)
Meriter provided the following disclosure related to its accounts receivable.

.

Instructions

(a) Compute Meriter’s accounts receivable turnover for the current year and discuss your results.
Meriter had sales revenue of €10,799 million in the current year.

(b) Reconstruct the summary journal entries for the current year based on the information in the disclosure.

(c) Briefly discuss how the accounting for bad debts affects the analysis in Part 2 (a).

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PetroChina Company Limited Consolidated Balance Sheets (in RMB millions) Assets at December 31, Current assets Cash at bank and on hand Notes receivable Accounts receivable Advances to suppliers Other receivables Inventories Other current assets Total current assets Current Prior Year Year 49,953 64,299 9,981 12,688 64,450 53,822 32,813 39,296 14,165 8,576 214,117 182,253 32,561 24,486 418,040 385,420 Notes to Consolidated Financial Statements Cash and Cash Equivalents. Cash and cash equivalents refer to all cash on hand and deposit held at call with banks, short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Notes Receivable. Notes receivable represents mainly bills of acceptance issued by banks for the sale of goods and products. All notes receivable of the Group are due within one year.