In a recent financial statement, AMAX, Inc., a coal-mining company, reported the following: Assets (in thousands) Cash and cash equivalents (Note 9) $46,700 Note 9: AMAX had on deposit with commercial banks a total of $42 million of cash and equivalents that is restricted as to use. Of that amount, $15 million was held for the repurchase of common shares from an affiliated company. The remainder represents a time deposit that is restricted to repayment of a short-term loan. REQUIRED:

a. Why would a potential investor or creditor reading AMAX’s financial statements want to know about restrictions on cash?

b. Assume the January 3 repurchase of common shares will result in a long-term investment. Should the restricted cash be disclosed as current oi noncurrent? Why?

c. How might disclosure of such a restriction affect the calculation of working capital, the current ratio, and the quick ratio? 308 Part 3 Assets: A Closer Look

d. A time deposit is like a savings account that matures and becomes available on a particu¬ lar day. When the cash becomes available and the short-term loan is paid off, will work¬ ing capital be increased, decreased, or unaffected? Why?