ACCT 1A&B: Fundamentals of Accounting

BCSV

Fundamentals of Accounting Part I

Cash and Cash Equivalents

I. THEORIES.
A. Multiple Choices. Choose the letter of the best answer.

1. Which of the following shall not be considered cash for financial reporting purposes?
A. Petty cash fund and change funds
B. Money orders, certified checks and personal checks
C. Coins, currencies and available funds
D. IOUs

2. To be reported as cash and cash equivalents, the cash item must be

A. Unrestricted in use for current operations
B. Available for the purchase of property, plant and equipment
C. Set aside for the liquidation of long-term debt
D. Deposited in bank

3. A cash equivalent is a short-term, highly liquid investment that is readily convertible

into known amount of cash and
A. Is acceptable as a means to pay current liabilities
B. Has a current market value that is greater than its original cost.
C. Bears an interest rate that is at least equal to the prime rate of interest at the
date of liquidation.
D. Is so near its maturity that it presents insignificant risk of change in interest rate.

4. Which of the following statements is incorrect concerning measurement of cash and

cash equivalents?
A. Cash is measured at face value
B. Cash in foreign currency is measured at current exchange rate
C. If a bank or financial institution holding the funds of the entity is in bankruptcy or
financial difficulty, cash shall be written down to estimated realizable value.
D. Cash equivalents shall be measured at maturity value.

5. If material, deposits in foreign bank which are subject to foreign exchange restriction
shall be classified
A. Separately as current asset, with appropriate disclosure.
B. Separately as noncurrent asset with appropriate disclosure.
C. Be written off as an extraordinary loss
D. As part of cash and cash equivalents.

6. A compensating balance
A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long term loan is classified as current
asset.
C. Which is legally restricted and related to a short-term loan is classified separately
as current asset
D. Which is not legally restricted as to withdrawal is classified separately as current
asset.

7. Under which classification is cash restricted for plant expansion reported?

A. Current assets
B. Noncurrent assets
C. Current liabilities
D. Equity

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8. The internal control feature that is specific to petty cash is

A. Separation of duties
B. Assignment of responsibility
C. Proper authorization
D. Imprest system

9. A cash over and short account

A. Is not generally accepted
B. Is debited when the petty cash fund proves out over
C. Is debited when the petty cash fund proves out short
D. Is a contra account to cash

10. In which account are customers’ postdated checks received classified?

A. Accounts receivable
B. Prepaid expenses
C. Cash
D. Accounts payable

11. Which is not considered as a cash equivalent?

A. A 3-year treasury note maturing on May 30 of the current year purchased by the
entity on April 15 of the current year
B. A 3-year treasury note maturing on May 30 of the current year purchased by the
entity on Jan. 15 of the current year.
C. A 90-day treasury bill
D. A 60-day money market placement

12. At the end of the current year, an entity had various checks and papers in its safe.
Which item should not be included in its cash account in the current year-end
statement of financial position?
A. US $ 15,500 cash
B. Past due promissory note issued in favor of the entity by its president
C. Another entity’s P 160,000 check payable to the entity dated Dec. 15 of the
current year
D. The entity’s undelivered check payable to a supplier dated Dec. 31 of the current
year.

13. A bank reconciliation is

A. A formal financial statement that lists all of the bank account balances of an
entity.
B. A merger of two banks that previously were competitors.
C. A statement sent by the bank to depositor on a monthly basis.
D. A schedule that accounts for the differences between an entity’s cash balance as
shown in its general ledger

14. Which of the following must be deducted from the bank statement balance in
preparing a bank reconciliation which ends with adjusted cash balance?
A. Deposits in transit
B. Outstanding checks
C. Reduction of loan charged to the account of the depositor
D. Certified check

15. When preparing a bank reconciliation, bank credits are

A. Added to the bank statement balance
B. Deducted from the bank statement balance

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C. Added to the balance per book

D. Deducted from the balance per book

16. Which of the following statements is true regarding bank overdraft?

a. Is reported as a current liability even though there is another account in the
same bank that reports a positive balance and that the right of offset exists
b. Is netted against another account in the same bank with positive balance (the
right of offset exists) and the net positive balance is reported as cash
c. Is netted against another cash in bank account in another bank and the net
positive balance is reported as part of cash
d. All of the foregoing statements are true

17. Which of the following is cash for financial reporting purposes?

a. Customer’s post-dated checks received on or before reporting date
b. Company’s post-dated checks issued on or before reporting date and recorded
as disbursements at year-end
c. Company’s undelivered checks at year-end but not recorded as disbursements
at year-end
d. Customers’ no sufficient fund checks

18. Unadjusted book balance of cash is less than the correct cash balance of cash due to
the following except
a. Proceeds of note collected by the bank
b. A customer’s check for P540 was recorded by the depositor in the cash
receipts book as P450
c. A check issued to a supplier on account for P760 was recorded in the cash
disbursements book as P670
d. Interest earned

19. Unadjusted bank balance of cash is more than the correct cash balance of cash due
to the following except?
a. Deposit in transit
b. Outstanding checks
c. Erroneous bank credit
d. A customer’s deposit for P450 was recorded by the bank as P540

20. Seldom does the book balance of cash is in agreement with the bank balance of cash
due to any of the following except
a. Deposit in transit
b. Outstanding checks
c. Bank charges and credits recognized by the bank during the month
d. Bank secrecy requirements

21. The person responsible, at all times, for the amount of the petty cash fund is the
A. Chairman of the Board of Directors
B. President of the company
C. Petty cash custodian
D. General cashier

22. The following are appropriate procedures for controlling the petty cash fund, except
A. To monitor variations in different types of expenditures, the petty cash custodian
files petty cash vouchers by category of expenditure after replenishing the fund

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B. To replenish the fund, the general cashier issues a company check to the petty
cash custodian, rather than cash.
C. To determine that the fund is being accounted for satisfactorily, surprise counts of
the fund are made from time to time by the internal auditor or other responsible
official.
D. Each individual to whom petty cash is paid is required to present signed receipts
to the petty cash custodian

23. The objective of establishing a petty cash fund is to

A. Cash checks for employees
B. Account for all cash receipts and disbursements
C. Account for cash sales
D. Facilitate payment of small, miscellaneous items.

24. What is the effect of not replenishing the petty cash at year-end and not making the
appropriate adjusting entry?
A. A detailed audit is essential
B. The petty cash custodian should turn over the petty cash to the general cashier
C. Cash will be overstated and expenses understated
D. Expenses will be overstated and cash will be understated

25. Bank overdraft

A. Is a debit balance in a cash in bank account
B. Is offset against demand deposit account in another bank
C. Which cannot be offset is classified as a current liability
D. Which cannot be offset is classified as non-current liability

II. PROBLEM SOLVING.

A. Your audit of the December 31, 2013, financial statements of Steel Corp. reveals the
following:

Current Account at BPI P(30,000)

Current account at Maybank 135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is 12/31/14) 1,500,000
Payroll account 390,000
Foreign bank account – restricted 2,000,000
Postage stamps 1,250
Employee’s postdated check 4,500
IOU from vice president 8,000
Credit memo from a supplier for a purchase return 8,100
Money order 12,900
Petty cash fund (P3,000 in currency and expense receipts for P12,000) 15,000

1. What amount should be reported as cash and cash equivalents in the Dec.
31,2013 statement of financial position?

B. The cash account in the current asset section of the balance sheet for AA Co. showed
a balance of P555,000. It was found to include the following items:

Petty cash fund (P1,000 is in the form of paid vouchers) P 5,000

Checking account balance, per bank statement (a P25,000 check 255,000
is still outstanding)

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Undeposited receipts, including a postdated check for P5,000 120,000

Currencies and coins awaiting deposit 55,000
Bond sinking fund 100,000
Check drawn by manager, returned by bank marked NSF 20,000

2. What is the correct cash balance?

C. The chief accountant of Clock Dairy’s Co. is determining the amount of cash and cash
equivalents to be reported on its December 31, 2013 statement of financial position.
She found out that the Cash and Cash Equivalents balance in the general ledger was
composed of the following items.

 Saving account of P900,000 and a commercial checking account with balance of

P1,400,000 are held at Chinabank.
 Petty cash fund of P15,000; composed of expense receipts of P5,000; and bills and
coins of P9,850 at Dec. 31.
 Cash fund in savings account with BPI, P1,500,000 held for retirement of bonds
payable, due Dec. 31, 2020.
 Money market fund account held at BDO which permits Clock Dairy to write checks
on this balance, P2,000,000
 Three certificates of deposit with Metrobank, each totaling P1,000,000, two of which
have maturity of 120 days from date of placement (November 30, 2013); one has a
maturity of 90 days (placed on Dec. 29, 2013).
 Payroll fund maintained with BDO, P6,000,000.

She also obtained the following information:

 A customer’s check on hand dated January 10, 2014 for P320,000. The check was
recorded as collected in December and was included in the savings account with
Chinabank.
 A check for P300,000 was issued to a supplier on December 29, 2013 and drawn from
Chinabank account. The check was dated Jan. 8, 2014 and was traced to have been
entered in the Dec. check register.
 Clock Dairy maintains a P5,000,000 cash balance at all time at Allied Bank to ensure
future credit availability.
 A check for P50,000 for adjustment in salaries of an employee for the month of
November was still on hand at Dec. 31, 2013. The check was verified to have been
recorded in the cash disbursement journal in December.

3. Compute for the amount of cash and cash equivalents to be reported on

December 31, 2013 statement of financial position.

D. Mars Company’s checkbook balance at Dec. 31, 2011 was P50,000. In addition, Mars
held the following items in its safe on that date.

Check payable to Mars, dated Dec. 31 in

payment of a sale made in Dec. 2012 not
included in Dec. 31, checkbook balance P 20,000

Check payable to Mars, deposited Dec. 15

but returned by bank on Dec. 30 marked
“NSF”. The deposit and the return were both
reflected in the checkbook. 5,000

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Check drawn on Mars Company’s account,

payable to a vendor, dated Dec. 30 but not
yet mailed to payee as of Dec. 31. The check 3,000
is not yet recorded.

4. Compute for the amount to be shown as cash on Mars’ statement of

financial position at Dec. 31, 2011.

E. The statement of financial position of Imation Company shows cash of P860,000. The
following items were found to comprise the total amount:

Checking account balance in PNB per bank statement (outstanding

checks of P34,000; deposit in transit of P25,000; service charge,
P1500; NSF checks, P2,450) P 225,000

Petty cash fund (currencies and coins, P2,510; expense receipts,

P2,100; IOUs, P380) 5,000

Undeposited collections (of which P5,000 is in money orders,

P3,000 in traveler’s check and postdated checks of customers for 75,000
P3,500)

Bond sinking fund cash 125,000

Treasury bills with original maturity of 6 months and acquired 2

months prior to maturity 50,000

Postdated checks received from customers at reporting date 25,000

Trust fund account, 30 days term 100,000

5,000
Travel advances
250,000
Savings account restricted for the payment of long term obligations P860,000
Total:

5. Correct cash balance of the checking account with PNB

6. Correct petty cash fund balance
7. What amount of the undeposited collections is to be reported as cash?
8. Correct cash and cash equivalents

F. Hai – Co is reviewing the cash accounting for Hei – Co. Hai – Co’s review will focus on
the petty cash fund account and the bank reconciliation for the month ended June 30,
2013. She has collected the following information from Hei – Co’s bookkeeper for this
task.

Petty cash fund

1. The petty cash fund was established on June 3, in the amount of P 10,000

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2. Expenditures from the fund by the custodian as of June 30, 2013, were evidenced by
approved petty cash vouchers for the following:
Office supplies P 3,920
IOUs from employees 1,200
Shipping charges 2,298
Other expenses 1,526

On June 30, the petty cash fund was replenished and increased to P 12,000; currency and
coins in the fund at that time totaled P 756.

Bank reconciliation

Debit Credit Balance

Balance, June 1 P 350, 760
Deposits P 1,120,000
Note payment direct from
customer (with interest of P 1,200)
37,200
Checks cleared during June 1,246,000
Bank service charges 1,080
Balance, June 30 ?

Hei – Co’s Cash account

Balance, June 1, 2013 P 354,000

Deposits during June 1,240,000
Checks written during June ?
Balance, June 30 320,600

Deposits in transit are determined to be P 120,000 and checks outstanding at June 30 total P
34,000. Cash on hand (except petty cash) at June 30 is P 9,840.

9. What is the amount of petty cash shortage?

10.The journal entry to record the replenishment of and increase in the petty
cash fund includes a credit to cash of ?
11.Correct cash balance, June 30, 2013.

G. The auditor for Glaives Co. examined the petty cash fund immediately after the close
of business, July 31, 2013, the end of company’s natural business year. The petty
cash custodian presented the following during the count:

Currency P 1,650
Petty cash voucher:
Postage 420
Office supplies 900
Transportation 340
Repairs & maintenance 800
Advances to office staff 1,500
A check drawn by Glaives, payable to the
petty cash custodian 7,200
Postage stamps 300
An employee check, returned by bank,
marked NSF 1,000
An envelope containing currency for a gift for

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a retiring employee 1,890

The general ledger shows an imprest petty cash fund balance of P 16,000.

12.How much is the petty cash shortage or overage?

13.What is the adjusted balance of petty cash fund at July 31, 2013?

H. The following information is included in Wisdom Corp.’s bank statement for the
month of April:

A customer’s check has been marked “NSF”

P 13,000
Bank service charge for April 1,200

In comparing the bank statement to the company’s cash records, you found:

Outstanding checks on April 30 P 184,000

Deposits made but are not yet shown in the
April bank statement 14,000

The deposits in transit and outstanding checks have been correctly taken up in the
company’s books. You also found a customer’s check for P 17,400 that had not yet been
deposited and had not been recorded in Wisdom’s books. Your client’s book show a cash
balance of P 36,420.

14.What is Wisdom’s correct cash balance?

I. A company is reconciling its bank statement with internal records. The cash balance
per the company’s books is P 45,000. There are P 5,000 of bank charges not yet
recorded, P 7,500 of outstanding checks, P12,500 of deposits in transit, and P15,000
of bank credits and collections not yet taken up in the company’s books.

15.What is the cash balance per bank?

J. The following information is shown in the accounting records of Bonus Inc.,:

Dec. 31 Jan. 1
Cash ? P 186,000
Accounts receivable 273,000 201,000
Merchandise inventory 234,000 258,000
Accounts payable 144,000 159,000

Total sales and cost of sales for 2013 were P 2,394,000 and P 1,749,000, respectively. All
sales and purchases were made on credit. Various operating expenses of P 321,000 were
paid in cash. Assume that there were no other pertinent transactions. Compute for the…

16.Collections from accounts receivables

17.Payment of accounts payable
18.Cash balance on Dec. 31, 2013

K. Yohoy Co., keeps all its cash in checking account. An examination of the company’s
accounting records and bank statement for the month ended Dec. 31, 2014 revealed
the following information:

The cash balance as of Dec. 31 represents:

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Bank statement balance P 84,690

Book balance 85,240

A deposit of P 9,500 through the bank’s night depository box on Dec. 29 did not appear on
the bank statement. The bank statement shows that on Dec. 28, 2014, the bank collected a
note for Yohoy and credited the proceeds of P 9,350 to the company’s account. The proceeds
include P350 interest, all of which Yohoy earned during the current accounting period. Yohoy
has not yet recorded the collection.

Checks outstanding on Dec. 31, 2014:

Check # 143 P 1,500
Check # 144 480
Check # 121 720

 Yohoy discovered that check # 230, written in Dec. 2014 for P 1,830 in payment to a
supplier, had been recorded in the company’s records as P 1,380.
 Included with the Dec. 31, 2014 bank statement was an NSF check for P 2,500 that
Yohoy had received from Cu Co. on account on Dec. 19. Yohoy has not yet recorded
the returned check. The bank statement shows a P 150 service charge for December.

19.Adjusted cash balance

20.Net adjustment to cash

L. Judith Mae Borda Corp. misplaced all the bank statements for the past years. You
reviewed the accounting records and discovered that the following journal entries
were made to reconcile the June 30, 2012 bank records and accounting records.

Accounts receivable 76,012

Miscellaneous expense 625
Notes receivable 10,000
Interest revenue 500
Cash 66,137

Pre-adjustment cash balance in the accounting records was P 371,023.50, outstanding

checks were P 10,375 and no other adjustments were required.

21.What is the balance of the cash account per bank statement as of June 30,
2012?

M. The following data pertaining to the cash transactions and bank accounts of O’rayt
Co. for July 2011 are as follows:

Cash balance per accounting records, July 31, 2011, P 17,194.

Cash balance per bank statement, July 31, 2011, P31,848.

Bank service charge for July, P 109.

Debit memo for printed checks delivered by the bank; the charge has not been recorded in
the accounting records, P 225.

Outstanding checks, July 31, 2011, P 6,728.

Deposit of July 31 not recorded by the bank until Aug. 1, P 4,880.

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Proceeds of a bank loan on July 31 not recorded in the accounting records, net of P 300
interest, P5,700.

Proceeds from customer’s promissory note, principal amount, P8,000, collected by the bank,
not taken up in the books, with P100 interest, P8,100.

Check # 2000 payable to a supplier entered in the accounting records as P 2,100 deducted
in the bank statement the erroneous amount of P 1,200.

Stolen check lacking an authorized signature deducted from O’rayt’s account by the bank in
error, P800.

Customers check returned by the bank marked DAIF, indicating that the customer’s balance
was not adequate to cover the check. No entry has been made in the accounting records to
record the returned check, P760.

22.Adjusted cash balance as of July 31, 2011.

N. In comparing the balance per books of Maguindanao Company with the bank
statement obtained from the bank, together with the canceled checks and other
memoranda at Dec. 31, 2013, you observed the following:

a) Balance per bank statement, P 892,346.30

b) Balance per books, P 590,884.60

c) Outstanding checks, 12/31/2013, P 333,788.20

d) Receipts of 12/31/13 deposited on 1/2/14, P 53,172.00

e) Service charge for Dec. 2013, P 225.00

f) Proceeds of bank loan, 12/15/13 omitted from company’s records, net of P 3,000
charge, P 97,000
g) Deposit of 12/23/13 omitted from the bank statement, P 28,924.10

h) Check of Italy products charged back on 12/22/13 for lack of counter signature,
redeposited on 1/5/14. No entry was made for the charge back or the redeposit. P
8,737.40

i) Error on bank statement in entering deposit of 12/16/13:

Correct amount P 31,824.00
Entered in statement P 31,814.00

j) Check #6970 of Maguinbanao co. charged in error to the company’s account, P

26,900

k) Proceeds of note of B. Christian & Co. collected by bank on 12/1/13 not entered on
books, inclusive of P 400 interest and net of service charge of P50. P 20,350.

l) Erroneous debit memo of 12/23/13 to charge company’s account with settlement of

bank loan which was paid by check # 3115 on same date, P50,000.

m) Error on bank statement in entering deposit of 12/4/13:

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Entered as P 48,171.00
Correct amount, 48,071.00

n) Deposit of Maguinbanao co. on 12/7/13 credited in error in the company’s account, P

18,192.00

23.Determine the correct cash balance of Maguindanao Co. at Dec. 31, 2013.

O. Insatiable Company’s general ledger showed a balance of P1,602,500 in its Cash

account on December 31, 2012 which consisted of the following items: (The company
adopts the policy of classifying as cash equivalents investment instruments with
maturity of not more than 90 days)

Checking account with Security Bank, General Account P

475,000
Checking account with Security Bank, Payroll Account (25,000)
Certificate of deposit with BPI, term 180 days
placed on December 1, 2012 125,000
Checking account with BPI
350,000
Sinking fund cash 250,000
Savings account with May Bank (closed) 120,000
Petty cash fund 25,000
Two year treasury bonds issued on March 1, 2011
but acquired on March 1, 2012 and maturing
on February 28, 2013 75,000
Cash surrender value of life insurance contracts 22,500
Travel advances of salesmen 20,000
Undeposited receipts 45,000
Customers checks dated January 20, 2013 15,000
Customers checks dated December 12, 2012 but returned
due to insufficiency of fund 5,000
Savings deposit with BDO earmarked for the
acquisition of equipment which is expected
To be disbursed in March, 2013 100,000
Total P1,602,500

The following information were gathered at year-end that pertains to the above:
a. Included among the checks drawn against Security Bank general account during
December and recorded also in December are:
 Check # 3144 written for P12,500 payable to ABC Trading was delivered on
January 5, 2013
 Check # 4220 written for P24,000 payable to Dac Trading was certified by the
bank but this check remained outstanding at reporting date.
 Check # 8603 written for p7,500 payable to Roshan Trading dated January 26,
2013
Included among the December receipts recorded in the Security Bank general
account are as follows:
 Customers checks for P15,000 dated January 30, 2013
 Customers check for P25,000 dated December 14, 2012 but returned by the
bank due to insufficiency of fund
 Money orders for P1,000
 Travelers’ check for $2,000 converted to peso value of P84,000
b. The company has an overdraft line with Security Bank hence the right of offset exists.

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c. Included in the checking account with BPI is compensating balances amounting to

P150,000 against long-term borrowing. The compensating balances are not legally
restricted.
d. Petty cash fund consists of currencies and coins of P11,350; unreplenished vouchers
for expenses, P10,200; cash advances of employees, P3,450.

24.Correct cash balance of the checking account with Security Bank at

December 31, 2012
25. Correct cash balance of the checking account with BPI at December 31,
2012
26.Correct petty cash fund balance at December 31, 2012
27.Correct cash balance at December 31, 2012
28.Correct cash and cash equivalents at December 31, 2012

P. The trial balance of Reyes Co. at Dec. 31, 2013 includes the following accounts:

Petty cash fund P 5,000

Cash on hand 19,700
Metrobank, Current Account 110,200
Allied bank, General Account 162,000
Allied bank, Payroll Account (4,000)
Security bank, Savings account 65,000

a. The petty cash fund consisted the following items as of Dec. 31, 2013:
 Currency and coins, P 1,490
 Employees’ advances, with no supporting vouchers, P880
 Currency in an envelope marked “collections for charity” with employees’
name attached, P 160
 Unreplenished petty cash vouchers, P 740
 Replenishment check drawn by Reyes payable to the petty cashier, P1,830

b. Cash on hand includes the following items:

 Customer’s check for P5,000 returned by bank on Dec. 26, 2013 due to
insufficient funds, but subsequently redeposited and cleared by the bank on
Jan. 10, 2014.
 Postal money orders received from customers, P2,800.
 Customer’s check for P1,500 dated Jan. 10,2014 received Dec. 23, 2013.
c. Included among the checks drawn by Reyes against the Metrobank current account
and recorded in Dec. 2013 are the following:
 Check #2911 written and dated Dec. 23, 2013 and delivered to payee on Jan.
3, 2014, P2,500
 Check #2186 written Dec. 25, 2013, dated Jan. 30, 2014, delivered to payee
on Dec. 28, 2013, P4,300.
d. The credit balance in Allied bank payroll account represents checks drawn in excess
of the deposit balance. The checks are still outstanding at Dec. 31, 2013. A right of
offset exists in the agreement between Allied bank and its depositors.

e. The savings account deposit in Security bank was a fund set aside by the Board of
directors for the acquisition of new machine. The company expects to disburse this
amount on Jan. 2, 2014.

29.Amount of petty cash (shortage) or overage

30.Correct amount of cash

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Q. The bank statement of Appetite Corp. for April, 2013 showed an ending balance of
P169,263. Deposit in transit on Apr. 30 was P18,200. Outstanding checks as of Apr.
30 were P59,435. During the month of April, the bank charged back NSF checks in
the amount of P3,435 of which P 1,835 had been redeposited by Apr. 30. The
company made no entry for the return and for the redeposit of the checks.

On Apr. 23, the bank charged Appetite Corp.’s account for a P2,200 item which
should have been charged against the account of Ammetite Corp.; the error was not
detected by the bank. During April, the proceeds from notes collected by the bank for
Appetite Corp. were P7,548 and bank charges for this service were P180.

31.Unadjusted cash balance per books at April 30, 2013.

R. On July 5, 2013, Smee Corp. received its bank statement for the month ending June
30. The statement showed a P209,500 balance while the cash account balance on
June 30 was P35,000. In reconciling the balances, the auditor discovered that:
1. The June 30 collections of P176,000 were recorded on the books but were not
deposited until July.
2. The bank service charges for the month of June totaled P3,000
3. A paid check for P24,300 was entered incorrectly in the cash payments journal as
P34,200.

32.What is the total outstanding checks at June 30, 2013?

S. The bank statement for the current account of sir George James Corp. showed a Dec.
31, 2013, balance of P585,284. Information that might be useful in preparing a bank
reconciliation is as follows:

a) Outstanding checks were P52,810.

b) The Dec. 31, 2013, cash receipts of P23,000 were not deposited in the bank until Jan.
4, 2014.

c) One check written in payment of rent P8,940 was correctly recorded by the bank but
was recorded by sir George as a P9,840 disbursement.

d) In accordance with prior authorization, the bank withdrew P18,000 directly from the
current account as payment on a mortgage note payable. The interest portion of that
payment was P14,000. Sir George has made no entry to record the automatic
payment.

e) Bank service charges of P740 were listed on the bank statement.

f) A deposit of P35,000 was recorded by the bank on Dec. 13, but it did not belong to sir
George James.

g) The bank statement included a charge of P3,400 for an NSF check. The company will
seek payment from the customer.

h) Sir George maintains an P8,000 petty cash fund that was appropriately reimbursed at
the end of December.

i) According to instructions from sir George on Dec. 29, the bank withdrew P400,000
from the account and purchased treasury bills for sir George. The company recorded

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the transaction in its books on Dec. 31 when it received notice from the bank. Half of
the treasury bills mature in three months and the other half in four months.

Compute for:
33.The cash in bank balance per books on Dec. 31, 2013.
34.The adjusted cash in bank balance on Dec. 31, 2013.
35.The amount to be reported as cash and cash equivalents on its Dec. 31,
2013 statement of financial position.

T. EMA Co. was organized on Jan. 13, 2011. The following items are from the company’s
trial balance on December 31, 2011.

Ordinary share capital P 1,500,000

Share premium 150,000
M. Inventory 69,000
Land 1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Accounts receivable 165,400
Accounts payable 389,650
Notes payable 500,000
Sales 6,235,200
Operating expenses 1,005,150 *

*including depreciation of P 400,000.

Additional information is as follows:

1. Deposits in transit, Dec. 31 P 384,660
2. Service charge for Dec. 2,000
3. Outstanding checks, Dec. 31 475,000
4. Bank balance, Dec. 31 892,000
5. EMA’s mark up on sales is 30%

Compute for
36.The total collections from sales
37.The total payments for merchandise purchases
38.The total cash receipts per books
39.The total cash disbursements per books
40.The cash balance per books on Dec. 31
41.The adjusted cash balance on Dec. 31

U. Your audit of the cash account of CG corp. disclosed the following information:

1. Cash in bank balance per books, Dec. 31, 2013 P 35,000

2. Bank statement balance, Dec. 31, 2013 60,000
3. Note collected by bank in Dec. (principal plus P800 27,600
interest, less P200 collection fee)
4. Debit memo for a checkbook ?
5. Deposits in transit, Dec. 31, 2013 15,200
6. Transposition error made by bank in recording deposit of
Dec. 25:
Correct amount: 45,000 ?
Recorded as 54,000
7. Erroneous bank debit 26,700
8. Included in the cash in bank account is petty cash fund

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of P10,000. Your count on Dec. 31, 2013 revealed the

following fund items:
Currency and coins P 3,000
Supplies 2,400
Transportation 100
IOUs 4,000 ?
9. Erroneous bank credit 11,000
10. Outstanding checks 39,400*
* including a certified check of P10,000

Compute for
42.The principal amount of the note collected by bank in December.
43.The adjusted cash in bank balance at Dec. 31, 2013.
44.The cost of checkbook
45.The amount of petty cash shortage at Dec. 31, 2013
46.The adjusted petty cash balance

V. HJE Co, organized on Apr. 3, 2013, has a very poor internal control system. The
company’s cashier is also its accountant. After 8 months of operations, the
company’s manager suspects that the cashier-accountant has been misappropriating
company collections. You have been engaged to audit the company’s accounts to
determine the extent of fraud, if any.

You started the audit on Nov. 15. On that date, the cash on hand per surprise count
was P5,140. Also on that date, the bank confirmed that the balance of the company’s
current account was P26,328. You also obtained the information that the cashier’s
accountability is P151,228. Your examination of the records reveals that a check for
P1,852 was outstanding on Nov. 15, the company’s mark up is 40% of sales.

Further examination of the company’s records reveals the following balances at Nov.
15, 2013:
Ordinary share capital P300,000
Share premium 20,000
Real property purchased for cash 200,000
Mortgage payable 80,000
Furniture and fixtures (of the acquisition cost, P6,000
remains unpaid as of Nov. 15) 29,000
Notes payable – BPI 32,000
Accounts payable – trade 46,284
Expenses paid (excluding purchases) 60,756
M. inventory at cost 93,920
Accounts receivable – trade 85,380
Total sales 340,000

Compute for
47.The amount paid for inventory purchases
48.The collections from customers
49.The adjusted bank balance as of Nov. 15, 2013
50.The cash shortage as of Nov. 15, 2013

W. In auditing the VO Co., you obtained the bank statement, canceled checks and other
memoranda which relate to the company’s bank account for December 2013. In
reconciling the bank balance with that shown on the company’s books, you observed
the facts set forth below:

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1. Balance per bank statement, 12/31/13 P 47,174

2. Balance per books, 12/31/13 P19,289

3. Outstanding checks 12/31/13 P63,000

4. Receipts of 12/31/13, deposited 1/3/14 P 6,260

5. Service charge for November, per bank memo of 12/17/13 P1,000

6. Proceeds of bank loan, 12/6/13, discounted for 3 months at 18% per annum,
omitted from company books P47,750

7. Deposit of 12/22/13, omitted from bank statement P9,170

8. Check of Co Co., returned on 12/22/13, for absence of counter-signature and

redeposited with complete signature on 1/2/13 no entry on the books having been
made for the return or redeposit P 77,320

9. Error on bank statement in entering deposit of 12/19/13:

Correct amount P1,600
Entered in statement 160

10. Check # 13221 of XY Co, charged by bank in error to company’s account

P13,600

11. Proceeds of note of QR Co, collected by bank, 12/14/13, not entered in cash book
(principal amount of P25,000 plus interest of P1,125, less collection fee) P25,625

12. Erroneous debit memo of 12/30/12, to charge company’s account with settlement
of bank loan which was paid by check # 11002 on same date P5,000

13. Error on bank statement in entering deposit of 12/2/13:

Entered as 14,200.62
Correct amount P12,400.62

14. Deposit of BV Co. of 12/1/13, credited in error to this co. P3,500

Compute for
51.The principal amount of the loan obtained from bank in December
52.The amount of collection fee
53.The adjusted cash in bank balance as of Dec. 31, 2013
54.The net adjustment in cash in bank per ledger as of Dec. 31, 2013
~END OF ACC 1A&B~

“For the things we have to learn before we can do them, we learn by doing
them.”
~ Aristotle

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*Suggested Key answers*

I. THEORIES
1. D 13.D
2. A 14. B
3. D 15. C
4. D 16. B
5. B 17. B
6. C 18. C
7. B 19. A
8. D 20. D
9. C 21. C
10. A 22. A
11. B 23. D
12. B 24. C
25. C
II. PROBLEM SOLVING
1. P840,900 26. P11,350
2. P404,000 27. P836,350
3. P16,339,850 28. P836,350
4. P70,000 29. P(60)
5. P216,000 30. P291,520
6. P2,510 31. P124,460
7. P71,500 32. P343,600
8. P440,010 33. P541,514
9. P(300) 34. P520,474
10. P11,244 35. P728,474
11. P368,720 36. P6,069,800
12. P(2,190) 37. P4,043,990
13. P8,850 38. P8,219,800
14. P39,620 39. P7,416,140
15. P50,000 40. P803,660
16. P2,322,000 41. P801.660
17. P1,740,000 42. P27,000
18. P447,000 43. P52,500
19. P91,490 44. P 100
20. P6,250 45. P(500)
21. P315,261.50 46. P3,000
22. P29,900 47. P251,636
23. P699,272.20 48. P254,620
24. P430,000 49. P29,616
25. P350,000 50. 121,612
51. P50,000
52. P500
53. P14,344
54. P (4,945)

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