Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2916-Cash and Cash Equivalents OCTOBER 2020

DISCUSSION PROBLEMS
1. A financial instrument is 4. A financial liability is any liability that is:
a. A contract that gives rise to a financial asset of one I. A contractual obligation to deliver cash or another
entity and a financial liability or equity instrument financial asset to another entity
of another entity. II. A contractual obligation to exchange financial
b. A contract under which neither party has assets or financial liabilities with another entity
performed any of its obligations or both parties under conditions that are potentially unfavorable
have partially performed their obligations to an to the entity
equal extent. III. A contract that will or may be settled in the
c. A contract under which one party accepts entity's own equity instruments and is a non-
significant insurance risk from another party by derivative for which the entity is or may be
agreeing to compensate the policyholder if a obliged to deliver a variable number of the
specified uncertain future event adversely affects entity's own equity instruments
the policyholder. IV. A contract that will or may be settled in the
d. A contract that requires the issuer to make entity's own equity instruments and is a
specified payments to reimburse the holder for a derivative that will or may be settled other than
loss it incurs because a specified debtor fails to by the exchange of a fixed amount of cash or
make payment when due in accordance with the another financial asset for a fixed number of the
original or modified terms of a debt instrument. entity's own equity instruments.
a. I, II, III and IV
2. A financial asset is any asset that is:
b. I, II and III only
I. Cash
c. I and II only
II. An equity instrument of another entity
d. III and IV only
III. A contractual right to receive cash or another
financial asset from another entity
5. Using the data given below, compute for the total
IV. A contractual right to exchange financial assets or
amount of items that meet the definition of financial
financial liabilities with another entity under
liability
conditions that are potentially favorable to the
entity Bank overdraft P 100,000
V. A contract that will or may be settled in the Accounts payable 1,200,000
entity's own equity instruments and is a non- Notes payable 500,000
derivative for which the entity is or may be Loans payable 1,800,000
obliged to receive a variable number of the Income tax payable 120,000
entity's own equity instruments Warranty obligations 180,000
VI. A contract that will or may be settled in the Deferred revenue 240,000
entity's own equity instruments and is a Cumulative, redeemable preference
derivative that will or may be settled other than shares at the option of the holder 1,000,000
by the exchange of a fixed amount of cash or Non-cumulative, non-redeemable
another financial asset for a fixed number of the preference shares 2,000,000
entity's own equity instruments.
a. P4,900,000 c. P4,600,000
a. I, II, III, IV, V and VI b. P3,620,000 d. P4,500,000
b. I, II, III, IV and V only
c. I, II, III and IV only 6. Currency (cash) is a financial asset. Why?
d. I, II and III only a. Because it represents the medium of exchange and
is therefore the basis on which all transactions are
3. Using the data given below, compute for the total measured and recognized in financial statements.
amount of items that meet the definition of financial b. Because it represents the contractual right of the
asset depositor to obtain cash from the institution or to
draw a check or similar instrument against the
Cash P 150,000
balance in favor of a creditor in payment of a
Investment in shares – FVTPL 500,000
financial liability.
Investment in associate 2,000,000
c. Because it is an equity instrument of another
Accounts receivable 1,000,000
entity.
Inventories 800,000
d. Because it is a contractual right to exchange
Prepaid rent 50,000
financial assets or financial liabilities with another
Interest rate swap receivable 200,000
entity under conditions that are potentially
Investment in debt securities – FVTOCI 400,000
favorable to the entity.
Investment in debt securities – AC 300,000
Land 2,000,000
7. Cash comprises cash on hand and demand deposits.
Buildings 3,000,000
Which of the following items can be considered as
Machinery and equipment 1,500,000
‘cash’?
Patents 250,000
I. Credit card receipts representing sales
a. P4,550,000 c. P2,550,000 II. Bitcoins
b. P4,600,000 d. P2,600,000 III. US dollar bills
IV. Certificates of deposit

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The total amount to be reported as ‘cash’ as of

a. I, II, III and IV c. III only
December 31, 2020 is
b. III and IV only d. None of these
a. P6,300,000 c. P3,300,000
b. P5,300,000 d. P2,300,000
8. Which statement is incorrect regarding cash
equivalents?
12. Compensating balance
a. Cash equivalents are short-term, highly liquid
a. Is a minimum or average balance on deposit with a
investments that are readily convertible to known
bank.
amounts of cash and which are subject to an
b. Constitutes support for existing borrowing
insignificant risk of changes in value.
arrangements.
b. Cash equivalents are held for the purpose of
c. Provides a source of funds to the lender as partial
meeting short-term cash commitments rather than
compensation for the credit extended.
for investment or other purposes.
d. All of these.
c. An investment normally qualifies as a cash
equivalent only when it has a short maturity of,
13. Which statement is correct regarding presentation of
say, three months or less from the end of the
compensating balances?
reporting period.
a. “Legally restricted” deposits held as compensating
d. None, all the statements are correct.
balances should be segregated and reported
separately.
9. Which of the following may qualify as cash equivalents?
b. Deposits held as compensating balances that are
a. Investment in ordinary shares
not “legally restricted” are not shown separately.
b. Investment in share options
However, footnote disclosure is necessary.
c. Investment in preference shares acquired within a
c. Both a and b.
short period of their maturity and with a specified
d. Neither a nor b.
redemption date
d. None of these
14. Tinoc Company borrows P2,000,000 from National
Bank at 12% annual interest. In addition, Tinoc is
10. The following data pertain to Lincoln Corporation on
required to keep a compensatory balance of P200,000
December 31, 2020:
on deposit at National Bank which will earn interest at
Current account at Bangko Dito P1,800,000 4%. The effective interest that Tinoc pays on its
Current account at Bangko Doon (100,000) P2,000,000 loan is
Payroll account at Bangko Dyan 500,000 a. 10.0% c. 12.0%
Foreign bank account b. 11.6% d. 12.9%
(in equivalent pesos) 800,000
Savings account in a closed bank 150,000 15. Ray Company is negotiating a loan with Excel Bank.
Postage stamps 1,000 Ray needs P900,000. As part of the loan agreement,
Employee’s post dated check 4,000 Excel Bank will require Ray to maintain a compensating
IOU from employees 10,000 balance of 15% of the loan amount on deposit in a
Credit memo from a vendor for a checking account at the bank. Ray currently maintains
purchase return 20,000 a balance of P50,000 in the checking account. The
Traveler’s check 50,000 interest rate Ray is required to pay on the loan is 12%.
Money order 30,000 Excel Bank pays 4% interest on checking accounts.
Sinking fund 2,000,000 Determine the effective interest rate on the loan. (Hint:
DAIF check of customer 15,000 Compute the net interest paid on the loan per year and
Customer’s check dated 1/1/21 80,000 the “take home” amount of the loan.)
Time deposit – 30 days 200,000 a. 12.9% c. 13.4%
Money market placement (due 6/30/21) 500,000 b. 12.0% d. 11.4%
Treasury bills, due 3/31/21
(purchased 12/31/20) 200,000 16. The following information pertains to an entity’s cash
Treasury bills, due 1/31/21 account:
(purchased 2/1/20) 300,000
Cash balance, beginning P 880,000
The total amount to be reported as cash and cash Cash receipts from the sale of goods 8,000,000
equivalents as of December 31, 2020 is Cash receipts from dividends and interest 80,000
a. P2,780,000 c. P3,780,000 Cash payments for interest 250,000
b. P3,080,000 d. P3,580,000 Cash payments to suppliers of goods 6,000,000
Cash payments to employees 800,000
11. Baxia Corporation had the following account balances Cash payments to acquire property, plant
at December 31, 2020: and equipment 1,200,000
Cash receipts from sales of property,
Current account at Bank A P2,500,000
plant and equipment 280,000
Savings account at Bank B restricted
Cash payments to acquire equity or debt
for bonds payable due on June 30,
instruments of other entities 520,000
2021 1,000,000
Cash receipts from sales equity or debt
Time deposit at Bank C 3,000,000
instruments of other entities 430,000
Current account at Bank A includes P500,000 of Cash proceeds from issuing shares 1,600,000
compensating balance against short term borrowing Cash payments to owners to redeem the
arrangement at December 31, 2020. The entity’s shares 340,000
compensating balance is legally restricted as to Cash proceeds from borrowings 2,100,000
withdrawal by Baxia. A check of P300,000 dated Cash repayments of amounts borrowed 1,700,000
January 15, 2021 in payment of accounts payable was
The entity’s cash balance at the end of the period is
recorded and mailed on December 31, 2020.
a. P2,480,000 c. P2,650,000
b. P2,560,000 d. P2,840,000

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17. An office supplies enterprise, operating on a calendar- 24. Which of the following is true regarding the imprest
year basis, has the following data in its accounting petty cash system?
records: a. Entries are made to the Petty Cash account only to
01/01 12/31 increase or decrease the size of the fund.
Cash P 47,000 b. The Petty Cash account is debited when the fund is
Inventory 101,000 P 93,000 replenished.
Accounts receivable 82,000 116,000 c. The imprest petty cash system in effect adheres to
Accounts payable 68,000 63,000 the rule of disbursement by check.
Sales 1,150,000 d. All of these are not true.
Cost of goods sold 900,000
Operating expenses 200,000
Use the following information for the next three questions.
What is the cash balance at December 31?
a. P50,000 c. P 76,000 The petty cash fund of Guiguinto Company on December
b. P66,000 d. P134,000 31 is composed of the following:
Coins and currencies P14,000
18. Which of the following is not a basic characteristic of a Petty cash vouchers:
system of cash control? Gasoline payments 3,000
a. Use of a voucher system Supplies 1,000
b. Segregated responsibility for handling and Cash advances to employees 2,000
recording cash Employee’s check returned by bank
c. Internal audits at irregular intervals marked NSF 5,000
d. Weekly deposit of all cash received Check drawn by the company payable to
the order of the petty cash custodian,
19. Important elements of an internal control system for representing her salary 20,000
cash disbursements include each of the following A sheet of paper with names of
except: employees together with contribution
a. Only authorized personnel should sign checks. for a birthday gift of a co-employee in
b. All expenditures should be authorized before a the amount of 8,000
check is prepared. P53,000
c. All disbursements, other than very small
The petty cash ledger account has an imprest balance
disbursements, should be made by check.
of P50,000.
d. The same person that prepares the check should
also record it to the proper journal.
25. What is the correct amount of petty cash on December
31?
20. The cash receipts function should be separated from
a. P34,000 c. P39,000
the related record keeping in an organization to
b. P14,000 d. P42,000
a. Physically safeguard the cash receipts.
b. Establish accountability when the cash is first
26. The adjusting entry at December 31 would include a
received.
a. Debit to Cash of P16,000
c. Prevent paying cash disbursements from cash
b. Debit to Expenses of P11,000
receipts.
c. Credit to Cash Short or Over of P5,000
d. Minimize undetected misappropriations of cash
d. Credit to Petty Cash Fund of P16,000
receipts.
27. A cash over or short account
21. It consists of misappropriating a collection from one
a. Is not generally accepted
customer and concealing this defalcation by applying a
b. Is debited when the petty cash fund proves out
subsequent collection made from another customer.
over
a. Window dressing c. Kiting
c. Is debited when the petty cash fund proves out
b. Lapping d. Imprest system
short
d. Is a contra account to cash
22. The payments of accounts payable made subsequent to
the close of the accounting period are recorded as if
they were made at the end of the current period. 28. Which statement is incorrect regarding presentation
a. Window dressing c. Kiting and disclosure of cash and cash equivalents?
b. Lapping d. Imprest system a. Cash and cash equivalents are normally presented
as the first line item under current assets.
23. A petty cash system is designed to b. The entity should disclose the components of cash
a. Cash checks for employees and cash equivalents.
b. Handle cash sales c. The entity should disclose the amount of
c. Account for all cash receipts and disbursements significant cash and cash equivalent balances
d. Pay small miscellaneous expenses held by the entity that are not available for use
by the group.
d. Cash on hand should be included under the
disclosures on credit risk.

- now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. Which statement is true? Notes receivable in the possession of a
a. Certificates of deposit are usually classified as cash collecting agency 12,500
on the statement of financial position. Undeposited receipts, including postdated
b. Companies include postdated checks and petty check for P5,250 and traveler’s check 89,000
cash funds as cash. for P5,000
c. Cash equivalents are investments with original Bond sinking fund – cash 63,750
maturities of six months or less. IOUs signed by employees 2,475
d. Savings accounts are usually classified as cash on Paid vouchers not yet recorded 3,225
the statement of financial position. Total P341,125
At what amount should “Cash on hand and in bank” be
2. On December 31, 2020, the cash account of Jen reported on Ingersoll’s balance sheet?
Company has a debit balance of P3,500,000. An a. P267,375 c. P331,125
analysis of the cash account shows the following b. P250,925 d. P314,675
details:
Undeposited collections P 60,000
Cash in bank-PCIB checking account 500,000 5. The following items were included as cash in the books
Cash in bank-PNB (overdraft) (50,000) of Gotch Co.:
Undeposited NSF check received from a Checking account at Security Bank (P1,200)
customer, dated December 1, 2020 15,000 Checking account at BPI 5,335
Undeposited check from a customer, Checking account at Citytrust used for
dated January 15, 2021 25,000 payment of salaries 5,500
Cash in bank-PCIB (fund for payroll) 150,000 Postage stamps 107
Cash in bank-PCIB (savings deposit) 100,000 Employee’s post-dated check 2,300
Cash in bank-PCIB (money market I.O.U. from an employee 200
instrument, 90 days) 2,000,000 A check marked “DAIF” 1,250
Cash in foreign bank (restricted) 100,000 Postal money order 500
IOUs from officers 30,000 Petty cash fund (P324 in expense
Sinking fund cash 450,000 receipts) 500
Listed stock held as temporary Certificate of time deposit with BPI 5,000
investment 120,000 A gold ring surrendered as security by a
P3,500,000 customer who lost his wallet (at
Cash and cash equivalents on Jen’s December 31, market value) 1,500
2020 statement of financial position should be The correct amount that should be reported as cash is
a. P2,760,000 c. P2,885,000 a. P11,835 c. P16,511
b. P2,810,000 d. P2,935,000 b. P11,011 d. P11,511

3. Diversity Corporation's checkbook balance on 6. Aguinaldo Corporation had the following transactions in
December 31, 2020, was P800,000. In addition, its first year of operations:
Diversity held the following items in its safe on
Sales (90% collected in the first year) P750,000
December 31:
Disbursements for costs and expenses 600,000
Check payable to Diversity Corporation, Purchases of equipment for cash 200,000
dated January 2, 2021, not included in Proceeds from issuance of ordinary
December 31 checkbook balance P200,000 shares 250,000
Check payable to Diversity Corporation, Payments on short-term borrowings 25,000
deposited December 20, and included in Proceeds from short-term borrowings 50,000
December 31 checkbook balance, but Depreciation on equipment 40,000
returned by bank on December 30, Disbursements for income taxes 45,000
stamped "DAIF." The check was Bad debt write-offs 30,000
redeposited January 2, 2021, and
cleared January 7 40,000 What is the cash balance at December 31 of the first
Check drawn on Diversity Corporation's year?
account, payable to a vendor, dated a. P 75,000 c. P 85,000
and recorded December 31, but not b. P105,000 d. P140,000
mailed until January 15, 2021 100,000
The proper amount to be shown as cash on Diversity's 7. Pops Co. established a P3,000 petty cash fund. You
statement of financial position at December 31, 2020, found the following items in the fund:
is
Cash and currency P1,683.80
a. P760,000 c. P860,000
Expense vouchers 829.80
b. P800,000 d. P975,000
Advance to salesman 200.00
IOU from employee 300.00
4. The Ingersoll Co.’s ledger showed a balance in its cash
In the entry to replenish the fund, what amount should
account at December 31, 2020 of P341,125 which was
be debited to Cash Short and Over?
determined to consist of the following:
a. P500.00 c. P13.60
Petty cash fund P 1,800 b. P300.00 d. P 0
Cash per bank statement with a check for
P3,000 still outstanding 168,375 J - end of FAR.2916 - J

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