ARTS CPA Review

(Academic Review and Training School, Inc.)

2F & 3F Crème Bldg., Abella St., Naga City
Tel No.: (054) 472-9104; E-mail: artscparev@yahoo.com.

CASH AND CASH EQUIVALENT

PRACTICAL ACCOUNTING I MICHAEL B. BONGALONTA,CPA,MICB,MBA

PROBLEM 1(adapted): Inch Co. had the following balances at December 31, 1999:

Cash in checking account $35,000

Cash in money market account 75,000
U.S. Treasury bill, purchased 12/1/99, maturing 2/28/00 200,000
U.S. Treasury bill, purchased 12/1/98, maturing 5/31/00 150,000

Inch's policy is to treat as cash equivalents all highly-liquid investments with a maturity of three
months or less when purchased. What amount should Inch report as cash and cash equivalents in
its December 31, 1999, balance sheet?

a. $310,000 c. $260,000
b. $460,000 d. $275,000

PROBLEM 2 (adapted): At December 31, 1993, Kale Co. had the following balances in the
accounts it maintains at First State

Bank:
Checking account #101 $175,000
Checking account #201 (10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/94 50,000
180-day certificate of deposit, due 3/15/94 80,000

Kale classifies investments with original maturities of three months or less as cash equivalents. In
its December 31, 1993, balance sheet, what amount should Kale report as cash and cash
equivalents?

a. $320,000 c. $215,000
b. $240,000 d. $245,000

PROBLEM 3 (adapted): The petty cash fund of $200 for Walsh Company appeared as follows
on December 31, 2002:

Cash $93.60
Petty cash vouchers
Freight in $20.40
Postage 40.00
Balloons for a special occasion 18.00
Meals 25.00

Instructions:
1. Prepare in general journal form the entry to replenish the fund.
2. On December 31, the office manager gives instructions to increase the petty cash fund by
$100. Make the appropriate journal entry.

PROBLEM 4 (adapted): Noland Boat Company's bank statement for the month of September
showed a balance per bank of $7,000. The company's Cash account in the general ledger had a
balance of $4,667 at September 30. Other information is as follows:
(1) Cash receipts for September 30 recorded on the company's books were $4,200 but this
amount does not appear on the bank statement.
(2) The bank statement shows a debit memorandum for $40 for check printing charges.
(3) Check No. 119 payable to Lynch Company was recorded in the cash payments journal and
cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36
credit balance in the account of Lynch Company and that the payment to them should have
been for $284.
(4) The total amount of checks still outstanding at September 30 amounted to $5,800.
(5) Check No. 138 was correctly written and paid by the bank for $429. The cash payment
journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to
Cash in Bank for $492.
(6) The bank returned an NSF check from a customer for $550.
(7) The bank included a credit memorandum for $1,260 which represents collection of a
customer's note by the bank for the company; principal amount of the note was $1,200 and
interest was $60. Interest has not been accrued.

Instructions:
(a) Prepare bank reconciliation for Noland Boat Company at September 30.
(b) Prepare any adjusting entries necessary as a result of the bank reconciliation.

PROBLEM 5 (adapted): The cash records of Klein Company show the following:
1. The June 30 bank reconciliation indicated that deposits in transit totaled $390. During July the
general ledger account Cash shows deposits of $9,600, but the bank statement indicates that
only $9,340 in deposits were received during the month.
2. The June 30 bank reconciliation also reported outstanding checks of $800. During the month
of July, Klein Company books show that $11,670 of checks were issued, yet the bank
statement showed that $11,500 of checks cleared the bank in July.

There were no bank debit or credit memoranda and no errors were made by either the bank or
Klein Company.

(a) What were the deposits in transit at July 31?

a. $ 650 c. $ 650
b. $ 550 d. $ 750

(b) What were the outstanding checks at July 31?

a. $ 850 c. $ 880
b. $ 970 d. $ 760

PROBLEM 6 (adapted): The accountant for the Goshen Company assembled the
following data:

June 30 July 31
Cash account balance ........................ $ 15,822 $ 39,745
Bank statement balance ...................... 107,082 137,817
Deposits in transit ......................... 8,201 12,880
Outstanding checks .......................... 27,718 30,112
Bank service charge* ........................ 72 60
Customer's check deposited July 10, returned 8,250
 by bank on July 16 marked NSF, and
 redeposited immediately; no entry made on
 books for return or redeposit ..............
Collection by bank of company's notes   71,815   80,900
 receivable .................................
* (Recorded on books in month following charge
   or collection) ...........................
 The bank statements and the company's cash records show these totals:

Disbursements in July per bank statement ................ $218,373

Cash receipts in July per Goshen's books ................ 236,452
Checks written in July per Goshen's books ............... 212,529
Receipts in July per bank statement ..................... 249,108

Compute the corrected cash balance as of June 30 and July 31.

a. $ 87,565 and $120,585 c. $ 87,565 and $110,585

b. $ 78,565 and $120,585 d. $ 87,585 and $120,565

PROBLEM 7 (adapted): The Eric Manufacturing Company received its bank statement for the
month ending May 31. The bank statement indicates a balance of $32,400. The cash account as of
the close of business on May 31 has a balance of $8,350. In reconciling the balances, the following
items are discovered.

(a) Collection by bank of note for $1,500 less collection fees of $250.
(b) Deposits in transit, $51,000.
(c) The bank charged the depositor $800 for overdrafts.
(d) Checks outstanding on May 31, $79,100.
(e) A canceled check issued to Scott Corp. for $4,500 was not recorded on
Eric Company's books.

Instruction: Prepare a bank reconciliation statement.

PROBLEM 8 (adapted): The books of Steve's Service, Inc. disclosed a cash balance of
$68,757 on June 30. The bank statement as of June 30 showed a balance of $54,780.
Additional information that might be useful in reconciling the two balances follows:
(a) Check number 748 for $3,000 was originally recorded on the books as $4,500.
(b) A customer's note dated March 25 was discounted on April 12. The note was dishonored on
June 29 (maturity date). The bank charged Steve's account for $14,265, including a protest
fee of $42.
(c) The deposit of June 24 was recorded on the books as $2,895, but it was actually a deposit of
$2,700.
(d) Outstanding checks totaled $9,885 as of June 30.
(e) There were bank service charges for June of $210 not yet recorded on the books.
(f) Steve's account had been charged on June 26 for a customer's NSF check for $1,296.
(g) Steve properly deposited $600 on June 3 that was not recorded by the bank.
(h) Receipts of June 30 for $13,425 were recorded by the bank on July 2.
(i) A bank memo stated that a customer's note for $4,500 and interest of $165 had been collected
on June 27, and the bank charged a $36 collection fee.

Compute the adjusted cash balance.

a. $58,920 c. $ 59,209
b. $68,565 d. $ 67,565

PROBLEM 9 (adapted): Burr Company had the following account balances at December 31,
2003:

Cash in banks $2,250,000

Cash on hand 125,000
Cash legally restricted for additions to plant
(expected to be disbursed in 2004) 1,600,000

Cash in banks includes $600,000 of compensating balances against short-term borrowing

arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In
the current assets section of Burr’s December 31, 2003 balance sheet, total cash should be
reported at:

a. $2,735,000 c. $2,375,000

b. $2,750,000 d. $ 2,753,000
PROBLEM 10 (adapted): Ral Corp.’s checkbook balance on December 31, 2003, was $5,000.
In addition, Ral held the following items in its safe on that date:

Check payable to Ral Corp., dated January 2, 2004,

in payment of a sale made in December 2003, not
included in December 31 checkbook balance $2,000

Check payable to Ral Corp., deposited December 15 and

included in December 31 checkbook balance, but returned
by bank on December 30 stamped “NSF.” The check was
redeposited on January 2, 2004, and cleared on January 500

Check drawn on Ral Corp.’s account, payable to a vendor,

dated and recorded in Ral’s books on December
31 but not mailed until January 10, 2004 300

The proper amount to be shown as Cash on Ral’s balance sheet at December 31, 2003 is:
a. $4,800 c. $ 5,300
b. $4,500 d. $ 5,200

PROBLEM 11 (adapted): Poe, Inc. had the following bank reconciliation at March 31, 2003:

Balance per bank statement, 3/31/03 $46,500

Add deposit in transit 10,300
56,800
Less outstanding checks 12,600
Balance per books, 3/31/03 $44,200

Data per bank for the month of April 2003 follow:

Deposits $58,400
Disbursements 49,700

All reconciling items at March 31, 2003, cleared the bank in April. Outstanding checks at April 30,
2003, totaled $7,000. There were no deposits in transit at April 30, 2003. What is the cash
balance per books at April 30, 2003?
a. $49,700 c. $46,500
b. $55,200 d. $48,200

PROBLEM 12 (adapted): The following data pertain to Thor Company on Dec. 31, 2011:

Checkbook Balance 4,000,000

Bank Statement Balance 5,000,000
Check drawn on Thor’s accounts, payable to supplier, 500,000
dated and recorded on Dec. 31, 2011, but not mailed until Jan. 15, 2012
Cash in Sinking fund 2,000,000

On Dec. 31, 2011, what amount should be reported as “cash” under current assets?
a. 4,500,000 c. 5,500,000
b. 4,000,000 d. 6,000,000

PROBLEM 13 (adapted): The petty cash fund of Liwanag Company on December 31, 2011
is composed of the following:

Currencies 20,000
Coins 2,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500
Loans to employees 3,500
A check drawn by the entity payable to the
Order of Grace de la Cruz, petty cash
Custodian, representing her salary 15,000
An employee’s check returned by the bank for
Insufficiency of funds 3,000
A sheet of paper with names of several
Employee’s together with contribution
For a birthday gift of a co-employee.
Attached to the sheet of paper is a currency of 5,000

The petty cash general ledger account has an imprest balance of P50,000. What is the amount of
petty cash fund that should be reported in the statement of financial position on December 31,
2011?
a. 37,000 c. 42,000
b. 35,000 d. 45,000

PROBLEM 14 (adapted): Stellar Company’s bank statement for the month of December
included the following information:

Ending balance, December 31 1,460,000

Bank service charge for December 12,000
Interested paid by bank to Stellar Company for December 10,000

In comparing the bank statement to its own cash records, Stellar Company found the following:

Deposit made but not yet recorded by the bank 350,000

Checks written and mailed but not yet recorded by the bank 650,000

In addition, Stellar Company discover that it had drawn and erroneously recorded a check for
P46,000 that should have been recorded for P64,000. What is the cash balance per ledger on
December 31?

a. 2,500,000 c. 2,490,000
b. 2,498,000 d. 2,510,000

PROBLEM 15 (adapted): Account of a Petty cash fund of Timex Company showed its
composition as follows:

Coins and currency 3,300

Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200
3,000

Manager’s check returned by bank marked “NSF” 1,000

Check drawn by the entity to the order
Of petty cash custodian 2,700

What is the correct amount of petty cash fund for statement presentation purposes?
a. 6,000 c. 7,000
b. 3,300 d. 10,000

PROBLEM 16 (adapted): On March 31, 2011, Able Company received its bank statement.
However, the closing balance of the account was unreadable. Attempts to contact the bank after
hours did not secure the desired information. The following data are available in preparing a bank
reconciliation:

February 28 book balance 1,460,000

Note collected by bank 100,000
Interest earned on note 10,000
NSF check of customer 130,000
Bank service charge on NSF check 2,000
Other bank service charges 3,000
Outstanding checks 202,000
Deposit of Feb. 28 placed in night depository 85,000
Check issued by Axle Company charged to Able’s account 20,000

What is the cash balance per bank statement?

a. 1,532,000 c. 1,352,000
b. 1,555,000 d. 1,450,000

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“MONEY CAN’T BUY ANYTHING ESPECIALLY CPA LICENSE”…mikecpamicbmba@125487