Audit of Cash and Cash Equivalents

CHAPTER 3 - Audit of Cash & Cash Equivalents Problem 1 The “CASH” account of Don Corporation’s ledger on December 31, 2006 showed the following: a. Petty cash fund (including P7,500 unreplenished voucher of which P2,400 is dated January 3, 2007) P 15,000 b. Redemption Fund Account – PNB 500,000 c. Traveler’s check 100,000 d. Money order 10,000 e. Treasury bill, purchased December 1, 2006 (due on Feb. 1, 2007) 50,000 f. Time deposit due on March 31, 2007 50,000 g. 180-day Treasury bill, due March 15, 2007 120,000 h. Note receivable in the possession of a collecting agency 20,000 i. PNB – Checking Account #211-009-091 325,900 j. Cash on hand, including customer postdated check of P15,000 23,000 k. Savings deposit, earmarked for acquisition of equipment 210,000 l. A check payable to San Ignacio Incorporated, dated January 5, 2007, that was included in the December 31 PNB Checking Account #211-009-091 50,000 m. Bond Sinking Fund (used to finance the maturing long-term obligation on March 31, 2007) 150,000 n. Overdraft in PNB Checking Account #211-099-085 ( 50,000) o. Check #801 in payment to Accounts Payable, dated Dec. 31, 2006 not mailed until January 5, 2007 20,000 p. Advances to Officers/Employees for Seminars (no liquidation is required) 80,000 q. Money market placement (due June 30, 2007) 600,000 r. Listed stock held as temporary investment 100,000 s. Check #789 in payment to Suppliers, dated January 5, 2007 and recorded December 31, 2006. 35,000 t. Customers’ certified checks 10,000 u. Pension Fund 150,000 TOTAL 2,568,900 Questions 1. The entry to correct/adjust item F is: a. Investment 50,000 Cash b. Other assets 50,000 Cash c. Short-term investment 50,000 Cash d. No adjustment 2. The entry to correct/adjust item L is: a. Accounts payable 50,000 Cash b. Cash 50,000 Other liabilities

50,000 50,000 50,000

50,000 50,000

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c. Cash Accounts payable d. No adjustment

50,000 50,000

3. The entry to correct/adjust item M is: a. Investment 150,000 Cash b. Other assets 150,000 Cash c. Short-tem investment 150,000 Cash d. No adjustment

150,000 150,000 150,000

4. DON CORPORATION’S cash and cash equivalents balance at December 31, 2006 is: a. Overstated by P1,950,100 c. Overstated by P 1,845,100 b. Overstated by P 1,895,100 d. Overstated by P 1,795,100 5. DON CORPORATION’S adjusted cash and cash equivalents balance at December 31, 2006 is: a. P 618,800 b. P 623,800 c. P 673,800 d. P 723,800 Solution a.

Operating expenses Cash b. Investment Cash c. No adjustment d. No adjustment e. No adjustment f. No adjustment g. Short-term investment Cash h. Notes receivable Cash i. No adjustment j. Accounts receivable Cash k. Cash – restricted Cash l. No adjustment m. Investment – current Cash n. No adjustment o. No adjustment p. Operating expenses Cash q. Short-term investment Cash r. Short-term investment Cash s. No adjustment t. No adjustment u. Investment Cash Answer: 1. D

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2. D

5,100 500,000

120,000 20,000 15,000 210,000 150,000

80,000 600,000 100,000

150,000

3. C

5,100 500,000

120,000 20,000 15,000 210,000 150,000

80,000 600,000 100,000

150,000 4. A

5. A

Problem 2 The following items are found in the cash account of Ivie Company at December 31, 2006. The company’s controller asks your opinion whether the items listed below should be considered as part of cash account and come up with adjusting entry to adjust the cash account. 1. Customers’ check dated December 25, 2006, P25,000. 2. Company’s check (P30,000) dated December 26, 2006 which was drawn in payment for merchandise purchased on that date but not delivered until January 3, 2007. This check was deducted in the cash balance. 3. A check worth P196,000 from customer who paid the account net of the 2% discount. The company records the transaction as credit to Accounts Receivable for the proceeds. 4. Cash in closed bank (Urban Bank), P95,000. 5. Redemption fund, P100,000 6. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds payable. 7. Metro Bank Checking Account No. 0004568, P210,000. 8. RCBC Checking Account No. 0002347, P115,000. 9. Overdraft in PNB Checking Account No. 00011256, P50,000. 10. Company’s check dated January 3, 2007 in payment of account, P50,000. This was recorded in the company’s disbursement ledger at December 31, 2006. 11. Overdraft in RCBC Checking Account No. 0056791, P15,000. 12. Postage stamps, P2,000. 13. 90-day Treasury Bills (purchase on November 1, 2006), P100,000 14. Treasury Bills that matures on February 1, 2007, P50,000. 15. Change fund, P10,000. 16. Customers’ certified check, P20,000. 17. Company’s certified check, P50,000. (This was included in the cash disbursement for December). Questions 1. The entry to correct/adjust item number 3 is: a. Accounts receivable 4,000 Sales discounts 4,000 b. Sales discounts 4,000 Accounts receivable 4,000 c. Accounts receivable 4,000 Sales 4,000 d. No adjustments 2. The entry to correct/adjust item number 10 is: a. Accounts payable 50,000 Cash 50,000 b. Other liabilities 50,000 Cash 50,000 c. Cash 50,000 Accounts payable 50,000 d. No adjustment 3. The entry to correct/adjust item number 17 is: a. Accounts payable 50,000 Cash 50,000

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b. Cash Accounts receivable c. Cash Accounts payable d. No adjustments

50,000 50,000 50,000 50,000

4. The entry to correct/adjust item number 16 is: a. Accounts receivable 20,000 Cash 20,000 b. Cash 20,000 Accounts payable 20,000 c. Cash 20,000 Accounts receivable 20,000 d. No adjustments 5. IVIE COMPANY’S adjusted cash and cash equivalents balance at December 31, 2006 is: a. P 771,000 b. P 741,000 c. P 721,000s d. P 691,000 Solution Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item Item

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Answer: 1. B

– – – – – – – –

Cash Cash Cash Other Assets Investment Investment – current Cash Cash Current liability Offset to cash Offset to Cash Unused supplies Cash as cash equivalents Short-term investment Cash Cash property recorded as disbursement 2. A

3. D

4. D

5. D

Problem 3 Your audit of the December 31, 2006, financial statements of Mato Corporation reveals the following: 1. 2. 3. 4. 5. 6.

Current account at PBCom Current account at PNB Treasury bills (acquired 3 months before maturity) Treasury bills (maturity date is 12/31/07) Payroll account Foreign bank account - restricted (translated using the 12/31/06 exchange rate) 7. Postage stamps 8. Employees’ checks marked “DAIF” 9. IOU from the vice-president 10. Credit memo from a supplier for a purchase returns 11. Traveler’s check

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P (35,000) 65,000 200,000 500,000 175,000 900,000 600 10,000 50,000 25,000 60,000

12. Money order 13. Company’s check dated 12/30/06 but not mailed at year-end 14. Petty cash fund (P4,000 in currency and expense receipts for (P6,000)

10,000 30,000 10,000

Questions 1. The entry to adjust the employees’ checks marked “DAIF” is: a. Accounts receivable 10,000 Cash 10,000 b. Cash 10,000 Accounts receivable 10,000 c. Employees’ advances 10,000 Cash 10,000 d. Cash 10,000 Employees’ advances 10,000 2. MATO CORPORATION’S adjusted cash and cash equivalents balance at December 31, 2006 is: a. P 560,000 b. P 544,000 c. P 514,000 d. P 509,000 Solution Current account at PNB Treasury bills acquired 3 mos. Before maturity Payroll account Traveler’s check Money order Company’s undelivered check Petty cash fund TOTAL Answer: 1. C

65,000 200,000 175,000 60,000 10,000 30,000 4,000 544,000

B. B

Problem 4 The controller of Pacatang Company is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. The following information is provided: a. Commercial savings account of P1,000,000 and a commercial checking account balance of P900,000 are held at Phil. Banking Corporation. b. Money market fund account held at Allied Bank, P600,000 c. Travel advance of P180,000 for executive travel for the first quarter of next year (employee to reimburse through salary reduction) d. A separate fund in the amount of P1,500,000 is restricted for the retirement of longterm debt. e. Petty cash fund, P5,000 f. An IOU from David Santos, a company officer, in the amount of P10,000. g. A bank overdraft of P110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no other deposits at this bank. h. The company has two certificates of deposit, each totaling P500,000. These certificates of deposit have a maturity of 120 days. i. Pacatang Company has received a check that is dated January 12, 2007 in the amount of P125,000. j. Currency and coins on hand amounted to P5,300.

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Questions 1. PACATANG COMPANY’S adjusted cash and cash equivalents balance at December 31, 2006 is: a. P 1,910,300 b. P 2,400,300 c. P 2,510,300 d. P 3,510,300 2. The travel advance of P180,000 for executive travel should be classified as: a. Accounts receivable c. Prepaid expenses b. Travel expenses d. Advances to employees Solution Commercial savings account Commercial checking account Petty cash fund Currency and coin on hand Amount of cash to be reported on balance sheet at 12.31.03 (2) (3) (4) (6) (7)

Money market fund acct. Travel advance for executive travel (employee to reimburse through salary deduction) Bond Retirement Fund IOU from company officer Bank overdraft (the co. has no other deposits at this bank)

(8) (9)

Certificates of deposit (maturity of 120 days Postdated check January 12, 2004

Answer: 1. A

P1,000,000 900,000 5,000 5,300 P1,910,300 M/S or Temp. Investments Advances to Employees Long-term Investment Advance to officers Current Liabilities Marketable securities Receivable

2. D

Problem 5 Present journal entries to record the following transactions in the books of Marites Corporation, which uses a calendar year as accounting period. Assume that the company is using the imprest method in accounting for petty cash fund: a. A petty cash fund was set up on November 1, 2006 in the amount of P2,400. b. On November 29, 2006, a check was issued to replenish the fund, the composition of which was as follows: Currency – bills and coins 166 Vouchers showing expenditures for: Office supplies 270 Charges from purchased of supplies 124 Repairs and maintenance 350 Wages paid to casual employees 950 Charges from purchased of goods to be sold 400 c. On December 18, 2006, the fund was replenished and correspondingly increased to P3,000; its composition included the following: Currency – bills and coins 158 Vouchers showing expenditures for: Store supplies 304 Accounts payable 914 Charges from purchased of goods to be sold 242 Miscellaneous expenses 782

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d. An examination on December 31, 2006, disclosed the following composition of the fund, although it was not replenished on this date: Currency – bills and coins 958 Check of office manager, dated January 5, 2007 1,000 Vouchers showing expenditures for: Office supplies 126 Miscellaneous expenses 90 Accounts payable 800 e. On January 5, 2007, the check of office manager was cashed and the proceeds were added to the petty cash fund. f.

On January 6, 2007, replenished disbursement from December 18, 2006 to January 5, 2007.

Questions 1. The entry to record the November 29 replenishment of petty cash fund is: a. Operating expenses 1,694 Freight-in 400 Cash short/over 140 Cash 2,234 b. Operating expenses 2,234 Petty cash fun d 2,234 c. Operating expenses 1,694 Freight-in 400 Cash short/(over) 140 Petty cash fund 2,234 d. No entry since the company is using an impress fund system. 2. The adjusted Petty Cash Fund balance of MARITES CORPORATION at December 31, 2006 is: a. P 3,000 b. P 1,958 c. P 984 d. P 958 3. The entry to record the December 31, 2006 adjustment of petty cash fund is: a. Operating expenses 216 Accounts payable 800 Cash short/over 26 Petty cash fund 1,042 b. Operating expenses 216 Accounts payable 800 Cash short/over 26 Cash 1,042 c. Operating expenses 216 Accounts payable 800 Advances – employees 1,000 Cash short/(over) 26 Petty cash fund 2,042 d. No entry since there is no replenishment yet.

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4. The entry to record the January 6, 2004 replenishment of petty cash fund is: a. Operating expenses 216 Accounts payable 800 Cash short/over 26 Petty cash fund 1,042 b. Operating expenses 216 Accounts payable 800 Cash short/over 26 Cash 1,042 c. Operating expenses 216 Accounts payable 800 Advances – employees 1,000 Cash short/(over) 26 Cash 2,042 d. No entry since the account has been adjusted on December 31. Solution a. Petty cash fund Cash b. Operating expenses Freight-in Cash short/over Cash c. Operating expenses Accounts payable Freight-in Cash Petty cash fund Cash d. Operating expenses Advances to employees Accounts payable Cash short/over Petty cash fund Reversing entry – January 1 Petty cash fund Operating expenses Advances to employees Accounts payable Cash short/over e. f.

No entry Operating expenses Accounts payable Cash short/over Cash Answer: 1. A 2. D

2,400 1,694 400 140 1,086 914 242 600 216 1,000 800 26

2,042

216 800 26 3. C

2,400

2,234

2,242 600

TCAF Accountability Shortage

2,260 2,400


2,400 2,400


2,994 3,000

140

0

26

2,042

216 1,000 800 26

1,042 4. B

Problem 6 Your audit of the petty cash (P10,000) of Juliet Company as of December 31, 2006 revealed the following: (cash count date is January 3, 2007 at 5:00 pm) Bills: 10 - P500 bill 15 - P100 bill 18 - P50 15 - P20 5 - P10 Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces. IOU’s submitted were: Dec. 18 Nap R. P 750 Dec. 28 Ruel R. 125 Dec. 30 Sonny S. 500

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Cashed checks: Dec. 28, 2006 Dec. 28, 2006 Dec. 30, 2006 Jan 1, 2007

check check check check

drawn drawn drawn drawn

by by by by

the manager an employee a customer an employee

P 1,125 500 350 1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open certain payroll envelopes unclaimed by employees and use the cash found herein. They were as follows: Dec. 15, 2006 - Ed A. P 1,250 Dec. 30, 2006 - Andoy 1,750 Dec. 30, 2006 - Macky 650 Dec. 30, 2006 - Paz 1,000 The cashier also informed you that all cash sales receipts were passed through his fund and that cash sales tickets Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4 for P350, 500 and P545, respectively, had not yet been turned over to the general cashier. The petty cash vouchers found in the petty cash box were as follows: Dec. 30, 2006 Transportation P515 Dec. 30, 2006 Token gifts to visitors 650 Dec. 30, 2006 Freight for office supplies purchase 215 Jan. 1, 2007 Freight for mdse. purchased 125 Jan. 2, 2007 Freight for mdse. sold 575 Questions 1. JULIET COMPANY’S cash shortage at December 31, 2006 is: a. P 2,072.75 b. P 1,370.00 c. P 1,027.75

d. P 327.75

2. The adjusted petty cash balance of JULIET COMPANY at December 31, 2006 is: a. P 10,000 b. P 9,625 c. P 5,975 d. P 4,625 3. The entry to adjust the unclaimed payroll at December 31, 2006 is: a. Petty Cash Fund c. Cash Salaries expense Accrued salaries b. Salaries expense d. Accrued salaries Petty cash fund Cash 4. The cashed check dated January 1, 2007 a. Should be adjusted since it was dated January 1, 2007, hence a postdated check. b. Should be adjusted since it was received December 31, 2006 but the check is dated January 1, 2007, hence a postdated check. c. Should not be adjusted since the check is dated January 1, 2007. d. Should not be adjusted since the check was received December 31, 2007. 5. The Cash account (excluding PCF) of JULIET COMPANY is understated at December 31, 2006 by: a. P 4,650 b. P 4,900 c. P 6,045 d. P 6,370

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Solution Cash Count Bills Coins IOUs Checks Vouchers TCAF Accountability PCF per ledger Unclaimed payroll Undeposited sales Cash shortage

ANSWER: 1. B

7,750 245 1,375 3,225 2,080 14,675 (10,000) ( 4,650) ( 1,395) 1,370

2. D

3. C

Due to custodian Petty cash fund

1,370

Advances to employees Petty cash fund

1,375

Cash Sales

350

Advances to employees Petty cash fund

1,250

Cash Accrued salaries

4,650

Operating expenses Petty cash fund

1,380

4. B

1,370 1,375 350 1,250 4,650 1,380

5. B

Problem 7 You are making an audit of the Darwin Corporation for the past calendar year. The balance of the Petty Cash account at December 31, 2006 was P1,300. Your count of the imprest cash count made at 8:30 am on January 3, 2007, in the presence of the petty cash custodian, revealed: Currency and coins

571.38

Checks: Date 12/28/06 12/29/06 12/31/06 01/02/07 01/10/07

Maker Bank Macky, vice-president PNB 360.00 Andy, employee DBP 60.00 Bobot, customer RCBC 153.80 Neil, customer PNB 121.36 Jeff, employee PNB 60.00 (check received Dec. 29) (These checks were all considered good when deposited after dates shown on the checks. The first four checks were actually deposited Jan. 3; the last check was deposited Jan. 11; all five checks proved to be good.)

Vouchers: Dec. 11 Dec. 28 Dec. 29 Dec. 31 Jan. 2 IOU

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#261 Richard, shipping clerk – temporary advance for the use of the receiving department. Your count of Mr. Richard’s fund revealed: currency – P28.80; merchandise freight bills, P31.20. P 60.00 # 301 Postage 12.00 # 302 Freight bill on merchandise purchases 47.30 # 305 Freight bill on office supplies 88.93 # 500 Freight bill on merchandise purchases 29.36

Dec. 21

Mabel, employee

36.00

Sales Invoices (for cash sales, collections handled by the petty cashier): Invoice # 315 Dec. 30 P 120.00 328 Dec. 31 153.80 334 Jan. 2 121.36 (As a general rule, the petty cashier endeavored to turn over the proceeds of cash sales to the general cashier on the 10 th, 20th and last days of each month. Proceeds on these sales were recorded and deposited by the general cashier.) Postage Stamps: Three one-peso stamps. The petty cashier handled postage stamps. stamps represent the unused stamps purchased on Voucher # 301. Questions 1. The petty cash fund shortage at December 31, 2006 is: a. P 216.39 b. P 123.83 c. P 98.03

These

d. P 95.03

2. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006 is: a. P 900.74 b. P 960.74 c. P 1,174.54 d. P 1,234.54 3. DARWIN CORPORATION’S operating expenses found in the petty cash fund at December 31, 2006 is: a. P 208.23 b. P 205.75 c. P 174.03 d. P 97.93 4. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at December 31, 2006 by: a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00 Solution Cash count Currency and coins Checks Vouchers IOU TCAF Accountability PCF per ledger Undeposited sales Cash shortage

Answer: 1. D

571.38 755.16 237.59 36.00 1,600.13 (1,300.00) ( 395.16) 95.03

Due to custodian PCF Cash Sales (SI#328 & 315) Adv. to employee PCF Adv. to employee Operating expenses Freight-in PCF

3. D

273.80 60.00 60.00 100.93 47.30

Freight-in Adv. to employee

31.20

Adv. to employee PCF

36.00

Unused postage Operating expenses 2. A

95.03

95.03 273.80 60.00

208.23 31.20

3.00

36.00 3.00

4. B

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Problem 8 In connection with your audit of the financial statements of Reyes Corporation for the year ended December 31, 2006, you conducted a surprise count of the company’s petty cash and undeposited collections at 9:10 am on January 3, 2007. You count disclosed the following: Bills and counts Bills P100.00 50.00 20.00 10.00

5 pieces 40 pieces 35 pieces 27 pieces

Coins P1.00 0.50 0.25

205 pieces 162 pieces 32 pieces

Postage stamps (unused) - P365 Checks Date Dec. 30 Dec. 30 Dec. 31 Dec. 31 Dec. 31 Dec. 31

Payee Cash Reyes Corp. Reyes Corp. Reyes Corp. Reyes Corp. Merry Corp. (not endorsed)

Unreimbursed vouchers Date Payee Dec. 23 Sheryl, sales mgr. Dec. 28 Post Office Dec. 29 Messengers Dec. 29 Ace, Inc.

Maker Custodian Karren, Inc. Sheryl, sales manager Victor Corp. Ma. Karen, Inc. Reyes Corp.

Amount P 1,200 14,000 1,680 17,800 8,300 27,000

Description Advance for trip Postage stamps Transportation Computer repair

Amount P 7,000 1,620 150 800

Other items found inside the cash box: 1.

Unclaimed pay envelope of Jeanette. Indicated on the pay slip is his net salary of P7,500. Your inquiry revealed that Jeanette’s salary is mingled with the petty cash fund.

2.

The sales manager’s liquidation report for this Baguio Trip. Cash Advance received on Dec. 23 Less: Hotel accomodation, meals, etc. P 4,500 Bus fare for two 400 Cash given to Carlo, salesman 300 Balance Accounted for as follows: Cash returned by Carlo to the sales manager Personal check of the sales manager Total

Additional information: 1. The custodian is not authorized to cash checks.

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P 7,000 5,200 P 1,800 P

120 1,680 P 1,800

2. The last official receipt included in the deposit on December 30 is No. 4351 and the last official receipt issued for the current year is No. 4355. The following official receipts are all dated December 31, 2006. OR No. 4352 4353 4354 4355

Amount P 13,600 17,800 3,600 8,300

Form of Payment Cash Check Cash Check

3. The petty cash balance per general ledger is P10,000. fund was made on December 22, 2006.

The last replenishment of the

Questions 1. REYES CORPORATION’S cash shortage/overage at December 31, 2006 is: a. P 61,166 short c. P 34,166 over b. P 20,166 short d. P 22,514 over 2. The adjusted petty cash balance of REYES CORPORATION at December 31, 2006 is: a. P 4,964 b. P 2,110 c. P 1,200 d. P 430 3.

The undeposited sales/collection of REYES CORPORATION at December 31, 2006 is: a. P 66,480 b. P 64,800 c. P 57,300 d. P 43,300

Solution Bills and coins Checks Vouchers TCAF Accountability PCF per ledger Undeposited sales – with receipts Unclaimed payroll Unendorsed check Undeposited sales – without receipts Check endorsed by sales manager Cash shortage

3,764 69,980 9,570 83,314 (10,000) (43,300) ( 7,500) (27,000) (14,000) ( 1,680) (20,166)

Due to custodian Cash

20,166

Cash Sales (with and without receipts)

57,300

Cash Accrued salary

7,500

Petty cash fund Advances to employees

1,680

Advances to employees Operating expenses Petty cash fund

7,000 2,570

Operating expenses Advances to employees

5,080

Answer: 1. B

20,166 57,300 7,500

2. B

1,680

9,570 5,080

3. C

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Problem 9 Mary Jane is the cashier of Adlawan Corporation. AS representative of the Zarate and Associates, CPAs, you were assigned to verify her cash on hand in the morning of January 3, 2007. You began to count at 9:00 AM in the presence of Mary Jane. In the course of your counting, you found currencies in paper bills and coins together with checks, vouchers, and other items, which are mentioned below: Bills:

(2) P500;

(8) P100;

Coins:

P 5.00 1.00 0.25 0.10 0.05

11 loose 24 loose 5 rolls and 32 loose (50 pieces to a roll) 10 rolls and 15 loose (50 pieces to a roll) 14 rolls and 20 loose (40 pieces to a roll)

Checks: Date 12/22/06 12/26/06

Maker Vivian, Asst. Mgr Mary Jane, cashier

IOUs: Date 12/20/06 12/22/06 12/24/06

Maker Yap, Janitor Felix, clerk Ablay, bookkeeper

(12) P50;

(5) P20

Payee Adlawan Corp. Adlawan Corp.

Amount P 6,000 4,000 Amount P 500 750 500

PETTY CASH VOUCHERS FOR REPLENISHMENT Date Payee Accounts Charged 12/16/06 Wagan, messenger Advances to employees 12/17/06 Maren and Co. Supplies 12/18/06 Eeman Liner Freight in 12/18/06 Posts Office Supplies 12/20/06 Alejandre, carpenter Repairs 12/21/06 Violan Miscellaneous expense

Amount P1,000.00 545.00 982.50 300.00 2,950.00 554.00

Your investigation also disclosed the following: 1. The balance of petty cash fund per books is P20,000.00. 2. Cash sale of January 2, 2007 amounted to P8,650 per sales records, while cash receipts book and bank deposit slip showed that only P7,650 was deposited in the bank on January 3, 2007 3. The following employees’ pay envelopes had been opened and the money removed. Each envelope was marked “Unclaimed” - Ernesto, P332.50; Secinando, P447.50. Questions 1. The petty cash shortage of ADLAWAN CORPORATION at December 31, 2006 is: a. P 2,748.50 b. P 1,748.50 c. P 968.50 d. P 188.50 2. The adjusted petty cash balance of ADLAWAN CORPORATION at December 31, 2006 is: a. P 10,950 b. P 11,950 c. P 11,730 d. P 12,730

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3. The undeposited sales/collection of ADLAWAN CORPORATION at December 31, 2006 is: a. P 8,650 b. P 7,650 c. P 1,000 d. P 0 Solution Cash count Bills and coins Checks IOUs PCF Vouchers TCAF Accountability PCF per ledger Uneposited sales Unclaimed payroll Cash shortage

2,730.00 10,000.00 1,750.00 6,331.50 20,811.50 (20,000.00) ( 1,000.00) ( 780.00) 968.50

Due to custodian Petty cash fund Adv. to employees Petty cash fund

1,750.00

Adv. to employees Operating expenses Freight-in Petty cash fund

1,000.00 4,349.00 982.50

Cash Accrued salary

Answer: 1. C

2. A

968.50

968.50 1,750.00

6,331.50

780.00 780.00

3. D

Problem 10 In your year-end audit of Angela Corp., the cashier showed a cash accountability of P1,100,000 as at December 31, 2006. The following transactions were extracted in the books of the company, in summary form: Accounts receivable, beginning Accounts receivable, end Sales (80% on credit) Accounts written-off Recovery of accounts written-off, included in the collection of account receivable Depreciation of fixed assets Inventory, end Inventory, beg Cost of sales Income tax accrued Payment of bank loan Subscription receivable Subscribed capital stock Purchases of fixed assets Proceeds from short-term bank loan Accounts payable, end Accounts payable, beg.

P 275,000 385,000 1,850,000 25,000 15,000 150,000 185,000 203,000 960,000 18,500 200,000 250,000 950,000 320,000 300,000 425,000 200,000

Questions 1. The correct cashier’s accountability at December 31, 2006 is: a. P 1,493,000 b. P 1,123,000 c. P 793,000

d. P 423,000

2. ANGELA CORPORATION’S cash account at December31, 2006 is: a. Understated by P 307,000 c. Overstated by P 693,000 b. Understated by P 393,000 d. Overstated by P 677,000

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Solution Proceeds from collection of accounts receivable Proceeds from cash sales Proceeds from bank loan Proceeds from issuance of capital stock (P950,000 – P250,000) Payment of accounts payable Payment of short-term bank loan Purchase of fixed assets Total Accountability Total Cash Cash shortage * Accounts Receivable Beg. bal 275,000 Collection Cr. Sales 1,480,000 Write-off Recovery 15,000 1,770,000 End bal 385,000 ** Accounts payable Payment 717,000 Beg. bal. _______ Purchases 717,000 End bal. Answer: 1. A 2. B

1,360,000 * 370,000 300,000 700,000 ( 717,000) ** ( 200,000) ( 320,000) 1,493,000 1,100,000 393,000

1,360,000 squeeze figure 25,000 ________ 1,385,000

200,000 942,000 *** 1,142,000 425,000

*** Beg. Inv. 203,000 Purchases 942,000 TGAS 1,145,000 End inv. 185,000 COS 960,000

Problem 11 The following data are gathered from the cash books and bank statement received from Davao Bank by Grace Company: The cash in bank ledger account shows a debit balance of P290,438.50 as of May 31. The bank statement shows a credit balance of P318,560 as of May 31. An examination of the checks encashed by the bank shows that the following checks are not presented for payment: No. 187, P3,608; No. 189, P15,499; No. 191, P4,400; No. 192, P1,545.50, No. 193, P23,001 A certified check for P24,750 payable to creditor, was encashed by the bank during May. The bank statement shows a deduction of P10,802 for check No. 184. actually made out at P10,208.

The check was

A check deposited on May 27 for P34,100 was returned by the bank on May 28 marked Refer to Maker. A non-interest bearing note for P44,000 was collected by the bank for the account Grace Company. Collection fee deducted by the bank is P330. A deposit for P20,900 was recorded in the books twice. Check No. 179 for P26,400 was erroneously recorded in the books as P46,200. Interest on an outstanding loan payable, deducted by the bank on May 31, P1,320. Collections on May 31 to be deposited on June 1, P26,488.

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Questions 1. GRACE COMPANY’S adjusted cash balance at May 31, 2006 is: a. P 341,939.50 b. P 283,288.50 c. P 297,588.50

d. P 273,168.50

2. The recorded cash of GRACE COMPANY at May 31 is: a. Understated by P 17,270 c. Overstated by P 7,150 b. Understated by P 7,150 d. Overstated by P 17,270 Solution Unadjusted Book balance Returned check Collection of Notes Error Error Error Adjusted book balance

290,438.50 (34,100.00) 43,670.00 (20,900.00) 19,800.00 ( 1,320.00) 297,588.50

Unadjusted Bank balance 318,560.00 Outstanding checks (48,053.50) Error 594.00 Deposit in transit 26,488.00 Adjusted bank balance

_________ 297,588.50

Adjusting entry: Accounts receivable Cash Cash Collection fee Notes receivable Accounts receivable Cash Cash Accounts payable Interest expense Cash Answer: 1. C

34,100 43,670 330 20,900 19,800 1,320

34,100 44,000 20,900 19,800 1,320

2. B

Problem 12 The following data pertaining to the cash transactions and bank account of Abiso Company for May 2006 are available to you: Cash balance, per accounting records, May 31, 2006 Cash balance, per bank statement, May 31, 2006 Bank service charge for May Debit memo for the cost of printed checks delivered by the bank; the charge has not been recorded in the accounting records Outstanding checks, May 31, 2006 Deposit of May 30 not recorded by bank until June 1 Proceeds of bank loan on May 30, not recorded in the accounting records, net of interest of P900 Proceeds from a customer’s promissory note; principal amount P24,000, collected by the bank, taken up in the books with interest Check No. 1086 issued to a supplier entered in the accounting records as P6,300 but deducted in the bank statement at an erroneous amount of Stolen check lacking an authorized signature, deducted from Abiso’s account by the bank in error

P 51,582 95,874 327 375 20,184 14,610 17,100 24,300 3,600 2,400

17

Customer’s checks returned by the bank marked NSF, indicating that the customer’s balance was not adequate to cover the checks; no entry has been made in the accounting records to record the returned check

2,280

Questions 1. The adjusted cash in bank balance of ABISO COMPANY at May 31, 2006 is: a. P 87,570 b. P 90,000 c. P 90,570 d. P 90,900 2. The cash in bank balance of ABISO COMPANY at May 31, 2006 is: a. Understated by P39,318 c. Understated by P38,418 b. Understated by P38,988 d. Understated by P35,988 Solution Unadjusted balance Service charge DM – printed checks Outstanding checks Deposit in transit Loan proceed Proceed from note collection Bank error Bank error NSF Adjusted balance

Book 51,582 ( 327) ( 375) 17,100 24,300 ( 2,280) 90,000

Bank 95,874 (20,184) 14,610 ( 2,700) 2,400 __________ 90,000

Adjusting entry: Service charge Cash

327

Service charge Cash

375

Cash Prepaid interest Bank loan

17,100 900

Cash Note receivable Interest income

24,300

Accounts receivable Cash Answer: 1. B 2. C

2,280

327 375

18,000 24,000 300 2,280

Problem 13 In connection with an audit, you are given the following bank reconciliation. BANK RECONCILIATION December 31, 2006 Balance per ledger, 12/31/03 Add: Collections received on the last day of December and charged to “Cash in Bank” on books but not deposited Debit memo for customer’s checks returned unpaid (check is on hand but no entry has been made on the books)

18

P 34,349.72 5,324.50 4,000.00

Debit memo for bank service charge for December Deduct: Outstanding checks (see details below) Credit memo for proceeds of a note receivable which had been left at the bank for collection but which has not been recorded as collected Check for an account payable entered on books as P12,625 but drawn and paid by bank as 16,225 Computed balance Unlocated difference Balance per bank (check to confirmation) LIST OF OUTSTANDING CHECKS December 31, 2006 Check No. 14344 14358 14367 14399 14401 14407

1,000.00 P 46,674.22

P 18,625

8,000 3,600

32,225.00 P 14,449.22 36,601.00 P 51,050.22

Amount P 5,820 1,295 3,543 2,001 4,892 5,074 P 18,625

Questions: 1. The adjusted cash balance at December 31, 2006 is: a. P 33,749.72 b. P 34,949.72 c. P 37,749.72

d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by bank as 16,225 a. Should not be included in the reconciliation since the bank already gave the money to the payee. b. Should not be included in the reconciliation since bank’s record is always followed. c. Should be included as deduction in the book reconciliation since this is considered as book error, thus a reconciling item. d. Should be included as addition in the book reconciliation since this is considered as book error, thus a reconciling item. 3. The outstanding checks at December 31, 2006 is: a. P 15,025 b. P 18,625 c. P 19,025

d. P 22,625

4. The cash balance of the company per record at December 31, 2006 is: a. Overstated by P600 c. Understated by P 3,400 b. Overstated by P1,200 d. Overstated by P 6,600 Solution Unadjusted balance Returned checks Service charge Collection of note receivable

Bank 51,050.22

Book 34,349.72 ( 4,000.00) ( 1,000.00) 8,000.00

19

Deposit in transit Outstanding checks Book error Adjusted balance

5,324.50 (22,625.00) ____________ 33,749.72

( 3,600.00) 33,749.72

Adjusting entry Accounts receivable Cash

4,000

Service charge Cash

1,000

Cash Note receivable

8,000

Accounts receivable Cash Answer: 1. A 2. C

3,600 3. D

4,000 1,000 8,000 3,600

4. A

Problem 14 The cash books of Grace Corporation show the following entries during the month of June 2006. Cash Receipts Journal Check Register Date Amount Date Check No. Amount June 1Balance 762,000 June2 801 15,625 4Deposit 113,000 3 802 7,526 4Deposit 811,000 5 803 229,205 7Deposit 152,200 7 804 169,555 10 Deposit 11,300 8 805 74,936 10 Deposit 12,700 10 806 274,600 11 Deposit 73,000 11 807 34,842 17 Deposit 110,075 13 808 250,000 18 Deposit 3,725 14 809 1,070,000 18 Deposit 65,000 17 810 167,300 19 Deposit 26,463 19 811 3,130 20 Deposit 133,037 21 812 82,730 27 Deposit 273,628 23 813 127,200 30 Deposit 92,400 25 814 93,080 30 815 720 The bank statement for the month of June 2006 shows: Checks No. Balance

Deposits

217,200

Date May 31 June 5 6 7 8

Amount 798,000 1,722,000 1,686,000 1,516,445 1,658,709

97,000

9 12

1,412,979 1,475,137

40,400 CM

13

1,440,337

14

370,337

924,000 800 804 805 801 803 807 924

36,000 169,555 74,936 16,525 229,205 34,842 75,000 200 (collection charge) 809 1,070,000

20

808

250,000

810 812 806

167,300 82,730 274,600

811 DM

3,130 300

198,000 CM 113,800 159,500 273,628

15 16 19 21 24 28

120,337 318,337 264,837 341,607 67,007 340,635

30

337,205

Upon investigation, the following are discovered: CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of Grace Company. CM - Represents a 60-day, 6% own note for P200,000 discounted by Grace Corporation with the bank and not yet recorded in the books. DM - Represents bank service charge for the month. Check No. 924 represents a check signed by Graciele Company. Collection charge – represents collection fee charged by the bank. Questions 1. The unadjusted cash ledger balance of GRACE CORPORATION at June 30, 2006 is: a. P 114,079 b. P 113,179 c. P 39,079 d. P 38,179 2. The unadjusted cash bank balance of GRACE CORPORATION at June 30, 2006 is: a. P 261,305 b. P 336,305 c. P 337,205s d. P 412,205 3. The deposit in transit of GRACE CORPORATION at June 30, 2006 is: a. P 92,400 b. P 104,500 c. P 182,000 d. P 0 4. The outstanding checks of GRACE CORPORATION at June 30, 2006 is: a. P 302,806 b. P 228,526 c. P 227,806 d. P 153,526 5. The adjusted cash balance of GRACE CORPORATION at June 30, 2006 is: a. P 277,879 b. P 276,079 c. P 261,305 d. P 201,079 6. The error made in check number 801 is known as: a. Fundamental error c. Transplacement error b. Balance sheet error d. Transposition error 7. In the discounting of P200,000 note, the company should credit a. Notes receivable discounting c. Notes payable b. Notes Receivable d. Notes discounting Solution Unadjusted book bal. Error – Check # 801 – P 15,625 Correct 16,525 Collection fee DM CM CM Adjusted balance

39,079 ( 900) ( 200) ( 300) 40,400 198,000 276,079

Unadjusted bank bal. Deposit in transit Outstanding checks: # 802 # 813 # 814 # 815 Error Adjusted balance

337,205 92,400 7,526 127,200 93,080 720

(228,526) 75,000 276,079

21

Adjusting entry: Accounts payable 900 Cash Cash 40,200 Collection fee 200 Notes receivable Interest income Service charge 300 Cash Cash 198,000 Interest expense 2,000 Notes payable Answer: 1. C 6. D

2. C 7. B

900 40,000 400 300 200,000 3. A

4. B

5. B

Problem 15 The bank portion of the bank reconciliation for Angelo Company at October 31, 2006 was as follows: Angelo Company Bank Reconciliation October 31, 2006 Cash Balance per Bank P 12,367.90 Add: Deposit in transit 1,530.20 P 13,898.10 Less: Outstanding checks Check Number 2451 2470 2471 2472 2474

Check Amount P 1,260.40 720.10 844.50 426.80 1,050.00

Adjusted cash balance per bank

4,301.80 P 9,596.30

The adjusted cash balance per bank agreed with the cash balance per books at October 31. The November bank statement showed the following checks and deposits. Bank Statement Checks Deposits Date Number Amount Date 11-1 2470 720.10 11-1 1,530.20 11-2 2471 844.50 11-4 1,211.60 11-5 2474 1,050.00 11-8 990.10 11-4 2475 1,640.70 11-13 2,575.00 11-8 2476 2,830.00 11-18 1,472.70 11-10 2477 600.00 11-21 2,945.00 11-15 2479 1,750.00 11-25 2,567.30 11-18 2480 1,330.00 11-28 1,650.00 11-27 2481 695.40 11-30 1,186.00 11-30 2483 575.50 Total 16,127.90 11-29 2486 900.00 Total 12,936.20

22

Amount

The cash records per books for November showed the following:

Date 11-1 11-2 11-2 11-4 11-8 11-10 11-15 11-18

Cash Payments Journal Number Amount Date 2475 1,640.70 11-20 2476 2,830.00 11-22 2477 600.00 11-23 2478 538.20 11-24 2479 1,570.00 11-29 2480 1,330.00 11-30 2481 695.40 Total 2482 612.00

Number 2483 2484 2485 2486 2487 2488

Amount 575.50 829.50 974.80 900.00 398.00 800.00 14,294.10

Cash Receipts Journal____ Date Amount 11-3 1,211.60 11-7 990.10 11-12 2,575.00 11-17 1,472.70 11-20 2,954.00 11-24 2,567.30 11-27 1,650.00 11-29 1,186.00 11-30 1,225.00 Total 15,831.70

The bank statement contained two bank memoranda: 1. A credit of P2,105.00 for the collection of a P2,000 note for Angelo Company plus interest of P120 and less a collection fee of P15. Angelo company has not accrued any interest on the note. 2. A debit for the printing of additional company checks, P50. At November 30, the cash balance per books was P11,123.90, and the cash balance per the bank statement was P17,604.60. The bank did not make any errors, but Angelo Company made two errors. Note: The correction of any errors pertaining to recording checks should be made to Accounts Payable. The correction of any errors relating to recording cash receipts should be made to Accounts Receivable Questions 1. The unadjusted cash ledger balance of ANGELO COMPANY at November 30, 2006 is: a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90 2. The unadjusted bank balance of ANGELO COMPANY at November 30, 2006 is: a. P 12,828.90 b. P 13,008.90 c. P 13,188.90 d. P 17,614.60 3. The outstanding checks of ANGELO COMPANY at November 30, 2006 is: a. P 5,659.70 b. P 5,830.70 c. P 5,839.70 d. P 6,028.70 4. The deposit in transit of ANGELO COMPANY at November 30, 2006 is: a. P 1,225 b. P 1,216 c. P 1,234 d. P 1,396 5. The adjusted book balance of ANGELO COMPANY at November 30, 2006 is: a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90

23

Solution Unadjusted bank bal. Deposit in transit Outstanding checks: #2451 1,260.40 #2473 426.80 #2478 538.20 #2482 612.00 #2483 829.50 #2484 974.80 #2488 800.00 Adjusted balance

17,614.60 1,225.00

Unadjusted book bal. CM – notes collected DM – service charge Error – overstatement of recorded receipts Error- understatement of disbursement

( 5,839.70) 12,990.90

11,133.90 2,105.00 ( 50.00) (

9.00)

(

180.00)

_________ 12,990.90

Adjusted balance

Adjusting entry: Cash Service charge Notes receivable Interest income Service charge Cash Accounts receivable Cash Accounts payable Cash Answer: 1. A

2. D

2,105 15 50 9 180

3. C

2,000 120 50 9 180 4. A

5. B

Problem 16 The following information pertains to the cash of Jenny Company: Balance shown on bank statement Balance shown in general ledger before reconciling the bank account Outstanding checks Deposits in transit Deposits shown in bank statement Charges shown on bank statement Cash receipts shown in company’s books Cash payments shown in company’s books

Nov 31 P 27,380

Dec. 31 P 26,960

25,780 8,630 6,850

25,000 10,150 12,450

For Dec. P 55,880 56,300 53,980 54,760

The bank service charge was P180 in November (recorded by the company during December) and P240 in December (not yet recorded by the company). Included with the December bank statement was a check for P5,000 that had been received on December 25 from a customer on account. The returned check marked “NSF” by the bank, has not yet been recorded on the company’s books. During December the bank collected P7,500 of bond interest for the company and credited the proceeds to the company’s account. The company earned the interest during the current accounting period but has not yet recorded it. During December the company issued a check for P6,960 for equipment. The check, which cleared the bank during December, was incorrectly recorded by the company for P8,960.

24

Questions 1. The adjusted cash receipts of JENNY COMPANY at December 31 is: a. P 61,480 b. P 53,980 c. P 50,280 d. P 46,480 2. The adjusted cash disbursements of JENNY COMPANY at December 31 is: a. P 63,980 b. P 61,980 c. P 57,820 d. P 54,780 3. In a proof of cash, the NSF check: a. Should be added in the December 31 column since this was returned back by the bank. b. Should be deducted in the December 31 column since this was returned back by the bank. c. Should be deducted in the December 31 column since this was returned back and not paid by the bank, thus not considered as receipts. d. Should be added in the December 31 column since this was returned back and not paid by the bank, thus not considered as receipts. 4. The adjusted December 31 cash balance of JENNY COMPANY is: a. P 29,760 b. P 29,260 c. P 27,260

d. P 25,600

5. The adjusted November 31 cash balance of JENNY COMPANY is: a. P 29,160 b. P 27,260 c. P 26,160

d. P 25,600

6. The check issued but was incorrectly recorded as P8,960 should be adjusted by: a. Accounts payable 2,000 c. Cash 2,000 Cash 2,000 Accounts payable 2,000 b. Equipment 2,000 d. Cash 2,000 Cash 2,000 Equipment 2,000 Solution Balance per book Service charge – Nov. 30 - Dec. 31 NSF check Interest earned Book error Adjusted Balance Balance per bank Outstanding check – Nov. - Dec. Deposit in transit - Nov - Dec Adjusted balance

Nov. 30 25,780 (180)

__________ 25,600

Receipts 53,980

7,500 _________ 61,480

Nov. 30 27,380 (8,630)

Receipts 55,880

6,850 __________ 25,600

(6,850) 12,450 61,480

Disburs. 54,760 (180) 240 5,000 (2,000) 57,820

Dec. 31 25,000 (240) (5,000) 7,500 2,000 29,260

Disburs. 56,300 (8,630) 10,150

Dec. 31 26,960

_________ 57,820

12,450 29,260

(10,150)

Adjusting entry Service charge Cash

240

Accounts receivable Cash

5,000

Cash Interest income

7,500

240 5,000 7,500

25

Cash Equipment Answer: 1. A

2,000 2. C

3. C

2,000 4. B

5. D

6. D

Problem 17 ELEFANTE’s check register shows the following entries for the month of December Date 2006 Dec

Checks 1 5 7 11 26 29

Deposits

Beginning Balance Deposit Check # 14344 32,500 Check # 14345 14,000 Deposit Check #14346 8,600

Balance P 83,900

P 65,000 120,800 106,800 49,000 147,200

ELEFANTE’s bank reconciliation for November revealed one outstanding check (No.14343) for P12,000 (written on November 28), and one deposit in transit for P5,550 (made November 29). The following is from Elefante’s bank statement for December 2006: Date 2006 Dec.

Checks 1 1 4 5 14 15 20 29 31

Beginning balance Deposit Check No. 14344 Deposit Check No. 14345 Loan Proceeds NSF check Service charge Interest

Deposits P

5,550

P 32,500 56,000 14,000 500,000 7,600 1,000 3,600

Balance P 95,970 101,300 68,800 124,800 110,800 610,800 603,200 602,200 605,800

Note: All errors noted in this problem were committed by the Elefante, not the bank. It is also noted that the company failed to record one deposit in the book. Questions 1. The unadjusted cash receipts per ledger of ELEFANTE COMPANY for the month of December is: a. P 119,620 b. P 114,000 c. P 110,620 d. P 105,000 2. The unadjusted cash receipts per bank of ELEFANTE COMPANY for the month of December is: a. P 574,150 b. P 568,600 c. P 565,150 d. P 559,600 3. The adjusted December 1 cash ledger balance of ELEFANTE COMPANY is: a. P 95,970 b. P 89,520 c. P 83,900 d. P 78,280 4. The adjusted December31 cash bank balance of ELEFANTE COMPANY is: a. P 634,420 b. P 628,800 c. P 623,180 d. P 577,620

26

5. The overstatement of deposit should be: a. Deducted in the bank December 31 column. b. Added in the bank December 31 column. c. Deducted in the book December 31 column. d. Added in the book December 31 column. Solution

Dec. 1 95,970 5,550

Bank balance Deposit in transit – Dec. 1 - Dec. 31 Outstanding checks Dec. 1 - #14343 Dec. 31 - #14343 – P12,000 #14346 - 8,600 Adjusted balance

Receipts 565,150 (5,550) 49,000

(12,000)

Book balance Overstatement of deposit Loan proceeds Interest income NSF Service charge Total Unrecorded collection Adjusted balance

Disburs. 55,100

Dec. 31 606,020 49,000

(12,000)

__________ 89,520

________ 608,900

20,600 63,700

(20,600) 634,420

Dec. 1 83,900

Receipts 114,000 (9,000) 500,000 3,600

Disburs. 55,100

__________ 83,900 5,620 89,520

________ 608,600 ________ 608,900

Dec. 31 142,800 (9,000) 500,000 3,600 (7,600) (1,000) 628,800 5,620 634,420

7,600 1,000 63,700 _________ 63,700

Adjusting entry Accounts receivable Cash

9,000

Cash Notes payable

500,000

Cash Interest income

3,600


7,600

Service charge Cash Answer: 1. B

1,000 2. C

3. B

9,000 500,000 3,600 7,600 1,000

4. A

5. C

Problem 18 Juliet Company maintains a checking account at the Davao Bank. At July 31, selected data from the ledger balance and the bank statement are as follows: Cash in Bank Per Books Per Bank Balance, July 1 July Receipts July Credits July Disbursement July Debits

P 17,600 82,000

P 19,200 80,070

76,900 . P 22,700

74,740 P 24,530

27

Analysis of the bank data reveals that the credits consist of P78,000 of July deposits and a credit memorandum of P2,070 for collection of a P2,000 note plus interest revenue of P70. The July debits per bank consist of checks cleared, P74,700 and a debit memorandum of P40 for printing additional company checks. You also discover the following errors involving July checks: (1) a check for P230 to a creditor on account that cleared the bank in July was journalized and posted as P320, and (2) a salary check to an employee for P255 was recorded by the bank for P155. The June 30 bank reconciliation contained only two reconciling items: deposits in transit, P1,000 and outstanding checks, P2,600. Assume that the interest on the note has been accrued. Questions 1. The deposit in transit of JULIET COMPANY at July 31 is a. P 5,000 c. P 1,000 b. P 2,930 d. Cannot be determined 2. The outstanding check of JULIET COMPANY at July 31 is: a. P 4,700 b. P 4,660 c. P 4,610

d. P 4,520

3. The adjusted cash ledger balance of JULIET COMPANY at July 31 is: a. P 25,020 b. P 24,820 c. P 24,730 d. P 24,640 4. The adjusted cash bank balance of JULIET COMPANY at July 31 is: a. P 25,020 b. P 24,820 c. P 24,730 d. P 24,640 Solution Book balance CM – collection DM – service charge Error – overstatement of disbursement Adjusted book balance

22,700 2,070 ( 40)

DIT – beg. + Book receipts - Bank credits (excluding all CMs) DIT – end

1,000 82,000

90 24,820

78,000 5,000

Bank balance Error – understatement of withdrawal Deposit in transit Outstanding checks Adjusted bank balance

24,530

OC – beg + Book disbursement - Bank debits (excluding all DMs) OC – end

2,600 78,810

Adjusting entry: Cash

Notes receivable Interest income Service charge Cash Cash Accounts payable Answer: 1. A

28

2. C

2,070 40 90

3. B

2,000 70 40 90 4. B

(

100) 5,000 (4,610) 24,820

74,800 4,610

Problem 19 You are asked to audit the cash of Letty Corporation. Letty Corporation carries its checking account with Mindanao Bank. The following data are available: a. Letty Company Cash account for December: Balance, November 30 Deposits during December Checks written during December Balance, December 31

P 20,900 93,400 ( 83,000) P 32,300

b. Bank statement for December: Balance, November 30 Deposits during December Checks cleared during December Funds transferred from foreign operations revenue (in peso amount not yet recorded by Letty Corp.) NSF check, Customer Nelly Bank Service charge Balance, December 31

P 20,000 92,300 ( 82,150) 25,000 ( 180) ( 70) P 54,900

c. Additional data: 1. Balance in Petty Cash account, P200 (not included in Letty Cash account). 2. The deposits of P93,400 by Letty Company are overstated by P100; the bank recorded the correct amount. 3. The checks cleared by the bank of P82,150 erroneously included a P300 check drawn by Laity Corporation; the bank has not yet corrected this error. 4. November 30: deposits outstanding, P2,000; and checks outstanding, P1,500. Questions 1. The deposit in transit of LETTY COMPANY at December 31 is: a. P 3,100 b. P 3,000 c. P 2,900

d. P 2,000

2. The outstanding checks of LETTY COMPANY at December 31 is: a. P 1,650 b. P 1,500 c. P 2,050

d. P 2,350

3. The adjusted cash balance of LETTY COMPANY at December 31 is: a. P 56,050 b. P 55,950 c. P 55,650 d. P 55,550 4. The cash shortage of LETTY COMPANY at December 31 is: a. P 0 b. P 400 c. P 500

d. P 600

Solution Book balance CM DM NSF Error Total Shortage Adjusted balance

31,300 25,000 ( 70) ( 180) ( 100) 55,950 ( 400) 55,550

Bank balance Error Deposit in transit Outstanding checks Total

54,900 300 3,000 (2,650) ______ 55,550 ______ 55,550

29

DIT – beg + Book receipts - Bank deposits DIT – end

2,000 93,300 92,300 3,000

OC – beg + Book disbursement - Bank disbursement OC – end

1,500 83,000 81,850 2,650


Cash – foreign bank Service charge Cash Accounts receivable Cash Accounts receivable Cash Due to custodian Cash Answer: 1. B

2. A

25,000 70 180 100 400

3. D

25,000 70 180 100 400 4. B

Problem 20 In Your audit of the accounts of Cleenenth Company, you find the following facts on December 31, 2006. Balance of cash in bank account Balance of bank statement Outstanding checks, December 31: No. 000567 10,000 581 55,000 582 40,000 602 25,000 615 65,000 616 70,000 Receipts of December 31, deposited the following month The bank statement shows the following charges: Service charge for December NSF check received from a customer

P1,350,000 1,200,000

265,000 275,000 5,000 85,000

Additional information: The stub for check number 000581 and the invoice relating thereto show that it was for P35,000 but was incorrectly recorded as P55,000. This was in payment of the accounts payable. Payment has been stopped on check number 000567 which was drawn in payment of accounts payable. The payee cannot be located. Included in the bank statement was a canceled check the company had failed to record. The check was in payment of accounts payable. Questions 1. The unrecorded disbursement of CLEENETH COMPANY at December 31, 2006 is: a. P 80,000 b. P 50,000 c. P 40,000 d. P 10,000

30

2. Cancellation of check number 567 should be recorded as: a. Debit to Accounts Payable c. Credit to Accounts Payable b. Credit to Cash d. No adjustment/entry 3. Cash shortage of CLEENETH COMPANY at December 31, 2006 is: a. P 0 b. P 50,000 c. P 40,000

d. P 10,000

4. The adjusted cash balance of CLEENETH COMPANY at December 31, 2006 is: a. P 1,290,000 b. P 1,240,000 c. P 1,210,000 d. P 1,180,000 Solution Balance per book Service charge NSF check Overstatement of disburs check # 581 Cancellation of check # 567 Total Unrecorded disburs. * Adjusted balance Balance per bank Outstanding checks Deposit in transit Overstatement of disburs check # 581 Cancellation of check # 567 Adjusted balance * squeeze figure Answer: 1. B

2. C

1,350,000 ( 5,000) ( 85,000) 20,000 10,000 1,290,000 ( 50,000) 1,240,000 1,200,000 ( 265,000) 275,000

Accounts payable Cash Service charge Cash

50,000 5,000


85,000

Cash Accounts payable

20,000

Cash Accounts payable

10,000

50,000 5,000 85,000 20,000 10,000

20,000 10,000 1,240,000

3. A

4. B

Problem 21 Dema-ala Company is very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Maria handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliation. The balance per bank statement on October 31, 2006, was P73,520. Outstanding checks were: No. 62 for P507, No. 183 for P600, No. 284 for P1,103, No. 862 for P762.84, No. 863 for P907.20, No. 864 for P661.12. Included with the statement was a credit memorandum of P800 indicating the collection of a note receivable for Dema-ala Company by the bank on October 25. Dema-ala Company has not recorded this memorandum. The company’s ledger showed one cash account with a balance of P87,570.88. The balance included undeposited cash on hand. Because of the lack of internal control, Maria took for personal use all the undeposited receipts in excess of P15,182.04. She then prepared the following bank reconciliation in an effort to conceal her theft of cash. Cash balance per books, October 31 Add: Outstanding checks No. 862 P 762.84 No. 863 907.20 No. 864 661.12

P 87,570.88

1,931.16

31

P 89,502.04 15,182.04 P 74,320.00 800.00 P 73,520.00

Less: Undeposited receipts Unadjusted balance per bank, October 31 Less: Bank credit memorandum Cash balance per bank statement, October 31 Questions 1. DEMA-ALA COMPANY’S cash shortage at October 31 is: a. P 4,210 b. P 3,410 c. P 1,600

d. P 800

2. DEMA-ALA COMPANY’S adjusted cash balance at October 31 is: a. P 88,370.88 b. P 87,570.88 c. P 86,770.88

d. P 84,160.88

Solution

Book 87,570.88 800.00

Unadjusted balance Collection of note Outstanding checks # 62 P 507.00 #183 600.00 #284 1,103.00 #862 762.84 #863 907.20 #864 661.12 Deposit in transit Total Cash shortage Adjusted cash balance

_________ 88,370.88 (4,210.00) 84,160.88

Bank 73,520.00

(

4,541.16) 15,182.04 84,160.88 ________ 84,160.88


800 Notes receivable Due to custodian 4,210 Cash Answer: 1. A

800 4,210

2. D

Problem 22 On December 15 of the current year, Darwin, who owns Herald Corporation, asks you to investigate the cash-handling activities in his firm. He thinks that an employee might be stealing funds. “I have no proof” he say, “but I’m fairly certain that the November 30 undeposited receipts amounted to more than P6,000 although the November 30 bank reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he has notified the bank to stop payment on them and he had made the necessary payment on the books.

32

At your request, Darwin showed you the following November 30 bank reconciliation prepared by the cashier. Bal. Per bank statement Deposit in transit Outstanding checks # 2351 550.10 2353 289.16 2354 484.84 Adjusted Balance

P

2,360.12 3,619.20

( 1,224.10) P 4,755.22

Bal. Per Books P Bank Service charge ( Unrecorded bank CM (

5,385.22 30.00) 600.00)

Adjusted Balance

________ 4,755.22

P

You discover that the P600 unrecorded bank credit represents a note collected by the bank on Darwin’s behalf. It appears in the deposits column of the November bank statement. Your investigation also reveals that the October 31 bank reconciliation showed three checks that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for P233.45, and No. 1512 for P126.55. You also discover that these items were never added back into the cash account in the books. In confirming that the checks shown on the cashier’s November 30 bank reconciliation were outstanding on that date, you discover that check No. 2353 was actually a payment of P829.16 and had been recorded on the books for the amount. To confirm the amount of undeposited receipts at November 30, you request a bank statement for December 1-12 (called a cut-off bank statement). This indeed shows a December 1 deposit of P3,619.20. Questions 1. The amount of fund stolen by the cashier is: a. P 3,160 b. P 2,500

c. P 1,840

d. P 580

2. The total outstanding checks of HERALD CORPORATION at November 30 is: a. P 2,524.10 b. P 1,884.10 c. P 1,864.10 d. P1,224.10 3. The adjusted cash balance of HERALD CORPORATION at November 30 is: a. P 5,955.22 b. P 5,355.22 c. P 4,115.22 d. P 3,455.22 Solution Book balance CM Service charge Stalled checks #1432 300.00 #1458 233.45 #1512 126.55 Total Cash shortage Adjusted balance

5,385.22 600.00 ( 30.00)

Bank balance Deposit in transit Outstanding checks #2351 550.10 #2353 829.16 #2354 484.84

2,360.12 3,619.20

(1,864.10) ________ Total 4,115.22 ________ Adjusted balance 4,115.22

660.00 6,615.22 (2,500.00) 4,115.22


Notes receivable Service charge Cash

600 30

600 30

33

Cash

660 Accounts payable 660 Due to custodian 2,500 Cash 2,500 Answer: 1. B

2. C

3. C

Problem 23 The bank statement for the account of ARNOLD COMPANY at December 31, 2006 showed a credit balance of P20,000, while the company’s ledger balance of the cash account as of November 30, 2006 was a debit of P40,000. During December, 2006, the ledger showed two postings, a debit of P60,000 and a credit of P39,000 from the Cash Receipts and Check Disbursements Journal, respectively. Your examination revealed that the cash column of the receipts book was underfooted by P6,400. The receipts book recorded only the collections from customers and did not include a bank credit in December for P8,000, representing loan proceeds of a P10,000 promissory note. An examination of the customers’ subsidiary ledgers showed total credits to individual accounts amounting to P70,400. The December Check Disbursements Journal which was overfooted by P500, records only the checks issued by the company. In the month of December, 2006, the bank charged ARNOLD COMPANY for P5,000 representing a loan guaranteed by the client but was dishonored by the maker, the company vice-president. The December bank service charges of P1,200 were erroneously charged by the bank to the account of Ronald Company. The bank made the correction in January, 2007. The outstanding checks as of December 31, 2006 amounted to P5,600. On the morning of January 2, 2007, a cash count conducted produced the following: Bills and coins Three (3) duplicate copies of ARNOLD CO. official receipts, all dated Jan. 2, 2007 Checks NSF check charged by the bank on Jan. 2, 2007

P 5,200 1,800 2,900 1,400

Questions 1. The deposit in transit of ARNOLD COMPANY at December 31, 2006 is: a. P 6,300 b. P 7,700 c. P 8,100 d. P 11,300 2. The cash shortage of ARNOLD COMPANY at December 31, 2006 is: a. P 54,200 b. P 50,200 c. P 46,200 d. P 36,400 3. The maximum probable cash shortage of ARNOLD COMPANY at December 31, 2006 based on the records is: a. P 54,200 b. P 50,200 c. P 46,200 d. P 36,400 4. The adjusted cash balance of ARNODL COMPANY at December 31, 2006 is: a. P 19,500 b. P 21,300 c. P 20,900 d. P 24,500

34

Solution Unadjusted balance Understatement of receipts CM Overstatement of disbursements DM – service charge DM – service charge not recorded in the book and erroneously recorded by the bank Outstanding checks Deposit in transit (5,200 + 2,900 – 1,800) Total Cash shortage Adjusted cash balance Answer:: 1. A

2. B

Book 61,000 6,400 8,000 500 (5,000)

Bank 20,000

(1,200)

(1,200) (5,600)

______ 69,700 (50,200) 19,500

6,300 19,500 ______ 19,500

3. A

Cash shortage 50,200 - Bank Recon Cash shortage – AR ledger -AR subsidiary ledger credit posting 70,400 - Cash debit postings * 66,400 4,000 Maximum Shortage 54,200 * Cash debit posting unrecorded collection

60,000 6,400 66,400

4. A

Problem 24 The PAMA CORPORATION engaged your services to audit its account. In your examination of cash, you find that the Cash account represents both cash on hand and cash in bank. You further noted that there is very poor internal control of cash. Your audit covers period ended June 30, 2006. You started the audit on June 15. Upon cash count on this date, cash on hand amounted to P4,800. Examination of the cash book and other evidence of transaction disclosed the following: 1. July collections per duplicate receipts, P18,800 2. Total of duplicate deposit slips, all dated, July, P11,000, includes a deposit representing collections of June 30. 3. Cash book balance at June 30, 2006 is P46,500, representing both cash on hand and cash in bank. 4. Bank statement for June shows a balance of P42, 400. 5. Outstanding checks at June 30: May checks, No. 183 for P450, and No. 198 for P1,650; June checks, No. 205 for P600, No. 254 for P400, No. 280 for P5,000, No. 302 for P900, and No.317 for P2,500. 6. Undeposited collections at June 30, P5,000. 7. An amount of P900 representing proceeds of clean draft on a customer was credited by bank, but is not yet taken up in the company’s books. 8. Bank service charges for June, P100. The company cashier presented to you the following reconciliation statement for June, 2006 which he has prepared: Balance per books, June 30, 2006 Add: outstanding checks: No. 205 254 280 302 317 Total Bank charges Undeposited collections Balance per bank, June 30, 2006

P46,500 P 600 400 500 700 1,500

3,600 P49,200 (100) ( 5,100) P44,000

35

Questions 1. The outstanding checks of PAMA CORPORATION at June 30, 2006 is: a. P 3,600 b. P 3,700 c. P 5,700 d. P 11,500 2. The cash shortage of PAMA CORPORATION at June 30, 2006 is: a. P 7,800 b. P 11,400 c. P 12,800

d. P 19,400

3. The cash shortage of PAMA CORPORATION from July 1 to July 15, 2006 is: a. P 8,000 b. P 7,800 c. P 3,000 d. P 2,800 4. The total cash shortage of PAMA CORPORATION up to July 15, 2006 is: a. P 14,400 b. P 15,600 c. P 15,800 d. P 19,400 5. The adjusted cash balance of PAMA CORPORATION at June 30, 2006 is: a. P 35,900 b. P 39,600 c. P 43,800 d. P 44,900 Solution

Book 46,500

Unadjusted balance Outstanding checks Deposit in transit CM Service charge Total Cash shortage Adjusted cash balance

Bank 42,400 ( 11,500) 5,000

900 ( 100) 47,300 (11,400) 35,900

______ 35,900 ______ 36,900

Cash shortage from July 1 to July 15 Collection per records Deposit in transit – June 30 Cash that should be deposited Deposited collection Undeposited collection Cash on hand – July 15 Cash shortage – July 1 to July 15 ANSWER: 1. D

2. B

18,800 5,000 23,800 11,000 12,800 4,800 8,000 3. A

4. D

5. A

Problem 25 In connection with the general examination of the accounts of Nelson Trading Company at December 31, 2006, you obtained the information and data as shown below relative to your verification of Cash. The record kept by the accountant showed the following: (a) Balances at the end of the month: Per Bank Statement Per Books Undeposited collections Outstanding checks

36

December 1, 2006 P 54,000 50,400 3,300 6,900 *

December 31, 2006 P101,100 70,215 7,200 12,000 *

* Composed of the following

#6515 6517 6518 6519

(b) Totals for the month of December, 2006: Cash Book: Receipts Disbursement Bank Statement Receipts Disbursement

510 2,250 2,400 1,740

#6552 P 1,800 6553 5,700 6554 2,550 6555 1,950

P 425,550 405,735 P 444,225 397,125

After application of the necessary auditing procedures, the following were noted: a. Footing of disbursement should be P 404,235, instead of P 405,735. b. Bank service charge of P15 for December has not been booked. c. Cancelled checks (returned together with the December bank statement) include the following which were charged in the statement: 1. Check #6530 dated December 15, 2006 for P2,400 - this was issued as replacement of check # 6518 which was returned by the payee because of certain erasures. No entry has been made to record the cancellation of check #6518. 2. Check #6517 for P225 - this was erroneously recorded on the books as P2,250. 3. Check of Neil Trading for P900 - this was charged by bank in error. d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted directly by the broker to the bank and credited on December 31, 2006. No entry has been made on the books to record this sale of stock investment. e. The company failed to record disbursement for payment of accounts payable at December 31, 2006 for P1,500. Questions 1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31, 2006 is: a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550 2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December 31, 2006 is: a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125 3. The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31, 2006 is: a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500 4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31, 2006 is: a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500 5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is: a. P 765 b. P 675 c. P 575 d. P 390

37

Solution

Dec. 1 50,400

Balance per book Overfooting of disburse. Service charge Cancellation of check # 6518 Overstatement of disbursement Proceeds from sale of stock Unrecorded disbursement Balance Cash shortage Adjusted balance

_________ 50,400 _________ 50,400 Dec. 1 54,000

Balance per bank Deposit in transit Dec. 1 Dec. 31 Outstanding checks Dec. 1 Dec. 31 Error Adjusted balance

3,300

Receipts 425,550

Disburse. 405,735 ( 1,500) 15

Dec. 31 70,215 1,500 ( 15)

( 2,400)

2,400

( 2,025)

2,025

23,250 _________ 448,800 ( 675) 448,125

1,500 401,325 _________ 401,325

23,250 ( 1,500) 97,875 ( 675) 97,200

Receipts 444,225

Disburse. 397,125

Dec. 31 101,100

(

3,300) 7,200

( 6,900) _________ 50,400

_________ 448,125

7,200 ( 6,900) 12,000 ( 900) 401,325

Adjusting entry: Due to custodian Cash

675

Service charge Cash Cash

15

2,025 Accounts payable

Accounts payable Cash

1,500

675 15 2,205 1,500

Cash


1,500

Cash


2,400

Cash

23,250 Stock investment Gain on sale

18,000 5,250

Answer: 1. B

38

2. A

3. C

4. C

5. B

( 12,000) 900 97,200

Audit of Cash and Cash Equivalents

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