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CHAPTER 3 - Audit of Cash &

Cash Equivalents
Problem 1
The CASH account of Don Corporations 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. Travelers 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

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 CORPORATIONS 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 CORPORATIONS 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

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 companys 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. Companys 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. Companys check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the companys 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. Companys 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

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 COMPANYS 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. Travelers check

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. Companys 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 CORPORATIONS 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
Travelers check
Money order
Companys 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.

Questions
1. PACATANG COMPANYS 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

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.

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

TCAF
Accountability
Shortage

2,400
2,400

TCAF
Accountability
Shortage

2,994
3,000

140

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.
IOUs submitted were:
Dec. 18
Nap R. P 750
Dec. 28
Ruel R.
125
Dec. 30
Sonny S.
500

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 COMPANYS 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

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

10

#261 Richard, shipping clerk temporary advance for the use of the
receiving department. Your count of Mr. Richards 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 CORPORATIONS 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

11

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 companys 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 Jeanettes salary is mingled with the petty cash
fund.

2.

The sales managers 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.

12

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 CORPORATIONS 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

13

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

14

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 cashiers 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 CORPORATIONS 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

15

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.

16

Questions
1. GRACE COMPANYS 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 customers 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 Abisos
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

Customers checks returned by the bank marked NSF, indicating that the
customers 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 customers 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 banks 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 companys books
Cash payments shown in companys 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 companys books.
During December the bank collected P7,500 of bond interest for the company and credited
the proceeds to the companys 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
ELEFANTEs 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

ELEFANTEs 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 Elefantes 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

Accounts receivable
Cash

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

Adjusting entry:
Cash

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

Accounts receivable
Cash

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 companys 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 COMPANYS cash shortage at October 31 is:
a. P 4,210
b. P 3,410
c. P 1,600

d. P 800

2. DEMA-ALA COMPANYS 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

Adjusting entry:
Cash

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 Im 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 doesnt show several checks that have been outstanding for a long time. The
cashier told me that these checks neednt 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

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

You discover that the P600 unrecorded bank credit represents a note collected by the bank
on Darwins 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 cashiers 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

Adjusting entry:
Cash

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 companys 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 companys 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
Accounts payable

1,500

Cash

2,400
Accounts payable

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