CASH AND CASH EQUIVALENTS

[Pages:19]CEBU CPAR CENTER, INC. AUDIT OF CASH AND CASH EQUIVALENTS

Cebu-

PROBLEM NO. 1

In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you gathered the following:

1. Current account at Metrobank

P2,000,000

2. Current account at BPI

(100,000)

3. Payroll account

500,000

4. Foreign bank account ? restricted (in equivalent pesos) 1,000,000

5. Postage stamps

1,000

6. Employee's post dated check

4,000

7. IOU from controller's sister

10,000

8. Credit memo from a vendor for a purchase return

20,000

9. Traveler's check

50,000

10. Not-sufficient-funds check

15,000

11. Money order

30,000

12. Petty cash fund (P4,000 in currency and expense

receipts for P6,000)

10,000

13. Treasury bills, due 3/31/07 (purchased 12/31/06)

200,000

14. Treasury bills, due 1/31/07 (purchased 1/1/06)

300,000

Question:

Based on the above information and the result of your audit, compute for the cash and cash

equivalent that would be reported on the December 31, 2006 balance sheet.

a. P2,784,000

c. P2,790,000

b. P3,084,000

d. P2,704,000

Suggested Solution:

Current account at Metrobank Payroll account Traveler's check Money order Petty cash fund (P4,000 in currency) Treasury bills, due 3/31/07 (purchased 12/31/06) Total

P2,000,000 500,000 50,000 30,000 4,000 200,000

P2,784,000

Answer: A

PROBLEM NO. 2

In the course of your audit of the Las Pi?as Corporation, its controller is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. The following information is provided:

1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank.

2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction).

3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt.

4. Petty cash fund of P10,000. 5. An I.O.U. from a company officer in the amount of P40,000. 6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its

cash receipts. At the present time, the company has no deposits at this bank. 7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of

deposit have maturity of 120 days. 8. Las Pi?as has received a check dated January 2, 2007 in the amount of P150,000. 9. Las Pi?as has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure

future credit availability. 10. Currency and coin on hand amounted to P15,000.

Question:

Based on the above and the result of your audit, how much will be reported as cash and cash

equivalent at December 31, 2006?

a. P3,025,000

c. P2,575,000

b. P2,825,000

d. P5,025,000

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CEBU CPAR CENTER, INC.

Suggested Solution:

Cebu-

Savings account at PS Bank Checking account at PS Bank Petty cash fund Currency and coin Total

P1,200,000 1,800,000 10,000 15,000

P3,025,000

Answer: A

PROBLEM NO. 3

The cash account of the Makati Corporation as of December 31, 2006 consists of the following:

On deposit in current account with Real Bank Cash collection not yet deposited to the bank A customer's check returned by the bank for insufficient

fund A check drawn by the Vice-President of the Corporation

dated January 15, 2007 A check drawn by a supplier dated December 28, 2006 for

goods returned by the Corporation A check dated May 31,2006 drawn by the Corporation

against the Piggy Bank in payment of customs duties. Since the importation did not materialize, the check was returned by the customs broker. This check was an outstanding check in the reconciliation of the Piggy Bank account Petty Cash fund of which P5,000 is in currency; P3,600 in form of employees' I.O.U. s; and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2006 Total Less: Overdraft with Piggy Bank secured by a Chattel mortgage on the inventories Balance per ledger

P 900,000 350,000 150,000

70,000 60,000

410,000

10,000 1,950,000

300,000 P1,650,000

Question:

At what amount will the account "Cash" appear on the December 31, 2006 balance sheet?

a. P1,315,000

c. P1,495,000

b. P1,425,000

d. P1,725,000

Suggested Solution:

Current account with Real Bank Undeposited collection Supplier's check for goods returned by the Corporation Unexpended petty cash Current account with Piggy Bank (P410,000 - P300,000) Total

Answer: B

P 900,000 350,000

60,000 5,000

110,000

P1,425,000

PROBLEM NO. 4

You noted the following composition of Malabon Company's "cash account" as of December 31, 2006 in connection with your audit:

Demand deposit account Time deposit ? 30 days NSF check of customer Money market placement (due June 30, 2007) Savings deposit in a closed bank IOU from employee Pension fund Petty cash fund Customer's check dated January 1, 2007 Customer's check outstanding for 18 months Total

P2,000,000 1,000,000 40,000 1,500,000 100,000 20,000 3,000,000 10,000 50,000 40,000

P7,760,000

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CEBU CPAR CENTER, INC.

Cebu-

Additional information follows: a) Check of P200,000 in payment of accounts payable was recorded on December 31, 2006 but

mailed to suppliers on January 5, 2007. b) Check of P100,000 dated January 15, 2007 in payment of accounts payable was recorded and

mailed on December 31, 2006. c) The company uses the calendar year. The cash receipts journal was held open until January

15, 2007, during which time P400,000 was collected and recorded on December 31, 2006.

Question:

The cash and cash equivalents to be shown on the December 31, 2006 balance sheet is

a. P3,310,000

c. P2,910,000

b. P1,910,000

d. P4,410,000

Suggested Solution:

Demand deposit account as adjusted: Demand deposit account per books Undelivered check Postdated check issued Window dressing of collection

Time deposit - 30 days Petty cash fund Cash and cash equivalents

Answer: C

P2,000,000 200,000 100,000

(400,000)

P1,900,000 1,000,000 10,000

P2,910,000

PROBLEM NO. 5

You were able to gather the following from the December 31, 2006 trial balance of Mandaluyong Corporation in connection with your audit of the company:

Cash on hand Petty cash fund BPI current account Security Bank current account No. 01 Security Bank current account No. 02 PNB savings account PNB time deposit

P 500,000 10,000

1,000,000 1,080,000

(80,000) 1,200,000

500,000

Cash on hand includes the following items:

a. Customer's check for P40,000 returned by bank on December 26, 2006 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2007.

b. Customer's check for P20,000 dated January 2, 2007, received on December 29, 2006. c. Postal money orders received from customers, P30,000.

The petty cash fund consisted of the following items as of December 31, 2006.

Currency and coins Employees' vales Currency in an envelope marked "collections for charity" with

names attached Unreplenished petty cash vouchers Check drawn by Mandaluyong Corporation, payable to the

petty cashier

P 2,000 1,600

1,200 1,300

4,000 P10,100

Included among the checks drawn by Mandaluyong Corporation against the BPI current account and recorded in December 2006 are the following:

a. Check written and dated December 29, 2006 and delivered to payee on January 2, 2007, P80,000.

b. Check written on December 27, 2006, dated January 2, 2007, delivered to payee on December 29, 2006, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31, 2006.

The savings account deposit in PNB has been set aside by the board of directors for acquisition of new equipment. This account is expected to be disbursed in the next 3 months from the balance sheet date.

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CEBU CPAR CENTER, INC.

Cebu-

Questions:

Based on the above and the result of your audit, determine the adjusted balances of following:

1. Cash on hand a. P410,000 b. P530,000

c. P470,000 d. P440,000

2. Petty cash fund a. P6,000 b. P7,200

c. P2,000 d. P4,900

3. BPI current account a. P1,000,000 b. P1,120,000

c. P1,080,000 d. P1,040,000

4. Cash and cash equivalents a. P2,917,200 b. P3,074,900

c. P3,052,000 d. P3,066,000

Suggested Solution:

Question No. 1

Unadjusted cash on hand NSF check Post dated check received Adjusted cash on hand

P500,000 (40,000) (20,000)

P440,000

Question No. 2

Petty cash fund per total Employees' vales (IOU) Currency in envelope marked "collections for charity" Unreplenished petty cash vouchers Petty cash fund, as adjusted

P10,100 (1,600) (1,200) (1,300)

P 6,000

Alternative computation:

Currency and coins Replenishment check Petty cash fund, as adjusted

P 2,000 4,000

P 6,000

Question No. 3

Unadjusted BPI current account Unreleased check Post dated check delivered Adjusted BPI current account

P1,000,000 80,000 40,000

P1,120,000

Question No. 4

Cash on hand (see no. 1) Petty cash fund (see no. 2) BPI current account (see no. 3) Security Bank current account (net of

overdraft of P80,000) PNB time deposit Cash and cash equivalents, as adjusted

P 440,000 6,000

1,120,000

1,000,000 500,000

P3,066,000

Answers: 1) D; 2) A; 3) B; 4) D

PROBLEM NO. 6

The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31, 2006. The bank statement as of December 31 showed a balance of P547,800. Additional information that might be useful in reconciling the two balances follows:

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CEBU CPAR CENTER, INC.

Cebu-

(a) Check number 748 for P30,000 was originally recorded on the books as P45,000. (b) A customer's note dated September 25 was discounted on October 12. The note was dishonored

on December 29 (maturity date). The bank charged Manila's account for P142,650, including a protest fee of P2,650. (c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000. (d) Outstanding checks totaled P98,850 as of December 31. (e) There were bank service charges for December of P2,100 not yet recorded on the books. (f) Manila's account had been charged on December 26 for a customer's NSF check for P12,960. (g) Manila properly deposited P6,000 on December 3 that was not recorded by the bank. (h) Receipts of December 31 for P134,250 were recorded by the bank on January 2. (i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27, and the bank charged a P360 collection fee.

Questions:

Based on the above and the result of your audit, determine the following:

1. Adjusted cash in bank balance a. P583,200 b. P577,200

c. P589,200 d. P512,400

2. Net adjustment to cash as of December 31, 2006

a. P104,370

c. P 98,370

b. P110,370

d. P175,170

Suggested Solution:

Question No. 1

Balance per bank statement, 12/31/06 Add: Deposits in transit

Bank error-deposit not recorded Total Less: Outstanding checks Adjusted bank balance, 12/31/06

P134,250 6,000

P547,800

140,250 688,050

98,850 P589,200

Balance per books, 12/31/06 Add: Book error - Check No. 748

Customer note collected by bank Total Less: Dishonored note

Book error-improperly recorded deposit

NSF check Bank service charges Adjusted book balance, 12/31/06

Question No. 2

Unadjusted balance per books, 12/31/06 Adjusted book balance, 12/31/06 Net adjustment to cash ? credit

Answers: 1) C; 2) C

P15,000 46,290

142,650 1,950

12,960 2,100

P687,570 61,290

748,860

159,660 P589,200

P687,570 589,200

P 98,370

PROBLEM NO. 7

Shown below is the bank reconciliation for Marikina Company for November 2006:

Balance per bank, Nov. 30, 2006 Add: Deposits in transit Total Less: Outstanding checks

Bank credit recorded in error Cash balance per books, Nov. 30, 2006

P28,000 10,000

P150,000 24,000

174,000

38,000 P136,000

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CEBU CPAR CENTER, INC.

Cebu-

The bank statement for December 2006 contains the following data:

Total deposits Total charges, including an NSF check of P8,000 and a

service charge of P400

P110,000 96,000

All outstanding checks on November 30, 2006, including the bank credit, were cleared in the bank 1n December 2006.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2006.

Questions:

Based on the above and the result of your audit, answer the following:

1. How much is the cash balance per bank on December 31, 2006?

a. P154,000

c. P164,000

b. P150,000

d. P172,400

2. How much is the December receipts per books?

a. P124,000

c. P110,000

b. P 96,000

d. P148,000

3. How much is the December disbursements per books?

a. P96,000

c. P89,600

b. P79,600

d. P98,000

4. How much is the cash balance per books on December 31, 2006?

a. P150,000

c. P180,400

b. P170,400

d. P162,000

5. The adjusted cash in bank balance as of December 31, 2006 is

a. P141,600

c. P172,000

b. P162,000

d. P196,000

Suggested Solution:

Question No. 1

Balance per bank, Nov. 30, 2006 Add: Total deposits per bank statement Total Less: Total charges per bank statement Balance per bank, Dec. 31, 2006

P150,000 110,000 260,000 96,000

P164,000

Question No. 2

Total deposits per bank statement Less deposits in transit, Nov. 30 Dec. receipts cleared through the bank Add deposits in transit, Dec. 31 December receipts per books

P110,000 24,000 86,000 38,000

P124,000

Question No. 3

Total charges per bank statement Less: Outstanding checks, Nov. 30

Correction of erroneous bank credit December NSF check December bank service charge Dec. disb. cleared through the bank Add outstanding checks, Dec. 31 December disbursements per books

P28,000 10,000 8,000 400

P96,000

46,400 49,600 30,000 P79,600

Question No. 4

Balance per books, Nov. 30, 2006 Add December receipts per books Total Less December disbursements per books Balance per books, Dec. 31, 2006

P136,000 124,000 260,000 79,600

P180,400

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CEBU CPAR CENTER, INC.

Question No. 5 Balance per bank statement, 12/31/06 Deposits in transit Outstanding checks Adjusted bank balance, 12/31/06

Balance per books, 12/31/06 NSF check Bank service charges Adjusted book balance, 12/31/06

Answers: 1) C; 2) A; 3) B; 4) C; 5) C

Cebu-

P164,000 38,000

( 30,000) P172,000

P180,400 ( 8,000) ( 400) P172,000

PROBLEM NO. 8

The accountant for the Muntinlupa Company assembled the following data:

Cash account balance Bank statement balance Deposits in transit Outstanding checks Bank service charge Customer's check deposited July 10, returned by

bank on July 16 marked NSF, and redeposited immediately; no entry made on books for return or redeposit Collection by bank of company's notes receivable

June 30 P 15,822

107,082 8,201

27,718 72

71,815

July 31 P 39,745

137,817 12,880 30,112 60 8,250

80,900

The bank statements and the company's cash records show these totals:

Disbursements in July per bank statement Cash receipts in July per Muntinlupa's books

P218,373 236,452

QUESTIONS:

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following:

1. How much is the adjusted cash balance as of June 30?

a. P87,565

c. P107,082

b. (P3,695)

d. P15,822

2. How much is the adjusted bank receipts for July?

a. P253,787

c. P245,537

b. P214,802

d. P232,881

3. How much is the adjusted book disbursements for July?

a. P220,767

c. P181,782

b. P212,517

d. P206,673

4. How much is the adjusted cash balance as of July 31?

a. P137,817

c. P22,513

b. P112,335

d. P120,585

5. How much is the cash shortage as of July 31?

a. P8,250

c. P196,144

b. P71,815

d. P0

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CEBU CPAR CENTER, INC.

Cebu-

Suggested Solution:

Muntinlupa Company Reconciliation of Receipts, Disbursements, and Bank Balance

For the month ended July 31

Beginning June 30

Receipts

Disb.

Ending July 31

Balance per bank statement

Deposits in transit: June 30 July 31

Outstanding checks: June 30 July 31

NSF check redeposited

Adjusted bank balance

P107,082 P249,108a

8,201

(8,201) 12,880

(27,718)

P 87,565

(8,250) P245,537

P218,373 P137,817

(27,718) 30,112

(8,250)

P212,517

12,880 (30,112) P120,585

Balance per books Bank service charge:

June July Collection of notes receivable: June July Adjusted book balance

P 15,822 (72)

P236,452

P212,529b

(72) 60

P 39,745 (60)

71,815 P 87,565

(71,815) 80,900

P245,537

P212,517

80,900 P120,585

a (P137,817 + P218,373 ? P107,082) b (P15,822 + 236,452 ? P39,745)

Answers: 1) A; 2) C; 3) B; 4) D; 5) D

PROBLEM NO. 9

In the audit of Pasig Company's cash account, you obtained the following information:

The company's bookkeeper prepared the following bank reconciliation as of November 30, 2006:

Bank balance ? November 30, 2006 Undeposited collections Bank service charges Bank collection of customer's note Outstanding checks:

Book balance ? November 30, 2006

Number 7159 7767 7915

Amount P3,000

5,000 2,000

P90,800 5,000 100

(8,000)

(10,000) P77,900

Additional data are given as follows:

a. Company recordings for December: Total collections from customers Total checks drawn

P165,000 98,000

b. Bank statement totals for December : Charges Credits

P123,800 169,000

c. Check no. 7159 dated November 25, 2006, was entered as P3,000 in payment of a voucher for P30,000. Upon examination of the checks returned by the bank, the actual amount of the check was P30,000.

d. Check no. 8113 dated December 20, 2006 was issued to replace a mutilated check (no.7767), which was returned by the payee. Both checks were recorded in the amount drawn, P5,000, but no entry was made to cancel check no. 7767.

e. The December bank statement included a check drawn by Sipag Company for P1,500.

f. Undeposited collections on December 31, 2006 - P8,000.

g. The service charge for December was P150 which was charged by the bank to another client.

h. The bank collected a note receivable of P7,000 on December 28, 2006, but the collection was not received on time to be recorded by Pasig.

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