Professional Documents
Culture Documents
Problem # 3 Auditing
Problem # 3 Auditing
&
Cash Equivalents
Problem 1
The CASH account of Don Corporations ledger on December 31, 2006 showed the following:
1
Questions
1. The entry to correct/adjust item F is:
a. Investment 50,000
Cash 50,000
b. Other assets 50,000
Cash 50,000
c. Short-term investment 50,000
Cash 50,000
d. No adjustment
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
2
Cash 5,100
b. Investment 500,000
Cash 500,000
c. No adjustment
d. No adjustment
e. No adjustment
f. No adjustment
g. Short-term investment 120,000
Cash 120,000
h. Notes receivable 20,000
Cash 20,000
i. No adjustment
j. Accounts receivable 15,000
Cash 15,000
k. Cash restricted 210,000
Cash 210,000
l. No adjustment
m. Investment current 150,000
Cash 150,000
n. No adjustment
o. No adjustment
p. Operating expenses 80,000
Cash 80,000
q. Short-term investment 600,000
Cash 600,000
r. Short-term investment 100,000
Cash 100,000
s. No adjustment
t. No adjustment
u. Investment 150,000
Cash 150,000
Answer:
1. D 2. D 3. C 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.
3
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
4
3. The entry to correct/adjust item number 17 is:
a. Accounts payable 50,000
Cash 50,000
b. Cash 50,000
Accounts receivable 50,000
c. Cash 50,000
Accounts payable 50,000
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 1 - Cash
Item 2 - Cash
Item 3 - Cash
Item 4 - Other Assets
Item 5 - Investment
Item 6 - Investment current
Item 7 - Cash
Item 8 - Cash
Item 9 - Current liability
Item 10 Offset to cash
Item 11 Offset to Cash
Item 12 Unused supplies
Item 13 Cash as cash equivalents
Item 14 Short-term investment
Item 15 Cash
Item 16 Cash
Item 17 property recorded as disbursement
Answer:
5
1. B 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:
Questions
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
6
Current account at PNB 65,000
Treasury bills acquired 3 mos. Before maturity 200,000
Payroll account 175,000
Travelers check 60,000
Money order 10,000
Companys undelivered check 30,000
Petty cash fund 4,000
TOTAL 544,000
Answer:
1. C 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 long-term 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
7
Commercial savings account P1,000,000
Commercial checking account 900,000
Petty cash fund 5,000
Currency and coin on hand 5,300
Amount of cash to be reported on balance sheet at 12.31.03 P1,910,300
Answer:
1. A 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 fund 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
9
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 2,400
Cash 2,400
b. Operating expenses 1,694 TCAF 2,260
Freight-in 400 Accountability 2,400
Cash short/over 140 Shortage 140
Cash 2,234
c. Operating expenses 1,086 TCAF 2,400
Accounts payable 914 Accountability 2,400
Freight-in 242 Shortage 0
Cash 2,242
10
Petty cash fund 600
Cash 600
d. Operating expenses 216 TCAF 2,994
Advances to employees 1,000 Accountability 3,000
Accounts payable 800 Shortage 26
Cash short/over 26
Petty cash fund 2,042
e. No entry
f. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
Answer:
1. A 2. D 3. C 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)
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
11
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, 2006Transportation P515
Dec. 30, 2006Token gifts to visitors 650
Dec. 30, 2006Freight for office supplies purchase 215
Jan. 1, 2007 Freight for mdse. purchased 125
Jan. 2, 2007 Freight for mdse. sold 575
Questions
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
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
12
Solution
Cash Count Due to custodian 1,370
Bills 7,750 Petty cash fund 1,370
Coins 245
IOUs 1,375 Advances to employees 1,375
Checks 3,225 Petty cash fund 1,375
Vouchers 2,080
TCAF 14,675 Cash 350
Accountability Sales 350
PCF per ledger (10,000)
Unclaimed payroll ( 4,650) Advances to employees 1,250
Undeposited sales ( 1,395) Petty cash fund 1,250
Cash shortage 1,370
Cash 4,650
Accrued salaries 4,650
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:
Checks:
Date Maker Bank
12/28/06 Macky, vice-president PNB 360.00
12/29/06 Andy, employee DBP 60.00
12/31/06 Bobot, customer RCBC 153.80
01/02/07 Neil, customer PNB 121.36
01/10/07 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.)
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Vouchers:
Dec. 11 #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
Dec. 28 # 301 Postage 12.00
Dec. 29 # 302 Freight bill on merchandise purchases 47.30
Dec. 31 # 305 Freight bill on office supplies 88.93
Jan. 2 # 500 Freight bill on merchandise purchases 29.36
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
10th, 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. These 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 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:
14
a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00
Solution
Cash count
Currency and coins 571.38 Due to custodian 95.03
Checks 755.16 PCF 95.03
Vouchers 237.59
IOU 36.00 Cash 273.80
TCAF 1,600.13 Sales (SI#328 & 315) 273.80
Accountability
PCF per ledger (1,300.00) Adv. to employee 60.00
Undeposited sales ( 395.16) PCF 60.00
Cash shortage 95.03
Adv. to employee 60.00
Operating expenses 100.93
Freight-in 47.30
PCF 208.23
Freight-in 31.20
Adv. to employee 31.20
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 Coins
P100.00 5 pieces P1.00 205 pieces
50.00 40 pieces 0.50 162 pieces
20.00 35 pieces 0.25 32 pieces
15
10.00 27 pieces
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Reyes Corp. Karren, Inc. 14,000
Dec. 31 Reyes Corp. Sheryl, sales manager 1,680
Dec. 31 Reyes Corp. Victor Corp. 17,800
Dec. 31 Reyes Corp. Ma. Karen, Inc. 8,300
Dec. 31 Merry Corp. Reyes Corp. 27,000
(not endorsed)
Unreimbursed vouchers
Date Payee Description Amount
Dec. 23 Sheryl, sales mgr. Advance for trip P 7,000
Dec. 28 Post Office Postage stamps 1,620
Dec. 29 Messengers Transportation 150
Dec. 29 Ace, Inc. Computer repair 800
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.
Additional information:
16
1. The custodian is not authorized to cash checks.
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.
3. The petty cash balance per general ledger is P10,000. The last replenishment of the fund was made on December 22,
2006.
Questions
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
Solution
Bills and coins 3,764
Checks 69,980
Vouchers 9,570
TCAF 83,314
Accountability
PCF per ledger (10,000)
Undeposited sales with receipts (43,300)
Unclaimed payroll ( 7,500)
Unendorsed check (27,000)
Undeposited sales without receipts (14,000)
Check endorsed by sales manager ( 1,680)
Cash shortage (20,166)
17
Cash 20,166
Cash 57,300
Sales (with and without receipts) 57,300
Cash 7,500
Accrued salary 7,500
Answer: 1. B 2. B 3. C
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:
IOUs:
Date Maker Amount
12/20/06 Yap, Janitor P 500
12/22/06 Felix, clerk 750
18
12/24/06 Ablay, bookkeeper 500
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
Solution
Cash count
Bills and coins 2,730.00 Due to custodian 968.50
Checks 10,000.00 Petty cash fund 968.50
IOUs 1,750.00
PCF Vouchers 6,331.50 Adv. to employees 1,750.00
TCAF 20,811.50 Petty cash fund 1,750.00
19
Accountability
PCF per ledger (20,000.00) Adv. to employees 1,000.00
Uneposited sales ( 1,000.00) Operating expenses 4,349.00
Unclaimed payroll ( 780.00) Freight-in 982.50
Cash shortage 968.50 Petty cash fund 6,331.50
Cash 780.00
Accrued salary 780.00
Answer:
1. C 2. A 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:
Questions
20
a. Understated by P 307,000 c. Overstated by P 693,000
b. Understated by P 393,000 d. Overstated by P 677,000
Solution
* Accounts Receivable
Beg. bal 275,000 Collection 1,360,000 squeeze figure
Cr. Sales 1,480,000 Write-off 25,000
Recovery 15,000 ________
1,770,000 1,385,000
End bal 385,000
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.
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
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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. The check was actually made out at P10,208.
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.
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.
Questions
Solution
Adjusting entry:
22
Notes receivable 44,000
Accounts receivable 20,900
Cash 20,900
Cash 19,800
Accounts payable 19,800
Interest expense 1,320
Cash 1,320
Answer:
1. C 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:
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
23
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
Book Bank
Unadjusted balance 51,582 95,874
Service charge ( 327)
DM printed checks ( 375)
Outstanding checks (20,184)
Deposit in transit 14,610
Loan proceed 17,100
Proceed from note collection 24,300
Bank error ( 2,700)
Bank error 2,400
NSF ( 2,280) __________
Adjusted balance 90,000 90,000
Adjusting entry:
Cash 17,100
Prepaid interest 900
Bank loan 18,000
Cash 24,300
Note receivable 24,000
Interest income 300
Problem 13
In connection with an audit, you are given the following bank reconciliation.
BANK RECONCILIATION
December 31, 2006
24
Balance per ledger, 12/31/03 P 34,349.72
Add: Collections received on the last day of
December and charged to Cash in Bank
on books but not deposited 5,324.50
Debit memo for customers checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00
Debit memo for bank service charge for December 1,000.00
P 46,674.22
Deduct:
Outstanding checks P 18,625
(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 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22
Questions:
25
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.
Solution
Bank Book
Unadjusted balance 51,050.22 34,349.72
Returned checks ( 4,000.00)
Service charge ( 1,000.00)
Collection of note receivable 8,000.00
Deposit in transit 5,324.50
Outstanding checks (22,625.00)
Book error ____________ ( 3,600.00)
Adjusted balance 33,749.72 33,749.72
Adjusting entry
Cash 8,000
Note receivable 8,000
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
26
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
27
DM 300 30 337,205
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
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
Solution
Unadjusted book bal. 39,079 Unadjusted bank bal. 337,205
Error Deposit in transit 92,400
28
Check # 801 P 15,625 Outstanding checks:
Correct 16,525 ( 900) # 802 7,526
Collection fee ( 200) # 813 127,200
DM ( 300) # 814 93,080
CM 40,400 # 815 720 (228,526)
CM 198,000 Error 75,000
Adjusted balance 276,079 Adjusted balance 276,079
Adjusting entry:
Accounts payable 900
Cash 900
Cash 40,200
Collection fee 200
Notes receivable 40,000
Interest income 400
Service charge 300
Cash 300
Cash 198,000
Interest expense 2,000
Notes payable 200,000
Answer:
1. C 2. C 3. A 4. B 5. B
6. D 7. 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
29
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 Amount
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
The cash records per books for November showed the following:
Cash Receipts
Cash Payments Journal Journal____
Date Number Amount Date Number Amount Date Amount
11-1 2475 1,640.70 11-20 2483 575.50 11-3 1,211.60
11-2 2476 2,830.00 11-22 2484 829.50 11-7 990.10
11-2 2477 600.00 11-23 2485 974.80 11-12 2,575.00
11-4 2478 538.20 11-24 2486 900.00 11-17 1,472.70
11-8 2479 1,570.00 11-29 2487 398.00 11-20 2,954.00
11-10 2480 1,330.00 11-30 2488 800.00 11-24 2,567.30
11-15 2481 695.40 Total 14,294.10 11-27 1,650.00
11-18 2482 612.00 11-29 1,186.00
11-30 1,225.00
Total 15,831.70
30
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.
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
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
Solution
31
#2482 612.00 disbursement ( 180.00)
#2483 829.50
#2484 974.80
#2488 800.00 ( 5,839.70) _________
Adjusted balance 12,990.90 Adjusted balance 12,990.90
Adjusting entry:
Cash 2,105
Service charge 15
Notes receivable 2,000
Interest income 120
Service charge 50
Cash 50
Accounts receivable 9
Cash 9
Accounts payable 180
Cash 180
Answer:
1. A 2. D 3. C 4. A 5. B
Problem 16
The following information pertains to the cash of Jenny Company:
Nov 31 Dec. 31
Balance shown on bank statement P 27,380 P 26,960
Balance shown in general ledger before
reconciling the bank account 25,780 25,000
Outstanding checks 8,630 10,150
Deposits in transit 6,850 12,450
For Dec.
Deposits shown in bank statement P 55,880
Charges shown on bank statement 56,300
Cash receipts shown in companys books 53,980
Cash payments shown in companys books 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).
32
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.
Questions
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
Nov. 30 Receipts Disburs. Dec. 31
33
Balance per book 25,780 53,980 54,760 25,000
Service charge Nov. 30 (180) (180)
- Dec. 31 240 (240)
NSF check 5,000 (5,000)
Interest earned 7,500 7,500
Book error __________ _________ (2,000) 2,000
Adjusted Balance 25,600 61,480 57,820 29,260
Adjusting entry
Cash 7,500
Interest income 7,500
Cash 2,000
Equipment 2,000
Answer:
1. A 2. C 3. C 4. B 5. D 6. D
Problem 17
ELEFANTEs check register shows the following entries for the month of December
34
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).
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
35
Solution
Dec. 1 Receipts Disburs. Dec. 31
Bank balance 95,970 565,150 55,100 606,020
Deposit in transit Dec. 1 5,550 (5,550)
- Dec. 31 49,000 49,000
Outstanding checks
Dec. 1 - #14343 (12,000) (12,000)
Dec. 31 - #14343 P12,000
#14346 - 8,600 __________ ________ 20,600 (20,600)
Adjusted balance 89,520 608,900 63,700 634,420
Adjusting entry
Cash 500,000
Notes payable 500,000
Cash 3,600
Interest income 3,600
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:
36
Cash in Bank
Per Books Per Bank
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.
Questions
37
Solution
Adjusting entry:
Cash 2,070
Notes receivable 2,000
Interest income 70
Service charge 40
Cash 40
Cash 90
Accounts payable 90
Answer:
1. A 2. C 3. B 4. B
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:
38
Deposits during December 92,300
Checks cleared during December ( 82,150)
Funds transferred from foreign operations revenue
(in peso amount not yet recorded by Letty Corp.) 25,000
NSF check, Customer Nelly ( 180)
Bank Service charge ( 70)
Balance, December 31 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
Solution
39
DIT beg 2,000 OC beg 1,500
+ Book receipts 93,300 + Book disbursement 83,000
- Bank deposits 92,300 - Bank disbursement 81,850
DIT end 3,000 OC end 2,650
Adjusting entry:
Cash 25,000
Cash foreign bank 25,000
Service charge 70
Cash 70
Accounts receivable 180
Cash 180
Accounts receivable 100
Cash 100
Due to custodian 400
Cash 400
Answer:
1. B 2. A 3. D 4. B
Problem 20
In Your audit of the accounts of Cleenenth Company, you find the following facts on December 31, 2006.
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.
40
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
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 1,350,000 Accounts payable 50,000
Service charge ( 5,000) Cash 50,000
NSF check ( 85,000)
Overstatement of disburs Service charge 5,000
check # 581 20,000 Cash 5,000
Cancellation of check
# 567 10,000 Accounts receivable 85,000
Total 1,290,000 Cash 85,000
Unrecorded disburs. * ( 50,000)
Adjusted balance 1,240,000 Cash 20,000
Accounts payable 20,000
Balance per bank 1,200,000
Outstanding checks ( 265,000) Cash 10,000
Deposit in transit 275,000 Accounts payable 10,000
Overstatement of disburs
check # 581 20,000
Cancellation of check
41
# 567 10,000
Adjusted balance 1,240,000
* squeeze figure
Answer:
1. B 2. C 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.
Questions
42
a. P 88,370.88 b. P 87,570.88 c. P 86,770.88 d. P 84,160.88
Solution
Book Bank
Unadjusted balance 87,570.88 73,520.00
Collection of note 800.00
Outstanding checks
# 62 P 507.00
#183 600.00
#284 1,103.00
#862 762.84
#863 907.20
#864 661.12 ( 4,541.16)
Deposit in transit _________ 15,182.04
Total 88,370.88 84,160.88
Cash shortage (4,210.00) ________
Adjusted cash balance 84,160.88 84,160.88
Adjusting entry:
Cash 800
Notes receivable 800
Due to custodian 4,210
Cash 4,210
Answer:
1. A 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.
43
At your request, Darwin showed you the following November 30 bank reconciliation prepared by the cashier.
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
Solution
44
Total 6,615.22 Total 4,115.22
Cash shortage (2,500.00) ________
Adjusted balance 4,115.22 Adjusted balance 4,115.22
Adjusting entry:
Cash 600
Notes receivable 600
Service charge 30
Cash 30
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:
45
NSF check charged by the bank on Jan. 2, 2007 1,400
Questions
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
Solution
Book Bank Cash shortage 50,200
Unadjusted balance 61,000 20,000 - Bank Recon
Understatement of receipts 6,400 Cash shortage AR ledger
CM 8,000 -AR subsidiary
Overstatement of disbursements 500 ledger credit
DM service charge (5,000) posting 70,400
DM service charge not recorded - Cash debit
in the book and erroneously postings * 66,400 4,000
recorded by the bank (1,200) (1,200) Maximum Shortage 54,200
Outstanding checks (5,600)
Deposit in transit * Cash debit posting 60,000
(5,200 + 2,900 1,800) ______ 6,300 unrecorded collection 6,400
Total 69,700 19,500 66,400
Cash shortage (50,200) ______
Adjusted cash balance 19,500 19,500
Answer::
1. A 2. B 3. A 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.
46
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:
The company cashier presented to you the following reconciliation statement for June, 2006 which he has prepared:
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
47
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 Bank
Unadjusted balance 46,500 42,400
Outstanding checks ( 11,500)
Deposit in transit 5,000
CM 900
Service charge ( 100) ______
Total 47,300 35,900
Cash shortage (11,400) ______
Adjusted cash balance 35,900 35,900
ANSWER:
1. D 2. B 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.
48
Outstanding checks 6,900 * 12,000 *
After application of the necessary auditing procedures, the following were noted:
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
49
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
Solution
Dec. 1 Receipts Disburse. Dec. 31
Balance per book 50,400 425,550 405,735 70,215
Overfooting of disburse. ( 1,500) 1,500
Service charge 15 ( 15)
Cancellation of check
# 6518 ( 2,400) 2,400
Overstatement of
disbursement ( 2,025) 2,025
Proceeds from sale of
stock 23,250 23,250
Unrecorded disbursement _________ _________ 1,500 ( 1,500)
Balance 50,400 448,800 401,325 97,875
Cash shortage _________ ( 675) _________ ( 675)
Adjusted balance 50,400 448,125 401,325 97,200
Adjusting entry:
Service charge 15
Cash 15
50
Cash 2,025
Accounts payable 2,205
Cash 1,500
Accounts payable 1,500
Cash 2,400
Accounts payable 2,400
Cash 23,250
Stock investment 18,000
Gain on sale 5,250
Answer:
1. B 2. A 3. C 4. C 5. B
51