CHAPTER 3 - Audit of Cash &

Cash Equivalents
Problem 1
The following items are found in the cash account of Ivie Company at December 31, 2006.
The company’s controller asks your opinion whether the items listed below should be
considered as part of cash account and come up with adjusting entry to adjust the cash
account.

1. Customers’ check dated December 25, 2006, P25,000.

2. Company’s check (P30,000) dated December 26, 2006 which was drawn in payment
for merchandise purchased on that date but not delivered until January 3, 2007. This
check was deducted in the cash balance.
3. A check worth P196,000 from customer who paid the account net of the 2%
discount. The company records the transaction as credit to Accounts Receivable for the
proceeds.
4. Cash in closed bank (Urban Bank), P95,000.
5. Redemption fund, P100,000
6. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds
payable.
7. Metro Bank Checking Account No. 0004568, P210,000.
8. RCBC Checking Account No. 0002347, P115,000.
9. Overdraft in PNB Checking Account No. 00011256, P50,000.
10. Company’s check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the company’s disbursement ledger at December 31, 2006.
11. Overdraft in RCBC Checking Account No. 0056791, P15,000.
12. Postage stamps, P2,000.
13. 90-day Treasury Bills (purchase on November 1, 2006), P100,000
14. Treasury Bills that matures on February 1, 2007, P50,000.
15. Change fund, P10,000.
16. Customers’ certified check, P20,000.
17. Company’s certified check, P50,000. (This was included in the cash disbursement for
December).

Problem 2
Your audit of the December 31, 2006, financial statements of Mato Corporation reveals the
following:

1. Current account at PBCom P (35,000)

2. Current account at PNB 65,000
3. Treasury bills (acquired 3 months before maturity) 200,000
4. Treasury bills (maturity date is 12/31/07) 500,000
5. Payroll account 175,000
6. Foreign bank account - restricted (translated using the
12/31/06 exchange rate) 900,000
7. Postage stamps 600
8. Employees’ checks marked “DAIF” 10,000
9. IOU from the vice-president 50,000
10. Credit memo from a supplier for a purchase returns 25,000
11. Traveler’s check 60,000
12. Money order 10,000
13. Company’s check dated 12/30/06 but not mailed at year-end 30,000

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14. Petty cash fund (P4,000 in currency and expense receipts for
(P6,000) 10,000

Questions

1. The entry to adjust the employees’ checks marked “DAIF” is:

a. Accounts receivable 10,000
Cash 10,000
b. Cash 10,000
Accounts receivable 10,000
c. Employees’ advances 10,000
Cash 10,000
d. Cash 10,000
Employees’ advances 10,000

2. MATO CORPORATION’S adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 560,000 b. P 544,000 c. P 514,000 d. P 509,000

Problem 3
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 COMPANY’S adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 1,910,300 b. P 2,400,300 c. P 2,510,300 d. P 3,510,300

2. The travel advance of P180,000 for executive travel should be classified as:
a. Accounts receivable c. Prepaid expenses
b. Travel expenses d. Advances to employees

Problem 4

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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 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.

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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.

Problem 5
Your audit of the petty cash (P10,000) of Juliet Company as of December 31, 2006 revealed
the following: (cash count date is January 3, 2007 at 5:00 pm)

Bills: 10 - P500 bill 15 - P100 bill 18 - P50 15 - P20 5 - P10

Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.
IOU’s submitted were:
Dec. 18 Nap R. - P 750
Dec. 28 Ruel R. 125
Dec. 30 Sonny S. 500
Cashed checks:
Dec. 28, 2006 check drawn by the manager P 1,125
Dec. 28, 2006 check drawn by an employee 500
Dec. 30, 2006 check drawn by a customer 350

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 Jan 1, 2007 check drawn by an employee 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, 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

1. JULIET COMPANY’S cash shortage at December 31, 2006 is:

a. P 2,072.75 b. P 1,370.00 c. P 1,027.75 d. P 327.75

2. The adjusted petty cash balance of JULIET COMPANY at December 31, 2006 is:
a. P 10,000 b. P 9,625 c. P 5,975 d. P 4,625

3. The entry to adjust the unclaimed payroll at December 31, 2006 is:
a. Petty Cash Fund c. Cash
Salaries expense Accrued salaries
b. Salaries expense d. Accrued salaries
Petty cash fund Cash

4. The cashed check dated January 1, 2007

a. Should be adjusted since it was dated January 1, 2007, hence a postdated check.
b. Should be adjusted since it was received December 31, 2006 but the check is dated
January 1, 2007, hence a postdated check.
c. Should not be adjusted since the check is dated January 1, 2007.
d. Should not be adjusted since the check was received December 31, 2007.

5. The Cash account (excluding PCF) of JULIET COMPANY is understated at December 31,
2006 by:
a. P 4,650 b. P 4,900 c. P 6,045 d. P 6,370

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Problem 6
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 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.)

Vouchers:
Dec. 11 #261 Richard, shipping clerk – temporary advance for the use of the
receiving department. Your count of Mr. Richard’s fund revealed:
currency – P28.80; merchandise freight bills, P31.20. P 60.00
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

IOU 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. 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

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2. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006
is:
a. P 900.74 b. P 960.74 c. P 1,174.54 d. P 1,234.54

3. DARWIN CORPORATION’S operating expenses found in the petty cash fund at December
31, 2006 is:
a. P 208.23 b. P 205.75 c. P 174.03 d. P 97.93

4. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at

December 31, 2006 by:
a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00

Problem 7
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; (12) P50; (5) P20

Coins: P 5.00 11 loose

1.00 24 loose
0.25 5 rolls and 32 loose (50 pieces to a roll)
0.10 10 rolls and 15 loose (50 pieces to a roll)
0.05 14 rolls and 20 loose (40 pieces to a roll)
Checks:
Date Maker Payee Amount
12/22/06 Vivian, Asst. Mgr Adlawan Corp. P 6,000
12/26/06 Mary Jane, cashier Adlawan Corp. 4,000

IOUs:
Date Maker Amount
12/20/06 Yap, Janitor P 500
12/22/06 Felix, clerk 750
12/24/06 Ablay, bookkeeper 500

PETTY CASH VOUCHERS FOR REPLENISHMENT

Date Payee Accounts Charged Amount
12/16/06 Wagan, messenger Advances to employees P1,000.00
12/17/06 Maren and Co. Supplies 545.00
12/18/06 Eeman Liner Freight in 982.50
12/18/06 Posts Office Supplies 300.00
12/20/06 Alejandre, carpenter Repairs 2,950.00
12/21/06 Violan Miscellaneous expense 554.00

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P20,000.00.

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 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

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

Problem 8
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. 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.

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.
Questions

1. GRACE COMPANY’S adjusted cash balance at May 31, 2006 is:

a. P 341,939.50 b. P 283,288.50 c. P 297,588.50 d. P 273,168.50

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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

Problem 9
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 P 51,582

Cash balance, per bank statement, May 31, 2006 95,874
Bank service charge for May 327
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting records 375
Outstanding checks, May 31, 2006 20,184
Deposit of May 30 not recorded by bank until June 1 14,610
Proceeds of bank loan on May 30, not recorded in the accounting
records, net of interest of P900 17,100
Proceeds from a customer’s promissory note; principal amount P24,000,
collected by the bank, taken up in the books with interest 24,300
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 3,600
Stolen check lacking an authorized signature, deducted from Abiso’s
account by the bank in error 2,400

Customer’s checks returned by the bank marked NSF, indicating that the
customer’s balance was not adequate to cover the checks; no entry has
been made in the accounting records to record the returned check 2,280

Questions

1. The adjusted cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. P 87,570 b. P 90,000 c. P 90,570 d. P 90,900

2. The cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. Understated by P39,318 c. Understated by P38,418
b. Understated by P38,988 d. Understated by P35,988

Problem 10
In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATION
December 31, 2006
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 customer’s checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00

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 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

LIST OF OUTSTANDING CHECKS

December 31, 2006
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

Questions:

1. The adjusted cash balance at December 31, 2006 is:

a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by
bank as 16,225
a. Should not be included in the reconciliation since the bank already gave the money
to the payee.
b. Should not be included in the reconciliation since bank’s record is always followed.
c. Should be included as deduction in the book reconciliation since this is considered as
book error, thus a reconciling item.
d. Should be included as addition in the book reconciliation since this is considered as
book error, thus a reconciling item.

3. The outstanding checks at December 31, 2006 is:

a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

4. The cash balance of the company per record at December 31, 2006 is:
a. Overstated by P600 c. Understated by P 3,400
b. Overstated by P1,200 d. Overstated by P 6,600

Problem 11
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

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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. Deposits Date Amount

Balance May 31 798,000
924,000 June 5 1,722,000
800 36,000 6 1,686,000
804 169,555 7 1,516,445
805 74,936 217,200 8 1,658,709
801 16,525
803 229,205 9 1,412,979
807 34,842 97,000 12 1,475,137
924 75,000
200 40,400 CM 13 1,440,337
(collection charge)
809 1,070,000 14 370,337
808 250,000 15 120,337
198,000 CM 16 318,337
810 167,300 113,800 19 264,837
812 82,730 159,500 21 341,607
806 274,600 24 67,007
273,628 28 340,635
811 3,130
DM 300 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:

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 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

Problem 12
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 company’s books 53,980
Cash payments shown in company’s 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).

Included with the December bank statement was a check for P5,000 that had been received
on December 25 from a customer on account. The returned check marked “NSF” by the
bank, has not yet been recorded on the company’s books.

During December the bank collected P7,500 of bond interest for the company and credited
the proceeds to the company’s account. The company earned the interest during the
current accounting period but has not yet recorded it.

During December the company issued a check for P6,960 for equipment. The check, which
cleared the bank during December, was incorrectly recorded by the company for P8,960.
Questions

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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.
a. Should be deducted in the December 31 column since this was returned back and
not paid by the bank, thus not considered as receipts.
b. 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

Problem 13
ELEFANTE’s check register shows the following entries for the month of December

Date Checks Deposits Balance

2006
Dec 1 Beginning Balance P 83,900
5 Deposit P 65,000
7 Check # 14344 32,500 120,800
11 Check # 14345 14,000 106,800
26 Deposit 49,000
29 Check #14346 8,600 147,200

ELEFANTE’s bank reconciliation for November revealed one outstanding check (No.14343)
for P12,000 (written on November 28), and one deposit in transit for P5,550 (made
November 29).

The following is from Elefante’s bank statement for December 2006:

Date Checks Deposits Balance

2006
Dec. 1 Beginning balance P 95,970
1 Deposit P 5,550 101,300
4 Check No. 14344 P 32,500 68,800
5 Deposit 56,000 124,800
14 Check No. 14345 14,000 110,800

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 15 Loan Proceeds 500,000 610,800
20 NSF check 7,600 603,200
29 Service charge 1,000 602,200
31 Interest 3,600 605,800

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

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.

Problem 14
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 P 20,900

Deposits during December 93,400
Checks written during December ( 83,000)
Balance, December 31 P 32,300

b. Bank statement for December:

Balance, November 30 P 20,000

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

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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
Problem 15
In Your audit of the accounts of Cleenenth Company, you find the following facts on
December 31, 2006.

Balance of cash in bank account P1,350,000

Balance of bank statement 1,200,000
Outstanding checks, December 31:
No. 000567 10,000
581 55,000
582 40,000
602 25,000
615 65,000
616 70,000 265,000
Receipts of December 31, deposited the following month 275,000
The bank statement shows the following charges:
Service charge for December 5,000
NSF check received from a customer 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

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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

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

Problem 16
Dema-ala Company is very profitable small business. It has not, however, given much
consideration to internal control. For example, in an attempt to keep clerical and office
expenses to a minimum, the company has combined the jobs of cashier and bookkeeper.
As a result, Maria handles all cash receipts, keeps the accounting records, and prepares the
monthly bank reconciliation.

The balance per bank statement on October 31, 2006, was P73,520. Outstanding checks
were: No. 62 for P507, No. 183 for P600, No. 284 for P1,103, No. 862 for P762.84, No. 863
for P907.20, No. 864 for P661.12. Included with the statement was a credit memorandum
of P800 indicating the collection of a note receivable for Dema-ala Company by the bank on
October 25. Dema-ala Company has not recorded this memorandum.

The company’s ledger showed one cash account with a balance of P87,570.88. The balance
included undeposited cash on hand. Because of the lack of internal control, Maria took for
personal use all the undeposited receipts in excess of P15,182.04. She then prepared the
following bank reconciliation in an effort to conceal her theft of cash.

Cash balance per books, October 31 P 87,570.88

Add: Outstanding checks
No. 862 P 762.84
No. 863 907.20
No. 864 661.12 1,931.16
P 89,502.04
Less: Undeposited receipts 15,182.04
Unadjusted balance per bank, October 31 P 74,320.00
Less: Bank credit memorandum 800.00
Cash balance per bank statement, October 31 P 73,520.00

Questions

1. DEMA-ALA COMPANY’S cash shortage at October 31 is:

a. P 4,210 b. P 3,410 c. P 1,600 d. P 800

2. DEMA-ALA COMPANY’S adjusted cash balance at October 31 is:

a. P 88,370.88 b. P 87,570.88 c. P 86,770.88 d. P 84,160.88

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Problem 17
On December 15 of the current year, Darwin, who owns Herald Corporation, asks you to
investigate the cash-handling activities in his firm. He thinks that an employee might be
stealing funds. “I have no proof” he say, “but I’m fairly certain that the November 30
undeposited receipts amounted to more than P6,000 although the November 30 bank
reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank
reconciliation doesn’t show several checks that have been outstanding for a long time. The
cashier told me that these checks needn’t appear on the reconciliation because he has
notified the bank to stop payment on them and he had made the necessary payment on the
books.

At your request, Darwin showed you the following November 30 bank reconciliation
prepared by the cashier.

Bal. Per bank statement P 2,360.12 Bal. Per Books P 5,385.22

Deposit in transit 3,619.20 Bank Service charge ( 30.00)
Outstanding checks Unrecorded bank CM ( 600.00)
# 2351 550.10
2353 289.16
2354 484.84 ( 1,224.10) ________
Adjusted Balance P 4,755.22 Adjusted Balance P 4,755.22

You discover that the P600 unrecorded bank credit represents a note collected by the bank
on Darwin’s behalf. It appears in the deposits column of the November bank statement.
Your investigation also reveals that the October 31 bank reconciliation showed three checks
that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for
P233.45, and No. 1512 for P126.55.

You also discover that these items were never added back into the cash account in the
books. In confirming that the checks shown on the cashier’s November 30 bank
reconciliation were outstanding on that date, you discover that check No. 2353 was actually
a payment of P829.16 and had been recorded on the books for the amount.

To confirm the amount of undeposited receipts at November 30, you request a bank
statement for December 1-12 (called a cut-off bank statement). This indeed shows a
December 1 deposit of P3,619.20.

Questions

1. The amount of fund stolen by the cashier is:

a. P 3,160 b. P 2,500 c. P 1,840 d. P 580

2. The total outstanding checks of HERALD CORPORATION at November 30 is:

a. P 2,524.10 b. P 1,884.10 c. P 1,864.10 d. P1,224.10

3. The adjusted cash balance of HERALD CORPORATION at November 30 is:

a. P 5,955.22 b. P 5,355.22 c. P 4,115.22 d. P 3,455.22

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Problem 18
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:

December 1, 2006 December 31, 2006

Per Bank Statement P 54,000 P101,100
Per Books 50,400 70,215
Undeposited collections 3,300 7,200
Outstanding checks 6,900 * 12,000 *

* Composed of the following #6515 510 #6552 P 1,800

6517 2,250 6553 5,700
6518 2,400 6554 2,550
6519 1,740 6555 1,950

(b) Totals for the month of December, 2006:

Cash Book:
Receipts P 425,550
Disbursement 405,735
Bank Statement
Receipts P 444,225
Disbursement 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:

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 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

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