FACULTY OF ECONOMICS

PRESIDENT UNIVERSITY

PART 1.
A. MULTIPLE CHOICE
On your answer sheet please write the letter of the correct answer.
Be sure you WRITE LETTERS ONLY after each number.

1. As contemplated in accounting, cash includes

a. Money only.
b. Money and any negotiable instrument.
c. Any negotiable instrument
d. Money and any negotiable instrument that is payable in money and acceptable
by the bank for deposit and immediate credit.

2. To be reported as "cash", the cash and cash equivalent must be

a. Unrestricted in use for current operations.

b. Available for the purchase of property, plant and equipment.
c. Set aside for the liquidation of long-term debt.
d. Deposited in the bank.

3. The amount as "cash" should normally exclude

a. Post-dated checks payable to the company.

b. Cash in payroll account.
c. Undelivered checks written and signed by the company.
d. Petty cash

4. Cash equivalents are

a. Short-tem and highly liquid investments that are readily convertible into cash.
b. Short-tem and highly liquid investments that are readily convertible into cash
with remaining maturity of three months.
c. Short-tem and highly liquid investments that are readily convertible into cash
and acquired three months before.
d. Short-tem and highly liquid marketable equity securities.

5. If the end of the reporting period is December 31, 2008, which of the following cannot
qualify as cash equivalent?

a. Three month treasury bill due March 15, 2009.

b. Six month treasury bill due March 15, 2009.
c. Three year treasury bill note purchased on December 31, 2008, and due on March
15, 2009.
d. One month money market placement.

6. Which is false concerning valuation of cash and cash equivalents?

a. Cash is valued at face value.
b. Cash in foreign currency is valued at the current exchange rate.
c. If a bank or financial institution holding the funds of the company is in bankruptcy
or financial difficulty, cash should be written down to estimated realizable value.
d. Cash equivalents should be valued at maturity value, meaning face value plus
interest.
 7. If material, deposits in foreign bank which are subject to foreign exchange restriction
should be classified

a. Separately as current assets, with appropriate disclosure.

b. Separately as non current assets with appropriate disclosure.
c. Be written off as an extraordinary loss.
d. As part of cash and cash equivalents.

8. Bank overdraft

a. Is a debit balance in a cash in bank account.

b. Is offset against demand deposit account in another bank.
c. Which cannot be offset is classified as current liability.
d. Which cannot be offset is classified as noncurrent liability.

9. A compensating balance

a. Must be included in cash and cash equivalent.

b. Which is legally restricted and related to long-term loan is classified as current
asset.
c. Which is legally restricted and related to short-term loan is classified separately
as current assets.
d. Which is not legally restricted as to withdrawal is classified separately as current
asset.

10. Which means "that the check has been drawn and recorded but not given to the payee
at the end of the reporting period"?

a. Undelivered check
b. Post-dated check delivered
c. Stale check
d. Outstanding check

B. On your answer sheet write afer each number the LETTER which best
described the following:

E 1. Going concern 6. Stable monetary unit A

G 2. Comparability 7. Matching principle F
D 3. Disclosure or completeness 8. Materiality B
H 4. Verifiability 9. Exchange price C
I 5. Conservatism 10. Accounting entity J

a. An assumption relied on in the preparation of financial statement that would be

unreasonable if there is inflation.

b. Concerned with relative dollar accounts.

c. The usual basis for the recording of assets.

d. Required if the accounting treatment differs from that previously accorded item.

e. A basic feature that would be unreasonable to use in reporting on a firm that had become
insolvent.
 f. None of these.

g. An objective achieved by adhering to the requirement of consistency.

h. A measurement that can be corroborated by qualified accountants using the same method.

i. Discourage undue optimism in measuring and reporting net assets and net earnings.

j. Requires separation of personal from business activity in the recording and reporting
process.

PART 2.
PROBLEM SOLVING :
SHOW ALL YOUR COMPUTATIONS IN GOOD FORM

P1. Everlast company reported the following information as of the end of the current year:

● Investment securities of $1,000,000. These securities are share investments in entities

that are traded in the SEC. As a result, the shares are very actively traded in the market.

● Investment securities of $2,000,000. These securities are government treasury bills.

The treasury bills have a 10-year term and purchased on December 31, at which time
they had two months to go until they mature.

● Cash of $3,400,000 in the form of coin, currency, savings account, and checking account.

● Investment securities at $1,500,000. These securities are commercial papers (short-

term IOU's from other entities). The term of the commercial papers is nine months
and they were purchased on December 31, at which time they had four months to go
until they mature.

Required:
How much should be reported as cash and cash equivalents at the end of the current year?

Solution:
2,000,000
3,400,000
5,400,000

P2. On December 31, 2008, Everbest Company's "cash account" balance per ledger of $3,600,000
includes the following:

Demand deposit $ 1,500,000

Time deposit-30 days 500,000
NSF check of customer 20,000
Money market placement (due date June 30, 2009) 1,000,000
Savings deposit in closed bank 50,000
IOU from an employee 30,000
Pension fund 400,000
Petty cash fund 10,000
Customer check dated January 31, 2009 60,000
Customer check outstanding for 18 months 30,000
$ 3,600,000
 Additional information:
a. Check of $100,000 in payment of accounts payable was dated and recorded on December
31, 2008 but mailed to creditors on January 15, 2009.

b. Check of $50,000 dated January 31, 2009 in payment of accounts payable was recorded
and mailed December 31, 2008.

c. The company uses the calendar year. The cash receipts journal was held open until
January 15, 2009 during which time, $200,000 was collected and recorded on December
31, 2008.

Required:

1. Adjusting entries to correct the cash account on December 31, 2008.

a Cash 100,000
Accounts payable 100,000

b. Cash 50,000
Accounts payable 50,000

c Accounts receivable 200,000

cash 200,000

d Accounts receivable 110,000

Money market placement 1,000,000
Cash in closed bank 50,000
Advances to employee 30,000
Pension fund 400,000
cash 1,590,000
2. Compute the cash and cash equivalents to be shown on the December 31, 2008
statement of financial position.
Demand deposit 1,500,000
Undelivered check 100,000
Postdated check 50,000
Collection (200,000)
Time deposit 500,000
Petty cash fund 10,000
1,960,000

P3. From the books and records of Miramax Company as of December 31, 2012, you gathered
the following:

Balance per book $ 1,000,000

Bank charges 3,000
Outstanding checks 235,000
Deposit in transit 300,000
Customer note collected by bank 375,000
Interest on customer note 15,000
Customer check returned NSF 62,000
Depositor's note charged to account 250,000

Required:
1. Compute for the correct cash balance per book as of December 31, 2012.
Balance per book 1,000,000
Bank charges (3,000)
Customer note collected by bank 375,000
Interest on customer note 15,000
Customer check returned NSF (62,000)
Depositor's note charged to account (250,000)
1,075,000
 2. Prepare journal entries to correct the cash balance.
1 Bank charges 3,000
Cash 3,000

2 Cash 390,000
Notes Payable 375,000
Interest income 15,000

3 Accounts receivable 62,000

Cash 62,000

4 Notes receivable 250,000

Cash 250,000

P4. The following amounts were taken from the unadjusted trial balance of Tank Company on
December 31, 2016:

Accounts payable $ 900,000

Accounts receivable 800,000
Accrued interest payable 50,000
Cash 200,000
Dividend payable 250,000
income tax payable 100,000
Trading securities 1,000,000
Notes receivable 1,500,000
Merchandise inventory 750,000
Bonds payable, $500,000 due September 30 annually 2,000,000
Contingent liabilities 400,000
Accrued expenses 350,000

The accounts receivable balance includes customers' deposit of $200,000. The market value of the
trading securities is $700,000. The balance of the notes receivable includes $700,000 of note
discounted for which the company is contingently liable.

Required: 30 minutes

1. What is the total current assets?

Accounts receivable (800,000+200,000) 1,000,000
Cash 200,000
Trading securities-market 700,000
Notes receivable (1,500,000-300,000) 1,200,000
Merchandise inventory 750,000
(b) 3,850,000

2. What is the total current liabilities?

Accounts payable 900,000

Accrued expenses 350,000
Accrued interest payable 50,000
Dividends payable 250,000
Income tax payable 100,000
Bonds payable-current 500,000
Customer's deposit 200,000
(b) 2,350,000