You were able to obtain the following information in connection with your audit

of the Cash account of the RMV Company as of December 31, 2006:

November 30 December 31
a. Balances per bank P742,800 P774,696
b. Balances per books 619,304 670,392
c. Outstanding checks 254,096 300,184
d. The bank statement for the month of December showed total credits of
P5,401,800 while the cash receipts per books totaled P9,341,780.
e. NSF checks are recorded as a reduction of cash receipts. NSF checks
which are later redeposited are then recorded as regular receipts. Data
regarding NSF checks are as follows:
1. Returned by the bank in Nov. and recorded by the company in Dec.,
P1,000.
2. Returned by the bank in Dec. and recorded by the company in Dec.,
P25,000.
3. Returned by the bank in Dec. and recorded by the company in Jan.,
P9,200.
f. Check of VMR Company amounting to P9,292 was charged to the
company account by the bank in error on December 31.
g. A bank memo stated that the company’s account was credited for the net
proceeds of Oneng’s note for P8,060. This is not yet recorded on the
books.
h. The company has hypothecated its accounts receivable with the bank
under an agreement whereby the bank lends the company 80% of the
hypothecated accounts receivable. The company performs accounting
and collection of the accounts. Adjustments of the loan are made from
daily sales reports and deposits.
i. The bank credits the company account and increases the amount of the
loan for 80% of the reported sales. The loan agreement states
specifically that the sales report must be accepted by the bank before the
company is credited. Sales reports are forwarded by the company to the
bank on the first day following the date of sale. The bank allocates each
deposit 80% to the payment of the loan, and 20% to the company
account. Thus, only 80% of each day’s sales and 20% of each collection
deposits are entered on the bank statement. The company accountant
records the hypothecation of new accounts receivable (80% of sales) as
a debit to Cash and a credit to the bank loan as of the date of sales.
One hundred percent of the collection on accounts receivable is
recorded as a cash receipt; 80% of the collection is recorded in the cash
disbursements books as a payment on the loan. In connection with the
hypothecation, the following facts were determined:
 Included in the undeposited collections is cash from the
hypothecation of accounts receivable. Sales were P162,000 on
November 30, and P169,000 at December 31, the balance was made
up of from collections of P128,440 which was entered on the books in
 the manner indicated above.
 Collections on accounts receivable deposited in December, other
than deposits in transit, totaled P4,800,000.
j. Interest on the bank loan for the month of December charged by the
bank but not recorded in the books, amounted to P24,560.

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted cash balance as of November 30, 2006?
a. P618,304 c. P514,624
b. P488,704 d. P359,104
2. How much is the adjusted book receipts for December, 2006?
a. P5,427,488 c. P9,370,240
b. P9,505,440 d. P9,350,260
3. How much is the adjusted book disbursements for December, 2006?
a. P9,255,992 c. P5,406,700
b. P9,246,700 d. P9,349,452
4. How much is the adjusted cash balance as of December 31, 2006?
a. P509,492 c. P612,244
b. P602,952 d. P636,804
5. An auditor ordinarily sends a standard confirmation request to all banks
with which the client has done business during the year under audit,
regardless of the year-end balance. A purpose of this procedure is to
a. Seek information about contingent liabilities and security
agreements.
b. Provide the data necessary to prepare a proof of cash.
c. Request a cutoff bank statement and related checks be sent to the
auditor.
d. Detect kiting activities that may otherwise not be discovered.

PROBLEM NO. 9
Your audit of EXCEL Company disclosed that your client kept very limited
records. Purchases of merchandise were paid for by check, but most other
items were out of cash receipts. The company’s collections were deposited
weekly. No record was kept of cash in the bank, nor was a record kept of
sales. Accounts receivable were recorded only by keeping a copy of the
ticket, and this copy was given to the customer when he paid his account.

On January 2, 2006 EXCEL Company started business and issued common

stock, 72,000 shares with P100 par, for the following considerations:
Cash P 600,000
Building (useful life, 15 years) 5,400,000
Land 1,800,000
 P7,800,000

An analysis of the bank statements showed total deposits, including the

original cash investment, of P4,200,000. The balance in the bank statement
on December 31, 2006, was P300,000, but there were checks amounting to
P60,000 dated in December but not paid by the bank until January 2007.
Cash on hand on December 31, 2006 was P150,000 including customers’
deposit of P90,000.

During the year, EXCEL Company borrowed P600,000 from the bank and
repaid P150,000 and P30,000 interest.