Far Eastern University

Institute of Accounts. Business and Finance

Department of Accountancy and Internal Auditing

INTERMEDIATE ACCOUNTING 1
CASH AND CASH EQUIVALENTS
DO-IT-YOURSELF (PROBLEMS)

TABLE OF CONTENTS
• Problem 2.1-1 Determine Cash Balance
• Problem 2.1-2 Determine Cash Balance
• Problem 2.1-3 Determine Cash Balance and Adjusting Journal Entries
• Problem 2.1-4 Bank Reconciliation and Adjusting Journal Entries
• Problem 2.1-5 Proof of Cash and Adjusting Journal Entries
• Problem 2.1-6 Petty Cash, Bank Reconciliation and Journal Entries

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-1
Determine Cash Balance

The controller for Bach Corporation is attempting to determine the amount of cash and cash equivalents to be
reported on its December 31, 2020 statement of financial position. The following information is provided:

1. Commercial savings accounts of P 600,000 and a commercial checking account balance of P 800,000 are
held at Philippine National Bank.
2. Money market fund account held at Violet Company (a mutual fund organization) permits Bach to write
checks on this balance, P 5,000,000.
3. Travel advances of P 180,000 for executive travel for the first quarter of next year (employee to reimburse
through salary reduction).
4. A separate cash fund in the amount of P 1,500,000 is restricted for the retirement of long-term debt.
5. Petty cash fund of P 10,000.
6. An I.O.U from Reginald San Pedro, a company customer, in the amount of P 150,000.
7. A bank overdraft of P 100,000 has occurred at one of the banks the company uses to deposit its cash
receipts. At the present time. The company has no deposits at this bank.
8. The company has two certificates of deposits, each totaling P 500,000. These CDs have a maturity of 120
days.
9. Bach has received a check that is dated January 12, 2021, in the amount of P 125,000.
10. Bach agreed to maintain a cash balance of P 500,000 at all times at the Philippine National Bank to ensure
future credit availability.
11. Bach has purchased P 2,100,000 of commercial paper of Monte Carlo Company which is due in 60 days.
12. Currency and coins on hand amounted to P 7,700.

Instructions:
1. Compute the amount of cash and cash equivalents to be reported on Bach Corporation’s statement of financial
position at December 31, 2020.
2. Indicate the proper reporting for items that are not reported as cash on the December 31, 2020, statement of
financial position.

YOUR ANSWERS HERE:

1.

2.

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-2
Determine Cash Balance

The December 31, 2020 trial balance of Hornet Company includes the following accounts:

Cash on hand 50,000

Petty Cash Fund 10,000
Security Bank Current Accounts 100,000
PNB Checking Account No. 101 40,000
PNB Checking Account No. 102 (5,000)
BPI – Money Market 300,000
BPI – Time Deposit 200,000

Additional information related to the above balances are as follows:

a) The cash on hand includes a customer post-dated check of P 10,000, NSF customer check of P 5,000 and
postal money order.
b) The petty cash fund includes unreplenished petty cash vouchers for P 2,000 and employee check for P 3,000
dated January 31, 2021.
c) A check for P 20,000 was drawn against Security Bank account, dated January 15, 2021, delivered to the payee
and recorded December 31, 2020.
d) The BPI time deposit is set aside for acquisition of land to be used as a factory site.

Required:
Compute the correct balance of the following as at December 31, 2020:
1. Cash in Hand
2. Petty Cash Fund
3. Security Bank current account
4. Cash balance

YOUR ANSWERS HERE:

1.
2.
3.
4.

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-3
Determine Cash Balance

PHILCPA Adapted
Callous Company reported the following accounts on December 31, 2020:

Cash on hand 200,000

Petty Cash Fund 20,000
Philippine Bank current account 5,000,000
City Bank Current Account No. 1 4,000,000
City Bank Current Account No. 2 (100,000)
Asian Bank Savings Account 250,000
Asian Bank time deposits, 90 days 2,000,000

Additional information:
Cash on hand included the following items:
a) Customer check for P 35,000 returned by bank on December 26, 2020 due to insufficient fund but subsequently
redeposited and cleared by the bank on January 10, 2021.

b) Customer check for P 15,000 dated January 10, 2021 received December 23, 2020.

c) The petty cash fund consisted of the following items:

Currency and coins 5,000
IOUs from officers 2,000
Unreplenished petty cash vouchers 12,000

d) Included among the checks drawn by Callous Company against the Philippine Bank current account and
recorded in December 2020 were the following:
 Check written and dated December 23, 2020 and delivered to payee on January 31, 2021, P 25,000.
 Check written December 26, 2020, dated January 30, 2020, delivered to payee on December 28, 2020, P
45,000.

Instructions:
1. Compute the correct balance of the following as at December 31, 2020:
a. Cash in Hand
b. Petty Cash Fund
c. Philippine Bank current account
d. Cash and Cash Equivalents

YOUR ANSWERS HERE:

1.
2.
3.
4.

2. Prepare adjusting entries on December 31, 2020.

Date Account Names Debit Credit

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-4
Bank Reconciliation and Adjusting Journal Entries

The cash account of Hogwarts, Inc., disclosed a balance of P 170,564.80 on October 31. The bank statement as of
October 31 showed a balance of P 212,094.5. Upon comparing the statement with the cash records, the following
facts were developed:

a) Diamond’s account was charged on October 26 for a customer’s uncollectible check amounting to P 11,430.

b) A 2-month, 9%, P 30,000 customer’s note dated August 25, discounted on October 12, was dishonored October
26 and the bank charged Diamond P 30,508.30, which included a protest fee of P 508.30

c) A customer’s check for P 7,250 was entered as P 6,250 by both the depositor and the bank but was later
corrected by the bank.

d) Check No. 661 for P 12,425 was entered in the cash disbursements journal at P 12,245 and Check No. 652 for
P 329 was entered as P 3,290. The company uses the voucher system.

e) Bank service charges of P 394.30 for October were not yet recorded on the books.

f) A bank memo stated that K. Rowling’s note for P 25,000 and interest of P 625 had been collected on October 29;
and the bank charged P 125. (No entry was made on the books when the note was sent to the bank for
collection)

g) Receipts of October 29 for P 68,500 were deposited November 1.

h) The following checks were outstanding on October 31:

No. 620 P 12,500.0 No. 671 P 7,325.00
0
No. 621 34,482.3 No. 673 1,879.00
0
No. 632 24,052.5 No. 675 2,757.20
0
No. 670 17,753.8 No. 676 22,331.50
0

Instructions:
1. Prepare a bank reconciliation as of October 31. Use the template below, or you may create your own template or
format.
2. Give the journal entries required as a result of the preceding information. Use the solution guide on next page.

SOLUTION:
Requirement 1 – Bank Reconciliation as of October 31

Book Bank

Unadjusted balances, September, 2020 170,564.80 212,094.50

Bank Reconciling items:

Book Reconciling items:

Adjusted balances, September 30, 2020

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

Requirement 2 – Adjusting Journal Entries at December 31, 2020

Date Account Names Debit Credit

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-5
Proof of Cash

Based on the following information, prepare a proof of cash for the month of August 2020 and the necessary
adjusting journal entries for Mighty Company starting with unadjusted balances.

Cash in Bank Checking Account No. 5

(BPI –Branch 123) (Might Company)
Debit Credit Debit Credit
August 1 balances 66,000 44,000
Receipts during August 242,000 275,000
Disbursements during August 198,000 216,700
? 198,000 216,700 ?

August 31 balances 110,000 102,300

Errors committed by the book and bank

1. August collection of 11,000 was recorded by company as P 1,100.
2. August check in payment of accounts payable for P 33,000 was recorded by the company s P 3,300.
3. Deposit of Mightiest Company erroneously credited by bank to Mighty Company, P 11,000.
4. August check of Mighty Less Company erroneously charged by bank to Mighty Corporation, P 22,000.

Other information are as follows:

July August
NSF Checks 5,500 2,750
Notes collected by bank for Might Company 11,000 16,500
Deposit in Transit (end of month) 33,000 26,400
Outstanding checks (end of month) 5,500 35,750

SOLUTION:
(YOU MAY CREATE YOUR OWN TEMPLATE OR FORMAT)

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

Requirement 2 – Adjusting Journal Entries at August 31, 2020

Date Account Names Debit Credit

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

PROBLEM 2.1-6
Petty Cash, Bank Reconciliation and Journal Entries

Billy Joe is reviewing the cash accounting for Northern Lights, Inc. a local mailing service His review will focus on the
petty cash account and the bank reconciliation for the month ended May 31, 2020. He has collected the following
information from Northern Light’s bookkeeper for this task.

PETTY CASH
1. The petty cash fund was established on May 10, 2020, in the amount of P 25,000.
2. Expenditures from the fund by the custodian as of May 31, 2020 were evidenced by approved receipts for
the following:

Postage expenses P 3,300

Mailing labels and other supplies 6,500
I.O.U. from employees 3,000
Shipping charges 5,745
Newspaper advertising 2,280
Miscellaneous expenses 1,535

On May31, 2020, the petty cash fund was replenished and increased to P 30,000; currency and coin in the
fund at that time totaled P 2,640.

BANK RECONCILIATION

Bank of the Philippine Islands

Bank Statement

Disbursements Receipts Balance

Balance, May 1, 2020 876,900
Deposits 2,800,000
Note payment direct from customer
(Interest of P 3,000) 93,000
Checks cleared during May 3,115,000
Bank service charges 2,700
Balance, May 31, 2020 652,200

Northern Light’s Cash Account

Balance, May 1, 2020 885,000
Deposits during May 2020 3,100,000
Checks written during May 2020 (3,183,500)

Deposits in transit are determined to be P 300,000 and checks outstanding at May 31, 2020 total P 85,000.
Cash on hand (besides petty cash fund) at May 31, 2020 is P 24,600.

Instructions:
1. Prepare journal entries to record the transactions related to the petty cash fund for May. USE THE SOLUTION
GUIDE ON NEXT PAGE.

2. Prepare a bank reconciliation dated May 31, 2020, proceeding to a correct cash balance, and prepare the journal
entries necessary to make the books correct and complete. YOU MAY USE THE TEMPLATE OR FORMAT ON
NEXT PAGE, OR YOU MAY CREATE YOUR OWN.

3. What amount of cash should be reported in the May 31, 2020 statement of financial position?
Your answer here

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 Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing

SOLUTION:
Requirement 1 – Journal entries for May – Petty Cash Fund

Date Account Names Debit Credit

Requirement 2 – Bank Reconciliations at May 31, 2020

Book Bank

Unadjusted balances, May 31, 2020 (Note 1)

Bank Reconciling items:

Book Reconciling items:

Adjusted balances, May 31, 2020

Date Account Names Debit Credit

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