CPA Examination Reviewer: Auditing Problems 2010 - 2011 edition GERARDO S. ROQUE CPA Reviewer (CPA Review Schoo! of the Philippines (CPAR)Copyright 2010 by GERARDO S. ROQUE ‘Any copy of this book not bearing the signature ofthe author on this page is ‘unauthorized and shall be considered as proceeding rom ‘an illegal source. ‘Kcr Richt RESERVED ISBN 971-0489-76-9, Published and Printed by: GIC Enterprises & Co., Inc. Preface ‘This CPA Reviewer in Auditing Problems is prepared in my desire to be a part of your endeavor to pass the CPA Board Examination. The first eleven chapters of this reviewer consist of exercises and problems involving the audit of specific financial Statement items. These will help you in the application of ‘current Philippine Financial Reporting Standards (PFRS). The last chapter of this book includes practice examination materials that are intended to simulate the problems given in the actual CPA board examination. | fervently hope that by going through the exercises and problems In this reviewer, you will gain the necessary Confidence to take the licensure examination and fulfll your dream of becoming a CPA. GERARDO S. ROQUEG @, Chapter 10 un 2 omtemts ‘Audit of Cash ‘Audit of Receivables ‘Audit of Inventories ‘Audit of Investments ‘Audit of Property, Plant ‘and Equipment ‘Audit of Prepayments and Intangible Assets ‘Audit of Ualities Audit of Shareholders’ Equty Audit of Other Income ‘Statement Items ‘Accounting Policies, Changes in ‘Accounting Estimates and Errors Statement of Cash Flows Practice Examinations Page No. 123 204 201 360 503 550 615 706 4 784 CHAPTER Audit of Cash & Cash Equivalents ‘AUDIT PROGRAM FOR CASH ‘Audit Objectives: To determine that Cash balances at the end of the reporting periog represent cash and cash items on hand, in tarsi to, born depository banks, Cash transactions have been properly recorded. Cash balances are properly described and classified, ‘and adequate disclosures with respect to amounts restricted as to witnarawal are made in the Tinanetal‘CPA EXAVANATON REVIEWER: AUDMTING PROBLEMS Audit Procedures: 1. Conduct a cash count of undeposited collections, ‘ctth and other fund pe +" Obtain’ custodian's signature to acknowiedye re {en of seme counted + Reconele Meme counted with general ledger bal + Trace undeposited collections counted to bank re- concitatons + oll te dispositions ofits nash counted ‘Undepotedeoleedons shou be teed wo Bank ‘pot > Gecka accommodated im petty cash sould be de- tedster te count toenail > Tots" the pet cum sould 'be come and trace to fltaon te net papal pred > Expane vouchers should be faced tobe stceed- fg repistatnent voucher, + coordinate can count with count of marketable Securities snd other negottable assets ofthe ellen + Obiain ‘confirmation of yearend fend balances of aah not counted tn bach ar other aces 2. Confirm bank balance by direet correspondence with fall banks in sehich the client has had deposits and Tans during the year. 3. Obtain or prepare bank esonciton Check arithmetial accuracy of reconciliation. ‘Trace balance per book to the general ledger bal- fince ofeash accou ‘+ Trace’ balance per bank to bank statement and Compare sith ammount confirmed by bank ‘+ Establish authentety of reconcling tema by reer- fice o thee rxpective nxroen, ke >” pane debit or credit advices, > Duly approved journal vouchers, tue cen outnandng for Tong peo of ‘aster 1 AUDIT OF CASH AND CASH EQUIVALENTS > Consider adjustment, especially the check Iealready stale. > Consider the possiblity of an erroneous preparation ofthe check, + tnvestigate any unusual reconeting tems. +) Where tnternal contol over cash ts weal consider preparing a proo! of eash reconciliation, Obiain cutoff Bonk statement. showing the client's transactions with tie bank atleast oe week after the reporting date, and! oP STrace year-end econeling tems, He: > "Deposit of the year-end tindeposited collec: tions. » Completeness of year-end oustanding > Corrections of bank errors + Examine supporting. documents of year-end out standing ches that did not clear in the ctalt ‘Obtain a list of interbank ransters of fans afew Before and ater the reporting date ai 2 Noch supporting Socument 2 Kicertain Ghat the elted fecepte and disburse- Imenta were booked by the client wathin the Same day oF at Teast wt the same month “Test reasonableness of cutoff by: e"Comperng dates of checks retumed with cutost bank statement to dates of recording nthe cash ‘isbursements regater + Tracing receipte recorded afew days before the re- porting date to bank deposts Inspect saving account passbook and cortiieates of deposits +P Reconetle with book balan,(CPA BvaNaNATION REVIEWER: AUDMING PROBLEMS + Update interest eamed posting on passbook, i + Compare balances with bank confirmation reply. 8. Determiné any restrictions on avasabiiy of ensh, 8. Determine propriety of fnanctal statement presenta tion nnd adequacy of disclosures ® Problem 1-4 ash and Cash Equivalents {In connection with your aut ofthe fnancal statements of ONOR COM- PANY forthe year ended December 31,2010, you gathered the following ‘The company maintain Rs current acount ith Tsunami Bank. The bank staeement on ‘Cecamber 31, 2010 showed 3. balance of ‘Your aut of the company’s aocount with Tsunami Bank disclosed the foioning: + Acheck for P22,500 received fom a customer whose accounts ‘current had been depesttod and then retuméd by the bank on December 28, 2010." No entry was made forthe return of ts ‘hack. The customer repisad the check on January 15, 2011 + A check for 75,720 was cleared by the bank as P7,520. The tank made the cortection on Januaty 2, 2011, +A chock for P3,500 representing payment of an employee 2d ‘ance wos recoied and deposited on December 27, 2010, Bik ‘wns not recorded unt Danuary 3, 2031. ‘ower 1 AUD OF CASH AND CASH EQUIVALENTS 5 “+ Post dated checks totaling P67;300 were incded inthe deposits in tans, These represent collections of curent aocounts re Canvable fom customers, The checks were actualy deposted on Sanusry 5, 2011 “+ Varlous debit memes for drafts purchased for payment of impor {ation of equipment totaling P230,000 were noe yer recorded ‘These purchases were previously set up as sccolnts payable. ‘ald equpmant artved n Decamber 2010. ‘+ Interest earned on the bank balance forthe 4 quarter of 2010, amounting to P1950 was no recorded + Bonk service charges totaling P1,260 were not recoded. + Deposit in transit and outstanding checks at December 33, 2010 totaled P136,250 and P276, 380, respectively Various expenses thom the company's imprest petty cash fund dated December 2010 totaled 16,250, white those dated January 2011 ‘amounted to P5,503.Anatherdizursement from the fund dated December 2010 was a cash advance to an employes amounting to 5,500, replenishment of te petty cash fund was made on Jan ary 8, 2011. ‘The company's tal balance on December 3, 2010 incids the fo lowing accounts (ash in bank — Tsuna Bank 748,320 ‘Cashin bank ~ Earthquake Bank (restricted ‘account for plant expansion, expecta to be csbursed in 2011) 700,000 Petty cash fund 30,000 “Time depos, placed December 20, 2010 ‘ond de March 20, 2011 1,000,000, Money market placement Pradentisl Bank #/000/000 Winat Is the adjusted Petty cash fund bolunoe on December 3t, P4347 5. 10,250 <. P30,000 D. Paaoa76 (CPA exananaTiON REVIEWER: AUDITING PROBLEMS 2. ‘The petty cash shortage on December 31, 2010 is RPO 3,300 B. Ps,909 5. paisa? |. What Is the adjusted Cash in bank ~ Tsuna Bank balance on De= ‘amber 31, 20107 500,010 BL pra8.320 c. pasz10 B. paas,110) 4. ‘The entry to adjust the Cath in bank - Tsunami Bank account shoul Ince a debt to Ih Accounts recevable for P89/800, 8. Accounts reeehable for PB6,300 Accounts payable for P228,500. 5. Intrest expense fr PI,350. 5. The December 31, 2010 statement of fnandal poston should show "Cah and cash equivalents" at i P6142,960, 539,360 cc. Pa9,960, B. P5,492,960 © Sotwetom 1-1 1. Petty cash fund per trial balance 20,000 Various expenses dated December 2010 (16,250) Employee eash advance £8500) Adjusted pety cash fund balance puo2zs0 Answer: B 2, ‘The petty cash shortage cannot be determined because of insuf ficient information. Answer: & ‘ower AUDIT OF CASH AND CASH EQUIVALENTS 3 Book Bank Unadjusted balances 748,320. 638,340 NSF check (221500) Bankeerror (07520-75720) 1,800 Unrecorded cash receipt 3.500 Post dated checks (67/300) Deposits in transit (P196 250 ~ P7300) 68,950 Bank debit memes, (230,000) Interest earned 11950 Bank service charges 260 Outstanding checks ‘Adjusted balances —_ 27680) Answer: © 4. Accounts receivable (P2500 +P67;300) 89,800 ‘Accounts payable 230,000 Bank service charges 1,260 ‘Cash in bank ~ Tsunami Bank 315,610 ‘Advances to employees 3.500 Interest income 41950 Answer: ® 5. Cash in bank - ‘Tsuna! Bank Pasz710 Petty cash Fund ‘107250 ‘Time deposit 1,000,000 ‘Money market placement 4.000.000 ‘Cash and cash equivalents saan 90 Answer: D® Problem 1-2 ‘Computation of Correct Gash Balance “The following are the cash balances of LEON, INC, at December 31, LUndeposited collctons (in curency and coins) 40,200 Curent ccount unrestricted 20,000 Dbursement checks wren and recorded in December 2010 but are to be released to the payees in January 2013 130,000 estcled time daposts (expected we In June 2011) 2,000,000 Loner, Ine. has agreed to maintain a P200,000 compensating balance in {As unresicted current account n cordance with Ue oon covenant ow much should Leonor, Ine. report as cash on ts December 31,2010) ‘Satement of financial poston? 550,200 790,200 8. 92,750,200 750,000 © Sotwetom 1-2 Undeposited collections 40,200 Current account unrestricted 620,000, Unreleased/Undelivered checks 30.000 Total 790200 Answer: C 1. the #209000 ampenating lalace dl be repo as pat of cash feces gly resid ao witha ‘umrer T AUDIT OF CASH AND CASH EQUIVALENTS 9 2 the tive dass dul fe reer spat as short-term final as set or temporary iets inthe compan statement of nance po sition loans the er ic are than threo tin one yar ® Problem 1-3 ash nid Gash Eauivolents “The accountant of SANTIAGO COMPANY ic inthe process of preparing the company's tnancal statements for the year ended December 3, 2010. Hels tying to determine the correc Balance of Cash nd cash ‘equivalents tobe reportod as curtent asset on the statement Mal {al positon. The flowing Rems re beng conedered “+ Boiances inthe company’s acount atthe Metropolitan Bank: > Current account 81,000, > Savings count 132/600, + Undeposte customer checks of ?22,200 (nduding.@ customer ‘heck dated January 2, 2011 fr 3,000}. 4+ Currency and coins on hand of 3,80, ‘+ Sovings account ot the Northern Phitppines Bank with balance ‘of 2,400,000. Ths account I bing ed fo accumulate cash for future plant expansion (In 2013). + Petty cash of 4,000 (curency of P1,200 and unreplenshed vouchers for P2800), + 120,000 In a cuirent account a the Northern Phippines Bonk. ‘Tis represents a 20% compensating balance for PEED,000 lan with the bank. ‘Sanlago Company & legal restricted to wth ra the funds unt the loan Is due in 2013, + Treasury bls “Twormonth maturity bits 20,000 Seven-meonth bile 120,000, + Time depost 100,00010 (CPA PvanaNAnOM REVIEWES: AUDITING PROBLEMS What the correct balance of cash and cash equlvalents to be reported In the current assets section ofthe statement of francial positon? x 8 P70 427/400 e30 280 . a37460 © Soiueiom 1-3 ‘Savings and current accounts - Metropolitan Bank {132,600 + P8000). 213,600 Lndeposited customer checks (P22;200 -P3,000) 13,200 (Currency and coins on hand 3.480, Petty cash 4,200 “Two-month treasury bills 90,000, ‘Time deposit 100.000" ‘Total cash and cash equivalents Bazza sumed that he term three months oF ess and therefore qualifies sscash cqutvlent Answer: B ‘The following items are not included in che computation above 4 2 a 3,000 postdated customer check. 2,400,000 cash balance at Northern Philippines Bank to be used for future plant expansion, 'P120,000 in a checking account at Northern Philippines Bank ‘which represents compensating balance that is restricted as to ‘withdrawal “amonth treasury bills totaling P120,000. = "ner BAS x Presentation of Finacial Statements curren ase n= aba ocean go changed or wed ose a Ti fort last 12 ons aftr omg ae. ‘custer T AUDIT OF CASH AND CASH EQUVALENTS Fry . in a ywivialents are fi ine Teco tt agile Re aont h bi porns nn if eg ee fo Ter fasfwtacd aps ® Problem 1-4 entifying Cash rams Which ofthe folowing items shouldbe inode in the cash balance at December 31, 20107 1. = A check payable to the company, dated January 3, 2011, in payment ofa sale made in December 2010 = Acheck payable to @ vendor, dated and recorded in the com- ppany’s books on December 33, 2010, but not released unt Sanory 4, 2011 Both and 1 & Lonly 8. tony Nether noe 1 © Sotueiom 1-4 ‘The check payable to the company ()) is « postdated check, 1, dated after the end af the reporting perio. ‘The amount should be shown asa receivable on the De- ‘cember 31, 2010 statement of francal position. ‘The disbursement check (1) was not rlessed until after the end ofthe reporting period. The amount should be Included in th eash balance at December 31,2010, Answer 8Cash and Cash Equivalents on the statement of Financial Position ‘Your aut of the December 31, 2010, fhancal statements of DIONISIO CORP, reveals the folowing Current account at Prime Bank P (30000) Current account at Progen Sank 135,000 ‘Freesury bls (acquired 3 months before matty) 300,000 “Treasury bis (etsy dates Dec 31,2011)" 1,500,000 Paral acount 380,000 Foreign bank account ~ rested (varsated using ‘he December 31,2010, exchonge rte) 2,900,000 Pestge sarps 1250 Employee's postated check 4500 {ou rem the vor reset 000 ret memo tom @ supper fore purchase return” 8100 ‘Tovelers check 21000 ney order 2/900, Petty Cac fund (P3000 n eurency and expense Tevet for P22,000) 15,000 hat amount would be reported as “eash and cash equtalents” on the ‘Sotement of financial poston on Decorber 31,2010? ‘A Poa0,050 ‘c.pea9.400 8. 873,900, . Paet,300 © Soluciom 1-5 Ccurrent account at Prudent Banke 135,000 ‘Treasury bills (acquired 3 months before maturity) 300,000 Payroll account 390,000, "Traveler's check 21,000 cramer T AUDIT OF CASH AND CASH EQUIVALENTS 13 Money order 12,900 Petty cash fund 3.000 ‘Total eash and cash equivalents ‘e800 Answer: D © Problem 1-6 Compensating Balance VICTORIA, INC. needs 72:000,000 to finance is expansion program. ‘Victoria, Ine. s nepatiating a loan wlth Metuopols Bank which requires the company to maintain 2 compensating balance of 1096 of the loan Principal on deposi ina current account athe bank. Victoria Ine, cut= Fenty maintains a balance P20,000 In fs current account. The eutrent ‘ccoUnt ears interest of 2% per anuan; the Interest rate on the lan 4296 per annum, | Whats the principal amount of the oan? R. 2,200,000, CPi, 980,000 2,000,000, . 2,220,000 2. Whats the effective Interest rate on the fan? A 13286 cL 8 110% 3. 26 © Sotmetom 1-6 1, (X= Principal amouat ofthe loan) 0%@X" =" P20,000 + »(X-P2,000,000) 30% X = 20,000 + x- P2,000,000, 10%X-X = =P1,980,000 S0%X = 1,980,000 X = P1,380,000 + 9036 x = pzz00.000“4 (CPA EXAMINATION REVIEWER: AUDITING PROBLEMS 2, Annual interest payment (P2,200.000.x1296) _-P_ 204,000 Interest ineome onthe loan proceeds in the ompensatingbalance (P200,000%2%) 4,000 ctfetive interest ® 60,000 Divide by oan proceeds = pzo00.000 ‘fective interest rate 13% arener: € ® Proiesn 1-7 ‘Computation of Correct Cash Balance “The Cash account of the BEA CORPORATION as of December 31, 2010, ras composed ofthe flowing: ‘on depast in current account withthe Bank of PI Cash collection not yet deposed to the bank ‘Reastomer's check returned bythe benk fr isuficent fund 150,000 _n chock drawn by the Vice-President ofthe company Soted January 15, 2001 70,000 _ncheck drawn by 2 supplier dated Decomier 28, 2010 {or qpode retired by the cornpany £0,000 1 cheek dated Way 31,2010 drawn by the company the Ban oF Manta in payment of cstoms des. Spe the importation oi not mater the check ‘nas retumad bythe customs broke. his check was ‘Br ovtstanaing check in the reconclaton ofthe fan of Mana petty cach fund of which P20,000& la curency, P7200 in form of employees” IOUS; and P2,800 is supported by approved petty cash vouchers fr expenses al ‘ted pir ta dosing ofthe books on December 31, 2010 20,000 oral #7,360,000, ESS: Overarafe with the Bank of Mania secured by 900,000 350,000 410,000, ‘ames AUDIT OF CASH AND CASH EQUVALENTS 15 2 chattel mortgage onthe inventories Cash tolance per leer 390,000 Piscoona What i the sinount of cash to be report on the December 31, 2010 $Hatement ef nancial poston of Bea Company? © Sonwstom 1-7 Current account - Bankeof PL 900,000 Undeposited collection 350,000 Supplier’ check for goods returned by the company 60,000 Paty cash fund 10,000 Ranke of Manila (P410,000 - P300,000) 10.000 Correct cash balance aso.000 © Problem 1-8 Paty Cah Band ‘On January 1, 2010, JERVS COMPANY estabished a ply cash fund of 10,000. "on December 1, 2010, the petty cash fund was examined fand found to have tecelpts and documents for miscellaneous general ‘ipenses amounting to P8120. Tn addon, thre was cash amounting e100. 1, Whats the amount of petty cash shortage or overage? ‘A. F360 overage (C.PLB00 shortage 8, 360 shortage ©, Pt,880 average 2. What entry would be required to adjust the petty cash fund on De- camber 31, 20107 Miscellaneous general expenses 820 Cash short o over 580 ety cash fund 8,50016 ‘CPAEXANANATON REVEWER: AUDITING PROBLEMS | Mscalaneous general expenses 8120 ‘Cash short or over 380 Petty cash fn 7700 & Misalancous general expenses 8120 Petty cach fund 8,120 . Miscalancous general expenses 8,500 ‘cach short or over 380 ety enh tune 8.120 © Solmeiom 1-8 1. cash P 1,500 Miscellaneous general expenses 120 Petty cash accounted 31620 Petty cash per ledger 10.000 Petty cash shortage eae Answer: 8 2, Miscellaneous general expenses 8.120 Cash short or over ‘380 Petty ash fund 8500 @ Perowiem 1-9 Petty Cash Fad ‘The autor for SAMANTHA, INC. examined the petty cash fund imme: lately after the dose of business, July 31, 2010, the end of the comps fs natural business year. The petty cash custodian presented the fo Toning during the count: currency P1650 Paty cath vouchers: ‘yaoter 1 AUDIT OF CASH AND CASH EQUIVALENTS. a7 Postage 20 Office suppies expense 300 “Transportation expense 30 Compcter repairs 00 ‘Advances to ofice stat 4500 ‘Acheck drawn by Samantha, Inc, payable to the ety cash custodian 7,200 Postage stamps 500 An employee's check, returned by bark, marked NSF 1,000, An envelope containing catency of P1,890 fora gift for ‘3 rebrng employee 890 ic.o00 ‘The general ledger shows an imprest petty cash fund balance of 16,000. 1 How much is the potty cash shortage or overage? ‘A. 2,190 overage ‘C P1,890 shortage B. 2/190 shortage 1. Pt1890 overage 2. Whats the adjusted balance of the petty cash fund at July 3, 2010?" Pio,740 © P7200 5. P3540 5. eles0 © Setweiom 1-9 1. Currency P 1650 Petty each vouchers (P4206 P9004 7240 +P800 F500) 3.960, Replenishment chece 200 Employee's NSF check — 1090 Petty cash acounted 73810 Peity cash fund per ledger eustodise’s accountability) 26,000 Petty cash shortage p2iso Answer: &18 2 (CPA xaNANAnON REVIEWER: AUDITING PROBLEMS Currency P1650 Replenishment checke 7200 ‘Adjusted petty cash balance Passa Answer: © © Problem 1-10 ety Cash Yad (On January 1, TANYA CO. establishes petty cash account and desi rates Ory Reyes as pay cash custodian, The orginal mount ned Inthe petty cash fund ls P10,000. The folowing dlsbursemants are office supplies 3,460 Postage 2240 Entertainment ‘oo “The balance inthe petty cash box is P3,200 “The person responsible, a al mes for the amount of the petty cash fund the x € ‘Chaimman of te Goard of Directors President ofthe company ety east eustoian, “The folowing are sppropriate procedures for controling the petty cash und, except ® “To mentor variations in afferent types of expenditures; the pot ty cash custodian les petty cash vouchers by category of ex- Denditure after replenishing the fund ‘To repenish the fund, the general cashier sues 9 company hak to te petty cash custodian, rater than cash ‘vasnea 1 AUOIT OF CASH AND CASH EQUIVALENTS To determine thatthe fund s beng accounts for satisfactoty, Surprise counts of the fund are made fram time to tme by the internal sudtor or ober responsible otic ©. Each individual to whom petty each fs pl required to present Soned receipts to the pety cash cstodn, 23. The erry to replenish the funds [AL Office supplles expense Postage expense Frtertaiement expense ‘Gash 3B, Office supplies expense Pastage expense Entertaioment expense (Cash over an short Petty exh C. Office supplies expense Postage expense Entertainment expense (Cash over and shor ‘cash D. fice supplies expense Postage expense Entertainment expense Petty cash | 4, ‘The objective of establishing a pty cash fund 1h Gath checks for employees 2200 2,240 250 3.460 2240 3460 2.240 et 13. Account forall cash reclps and disbursements Account for eash sales 5. Factitate payment of sal, mcelaneous Kem 5.540 6,800 6.540 5, What i the effect of nt replenshing the petty cash at year-end and sot making te appropriate eusting erty?20 CCPAPIANANATON REVIEWER: AUDATNG PROBLEMS Adetated aud is essential ‘The petty cash custodian shoud tum aver the petty cash tothe general easter Gath nl be overstated and expences underctated 1. Expenses wal be overstated andl eash wil be understated BP © Senweiom 1-10 ‘One individual, the petty cash custodian, should be responsible for the petty cash fund. Answer: © 2. ‘The petty cashier should not have custody of paid petty cash answer: ® Office supplies expense 3.460 Postage expense 2240 tertainment expense ‘40 (Cash over and short 260 ‘cash 6,900 Computation of cash shortage: Currency and coins P3200 Petty cash vouchers (P3460 +P2,240+ P840) 6.540. Petty eash accounted 9,740 Petty eash fund per ledger 10.000 Shortage ary Answer: © acittate payment of small, miscellaneous items. Answer: D cues 1 AUOFT OF CASH AND CASH EQUIVALENTS 2 5. Cash willbe overstated and expenses understate. Answer: C ® [Pratbilem 1-11 Count of Petty Cash Fund and Undeposited Collections In connection with your audt ofthe nancial statements of BENDAMIN ‘Con? forthe year ended December 31,2010, you conducted surprise fount of the companys petty cash find and unepocted eolecbons at 18:20 arm. on January 3, 2014. Your count dscosed the folowing: ts a cons ie cons 710000 Spaces Sm 18 paces $0.00 $0 pecee 100 208 peces 2000 4a pees 02s “Specs ‘astage stamps (used) P35 Checks ‘Date__pavee ____ alee _smount ec. 30 Cash Gaston 1200 Bee 32 Senanin com, Sti re 14900 bec 31 wn Corp. avi ansang, Gis sales manager 1,680 ec. 31 Benjamin Corp. NSU Cap. 17/00 Dec at Berfemin corp, Anco Ine 3300 Dec at Tatman Cop (not enderses) Benjamin Cro. 27000 nretnbursed vouchers Dair—Peyee.___Deserton_amovat ee.23 Maro Larsang, Advan for ip to 20,000 ‘olcemmoraner Tagaytay Cty22 (CPA EANMNATION REVIEWER: AUDITING PROBLEMS 28 Central Post Ofice Postage stamps 1620 29 Memengers “Transportation 150 23 ye, Ine Computer repair 800 (ter tems foun inside the cash box: 1. Unclaimed pay envelope of 3uan MacDonut. Indicated on the pay Sip & hs net salar of P7 500. Your Inquiry revealed that Juans Sal- ‘ry mingle with te pty cash fund 2. The sales manage’ iqudation report for his Tagaytay Cy ip. ‘cash advance received on Dec. 23 20,000 Less!" Hotel aosormodatin, meals, ete. P16,000 Bus fare fortwo 1,200, Casn given to Pao, salesman _,000 18.200 Banc Baso0 ‘Cash returned by Pabo tothe sales manager. 120 Personal check of te sles manager 80 Total Bao -Aetttona nformtion: 1, The custodian ie not authorize to cash checks 2, The tat official receint inched In the depost on December 30 fs No. 4351 and the last ofl recapt sued forthe curent year No, 4355, "The folowing ofa recapts areal dated December 3, ‘8M. amount 4352 13,600 Cash 23 17,800, Sheek Bs 3600 Cash 4355 300 Check 3. “The petty cach balance per goneral ledge Is 25,000. The ist re lenlshment ofthe fund was mace on December 2, 2010 covetes T AUDIT OF CASH AND CASH EQUIVALENTS 23 Whats the amount of shortage due froth the sales manager? 8. 1,800 5 Po What is the amount of undeposted collections on December 31, Dow ‘44,300 957,300 i a1/000 3. ‘The adjusting entries on December 21, 2010 should include a net debit to Travel expences of xp e200 8. Piao 5. pre.ceo 4 ats the total unreinbursed vues on January 3, 2011 (aunt ‘ney? Pa i60 © mas70 8 panies . Fans 5. Whats the toa cash shortage? acts < m,a00 8. pavies D. Pao © Sotweiom 1-11 1. cashadrance 20,000 tes Actual cash dabursed Hotel meals 16000 Bus fare 200 abo (1,000 P120) "Bi _1a.000 Cash nat should be returned m0 Gash actualy returned _6a0 Shortage due from the sales manager En daswer: &24 2 Collections per OK nos. 4352~ 4355, Unreceipted callections "Total undeposited collections daswer: C 3. Travel expenses (P16,000 + P1,200 + PB80) Answer: 0 4. Unreimbursed vouchers (20.000 + P1,620 + P150-+ P00) Answer: C 5. Total cash shortage aswert ® Bilis and coins: (casi COUNT SHEET January3,2011-820am, Pa3;300 44.000 bs7300 eunono Denomination Quantity Atount’ - Total Checks: ery P3768 42,980 ‘cuore 1 AUDIT OF CASH AND CASH EQUIVALENTS Unreimbursed vouchers: Date Dee. 23 Dee. 28 ec. 29 Dee 29 ‘Total each accounted Less: Recountabiites Petty cash Collections (per official receipts) Unclaimed salary Excess travel advance Unreceipted collection from SLY, Ine cas SHORTAGE ADJUSTING JOURNAL ENTRIES. December 31,2010 Cash ‘Accounts receivable ‘Advances to officers and employees Postage expense ‘Transportation expense Repairs expense Petty ash Fund um ed postage Postage expense. cash ‘Salaries payable ‘Account Amount 25 20,000 11620 150 800 22570 Pest 25,000 43,300 71500 11680 34000 91.480 ze) 14,000 14,000 20,000 1,620 “50 00 ‘22570 365 365 7500 7,50026 (CPA EAYANATON REVEWER: AUDITING PROBLEMS 5. Receivable from custodian 22,166 cash 6, Travel expenses (P16,000 + P1,200 + P880) 18,080 Peety cash fund 1.680 ‘Advances t officers and employees ® |Probiea 1-12 2266 19,760 Bark Reconciliation Computation of Undeposited Collections (On duly 7, 2040, ANING CORP. received is bank statement for the ‘month ending dune 30,” The satement showed a P209,300 balance le the eash account balance on June 30 wae P35,000. In reeoncting the balances, the auditor discovered te flowing: 1, The June 30 collections amounting to P176,000 were recorded nthe books but were not copostod unt Ju 2. The bank charged the company for 8 DAUD (Orawn Against Un- ‘olected Depot) check of a customer 3. A paid check for P24,300 was entered incorrectly In the cash p_a08sP 47750 > oassP P= 47,750+0955 Pos pso.o00 Answer: 8 2 Prepaid interest, Dee. 31 (P2,250%25/3) PLaZs Answer: © 3. Principal 25,000 Interest income 25, Maturity value B6t25 Collection feo (SQUEEZE) (500) Proceeds sas Answer: © 4 Book Bank ‘Unadjusted balances Pi9.209 Pa7.174 Outstanding checks (63.000) Receipts of 12/31/10, deposited 1/02/11 6.260 Service charge for November 2.000) Proceeds of bank loan 37750 Deposit of 12/22/70, omitted from banke statement 970 CCheckof Milano Company, charged back (77,320) ‘ower 1 AUDIT OF CASH AND CASH EQUIVALENTS 67 Error in entering depositof 12/18/10 440 Check of Yek Company charged in ‘error to Hector Company 13,600 Proceeds of nate of Harthur Co, 25,625 Erroneous debit memo of 12/28/10, ‘charged by bank in settlement fof loan paid by check no. 112170 5,000 Brror in entering deposit of 12/04/10 800) Deposit of Bunso Co, credited in error ‘to Hector Company —— (3500) ADJUSTED BALANCES eS branes Ansier: B 5. Adjusted Cash in bank balance (see no. 4) Prasaa Cash in bank balance per ledger 9.289 Net credtadjustment- decrease balsas Answer: © © Probiean 1-34 Bank Reconciliation You are auting gonera cash fr the DION COMPANY fr the flcal year ended July 31,2010. ‘The clan has not prepare the Iuy 31 bank re- ‘concilaton. After a brief dscusion seth the owner you Bore to pre= pate the reconeilatin, with assstence frm ‘one of Dion Companys ‘orks. Yo obtain the flloning Information: General Bank Ledger Statement Beginning balance Paeit0 57530, epost, 250,560 ‘Cash receipts ural 254,560 ‘Checks cleared (236,150)6 Conraearow annem: AUDTING PROBLEMS ath bursts oral e194) om Saptenk mrvcs hae epi dry a0, ter chk - lo Ending balance mas So June 30 Bank Reconciliation {Information in General Ledger and Bank Statement faance per bank 57,530 Deposits In wanst ‘6,000 Outstanding checks 1720 Balance per books 46.110 “Aakétonal information obtained: 1. Checks clearing that were outstanding on June 30 totaled P16, 920. 2. Checks clearing that wore recorded inthe Juy disbursements Journal totaled P204,570. A check e 10600 ere he a, ut a ot ben esd * ‘the cash disbursements journal. It was for an acquisition of Invento- 17 Dion tna te psc ern aod 4. check for P3,960 was charged to Dion Company but had been writen on a different company’s bank account. 5. Deposits included P,000 from tune and P244, 560 for uy 65. The bank charged Dion Company’ account fa @ronsuficent check {tng P10" The ced maneger concluded tet the cstomer IntenBonaty closed te account ard the owner let the ly. The ‘heck ws toned over toa caeton ageney. ‘ower 1 AUDIT OF CASH AND CASH EQUIVALENTS 6 7 A note for P58,000, pus interest, mas pod drety tothe bank under £20 reement ‘signed four months aga. The note payable nes na ‘9rd ot P58,000 on Dion Company’ books ‘Based on facts olen, answer the felling: 4. The checks outstanding on June 30 amount to 475,900, Pis,540 8 10.630 5. P3340 ‘The deposit in transit on June 30 amount to A P6890 ‘c5,000 B. pojtto 3. The adjusted cash batance on uly 31 fs A P6960, P3,870 8 Pt0.940 D. P3020 4 Which ofthe folowing aud procedures would be used to very the payment of note in Diy? ‘A Beamine checks returned with uy bank statement 3. Check for absence of nota on uy 31 bank confmaton, Trace payment to duplate depos sip, ©. Obtain cut bani statement 5. The auctor would perform the follwing procedures to verty the unrecorded check of 10/500, exc A" Obtain cto bank statement 8. Examine checks retumed with uy bonk statement © ‘Trace check number to absence fn Duly cash disbursements jour al and recording in August, , Examine supporting documentation, © Sonsttom 1-34 1. Outstanding checks, june 30 P 17420 ‘Add: Checks issued in July (P210,110 por70 (CPA xanansToN REVIEWER: AUDITING PROBLEMS cash disbursements journal P10,600 Unrecorded chesi) 28710 ‘Total 246,130 Lees: Checks pad by banlein uly (P236,150 -P3,960 erroneous check charged by bani) 232.190 ‘Outstanding checks, july 31 zuasag Alternative computation: ‘Checks outstanding on June 30 that did not lear in fly (P27,420 ~P16,920) ‘Checks issued in uly that didnot clear in July (P218,110 - P204,670) ‘Outstanding checks, jly 31 Deposits in transit, June 30 ‘Ads: July deposits per cash receipts journal “Totat Less: Deposits credited by bank in July Deposits in transit July 31 Answer: Book Rank Unadjusted balances pa2.s60 P6960 ‘Outstanding checks (see no, 1) (13940) Depastt in transi (see no?) 10,000 Bank service charge (670), Unrecorded check (20.600) ‘Check erroneously charged to Dion 3.960 NSP check @n0) Note payment (P59,000 principal + P3000 interest) {e1.000) ___ ‘Adjusted balances pssn0 F650 Answer: B ‘omer AUOIT OF CASH AND CASH EQUIVALENTS m 4. The following audit procedures wou note payment: 4 Bramine cancelled check 2. Recompute interest. 3. Checkefor absence of note on july 31 bank confirmation Abe performed to verify the 5. The following audit procedures would be performed to verify the unrecorded check {1 Examine check returned with July bank statement, 2. Trace number to absence in July cash disbursements journal and recording in August. 3. Examine supporting documentation 4. Investigate why it was unrecorded. The cutoff bank statement will no longer show the unrecorded ‘heck because it was already paid by bank in July Answer: & ® Proiem 1-35 ah Trafers In the audit of the DENISSE SUPPLY COMPANY, @ large branch that ‘aban its own bank account, cash Is perdicaly Wansfered to the ‘ental account in Maat! Ciy. "On the branch accounts record, banc twansfere are recorced as adabit fo te home ofce cearng account and ‘ret to the branch account. Sily the home office account ee ‘red as a det to the certral bank account and a creat to the branch (fee Gearing account. Ram V. Is the head boaideeper for both the fom office andthe branch bonk accounts. Sloe he alo reconces the nk account, the sertr autor, Hershey de Jesus, Is concerned about ‘he itera control weakness.i | 72 ‘CPA xaNMNATION REVIEWER: AUDATING PROBLEMS ‘As part of the year-end aust of bank wansfers, Hershey asks you to Schedule the transfers forthe last few days in 2010 and the fst few ays of 2011. You prepare the folloning Ist: Dite Record Cae Racorad ale Inhetome lnthedranch epestadia Oats Clears COffce cash Oricecash”—thaowetheranch Amountot Recste —Dibursmante fies Bank Bank ‘Tnsfer_Joumal__soura, Socount Sessa PH20000 1227901200 19860 ETO ‘ooo0) 122640 © ores © faae40 — jaant0 40.000 0F-0211 = 1aaet0 1228410 12.20.10 Hio000 122610 122610 taaeto oF oa.tt fso000 o1021 —Onaatt = taaato — S2at10 zaoiooo Oror-t1 —orst1 12.2840 OTaat Srocoo Oreet1 = otwett «OO OteAT 1. In verifying the bank transfer, which ofthe folowing aud proce dures shoul be performed? pes ‘Ast bark Wansfrs mode a few days before and ater the end of the reporting period 8, Troce bank Uonsfers included inthe schedde of bank wansfers to the appropriate accouting records, honk econclatons, and thnk records to determine propriety of recording. ©. Both Aand 8 DL Rony. 2. Which of the folowing Wansfers would be inctded a5 deposts In twanst inthe December 31, 2010 bank reconelltion for the Home 3, 5,and 6 & sands BL 2end4 No depts in transit on December 31 3. Which of the following transfers would be Inhued as outstanding ‘checks in the December 31,2010, bank reconlltion forthe Branch Office sccount? And 2and3 87 ‘cum T AUDIT OF CASH ANG CASH EQUIVALENTS 73 & 4and6 1. No oustanding checks on December 31 4. The cash in bank account on Home Office books shouldbe increased » 290,000 ‘860,000 B. P570;000 1. e30;000, 5. The cash In bank account on Branch Office books should be de cazased by ‘K 30,000 P7000 280,000 DB. Pos0,000 © Soiwtiom 1-35 1. The following proved bank transfers: List bank transfers made afew days before and after the end ‘ofthe reporting period 1b Trace these bank transfers to the appropriate accounting records, bank reconelatons, and bank records to verily propriety of recording 5 should be performed to verify the 2 There are no deposits in transit on December 31, The list of transfers does not disclose transfers recorded in December 2010 4h tleme Office cash receipts journal but deposited in famuary Answer: 0 3. Transfer no. 110000 Transfer no. 6 280.000 Total as0.000™ (CPA BANAT REVENER: AUDITING PROBLEMS ‘ese checks were Issued (Le, deposited in the Home Office bane account) im December 2070 but cleared the Branch Office anke account in nary 2011, Answer: © 4, Teansforno.3 140,000 ‘Transfer na. 5 150,000, ‘Transfer no. 6 280-000 "Total 570.000 ‘These transfers were deposited in the Home Office bank account in December 2010 but recorded in January 2011, Answer: 8 5. Transfer no.2 260,000 ‘ranster na. 5 150,000 ‘ranefer no. 6 200.000 "Total ss0.000 ‘These checks were issued (.e, depesitad in the Home Office bank account) in December 2030 but recorded In the Branch OF fie cach disbursements journal in January 2011 Answer: D @ Probless 1-36 roof of Cash: Unadjusted to Adjusted Balances Format ‘Te cash accu of VELASCO COMPANY shows the folowing aces: ate Debit Credit Balance owe 30 Balance 118,000 Dee 2 November bank charges Ps 114;950 4 November bank ere for ‘wen T AUDIT OF CASH AND CASH EQUIVALENTS 15 notes recevable colted 10,000 124,950 15 nsFeneck 1300 123/650, 20. Loan proceeds 48500 172,50 21 December bank charges R090 31. Cash recapts book 707200 873,380, 31 Cash dabursements 409,000 471,390, CASH BOOKS: RECEIPTS PAYMENTS: Date ORNo. Amount Check No. Amount bec. 1 | 110-120 11,000 sot 2000 2 i435" 21300 B02 ‘3000 3 7450 20,000 os 11000 4 51-165 56,000 Bot 3.000 5 166-190 39,000 B05 32,000 8 151210 66,000 B05, 419,000 9 21232 © Bea00 807 25,000, 10 3332507700 B08 30,000 35127511000 8 1000, 42. 276300 30000 B10 7,000 15301302 55;000, Bit 8,000 16 310-350 ‘8.000 siz 16,000 1 351-390 13,000, an 20,000 18 301-20 9,000 ais 22,000 19 421-400 37/000 816 36,000 22 981-300 21,000 a7 1,000 23 Soses = Selooo a8 59,000, 2 - E 319 "7.000 2 E - 20 +4000 26 sz6sss 745000 sat 3,000 2s sse-cir 5,000 sa 32,000 2 - ca 13,000 23 612630 38,000, cay 23,000 28 . * 85 2,000 3 - 82 11000 Totals am ‘Pioa'n076 CCORERANANATON REMEWER: RUDIING PROBLEMS ‘ures 1 AUDI OF CASH AND CASH EOUIVALENTS: ” BANK STATEMENT (6. (243615 for customers notes elected by bank in December Date check No. charges credits vent 32 rao Paseo 2. Bonk ance on December 31 7582270. 2 02 3.00 "i000, 3 - z 21500 4 eo 2,000 3000 4. The total outstnding checks at November 30 should be 5 e e100 82.000 A P9580 P13.050 8 ccs “200 300 8. P7050 5. PiBss0 8 "08 7980 154000 2. The total oustancng checks at December 31 shoud be * ous? S00 1000 pia? 00 ‘cFi53/00 ® ss 00 24/000 8. Pi62ss0 0. P159/000| 8 209 11000 #5000 3. The depost in trans at November 30 should be u omer so 3.000 A po.s00 pat 500 18 oct 20.000 13.000 8. P1d.s00 o. Pa 2 818 fom ie 4. ‘The depostin trons at December 31 should be ES a 00 2 pat 000 ‘c. P46,500 Es es 3000 : & Pe ®. 3,000 28 838 S000 7000 5. The adjusted book balance at November 30 should be roa os ° 1 pxas.o00 c"P1t5,000| 2 ea 3000 3000 8. Pi2d 980 8. P3638 2 cuss zs 1200 2 220 4003 2 6. The adjusted bank resp forthe month of December should be Tossa Peexni ao npre3800 res 0 8 9773800 . 767.800 ‘Additional information 7. The adjusted book disbursements for the month of December 1. DMs 61 and 112 are for service charges. Tree 2 Eiger cova, 03,400 c. Pat5.480 “4. cit 20 1 for loan proceeds, nt of P50 Interest charges for 90 aan iene ays CH 16 is for the corection of an eroneous Noveinber bank charge. 1, "The adjusted bank balance at December 31 should be i P592270 Cp558,270, 8 par72m0 5. as3.270,78 \ { ‘CPA EYAMINANON REVEWE: AUDITING PROBLEMS © Sotwrton 1-36 ‘OUTSTANDING CHECKS, NOVEMBER 30: Checkno. 732 2500 798 2050 Total passa ansier: b ‘OUTSTANDING CHECKS, DECEMBER 31 CCheckno. 806 P 19,000 807 26,000 B10 7,000 12 16000 a7 11,000 819 7.000 222 12000 823 13,000 24 29,000 25 2000, 826 11.009 Total Hiszon0 answer: C 3. Depasits in transit, November 30 Anawer: ® Deposit transit, November 30 (see n0.3) ‘Add Collections per cash receipts book Total Less: Deposits credited by bank: Bankereceipts 831,300 Correction of erroneous bank ‘charge in December (81,000) Correction of erroncous bank ‘outeren 1 AUDIT OF CASH AND CASH EQUIVALENTS ‘charge in November (22,000) Loan proceeds (48,500) Note collectea Depesitin transit, December 31 ‘Answer: D PROOF OF CASH December 1-31 ace ance Nowa Race istuceanents Des. Balances perbank P1L14000 P831,300 P353,030. P592,270 Bank error corrected the same date (01,000) (81,000) Brroneous bank charge inNovember 12,000 (12,000) Deposits in transit: ‘November 30 8500 (8,500) December 31 38,000 38.000 ‘outstanding checks: ‘November 30 (9550) (9.550) December 31 153.000 (153.000) ‘Adj bankbalanees BAZ4950 EZGEAD Beisano pa7z.z70 ance fone Nous) Reon Osbusenants Des 3 Balances per books P115,000 P765,800 P409,410. P471,350 Bank service charges: ‘November 30 60) 60) December 31 20 (20) [Notes collected by banks November 30 10,000 (10,000) December 31 "12,000 12,000 unrecorded disburse- ‘ment Check no. 615, Advbookbelaees SI2I59 Hazan Gaieano Gagoaa080 ‘CoADiaumATOW REMEVER: AUOMING PROBLEMS courar T AUDIT OF CASH AND GASHEGUNALENTS at 5. Adjusted book balance, Novetsher 30 pzasso ‘tat Pora00 Poa Cite: aank eric charge 00 ‘Aiisted book balance Pea 16 Adjusted bankereceiptsin December paro09 ‘Tha June 2010 bonk statement shown bob: ‘ower: © rocea Peviod covered: May 31,2010 - June 30,2510 1. Adjusted book disbursements in December ans.ano Aeroune no 00D1261 / ‘Answer: - - | justed bank balance, December 31 we , 30 | 8. Adjusted bankebalance, December 2: parzz7a wet 000 i ‘Anower: 8 ine at 100 20,900 Sine 1000 om “000 tne 3 200 56,000 iinet ; © Problem 1-37 dune 27 18,000 ine 33 1900 cc 1,000 roof of Cash: Bank to nook Balances Format dre 30 me, Shown belo Is the May 33,2010, bank recncaion prepared by your Seca ore Sts sa se! Ercorecae = Gh > team RECONCILIATION ay 31, 2010 ‘The psd checks accompanying ths Bank statement (al clearing June) sank balance 52,000 te the folowing: ‘ats Depest in rans 10.08 Total P662,000 No. 652 P8,000No. 654 P14,000 No. 657 P12,000 USS: Outstanding checks No.653 2,000 Ne. 655 P 000 No. 658 Pl8/00 no ene 10,000 ee ‘000 “The check register reves tht th nt chek ised In Janes No, 659 653 2000 __29.000 for P5)00 and that check no 86 for 92/00. ‘Ajuted bank balance azo Bock tlance ps70000 asnroceved forte perl te 22 Brough June 30 of £70,000 was fd Proceeds of note receivable ‘posted nthe banieon ay ‘lec nay Prop00 ‘The debit memos on June 13 and June 20 represent customers’ NSF Deposit on May 31 hot recorded checks returned by the bark. The June 13 NSP check was immediatly [on books unbt June 2,000 _72.00082 (CPA EXAMINATION REVELIER: AUDTING PROBLEMS. ‘edeposted without entry, The Juve 30 NSF check was redeposted on Sy without en. 1. What isthe total bank receipts In June? ‘A. 87,000 c 77,000 8 P89,000 ‘. P79.000 2, Whats the total bank disbursements in June? A P59,200 ‘C58 200 ‘858,000 . 53,200 3. Whats the balance per bank statement on June 30, 20072 A. P676,800, co py32-400 8 Pe27-200 . 729,200 4. Whats the total book receipts in une? ‘8. 788,000 c" P46,000 8 220,000 . paisjoo0 5, Whats the total Book disbursements in June? A. P53.000 ‘c.P36,400 57,400 B. 63,200, 6. What I the book balance on June 30, 20072 A. P732,200 G 752,400 8 P723,200 ©. P76;800 © Sonwtiom 1-37 o 1. Bank receipts in june (arrived a by footing the Deposits column of the bank statement) anon Answer: 8 2, ‘Bank disbursements In June arrived atby footing ‘the Checks column ofthe bank statement) 63.200 Answer: © ‘eumern 1 AUDIT OF CASH AND CASH EQUIVALENTS 83, 3 Banetatane May 1 ‘as Banke ane "Seong oat 740.00 LES Hank csbresment a june e200 Deni bats: une 30 Risa ‘none: A PROOF oF cast hanes 2000 ene sung Mot” faci Saran ae Bankbalanes os2000 00 mesa hal, Depots rants irs 10000 10000) ne 000 ‘Outstanding checks: * 79000 way (20000) (20000) june 17800" (17.600) inservice charges art 00 00 une 30 00) 200 Bank collection in May(70,000) 70,000 ar Nay depos reorded Sythe compen ne 2000) 2000 nb heck: ent redeposte (4.000) 1060) Note cede 8000) 3000 Bank errot corrected onthe same date 12.000) _¢1,000) Mockbalances PS70850 FZigo00 Bse400' eraZaaD 4. Total book receipts in june ezag.o00 Answer: ©84 (CPA BYANANATON REVIEWER: AUDITING PROBLEMS 5. ‘Total book disbursements in june 56400 Anan: C 6. Bookbalanceon june 30,2010, pzsz.400 Answer: © ® Problem 1-38 reo of Cash: Bank to Book Balances Format “The following information was obtained In an aut ofthe cash account OF CHELSEE COMPANY as of December 31, 2010. ASSume that the CPA hoe sated Nimset 96 to the propety af the cash book, the bank ‘Satemants, and te returned cheeks, except as noted: 4. The bookkeeper’ bank reconiation at November 30,2010. Balance per bank statement is4,000 nad Depost mn vanst 11.000 Tota 05000 Less!" Outstanding checks No. 138 1,400 1962 7/500 1571 5.300 1504 8,000 1581 “00 23.000 Balance per books iez.000 summary ofthe bank statement for December 2010. fatance brought forward 194,000 Deposts 1.487.000 Total 1,681,000 Gharges ‘a'328.090) Balance, December 3, 2010, 336.000 ‘umes 1 AUOIT OF CASH AND CASH EQUIVALENTS 85 Induded wth cancsied cheeks returned vith the December bank statoment were the checks feted below, “The Chelsce Company dscounted ts ov 0-day note for P90,000 withthe bark on December 1, 2020. The dicount rate was per Cent, "The accountant recorded the proceeds ae cash receipe at the face value of the note ‘The accountant records customers’ dishonored checks asa reduc- tion of cash receipts. When the dishonored checks are redepo- sited they are recorded as 3 regular eash exept Two NSF checks for PI,800 and P2,200 were returned by the bank during Decor ber. oth checks were redeposted and were recorded by the Se- CCancelatons of Chetsce Company checks are recorded by reduc: tion of cash debursements, December bank charges were P200. In ation, a P100 service charge was mada in December forthe collection of note receva™ ble in Novernber. These charges were not recorded on the books. Check no, 1434 lsted in the November outstanding checks was drawn in 2008. Since the payee cannot be located the presilent ‘of Celsoe Company agreed tothe CPA's susgeston thatthe check be writen Dock ta the aconts by 2 journal entry. ustanding checks at Decsmber 31, 2010, ttaled P49,400, lox ‘ducing cheeks 1434 and 1594, “The cutoff bank statement dlscosed thatthe bonk had recorded & depos of P24,000 on January 2, 2011. The accountart had fe ‘orded this depost on the books on December 31, 2010, and then maled the deport to the ban86 ‘cra bavananon RenENER; AUDITING PROBLEMS cancelled Checks Returned with the December Bank Statement 1562 11/29/10 750 This check was in payment ofan i "oie for P7,500 and ws record ‘inthe cash book ae P7 50. 1571 11/28/10 5/800 This check was in payment of an i ‘ole for P5,800 ahd was recor (inthe ach book 3 PS, 800, 1589 12/04/10 1,500 Exemination ofthis check reveales ‘hat Was unsigned. A discussion With the ‘lent disclosed thet had been mated Inadvertent be fore was sned. The check was endorsed and deposited by the payee and processed by the bank even though R wes @ Tegal ult. "The chack was recorded Inthe cash esbursements Journal 1508 12/12/10 6,000 THE check replaced 1584, which was Feturmed by the payee because it tras mutlated. Check 1584 was fot canceled n the books. 12/19/30 2,000 This was a counter check drawn at ‘the bank by the president of the famnpany ab a cash advance for travel expense. The president ‘overlooked informing. the book Keeper about the check 12/20/10 3,000 The drawer of this check was the ‘Cheea Company. comorer ] AUOFT OF CASH AND CASH EQUVALENTS 87 359512720710 3,500 “Tis check had been labeled NSF and Tetumed tothe payee because the bank hd erronsousty.belleves thatthe check was draw by the CChesoon Company. Subsequent iy, the poyee was advised to re- pose the eck 599 01/05/11. 100,000 This check was gen tothe payee on December 30, 2010, as, a. post” ated check wth the understand ing that would not be deposed {unt January 5. "The check ws ‘ot recorded on the books in De: comber. ‘what the corect amount of outstanding checks on December 91? A. Pai,400 46,000 B. 33,250 . 40,000 Whats the amount of cash reais per book in December? ‘A. P1496,900 €. 4495,100 8. P5040 ©. Pi,487;000 Whats the amount of cash disbursements per beok in December? A 1,254,850, 1c Pi,256,850 B. 252/850 ©, Pi;248,850 Wats the cash In bank balance per book as of December 31? A P526,050 ‘C430 050, 8 28.250 . 343/050, What s the adjusted cash blonce as of December 31? 1. P343,000 c"P347,000 340,200 B. 348,200,88 ‘CPA xamnanioN REWER: AUDITING PROBLEMS Solueiom 1-38 1 Outstanding checks, December 31 (49,400 -"P3,400- P9000) ean.oo0 ‘anne © fwsrce —_Decenber_—_ Bane Nev Seb Danceorets Da, cpankstment Poo Prob Phazsabo™ P2980 Sttanang ceca ‘Non (20) m0) beat “at nom oro 30 11,000 (1,000) beat “ab00 000 ero duties ‘eens 6005 Ps o northews 4) (409 Sacre che ‘200 ‘oncsan cero, 14 $800) (40) Eterna eon, 1052 \ ‘praie=F750 ere 7 aon cho, 1584 fom ean ‘arte hat som peso com Goad chaste Chen Sarin ‘ee (2009 30n0 Pont chee peso ramet a0 er tek roe HR ARG ens au 2. Book receipts in December pxsas.900 ‘Answer: A 21, Book disursementsin December puzsnaso ‘nse: © 4. Bookbalance on December 31 pasnoso answer: © ‘ommrer T AUDIT OF CASH AND CASH EQUIVALENTS 89 5 Book — wank ‘Unadjusted balances 1430050 356,000 Outstanding checks (o.900) Deposits in transit 24000 Interest on note discounted (900) Bank service charge (300) Cancellation of check no, 1434 1400 Error in recording check no. 1562 6750 Cancellation of check no. 156% 8.000 ‘Counter check 000) Check of Chelsea charged in error 3,000 Restated heck prevented or pamen 20000) ‘Adjusted balance ‘ass.o00 E3400 Answer: © Probican 1-39 Proof of Cash: Bock to Rank Balances Format “The following information was obtained in connection wth the aut of PINKY COMPANY'S cash account as of December 33, 2010. outstanding chock, 11/90/20 716250 Outstanding checks, 12/31/10- 12,500 Depositin trast, 11/30/10, 12,500 Cash balance per general ledger 12/34/10 37,500 ‘Actual company eolections from its customers ‘uring December 152,500 ‘Company checks paid by bank in December 130,000 Bank service charges recorded on company book i Bacember 2,500 Bank service charges per December bank statement 3,250, Deposits credited by bank during December 145,00090 (CPA ENANANATON REVIEWER: AUDITING PROBLEMS November bank service charges recorded on ‘ompary books in December 44500 ‘The cash receipts book of December is underfcted by 2,500, ‘The bank erroneously charged the company's account for @P3,750 check cof another depositor. This bank err was corected in January 2031, 1. How much the dopost in ranst on December 31, 20107 ‘A. 75,000 P2500, B. 20,000 B. Pi7;500, 2, The total unrecorded bank service charges a of December 31, 2019, & A. Prs0 c. p750 8 P2,250 D250 3. What the total book recets in December? 1 -P150,000 ‘155,000, 5 152.500 ©. pia7,500 4. Whats the total amount of company checks ised in December? ‘8,713,000 cPast,750, 8. 123,000 B. pi26;250, 5. What isthe total book disbursements in December? A. P123,750 ‘C. P126,250, 128,500 i. Pi28,750, 66. Whats the book balance on November 30, 20107 A P6250 ‘G.P37,500 8 P21.250 . 35,000 7. Whats the bank balance on Noverber 30, 20107 1 P23,000 ‘c. 43/500, . i8,500 D. P6250 cuerer 1 AUDIT OF CASH AND CASH EQUIVALENTS on ‘8. What the total bank receipts in December? ‘A. P120,000 ‘c. p145/000, piao,000 . 150/000 9. What he total bank dsbursemens in December? A. P154,500 ‘c.129,500, 8 piaasa . 37,000 10. Whats the bank balance on Decesber 31, 20107 ‘A. P21,500 ‘c.P31,000 8 P26,500 BL 33,250, © Solwciom 1-39 4, Deposit in transit, November 30 P 12500 ‘Add Company cllecions in December -as2's00 Tetal 165,000 Less: Deposits credited by bankin December _145,000 Deposit in transit, December 31 B2co00 Answer: 2, Bank-servico charges per Decomber bank statement 3250 Les: December banlcaervice charges recorded ‘on company books in December (2,500 ~ 71,500) 1.000 LUnrecorded December bank service charges 250 Answer: 8 3, Actual company collections in December 152,500 Less: Underfooting of December cash receipts book 2.800 Book receipts in December His0.000 Answer: &