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ANALYSIS OF ACCOUNTS & AUDIT OF CASH

EXERCISE 1

1. If prepaid insurance amounted to P15,000 at the beginning of the period and total insurance
 premium paid during the period amounted
amoun ted to P18,000,
P1 8,000, what would be the ending balance
of prepaid insurance if insurance expense for the period amounted to P6,000?
 Answer: P27,000
Solution:
Prepaid Insurance beg. P15,000
Add: Payment 18,000
Less: Insurance Exp. (6,000)
Prepaid Insurance End P 27,000

2. If beginning and ending interest receivable were P16,000 and P5,000, respectively. Total
interest received for the period amounted to P52,000, how much would be the amount of
interest income for the period?
 Answer: P41,000
Solution:
Interest receivable end P 5,000
Add: Collection 52,000
Less: Interest receivable beg. (16,000)
Interest income P41,000

3. Assuming salaries payable at the beginning and at the end of the period amounted to
P12,000 and P38,000 respectively. Salaries paid during the period totaled P183,000. How
much would be the salaries expense for the period?
 Answer: P 209,000
209,000
Solution:
Salaries Payable, end P 38,000
Add: Payment 183,000
Less: Salaries Payable, beg. (12,000)
Salaries Expense P 209,000

4. Assume all rent revenues are received in advance and accounted for as unearned rent.
Beginning and ending balances of unearned rent are P14,000 and P6,000, respectively. If
total rent collections for the period amounted to P45,000, what would be the amount of
rent income for the period.
 Answer: P53,000
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Solution:
Unearned Revenue, beg. P 14,000
Add: Collection 45,000
Less: Unearned Revenue, end (6,000)
Rent Income P 53, 000

EXERCISE 2

JGS maintain its accounting records on the cash basis. During 2015, he collected P95,000
from his clients and paid P67,000 in expenses. Upon examination of additional evidence, the
following information was obtained:

01/01/2015 12/31/2015
Accounts receivable P4,000 P15,000
Unearned service revenue P7,000 P14,000
Accrued expenses P13,000 P 2,000
Prepaid expenses P 8,000 P12,000

1. What is the total revenue in 2015?

a. P95,000 b. P86,000 c. P104,000 d. P101,000

 Answer: P99,000

Solution: AR/ Unearned Revenue

AR beg- 4,000 15,000- AR, end

USR, end- 14,000 7,000- USR, beg

95,000- collection

P 99,000- Total revenue

2. What is the total expense of JGS in 2015?

a. P67,000 b. P61,000 c. P29,000 d. 42,000

 Answer: P 52,000

Solution: Prepaid Exp. / Accrued Exp.

Prepaid Exp., beg- 8,000 12,000- Prepaid Exp., end

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Accrued Exp.,end- 2,000 13,000- Accrued Exp. Beg

Collection- 67,000

P52,000

3. The correct net income of JGS, for the year 2015 is:
a. P63,000 b. P80,000 c. P64,000 d. P77,000

 Answer: P 47,000

Solution:
Total revenue in P 99,000
Less: total expense (52,000)
Net Income P47,000

EXERCISE 3

The following data have been abstracted from the financial statement of Prentiss, Inc., a
calendar year merchandising corporation:

 Balance sheet data:

December 31, 2014 December 31,2015

Trade accounts receivable-net 84,000 78,000
Inventory 150,000 140,000
Accounts Payable (95,000) (98,000)

 Total sales for 2015 were P1, 200, 000 and for 2015 were P1,100,000. Cash sales were
20% of total sales each year.
 Cost ratio is 70% of sales.
 Variable general and administrative (G&A) expenses for 2015 were P120,000. They have
varied in proportion to sales and have been paid 50% in the year incurred and 50% the
following year. Unpaid G&A expenses are not included in accounts payable above.
 Fixed general and administrative expenses including P35,000 depreciation and P5,000 bad
debt expense totaled P100,000 each year. The amount of such expenses involving cash
 payments were paid 80% in the year incurred and 20% in the following year. Each year
there were a P5,000 bad-debt estimate and a P5,000 write-off. Unpaid G&A expenses are
not included in accounts payable above.

1. How much cash was collected during 2015 resulting from total sales in 2014 and 2015?
a. P961,000 b. P966,000 c. P1,201,000 d. P1,206,000
 Answer: c
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Solution: AR

Beginning- 84,000 78,000- End

Sales- 1,200,000 5,000- Write-off

P 1,201,000

2. How much was the total credit sales in 2014?

a. P960,000 b. P964,800 c. P220,000 d. P880,000
 Answer: d
Solution:
Sales 2014 P 1,100,000
Cash sales (20% of 1,100,000) 220,000
Credit sales P 880,000

3. How much cash was disbursed during 2015 for purchases of merchandise?
a. P818,700 b. P827,000 c. P838,500 d. P847,000
 Answer: b
Solution:
Accounts payable beg. P95,000
Add: purchases 830,000
Less: AP, end (98,000)
Payments P827,000

4. How much was the total purchases of merchandise in 2015?

a. P840,000 b. P287,000 c. P838,500 d. P830,000
 Answer: d

Solution:
Merch. Inv. P 150,000 COS= 840,000 (70% of 1,200,000)
Add: COS 840,000
Less: MI, end (140,000)
Payment (20,000)
Total P 830,000
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5. How much cash was disbursed during 2015 for variable and fixed general and
administrative expenses?
a. P175,000 b. P180,000 c. P215,000 d. P220,000
 Answer: a

Solution:
Variable G & A Exp. P 120,000
Fixed G&A Exp. 35,000
Unpaid Exp. (100T *20%) 20,000
Total P 175,000

EXERCISE 4

The work-in process inventory of ABC Paints was completely d estroyed by fire on April 1,
2015. You were able to establish the physical inventory figures as follows:

January 1, 2015 April 1, 2015

Raw materials 30,000 60,000
Work in process 100,000
Finished goods 140,000 120,000

Sales from January 1 to March 31, were P300,000. Purchases are raw materials were P100,000
and freight on purchases, P10,000. Direct labor during the period was P80,000. It was agreed
with the insurance adjusters that an average gross profit rate of 32.5% be used and that
manufacturing overhead was 45% of direct labor cost.

1. The value of goods manufactured and completed as of April 1, 2015:

a. P120,000 b. P180,000 c. P190,000 d. P182,50 e. None of these.
 Answer: d

Solution:
FG, end. P 120,000
Add: COGS (300T*6.75%) 202,500
Less: FG, beg. (140,000)
Total CGM P 182,500

2. Raw material used were:

a. P50,000 b. P70,000 c. P80,000 d. P90,000 e. None of these.
 Answer : c

Solution:
RM, beg. P 30,000
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Add: RM-Purch. 100,000

Freight-in 10,000
Less: RM, end (60,000)
RM-used P 80,000

3. The total value of goods put in process amounted to:

a. P296,000 b. P300,000 c. P336,000 d. P316,000 e. None of these.
 Answer: a
Solution:
Raw Materials P 80,000
Direct Labor 80,000
FOH 36,000
TMC P196,000
Add: WIP, beg 100,000
Goods put into process P296,000

4. The work in process inventory destroyed as compu ted by the adjuster would be:
a. P113,500 b. P131,500 c. P173,500 d. P121,500 e. None of these.
 Answer: a
Solution:
Total value of goods put into process P 296,000
Less: Cost of Goods Manufactured (182,500)
WIP Inventory destroyed P 113,500

EXERCISE 5

You were engaged to audit the financial statement of Frost, Inc. on January 15, 2016. Presented
 below is a copy of the trial balance as of January 2 and December 31, 2015 given by the
company’s account.

Trial Balance Trial Balance

January 2, 2015 December 31, 2015
Debit Credit Debit Credit
Cash P500,000
Accounts Receivable 124,000 P187,000
Merchandise inventory 230,000 245,000
Unexpired insurance 3,500 2,000
Land 150,000 150,000
Buildings 200,000
Acc. Depreciation-bldg P70,000
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EXERCISE 10

Old Navy Corporation was organized on January 2, 2014. You were en gaged to perform a detailed
examination of the transactions to determine whether irregularities exist.

You started the examination on June 30 and surprise count conducted on this date revealed a cash
on hand of P1,285. A bank statement as of the same date disclosed a balance of P6,582. However,
further verification revealed that a check issued for P463 has not yet cleared the bank.

Based on the available records and documents you were able to obtain the following information:

1. Old Navy issued P50,000 par value stocks for P80,000.

2. P 50,000 of the total proceeds from issuance of stock s was used to acquire a real property.
3. The real property was mortgage to secure a bank loan of P28,000.
4. Other furniture and equipment were acquired for a total cost of P7,250. Of the total price,
P1,500 remains unpaid.
5. Outstanding purchase invoices amounted to P11,571. Inventory as of June 30 amounted to
P23,480.
6. Total sales for the period amounted to P80,752. Old Navy sells at 40% above cost.
7. Total amount still due from customers amounted to P21,345.
8. Various operating expenses paid totaled P15,189.

Required: Based on the above data, answer the following:

1. Cash paid to supplies for merchandise purchases.

a. P57,680 b. P81,160 c. P69,589 d. P92,731
 Answer: b

Solution: Accounts Payable

11,571 0
69,581
P81,160

2. Cash received from customers.

a. P80,752 b. P59,407 c. P102,097 d. P60,692
 Answer: b
Solution:
Accounts Receivable
0 21,345
80,752
P59,407
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3. Total cash accountability.

a. P26,879 b. P25,594 c. P34,283 d. P7,867
 Answer: a
Solution:
Cash
0
80,000 50,000
28,000 5,750
59,407 69,589
15,189
P26,879

4. Cash balance to be reported on June 30 financial statements.

a. P7,867 b. P7,404 c. P6,119 d. P26,879
 Answer:b
Solution:
Cash on hand P1,285
Balance disclosed 6,582
Less: check not cleared (463)
Cash Balance P7,404

5. Cash shortage.
a. P19,475 b. P7,867 c. P18,190 d. P25,594
 Answer: a

Solution:
Cash to be accounted for P26,879
Cash accounted for (7,404)
Cash shortage P19,475

EXERCISE 11

Kournikova Co., organized on March 1, 2015, has a very poor internal control system. The
company cashier is also its accountant. After 9 months of operation, the company manager
suspects that the cashier-accountant has been misappropriating company collections. You have
 been engaged to audit the company’s accounts to determine the extent of fraud, if any.

You started the audit on November 15. On that date, the cash on hand per your surprise count was
P5,140. Also on that date, the bank confirmed that the balance of the company’s current account
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was P26,328. Your examination of the records reveals that a for P1,852 was outstanding on
 November 15. The company’s mark -up is 40% of sales.

Further examination of the company’s record reveals the following balances at November 15,
2015:

Ordinary shares P300,000

Share premium from ordinary shares 20,000
Mortgage payable 200,000
Furniture and Fixtures (of the acquisition cost,
6,000 remains unpaid as of November 15 29,000
 Notes payable- bank 32,000
Accounts payable- trade 46,284
Expenses paid (excluding purchases) 60,756
Merchandise inventory at cost 93,920
Accounts receivable- trade 85,380
Total sales 340,000
1. How much was paid for inventory purchase?
a. 157,716 b. 293,716 c. 183,636 d. 251,636
 Answer: d
Solution:
Cash
320,000 151,228
80,000 23,000
32,000 60,756
254,620
P251,636 Inventory Purchase

2. How much was collected from customers?

a. 118,620 b. 254,620 c. 50,620 d. 340,000
 Answer: b
Solution:
Sales P340,000
Less: A/R 85,380
Collections P254,620

3. How much is the cash shortage as of November 15, 2015?

a. P121,612 b. 101,612 c. 127,612 d. 206,992
 Answer: a
Solution:
Cash on hand P5,140
Bal. of Company 26,328
OC (1,852)
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Cash accounted P29,616

Cash to be accounted for P151,228
Cash accounted 29,616
Cash shortage P121,612

EXERCISE 12

The bank statement for the account of KAMPING COMPANY at December 31, 2013 showed a
credit balance of P20,000, while the company’s ledger balance of the cash account as of
 November 30, 2013 was a debit balance of P40,000. During December 2013, the ledger showed
two postings: a debit of P60,000 and a credit of P39,000 from the Cash receipts and Check
Disbursement Journal, respectively.

Your examination revealed that the cash column of the receipts book was underfooted by P6,400.
The receipts book recorded only the collections from customers and did not include bank credit
in December for P8,000, representing loan proceeds of a P10.000 promissory note.

The December Check Disbursement Journal which was overfooted by P500, records only the
checks issued by the company. In the month of December 2013, the bank charged KAMPING
COMPANY for P5,000 representing a loan guaranteed by the client but was dishonored by the
maker, the company’s vice- president. The outstanding checks as of December 31, 2013
amounted to P5,600.

In the morning of January 2, 2014, a cash count conducted disclosed a cash on hand in the form
of bills and coins totaling P38,700.

Required:

How much is the cash shortage as of December 31, 2013?

 Answer: P17,800

Solution:

Book Bank P70,900

61,000* 20,000  (53,100)
6,400 (5,600) P121,612 shortage
8,000 38,700
500
(5,000) ________
P70,900 P53,100
*Beg. Receipt (Nov.) P60,000
Less: Dec. R (39,000)
Add: Nov. debit bal. 40,000
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Unreplenished petty cash vouchers

Voucher Date Explanation Amount
11/20/2013 Postage stamps 100
12/04/2013 Repair of typewriter 150
12/15/2013 Transportat5ion-Messenger 60
12/15/2013 Office Supplies 90 400
Advances- all properly approved 500
Total amount counted 5,700
Accountability:
Petty cash fund 1,000
Undeposited collections 4,900 5,900
Shortage 200
1. The last replenishment of the fund was made on December 14, 2013 covering the period
from December 1 to 14, 2013.
2. Found inside the cash box were two pay envelopes which had been opened and the contents
aggregating P240 removed. The face of the envelope bore the notation “unclaimed”.

Required: Compute the amount of cash shortage.

 Answer: P690

Solution:

Bills & coins P4,800 Accountable:

Unrep. Vouch 150 PCF 1000
IOU’s 500__ coll. 4,900
Total accounted P5,450 UnE wage 240__
P6,140
TA P5,450
Acc (6,140)
Shortage P 690

EXERCISE 18

Regina Reyes is the cashier of the Maharlika Company. As representative of the ABC and
Associates, CPA’s. you were assignned to verify her cah on hand in the morning of January 4,
2014. You began the count at 9:00AM, in the presence of Miss Reyes. In the courde of your
counting, you found currencies in paper bills and coins together with checks, vouchers and other
items, which are mentioned below:

Bills
2 one hundreds, 2 fifties, 8 twenties
Coins
P1.00 8 loose
0.50- 6 rolls and 12 loose (20 pieces to a roll)
0.25- 5 rolls and 32 loose (50 pieces to a roll)
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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
Maker Date Payee Amount
Kris Cruz, Asst. Mangr. 12/23/13 Maharlika Co. P60
Ms. Reyes, Cashier 07/26/13 Maharlika Co. 40
I.O.Us
Mr. Chew, Janitor 12/20/13 35
R. Hermosilla,Clerk 12/22/13 25
J. Salosagcol, President 12/24/13 15

Petty cash voucher for replenishment

Payee Date Account Charged Amount
E. Sayson, Messenger 12/16/13 Advances to employees P10.00
Fortune Co. 12/18/13 Supplies 14.50
Victory Liner 12/18/13 Freight- in 18.25
Bureau of Posts (stamps) 12/20/13 Supplies 30.00
A. Vale, Carpenter 12/20/13 Repairs 45.00
B. Bo 12/21/13 Miscellaneous Exp. 15.40

Your investigation also disclosed the following;

1. The balance of petty cash fund per books is P900.

2. The cashier is not allowed to encash personal checks.
3. Cash sales on January 2, 2014 amounted to P865 per sales records, while cash receipts
 book and deposit slip showed that only 765 was deposited in the bank on January 3, 2014.
4. The following employees’ pay envelopes have been opened and the money removed. Each
envelope was marked “unclaimed”
A. King P33.25

J. Lim 25.75

Required: Compute the amount of cash shortage.  Answer: P104.85

Solution:
Bills & coins P685 Accountable:
Adv. To E 85 PCF 900
Check 60 coll. 100
Unrepl. 123.15` UnE wage 58__
Total accounted P953.15 P1,058
TA P953.15
Acc (1,058)
Shortage P104.85