You are given the following closing entries of PASS NOW, INC.

:
Entry 1 Interest Revenue 4,700
Accounts Payable 1,900
Capital Stock 10,000
Sales 45,000

Income Summary 61,600

Entry 2 Income Summary 48,700
Gain on Sale of Land 3,000
Cost of Goods Sold 32,000
Accounts Receivable 12,000
Operating Expense 4,200
Other Assets 3,500

Entry 3 Income Summary 12,900

Retained Earnings 12,900
The properly computed net income is -
a. P11,800 b. P8,800 c. _P12,900 d. P16,500
The “CASH” account of Don Corporation’s ledger on December 31, 2006 showed the following:

a. Petty cash fund (including P7,500 unreplenished

voucher of which P2,400 is dated January 3, 2007) P 15,000
b. Redemption Fund Account – PNB 500,000
c. Traveler’s check 100,000
d. Money order 10,000
e. Treasury bill, purchased December 1, 2006 (due on Feb. 1, 2007) 50,000
f. Time deposit due on March 31, 2007 50,000
g. 180-day Treasury bill, due March 15, 2007 120,000
h. Note receivable in the possession of a collecting agency 20,000
i. PNB – Checking Account #211-009-091 325,900
j. Cash on hand, including customer postdated check of P15,000 23,000
k. Savings deposit, earmarked for acquisition of equipment 210,000
l. A check payable to San Ignacio Incorporated, dated January 5, 2007, that was included
in the December 31 PNB Checking Account
#211-009-091 50,000
m. Bond Sinking Fund (used to finance the maturing long-term obligation
on March 31, 2007) 150,000
 n. Overdraft in PNB Checking Account #211-099-085 ( 50,000)
o. Check #801 in payment to Accounts Payable, dated Dec. 31, 2006 not mailed until
January 5, 2007 20,000
p. Advances to Officers/Employees for Seminars (no liquidation is
required) 80,000
q. Money market placement (due June 30, 2007) 600,000
r. Listed stock held as temporary investment 100,000
s. Check #789 in payment to Suppliers, dated January 5, 2007 and
recorded December 31, 2006. 35,000
t. Customers’ certified checks 10,000
u. Pension Fund 150,000
TOTAL 2,568,900

Questions
1. The entry to correct/adjust item F is:
a. Investment 50,000
Cash 50,000
b. Other assets 50,000
Cash 50,000
c. Short-term investment 50,000
Cash 50,000
d. No adjustment
2. The entry to correct/adjust item L is:
a. Accounts payable 50,000
Cash 50,000
b. Cash 50,000
Other liabilities 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustment
3.
The entry to correct/adjust item M is:
a. Investment 150,000
Cash 150,000
b. Other assets 150,000
Cash 150,000
c. Short-tem 150,000
investment Cash 150,000
d. No adjustment
4. DON CORPORATION’S cash and cash equivalents balance at December 31, 2006 is:
a. Overstated by P1,950,100 c. Overstated by P 1,845,100
b. Overstated by P 1,895,100 d. Overstated by P 1,795,100

5. DON CORPORATION’S adjusted cash and cash equivalents balance at December 31, 2006 is:
a. P 618,800 b. P 623,800 c. P 673,800 d. P 723,800

Solution

a. Operating expenses 5,100

Cash 5,100
b. Investment 500,000
 Cash 500,000
c. No adjustment
d. No adjustment
e. No adjustment
f. No adjustment
g. Short-term investment 120,000
Cash 120,000
h. Notes receivable 20,000
Cash 20,000
i. No adjustment
j. Accounts receivable 15,000
Cash 15,000
k. Cash – restricted 210,000
Cash 210,000
l. No adjustment
m. Investment – current 150,000
Cash 150,000
n. No adjustment
o. No adjustment
p. Operating expenses 80,000
Cash 80,000
q. Short-term investment 600,000
Cash 600,000
r. Short-term investment 100,000
Cash 100,000
s. No adjustment
t. No adjustment
u. Investment 150,000
Cash 150,000

Answer:
1. D 2. D 3. C 4. A 5. A

Problem 16
The following information pertains to the cash of Jenny Company:

Nov 31 Dec. 31
Balance shown on bank statement P 27,380 P 26,960
Balance shown in general ledger before
reconciling the bank account 25,780 25,000
Outstanding checks 8,630 10,150
Deposits in transit 6,850 12,450

For Dec.
Deposits shown in bank statement P 55,880
Charges shown on bank statement 56,300
Cash receipts shown in company’s books 53,980
Cash payments shown in company’s books 54,760

The bank service charge was P180 in November (recorded by the company during December) and P240 in
December (not yet recorded by the company).

Included with the December bank statement was a check for P5,000 that had been received on December 25 from a
customer on account. The returned check marked “NSF” by the bank, has not yet been recorded on the company’s
books.

During December the bank collected P7,500 of bond interest for the company and credited the proceeds to the
company’s account. The company earned the interest during the current accounting period but has not yet recorded
it.
During December the company issued a check for P6,960 for equipment. The check, which cleared the bank
during December, was incorrectly recorded by the company for P8,960.
Questions

1. The adjusted cash receipts of JENNY COMPANY at December 31 is:

a. P 61,480 b. P 53,980 c. P 50,280 d. P 46,480

2. The adjusted cash disbursements of JENNY COMPANY at December 31 is:

a. P 63,980 b. P 61,980 c. P 57,820 d. P 54,780

3. In a proof of cash, the NSF check:

a. Should be added in the December 31 column since this was returned back
by the bank.
b. Should be deducted in the December 31 column since this was returned
back by the bank.
a. Should be deducted in the December 31 column since this was returned back and not paid by the bank, thus
not considered as receipts.
b. Should be added in the December 31 column since this was returned back and not paid by the bank, thus
not considered as receipts.

4. The adjusted December 31 cash balance of JENNY COMPANY is:

a. P 29,760 b. P 29,260 c. P 27,260 d. P 25,600

5. The adjusted November 31 cash balance of JENNY COMPANY is:

a. P 29,160 b. P 27,260 c. P 26,160 d. P 25,600

6. The check issued but was incorrectly recorded as P8,960 should be adjusted by:
a. Accounts payable 2,000 c. Cash 2,000
Cash 2,000 Accounts payable 2,000
b. Equipment 2,000 d. Cash 2,000
Cash 2,000 Equipment 2,000

Solution
Nov. 30 Receipts Disburs. Dec. 31
Balance per book 25,780 53,980 54,760 25,000
Service charge – Nov. 30 (180) (180)
- Dec. 31 240 (240)
NSF check 5,000 (5,000)
Interest earned 7,500 7,500
Book error (2,000) 2,000
Adjusted Balance 25,600 61,480 57,820 29,260

Nov. 30 Receipts Disburs. Dec. 31

Balance per bank 27,380 55,880 56,300 26,960
Outstanding check – Nov. (8,630) (8,630)
- Dec. 10,150 (10,150)
Deposit in transit - Nov 6,850 (6,850)
- Dec 12,450 12,450
Adjusted balance 25,600 61,480 57,820 29,260

Adjusting entry

Service charge 240

Cash 240

Accounts receivable 5,000

Cash 5,000
Cash 7,500
Interest income 7,500

Cash 2,000
Equipment 2,000
Answer:
1. A 2. C 3. C 4. B 5. D 6. D
BANK RECONCILIATION

1. The following information is included in EMIL Corporation’s bank statement for the month of
March:
A customer’s check has been marked NSF by the
Bank and returned P 13,000
Bank service charge for March 1,200

In comparing the bank statement to the company’s cash records, you found:
Outstanding checks on March 31 P 184,000
Deposits made but are not yet shown in the April bank statement 14,000

The deposits in transit and outstanding checks have been correctly taken up in the company’s books.
You also found a customer’s check for P17,400 that had not yet been deposited and had not yet been
recorded in Emil’s books. Your client’s book shows a cash balance of P36,420.

Requirement: What is Emil Corporation’s correct cash balance at March 31?

Solution:
Balance per books 36,420
Unrecorded and undeposited customer’s check 17,400
Bank service charge (1,200)
NSF Check (13,000)
Adjusted Balance 39,620

2. The following information pertains to a checking account of a company at June 30, 2014,
Balance per bank statement P 200,000
Interest earned for the second quarter 500
Outstanding checks 15,000
Customers’ checks returned for insufficient fund 5,000
Deposit in transit 25,000

Requirement: What is the adjusted cash balance at June 30, 2014?

Solution:
Balance per bank statement 200,000
Outstanding checks ( 15,000)
Deposit in transit 25,000
Interest earned (500)
NSF check 5,000
Balance per books at June 30, 2014 214,500

3. A company is reconciling its bank statement with internal records. The cash balance per the
company’s books is P45,000. There are P5,000 of bank charges not yet recorded, P7,500 of
outstanding checks, P12,500 of deposits in transit, and P15,000 of bank credits and collections not
yet taken up in the company’s books.

Requirement: What is the cash balance per bank?

Solution:
 Balance per books 45,000
Bank charges (5,000)
Outstanding checks 7,500
Deposits in transit (12,500)
Bank credits and collections 15,000
Balance per bank 50,000

4. A company shows a cash balance of P175,000 on its bank statement dated June 30. As of June 30,
there are P55,000 of outstanding checks and P37,500 deposits in transit.

Requirement: What is the correct cash balance on the company books as of June 30?

Solution:
Balance per bank statement 175,000
Outstanding checks (55,000)
Deposits in transit 37,500
Adjusted cash balance 157,500

5. The cash account shows a balance of P225,000 before reconciliation. The bank statement does not
include a deposit of P11,500 made on the last day of the month. The bank statement shows a
collection by the bank of P4,700 and a customer’s check for P1,600 was returned because it was
NSF. A customer’s check for P2,250 was recorded on the books as 2,700 and a check written for
P395 was recorded as P485.

Requirement: What should be the correct cash balance?

Solution:
Balance per books 225,000
Bank collection 4,700
Customer’s NSF check ( 1,600)
Overstatement of cash receipt (2,700 – 2,250) ( 450)
Overstatement of cash disbursement (485 – 395) 90
Adjusted balance 227,740