CPA REVIEW SCHOOL OF THE PHILIPPINES AP-8708 Manila AUDITING PROBLEMS CPA Review AUDIT OF CASH — PROBLEM NO.1 ‘The bank statement for the checking account of MSU, INC. showed a December 31, 2020, balance of Pi, ,463,212. Information that might be useful in preparing a bank reconciliation is as follows: Ot a) Outstanding checks were P132,025. pir) The December 31, 2020, cash receipts of P57,500 were not deposited in the bank until January 2, 2021. Peck) One check written in payment of rent for P24,600 was correctly recorded by the bank but ‘tn was recorded by MSU as P26,400 disbursement. @) In accordance with prior authorization, the bank withdrew P45,000 directly from the checking account as payment on a mortgage note payable. The interest portion of that Payment was P35,000. MSU has made no entry to record the automatic payment. ©) Bank service charges of P1,400 were listed on the bank statement. Past 6) ‘A deposit of P87,500 was recorded by the bank on December 13, but it did not belong to MSU. The deposit should have been made to the checking account of SUM, Inc. "sr g) The bank statement included a charge of P8,500 for an NSF check. The check was Poe A returned with the bank statement and the company will seek payment from the customer. ) MSU maintains a P20,000 petty cash fund that was appropriately reimbursed at the end of December. According to instruction for MSU on December 30, the bank withdrew P1,000,000 from the account and purchased Treasury Bills for MSU. MSU recorded the transaction in its ‘books on December 31 when It received notice from the bank. Half of the treasury bills ‘mature in two months and the other half in six months. Questions: .._ What is the cash in bank balance per books on December 31, 2020? A Pissed B. P1,357,887 C. P1,337,287 D. 1,264,287 .. What is the corrected 7” in bank balance on December 31, 2020? A, P1,304,787 C. P1,284,187 D. 1,211,187 .. What amount of cash and cash equivalents should be reported in the current asset section ace balance sheet on December 31, 2020? B. 2,321,187 C. P1,301,187 D. P1,874,287 --000000000-- ~ PROBLEM NO. 2 s From the following information, prepare the following: 1A four-column reconciliation that would end at adjusted balances. 2. Adjusting journal entries as of December 31, 2020.‘APS708 — AUDIT OF CASH PAR MANILA ei = Reconciling items: November 30 December 31 Deposits in transit P10,400 2 Outstanding checks 16,014 2 NSF checks 1,052 1,400 ‘Customers’ notes collected by bank 3,000 8,554 Bank service charges 100 130 Erroneous bank debits 1,200 1,800 Erroneous bank credits 2,000 6,000 Book balances 2 332,472 Bank balances 261,120 ? Books Bank 302,460 299,902 222,846 220,196 PROBLEM NO. 3 The cash account of NUNAL COMPANY shows the following activities: Date Debit Credit Balance Nov. 30 Balance 345,000 Dec. 2 November bank charges P 150 344,850 4 November bank credit for notes receivable collected P 30,000 374,850 15 NSF check 3,900 370,950 20 Loan proceeds 145,500 516,450 21 December bank charges 180 516,270 31 Cash receipts book 2,121,900 2,638,170 31 Cash disbursements book 1,224,000 1,414,170 CASH BOOKS RECEIPTS PAYMENTS Date OR No, Amount Check No, Amount Dec. 1 110-120 33,000 8017 P 6,000 2 121-136 63,900 802 9,000 3 137-150 60,000 803~ 3,000 4 151-165 168,000 804- 9,000 5 166-190 117,000 805- 36,000 8 191-210 198,000 806 57,000 9 211-232 264,000 807 78,000 10 233-250 231,000, 808- 0,000 rey 251-275 63,000 809~ 183,000 2 276-300 0,000 810 21,000 45 301-309 165,000 Bil 24,000 16 310-350 24,000 812 48,000 17 351-390 57,000 813- 60,000 18 391-420 27,000 814 66,000 19 421-480 51,000 816- 108,000 2 481-500 63,000 817 33,000 23 501-525 96,000 818- 150,000 23 : 2 819 21,000 23 5 Fe 820- 124 26 526-555 222,000 821- eee 28 556-611 15,000 822 36,000 28 5 z 823 39, 29 612-630 114,000 0/7 824 ae 29 5 e 825 6,000 29 ee 826 33,000 Totals 2,121,900 PL224.000 Page 2 of 8 PagesBANK STATEMENT Date Check Charges Credits Dec. 1 792 P 7,500 P 25,500 2 802 9,000 33,000 3 = : 63,900 4 804 9,000 60,000 5 EC 243,000 243,000: 8 805 36,000 285,000 9 cM 16 p 36,000- 10 799 21,150 462,000 iL DM 57 3.900 231,000" 12 808 90,000 63,000 15 803 3,000 a 16 809 183,000 255,000 7 DM 61 180 24,000” 18 813 60,000 oe 19 ™ 20 - 145,500 2 815 18,000 ig 23 816 108,000 141,000 2B 811 24,000 : 23 801 6,000 - 26 814 66,000 96,000 28 818 150,000 222,000 28 DM 112 360 a 29 821 9,000 15,000 29 M36 - 36,000 - 29 820 12,000 eee hy Totals P1.059.090 2,493,900 Additional information: 1. DMs 61 and 112 are for service charges. 2. EC is error corrected. 3._DM 57 is for an NSF check. 4. CM 20 is for loan proceeds, net of P450 interest charges for 90 days. 5. CM 16 is for the correction of an erroneous November bank charge. 6. CM 36 is for customers’ notes collected by bank in December. 7. Bank balance on December 31 Is P1,775,810_ Based on the preceding information, determine the following: 1 Cre checks at December 31 ‘A. P459,000 - B. P477,000 c. 441,000 D. 487,650 2. Deposit at December 31 A B. P139,500 C. P132,000 D. PO 3. Adjusted bank receipts for the month of December A. P2,297,400 B. 2,291,400 4. Adjusted book disbursements for the month of December C. Pt,210,440 A. P1,228,440 B. 5. Adjusted bank balance at December 31 A. Pi,449,810 PROBLEM NO. 4 The following information was obtained in cash account as of December 31, 2020. Page 3 of 8 Pages C. (P2,303,400 =D. P2,321,400 D. P1,246,620 D. P1,776,810 connection with the audit of SOLEDAD COMPANY’sAPA08 — AUDIT OF CASH PAR - MANILA Outstanding checks, 11/30/20 48,750 Outstanding checks, 12/31/20 37,500 Deposit in transit, 11/30/20 37,500 Cash balance per general ledger 12/31/20 112,500 Actual company collections from its customers during December 457,500 ‘Company checks paid by bank in December 390,000 Bank service charges recorded on company books in December 7,500 Bank service charges per December bank statement 9,750 Deposits credited by bank during December 435,000 November bank service charges recorded on company books in December 4,500 ‘The cash receipts book of December is underfooted by P7,500. The bank erroneously charged the company’s account for a P11,250 check of another depositor. This bank error was corrected in January 2021. Questions: 1. How much is the deposit in transit on December 31, 2020? A. P15,000 B. P67,500 C. P52,500 D. P60,000 2. The total unrecorded bank service charges as of December 31, 2020, is ‘A. 6,750 B. 2,250 C. P5,250 D. 12,750 3. What is the total book receipts in December? ‘A. P457,500 8. P465,000 C. 1P450,000 D. 442,500 4. What is the total amount of company checks issued in December? A. P390,000 8. E C. 369,000 D. P401,250 5. What is the total book disbursements in December? A. P386,250 B. P371,250 C. P385,500 D. P378,750 6. What is the book balance on November 30, 2020? ‘A. P63,750 B. C. P112,500 D. P105,000 7. What is the bank balance on November 30, 2020? ‘A. 55,500 B. 69,000 C. P130,500 D, P48,750 8. What is the total bank receipts in December? A. P360,000 B. P420,000 . [P435,000 | D. P450,000 ‘9. What is the total bank disbursements in December? A. P411,000 B. 463,500 C. P397,500 D. P388,500 10. What is the bank balance on December 31, 2020? ‘A. P64,500 B. P93,000 C. P99,750 PROBLEM NO. 5 ‘The auditor for RAKI-RAKI, INC. examined the petty cash fund immediately after the dose of business, June 30, 2020, the end of the companys fiscal year. The following fund composition was arrived at: Currency P1,272 Fund vouchers: Office supplies expense 388 Travel expense 240 Office equipment repairs 170 Loans to officers and employees 400 ‘A check drawn by Raki-Raki, Inc., payable to the order of Jingle, fund custodian 1,100‘An employee's check, returned by bank, stamped NSF 230 ‘A sheet of paper bearing the signatures of several employees, together with their contributions (total P200) for a gift for a departing employee. Attached to the paper is currency of — 200 24,000 ‘The petty cash fund general ledger account has an imprest balance of P4,000. Required: 1. What audit adjustment should be prepared as of June 30, 2020? 2. At what amount should the cash fund be shown in the balance sheet as of June 30, 2020? > ~----==----000000000-~ zs PROBLEM NO. 6 You have been asked by the proprietor of the SANDOVAL CO. to verify the accountability of the ‘cashier-bookkeener, who was allowed to take a vacation leave a few days ago. BEM Regi tt dite | A. The bank reconciliation statements prepared by the cashier-bookkeeper are presented below: November 30, 2020 Balance per bank statement 21,500 Cash on hand 500 Total 22,000 Outstanding checks: : No. 2520 P 2,000 2521 1,400 2522 4,200 (3,300) 530 Erroneous bank charge 2,000 Erroneous bank credit — (500) Book balance 20.200 December 34, 2020 Balance per bank statement P 135,000 ‘Cash on hand 6,300 Total 441,300 ‘Outstanding checks: ! No. 2674 31,000 2675 10,300 2676 5.000 (41,300) 40.300 Erroneous bank charge 3,000 Erroneous bank credit (600) Book balance 102.400 B. The Cash in Bank account in the general ledger shows the following debits and credits during December: Cash in Bank Dec. Dec, 1 Balance 20,200 | 1 Checks issued P2,000 - 2 Received from customers 4,500 | 5 Checks issued 5,200 |, | 7. Received from customers _5,000 | 14 Checks issued 31,000 ie 12. Received from customers 20,000 | 24 Checks issued 46,000 7,01) | 47 Received from customers 30,000 | 28 Checks issued 7,600 23 Received from customers 9,000 27 Received from customers 70,000 31. Received from customers_48,500 | 31 Balance _102,400- Total P198.200 Total 2198.200 Page 5 of 8 PagesCPAR - MANILA, APB708 — AUDIT OF CASH C. The following summarized transactions were taken from the bank statement for the month of December 2020: Balance, December 1, 2020 16,500. Pey.Aa. Total deposits 173,700 fal Rete The total deposits per bank statement include: a. Collection of notes receivable P5,000 b. Correction of November erroneous bank charge 2,000 ¢. December 10 deposit of Lava, Inc. credited in error to SANDOVAL —600 Total PZ.600 Total checks 65,200 park surements The total checks per bank statement include: a. Correction of November erroneous bank credit P 500 b. December check of Nile Co. charged in error to SANDOVAL 3,000 Total P3500 D. Cash on hand per count in the moming of January 2, 2021, amounted to P6,300. E, Before leaving his company for a one-week vacation, the proprietor had left several signed blank checks that the cashier-bookkeeper had cashed for his personal use. Questions: 1. What is the adjusted cash balance on November 30, 2020? A. P16,500 B. P13,200 C. P20,200 D. P14,500 2. The amount of unaccounted receipts in December is A. P11,000 B. P13,200 C. P9,000 D. /P15,100 3. The amount of unrecorded/un: disbursements in December is A. P15,100 8. C. P7,000 ‘D. P5,000 4. What is the total cash shortage as of December 31, 2020? ‘A. 26,000 B. P15,100 c."P33,000, D. P7,000 5. What is the adjusted cash balance on December 31, 2 A. P102,400 B. P125,000 c 967.400 | D. P111,400 --000000000----- PROBLEM NO. 7 (On January 10, 2021, you started the audit of the financial records of the KEMIRARA COMPANY for the year ended December 31, 2020. From your investigation, you discovered the following: 1. The bookkeeper acts also as the cashier. Her December 31, 2020, year-end cash reconciliation contained the following items: Cash per ledger, Dec. 31, 2020 184,200 Cash per bank, Dec. 31, 2020 194/550 Checks outstanding 15,660 - 50 » ‘Amnesia Co. check charged by the bank in error Dec. 20, 2020; corrected by the bank on Jan. 5, 2021“! «rmy 450 Cash in transit, credited by the bank on Jan. 2, 2021 2,160 2. The cash account balances per ledger as of December 31, 2020 were: Cash P184,200 Petty cash 450‘The count of the cash on hand at the close of the business on January 10, 2021, including the petty cash, was as follows: Currency and coins P1155 Expense vouchers 60 Employees’ 10U’s dated Jan. 5, 2021 165 ‘Customers’ checks in payment of account ty iied mieten! 870 fechas nk From January 2, 2021 to January 10, 2021, the date of your cash count, total cash receipts : i appearing in the cash records were P25,800. According to the bank statement for the period from January 2, 2021 to January 10, 2021, total deposits were P22,800. 5. On July 5, 2020, cash of P1,200 was received on account from a customer; the Allowance for Doubtful Accounts was charged and Accounts Receivable was credited. 6. On December 5, 2020, cash of P900 was received on account from a customer; Inventory was charged and Accounts Receivable was credited. 7. Cash of P2,190 received during 2020 was not recorded. nance F 8. Checks received from customers from January 2, 2021 to January 10, 2021, totaling P1,260, ‘were not recorded but were deposited in the bank. 9. Onuly 1, 2020, the bank refunded interest of P60 because a note of the Kemirara Company was paid before maturity. No entry was made for the refund. 10. Inthe cashier's petty cash, there were receipts for collection from the customers on January 9, 2021, totaling 2,550; these were unrecorded and undeposited. 11. In the outstanding checks, there is one for P150 made payable to a trade creditor; ch investigation shows that this check had been retuned by the creditor on November 14, 2020 and a new check for P300 was issued in its place; the original check for P150 was made in error as to amount. Required: 1. Compute the correct bank balance as of December 31, 2020. Fé! > 2. Compute the cash shortage as of December 31, 2020. #7050 3. Compute the cash shortage forthe period January 1, 2021 to January 10, 2021. P20 | iniear mrtg PROBLEM NO. 8 ‘Select the best answer for each of the following: 1. As one of the year-end audit procedures, the auditor instructed the client's personnel to Prepare a standard bank confirmation request for a bank account that had been closed during the year. After the dient’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? A. The confirmation request was signed by the treasurer. B. Sending the request was meaningless because the account was closed before year-end. C. The request was mailed by the assistant treasurer. D. The CPA did not sign the confirmation request before it was mailed. 2. On receiving the bank cutoff statement, the auditor should trace ‘A. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts = C. Deposits listed on the cutoff bank statement to deposits in the cash receipts journal. Page 7 of 8 PagesCPAR = MANILA, ui ‘AP8708 — AUDIT OF CASH 10. D. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank reconciliation. ‘An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when ‘A. Check register for the last month is reviewed. B. Cutoff bank statement is reconciled. C. Bank confirmation is reviewed. D. Search for unrecorded liabilities is performed. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except A. Cutoff bank statement B. Year-end bank statement C. Bank confirmation D. General ledger — ‘An auditor compares information on cancelled checks with information contained in the cash disbursements journal. The objective of this test is to determine that ‘A. Recorded cash disbursement transactions are properly authorized. B. Proper cash purchase discounts have been recorded. C. Cash disbursements are for goods and a ay, received. D. No discrepancies - ‘When counting cash on hand, the auditor must exercise control over all cash and other Negotiable assets to prevent — A. Theft ic ‘ B. Irregular endorsement D. Deposit in transit If the balance shown on an entity's bank statement is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be ‘A. Deposits credited by the bank but not yet recorded by the entity. B. Outstanding checks. epost rant ee ite Am eee D. Bank charges not yet recorded by the entity. If the cash balance shown on an entity's accounting records is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be A by the entity. B. Deposits in transit. C. Outstanding checks, D. Bank charges not yet recorded by the entity. The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may ‘A. Not believe that the bank is obligated to verify confidential information to a third party. B. Sign and return the form without inspecting the accuracy of the client’s bank reconciliation. C. Not have access to the client's cutoff bank statement, D. The best evidence regarding year-end bank balances is documented in the A. Cuttoff bank statement Bae B. Renecensapeyy * CC. Interbank trar ule. D. Bank deposit lead schedule,DATE: AP $708 - Audit of Cxh Problem £ Bie Dig cah 1B BH aes lunadj. Ratance ff |, 8Y, 287 P13 22 PF © Bank balance 1403, 2 1. Gutfjandngdets (132,02r) Teer nn A. oulstanding check (132,026) esd sae sco S1ST TONES $122,187 B. deposit in Franc S30 = Book eny as __C. beokenor (i) 0. Uimecrded Bonk D~ Unrecorded Bank Peles end Pee CURE Y & Bank.tenice change E- Banksenice tage CI40) “Banter «(CBS F Ban on COSY S._NSF cheek. oem S_NSF Oreck. (sn) PLR 2 ‘Aejitted aience 1,201,187 PION IRF Prem 2 ne = s Nov.30___Receips __itturremenk__ Det. #/. Book Fatance 7252,959 P02 Heo 1222, 26 7992, 972 am) Peed a7 cm) 0 (790) NGF check — Nov. (io5e" Clos2 Dec: ae Ta (any ‘tj: BookRaione P0254 700___ 7 268,014 223,224 7339, Becembver ee Tibco FF. Panik Balance t 261,20 129,92 1220,R0 LHL _ DIT = Nov BAD ~~ C.Gi) dec. 25,712 (stuecaed) 25112 (laqeeaed) oe = Now. Cheaie Te0Tay Dee: 22,942 Guned) (22,0 )quecred) Error? Bank bebtt -WOV. f20y G20) ee. Cre a pant edit Nou. (20m) 2,00) tee. aa te 7) 725G%06 PAF, 223,224 1736, @ Depeet in transit Bm, Recelps 124,90 Zan Depa (2075 dai) ae od. im __ Ope. of vee aq dow EE him Oo Hah nad). Book Bey, 34G a0 Peer aaa : ta em 1 iy Pa mem STi em ates BO = im BOY 2 peu 4becember sd “Nov. Rip Prbtarrement ~ Dec unad-scne eat P3420 2.903,90 P1,069,0% FLTC = Yr -Nov 26m Casi) De Ng. On s hor CAR GRE) CH GR Pee sun __ (49001) igs Baw Gece Min Cin) — Banter, (pm) (20m) e HL. Beenie @ oir, tftofeo__ ov. a we FBT hes Ta pt DIT - Nov mm () z ys Dir, fsijio We. aay 5 Cm OC Ny, (530 Om sant, tom) Gn 3) BCC , 12/31 err my 2a (20) . Ke red aor amy ea ial unrecorded Bx Emr ~Creehts NO)_(STO) (m) ee (ay (Ga) © heh cckecton Mj-Rome Paine 775200 —“Pimua@ —_7102.T Unckrfoted December @_& tf PER powrpaonee p22 finn fare 7020 Oecd Fe CBReaeAY of ___ Pia 427. Rectigh am ty Chaar nd Vee MYT ew Cum) an a, % ji pL P21 et r ©. Checks uous (2/0 _ 7 378.750. by wank. add 5.0 BIC Metarded bec. 1370 ‘7. 50D ed 72.0 9192, PIR — FILO Hay BORE aT ay T1600. RL STUN 7 a’ wy. __Feigk Sevage __inaecned _ ree “Poon bore Feti1s Pa Pay toy FT | Recep sh neuen (er ~ acbunied for FABIO oe O Ganeiey P1210 y Petty Cah fund 4a Aeplenichmen} eck cron Cash chertage Cay “Tanarairedtan Tet 4 PE 490/20 f.972 WE Oppcesgpler bygone Towel bypence 4 Ope ics 2 Office tauip ud TE Fan, é & ‘Adv. be employees (4004 £30) 40 pe (9844 £20; fety cas find bode) PCF G]6)e0 4sMIOLOIA A ~ PoeenF O te BAe Gah rept “ 2M © Uenrecordec” Deposited Colechont 1200 Unrecorded undeposted collection a (es 2550 Tefal Aeccuntabify ~ Hao Acounted for aa rw Count of CoH Y POF Currency coins 1155 Exp Vouchan te fou les fe Casper” CHECK F710 IO Trial Pepesis jer bane sratconeste Leer: Conechon OF bank ery eee ney Cah shoiege 5 it -1ft0 202) 22,20) Yo) (2iuo)__20,90__(22, 4yo) (1090 _——— CO- a Book. Bank Unadjusted Palances PRY, F/9455D Ourrtanding ches 15510) (15,400 -|50) ~~ Annies Check - Eriey eo Colectons craiged to = caitatance ray Collectio fo eee aed i aa ___ Unrecordte jos FO ‘nce fy thea of inferert GO Check rehurnea’¥ replaced TSD sae _ recountaeny 198 10) PIBLG5 _Recounfec fv Shortage a paper emer —— Pte P18 160 ——— a