lOMoARcPSD|9618707

Audit of Cash

Accounting (University of Manila)

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CHAPTER 3 - Audit of Cash &

Cash Equivalents
Problem 1
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

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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 investment 150,000
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

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Problem 2
The following items are found in the cash account of Ivie Company at December 31, 2006.
The company’s controller asks your opinion whether the items listed below should be
considered as part of cash account and come up with adjusting entry to adjust the cash
account.

1. Customers’ check dated December 25, 2006, P25,000.

2. Company’s check (P30,000) dated December 26, 2006 which was drawn in payment for
merchandise purchased on that date but not delivered until January 3, 2007. This check
was deducted in the cash balance.
3. A check worth P196,000 from customer who paid the account net of the 2% discount.
The company records the transaction as credit to Accounts Receivable for the proceeds.
4. Cash in closed bank (Urban Bank), P95,000.
5. Redemption fund, P100,000
6. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds
payable.
7. Metro Bank Checking Account No. 0004568, P210,000.
8. RCBC Checking Account No. 0002347, P115,000.
9. Overdraft in PNB Checking Account No. 00011256, P50,000.
10. Company’s check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the company’s disbursement ledger at December 31, 2006.
11. Overdraft in RCBC Checking Account No. 0056791, P15,000.
12. Postage stamps, P2,000.
13. 90-day Treasury Bills (purchase on November 1, 2006), P100,000
14. Treasury Bills that matures on February 1, 2007, P50,000.
15. Change fund, P10,000.
16. Customers’ certified check, P20,000.
17. Company’s certified check, P50,000. (This was included in the cash disbursement for
December).

Questions

1. The entry to correct/adjust item number 3 is:

a. Accounts receivable 4,000
Sales discounts 4,000
b. Sales discounts 4,000
Accounts receivable 4,000
c. Accounts receivable 4,000
Sales 4,000
d. No adjustments

2. The entry to correct/adjust item number 10 is:

a. Accounts payable 50,000
Cash 50,000
b. Other liabilities 50,000
Cash 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustment

3. The entry to correct/adjust item number 17 is:

a. Accounts payable 50,000
Cash 50,000

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b. Cash 50,000
Accounts receivable 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustments

4. The entry to correct/adjust item number 16 is:

a. Accounts receivable 20,000
Cash 20,000
b. Cash 20,000
Accounts payable 20,000
c. Cash 20,000
Accounts receivable 20,000
d. No adjustments

5. IVIE COMPANY’S adjusted cash and cash equivalents balance at December 31, 2006 is:
a. P 771,000 b. P 741,000 c. P 721,000s d. P 691,000

Solution

Item 1 - Cash
Item 2 - Cash
Item 3 - Cash
Item 4 - Other Assets
Item 5 - Investment
Item 6 - Investment – current
Item 7 - Cash
Item 8 - Cash
Item 9 - Current liability
Item 10 – Offset to cash
Item 11 – Offset to Cash
Item 12 – Unused supplies
Item 13 – Cash as cash equivalents
Item 14 – Short-term investment
Item 15 – Cash
Item 16 – Cash
Item 17 – property recorded as disbursement

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

Problem 3
Your audit of the December 31, 2006, financial statements of Mato Corporation reveals the
following:

1. Current account at PBCom P (35,000)

2. Current account at PNB 65,000
3. Treasury bills (acquired 3 months before maturity) 200,000
4. Treasury bills (maturity date is 12/31/07) 500,000
5. Payroll account 175,000
6. Foreign bank account - restricted (translated using the
12/31/06 exchange rate) 900,000
7. Postage stamps 600
8. Employees’ checks marked “DAIF” 10,000
9. IOU from the vice-president 50,000
10. Credit memo from a supplier for a purchase returns 25,000
11. Traveler’s check 60,000

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12. Money order 10,000

13. Company’s check dated 12/30/06 but not mailed at year-end 30,000
14. Petty cash fund (P4,000 in currency and expense receipts for
(P6,000) 10,000

Questions

1. The entry to adjust the employees’ checks marked “DAIF” is:

a. Accounts receivable 10,000
Cash 10,000
b. Cash 10,000
Accounts receivable 10,000
c. Employees’ advances 10,000
Cash 10,000
d. Cash 10,000
Employees’ advances 10,000

2. MATO CORPORATION’S adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 560,000 b. P 544,000 c. P 514,000 d. P 509,000

Solution

Current account at PNB 65,000

Treasury bills acquired 3 mos. Before maturity 200,000
Payroll account 175,000
Traveler’s check 60,000
Money order 10,000
Company’s undelivered check 30,000
Petty cash fund 4,000
TOTAL 544,000

Answer:
1. C B. B

Problem 4
The controller of Pacatang Company is attempting to determine the amount of cash to be
reported on its December 31, 2006 balance sheet. The following information is provided:

a. Commercial savings account of P1,000,000 and a commercial checking account balance

of P900,000 are held at Phil. Banking Corporation.
b. Money market fund account held at Allied Bank, P600,000
c. Travel advance of P180,000 for executive travel for the first quarter of next year
(employee to reimburse through salary reduction)
d. A separate fund in the amount of P1,500,000 is restricted for the retirement of long-
term debt.
e. Petty cash fund, P5,000
f. An IOU from David Santos, a company officer, in the amount of P10,000.
g. A bank overdraft of P110,000 has occurred at one of the banks the company uses to
deposit its cash receipts. At the present time, the company has no other deposits at this
bank.
h. The company has two certificates of deposit, each totaling P500,000. These certificates
of deposit have a maturity of 120 days.
i. Pacatang Company has received a check that is dated January 12, 2007 in the amount
of P125,000.
j. Currency and coins on hand amounted to P5,300.

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Questions

1. PACATANG COMPANY’S adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 1,910,300 b. P 2,400,300 c. P 2,510,300 d. P 3,510,300

2. The travel advance of P180,000 for executive travel should be classified as:
a. Accounts receivable c. Prepaid expenses
b. Travel expenses d. Advances to employees

Solution
Commercial savings account P1,000,000
Commercial checking account 900,000
Petty cash fund 5,000
Currency and coin on hand 5,300
Amount of cash to be reported on balance sheet at 12.31.03 P1,910,300

(2) Money market fund acct. M/S or Temp. Investments

(3) Travel advance for executive travel (employee to
reimburse through salary deduction) Advances to Employees
(4) Bond Retirement Fund Long-term Investment
(6) IOU from company officer Advance to officers
(7) Bank overdraft (the co. has no other deposits at this bank)
Current Liabilities
(8) Certificates of deposit (maturity of 120 days Marketable securities
(9) Postdated check January 12, 2004 Receivable

Answer:
1. A 2. D

Problem 5
Present journal entries to record the following transactions in the books of Marites
Corporation, which uses a calendar year as accounting period. Assume that the company is
using the imprest method in accounting for petty cash fund:

a. A petty cash fund was set up on November 1, 2006 in the amount of P2,400.

b. On November 29, 2006, a check was issued to replenish the fund, the composition of
which was as follows:
Currency – bills and coins 166
Vouchers showing expenditures for:
Office supplies 270
Charges from purchased of supplies 124
Repairs and maintenance 350
Wages paid to casual employees 950
Charges from purchased of goods to be sold 400

c. On December 18, 2006, the fund was replenished and correspondingly increased to
P3,000; its composition included the following:
Currency – bills and coins 158
Vouchers showing expenditures for:
Store supplies 304
Accounts payable 914
Charges from purchased of goods to be sold 242
Miscellaneous expenses 782

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d. An examination on December 31, 2006, disclosed the following composition of the fund,
although it was not replenished on this date:
Currency – bills and coins 958
Check of office manager, dated January 5, 2007 1,000
Vouchers showing expenditures for:
Office supplies 126
Miscellaneous expenses 90
Accounts payable 800

e. On January 5, 2007, the check of office manager was cashed and the proceeds were
added to the petty cash fund.

f. On January 6, 2007, replenished disbursement from December 18, 2006 to January 5,

2007.

Questions
1. The entry to record the November 29 replenishment of petty cash fund is:
a. Operating expenses 1,694
Freight-in 400
Cash short/over 140
Cash 2,234
b. Operating expenses 2,234
Petty cash fun d 2,234
c. Operating expenses 1,694
Freight-in 400
Cash short/(over) 140
Petty cash fund 2,234
d. No entry since the company is using an impress fund system.

2. The adjusted Petty Cash Fund balance of MARITES CORPORATION at December 31,
2006 is:
a. P 3,000 b. P 1,958 c. P 984 d. P 958

3. The entry to record the December 31, 2006 adjustment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Petty cash fund 2,042
d. No entry since there is no replenishment yet.

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4. The entry to record the January 6, 2004 replenishment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Cash 2,042
d. No entry since the account has been adjusted on December 31.

Solution
a. Petty cash fund 2,400
Cash 2,400
b. Operating expenses 1,694 TCAF 2,260
Freight-in 400 Accountability 2,400
Cash short/over 140 Shortage 140
Cash 2,234
c. Operating expenses 1,086 TCAF 2,400
Accounts payable 914 Accountability 2,400
Freight-in 242 Shortage 0
Cash 2,242
Petty cash fund 600
Cash 600
d. Operating expenses 216 TCAF 2,994
Advances to employees 1,000 Accountability 3,000
Accounts payable 800 Shortage 26
Cash short/over 26
Petty cash fund 2,042

Reversing entry – January 1

Petty cash fund 2,042
Operating expenses 216
Advances to employees 1,000
Accounts payable 800
Cash short/over 26

e. No entry
f. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
Answer:
1. A 2. D 3. C 4. B

Problem 6
Your audit of the petty cash (P10,000) of Juliet Company as of December 31, 2006 revealed
the following: (cash count date is January 3, 2007 at 5:00 pm)

Bills: 10 - P500 bill 15 - P100 bill 18 - P50 15 - P20 5 - P10

Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.
IOU’s submitted were:
Dec. 18 Nap R. - P 750
Dec. 28 Ruel R. 125
Dec. 30 Sonny S. 500

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Cashed checks:
Dec. 28, 2006 check drawn by the manager P 1,125
Dec. 28, 2006 check drawn by an employee 500
Dec. 30, 2006 check drawn by a customer 350
Jan 1, 2007 check drawn by an employee 1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open
certain payroll envelopes unclaimed by employees and use the cash found herein. They
were as follows:
Dec. 15, 2006 - Ed A. P 1,250
Dec. 30, 2006 - Andoy 1,750
Dec. 30, 2006 - Macky 650
Dec. 30, 2006 - Paz 1,000

The cashier also informed you that all cash sales receipts were passed through his fund
and that cash sales tickets Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4
for P350, 500 and P545, respectively, had not yet been turned over to the general
cashier.

The petty cash vouchers found in the petty cash box were as follows:
Dec. 30, 2006 Transportation P515
Dec. 30, 2006 Token gifts to visitors 650
Dec. 30, 2006 Freight for office supplies purchase 215
Jan. 1, 2007 Freight for mdse. purchased 125
Jan. 2, 2007 Freight for mdse. sold 575
Questions

1. JULIET COMPANY’S cash shortage at December 31, 2006 is:

a. P 2,072.75 b. P 1,370.00 c. P 1,027.75 d. P 327.75

2. The adjusted petty cash balance of JULIET COMPANY at December 31, 2006 is:
a. P 10,000 b. P 9,625 c. P 5,975 d. P 4,625

3. The entry to adjust the unclaimed payroll at December 31, 2006 is:
a. Petty Cash Fund c. Cash
Salaries expense Accrued salaries
b. Salaries expense d. Accrued salaries
Petty cash fund Cash

4. The cashed check dated January 1, 2007

a. Should be adjusted since it was dated January 1, 2007, hence a postdated check.
b. Should be adjusted since it was received December 31, 2006 but the check is dated
January 1, 2007, hence a postdated check.
c. Should not be adjusted since the check is dated January 1, 2007.
d. Should not be adjusted since the check was received December 31, 2007.

5. The Cash account (excluding PCF) of JULIET COMPANY is understated at December 31,
2006 by:
a. P 4,650 b. P 4,900 c. P 6,045 d. P 6,370

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Solution
Cash Count Due to custodian 1,370
Bills 7,750 Petty cash fund 1,370
Coins 245
IOUs 1,375 Advances to employees 1,375
Checks 3,225 Petty cash fund 1,375
Vouchers 2,080
TCAF 14,675 Cash 350
Accountability Sales 350
PCF per ledger (10,000)
Unclaimed payroll ( 4,650) Advances to employees 1,250
Undeposited sales ( 1,395) Petty cash fund 1,250
Cash shortage 1,370
Cash 4,650
Accrued salaries 4,650

Operating expenses 1,380

Petty cash fund 1,380
ANSWER:
1. B 2. D 3. C 4. B 5. B

Problem 7
You are making an audit of the Darwin Corporation for the past calendar year. The balance
of the Petty Cash account at December 31, 2006 was P1,300. Your count of the imprest
cash count made at 8:30 am on January 3, 2007, in the presence of the petty cash
custodian, revealed:

Currency and coins 571.38

Checks:
Date Maker Bank
12/28/06 Macky, vice-president PNB 360.00
12/29/06 Andy, employee DBP 60.00
12/31/06 Bobot, customer RCBC 153.80
01/02/07 Neil, customer PNB 121.36
01/10/07 Jeff, employee PNB 60.00
(check received Dec. 29)
(These checks were all considered good when deposited after dates shown on the
checks. The first four checks were actually deposited Jan. 3; the last check was
deposited Jan. 11; all five checks proved to be good.)

Vouchers:
Dec. 11 #261 Richard, shipping clerk – temporary advance for the use of the
receiving department. Your count of Mr. Richard’s fund revealed:
currency – P28.80; merchandise freight bills, P31.20. P 60.00
Dec. 28 # 301 Postage 12.00
Dec. 29 # 302 Freight bill on merchandise purchases 47.30
Dec. 31 # 305 Freight bill on office supplies 88.93
Jan. 2 # 500 Freight bill on merchandise purchases 29.36

IOU Dec. 21 Mabel, employee 36.00

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Sales Invoices (for cash sales, collections handled by the petty cashier):
Invoice # 315 Dec. 30 P 120.00
328 Dec. 31 153.80
334 Jan. 2 121.36
(As a general rule, the petty cashier endeavored to turn over the proceeds of
cash sales to the general cashier on the 10 th, 20th and last days of each month.
Proceeds on these sales were recorded and deposited by the general cashier.)

Postage Stamps:
Three one-peso stamps. The petty cashier handled postage stamps. These
stamps represent the unused stamps purchased on Voucher # 301.

Questions
1. The petty cash fund shortage at December 31, 2006 is:
a. P 216.39 b. P 123.83 c. P 98.03 d. P 95.03

2. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006
is:
a. P 900.74 b. P 960.74 c. P 1,174.54 d. P 1,234.54

3. DARWIN CORPORATION’S operating expenses found in the petty cash fund at December
31, 2006 is:
a. P 208.23 b. P 205.75 c. P 174.03 d. P 97.93

4. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at

December 31, 2006 by:
a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00

Solution
Cash count
Currency and coins 571.38 Due to custodian 95.03
Checks 755.16 PCF 95.03
Vouchers 237.59
IOU 36.00 Cash 273.80
TCAF 1,600.13 Sales (SI#328 & 315) 273.80
Accountability
PCF per ledger (1,300.00) Adv. to employee 60.00
Undeposited sales ( 395.16) PCF 60.00
Cash shortage 95.03
Adv. to employee 60.00
Operating expenses 100.93
Freight-in 47.30
PCF 208.23

Freight-in 31.20
Adv. to employee 31.20

Adv. to employee 36.00

PCF 36.00

Unused postage 3.00

Operating expenses 3.00
Answer:
1. D 2. A 3. D 4. B

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Problem 8
In connection with your audit of the financial statements of Reyes Corporation for the year
ended December 31, 2006, you conducted a surprise count of the company’s petty cash and
undeposited collections at 9:10 am on January 3, 2007. You count disclosed the following:

Bills and counts

Bills Coins
P100.00 5 pieces P1.00 205 pieces
50.00 40 pieces 0.50 162 pieces
20.00 35 pieces 0.25 32 pieces
10.00 27 pieces

Postage stamps (unused) - P365

Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Reyes Corp. Karren, Inc. 14,000
Dec. 31 Reyes Corp. Sheryl, sales manager 1,680
Dec. 31 Reyes Corp. Victor Corp. 17,800
Dec. 31 Reyes Corp. Ma. Karen, Inc. 8,300
Dec. 31 Merry Corp. Reyes Corp. 27,000
(not endorsed)

Unreimbursed vouchers
Date Payee Description Amount
Dec. 23 Sheryl, sales mgr. Advance for trip P 7,000
Dec. 28 Post Office Postage stamps 1,620
Dec. 29 Messengers Transportation 150
Dec. 29 Ace, Inc. Computer repair 800

Other items found inside the cash box:

1. Unclaimed pay envelope of Jeanette. Indicated on the pay slip is his net salary of
P7,500. Your inquiry revealed that Jeanette’s salary is mingled with the petty cash
fund.

2. The sales manager’s liquidation report for this Baguio Trip.

Cash Advance received on Dec. 23 P 7,000
Less: Hotel accomodation, meals, etc. P 4,500
Bus fare for two 400
Cash given to Carlo, salesman 300 5,200
Balance P 1,800
Accounted for as follows:
Cash returned by Carlo to the sales manager P 120
Personal check of the sales manager 1,680
Total P 1,800

Additional information:

1. The custodian is not authorized to cash checks.

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2. The last official receipt included in the deposit on December 30 is No. 4351 and the last
official receipt issued for the current year is No. 4355. The following official receipts are
all dated December 31, 2006.

OR No. Amount Form of Payment

4352 P 13,600 Cash
4353 17,800 Check
4354 3,600 Cash
4355 8,300 Check

3. The petty cash balance per general ledger is P10,000. The last replenishment of the
fund was made on December 22, 2006.

Questions

1. REYES CORPORATION’S cash shortage/overage at December 31, 2006 is:

a. P 61,166 short c. P 34,166 over
b. P 20,166 short d. P 22,514 over

2. The adjusted petty cash balance of REYES CORPORATION at December 31, 2006 is:
a. P 4,964 b. P 2,110 c. P 1,200 d. P 430

3. The undeposited sales/collection of REYES CORPORATION at December 31, 2006 is:

a. P 66,480 b. P 64,800 c. P 57,300 d. P 43,300

Solution
Bills and coins 3,764
Checks 69,980
Vouchers 9,570
TCAF 83,314
Accountability
PCF per ledger (10,000)
Undeposited sales – with receipts (43,300)
Unclaimed payroll ( 7,500)
Unendorsed check (27,000)
Undeposited sales – without receipts (14,000)
Check endorsed by sales manager ( 1,680)
Cash shortage (20,166)

Due to custodian 20,166

Cash 20,166

Cash 57,300
Sales (with and without receipts) 57,300

Cash 7,500
Accrued salary 7,500

Petty cash fund 1,680

Advances to employees 1,680

Advances to employees 7,000

Operating expenses 2,570
Petty cash fund 9,570

Operating expenses 5,080

Advances to employees 5,080

Answer: 1. B 2. B 3. C

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Problem 9
Mary Jane is the cashier of Adlawan Corporation. AS representative of the Zarate and
Associates, CPAs, you were assigned to verify her cash on hand in the morning of January
3, 2007. You began to count at 9:00 AM in the presence of Mary Jane. In the course of
your counting, you found currencies in paper bills and coins together with checks, vouchers,
and other items, which are mentioned below:

Bills: (2) P500; (8) P100; (12) P50; (5) P20

Coins: P 5.00 11 loose

1.00 24 loose
0.25 5 rolls and 32 loose (50 pieces to a roll)
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:
Date Maker Payee Amount
12/22/06 Vivian, Asst. Mgr Adlawan Corp. P 6,000
12/26/06 Mary Jane, cashier Adlawan Corp. 4,000

IOUs:
Date Maker Amount
12/20/06 Yap, Janitor P 500
12/22/06 Felix, clerk 750
12/24/06 Ablay, bookkeeper 500

PETTY CASH VOUCHERS FOR REPLENISHMENT

Date Payee Accounts Charged Amount
12/16/06 Wagan, messenger Advances to employees P1,000.00
12/17/06 Maren and Co. Supplies 545.00
12/18/06 Eeman Liner Freight in 982.50
12/18/06 Posts Office Supplies 300.00
12/20/06 Alejandre, carpenter Repairs 2,950.00
12/21/06 Violan Miscellaneous expense 554.00

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P20,000.00.

2. Cash sale of January 2, 2007 amounted to P8,650 per sales records, while cash
receipts book and bank deposit slip showed that only P7,650 was deposited in the
bank on January 3, 2007

3. The following employees’ pay envelopes had been opened and the money removed.
Each envelope was marked “Unclaimed” - Ernesto, P332.50; Secinando, P447.50.

Questions

1. The petty cash shortage of ADLAWAN CORPORATION at December 31, 2006 is:
a. P 2,748.50 b. P 1,748.50 c. P 968.50 d. P 188.50

2. The adjusted petty cash balance of ADLAWAN CORPORATION at December 31, 2006 is:
a. P 10,950 b. P 11,950 c. P 11,730 d. P 12,730

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3. The undeposited sales/collection of ADLAWAN CORPORATION at December 31, 2006 is:

a. P 8,650 b. P 7,650 c. P 1,000 d. P 0

Solution
Cash count
Bills and coins 2,730.00 Due to custodian 968.50
Checks 10,000.00 Petty cash fund 968.50
IOUs 1,750.00
PCF Vouchers 6,331.50 Adv. to employees 1,750.00
TCAF 20,811.50 Petty cash fund 1,750.00
Accountability
PCF per ledger (20,000.00) Adv. to employees 1,000.00
Uneposited sales ( 1,000.00) Operating expenses 4,349.00
Unclaimed payroll ( 780.00) Freight-in 982.50
Cash shortage 968.50 Petty cash fund 6,331.50

Cash 780.00
Accrued salary 780.00
Answer:
1. C 2. A 3. D

Problem 10
In your year-end audit of Angela Corp., the cashier showed a cash accountability of
P1,100,000 as at December 31, 2006. The following transactions were extracted in the
books of the company, in summary form:

Accounts receivable, beginning P 275,000

Accounts receivable, end 385,000
Sales (80% on credit) 1,850,000
Accounts written-off 25,000
Recovery of accounts written-off, included in the collection
of account receivable 15,000
Depreciation of fixed assets 150,000
Inventory, end 185,000
Inventory, beg 203,000
Cost of sales 960,000
Income tax accrued 18,500
Payment of bank loan 200,000
Subscription receivable 250,000
Subscribed capital stock 950,000
Purchases of fixed assets 320,000
Proceeds from short-term bank loan 300,000
Accounts payable, end 425,000
Accounts payable, beg. 200,000

Questions

1. The correct cashier’s accountability at December 31, 2006 is:

a. P 1,493,000 b. P 1,123,000 c. P 793,000 d. P 423,000

2. ANGELA CORPORATION’S cash account at December31, 2006 is:

a. Understated by P 307,000 c. Overstated by P 693,000
b. Understated by P 393,000 d. Overstated by P 677,000

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Solution

Proceeds from collection of accounts receivable 1,360,000 *

Proceeds from cash sales 370,000
Proceeds from bank loan 300,000
Proceeds from issuance of capital stock (P950,000 – P250,000) 700,000
Payment of accounts payable ( 717,000) **
Payment of short-term bank loan ( 200,000)
Purchase of fixed assets ( 320,000)
Total Accountability 1,493,000
Total Cash 1,100,000
Cash shortage 393,000

* Accounts Receivable
Beg. bal 275,000 Collection 1,360,000 squeeze figure
Cr. Sales 1,480,000 Write-off 25,000
Recovery 15,000 ________
1,770,000 1,385,000
End bal 385,000

** Accounts payable *** Beg. Inv. 203,000

Payment 717,000 Beg. bal. 200,000 Purchases 942,000
_______ Purchases 942,000 *** TGAS 1,145,000
717,000 1,142,000 End inv. 185,000
End bal. 425,000 COS 960,000
Answer:
1. A 2. B

Problem 11
The following data are gathered from the cash books and bank statement received from
Davao Bank by Grace Company:

The cash in bank ledger account shows a debit balance of P290,438.50 as of May 31.

The bank statement shows a credit balance of P318,560 as of May 31.

An examination of the checks encashed by the bank shows that the following checks are not
presented for payment:
No. 187, P3,608; No. 189, P15,499; No. 191, P4,400;
No. 192, P1,545.50, No. 193, P23,001

A certified check for P24,750 payable to creditor, was encashed by the bank during May.

The bank statement shows a deduction of P10,802 for check No. 184. The check was
actually made out at P10,208.

A check deposited on May 27 for P34,100 was returned by the bank on May 28 marked
Refer to Maker.

A non-interest bearing note for P44,000 was collected by the bank for the account Grace
Company. Collection fee deducted by the bank is P330.

A deposit for P20,900 was recorded in the books twice.

Check No. 179 for P26,400 was erroneously recorded in the books as P46,200.

Interest on an outstanding loan payable, deducted by the bank on May 31, P1,320.
Collections on May 31 to be deposited on June 1, P26,488.

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Questions

1. GRACE COMPANY’S adjusted cash balance at May 31, 2006 is:

a. P 341,939.50 b. P 283,288.50 c. P 297,588.50 d. P 273,168.50

2. The recorded cash of GRACE COMPANY at May 31 is:

a. Understated by P 17,270 c. Overstated by P 7,150
b. Understated by P 7,150 d. Overstated by P 17,270

Solution

Unadjusted Book balance 290,438.50 Unadjusted Bank balance 318,560.00

Returned check (34,100.00) Outstanding checks (48,053.50)
Collection of Notes 43,670.00 Error 594.00
Error (20,900.00) Deposit in transit 26,488.00
Error 19,800.00
Error ( 1,320.00) _________
Adjusted book balance 297,588.50 Adjusted bank balance 297,588.50

Adjusting entry:

Accounts receivable 34,100

Cash 34,100
Cash 43,670
Collection fee 330
Notes receivable 44,000
Accounts receivable 20,900
Cash 20,900
Cash 19,800
Accounts payable 19,800
Interest expense 1,320
Cash 1,320

Answer:
1. C 2. B

Problem 12
The following data pertaining to the cash transactions and bank account of Abiso Company
for May 2006 are available to you:

Cash balance, per accounting records, May 31, 2006 P 51,582

Cash balance, per bank statement, May 31, 2006 95,874
Bank service charge for May 327
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting records 375
Outstanding checks, May 31, 2006 20,184
Deposit of May 30 not recorded by bank until June 1 14,610
Proceeds of bank loan on May 30, not recorded in the accounting
records, net of interest of P900 17,100
Proceeds from a customer’s promissory note; principal amount P24,000,
collected by the bank, taken up in the books with interest 24,300
Check No. 1086 issued to a supplier entered in the accounting records
as P6,300 but deducted in the bank statement at an erroneous amount
of 3,600
Stolen check lacking an authorized signature, deducted from Abiso’s
account by the bank in error 2,400

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Customer’s checks returned by the bank marked NSF, indicating that the
customer’s balance was not adequate to cover the checks; no entry has
been made in the accounting records to record the returned check 2,280

Questions

1. The adjusted cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. P 87,570 b. P 90,000 c. P 90,570 d. P 90,900

2. The cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. Understated by P39,318 c. Understated by P38,418
b. Understated by P38,988 d. Understated by P35,988

Solution
Book Bank
Unadjusted balance 51,582 95,874
Service charge ( 327)
DM – printed checks ( 375)
Outstanding checks (20,184)
Deposit in transit 14,610
Loan proceed 17,100
Proceed from note collection 24,300
Bank error ( 2,700)
Bank error 2,400
NSF ( 2,280) __________
Adjusted balance 90,000 90,000

Adjusting entry:

Service charge 327

Cash 327

Service charge 375

Cash 375

Cash 17,100
Prepaid interest 900
Bank loan 18,000

Cash 24,300
Note receivable 24,000
Interest income 300

Accounts receivable 2,280

Cash 2,280
Answer:
1. B 2. C

Problem 13
In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATION
December 31, 2006
Balance per ledger, 12/31/03 P 34,349.72
Add: Collections received on the last day of
December and charged to “Cash in Bank”
on books but not deposited 5,324.50
Debit memo for customer’s checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00

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Debit memo for bank service charge for December 1,000.00

P 46,674.22
Deduct:
Outstanding checks P 18,625
(see details below)
Credit memo for proceeds of a note receivable
which had been left at the bank for collection
but which has not been recorded as collected 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKS

December 31, 2006
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

Questions:

1. The adjusted cash balance at December 31, 2006 is:

a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by
bank as 16,225
a. Should not be included in the reconciliation since the bank already gave the money
to the payee.
b. Should not be included in the reconciliation since bank’s record is always followed.
c. Should be included as deduction in the book reconciliation since this is considered as
book error, thus a reconciling item.
d. Should be included as addition in the book reconciliation since this is considered as
book error, thus a reconciling item.

3. The outstanding checks at December 31, 2006 is:

a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

4. The cash balance of the company per record at December 31, 2006 is:
a. Overstated by P600 c. Understated by P 3,400
b. Overstated by P1,200 d. Overstated by P 6,600

Solution
Bank Book
Unadjusted balance 51,050.22 34,349.72
Returned checks ( 4,000.00)
Service charge ( 1,000.00)
Collection of note receivable 8,000.00

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Deposit in transit 5,324.50

Outstanding checks (22,625.00)
Book error ____________ ( 3,600.00)
Adjusted balance 33,749.72 33,749.72

Adjusting entry

Accounts receivable 4,000

Cash 4,000

Service charge 1,000

Cash 1,000

Cash 8,000
Note receivable 8,000

Accounts receivable 3,600

Cash 3,600
Answer:
1. A 2. C 3. D 4. A

Problem 14
The cash books of Grace Corporation show the following entries during the month of June
2006.
Cash Receipts Journal Check Register
Date Amount Date Check No. Amount
June 1Balance 762,000 June2 801 15,625
4Deposit 113,000 3 802 7,526
4Deposit 811,000 5 803 229,205
7Deposit 152,200 7 804 169,555
10 Deposit 11,300 8 805 74,936
10 Deposit 12,700 10 806 274,600
11 Deposit 73,000 11 807 34,842
17 Deposit 110,075 13 808 250,000
18 Deposit 3,725 14 809 1,070,000
18 Deposit 65,000 17 810 167,300
19 Deposit 26,463 19 811 3,130
20 Deposit 133,037 21 812 82,730
27 Deposit 273,628 23 813 127,200
30 Deposit 92,400 25 814 93,080
30 815 720

The bank statement for the month of June 2006 shows:

Checks No. Deposits Date Amount

Balance May 31 798,000
924,000 June 5 1,722,000
800 36,000 6 1,686,000
804 169,555 7 1,516,445
805 74,936 217,200 8 1,658,709
801 16,525
803 229,205 9 1,412,979
807 34,842 97,000 12 1,475,137
924 75,000
200 40,400 CM 13 1,440,337
(collection charge)
809 1,070,000 14 370,337

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808 250,000 15 120,337

198,000 CM 16 318,337
810 167,300 113,800 19 264,837
812 82,730 159,500 21 341,607
806 274,600 24 67,007
273,628 28 340,635
811 3,130
DM 300 30 337,205

Upon investigation, the following are discovered:

CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of
Grace Company.
CM - Represents a 60-day, 6% own note for P200,000 discounted by Grace Corporation with
the bank and not yet recorded in the books.
DM - Represents bank service charge for the month.
Check No. 924 represents a check signed by Graciele Company.
Collection charge – represents collection fee charged by the bank.

Questions

1. The unadjusted cash ledger balance of GRACE CORPORATION at June 30, 2006 is:
a. P 114,079 b. P 113,179 c. P 39,079 d. P 38,179

2. The unadjusted cash bank balance of GRACE CORPORATION at June 30, 2006 is:
a. P 261,305 b. P 336,305 c. P 337,205s d. P 412,205

3. The deposit in transit of GRACE CORPORATION at June 30, 2006 is:

a. P 92,400 b. P 104,500 c. P 182,000 d. P 0

4. The outstanding checks of GRACE CORPORATION at June 30, 2006 is:

a. P 302,806 b. P 228,526 c. P 227,806 d. P 153,526

5. The adjusted cash balance of GRACE CORPORATION at June 30, 2006 is:
a. P 277,879 b. P 276,079 c. P 261,305 d. P 201,079

6. The error made in check number 801 is known as:

a. Fundamental error c. Transplacement error
b. Balance sheet error d. Transposition error

7. In the discounting of P200,000 note, the company should credit

a. Notes receivable discounting c. Notes payable
b. Notes Receivable d. Notes discounting

Solution
Unadjusted book bal. 39,079 Unadjusted bank bal. 337,205
Error – Deposit in transit 92,400
Check # 801 – P 15,625 Outstanding checks:
Correct 16,525 ( 900) # 802 7,526
Collection fee ( 200) # 813 127,200
DM ( 300) # 814 93,080
CM 40,400 # 815 720 (228,526)
CM 198,000 Error 75,000
Adjusted balance 276,079 Adjusted balance 276,079

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Adjusting entry:
Accounts payable 900
Cash 900
Cash 40,200
Collection fee 200
Notes receivable 40,000
Interest income 400
Service charge 300
Cash 300
Cash 198,000
Interest expense 2,000
Notes payable 200,000

Answer:
1. C 2. C 3. A 4. B 5. B
6. D 7. B

Problem 15
The bank portion of the bank reconciliation for Angelo Company at October 31, 2006 was as
follows:
Angelo Company
Bank Reconciliation
October 31, 2006
Cash Balance per Bank P 12,367.90
Add: Deposit in transit 1,530.20
P 13,898.10
Less: Outstanding checks

Check Number Check Amount

2451 P 1,260.40
2470 720.10
2471 844.50
2472 426.80
2474 1,050.00 4,301.80

Adjusted cash balance per bank P 9,596.30

The adjusted cash balance per bank agreed with the cash balance per books at October 31.

The November bank statement showed the following checks and deposits.

Bank Statement
Checks Deposits
Date Number Amount Date Amount
11-1 2470 720.10 11-1 1,530.20
11-2 2471 844.50 11-4 1,211.60
11-5 2474 1,050.00 11-8 990.10
11-4 2475 1,640.70 11-13 2,575.00
11-8 2476 2,830.00 11-18 1,472.70
11-10 2477 600.00 11-21 2,945.00
11-15 2479 1,750.00 11-25 2,567.30
11-18 2480 1,330.00 11-28 1,650.00
11-27 2481 695.40 11-30 1,186.00
11-30 2483 575.50 Total 16,127.90
11-29 2486 900.00
Total 12,936.20

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The cash records per books for November showed the following:

Cash Receipts
Cash Payments Journal Journal____
Date Number Amount Date Number Amount Date Amount
11-1 2475 1,640.70 11-20 2483 575.50 11-3 1,211.60
11-2 2476 2,830.00 11-22 2484 829.50 11-7 990.10
11-2 2477 600.00 11-23 2485 974.80 11-12 2,575.00
11-4 2478 538.20 11-24 2486 900.00 11-17 1,472.70
11-8 2479 1,570.00 11-29 2487 398.00 11-20 2,954.00
11-10 2480 1,330.00 11-30 2488 800.00 11-24 2,567.30
11-15 2481 695.40 Total 14,294.10 11-27 1,650.00
11-18 2482 612.00 11-29 1,186.00
11-30 1,225.00
Total 15,831.70

The bank statement contained two bank memoranda:

1. A credit of P2,105.00 for the collection of a P2,000 note for Angelo Company plus
interest of P120 and less a collection fee of P15. Angelo company has not accrued any
interest on the note.

2. A debit for the printing of additional company checks, P50.

At November 30, the cash balance per books was P11,123.90, and the cash balance per the
bank statement was P17,604.60. The bank did not make any errors, but Angelo Company
made two errors.

Note: The correction of any errors pertaining to recording checks should be made to
Accounts Payable. The correction of any errors relating to recording cash receipts should be
made to Accounts Receivable

Questions

1. The unadjusted cash ledger balance of ANGELO COMPANY at November 30, 2006 is:
a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90

2. The unadjusted bank balance of ANGELO COMPANY at November 30, 2006 is:
a. P 12,828.90 b. P 13,008.90 c. P 13,188.90 d. P 17,614.60

3. The outstanding checks of ANGELO COMPANY at November 30, 2006 is:

a. P 5,659.70 b. P 5,830.70 c. P 5,839.70 d. P 6,028.70

4. The deposit in transit of ANGELO COMPANY at November 30, 2006 is:

a. P 1,225 b. P 1,216 c. P 1,234 d. P 1,396

5. The adjusted book balance of ANGELO COMPANY at November 30, 2006 is:
a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90

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Solution

Unadjusted bank bal. 17,614.60 Unadjusted book bal. 11,133.90

Deposit in transit 1,225.00 CM – notes collected 2,105.00
Outstanding checks: DM – service charge ( 50.00)
#2451 1,260.40 Error – overstatement of
#2473 426.80 recorded receipts ( 9.00)
#2478 538.20 Error- understatement of
#2482 612.00 disbursement ( 180.00)
#2483 829.50
#2484 974.80
#2488 800.00 ( 5,839.70) _________
Adjusted balance 12,990.90 Adjusted balance 12,990.90

Adjusting entry:

Cash 2,105
Service charge 15
Notes receivable 2,000
Interest income 120
Service charge 50
Cash 50
Accounts receivable 9
Cash 9
Accounts payable 180
Cash 180

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

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.

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

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

Problem 17
ELEFANTE’s check register shows the following entries for the month of December

Date Checks Deposits Balance

2006
Dec 1 Beginning Balance P 83,900
5 Deposit P 65,000
7 Check # 14344 32,500 120,800
11 Check # 14345 14,000 106,800
26 Deposit 49,000
29 Check #14346 8,600 147,200

ELEFANTE’s bank reconciliation for November revealed one outstanding check (No.14343)
for P12,000 (written on November 28), and one deposit in transit for P5,550 (made
November 29).

The following is from Elefante’s bank statement for December 2006:

Date Checks Deposits Balance

2006
Dec. 1 Beginning balance P 95,970
1 Deposit P 5,550 101,300
4 Check No. 14344 P 32,500 68,800
5 Deposit 56,000 124,800
14 Check No. 14345 14,000 110,800
15 Loan Proceeds 500,000 610,800
20 NSF check 7,600 603,200
29 Service charge 1,000 602,200
31 Interest 3,600 605,800

Note: All errors noted in this problem were committed by the Elefante, not the bank. It is
also noted that the company failed to record one deposit in the book.

Questions

1. The unadjusted cash receipts per ledger of ELEFANTE COMPANY for the month of
December is:
a. P 119,620 b. P 114,000 c. P 110,620 d. P 105,000

2. The unadjusted cash receipts per bank of ELEFANTE COMPANY for the month of
December is:
a. P 574,150 b. P 568,600 c. P 565,150 d. P 559,600

3. The adjusted December 1 cash ledger balance of ELEFANTE COMPANY is:

a. P 95,970 b. P 89,520 c. P 83,900 d. P 78,280

4. The adjusted December31 cash bank balance of ELEFANTE COMPANY is:

a. P 634,420 b. P 628,800 c. P 623,180 d. P 577,620

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5. The overstatement of deposit should be:

a. Deducted in the bank December 31 column.
b. Added in the bank December 31 column.
c. Deducted in the book December 31 column.
d. Added in the book December 31 column.

Solution
Dec. 1 Receipts Disburs. Dec. 31
Bank balance 95,970 565,150 55,100 606,020
Deposit in transit – Dec. 1 5,550 (5,550)
- Dec. 31 49,000 49,000
Outstanding checks
Dec. 1 - #14343 (12,000) (12,000)
Dec. 31 - #14343 – P12,000
#14346 - 8,600 __________ ________ 20,600 (20,600)
Adjusted balance 89,520 608,900 63,700 634,420

Dec. 1 Receipts Disburs. Dec. 31

Book balance 83,900 114,000 55,100 142,800
Overstatement of deposit (9,000) (9,000)
Loan proceeds 500,000 500,000
Interest income 3,600 3,600
NSF 7,600 (7,600)
Service charge __________ ________ 1,000 (1,000)
Total 83,900 608,600 63,700 628,800
Unrecorded collection 5,620 ________ _________ 5,620
Adjusted balance 89,520 608,900 63,700 634,420

Adjusting entry

Accounts receivable 9,000

Cash 9,000

Cash 500,000
Notes payable 500,000

Cash 3,600
Interest income 3,600

Accounts receivable 7,600

Cash 7,600

Service charge 1,000

Cash 1,000
Answer:
1. B 2. C 3. B 4. A 5. C

Problem 18
Juliet Company maintains a checking account at the Davao Bank. At July 31, selected data
from the ledger balance and the bank statement are as follows:

Cash in Bank
Per Books Per Bank

Balance, July 1 P 17,600 P 19,200

July Receipts 82,000
July Credits 80,070
July Disbursement 76,900
July Debits . 74,740
P 22,700 P 24,530

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Analysis of the bank data reveals that the credits consist of P78,000 of July deposits and a
credit memorandum of P2,070 for collection of a P2,000 note plus interest revenue of P70.
The July debits per bank consist of checks cleared, P74,700 and a debit memorandum of
P40 for printing additional company checks.

You also discover the following errors involving July checks: (1) a check for P230 to a
creditor on account that cleared the bank in July was journalized and posted as P320, and
(2) a salary check to an employee for P255 was recorded by the bank for P155.

The June 30 bank reconciliation contained only two reconciling items: deposits in transit,
P1,000 and outstanding checks, P2,600.

Assume that the interest on the note has been accrued.

Questions

1. The deposit in transit of JULIET COMPANY at July 31 is

a. P 5,000 c. P 1,000
b. P 2,930 d. Cannot be determined

2. The outstanding check of JULIET COMPANY at July 31 is:

a. P 4,700 b. P 4,660 c. P 4,610 d. P 4,520

3. The adjusted cash ledger balance of JULIET COMPANY at July 31 is:

a. P 25,020 b. P 24,820 c. P 24,730 d. P 24,640

4. The adjusted cash bank balance of JULIET COMPANY at July 31 is:

a. P 25,020 b. P 24,820 c. P 24,730 d. P 24,640

Solution

Book balance 22,700 Bank balance 24,530

CM – collection 2,070 Error – understatement of
DM – service charge ( 40) withdrawal ( 100)
Error – overstatement of Deposit in transit 5,000
disbursement 90 Outstanding checks (4,610)
Adjusted book balance 24,820 Adjusted bank balance 24,820

DIT – beg. 1,000 OC – beg 2,600

+ Book receipts 82,000 + Book disbursement 78,810
- Bank credits - Bank debits
(excluding all CMs) 78,000 (excluding all DMs) 74,800
DIT – end 5,000 OC – end 4,610

Adjusting entry:

Cash 2,070
Notes receivable 2,000
Interest income 70
Service charge 40
Cash 40
Cash 90
Accounts payable 90

Answer:
1. A 2. C 3. B 4. B

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Problem 19
You are asked to audit the cash of Letty Corporation. Letty Corporation carries its checking
account with Mindanao Bank. The following data are available:

a. Letty Company Cash account for December:

Balance, November 30 P 20,900

Deposits during December 93,400
Checks written during December ( 83,000)
Balance, December 31 P 32,300

b. Bank statement for December:

Balance, November 30 P 20,000

Deposits during December 92,300
Checks cleared during December ( 82,150)
Funds transferred from foreign operations revenue
(in peso amount not yet recorded by Letty Corp.) 25,000
NSF check, Customer Nelly ( 180)
Bank Service charge ( 70)
Balance, December 31 P 54,900

c. Additional data:
1. Balance in Petty Cash account, P200 (not included in Letty Cash account).
2. The deposits of P93,400 by Letty Company are overstated by P100; the bank
recorded the correct amount.
3. The checks cleared by the bank of P82,150 erroneously included a P300 check
drawn by Laity Corporation; the bank has not yet corrected this error.
4. November 30: deposits outstanding, P2,000; and checks outstanding, P1,500.

Questions

1. The deposit in transit of LETTY COMPANY at December 31 is:

a. P 3,100 b. P 3,000 c. P 2,900 d. P 2,000

2. The outstanding checks of LETTY COMPANY at December 31 is:

a. P 1,650 b. P 1,500 c. P 2,050 d. P 2,350

3. The adjusted cash balance of LETTY COMPANY at December 31 is:

a. P 56,050 b. P 55,950 c. P 55,650 d. P 55,550

4. The cash shortage of LETTY COMPANY at December 31 is:

a. P 0 b. P 400 c. P 500 d. P 600

Solution

Book balance 31,300 Bank balance 54,900

CM 25,000 Error 300
DM ( 70) Deposit in transit 3,000
NSF ( 180) Outstanding checks (2,650)
Error ( 100) ______
Total 55,950 Total 55,550
Shortage ( 400) ______
Adjusted balance 55,550 55,550

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DIT – beg 2,000 OC – beg 1,500

+ Book receipts 93,300 + Book disbursement 83,000
- Bank deposits 92,300 - Bank disbursement 81,850
DIT – end 3,000 OC – end 2,650

Adjusting entry:

Cash 25,000
Cash – foreign bank 25,000
Service charge 70
Cash 70
Accounts receivable 180
Cash 180
Accounts receivable 100
Cash 100
Due to custodian 400
Cash 400

Answer:
1. B 2. A 3. D 4. B

Problem 20
In Your audit of the accounts of Cleenenth Company, you find the following facts on
December 31, 2006.

Balance of cash in bank account P1,350,000

Balance of bank statement 1,200,000
Outstanding checks, December 31:
No. 000567 10,000
581 55,000
582 40,000
602 25,000
615 65,000
616 70,000 265,000
Receipts of December 31, deposited the following month 275,000
The bank statement shows the following charges:
Service charge for December 5,000
NSF check received from a customer 85,000

Additional information:

The stub for check number 000581 and the invoice relating thereto show that it was for
P35,000 but was incorrectly recorded as P55,000. This was in payment of the accounts
payable.

Payment has been stopped on check number 000567 which was drawn in payment of
accounts payable. The payee cannot be located.

Included in the bank statement was a canceled check the company had failed to record.
The check was in payment of accounts payable.

Questions

1. The unrecorded disbursement of CLEENETH COMPANY at December 31, 2006 is:

a. P 80,000 b. P 50,000 c. P 40,000 d. P 10,000

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2. Cancellation of check number 567 should be recorded as:

a. Debit to Accounts Payable c. Credit to Accounts Payable
b. Credit to Cash d. No adjustment/entry

3. Cash shortage of CLEENETH COMPANY at December 31, 2006 is:

a. P 0 b. P 50,000 c. P 40,000 d. P 10,000

4. The adjusted cash balance of CLEENETH COMPANY at December 31, 2006 is:
a. P 1,290,000 b. P 1,240,000 c. P 1,210,000 d. P 1,180,000

Solution
Balance per book 1,350,000 Accounts payable 50,000
Service charge ( 5,000) Cash 50,000
NSF check ( 85,000)
Overstatement of disburs Service charge 5,000
check # 581 20,000 Cash 5,000
Cancellation of check
# 567 10,000 Accounts receivable 85,000
Total 1,290,000 Cash 85,000
Unrecorded disburs. * ( 50,000)
Adjusted balance 1,240,000 Cash 20,000
Accounts payable 20,000
Balance per bank 1,200,000
Outstanding checks ( 265,000) Cash 10,000
Deposit in transit 275,000 Accounts payable 10,000
Overstatement of disburs
check # 581 20,000
Cancellation of check
# 567 10,000
Adjusted balance 1,240,000
* squeeze figure

Answer:
1. B 2. C 3. A 4. B

Problem 21
Dema-ala Company is very profitable small business. It has not, however, given much
consideration to internal control. For example, in an attempt to keep clerical and office
expenses to a minimum, the company has combined the jobs of cashier and bookkeeper.
As a result, Maria handles all cash receipts, keeps the accounting records, and prepares the
monthly bank reconciliation.

The balance per bank statement on October 31, 2006, was P73,520. Outstanding checks
were: No. 62 for P507, No. 183 for P600, No. 284 for P1,103, No. 862 for P762.84, No. 863
for P907.20, No. 864 for P661.12. Included with the statement was a credit memorandum
of P800 indicating the collection of a note receivable for Dema-ala Company by the bank on
October 25. Dema-ala Company has not recorded this memorandum.

The company’s ledger showed one cash account with a balance of P87,570.88. The balance
included undeposited cash on hand. Because of the lack of internal control, Maria took for
personal use all the undeposited receipts in excess of P15,182.04. She then prepared the
following bank reconciliation in an effort to conceal her theft of cash.

Cash balance per books, October 31 P 87,570.88

Add: Outstanding checks
No. 862 P 762.84
No. 863 907.20
No. 864 661.12 1,931.16

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P 89,502.04
Less: Undeposited receipts 15,182.04
Unadjusted balance per bank, October 31 P 74,320.00
Less: Bank credit memorandum 800.00
Cash balance per bank statement, October 31 P 73,520.00

Questions

1. DEMA-ALA COMPANY’S cash shortage at October 31 is:

a. P 4,210 b. P 3,410 c. P 1,600 d. P 800

2. DEMA-ALA COMPANY’S adjusted cash balance at October 31 is:

a. P 88,370.88 b. P 87,570.88 c. P 86,770.88 d. P 84,160.88

Solution
Book Bank
Unadjusted balance 87,570.88 73,520.00
Collection of note 800.00
Outstanding checks
# 62 P 507.00
#183 600.00
#284 1,103.00
#862 762.84
#863 907.20
#864 661.12 ( 4,541.16)
Deposit in transit _________ 15,182.04
Total 88,370.88 84,160.88
Cash shortage (4,210.00) ________
Adjusted cash balance 84,160.88 84,160.88

Adjusting entry:

Cash 800
Notes receivable 800
Due to custodian 4,210
Cash 4,210

Answer:
1. A 2. D

Problem 22
On December 15 of the current year, Darwin, who owns Herald Corporation, asks you to
investigate the cash-handling activities in his firm. He thinks that an employee might be
stealing funds. “I have no proof” he say, “but I’m fairly certain that the November 30
undeposited receipts amounted to more than P6,000 although the November 30 bank
reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank
reconciliation doesn’t show several checks that have been outstanding for a long time. The
cashier told me that these checks needn’t appear on the reconciliation because he has
notified the bank to stop payment on them and he had made the necessary payment on the
books.

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At your request, Darwin showed you the following November 30 bank reconciliation
prepared by the cashier.

Bal. Per bank statement P 2,360.12 Bal. Per Books P 5,385.22

Deposit in transit 3,619.20 Bank Service charge ( 30.00)
Outstanding checks Unrecorded bank CM ( 600.00)
# 2351 550.10
2353 289.16
2354 484.84 ( 1,224.10) ________
Adjusted Balance P 4,755.22 Adjusted Balance P 4,755.22

You discover that the P600 unrecorded bank credit represents a note collected by the bank
on Darwin’s behalf. It appears in the deposits column of the November bank statement.
Your investigation also reveals that the October 31 bank reconciliation showed three checks
that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for
P233.45, and No. 1512 for P126.55.

You also discover that these items were never added back into the cash account in the
books. In confirming that the checks shown on the cashier’s November 30 bank
reconciliation were outstanding on that date, you discover that check No. 2353 was actually
a payment of P829.16 and had been recorded on the books for the amount.

To confirm the amount of undeposited receipts at November 30, you request a bank
statement for December 1-12 (called a cut-off bank statement). This indeed shows a
December 1 deposit of P3,619.20.

Questions

1. The amount of fund stolen by the cashier is:

a. P 3,160 b. P 2,500 c. P 1,840 d. P 580

2. The total outstanding checks of HERALD CORPORATION at November 30 is:

a. P 2,524.10 b. P 1,884.10 c. P 1,864.10 d. P1,224.10

3. The adjusted cash balance of HERALD CORPORATION at November 30 is:

a. P 5,955.22 b. P 5,355.22 c. P 4,115.22 d. P 3,455.22

Solution

Book balance 5,385.22 Bank balance 2,360.12

CM 600.00 Deposit in transit 3,619.20
Service charge ( 30.00) Outstanding checks
Stalled checks #2351 550.10
#1432 300.00 #2353 829.16
#1458 233.45 #2354 484.84 (1,864.10)
#1512 126.55 660.00 ________
Total 6,615.22 Total 4,115.22
Cash shortage (2,500.00) ________
Adjusted balance 4,115.22 Adjusted balance 4,115.22

Adjusting entry:

Cash 600
Notes receivable 600
Service charge 30
Cash 30

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Cash 660
Accounts payable 660
Due to custodian 2,500
Cash 2,500

Answer:
1. B 2. C 3. C

Problem 23
The bank statement for the account of ARNOLD COMPANY at December 31, 2006 showed a
credit balance of P20,000, while the company’s ledger balance of the cash account as of
November 30, 2006 was a debit of P40,000. During December, 2006, the ledger showed
two postings, a debit of P60,000 and a credit of P39,000 from the Cash Receipts and Check
Disbursements 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
a bank credit in December for P8,000, representing loan proceeds of a P10,000 promissory
note.

An examination of the customers’ subsidiary ledgers showed total credits to individual

accounts amounting to P70,400. The December Check Disbursements Journal which was
overfooted by P500, records only the checks issued by the company. In the month of
December, 2006, the bank charged ARNOLD COMPANY for P5,000 representing a loan
guaranteed by the client but was dishonored by the maker, the company vice-president.
The December bank service charges of P1,200 were erroneously charged by the bank to the
account of Ronald Company. The bank made the correction in January, 2007. The
outstanding checks as of December 31, 2006 amounted to P5,600.

On the morning of January 2, 2007, a cash count conducted produced the following:

Bills and coins P 5,200

Three (3) duplicate copies of ARNOLD CO.
official receipts, all dated Jan. 2, 2007 1,800
Checks 2,900
NSF check charged by the bank on Jan. 2, 2007 1,400

Questions

1. The deposit in transit of ARNOLD COMPANY at December 31, 2006 is:

a. P 6,300 b. P 7,700 c. P 8,100 d. P 11,300

2. The cash shortage of ARNOLD COMPANY at December 31, 2006 is:

a. P 54,200 b. P 50,200 c. P 46,200 d. P 36,400

3. The maximum probable cash shortage of ARNOLD COMPANY at December 31, 2006
based on the records is:
a. P 54,200 b. P 50,200 c. P 46,200 d. P 36,400

4. The adjusted cash balance of ARNODL COMPANY at December 31, 2006 is:
a. P 19,500 b. P 21,300 c. P 20,900 d. P 24,500

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Solution
Book Bank Cash shortage 50,200
Unadjusted balance 61,000 20,000 - Bank Recon
Understatement of receipts 6,400 Cash shortage – AR ledger
CM 8,000 -AR subsidiary
Overstatement of disbursements 500 ledger credit
DM – service charge (5,000) posting 70,400
DM – service charge not recorded - Cash debit
in the book and erroneously postings * 66,400 4,000
recorded by the bank (1,200) (1,200) Maximum Shortage 54,200
Outstanding checks (5,600)
Deposit in transit * Cash debit posting 60,000
(5,200 + 2,900 – 1,800) ______ 6,300 unrecorded collection 6,400
Total 69,700 19,500 66,400
Cash shortage (50,200) ______
Adjusted cash balance 19,500 19,500

Answer::
1. A 2. B 3. A 4. A

Problem 24
The PAMA CORPORATION engaged your services to audit its account. In your examination of
cash, you find that the Cash account represents both cash on hand and cash in bank. You
further noted that there is very poor internal control of cash.

Your audit covers period ended June 30, 2006. You started the audit on June 15. Upon cash
count on this date, cash on hand amounted to P4,800. Examination of the cash book and
other evidence of transaction disclosed the following:

1. July collections per duplicate receipts, P18,800

2. Total of duplicate deposit slips, all dated, July, P11,000, includes a deposit
representing collections of June 30.
3. Cash book balance at June 30, 2006 is P46,500, representing both cash on hand and
cash in bank.
4. Bank statement for June shows a balance of P42, 400.
5. Outstanding checks at June 30: May checks, No. 183 for P450, and No. 198 for
P1,650; June checks, No. 205 for P600, No. 254 for P400, No. 280 for P5,000, No.
302 for P900, and No.317 for P2,500.
6. Undeposited collections at June 30, P5,000.
7. An amount of P900 representing proceeds of clean draft on a customer was credited
by bank, but is not yet taken up in the company’s books.
8. Bank service charges for June, P100.

The company cashier presented to you the following reconciliation statement for June, 2006
which he has prepared:

Balance per books, June 30, 2006 P46,500

Add: outstanding checks:
No. 205 P 600
254 400
280 500
302 700
317 1,500 3,600
Total P49,200
Bank charges (100)
Undeposited collections ( 5,100)
Balance per bank, June 30, 2006 P44,000

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Questions

1. The outstanding checks of PAMA CORPORATION at June 30, 2006 is:

a. P 3,600 b. P 3,700 c. P 5,700 d. P 11,500

2. The cash shortage of PAMA CORPORATION at June 30, 2006 is:

a. P 7,800 b. P 11,400 c. P 12,800 d. P 19,400

3. The cash shortage of PAMA CORPORATION from July 1 to July 15, 2006 is:
a. P 8,000 b. P 7,800 c. P 3,000 d. P 2,800

4. The total cash shortage of PAMA CORPORATION up to July 15, 2006 is:
a. P 14,400 b. P 15,600 c. P 15,800 d. P 19,400

5. The adjusted cash balance of PAMA CORPORATION at June 30, 2006 is:
a. P 35,900 b. P 39,600 c. P 43,800 d. P 44,900

Solution
Book Bank
Unadjusted balance 46,500 42,400
Outstanding checks ( 11,500)
Deposit in transit 5,000
CM 900
Service charge ( 100) ______
Total 47,300 35,900
Cash shortage (11,400) ______
Adjusted cash balance 35,900 36,900

Cash shortage from July 1 to July 15

Collection per records 18,800

Deposit in transit – June 30 5,000
Cash that should be deposited 23,800
Deposited collection 11,000
Undeposited collection 12,800
Cash on hand – July 15 4,800
Cash shortage – July 1 to July 15 8,000

ANSWER:
1. D 2. B 3. A 4. D 5. A

Problem 25
In connection with the general examination of the accounts of Nelson Trading Company at
December 31, 2006, you obtained the information and data as shown below relative to your
verification of Cash.

The record kept by the accountant showed the following:

(a) Balances at the end of the month:

December 1, 2006 December 31, 2006

Per Bank Statement P 54,000 P101,100
Per Books 50,400 70,215
Undeposited collections 3,300 7,200
Outstanding checks 6,900 * 12,000 *

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* Composed of the following #6515 510 #6552 P 1,800

6517 2,250 6553 5,700
6518 2,400 6554 2,550
6519 1,740 6555 1,950

(b) Totals for the month of December, 2006:

Cash Book:
Receipts P 425,550
Disbursement 405,735
Bank Statement
Receipts P 444,225
Disbursement 397,125

After application of the necessary auditing procedures, the following were noted:

a. Footing of disbursement should be P 404,235, instead of P 405,735.

b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the
following which were charged in the statement:
1. Check #6530 dated December 15, 2006 for P2,400 - this was issued as
replacement of check # 6518 which was returned by the payee because of
certain erasures. No entry has been made to record the cancellation of check
#6518.
2. Check #6517 for P225 - this was erroneously recorded on the books as
P2,250.
3. Check of Neil Trading for P900 - this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted
directly by the broker to the bank and credited on December 31, 2006. No entry has
been made on the books to record this sale of stock investment.
e. The company failed to record disbursement for payment of accounts payable at
December 31, 2006 for P1,500.

Questions

1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550

2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December
31, 2006 is:
a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125

3. The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31, 2006
is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:
a. P 765 b. P 675 c. P 575 d. P 390

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Solution
Dec. 1 Receipts Disburse. Dec. 31
Balance per book 50,400 425,550 405,735 70,215
Overfooting of disburse. ( 1,500) 1,500
Service charge 15 ( 15)
Cancellation of check
# 6518 ( 2,400) 2,400
Overstatement of
disbursement ( 2,025) 2,025
Proceeds from sale of
stock 23,250 23,250
Unrecorded disbursement _________ _________ 1,500 ( 1,500)
Balance 50,400 448,800 401,325 97,875
Cash shortage _________ ( 675) _________ ( 675)
Adjusted balance 50,400 448,125 401,325 97,200

Dec. 1 Receipts Disburse. Dec. 31

Balance per bank 54,000 444,225 397,125 101,100
Deposit in transit
Dec. 1 3,300 ( 3,300)
Dec. 31 7,200 7,200
Outstanding checks
Dec. 1 ( 6,900) ( 6,900)
Dec. 31 12,000 ( 12,000)
Error _________ _________ ( 900) 900
Adjusted balance 50,400 448,125 401,325 97,200

Adjusting entry:

Due to custodian 675

Cash 675

Service charge 15
Cash 15

Cash 2,025
Accounts payable 2,205

Accounts payable 1,500

Cash 1,500

Cash 1,500
Accounts payable 1,500

Cash 2,400
Accounts payable 2,400

Cash 23,250
Stock investment 18,000
Gain on sale 5,250

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

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