CONTENTS Chapter ue wne 11 Audit of Cash and Cash Equivalents Audit of Receivables Audit of Inventories Audit of Investments Andit of Property, Plant and Equipment Audit of Prepayments and Intangible Assets Audit of Liabiliti Andit of Shareholders’ Equity Audit of Other Income Statement Items Accounting Changes (Policies & Estimates) and Correction of Errors Statement of Cash Flows es Practice Examinations~~ CHAPTER LL Audit of Cash & Cash Equivalents. AUDIT PROGRAM FOR CASH Audit Objectives: To determine that: 1. Cash balances at the end of the reporting period represent cash and cash items on hand, in transit to, or in depository banks. 2. Cash transactions have been properly recorded. 3. Cash balances are properly described and classified, and adequate disclosures with respect to amounts restricted as to withdrawal are made in the financial statements.NS CPADAMNATIN REMWER, AUDITING PROBLEMS, Audit Procedures: 1. Conduct a cash count of undeposited collections, petty cash, and other funds, Obtain custodian’s signature to acknowledge return of items counted. Reconcile items counted balances, Trace undeposited collec with general ledger tions counted to bank reconcili Follow up dispositions of i > Undeposited collection: deposits. > Checks accommodated in petty cash should be deposited after the count to establish their validity. > 10Us in the petty cash should be confirmed and traced to collections ini the next payroll period. > Expense vouchers should be traced to the succeeding replenishment voucher. Coordinate cash count with count of marketable securities and other negotiable assets of the client. Obtain confirmation of year-end fund balances of cash not counted in branches or other offices. tems in cash counted: s should be traced to bank Confirm bank balance by direct correspondence with all banks in which the client has had deposits and loans during the year. 3, Obtain ba nk reconciliation. Check arithmetical accuracy of reconciliation.cuarrer 1 aupit oF CASH AND CASH EQUIVALENTS * Trace balance per book to the general ledger balance of cash account. * Trace balance per bank to bank statement and compare with amount confirmed by bank. * Establish authenticity of reconciling items’ by reference to their respective sources, like: > Bank debit or credit advices. > Duly approved journal vouchers. * Investigate checks outstanding for a long period of time. » Consider adjustment, especially if the check is already stale. > Consider the possibility of an erroneous preparation of the check. * Investigate any unusual reconciling items. * Where internal control over cash is weak, consider preparing a proof of cash reconciliation. 4. Obtain cutoff bank: statement showing the client's transactions with the bank at least one week after the reporting date, and: + Trace year-end reconciling items, like: +> Deposit of the year-end undeposited collections. > Completeness of year-end outstanding checks. > Corrections of bank errors. * Examine supporting documents of year-end outstanding checks that did not clear in the cutoff bank statement.CPABIAMIKATIN REVIEWER. AUDITING PROBLEMS Obtain a list of interbank transfers of funds a few days before and after the reporting date. * Vouch supporting documents. + Ascertain that the related receipts and disbursements were booked by the client within the same day or at least within the same month. . Test reasonableness of cutoff by: + Comparing dates of checks returned with cutoff bank statement to dates of recording in the cash disbursements register. + Tracing receipts recorded a few days before the reporting date to bank deposits. . Inspect savings account passbook and certificates of deposits. + Reconcile with book balances. + Update interest earned posting on passbooks, if necessary. + Compare balances with bank confirmation reply. . Determine any restrictions on availability of cash. Determine propriety of financial statement presentation and adequacy of disclosures.cHarrer 1 AUDIT O€ CASH AND CASH EQUIVALENTS 5 PROBLEM 1-1 Cash and Cash Equivalents The accountant of SANTIAGO COMPANY is in the process of preparing the company’s financial statements for the year ended December 31, 2018. He is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the statement of financial position. The following items are being considered: ¢ Balances in the company’s accounts at the Metropolitan Bank: > Current account P81,000 > Savings account P132,600 e Undeposited customer checks of P22,200 (including a custcmer check dated January 2, 2019, for P3,000). e Currency and coins on hand of P3,480. ¢ Savings account at the Northern Philippines Bank with a balance of P2,400,000. This account is being used to accumulate cash for future plant expansion (in 2019). © Petty cash of P4,000 (currency of P1,200 and unreplenished vouchers for P2,800). e 120,000 in a current account at the Northern Philippines Bank. This represents a 20% compensating balance for P600,000 loan with the bank. Santiago Company is legally restricted to withdraw the funds until the loan is due in 2021. °° Treasury bills: Two-month maturity bills P90,000 Seven-month bills 120,000eeaenanmaruneevek, AUDITING PROBLEMS 6 i 10,000 Time deposit (placement term Is 2months) P10 i ed What total amount of cash and cash equivalents should be report ssets? A pSe7A80 c. 430,280 B. P427,480 D. P327,480 - SOLUTION 1-1 Savings and current accounts - Metropolitan Bank (P132,600 + 81,000) P213,600 Undeposited customer checks (P22,200 - P3,000) 19,200 Currency and coins on hand 3,480 Petty cash. 1,200, Two-month treasury bills 90,000 Time deposit 100,000 Total cash and cash equivalents P427,480 Answer: B “Notes: 1, The P3,000 postdated customer check will not be accepted by the bank when presented either for en icashment or deposit. This should be reverted to accounts receivable, 2, The P2,400,000 cash balance at N maintained for future plant expansion. Thus, it is unavailable for use in current operations or Payment of current Jiabilities, The amount should be shown as Part of inve estments in the noncurrent a Section of the statement of financial Position, . ee lorthern Philippines Bank is being rent account at the Northern P} ilippi Which represents a compensating balance Niemen is legally restricted and is fe aa Hence, this should be asset in the nonci i relma Ncurrent assets section classified as investm of the statement ofcuarrer 1 yor OF CASH AND CASH EQUIVALENTS 7 4.. The 7-month treasury bills are not cash equivalents and should be shown as part of short-term investments in the current assets section of the statement of financial position. PAS 7 defines “cash equivalents” as short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These normally include short-term investments with maturities of three months or less from the date of acquisition, PROBLEM 1-2 Cash and Cash Equivalents The following information has been extracted from the accounting records of the URSULA COMPANY at December 31, 2018: a. Cash on hand (see note below) P230,000 b. _Impukan Bank savings account (the required minimum Monthly Average Daily Balance is P10,000) 9,500 c. 364-day Treasury bills purchased March 1, 2018 400,000 d. Petty cash fund (see note below) 20,000 e. Tipid Bank current account (see note below) 160,000 f. Time deposit placements: Date Term Dec. 15, 2018 30 days 30,000 Oct. 31, 2018 90 days 40,000 Nov. 30, 2018 180 days 25,000 g. Employee travel advances 7,000 h. Cash in bond sinking fund 500,000 {. Customer's note receivable 45,000 j. Postage stamps 2,400(CPA EXAMINATION REVIEWER: AUDITING PROBLEMS The following are included in cash on hand: _ + A customer check for P43,000 returned by the bank on December 28, 2018. It was redeposited and cleared the bank on January 2, 2019. * Acustomer check for P75,000 dated January 3, 2019, received December 27, 2018. + PHLPost money orders received from customers, P30,000. The petty cash fund consists of the following: Currency and coins P13,500 10Us from officers and employees 3,000 Unreplenished petty cash disbursements 1,500 Currency in envelope with the notation: “We were Bang Quay’s coworkers. Words may not be adequate to express how sorry we feel. Please accept our heartfelt sympathies on the loss of your loved one.” 1,500 220,000 The following information pertains to Tipid Bank current account: * Acheck for P13,000 was dated and recorded on December 29, 2018, but was delivered to payee on January 5, 2019, * A check for PS,000 dated January 10, 2019, payable to a supplier was recorded and released to Payee on December 19, 2018. Tipid Bank requires current account depositors to maintain a monthly average daily balance of PSO,000, What total amount should be recorded a on December 31, 2018? A. P383,000 C. P378,000 B. P373,500 D. P408,000 's Cash and cash equivalentsCHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 9 SOLUTION 1-2 oe Cash on hand (P230,000 — P43,000 - P75,000) P112,000 Impukan Bank savings account 9,500 Petty cash fund 13,500 Tipid Bank current account (P160,000 + P13,000 + 5,000) 178,000 Time deposits: 30 days 30,000 90 days _ 40,000 Total cash and cash equivalents 383,000 Answer: A PROBLEM 1-3 ee Cash and Cash Equivalents The controller of the LYRIC CO. is trying to determine the amount of cash and cash equivalents to be reported on its December 31, 2018, statement of financial position. The following information is provided: 1. Balances in the company’s accounts at the Monte Bank: * Checking account—P540,000 . Savings account—P884,000 Undeposited customer checks of P208,000. Currency and coins on hand of P23,200. Savings account at the Naic Bank with a balance of P350,000. ‘This account is being used to accumulate cash for future plant expansion (in 2020). 800,000 balance in a checking account at the Naic Bank. Treasury bills; 30-day maturity bills totaling P600,000, and 180- day bills totaling P800,000. te anCOADAMNATORREMENEE: AUDITING PROBLEMS 10 ish and On December 31, 2018, what amount should be reported as ca: in . , cash equivalents? P2,955,200 - P3,055,200 C. Pa; t P2,455,200 D. P2,355,200 SOLUTION 1-3 eee Balance in Monte Bank checking account P 540,000 Balance in Monte Bank savings account Sian Undeposited customer checks 200 Currency and coins on hand 800/000 Checking account in Naic bank | , Treasury bills with 30-day maturity 600,000 Total cash and cash equivalents Answer: A PROBLEM 1-4 Cash and Cash Equivalents The following facts apply to OTO COMPANY 1. Savings account of P900,000 anda checkin, P1,200,000 are held at Manila Bank. Money market placement with Maturity of 3 months, 7,500,000. 3. Currency and coins on hand amounted to P11,550, 4. Travel advances of P270,000 for the first quarter of next year (employee reimbursement will be through salary deduction), 5 pany has purchased P3,150,000 of commercial Paper of Mendez Corp, which is due in 60 days, 6. Aseparate cash fund amounting to P2,250,000 is Testricted for the retirement oflong-term debt. during 2018; '8 account balance of 2.CHAPTER 1 avoir oF CASH AND CASH EQUIVALENTS, it 7. Petty cash fund of P1,500, 8, An IOU from an employee P2,000. 9. Two certificates of deposit, each totaling P500,000. These CDs have a maturity of 120 days. . 10. Oto Company has received a check from a customer in the amount of P187,500 dated January 15, 2019. 11.. On January 1, 2018, Oto Company purchased marketable equity securities to be held as “trading” for P3,000,000. On December 31, 2018, its market value is P4,300,000. of Oto Company in the amount of What amount should be reported as cash and cash equivalents on December 31, 2018? A. P13,763,050 C. P12,751,500 B. P12,575,550 D. P12,763,050 SOLUTION 1-4 Savings account — Manila Bank P 900,000 Checking account — Manila Bank 1,200,000 Money market placement . 7,500,000 Petty cash 1,500 Commercial paper 3,150,000 Currency and coins on hand 11,550 Total cash and cash equivalents P12,763,050 Answer: D PROBLEM 1-5 Cash and Cash Equivalents Your audit of the December 31, 2018, financial statements of DIONISIO CORP. reveals the following: Current account at Prime Bank P(30,000)cpkenammaronRcHEWER: AUDITING PROBLEMS 12 135,000 Bank Current account at Prudent ; — bills (acquired 3 months before ma , oon i is 2019 500, Treasury bills (maturity date is Dec. 31, piped Payroll account i lated Foreign bank account - restricted (trans! ried the December 31, 2018, exchange rate) 2,000,000 Postage stamps 1,250 Employee's postdated check 4,500 JOU from the vice-president 8,000 Credit memo from a supplier for a purchase return 8,100 Traveler's check : : 21,000 Money order 12,900 Petty cash fund (P3,000 in currency and expense receipts for P12,000), 15,000 What amount would be Feported as “cash and cash equivalents” in the statement of financial Position on December 31, 20187 A. P840,050 C. P849,400 B. P873,900 D. P861,900 SOLUTION 1-5 It at Prudent Bank Treasury bills (a P 135,000 Payroll account tuted 3 months before maturity) 300,000 Traveler's check 390,000 Money order 21,000 Petty cash fund 12,900 Total cash and cash equivalents sppuson0 Answer: 0 861,900CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS, 13 PROBLEM 1-6 Computation of Correct Cash Balance The Cash account of the BEA CORPORATION as of December 31, 2018, was composed of the following: On deposit in current account with the Bank of PI P900,000 / Cash collection not yet deposited to the bank 350,000 A customer's check returned by the bank for insufficient fund 150,000 » Acheck drawn by the Vice-President of the company dated January 15, 2019 70,000 » Acheck drawn by a supplier dated December 28, 2018, for goods returned by the company 60,000 / Acheck dated May 31, 2018, drawn by the company against the Bank of Manila in payment of customs duties. Since the importation did not materialize, the check was returned by the customs broker. This check was an outstanding check in the reconciliation of the Bank of Manila / 410,000: Petty cash fund of which P10,000 is in currency; P7,200 | - in form of employees’ 10Us; and P2,800 is supported | by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2018 20,000 Total P1,960,000 | Less: Overdraft with the Bank of Manila secured by | a chattel mortgage on the inventories 300,000 ~ Cash balance per ledger P1.660,000 What is the amount of cash to be reported on the December 31, 2018, statement of financial position of Bea Company?14 CPADAMINATINREVIEWER: AUDITING PROBLEMS SOLUTION 1-6 Current account — Bank of PI er aea Undeposited collection 350, Supplier's check for goods returned by.the company 60,000 Petty cash fund 10,000 Bank of Manila (P410,000 — P300,000) 110,000 Correct cash balance 1,430,000 PROBLEM 1-7 Cash and Cash Equivalents In connection with your, audit of the financial statements of ONOR COMPANY for the year ended December 31, 2018, you gathered the following information. j 1. The company maintains its current account with Tsunami Bank. The bank statement on December 31, 2018, showed a balance of 638,340. ie. Your audit of the company’s account with Tsunami Bank disclosed the following; ¢ Acheck for P22,500 received from a customer whose account is current had been deposited and then returned by the bank on December 28, 2018. No entry was made for the return of this check. The customer replaced the check on January 15, 2019. one ora A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January 2, 2019.CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS * 15 ¢ A check for P3,500 representing payment of an employee advance was received and deposited on December 27, 2018, but was not recorded until January 3, 2019. ° Postdated checks totaling P67,300 were included in the deposits in transit. These represent collections of current accounts receivable from customers. The checks were Loe G- hank, * Various(debit memo: for drafts purchased for payment of importation of equipment totaling P230,000 were ‘not yet recorded. These purchases were previously set up as accounts payable. Said equipment arrived in December 2018. Interest earned on the bank balance for the 4% quarter of 2018, amounting to P1,950 was not recorded. Bank service charges totaling P1,260 were not recorded. Deposit in transit and outstanding checks at December 31, 2018, totaled P136,250 and P276,380, respectively. Upp ody aaed 2. Various expenses from the company’s imprest petty cash fund dated December 2018, totaled P16,250, while those dated January 2019, amounted to P5,903. Another disbursement from the fund dated December 2018 was a cash advance to an employee amounting to P3,500. A replenishment of the petty cash fund was made on January 8, 2019. 3, The company's trial balance on December 31, 2018, includes the following accounts: Cash in bank - Tsunami Bank P 748,320 Cash in bank - Earthquake Bank (restricted account for plant expansion, expected to be disbursed in 2019) 700,000 Petty cash fund 30,000 Time deposit, placed December 20, 2018, and due March 20, 2019 1,000,000DrrING PROBLEMS venient; AUT 16 cen EXAMINA i 4,000,000 Money market placement - prudential Bank December 31, ce on 1. What is the adjusted petty cash fund balan 2018? A. P4347 c. P30,000 B. P10,250 D. p24,097 2. The petty cash shortage on December 31, 2018, is A PO C. P3,500 B. P5,903 D. P4,347 3. What is the adjusted Cash in bank—Tsunami Bank balance on December 31, 2018? A. P500,010 C. P432,710 B. P748,320 D. P429,110 4. The entry to adjust the Cash in bank - Tsunami Bank account should include a debit to A. Accounts receivable for P89,800. B. Accounts receivable for P86,300. C. Accounts payable for P228,200. D. Interest expense for P1,950. 5. The December 31, 2018,.statement of financial position: should show “Cash and cash equivalents” at A. P6,142,960 C. P4,442,960 B. P5,439,360 D. P5,442,960 SOLUTION 1-7 — 1. Petty cash fund per trial balance Various ‘expenses dated Decem| P30,000 Employee cash advance et 2018 (16,250) Adjusted petty cash fund balance (3,500) Answer: B 210,250CHAPTER 1 avoir or CASH AND CASH EQUIVALENTS 17 2. The petty cash shortage cannot be determined because of insufficient information. ie arent Answer: A fh - . 3. 7 Book Bank Unadjusted balances P748,320 638,340 NSF check (22,500) Bank error (P7,520 ~ P5,720) 1,800 Unrecorded cash receipt 3,500 Postdated checks (67,300) Deposits in transit (P136,250 — P67,300) 68,950 Bank debit memos (230,000) Interest earned 1,950 Bank service charges (1,260) » Outstanding checks (276,380) Adjusted balances 432,710 P432,710 Answer: C 4, Accounts receivable (P22,500 + 67,300) 89,800 Accounts payable 230,000 Bank service charges 1,260 Cash in bank - Tsunami Bank 315,610 Advances to employees 3,500 Interest income 1,950 © Answer: 4 5. Cash in bank - Tsunami Bank P 432,710 Petty cash fund 10,250 Time deposit 1,000,000 Money market placement 4,000,000 Cash and cash equivalents 5,442,960 Answer: D18 (PA CXANATION REVIEWER AUDITING PROBLEMS, PROBLEM 1-8 tty Cash Frnt The auditor for SAMANTHA, INC. examined the Aan re immediately after the close of business, July 31, 2 ‘dian resented company’s natural business year. The petty cash custodian p the following during the count: Currency P1650 Petty cash vouchers: Postage 420 Office supplies expense 900 Transportation expense 340 Computer repairs 800° Advances to office staff 1,500 A check drawn by Samantha, Inc, payable to the petty cash custodian 7,200 Postage stamps 300 An.employee's check, returned by bank, marked NSF 1,000 An envelope containing currency of P1,890 for agift for a retiring employee 1890 ~ 216,000 The general ledger shows an imprest petty cash fund balance of P16,000. 1. How much is the petty cash sho A. P2,190 overage B. P2,190 shortage rtage or overage? C. P1890 shortage D. P1,890 overage 2. ‘What is the adjusted balance of ‘i : sole? he petty cash fund at July 31, A. P10,740 C. P7,200 B. P3,540 D. P8850CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 19 SOLUTION 1-8 —_-o eS 1, Currency 5 P1,650 Petty cash vouchers (P420 + pai , Reon i 100 + P340 + P00 + P1,500) =e Employee's NSF check 1,000 Petty cash accounted 13,810 Petty cash fund per ledger (custodian’s accountability) 16,000 Petty cash shortage P2190, Answer: B 2. Currency P1,650 Replenishment check 2.200 , Adjusted petty cash balance P8850 Answer: D PROBLEM 1-9 : ee Ee eee Petty Cash Fund On January 1, TANYA CO. establishes a petty cash account and designates Orly Reyes as petty cash custodian. The original amount included in the petty cash fund is P10,000. . The following disbursements are made from the fund: Office supplies P3,460 Postage 2,240 Entertainment 840 The balance in the petty cash box is P3,200. 1. The person responsible, at all times, for the amount of the petty cash fund is the A. Chairman of the Board of Directors20 cracuauanonneever, AUDITING PROBLEMS B. President of the company C. Petty cash custodian D. General cashier 2. The following are appropriate procedures for controlling the petty cash fund, except ' A. To monitor variations in different types of expenditures, the petty cash custodian files petty cash vouchers by category o! expenditure after replenishing the fund. B. To replenish the fund, the general cashier issues a company check to the petty cash custodian, rather than cash. C. To determine that the fund is being accounted for satisfactorily, surprise counts of the fund are made from time to time by the internal auditor or other responsible official. D. Each individual to whom petty cash is paid is required to present signed receipts to the petty cash custodian. 3. The entry to replenish the fund is A. Office supplies expense 3,460 Postage expense 2,240 Entertainment expense 840 eu 6,540 B. Office supplies expense 3,460 Postage expense 2,240 Entertainment expense 840 Cash over and short 260 Petty cash 6,800 C. Office supplies expense 3,460 ° Postage expense 2240 Entertainment expense " Cash over and short 840 Cash 260 6,800CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 21 D. Office supplies expense 3,460 Postage expense "2,240 Entertainment expense 840 Petty cash 6,540 4. The objective of establishing a petty cash fund is to A. Cash checks for employees B. Account for all cash receipts and disbursements C. Account for cash sales D. Facilitate payment of small, miscellaneous items 5. What is the effect of not replenishing the petty cash at year-end and not making the appropriate adjusting entry? A. A detailed audit is essential B. The petty cash custodian should turn over’ the petty cash to the general.cashier C. Cash will be overstated and expenses understated D. Expenses will be overstated and cash will be understated SOLUTION 1-9 1, One individual, the petty cash custodian, should be responsible for the petty cash fund. Answer: C 2. The petty cashier should not have custody of paid petty cash vouchers to prevent their reuse. Answer: A 3. Office supplies expense 3,460 Postage expense 2,240 Entertainment expense 840 Cash over and short 260 Cash - — 6,F0022 CPAEIAMMATIONREVIENER:. AUDITING PROBLEMS Computation of cash shortage: Currency and coins Petty cash vouchers (P3,460 + P2,240 + P40) Petty cash accounted Petty cash fund per ledger Shortage Answer: C 4. Facilitate payment of small, miscellaneous items. Answer: D 5. Cash will be overstated.and expenses understated. Answer: C hee PROBLEM 1-10 ~~" Count of Petty Cash Fund and Undeposited Collections In connection with your audit of the financial statements of BENJAMIN CORP. for the year ended December 31, 2018, you conducted a surprise count of the company’s petty cash fund and undeposited collections at 8:20 a.m. on January 3, 2019. Your count disclosed the following: Bills and coins Bills Coins P100.00 —S pieces 5.00 18 pieces 50.00° 40 pieces 1.00 206 pieces 20.00 48 pieces 0.25 32 pieces Postage stamps (unused) - P365cHaPTer 1 aupir OF CASH AND CASH EQUIVALENTS 23 Checks Date Payee Maker Amount Dec. 30 Cash : Custodian P 1,200 Dec. 30 Benjamin Corp. SLV, Inc. 14,000 Dec, 31 Benjamin Corp. Mario Lansang, sales manager 1,680 Dec. 31 Benjamin Corp. | MSU Corp. . 17,800 Dec. 31 Benjamin Corp. Ateneo, Inc. 8,300 Dec. 31 Taiwan Corp. Benjamin Corp. 27,000 Unreimbursed vouchers er escripti unt Dec. 23 Mario Lansang, Advance for tripto P20,000 sales manager Tagaytay City 28 Central Post Office Postage stamps 1,620 29 Messengers Transportation 150 29 Byte, Inc. Computer repair 800 Other items found inside the cash box: 1. Unclaimed pay envelope of Juan MacDonut. Indicated on the pay slip is his net salary of P7,500. Your inquiry revealed that Juan’s sulary is mingled with the petty cash fund. 2. The sales manager’s liquidation report for his Tagaytay City trip. Cash advance received on Dec. 23 P20,000 Less: Hotel accommodation, meals, etc. P16,000 Bus fare for two 1,200 Cash given to Pablo, salesman _1,000 18,200 Balance P1800 Accounted for as follows: Cash returned by Pablo to the sales manager P 120 Personal check of the sales manager 1,680 Total P180024 CPADIAMIRATION REVIEWER: AUDITING PROBLEMS, Additional information: 1. The custodian is not authorized to cash checks. 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, 2018. ORNo. Amount Form of Payment 4352 P13,600 Cash 4353 17,800 Check 4354 3,600 Cash 4355 8,300 Check 3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund was made on December 22, 2018. 1. Whatis the amount of shortage due from the sales manager? A. P240 Cc. P120 s B. P1,800 D. PO 2. What is the amount of undeposited collections on December 31, 2018? A. P44,300 C. P57,300 B. P84,300 D. P41,000 3. The adjusting entries on December debit to Travel expenses of A. P17,320 B. P18,320 31, 2018, should include a net C. P18,200 D. P18,080 - The cash count should include total checks of A. P69,980 C. P41,780 B. P42,980 D. P41,300CHAPTER 1 avorr OF CASH AND CASH EQUIVALENTS 25 5. Whatis the total cash shortage? A. P22,166 C. P22,406 B. P8,166 D. P20,486 SOLUTION 1-10 1. Cash advance P20,000 Less: Actual cash disbursed Hotel, meals, etc. P16,000 Bus fare 1,200 Pablo (P1,000 - P120) 880 18,080 Cash that should be returned 1,920 Cash actually returned 1,680 Shortage due from the sales manager P240 Answer: A 2. Collections per OR nos. 4352 - 4355 P43,300 Unreceipted collections 14,000 Total undeposited collections PS7,300, Answer: C 3. Travel expenses (P16,000 + P1,200 + P80) 18,080 Answer: D 4. Total checks 42,980 Answer: B 5. Total cash shortage P22,166 Answer: A[AUDIT OF CASH AND CASH E o =e curren 1 SH AND CASH EQUIVALENTS 7 Benjamin Corp. Benjamin Corp. [ADJUSTING JOURNAL ENTRIES CASH COUNT SHEET December 31, 2018 January 3, 2019 - 8:20 a.m, 1. Cash 14,000 Bills and coins: ‘Accounts receivable 14,000 Denomination Quantity Amount - Total P100.00 5 P 500 2. Advances to officers and employees 20,000 50.00 40 2,000 Postage expense 1,620 20.00 48 960 ‘Transportation expense 150 5,00 18 90 Repairs expense 800 1.00 206 206 Petty cash fund 22,570 0.25 2 8 P3,764 Checks: 3. Unused postage 365 Date Maker ‘Amount Postage expense 365 Dec. 30 “Custodian 1,200 Dec. 30 SLY, Inc. 14,000 4. Cash 27,000 Dec. 31 Mario Lansang 1,680 ‘Accounts payable 27,000 Dec. 31 MSU Corp. 37,800 Dec. 31 Ateneo, Inc. 8,300 42,980 5. Cash 7,500 Salaries payable 7,500 Unreimbursed vouchers: 6. Receivable from custodian 22,166 Date ‘Account Amount can 2,166 Dec. 23 ‘Advances P20,000 . pene Postage 1,620 7 (P16,000 + P1,200 + P880) 18,080 Dec. 29 Transportation "150 er ceraeeee ye Dec. 29 Repairs 800 (22.570 ‘Advances to officers and employees 19,760 ‘Total cash accounted P69,314 Less: Accountabilties Petty cash 25,000 PROBLEM 1-11 Collections (per official receipts) 43,300 Unclaimed salary 71500 | Petty Cash Fund; Bank Recon Excess travel advance 1,680 | - Ine Unreceipted collection from SLY, Inc. 14.000 _91,480 Anying Velasco is reviewing the cash accounting for ABX In | (CASH SHORTAGE 2216s) | Anying's review will focus on the petty cash fund account and the bank reconciliation for the month ended May 31, 2018. She hasPROB! concunnarentenot: AUDITING 28 's jeper for this, collected the following information from ABY’s bookkeep task Petty Cash Fund 4. The petty cash fund was established on May 2, 2016, In the amount of P10,000. ian as of May 31, 2018, 2. Expenditures from the fund by the custodian as of ay 3 20 were evidenced by approved petty cas following: Various office supplies rasz0 10U from employees 1200 Shipping charges 2298 Miscellaneous expense .d and increased 1, 2018, the petty cash fund was replenishes wa1200; currency and coins in the fund at that time totaled P756. nciliation a Shore Bank Bank Statement : ve 350,760 Balance, May 1, 2018 ee Deposits P1,120.0 ‘Note payment direct from customer (interest of P1,200) 37,200 Checks cleared during May P. 1.246.000 Bank service charges K Balance, May 31, 2018 260,880 ‘ABX, Inc's Cash Account Balance, May 1, 2018 P 354,000 Deposits during May 2018 1,240,000 Checks written during May 2018 1,273,400 CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 29 Deposits in transit are determined to be 120,000, and checks Outstanding at May 31 total P34,000. Cash on hand (besides petty cash) at May 31, 2018, is P9,840. 1. What is the amount of petty cash shortage? ‘A. P2300 c. P300 B. PLL244 D. PO 2. The journal entry to record the replenishment of, and increase in the petty cash fund includes a credit to A. Cash of P10,944 B, Cash of P11,244 C._ Petty cash fund of P10,944 D. Petty cash fund of PI 1,244 3. What amount of cash should be reported in the May 31, 2018, statement of financial position? A. 368,720 C. P368,420 B. P356,720 D. P358,880 SOLUTION 1-11 eee |. Coins and currency P76 Fund disbursements (P3,920 + P1,200 + P2,298 +P1,526) 8.944 Petty cash accounted 9,700 Custodian’s accountability 0 Pet cash Stage ap Answer: C 2. Petty cash fund 2,000 Office supplies 3,920 Accounts receivable-employees 1,200 Shipping expense 2,298 Miscellaneous expense 1,526 Cash short/over 300 Cash 11,244 Answer: 8tnigweunmntmen: AUDITING PROBLEMS 30 Book Bank 2 ajaed bal wa0,600 P2s0880 eee 120.000 Cash on hard (34,000) Outstanding checks ‘Note collected by bank 37,200 Bank service charges 11980) ‘Adjusted balances ‘P336.720 356.720 ‘Adjusted cash balance (P356,720 + P12,000) P358,720 Answer: B PROBLEM 1-12 ‘Bank Reconciliation; Computation of Cash Balance Presented below are a series of unrelated situations. Answer the question at the end of each situation. 1. The accountant of NARCISA CO. provided the following data in reconciling the April 30 cash in bank balance: Balance per bank, April 30 P130,350 Balance per books, April 30 85,000 Bank service charge 2,000 Deposits in transit 49,000 Outstanding checks 17,650 Note collected by bank including P11,200 interest (Narcisa Co. not yet informed) 136,000 Check drawn by XYZ Co. erroneously charged by bank to Narcisa’s account 54,600 A transposition error was made in recording a sale and deposit in the sales journal and cash receipts journal in April. Correct amount P13,658 Recorded as, P16.358 What is the adjusted cash balance on April 30? CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 31 2. 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 P13,000 Bank service charge for March 1,200 In comparing the bank statement to the company's cash records, you found: Outstanding checks on March 31 184,000 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 2 customer's check for 17,400 that had not yet been deposited and hhad not been recorded in Emil's books. Your client's books show a cash balance of P36,420. What is Emil Corporation's correct cash balance at March 31? 3, The following information pertains to a checking account of a company at June 30, 2018. Balance per bank statement 200,000 Interest earned for the second quarter 300 Outstanding checks 15,000 Customers’ checks returned for insufficient funds 5,000 Deposit in transit 25,000 What is the cash balance per books at June 30, 2018? 4, Acompany is reconciling its bank statement with internal records. ‘The cash balance per the company’s books is P45,000. There 7° 5,000 of bank charges not yet recorded, P7,500 of outstaneanrnsenen: AUDITING PROBLEMS 32 'p12,500 of deposits in transi and P15,000 of bank credits in transit, x checks, P12: isn ra a ‘and collections not yet What s the cash balance per bank? bank shows a cash balance of P175,000 on its "jane 30. As of June 30, there are P55,000 of 5, A company 5 posits in transit. tatement dated June utstanding checks and P37,500 of dey What is the adjusted cash balance on June 30? 6 The Cash account shows a balance of P225,000 before reconclliation. The bank statement does not include a deposit of 11,500 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 P2,700, and a check ‘written for P395 was recorded as P485. y What should be the correct cash balance? 7. OnJuly 5,2018, EMILIA CORP. received its bank statement for the ‘month ending June 30. The statement showed a P209,500 balance while the cash account balance on June 30 was P35,000. In reconciling the balances, the auditor discovered that: 1. The June 30 collections of P176,000 were recorded on the books but were not deposited until july. 2. The bank service charges for the month of une totaled P3,000. 3. Apaid check for P24,300 was entered incorrectly in the cash payments journal as P34,200. What is the total outstanding checks at June 30, 2018? cHarrER 1 AUDIT OF CASH AND CASH EQUIVALENTS 33 SOLUTION 1-12 Bank 1. Unadjusted balances Pp os.c00 P130,350 Bank service charge (2,000) Deposits in transit : 49,000 Outstanding checks (17,650) Collection of note 136,000 Erroneous bank debit 54,600 ‘Transposition error (P16,358 - P13,658) __(2,700) Adjusted balances P216,300 216,300 36,420 2. Balance per books Unrecorded and undeposited customer's check 17,400 Bank service charge (1,200) NSF check 13.000) Adjusted cash balance Bagez0 3. Balance per bank statement 200,000 Outstanding checks (15,000) Depesitin transit 25,000 Interest earned (800) NSF checks 5.000 Balance per books at June 30, 2018 P214,500 4. 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 P50,000 5. Balance per bank statement 175,000 Outstanding checks (55,000) Deposits in transit 32,500 b1s7.500 ‘Adjusted cash balanceom. AUDITING PROBLEMS 34 “ve 225,000 6. Balance per books 4,700 Bank clleton, as Customer's NSF check = 72,250) Gverstatement of cash receipt rates ‘-P395) 20 Ouerstaterent of cash disbursement PRETO ‘Adjusted cash balance 7. Balance per books, June 30, 2018 #5000, aa vent of sbcsement (P34,200-P24,300) 9,900 ‘Adwsted cash belance pai.900 209,500 Balance per bank, June 30, 2018 203 nat: Undeposited collections em Less: Adjusted cash balance “41.900 Outstanding checks, June 30, 2018 PROBLEM 1-13 Bark Reconciliation ‘The bank statement for the current account of IAN Co. showed a December 31, 2018, balance of P585,264. Information that might be useful in preparing a bank reconciliation is as follows: a) Outstanding checks were P52,810. b) The December 31, 2018, cash receipts of P23,000 were not deposited in the bank until January 2, 2019. ©) One check written in payment of rent P6,940 was correctly recorded by the bank but was recorded by lan Co. as a P9,840 disbursement. 4) In accordance with prior authorization, the bank withdrew P1,000 directly from the current account as payment on a CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 35 ‘mortgage note payable. The interest portion ofthat payment was P14,000. Ian Co. has made no entry to record the automatic payment. ©) Bank service charges of P740 were listed on the bank statement. fA deposit of P35,000 was recorded by the bank on December 12, but it did not belong to lan Co. 8) The bank statement included a charge of P3400 for a not- sufficient-fund check. The company will seek payment from the customer. 'h) Jan Co. maintains an 8,000 petty cash fund that was appropriately reimbursed at the end of December. 4) According to instructions from lan Co. on December 30, the bank withdrew P40,000 from the account and purchased treasury bills for lan Co. The company recorded the transaction in its books on December 31 when it received notice from the bank. Half of the treasury bills mature in three months and the other half in six months. 1, "What is the cash in bank balance per books on December 31, 2018? A. PS49,714 Cc Ps34914 B. P543,514 D. PS41,714 2. Whats the adjusted cash in bank balance on December 31, 2018? A. P520,474 C. PS18,674 B. P527,274 D. P520,154 3, Whatamount of cash and cash equivalents should be shown under current assets on December 31, 2018? ‘A. P928,474 c P720,474 B. P728.474 D. 735,274rrNG PROBLEMS S nxcusounennonontt: AUDT “TING PROB ciiarrer 1 AUDIT OF CASH AND CASH EQUIVALENTS 37 PROBLEM 1-14 sootion 1-13 Bank Reconciliation: 5,284 i i t 1. Bolance per bank statement Peo10) Unadjusted to Adjusted Balances Format * outstanding checks 23,000 The following dat P : ¥ 1g data were taken from GARAY’s check register fc ding cre 's check register for th cepted cot . Three possible explanations for the above difference: The bank disbursements (P58,438) may be overstated 10,000. Another company check for P10,000 may have een charged erroneously by the bank against the client’s account. b. The December 31 outstandin. 19 checks may be understated 10,000. ‘Since the bank reconciliation given in the problem ne brepared by a company employe, there sno assurance that it is © The client's employee may have failed to record check/s issued January, thus, understating the book disbursements (P22,482). PROBLEM 1-93 7 __Bank Reconciliation: Unadjusted to Adjusted Balances Format In auditing th ig the HECTOR COMPANY, you obtained the bank statement, canceled ch checks, and other memoranda which relate tothe company’s ‘CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 61 bank account for December 2018. In reconciling the bank balance with that shown on the company’s books, you observed the facts set forth below: (1) Balance per bankstatement, Dec.31, 2018 47.174 (2) Balance per books, Dec. 31, 2018 19,289 63,000 (3) Outstanding checks, Dec. 31, 2018 (4). Receipts of Dec. 31, 2018, deposited Jan. 2, 2019 (5). Service charge for November, per bank memo of Dec. 15, 2018 1,000 (6) Proceeds of bank loan, Dec. 15, 2018, discounted for 3 months at 18% per annum, omitted from company books (7) Deposit of Dec. 22, 2018, omitted from bank statement 9,170 (8) Check of Mitano Company, returned on Dec. 21, 2018, for absence of counter-signature and redeposited with complete signature on Jan. 3, 2019, no entry on the books having been 6,260 47,750 made for the return or redeposit 77,320 (9) Error on bank statement in entering deposit of Dec. 18, 2018: Correct amount 1,600 1601440 Entered in statement (10) Check No. 021261 of Yek Company, charged by bank in error to company’s account 13,600 (11) Proceeds of note of Harthur Co. collected by bank, Dec. 10, 2018, not entered in cash book (principal amount of 25,000 plus interest of P1,125,unururmumie. AUDITING PROBLEMS Jess collection fee) (12) Erroneous debit memo of Dee 28,2018, to charge company’s account with ‘Re ement of bank loan which was paid by ‘check no. 112170 on same date (13) Error on bank statement in entering deposit of Dec. 4, 2018: Entered as Correct amount (14) Deposit of Bunso Co. of Dec. 2, 2018, credited in error to this company 5,000 14,200.62 12.400.62 1,800 3,500 1. What isthe principal amount of the loan obtained from bank in December? ‘A. 50,000 c P4g.125 BL 47,750 D. 749,625 2. What amount of prepaid interest should be shown on Hector’s: December 31, 2018, statement of financial position? A. P2250 c P375 BPO D. P1875 3% The amount ofcaetin es c Pi B. P1625 D. Poe 4. What is the ad} Lal ijusted Cash in bank balance as of December 31, A Pua3ee B Pinass oe 5. The Cashin bank : nk per ledger as of Det ineased (created) of December 31, 2018, should be 94 B Pooas © P(4945) D. P(S,945) CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 63 SOLUTION 1-23 1 Proceeds Principal - Interest 47,750 P= (Px18% x 3/12) 47,750 P-0.045P 47,750 0,955 P P 47,750 + 0.955 P P50,000 Answer: & 2, Prepaid interest, Dec. 31 (P2,250 x 2.5/3) PLSZS Answer: D 3. Principal 25,000 Interest income 15 Maturity value 26,125 Collection fee (SQUEEZE) (500) Proceeds 225,625 Answer: C 4 Book Bank Unadjusted balances 19,289 47,174 Outstanding checks (63,000) Receipts of 12/31/18, deposited 1/02/19 6,260 Service charge for November (2,000) Proceeds of bank loan 47,750 Deposit of 12/22/18, omitted from bank statement 9,170 Check of Milano Company, charged back (77,320) Error in entering deposit of 12/18/18 1 Check of Yek Company charged in ‘error to Hector Company 13,600 Proceeds of note of Harthur Co. 25,625 Erroneous debit memo of 12/28/18, charged by bank in settlement of loan paid by check no. 112170‘CONN RENEW AUDITING PROBLEMS 64 (1,800) i 04/18 Error in entering deposit of 12/¢ post of Bunso Co, credited n or , ‘to Hector Company (3,500) ‘ADJUSTED BALANCES P14.344 ‘Pidadd answer: A 5. Adjusted Cash in bank balance (see no. 4) ets * Cash in bank balance pe ledger 9 ‘Net credit adjustment ~ decrease 4.945, answer: C PROBLEM 1-24 Bank Reconciliation are auditing general cash for the DION COMPANY for the fiscal et snded july 31,2018 ‘The client has not prepared the July 31 bank reconciliation. After a brief discussion with the owner you agree to prepare the reconciliation, with assistance from one of Dion Company's clerks. You obtain the following information: General Bank Statement geo aoe Beginning balance E&P 46410 57,530 Deposits wor 250,560 Cash receipts journal 45) 254,560. Checks cleared (236,150) Cash disbursements journal (218,110) July bank service charge (870) oe pa directly (61,000) hed 2110) Ending balance 4 0% bazseo P5960 CHAPTER 1 AUOIT OF CASH AND CASH EQUIVALENTS, 65 June 30 Bank Reconciliation’ Information in General Ledger and Bank Statement Balance per bank 57,530 Deposits in transit 6,000 : Outstanding checks 17,420. W350 Balance per books 46,110" “9220 Additional information obtained is: 1. Checks clearing that were outstanding on june 30 totaled P16,920. 2. Checks clearing that were recorded in the July disbursements journal totaled P204,670. 3. Acheck for P10,600 cleared the bank, but had not been recorded in the cash disbursements journal. It was for an acquisition of inventory. Dion uses the periodic inventory method. 4. A check for P3,960 was charged to Dion Company but had been written‘ on a different company’s bank account. 5. Deposits included P6,000 from june and P244,560 for July. 6. The bank charged Dion Company's account for a not-sufficient- fund check totaling P3,110. The credit manager concluded that the customer intentionally closed its account and the owner left the city. The check was turned over to a collection agency. 7. A note for P58,000, plus interest, was paid directly to the bank under an agreement signed four months ago. The note payable was recorded at P58,000 on Dion Company's books. ii66 mn pasa EOE ‘AUDITING PROBLEMS asd on fats given, answer te following: standing on Jane 30 amount €0 : Poe c P13.940 B. P10830 D. P3340 The deposits in transit on june 30 amount £0 2» psm80 c. P6,000 B. P10,000 D. P9110 4. Theadjusted cash balance on July 31 is A. P6980 c. P3870 B P1040 D. P3020 4. Which ofthe following audit procedures would be used to verify the payment of note in July? ‘A. Check the arithmetical accuracy of the July 31 rec B. Check for absence of note on July 31 bank confirmation. Trace payment to duplicate deposit slip. D. Obtain cutoff bank statement. ‘onciliation. 5. Theauditor would perform the following procedures to verify the unrecorded check of P10,600, except ‘A. Obtain cutoff bank statement. B. Examine checks returned with July bank statement, Trace check number to absence in July cash disbursements journal and recording in August. . Examine supporting documentation. SOLUTION 1-24 Soom 1. Outstanding checks, June 30 ‘#08: Checks issued in July (P218,110 per sh disbursements a Sewers our + P1600 17,420 cuarren 1 AUDITOr CASH ANDO CASH COUNALENT 67 Total 246,130 Less: Checks paid by bank in July (P236,150 ~ P3,960 erroneous check charged by bank) 232.190 Outstanding checks, July 31 Baz949 Answer: © Alternative computation: Checks outstanding on June 30 that did not ‘dear in July (P17,420 ~ P16,920) P 500 Checks issued in July that did got clear in July 13,440 (P218,110 ~ P204,670) ‘Outstanding checks, July 31 23.940 . Deposits in transit, June 30 ‘Ad: July deposits per cash receipts journal 254.560 ~7: Total 260,560 Less: Deposits credited by bank in July 250,560 Deposits in transit, uly 31 10.000 Answer: B ' eae) 2. BO Bank Unadjusted balances £471) 2 pa2,560 6,960 Outstanding checks (see no. 1) (13,940) Deposits in transit (see no. 2) 10,000 Bank service charge (870) Unrecorded check (10,600) Check erroneously charged to Dion 3,960 NSF check (3,110) Note payment (PS8,000 principal + 3,000 interest) (61,000) __ Adjusted balances: 6.980 P6980 Answer: mov |. The following audit procedures would be performed to verify the note payment: 1, Examine cancelled check.ncunsmonner: AUDITING PROBLEMS 68 2. Recompute interest con July 31 bank confirmation, 3. check for absence of note Answer: B 5. The folowing audt procedures would be performed to verity the corded check: Tr Bzomine check returned with July bank statement. 3 Stoce number to absence in July cash disbursements foumal and recording in August 3. Bzamine supporting documentation 4. Investigate why it was unrecorded. ‘The cutoff bank statement will no longer show the unrecorded check because it was already paid by the bank in July. Answer: PROBLEM 1-25 Proof of Cash: Unadjusted to Adjusted Balances Format The cash account of VELASCO COMPANY shows the following activities: Date Debit Credit Balance Nov. 30. Balance P115,000 Dec. 2. November bank charges P50 114950 4 November bank credit for notes receivable collected P10,000 20 Loan proceds 48,500 172.150 Decemier bank charges 60 172,090 31. Cash receipts book 707,300 879,390 31 Cash disbursements book 408,000 471,390 CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS $9 CASH BOOKS RECEIPTS PAYMENTS ORNo, Amount Check No, Amount 110-120 P 11,000 801 P 2,000 121-136 21,300 802 3,000 137-150 20,000 803 1,000 151-165, 56,000 804 3,000 166-190 39,000 805 12,000 191-210 66,000 806 19,000 211-232 188,000 807 26,000 233-250 77,000 808 30,000 251-275 21,000 809 61,000 276-300 30,000 810 7,000 301-309 55,000 ait 8,000 310-350 8,000 12 16,000 351-390 19,000 813 20,000 391-420 9,000 814 22,000 421-480 17,000 816 36,000 481-500 21,000 817 11,000 501-525 32,000 818 50,000 : : 819 7,000 - - 820 4,000 526-555 74,000 821 3,000 556-611 5,000 822 12,000 - 823 13,000 612-630 38,000 824 29,000 : - 825 2,000 - —— 826 —11.000 2707300 p408.000 BANK STATEMENT Check No, Charges Credits 792 2,500 P9500 iaBehan list of interhan' iyo AUDITING PROBLEMS cuguane | CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS nm : 1,000 | 3,000 ao | g Bank balance on December 31 is PS92,270. 802 : : | : : 3,000 20,000 1, The total outstanding checks at November 30 should be 4 fe 81,000 Be | A. P9550 . P13,050 5 | B. P7,050 D. P1550 7 20S 12000 on | 9 out 7,050 154,000 2. The total outstanding checks at December 31 should be aa ie 1,300 77.000 | A; P147,000 C. P153,000 u ee 30,000 21,000 B. P162,550 D. P159,000 2 : | 1,000 | i os 61,000 85,000 | 3. The deposit in transit at November 30 should be : 161 60 8,000 | A. P8500 c. P4850 ie a 20,000 19,000 | B. P19500 D. PO 7 a : 48,500 | 2 cas 6,000 : 4. ‘The deposit in transit at December 31 should be a 816 36,000 47,000 A. P44,000 C. P46,500 B 8iL ed : BPO : D. P38,000 zs he 22,000 32,000 | 5. The adjusted book balarice at November 30 should be . 818 50,000 74,000 | A. P125,000 c. P115,000 23 2 DM1I2, 120 oe | B P124,950 D. 136,950 7 5 omas oo 12,000 | 6. The adjusted bank receipts for the month of December should 29 820 4,000 : | be 2253.030 ‘2831300 | A. P763,800 C. P765,800 eek | B, P773,800 D. P767,800 7. ‘The adjusted book disbursements for the month of December a. DMs61 and 112 are for service charges. should be b. ECiserrorcorrected. ' ‘A. 403,480 c. 415.480 c. DM 57s for an NSF check. | B. P415,540. D. 409,480 4. 0M 20is for loan proceeds, net of P150 interest charges for 90 days | 8. The adjusted bank balance at December 3 shoul be 8.27 € CM 16 is forthe correction of an erroneous November bank A. 592,270 c. P558, charge. ee B. 477.270 D. P483270 f (CM 36 is for customers’ notes collected by bank in December, tial5. Obsain alist of inter Obi a is fier | HAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS B Loan proceeds (48,500) Note collected (12.000) 677,800 Deposit in transit, December 31 38.000 jovEMBER 1 ouTsraNoIS OHO, new Answer: D one oa PROOF OF CASH Taal December 1-31 eA Balance Balance oust lECKS, DECEMBER 31: Nov.30 Receipts Disbursements Dec. 31 2 amon P 19,000 Balances per bank 831,300 353,030 P592,270 "807 26,000 Bank error corrected 810 7,000 the same date (81,000) (81,000) 82 16,000 Erroneous bank charge 817 11,000 in November 12,000 (12,000) 819 7,000 Deposits in transit: 822 12,000 November 30 8500 (8,500) 823 13,000 December 31 38,000 38,000 824 23,000 Outstanding checks: 825 2,000 November 30 (9,550) (9,550) 826 ‘000 December 31 153,000 (153,000) ca 153.000 ‘Adj. bank balances 124,950 767,800 415.480 477,270 ee Balance Balance 3. Deposits in Nov.30 Receipts Disbursements Dec. 31 a pesoo Balances per books P115,000 P765,800 P409,410 P471,390 Answer: Bank service charges: : November 30 (60) (50) Depositn transit, November 30 (see no. 3) P8,500 December 31 120 (120) £108 Collections per cash receipts book 707.300 Notes collected by bank: to 715800 | November 30 10,000 (10,000) oo " | December 31 12,000 12,000 831,300 Unrecorded disburse- pa of enoneus bank | ‘ment — Check no. 815 6,000 __(6.000) Correction of erroneous bank (81,000) ‘Adj. book balances 124,950 767.800 415.480 477.270 charge in November (12,000) '5, Adjusted book balance, November 30 124.950 Ansiver: B aS. Obtain a lst of interban! before on = pucnvcurosemen: AU answer C a. ajsted bank balance, December 31 ansne: B PROBLEM 1-26 een ee mrt fof Cash: Bank to Book Balances Format Prot shown below is the May 31, 2018, bank reconciliation prepared by your client’ staff. RECONCILIATION May 31, 2018 Bank balance ‘Add: Deposit in transit Total Less: Outstanding checks No. 640 P10,000 652 8,000 653, 2,000 ‘Adjusted bank balance Book balance Add: Proceeds of note receivable collected in May Deposit on May 31 not recorded on books until June _2,000 70,000 Total Less: Bank service charge ‘Adjusted bookbalance JDITING PROBLEMS 652,000 —10.000 662,000 — 20,000 2642,000 570,800 — 72.900 642,800 —_800 642,000 cunrren 1 AUDITOF OSH AND CASH EQUYALENIS 6 The June 2018 bank statement is shown below: Pasig Bank Period covered: May 31, 2018 - June 30, 2018 Account No.: 0021261 Date Checks Deposits June 1 ,000 10,000 June 8 2,000 June 12 14,000 20,000 June 13 1,000 DM 1,000 June 16 4,000 June 21 12,000 56,000 June 27 418,000 June 29 1,000 £¢ 1,000 £¢ June 30 200 sv June 30 3,000 DM DM - Debit Memo SV - Service Charges CM - Credit Memo EC - Error Corrected ‘The paid checks accompanying this bank statement (all clearing in June) are the following: No.652 8,000 No.653 P2,000 No.657 12,000 No. 654 P14,000 No.658 P18,000 No. 655 P 4,000 ‘The check register reveals that the last check issued in June is No. 659 for P5,000 and that check no. 656 is for P2,600. Cash received for the period June 22 through June 30 of P70,000 was deposited in the bank on July 1. ‘The debit memos on June 13 and June 30 represent customers’ NSF checks returned by the bank. The June 13 NSF check was immediately redeposited without entry. The June 30 NSF check was redeposited on July 1 without entry.emer srrerrsererr 7 UDITING PROBLEMS mucuaro eienet A 76 iptsin June? 1, whatis the total bankerecelPt pro a rere p, P7800 BP bursements int June? 2 varietal bank rset 3 #8000 D. 63,200 : 30, 20187 lance per bank statement on june 30, 3. Whats theo ince per banl C_P732,400 : 7627200 D. P729,200 k receipts in June? 4, Whats the total bool cl 46,000 A. P88,000 a0 B, P220,000 D. P218, is the total book disbursements in June? 7 1 9s3.000 C. P56,400 B. PS7,400 D. P63,200 6. Whatis the book balance on. a eat A P732200 , B, P729,200 D. P676,800 SOLUTION 1-26 41. Bank receipts in June (arrived at by footing the Deposits column of the bank statement) 38.000 Answer: 8 2. Bank disbursements in June (arrived at by footing the Checks column of the bank statement) 263.200 Answer: D cHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 77 3. Bank balance, May 31 652,000 ‘Add: Bank receipts in June 88.000 Total 740,000 Less: Bank disbursements in June 63.200 Bank balance, June 30 576.800 Answer: PROOF OF CASH June 1-30, 2018 Balance June Balance May31 Receiots Disbursements June 30 ‘Bank balances 652,000 P88,000 P63,200 P676,800 Deposits in transit: May 31 10,000 (10,000) Sune 30 70,000 70,000 Outstanding checks: May 31 (20,000) (20,000) June 30 17,600 (17,600) Bank service charges: May 31 800 800 June 30 (200) 200 Bank collection in May (70,000) 70,000 May deposit recorded by the company in June (2,000) 2,000 NSF checks: ‘Already redeposited (1,000) (1,000) Not yet redeposited (3,000) 3,000 Bank error corrected on the same date > 41,000 000) Book balances 570.800 £218,000 56.400 732.400 4. Total book receipts in June 218,000 Answer: D 5. Total book disbursements in June 56.400 Answer: C78 oeumananienst: AUDITING PROBLEMS 7 P732.400 6. Book balance on June 30, 2018 Answer: C PROBLEM 1-27 Proof of Cash: Bank to Book Balances Format ‘The following information was obtained in an audit of the cash account of CHELSEE COMPANY as of December 31, 2018. Assume that the CPA has satisfied himself as to the propriety of the cash book, the bank statements, and the returned checks, except as noted: 1, The bookkeeper's bank reconciliation at November 30, 2018. Balance per bank statement 194,000 Add: Deposit in transit 11,000 Total P205,000 Less: Outstanding checks No.1434 P1,400 1562 7,500 1571 5,800 1584 8,000 1591 300 23,000 Balance per books P:182.000 2. Asummary of the bank statement for December 2018. Balance brought forward P 194,000 Deposits 1.487.000 Total P1,681,000 Charges (2.325.000) Balance, December 31, 2018 2.356.000 CHAPTER T AUDIT OF CASH ANO CASH EQUIVALENTS 79 3. 5. 10. Included in cancelled checks returned with the December bank statement were the checks listed below. The Chelsee Company discounted its own 60-day note for ~P90,000 with the bank on December 1, 2018, The discount rate ‘was 6 percent. The accountant recorded the proceeds asa cash receipt atthe face value of the note. The accountant records customers’ dishonored checks as a reduction of cash receipts. When the dishonored checks are redeposited they are recorded as a regular cash receipt. Two NSF checks for P1,800 and P2,200 were returned by the bank during December. Both checks were redeposited and were recorded by the accountant. Cancellations of Chelsee Company checks are recorded by a reduction of cash disbursements. December bank charges were P200. In addition, a P100 service charge was made in December for the collection of a note receivable in November. These charges were not recorded on the books. Check no. 1434 listed in the November outstanding checks was drawn in 2016, Since the payee cannot be located, the president fof Chelsee Company agreed to the CPA's suggestion that the check be written back into the accounts by a journal entry. Outstanding checks at December 31, 2018, totaled P49,400, Including checks 1434 and 1564 ‘The cutoff bank statement disclosed that the bank had recorded a deposit of P24,000 on January 2, 2019, The accountant had recorded this deposit on the books on Deceniber 31, 2018, and then mated the deposit to the bank. i.80 ncuron, AUDITING PROBLEMS Cancelled Checks Returned with the December Bank Statement ancel stunner ofhcek_sfcsk Commas — ‘This check was in payment of an 1s62 11/2808 an invoice for P7,500 and was recorded in the cash book as 7,500. 5,800 This check was in payment of an invoice for P5800 and was recorded in the cash book as 5,800. asm 11/28/18 Examination of this check revealed that it was unsigned. A discussion with the client disclosed that ithad been mailed inadvertently before it was signed. The check was endorsed and deposited by the payee and processed by the bank even though it was alegal nullity. The check was recorded in the cash disbursements journal. 1583 12/04/18 1,500 1588 12/12/18 8000 This check replaced 1584, which was returned by the payee because it was mutilated, Check 1584 was not cancelled on the books. sv 12/19/18 2,000 This was a counter check drawn at the bank by the president of the company as a cash advance for carrer 1 AUDIT OF CASH Ano cast EaUnateNTs 81 travel expense. The president overlooked informing the bookkeeper about the check. 12/20/18 3,000 The drawer of this check was the Chelsea Company. This check had been labeled NSF and returned to the payee because the bank had erroneously believed that the check was drawn by Chelseen. Subsequently, the payee was advised to redeposit the check. 1595 12/20/18 3,500 1599 01/05/19 100,000 This check was given to the payee on December 30, 2018, as a postdated check with the understanding that it would not be deposited until January 5. The check was not recorded on the books in December. 1. What is the correct amount of outstanding checks on December 31? A. P41,400 B. P33,250 c. P4800 D. 40,000 2 Whats the amount of cash receipts per book in December? A. P1,496,900 C P1.495,100 B. P1,504,900 D. P1.487,000 3. Whatis the amount of cash disbursements per book in December? A. P1,254,850 C P1,256,850 B. P1,252,850 D. P1,248,850 i?rowounniniam AUDITING PROBLEMS 82 44 whatis the cash bank balance per bookas of December 31? ‘A. P426,050 C. P430,050 B. P428,250 D. P343,050 5. Whatis the adjusted cash balance as of December 31? AL P343,000 c. 347,000 B. 340,200 D. P344,200 . SOLUTION 1-27 1. Outstanding checks, December 31 (400 ~ P1400 ~ 3,000) 0,000 Answer: D Balance December Balance Nov.30 Recsots Disbursements Dec. 31 Fesbank statement _-P194,000 P1,487,000. 1,325, fe ak satener 325,000 356,000 Nov. 30 (23,000) (23,000) Dec. 31 y nb 40,000 (40,000) Now. 30 11,000 (44960, Dec. 31 000. Interest on note discounted ae eae (630.000 x 1 I 61960) 900 00 ee (4,000) (4,000) cocaeeeees (G00) 300 one ne. 1434 1400, ecg ck, 1562 a (1,400) Conte of ecko 150 i oo aura Cec dan by present (8.000) Orska Caten Suge 2.000) "2,000 Postate check presented for (2,000) 3,000 ayer Per Book baances ema Siam cacy ligne asa cuarren 1 AUDI OF CASH AND cash cauvatents 83 2. Book receipts in December Answer: & 3. Book disbursements in December Answer: D 4, Book balance on December 31 Answer: C Unadjusted balances ‘Outstanding checks Deposits in transit Interest on nate discounted ‘Bank service charge ‘Cancellation of check no. 1434 Error in recording check no. 1562 Cancellation of check no. 1584 Counter check Check of Chelsea charged in error Postdated check presented for payment Adjusted balance Answer: ® PROBLEM 1-28 1.496.800 P1.248,850 ‘P430,050 Book Bank 430,050 P356,000 (40,000) 24,000 (900) (300) 1,400 6,750 8,000 (2,000) 3,000 (490,000) 343.000 343,000 Proof of Cash: Book to Bank Balances Format ‘The following information was obtained in connection with the audit of PINKY COMPANY’ cash account as of December 31, 2018. Outstanding checks, Nov. 30, 2018 Outstanding checks, Dec. 31, 2018 Deposit in transit, Nov. 30, 2018 Cash balance per general ledger Dec. 31, 2018 P 16,250 12500 12500 - 16,08 37500 ‘Actual company collections from its customers -” )rrING PROBLES : ucusuronorent: AUDITING MS 8 152,500 surge 130,000 my bec pad by bank December s Compan rgestcrded COPAY sks in December z saanicechargesper December bankstatement 3,250 epost credited by bank during December 145,000 I service charges recorded on November ban Pe ‘company books in December ‘The cash receipts Book of December is underfooted by P2,500. 3.80 ‘The bank erroneously charged the company’s account for a P3,750. is bank error was corrected in January check of another depositor. 2019. 1, How much is the deposit in transit on December 31, 2018? A. 5,000 c.-P22,500 B, P20,000 /D. P1750) 2. The total unrecorded bank service charges as of December 31, 2018, is ‘A P750 P1750 B P2250 D. P&250 3. Whatisthe total bonk receipts in December? A. P1so000 . Pis5,000 8. P152500 D. P147500 4 What s the total amount of company checks issued in December? 4. P130,000 c 133,750 : 8. P123,000 D. 126,250 5. What isthe total bok disbursements in December? A. P123,750 © Pi6250 B. P128,500 D. P128750 ccrarren 1 alorror cast avo cs curs 85 6. Whatis the book balance on November 30, 20187 ‘A. P16,250 c. P37,500 B. P21,250 D. P35,000 7. What is the bank balance on November 30, 2018? A. /P23,0002),00 —C. P43,500 B. P18,500 D. P16250 \4250 8 What is the total bank receipts in December? (a) P120,000 \"2%" = C.P145,000 : B. P140,000 D. P#S0,000 yy (0) 9. What is the total bank disbursements in December? A, P154,500 C) P2950 S200 B. P132,500 D. P137,000 : 136%0 410. What is the bank balance on December 31, 2018? ‘A. 21,500 C. P3,000- 199 B. P26,500 D, P33,250719 009 SOLUTION 1-28 I 1. Deposit in transit, November 30 12,500 [0.). ‘Add: Company collections in December 152.300 Total Sean Less: Deposits credited by bank in December : Deposit in transit, December 31 20.000 1°) 0c Answer: B 73,250 2. Bank service charges per December bank statement Less: December bank service charges recorded ‘on company books in December (P2,500 ~ Pr;590) (200 Unrecorded December bank service charges Answer: B5. Oban a fier of encase: AUT HIN 86 3 Ac ver pecember cas) tess Us rece got eee ares 8 xing ces, December 31 4 ust spy bank in December Te astansing chess, November 30 Cheeks isued in December answer: D 5. necks issued in December (see n0. 4) ‘Add: Bank sevice charges recorded in December Book disbursements in December Answer: D 6. Book bolance, December 31 Add: Book disbursements in December (see no. 5) Total Less: Book receipts in December (see no. 3) December Book balance, November 30 Answer: A Pinky Co. PROOF OF CASH For the Month of December 2018, Bane December ; Nov.30 Receipts Disbursements Book balances: 7 Oustandns chads 16,250 P1S0,000 128,750 Now 30 16,250 16,250 Deposits in transt: — woon) 432 send heer (22.500) 5 12,500. (20,000) PROBLEMS 152,500 2.500 B450,000 P 12,500 130,000 142,500 16,250 P128.250 126,250 — 2,500 P128,750 37,500 128,250 166,250 150,000 16.250 12,500 (20,000) cuuarrer 1 AUDIT OF CASH AND CASH EQUIVALENTS. 87 sank service charges: Nov. 30 (1,500) (1,500) Dec. 31 2250 (2250) underfooting of Veo, “Grs0) December book receipts 2,500 2,500 Erroneous bank charge ay) (515) in December 3750 13,250) ‘Bank balances PHBSOO 145.000 132.000 226.500..-. Zpo00 Wsod YAO E 7. Bank balance, November 30, 2018 18,500 Ansiver: B 8, Total bank receipts in December 145,000 Answer: C 9, Total bank disbursements in December 137,000 Answer: D 10. Bank balance, December 31, 2018 26,500 Answer: 8 PROBLEM 1-29 _— Proof of Cash: Unadjusted to Adjusted Balances Format In your audit of HARRY INC’s cash account as of December 31, 2018, ‘you ascertain the following information: ‘The bookkeeper's bank reconciliation on November 30, 2018, is as follows: Balance per bank statement, November 30 24,298 ‘Add: Deposits in transit 3.648 727,946 Total Less: Outstanding checks No, 3408 P440ucamnimeres AUDITING PROBLED 88 . 300 No. 3413 ean No. 3414 4 No. 3416 , No. 3417 ibis ance , Ba pank service charge for November 36 Balance per general ledge, November 30 enero Check Repter a December ash Receipts Journal shows total receipts for December of Faoi766. The Check Register reflects total checks issued in Deceinber of P377,632. A collection of P5,912 was recorded on company books on December 31 but was not deposited until January 2.2019. ‘The balance per bank statement at December 31, 2018, is 17,516. This statement shows total receipts of P373,S02 and checks paid of 380,284. Your examination reveals the following additional information: 1) Check no. 3413 dated November 24, 2018, was entered in the Check Register as P300. Your examination of the paid checks returned with the December bank statement reveals that the amount ofthis check is P30. 2) Check no. 3417 was mutilated and returned by the payee. A replacement check (no. 3453) was isued. Both checks were enter fered inthe Check Register but no entry was mae to cancel 3) The December ban} Pago ember bank statement includes an erroneous charge of cunrren 1 AUD OF cas aN csi eames 89 4) 5) 6) On January 3, 2019, the bank informed i q your client that a December bank service charge of P42 was omitted from the statement Your examination of the bank credit memo accompanying the December bank statement discloses that it represents proceeds from the note receivable collection in December for P4,000. ‘The outstanding checks at December 31, 2018, are as follows: No. 3408 = P440. No. 3418 P2,814 No. 3417 800 No. 3419 5,788 ‘What is the total book disbursements for the month of December? ‘A. P377,668 . P377,632 B. P377,710 D. P377,596 ‘What is the book balance at December 31? A. 9,832 C. P9,754 B. P9868 D. 9,796 ‘The outstanding checks at December 31 totaled A. P8,602 c. P9,042. B. P9,072 D. 9,842 ‘What is the adjusted bank balance on November 30? A, P16,690 Cc. P16,804 B. P16,732 D. P16,774 ‘The adjusted book receipts for the month of December should be A. P375,724 c. P371,238 B. P371,766 D. P375,766 ‘The adjusted book disbursements for the month of December should be ‘A. P377,590 cc. P377,674 B. P377,662 D. P377,632usar, AUDITING PROBLEMS 90 7. Whatis the adjusted book balance on December 31 “a. Puas2e c Piast B. P1466 D. PI, & Aproof of cash used by an auditor ‘ay provides that the client's year-e stated. 3. Confirms that the client has properly separated the custody fonction from the recording function with respect to cash. . Validates that the client's bank did not make an error during the period being examined. . Determines whether any unauthorized disbursements ‘or unrecorded deposits were made for the given time period, snd balance of cash is fairly SOLOTION 1-29 1. Company checks issued in December 377,632 ‘dé: November bank service charge 36 ‘Total book disbursements in December (P372.668 answer: 2. Book balance, November 30 P15,698 ‘Ad0: December book réceints 37.766 Total 387,464 Less: December book disbursements 371.688 Bonk balance, December 31 P9796 Answer: D 3. Ourstanding chedks, December 31: Greckno, 3408 ied P 440 we 2,814 Toral 3.788 Answer: © 9,042 < HAPTER 1 AUDITOF CASH AND cas EQUIVALENTS 1 Balance Decemb Nov. 30 Peed Balance Book balances Pisce paniegemusemens De at Bank service charges: 7 7,668 P 9,796 November 30 36 December 31 os oo COverstatement of Nov. 2 (42) disbursement (check #3413) 270 2 Mutilated check (#3417) 800 800 Note collected by bank 4,000 4,000 ‘dj. book belances BIG.Z32 AU5.765 PHZUG74 © LSI Balance, December Balance Nov.30 Receipts Disbursements Dee. 31. Bank balances 24,298 373,502 P380,284 P17, 516. Deposits in transit: November 30 3,648 (3,648) December 31 5912 5912 Erroneous bank charge (480) 480 Bank service charge 42 (42) Outstanding checks: November 30 (11,214) (11.219) ‘December 31 9,042 _(9,042) ‘Adj, bank balances P16732 P375.766 377.674 P4824 4, Adjusted bank balance, November 30 P16.732 Answer: 8 5, Adjusted book receipts in December 375.266 Answer: D 6. Adjusted book disbursements in December (P372.674 Answer: ©trounanonamont: AUDITING PROD! 92 214.824 2. Adjusted book balance, December 31 Answer: A ‘A proot of cash usually consists of four columns, with reconciliations 8. Aprool Su ind reconciliations of 1 ‘beginning and end-of-period cash balances 2 eer aenpts and disbursements during the period. The amounts fn the ledger and on bank statement should reconcile both arr vray This reconlation detects unauthorized 1d unrecorded deposits for the period. This Is useful trot anol over cash transactions i weak or Inadequate. Answer: D PROBLEM 1-30 Proof of Cash: Unadjusted to Adjusted Balances Format The following data are assembled by the accountant of the HAROLD COMPANY: Nov.30,2018 Dec. 31.2018 Cash account balance 41,175.00 P100,712.50 Bank statement balance 267,705.00 344,542.50 Deposits in transit 20,502.50 32,200.00, Outstanding checks 69,295.00 75,280.00 Bank service charges 1,800.00, 1,500.00 NSF check * 20,625.00 Company's notes receivable collected by bank 179,537.50 202,250.00 “ Redeposited in the same month. No entries made to take up the return and redeposit. Tie bonk statement and the company’ cash records show the following ‘otals: Canceled checks and debit memos per bank statement 545,932.50 cuarter 1 AUDITOF CASH AND cas EQuivatents 93, Cash receipts per cash book Checks written per cash book saa79e30 Deposits and credit memos perbankstatement 2277000 4. What is the total book receipts in December? A. P613,84250 ©. Paitso2so B. P591,130.00 D. 580,330.00 2, What is the total book disbursements in December? A. P531,592.50 C. P533,092.50 B. P529,792.50 D. P531,29250 3, What is the adjusted book balance on November 30? A. P220,71250 C. P21a91250 B. P222,51250 D. p217,41250 4, The adjusted bank receipts in December should be A. P634,168.50 C. P632,667.50 B. P622,770.00 D. P634,467.50 5. The adjusted book disbursements in December should be A. P545,932.50 C. P548,917.50 BR, P552,517.50 D. P551,917.50 6. What is the adjusted book balance on December 31? A. P301,462.50 C. P322,087.50 B.. P302,662.50 D. P280,537.50 SOLUTION 1-30 50 1. Cash receipts per cash book 411,592. ‘Add: Notes collected by bank in November Azasi2.s0 Total book receipts in December Answer: Bee xmeuraee AUDITING PROBLEMS 94 P529,792.50 2, reds writen per November 1,800.00 iaad:, Bank service charge it EBL592.59 ae ook daburserent in December answer: A Balance December Balance aie) Recents Disbursements et. 31 enh, pag. rsadPzTOND PEHSEIDED FOHLSH2SD epost inst nay 050250 (2050250) beet 220000 32.2000 Outstanding checks: ‘Nov. > (69,225.00) (68,295.00) best 7528000 (75,280 jgrmes FEED STD SLD ROL Balance December Balance Nov. Rectbis Disbursements Dec. 31 Bale per ‘books P4t,175.00 PS91,130.00 531,582.50 P100,712.50 Bank sence barges Noveber (19000 (180000) December 1180000 (1500.00) NSF check 20,625.00 20,625.00 Caleinsot rates rena Noveber ——T9SITSD «(17085750 Oicnter = ____ aan s000 202.250.00 fj.romces PROS SD | Gaasrsy | BRST Passes 3. Adjusted boo bolance, November 39 paue.9i2.50 danse: C 4. Adjusted bank receipts in December jaee 934,067.50 5. Adjusted book disbursements in December pssi.o17.50 Answer: D ‘CHAPTER 1 AUDIT OF CASH AND casH EquIVaLeNTs 95 6, Adjusted book balance, December 31 Ansiver: & PROBLEM 1-31 Proof of Cash: Book to Bank Balances Format ‘The auditor of TSIKOY COMPANY gathered the following information: 1, The November 30 bank statement balance included bank service charges of P2,000. 2. The November 30 cash balance in the general ledger was 244,500. 3. Outstanding checks on November 30 were P63,000 while ‘undeposited receipts were P36,000. 4, The bank service charges as shown on the bank statement totaled 3,000. 5. The December 31 cash balance in the general ledger was 319,750, which recognized 482,750 for December receipts and 405,500 for checks written during December. In transit to the bank were receipts of P28,750. Checks of P15,000 written prior to December and checks of P60,S00 written in December had not yet cleared the bank, 1. Whatis the total book disbursements for December? ‘A. 403,500 cc. P407,500 B. P404,500 D. P405,500 2. Whatis the November 30 bank balance? A. P271,500 ¢. P268,500 B. P269,500 D. 266,500 |v 6 concer ii ber? 3. Whatis the total bank receipts? oo 250 ed . P488,000 B. P482,750 ii ? 4, What is the total bank E08 — A Peags00 D. 396,000 2 balance on December 31? : wai ‘ C. P322,750 8. 363500 D. 366,500 angen AUDITING PROBLEMS CHAPTER 1 avoir oF cash aNd cash EQuivavents 7 2, Bank balance, November 30 269,500 Answer: B 3, Total bank receipts in December p490,000 Answer: & 4, Total bank disbursements in December 326.000 Answer: D 5, Bank balance, December 31 363.500 wer: B PROBLEM 1-32 sovoTiow 1-31 1. Checks written during December 405,500 ‘Add: November bank service charges recorded ‘on company books in December 2,000 ‘Total book disbursements in December 407,500 Answer: C : Balance December Balance Nov. 30 Receipts Disbursements Dec. 31 Balance per books 244,500 482,750 407,500 319,750 Undeposited receipts: 2 (36,000) 36,000 Dec. 31 (28,750) (28,750) Outstanding checks: Nov. 30 63,000 63,000 Dec. 31 * tok service charges (75,500) 75,500 bee at (ne) (2,000) —— 3,000 3,000) Balance per bark — 259500 BaBOO09 Proof of Cash: Unadjusted to Adjusted Balances Format CO, has a current account in Pinoy Bank. Your audit of the 's cash account reveals the following: 1. Balances taken from the company’s general ledger: Cask balance, Nov. 30, 2018 637,860 Cash balance, Dec. 31, 2018 576,420 Receipts, Dec. 1-31, 2018 306,220 2. Balances taken from the December bank statement: Bank balance, Nov. 30, 2018 685,180 Bank balance, Dec. 31, 2018 637,220 Disbursements (debits) 356,080 3. Outstanding checks, Nov. 30, 2018 (P26,140 was paid by bank in December } 64,140 4. Checks written and recorded in December; not included in the checks returned with the 36,080 December bank statementncuumnonnae AUDITING PROBLEMS 98 15,260 5. Deposit in transit, Nov. 30, 2018 6. Deposit in transit, Dec. 31, 2018 16,140 it in December to |. Abank credit memo was issued in Dece! Foe rer an erroneous charge made in November 1,500 8. Note collected by bank in December (company was ‘not informed of the collection) 2,060 9, A check for P2,020 (payable to a supplier) was recorded in the Check Register in December as P3,000 980 10. A check for P2,240 was charged by the bank as P2,420 in December 180 11. Rodelio Co. issued a stop payment order to the bank in December. This pertains to a check written in December which was not received by the payee. Anew check was written and recorded in the Check Register in December. The old check was written off by. journal entry also in December. 780 12. Banksservice charge, Nov. 30, 2018 60 1. Whatis the total book disbursements in December? A P367,660 C. P369,720 B. P2¢4,780 D. P368,540 2 Whatiis the total bank receipts in December? A. P260,160 C. P306,060 B. P308,120 D. P309,020 cuarTeR 1 AUDIT OF casy AND CASH EQUIVALENTS 99 3, Whats the total outstandi A. P100,220 in ie ctesks on December 312 B. P38,000 D. Pree 4, Whats the adjusted bank balance on November 307 A. P636,300 C 637800 B. P685,180 D. 634,800 ‘What is the adjusted book receipts i De A. P307,500 c ma03380 B. P306,220 D. P305,440 6. Whatis the adjusted bank disbursements in December? A. P353,980 C. P345,960 B. P365,840 D. P366,020 7. Whatis the adjusted book balance on December 31? A. P577,500 C. P576,420 B. P577,400 D. P579,460 SOLUTION 1-32 1. Book balance, November 30 ‘Add: Book receipts in December Total Less: Book disbursements in December (SQUEEZE) Book balance, December 31 Answer: 2. Bank balance, November 30 685,180 ‘Add: Bank receipts in December (SQUEEZE) 308,12 Total z 983,300 Less: Bank disbursements in December 26.08 Bank balance, December 31 2537.20 Answer: Bf11NG PROBLEMS nnusssronce AUT 100 26,140) °38,000 sued veto vecerber (PAA a 2 oe pee eeastnding Beas, DECET! none December Balance Bart coigpasemenls De St 637/860 306,220 367,660 576,420 stance per books if nate cobected DY er om iprk in December x oventaterent of ‘December book c (980) 980 {3.000 - 2,020) a an eck stopped for payment Bork service charge in November __(60) —____ 60) +), book balances pezysoo 230.500 £365,040 570.460 Balance December Batance Nov.30 Recebts Disbursements Dec. 34 bork balances 605,180 208,120 P356,080 P637,220 Outstanding ceeds: ete (64,140) (64,140) ota "74,080 (74,080) Dees in trans comes i 15,260 (15,260) exon bank 16,140, 1s bank charge 16,140 ener 1,500 Overzatement of (1,500) bank Gabursement (0 December A), bari balances —__._ _{180) _180 P7800 FA07.500 365.800 579.460 4. ‘Adyeted bark balance, November 30 doswer: © ‘P637,800 CHAPTER 1 AUDIT OF CASH AND CASH EQUIVALENTS 301 5, Adjusted book receipts in December p75 Answer: & 6, Adjusted bank disbursements in December 365.840 Answer: B 7. Adjusted book balance, December 31 572.460 Answer: D PROBLEM 1-33 eee Proof of Cash: Unadjusted to Adjusted Balances Format Data for the ANNABELLE, INC. are shown below: Cash account balance P 20,340 P 48,540 Bank statement balance 107,060 137,820 Deposits in transit 8.200 12,880 Outstanding checks 27,700 30.100 Bank service charges fur the month, ‘not shown on company books 720 600 NSF checks returned by bank, not shown on company books 4300 6.240 Bank collections from company ‘customers, not shown on company books 72,240 80,900 ‘Additional information: 1. Deposits and credit memos per bank statement 249,100 2. Canceled checks and debit memos per bank statement 216.340 3. Cash receipts per cash book 172,880 4. Checks written per cash book 211,900 1, What is the total book receipts in December? ‘A. P172,080 c.P253,780 B. P245,120 D. P1B1,540