Accounting 21 Intermediate Accounting 1

Cash and Cash Equivalent

PROBLEM No. 1 – Adjustment to Cash

Your audit of the cash account of Albano Corporation reveals the following information:
1) Saving accounts of P1,500,000 and commercial checking account of P800,000 with Metropolitan
Bank and Trust Company. Balances were taken from Albano’s general ledger.
2) Three certificates of deposit with Metrobank, each totaling P1,000,000, with maturity dates of 90
days and less.
3) Money market placements with Axa Group of Companies, not intended to be terminated until 2016,
P3,000,000 face amount. Last value date was December 29, 2014; on which date, cumulative
income earned on the instrument is P200,000.
4) Checking account with Allied Bank for payroll fund, P1,200,00 and another checking account for tax
fund, P500,000.
5) A check for P35,000 for salaries of an employee on leave was recorded as disbursement on
December 15; the employee has not claimed the check as of December 31.
6) Savings account with Allied Bank, P900,000 as equipment acquisition fund, P480,000 of which was
earmarked for an equipment to be delivered in March 2015. You were able to verify that this
amount was actually disbursed in March 2015.
7) Petty cash fund with imprest balance of P20,000. Your count of the fund on January 4, 2015
revealed the following fund composition: Bills and coins, P12,000; paid petty cash vouchers, all
dated December 2014, P6,800; IOUs from employees, with no supporting petty cash vouchers,
P1,200; and a check drawn against Metrobank checking account in the amount of P5,300 covering
Meralco bill for the period November 29 to December 30, 2014.
8) Checks from customers in settlement of account, both on sales invoices for the month of December
2014, totaling P85,000. The checks were verified to have been recorded in the December cash
receipts journal, although one check for P25,000 was dated January 8 ,2015.
9) All the checks proved to be good when subsequently deposited.

1. Prepare all the necessary audit adjusting entries as a result of the foregoing.
2. Determine the amount that will be reported as Cash and Cash Equivalents on the December 31, 2014 Statement of Financial
Position.

PROBLEM No. 2 – Adjustment to Cash

The “Cash” account in the ledger of Albano Jr. Company on December 31, 2014 had a balance of P1,640,000. An
examination of the account disclosed the following:

1. The sales book was left open up to January 10, 2015 and cash sales totaling P285,200 were considered as cash
sales in 2014.
2. Checks of P19,300 in payable of utilities were prepared before December 31, 2014 and recorded in the books on
the same date, but mailed or delivered only on January 5, 2015.
3. Customers’ checks with January 2015 dates totaling P57,800 are being held by the cashier and were included as
part of cash on December 31, 2014. The company’s experience shows that postdated checks are eventually
realized.
4. Customer’s check for P32,500 deposited with the bank on December 15, 2014 was returned on December 18,
2014. The return was not recorded in the book.
5. The cash account includes P230,000 set aside for payment of dividends.
6. The cash account includes a check received from a customer in May 2014 for P3,500, which the company failed
to deposit. Verification from customer reveals that the amount will eventually be realized.
7. The cash account includes change fund amounting to P5,000. When the fund was counted, only P4,450 was
found.
8. The cash account includes P400,000 fund for payroll.
9. The cash account includes petty cash fund amounting to P20,000. The fund was replenished last December 24,
2014. When the fund was counted on January 3, 2015, the following were found:
Bills and coins P13,000
Vouchers with December 2014 dates 5,500
Vouchers with January 2015 dates 1,200

10. An examination of the company’s sales invoice revealed that P13,500 check was received on December 30,
2014 from sale of scrap materials. The amount cannot be traced from the cash receipts book but was verified to
have been deposited to the bank.

3. For each of the above items, prepare the necessary audit adjustment to bring the cash account to its correct balance as of
December 31, 2014.
4. Determine the correct amount of cash to be presented on December 31, 2014 Statement of Financial Position.
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Accounting 21 Intermediate Accounting 1

Cash and Cash Equivalent

PROBLEM No. 3 – Petty Cash

In your process of preparing the financial statements of Kurt Co., Inc., you review the books and records of Kurt Co.,
Inc. as of December 31, 2014. On January 4, 2015, at 1:30 pm, you began counting the petty cash fund and other cash
that might be on hand with the cashier, Miss Fei Redoblado, and you found bank notes, coins, checks, vouchers, and so
forth as disclosed below:

BILLS: 5 twenties

COINS: P0.25 pieces - 3 rolls and 22 loose (50 pieces to a roll)

P0.10 pieces - 8 rolls and 20 loose (50 pieces to a roll)

CHECKS:
Maker Date Payee Amount
Kurt Redoblado, Manager December 24, 2014 Kurt Co., Inc. 2,000.00
Fei Redoblado, petty cashier December 22, 2014 Kurt Co., Inc. 3,000.00

IOU's:
Denis Keith Madelar, clerk October 21, 2014 2,500.00
J. Mayores, messenger December 20, 2014 1,500.00
RJ Redoblado, accountant December 23, 2014 1,000.00

UNREPLENISHED PETTY CASH VOUCHERS:

Payee Date Account Charged Amount
B A L December 15, 2014 Freight in 1,365.00
D. Madelar, janitor December 17, 2014 Advances to employees 250.00
Zuniga & Co., Inc. December 18, 2014 Supplies 1,125.00
PhilPosts (stamps) December 20, 2014 Supplies 2,000.00
J. Mayores, messenger December 21, 2014 Miscellaneous expense 1,020.00
Jose Trading Co. December 21, 2014 Supplies 835.00

You also found that the petty cash fund amounted to P35,000.

Further investigation also disclosed that the cash sales from January 2, 2015 amounted to P55,540.00 as shown by the
sales records while the Cash Receipts Books and the Bank Deposit Slip showed that only P45,540 was deposited in the
bank on January 3, 2015. You also found that the pay envelops of the following employees had been opened and the
money removed. Each envelop was marked “Unclaimed” and opened.

J. Armenta - week ended December 30, 2014 2,465.00

T. Galang - week ended December 23, 2014 2,325.00

5. Calculate the total cash count.

6. Compute the adjusted petty cash balance.
7. Compute the shortage from petty cash, if any.

PROBLEM No. 4 – Reconstruction of Cash Account

Tere Sita Co. was organized on January 2, 2010. The following items are from the company’s trial balance on December
31, 2010.

Ordinary share capital 1,500,000

Share premium 150,000
Merchandise inventory 69,000
Land 1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Accounts receivable 165,400
Accounts payable 389,650
Notes payable - bank 500,000
Sales 6,235,200
 Operating expenses (including depreciation of P400,000) 1,005,150

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Accounting 21 Intermediate Accounting 1

Cash and Cash Equivalent

Additional information is as follows:

1. Deposits in transit, December 31 384,660

2. Service charge for December 2,000
3. Outstanding checks, December 31 475,000
4. Bank balance, December 31 892,000
5. Tere Sita Co.’s mark up on sales is 30%

8. What is the total collections from sales?

9. What is the total payments for merchandise purchases?
10. What is the total cash receipts per books?
11. What is the total cash disbursements per book?
12. What is the cash balance per books on December 31?
13. What is the adjusted cash balance on December 31?

PROBLEM No. 5 – Bank Reconciliation

The statement for the checking account of Cisco Systems, Inc. (CSI) showed a December 31, 2010 balance of P1,463,212.
Information that night be useful in preparing a bank reconciliation are as follows:

1. Outstanding checks were P140,000.

2. The December 31, 2010 cash receipts of P59,500 were not deposited in the bank until January 2, 2011. 3. One
check written in payment of rent for P24,600 was correctly recorded by the bank but was recorded by CSI as a
P26,400 disbursements.
4. In accordance with prior authorization, the bank withdrew P45,000 directly from the checking account as payment
of a mortgage note payable. The interest portion of that payment was P5,000. CSI has made no entry to record
the automatic payment.
5. Bank service charge of P1,400 were listed in the bank statement.
6. A deposit of P87,500 was recorded by the bank on December 13, but it did not belong to CSI. Further verification
with the bank indicates that the deposits should have been credited to the checking account of CIS, Inc. 7. The bank
statement included a charge of P12,500 for a customer’s DAIF check. The check was returned with the bank
statement and the company will seek payment from the customer.
8. CSI maintains a P20,000 petty cash fund that was appropriately reimbursed at the end of December. 9. According
to the instructions from CSI on December 30, the bank withdrew P1,000,000 from the account and purchased
Philippine Treasury bills for CSI. CSI recorded the transaction is its books on December 31 when it received notice
from the bank. Half of the treasury bills mature in two months and the other half in six months.

14. What is the cash balance per book?

Suggested Solution:
Per bank Per book
Unadjusted balances
Outstanding checks
Undeposited receipts
Error in recording check issued for rental payment
Bank charge for payment of loan and interest
Bank service charges
Deposit of another company
Customer’s DAIF check
Adjusted balances

15. The adjusting entry includes

16. What amount would CSI report as cash and cash equivalents in the current section of the December 31, 2010 statement of financial
position?

PROBLEM No. 6 – Proof of Cash

The treasurer of Bokia Company prepared the following correct bank reconciliation as of April 30, 2013:
 Balance per bank statement, April 30 470,360
Add: Deposit in transit 29,360
499,720
Deduct: Outstanding checks 144,800
354,920

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Accounting 21 Intermediate Accounting 1

Cash and Cash Equivalent

Balance per ledger, April 30 363,040

Less: Customer’s DAIF check 8,000
Service charges 120 8,120
Adjusted balance 354,920

The bank statement for May shows:

Balance, May 1, 2013 470,360
Deposits 883,200
1,353,560
Checks cleared 1,320,320
Service charges 280 1,320,600
Balance, May 31, 2013 32,960

The Bokia Company deposits shown on the bank statement include the proceeds of a P240,000 note payable drawn by the
treasurer of Bokia Company payable to the bank in 60 days. No entry was made for the note in the company’s books. The
total cash receipts as shown by Bokia Company records amount to P654,000, and the total checks recorded amount to
P613,120. This latter total does not include one check drawn and signed by the treasurer payable to himself. The treasurer
has disappeared. No records of this check appears anywhere in the company’s records. Checks outstanding on May 31,
2013, total P133,600. The DAIF check and the service charge for April were recorded by the company in May.

By preparing a proof of cash, determine the following:

17. Unadjusted disbursement for May 31 in the company’s records

18. Unadjusted cash balance as of May 31 in the company’s records
19. Undeposited receipts as of May 31
20. The amount of the check drawn payable to the cashier
21. Adjusted cash balance as of May 3

Suggested Solution:
Apr. 30 Receipts Disbursement May 31
Unadjusted bank balance
Deposits in transit
April 30
May 31
Outstanding checks
April 30
May 31
Adjusted balances
May 1-31
Apr. 30 Receipts Disbursement May 31
Unadjusted book balances
DAIF checks returned by bank
April 30
May 31
Bank service charges
April
May
Check issued by the treasurer to himself
Proceeds of loan granted by bank
May
Adjusted balances

-End-

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