Mindanao State University

College of Business Administration and Accountancy

Department of Accountancy

INTERMEDIATE ACCOUNTING I
First Prelim Quiz
Cash and Cash Equivalents, Bank Reconciliation, and Proof of Cash

Name: Score:
Instructor: Norhanimah M. Mangondato Date: March 17, 2022

Part I. Theories
Instruction: Write the letter of your chosen answer for each item in the Answer Sheet
provided.

1. What is the basic requirement for cash and cash equivalent?

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in bank

2. Which of the following statements in relation to a certified check is false?

a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise accept a
personal check.
c. A certified check is one drawn by a bank upon itself.
d. A certified check should not be included in the outstanding checks.

3. Which of the following statements in relation to bank reconciliation is true?

a. Bank service charge will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal.
b. Credit memos will cause the cash balance per ledger to be higher that that reported by
the bank, all other things being equal.
c. Outstanding checks will cause the cash balance per ledger to be greater than the balance
reported by the bank, all other things being equal.
d. The cash amount reported in the statement of financial position must be the balance
reported in the bank statement.

4. Petty cash fund is

a. Separately classified as current asset
b. Money kept on hand for making minor disbursements of coin and currency rather than by
writing checks
c. Set aside for the payment of payroll
d. Restricted cash

5. Under which classification is cash restricted for plant expansion reported?

a. Currents assets
b. B. Noncurrent assets
c. Current liabilities
d. Equity

6. In reimbursing the petty cash fund, which of the following is true?

a. Cash is debited
b. Petty cash is debited
c. Petty cash is credited
d. Expense accounts are debited
7. At the end of the current year, an entity had various checks and papers in the safe. Which of
the following should not be included in “cash” in the current year-end statement of financial
position?
a. P20,000.00 cash
b. Past due promissory note issued in favor of the entity by the President
c. Another entity’s P150,000.00 check payable to the entity dated December 15 of the
current year
d. The entity’s undelivered check payable to a supplier dated December 31 of the current
year

8. Deposits held as compensating balance

a. Usually do not earn interest
b. If legally restricted and held against short-term credit may be included as cash.
c. If legally and held against long-term credit may be included among current assets.
d. None of these

9. Bank statements provide information about all of the following, except

a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor

10. Which of the following must be deducted from the bank statement balance in preparing a
bank reconciliation which ends with adjusted cash balance?
a. Deposit in transit
b. Outstanding check
c. Reduction of loan charged to the account of the depositor
d. Certified check

11. A proof of cash would be useful for

a. Discovering cash receipts that have not been recorded in the journal
b. Discovering time lag in making deposits
c. Discovering cash receipts that have been recorded but have not been deposited
d. Discovering separation of incompatible duties of employees

12. Which of the following is not a characteristic of a system of cash control?

a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals

13. Which of the following is usually considered cash?

a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated check

14. Bank overdraft generally should be

a. Reported as deduction from current assets
b. Reported as a deduction from cash
c. Netted against cash and a net cash amount reported
d. Reported as a current liability

15. All of the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
 d. A bank overdraft

16. Which of the following is not considered as a cash equivalent?

a. A three-year treasury note maturing on January 31 of the next year purchased by the
entity on December 1 of the current year
b. A three-year treasury note maturing on January 31 of the next year purchased by the
entity on October 1 of the current year
c. A 90-day T-bill
d. A 60-day money market placement

17. Which of the following statements is incorrect?

a. The accounting function should be separated from the custodianship of assets.
b. Certain clerical personnel should be rotated among various jobs.
c. The responsibility for receiving merchandise and paying for it should usually be given to
one person.
d. An entity’s personnel should be given well-defined responsibilities.

18. If the cash balance shown in the accounting records is less than the correct cash balance
and neither the entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the entity

19. The internal control feature specific to petty cash is

a. Separation of duties
b. Assignment of responsibility
c. Proper authorization
d. Imprest system

20. If material, deposits in foreign bank which are subject to foreign exchange restriction shall
be classified
a. Separately as current asset, with appropriate disclosure
b. Separately as noncurrent asset, with appropriate disclosure
c. Be written off as loss
d. As part of cash and cash equivalents

21. All of the following may be included in “cash,” except

a. Currency
b. Money market instrument
c. Checking account balance
d. Saving account balance

22. Which of the following shall not be considered cash for financial reporting purposes?
a. Petty cash fund
b. Money orders
c. Money market saving certificate
d. Postdated check

23. The following statements relate to cash. Which statement is true?

a. The term “cash equivalent” refers to demand credit instruments such as money order
and bank drafts.
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover
all normal operating expenses for a period of time.
c. Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related obligation for which the cash was restricted.
 d. Compensating balances required by a bank should always be excluded from “cash and
cash equivalent”.

24. A cash over or short account

a. Is not generally accepted
b. Is debited when the petty cash fund proves out over
c. Is debited when the petty cash fund proves out short
d. Is a contra account to cash

25. If the cash balance in a company’s bank statement is less than the correct cash balance
and neither the company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Bank charges not yet recorded by the company
d. Deposits in transit

26. The payments of accounts payable made subsequent to the close of the accounting period
are recorded as if they were made at the end of the current period.
a. Window dressing
b. Kiting
c. Lapping
d. Imprest system

27. Which of the following statements is false?

a. Not all items included in cash constitute legal tender.
b. Cash may be offset against a liability if the deposit of funds in restricted account clearly
constitutes the legal discharge of the liability.
c. Legally restricted bank deposit held as compensating balances should be segregated
from the cash account and reported under a separate caption.
d. One-year BSP treasury bills with remaining maturity of three months on balance sheet
date may be shown as part of “cash and cash equivalents” provided this is disclosed.

28. The journal entries for a bank reconciliation

a. Are taken from the balance per bank only
b. May include a debit to office expense for bank service charges
c. May include a credit to accounts receivable for an NSF check
d. May include a debit to accounts payable for an NSF check

29. Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash.
b. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months.
c. Short-term and highly liquid investments that are readily convertible into cash and so
near their maturity that they represent insignificant risk of changes in value because of
changes in interest rates.
d. Short term and highly liquid marketable equity securities.

30. When preparing a bank reconciliation, bank credits are

a. Added to the bank statement balance
b. Deducted from the bank statement balance
c. Added to the balance per book
d. Deducted from the balance per book

Part II. Problems

Instruction: Write the amount of your answer for each item in the Answer Sheet provided. In
addition, you are required to show your corresponding solution for each problem in a separate
sheet of paper. Said Solution Sheet need not be encoded, just take a picture of it and submit
with your Answer Sheet.

The Witcher Company had the following account balances on December 31, 2019.
 Cash in bank – current account 5,000,000
Cash in bank – payroll account 1,000,000
Cash on hand 500,000
Cash in bank – restricted account for building
construction expected to be disbursed in 2020 3,000,000
Time deposit, purchased December 15, 2019 and
due May 15, 2020 2,000,000
The cash on hand included a P200,000 check payable to Pygmalion, dated January 15,
2020.

31. What should be reported as cash and cash equivalents on December 31, 2019?

Snow Company reported the following information as of the end of the current year:
 Share investments of P1,000,000 that are very actively traded in the stock market.
 Government treasury bills of P2,000,000 with a 10-year term but purchased on
December 31 at which time they had two months to go until maturity.
 Cash of P3,400,000 in the form of coin, currency, saving account and checking account.
 Commercial papers of P1,500,000 with a term of nine months but were purchased on
December 31 at which time they had three months to go until maturity.

32. What total amount should be reported as cash?

33. What total amount should be reported as cash equivalent?
34. How much should be reported as total cash and cash equivalents?

Angel Company had the following account balances on December 31, 2019.
Petty cash fund 50,000
Cash in bank – current account 4,000,000 Cash in
bank – payroll account 1,200,000
Cash in bank – sinking fund 2,000,000
Cash on hand 500,000
Cash in bank – restricted account for plant addition
expected to be disbursed in 2020 1,500,000
Treasury bills 1,000,000

 The petty cash fund included unreplenished December 2019 petty cash expense
vouchers of P5,000 and employee IOU of P5,000.
 The cash on hand included a P100,000 check payable to Angel Company dated January
15, 2020.
 In exchange for a guaranteed line of credit, the entity l has agreed to maintain a
minimum balance of P200,000 in its unrestricted current bank account.
 The sinking fund is set aside to settle a bond payable that is due on June 30, 2020.

35. What should be reported as cash and cash equivalents on December 31, 2020?

Belle Company reported petty cash fud which comprised the following:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager’s check returned by bank marked “NSF” 1,000
 Check drawn by the entity to the order of petty cash custodian 2,700

36. What is the correct amount of petty cash fund for statement presentation purposes?

Geralt of Rivia Company kept all cash in a checking account. An examination of the bank
statement for the month of December revealed a bank statement balance of P8,470,000.

A deposit of P950,000 placed in the bank’s night depository on December 29 does not appear
on the bank statement.

Checks outstanding on December 31 amount to P270,000.

The bank statement showed that on December 25, the bank collected a note for Geralt of Rivia
Company and credited the proceeds of P935,000 to the entity’s account which included
P35,000 interest.

The company discovered that a check written for P183,000 in payment of an account had been
recorded as P138,000.

Included with the December 31 bank statement was an NSF check for P250,000 that Geralt of
Rivia Company had received from a customer on December 20.

The bank statement showed a P15,000 service charge for December.

37. What is the adjusted cash in bank on December 31?

38. What is the unadjusted balance per book on December 31?
39. What is the net adjustment to cash in bank on December 31?

Marvel Company had the following bank reconciliation on June 30:

Balance per bank statement, June 30 3,000,000
Deposit in Transit 400,000
Total 3,400,000
Outstanding checks (900,000)
Balance per book, June 30 2,500,000

The bank statement for the month of July showed the following:
Deposits, including P200,000 note collected for Marvel 9,000,000
Disbursements, including P140,000 NSF customer check
and P10,000 service charge 7,000,000

All reconciling items on June 30 cleared through the bank in July. The outstanding checks
totaled P600,000 and the deposit in transit amounted to P1,000,000 on July 31.

40. What is the adjusted cash in bank on July 31?

41. What is the cash balance per book on July 31?
42. What is the amount of cash receipts per book in July?
43. What is the amount of cash disbursements per book in July?

Stark Company provided the following bank reconciliation on May 31:

Balance per bank statement 2,100,000
Deposits outstanding 300,000
Checks outstanding ( 50,000)
Correct cash balance 2,350,000
 Balance per book 2,360,000
Bank service charge ( 10,000)
Correct cash balance 2,350,000

Data for the month of June:

Bank Book
Checks recorded 2,300,000 2,400,000
Deposits recorded 1,700,000 1,800,000
Collection by bank, P500,000
note plus interest 550,000 -
NSF check returned with June 30 statement 100,000
Balances 1,950,000 1,750,000

44. What is the amount of checks outstanding on June 30?

45. What is the amount of deposits in transit on June 30?
46. What amount should be reported as adjusted cash in bank on June 30?

Percy Company showed the following bank information on August 31:

Balance of cash in bank account 1,300,000
Balance of bank statement 1,200,000
Outstanding checks, August 31:
Number 555
761
762
763
764
765
Receipts of August 31, deposited September 1
Service charge for August
NSF check receipt from a customer

 The cashier-bookkeeper had misappropriated P30,000 and an additional P10,000 by

charging sales discounts and crediting accounts receivable.
 The stub for check number 765 and the invoice relating thereto showed that it was for
P50,000. It was recorded incorrectly in the cash disbursements journal as P70,000. This
check was draw in payment of an account payable.
 Payment has been stopped on check number 555 which was drawn in payment of an
account payable. The payee cannot be located.

47. What is the adjusted cash in bank on August 31?

Shown below is the bank reconciliation for Wilson Company for the month of May:
Balance per bank, 5/31 75,000
Add: Deposits in transit 12,000
Total 87,000
Less: Outstanding checks 14,000
Bank credit in error 5,000 19,000
Balance per books, 5/31 68,000

The bank statement for the month of June contains the following data:
Total deposits 55,000
Total charges including an NSF check
 of P4,000 and a service charge of P200 48,000

All outstanding checks on May 31, including the bank credit, were cleared in the bank in June.
There were outstanding checks of P15,000 and deposits in transit of P19,000 on June 30.

48. The total cash receipts per books in June is?

49. The total cash disbursements per books in June is?

Peter Parker Company reported the checkbook balance on December 31, 2019 at P5,000,000
and held the following items on same date:

Check payable to Peter Parker, dated January 2, 2020 in

payment of a sale made in December 2019, not
included in December 31 checkbook balance. 2,000,000
Check payable to Peter Parker, deposited December 15
and included in December 31 checkbook
balance, but returned by bank on December 30
stamped “NSF”. The check was redeposited on
January 2, 2020 and cleared on January 9, 2020 500,000
Check drawn on Peter Parker’s account, payable to a vendor, dated
and recorded in Peter Parker’s books on December 31, 2019
but not mailed until January 10, 2020 300,000
Certificate of time deposit 1,000,000

50. What amount should be reported as cash on December 31, 2019?