AUDITING & ASSURANCE: CONCEPTS & APPLICATIONS SCORE

QUIZ # 4
TOPIC(s) COVERED: AP 03 – AUDIT OF CASH AND CASH EQUIVALENTS

NAME:__________________________ YEAR & SECTION:__________ DATE:____________

INSTRUCTIONS: FROM THE FOLLOWING MULTIPLE CHOICE QUESTIONS BELOW, CHOOSE THE LETTER OF
THE BEST ANSWER BY SHADING IT TO A SEPARATE ANSWER SHEET PROVIDED.

PROBLEM 1
You were able to gather the following from the December 31, 2021 trial balance of
OKLAHOMA CORP. in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000

Cash on hand includes the following items:

a) Customer’s check for P40,000 returned by bank on December 26, 2021 due to
insufficient fund but subsequently redeposited and cleared by the bank on January
8, 2022.
b) Customer’s check for P20,000 dated January 2, 2022, received on December 29, 2021.
c) Postal money orders received from customers, P30,000.

The petty cash fund consisted of the following items as of December 31, 2021.
Currency and coins P 2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity”
with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by OKLAHOMA CORP., payable to the petty cashier 4,000
P10,100
Included among the checks drawn by OKLAHOMA CORP. against the BPI current account and
recorded in December 2021 are the following:
a) Check written and dated December 29, 2021 and delivered to payee on January 2, 2022,
P80,000.
b) Check written on December 27, 2021, dated January 2, 2022, delivered to payee on
December 29, 2021, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn
in excess of the deposit balance. These checks were still outstanding at December 31,
2021.

The savings account deposit in PNB has been set aside by the board of directors for
acquisition of new equipment. This account is expected to be disbursed in the next 3
months from the balance sheet date.

REQUIREMENTS: Based on the above and the result of your audit, determine the adjusted
balances of following:
1. Cash on hand
A. P410,000 C. P470,000
B. P530,000 D. P440,000
SOLUTION:
Unadjusted cash on hand P500,000
NSF check (40,000)
Post dated check received (20,000)
Adjusted cash on hand P440,000

2. Petty cash fund

A. P6,000 C. P2,000
B. P7,200 D. P4,900
SOLUTION:
Petty cash fund per total P10,100
Employees' vales (IOU) (1,600)

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 1
Aim…Believe..Claim
 Currency in envelope marked "collections for charity" (1,200)
Unreplenished petty cash vouchers (1,300)
Petty cash fund, as adjusted P 6,000

3. BPI current account

A. P1,000,000 C. P1,080,000
B. P1,120,000 D. P1,040,000
SOLUTION:
Unadjusted BPI current account P1,000,000
Unreleased check 80,000
Post dated check delivered 40,000
Adjusted BPI current account P1,120,000

4. Cash and cash equivalents

A. P2,917,200 C. P3,052,000
B. P3,074,900 D. P3,066,000
SOLUTION:
Cash on hand P 440,000
Petty cash fund 6,000
BPI current account 1,120,000
Security Bank current account (net of overdraft of P80,000) 1,000,000
PNB time deposit 500,000
Cash and cash equivalents, as adjusted P3,066,000

5. How does the auditor typically test for the existence of cash?
A. Inquiry of management
B. Standard bank confirmation
C. Counting cash at the depository institution
D. Tracing the bank reconciliation to the general ledger

PROBLEM 2
You are assigned to audit the cash accounts of ORLANDO CORP. for the period ended
December 31, 2016. The following is an excerpt of the company's trial balance as of
December 31, related to the company's cash accounts:
Petty cash fund, imprest balance P 40,000
Cash in bank, Metrobank 543,910

Audit notes:
a) You rendered a cash count on the company's petty cash fund on December 31. The
custodian presented to you the following:
Currencies and coins 11,450
An officer's personal check accommodated by the fund marked NSF 4,000
Manager's check 2,000
Petty cash expense vouchers:
12/20 Transportation 1,500
12/24 Office' repairs 1,900
12/27 Miscellaneous 2,100
Unused postage stamps 500
A disbursement check payable 'to the custodian 15,600
An enveloped marked "collections or charity" with list
of names and corresponding amounts contributed.
There is no money inside the envelope. 2,500

b) The November bank reconciliation statement included the following information:

Balance per general ledger 326,830
Note receivable collected by the bank in November 125,000
Interest on the Note receivable in November 12,500
Bank service charge in November (5,600)
Customer NSF check (25,000)
Adjusted balance P 433,730

Balance per bank statement in November 467,500

Deposits in transit 55,790
Outstanding checks 98,460
Bank charge error in November 8,900
Adjusted balance P 433,730

• The November book reconciling items were recorded in the books in December while
the bank charge error in November was automatically corrected by the bank in
December.
• The bank collected another P 100,000 note receivable in December with a P 10,000
interest on the company's behalf.

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 2
Aim…Believe..Claim
• Bank service charge for December was P 8,100.
• The company erroneously recorded a. disbursement check amounting to P 56,000 as P
65,000 in December. The error is yet to be corrected.
• The bank erroneously credited the company P 21,000 for a deposit of ORLANDO. The
bank discovered and corrected the error in December.
• Total bank credits and debits appearing in the December bank, statement were at
P2,670,600 and P2,441,920, respectively, Moreover, total receipts per the general
ledger was at P 2,659,110.

REQUIREMENTS:
6. What is the petty cash shortage as of December 31, 2016?
A. 3,860 C. 3,950
B. 1,360 D. 5,860
SOLUTION:
Imprest balance of petty cash fund P40,000
Undeposited collections for charity 2,500
Total accountability P42,500
Total valid items accounted for:
Currencies and coins 11,450
An officer's personal check accommodated marked NSF 4,000
Manager's check 2,000
Petty cash expense vouchers:
12/20 Transportation 1,500
12/24 Office' repairs 1,900
12/27 Miscellaneous 2,100
A disbursement check payable 'to the custodian 15,600 38,550
Total petty cash shortage P3,950

7. What is the adjusted balance of the petty cash fund as of December 31, 2016?
A. 29,050 C. 28,550
B. 28,050 D. 26,550
SOLUTION:
Currencies and coins P11,450
A disbursement check payable 'to the custodian 15,600

Unused postage stamps (500)

Total adjusted balance of petty cash fund P26,550

8. What is the December deposit in transit?

A. 46,700 C. 37,800
B. 25,700 D. 55,700
SOLUTION:
Deposit in transit, beginning P55,790
Add: Deposit made by the company this month 2,521,610
Total deposit to be acknowledged by the bank 2,577,400
Less: Deposit acknowledged by the bank this month (2,530,700)
Deposit in transit, end P46,700

Book receipts (debits) P2,659,110 Bank receipts (credits) P2,670,600

Less: Less:
Credit memos last month (137,500) Credit memos this month (110,000)
Book errors last month Bank errors last month
corrected this month: corrected this month:
Understatement of CR - Understatement of CR -
Overstatement of CD - Overstatement of CD (8,900)
Book errors this month: Bank errors this month:
Overstatement of CR - Overstatement of CR (21,000)
Add: Understatement of CR - Add: Understatement of CR -
Deposits made by Deposits acknowledged
the company P2,521,610 by the bank P2,530,700

9. What is the December outstanding check?

A. 88,070 C. 96,970
B. 67,070 D. 97,070
SOLUTION:
Outstanding checks, beginning P98,460
Add: Checks issued by the company this month 2,402,430
Total checks to be paid by the bank 2,500,890
Less: Checks paid by the bank this month (2,412,820)
Outstanding checks, end P88,070

Book disbursements (credits)* P2,442,030 Bank disbursements (debits) P2,441,920

Less: Less:
Debit memos last month (30,600) Debit memos this month (8,100)
Book errors last month Bank errors last month
corrected this month: corrected this month:
Overstatement of CR - Overstatement of CR -
Understatement of CD - Understatement of CD -

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 3
Aim…Believe..Claim
 Book errors this month: Book errors this month:
Overstatement of CD (9,000) Overstatement of CD (21,000)
Add: Understatement of CD - Add: Understatement of CD -
Checks issued by the company P2,402,430 Checks paid by the bank P2,412,820
* (P326,830 + P2,659,110 – P543,910)

10. In auditing the client-prepared bank reconciliation statement, the auditor requested
the client to request the bank to furnish the auditor a cut-off bank statement of
the following period. The purpose of the cut-off bank statement is primarily to;
A. To ascertain whether all outstanding checks as of the balance sheet date, as
presented in the client-prepared bank reconciliation statement subsequently
clears the bank the following period.
B. To ascertain whether deposits in transit and undeposited collections as of the
balance sheet date, as presented in the client-prepared bank reconciliation
subsequently clears the bank the following period.
C. To determine the validity of the unrecorded bank credits for the current month,
such as note collection by the bank in behalf of the company.
D. To determine the whether all' deposits clearing the bank during the cut-off
period covered by the cut-off bank statement are presented as book reconciling
item as of the balance sheet date.

PROBLEM 3
Shown below is the May 31, 2021, bank reconciliation prepared by your client's staff,
RECONCILIATION
May 31, 2021
Bank balance P 652,000
Add: Deposit in transit __10,000
Total P 662,000
Less: Outstanding checks
No. 640 P 10,000
652 8,000
653 2,000 ___20,000
Adjusted bank balance P 642,000

Book balance P 570,800

Add: Proceeds of note receivable collected in May P 70,000
Deposit on May 31 not recorded on books until June __2,000 ___72,000
Total: P 642,800
Less: Bank service charge _____800
Book Balance P 642,000

Bank statement is shown below:

May 31, 2021 – June 30, 2021

Date Checks Deposits

June 1 8,000 10,000
June 8 2,000
June 11 14,000 20,000
June 13 1,000 DM 1,000
June 16 4,000
June 21 12,000 56,000
June 27 18,000
June 29 1,000 EC 1,000 EC
June 30 200 SV
June 30 3,000 DM

SV – Service Changes DM – Debit Memo

EC – Error CorrectedCM – Credit Memo

The paid checks accompanying this hank statement (all clearing in June) are the
following:

No. 652 P 8,000 No. 654 P 14,000 No. 657 P 12,000

No. 653 P 2,000 No. 655 P 4000 No. 658 P 18,000
The check register reveals that the last cheek issued in June is No. 659 for P 5,000
and that check no. 656 is for P 2,600.

Cash received for the period June 22 through June 30 of P 70,000 was deposited in the
bank on July 1. The debit memos on June 13 and June 30 represent customer’s' NSF checks
returned by the bank. The June 13 NSF check was immediately redeposited without entry.
The June 30 NSF checks was redeposited on July 1 without entry.

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 4
Aim…Believe..Claim
REQUIREMENTS:
11. What is the total bank receipt in June?
A. P 77,000 C. P 87,000
B. P 78,000 D. P 88,000

12. What is the total bank disbursement in June?

A. P 58,000 C. P 59,200
B. P 58,200 D. P 63,200

13. What is the total book receipt in June?

A. P 88,000 C P 218,000
B. P 46,000 D. P 220,000

14. What is the total book disbursement in June?

A. P 53,000 C. P 57,400
B. P 56,400 D. P 63,200

15. What is the book balance on June 30, 2018?

A. P 676,800 C. P 732,400
B. P 732,200 D. P 729,200
SOLUTION:
Balance Balance
May 31 Receipts Disbursements June 30
Bank balances P 652,000 P 88,000 P 63,200 P 676,800
Deposits in transit:
May 31 10,000 (10,000)
June 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 . __(1,000) _(1,000) _______
Book balances P 570,800 P 218,000 P 56,400 P 732,400

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 5
Aim…Believe..Claim
 - END OF EXAMINATION -

Auditing & Assurance: Concepts & Applications by Karim G. Abitago, CPA Page 6
Aim…Believe..Claim