Financial Accounting and Reporting

1. Emmet Co.’s records reveal the following data at year-end:

Commercial paper maturing in four months 1,200,000

Uncashed tax refund check 550,000
Petty Cash 100,000
Certificates of Deposit 1,000,000
Balance in Union Savings and Loan Savings account 2,500,000
Postage 50,000
Balance in United Bank checking account (250,000)
Treasury Notes maturing in six months 2,200,000
Cash on Hand 500,000
Postdated customer check 125,000
Employee travel advances 75,000
Treasury Bill maturing in one month 2,500,000

What is the correct amount of cash and cash equivalents that will appear as a current asset on Emmet Co.’s
balance sheet?

a. P5,900,000

b. P6,150,000

c. P6,900,000

d. P7,150,000

2. Which of the following explains the imprest system of operating petty cash?

a. Weekly expenditure cannot exceed a set amount.

b. The exact amount of expenditure is reimbursed at intervals to maintain a fixed float.

c. All expenditure out of the petty cash must be properly authorized.

d. Regular equal amounts of cash are transferred into petty cash at intervals.

3. The cash account in the current asset section of the balance sheet for Prince Company showed a balance of
555,000. It was found to include the following items:
Petty Cash Fund (P1,000 is in the form of paid vouchers) P 5,000
Checking account balance, per bank statement (A P25,000 check
Issued by Prince is still not encashed by the payee) 255,000
Undeposited receipts, including a post-dated check for P5,000 120,000
Currencies and coins awaiting deposit 55,000
Bond sinking fund cash 100,000
Check drawn by manager, returned by bank marked NSF 20,000

What is the correct cash balance for Prince Company’s balance sheet? 404,000

4. The reason for testing the client’s bank reconciliation is to verify whether the client’s recorded bank balance is
the same amount as the actual cash in bank, except deposits in transit, checks outstanding, and other reconciling
items. The information needed to complete the tests of the reconciliation are provided by a partial period bank
statement and the related canceled checks, duplicate deposit slips, and other documents included in bank
statements, mailed by the bank directly to the CPA firm’s office called:
a. Proof of cash
b. Year-end bank statement
c. Cutoff bank statement
d. Short-period bank statement
5. If a petty cash fund is established in the amount of $250, and contains $150 in cash and $95 in receipts for
disbursements when it is replenished, the journal entry to record replenishment should include credits to the
following accounts
a. Petty Cash, $75.
b. Petty Cash, $100.
c. Cash, $95; Cash Over and Short, $5.
d. Cash, $100.

6. The concern in a monthly proof of cash is with:

a. Adjusting account balances
b. Reconciling the amounts per books and bank
c. Determining the month-end balance
d. Identifying cash transfers

7. Lamaeyo Corporation’s checkbook balance on December 31, 2019 was P1,500,000. In addition, Lamaeyo held
the following items in its safe on December 31.
i. A check for P200,000 from Larry Corporation received December 1, 2019, date January 5, 2020, which
was not included in the checkbook balance.
ii. An NSF check from Lorelei Company in the amount of P100,000 that had been deposited at the bank,
but was returned for lack of sufficient funds on December 29. The check was to be redeposited on
January 3, 2020. The original deposit has been included in the December 31 checkbook balance.
iii. Coins an currencies on hand amounted to P350,000.
iv. An unrecorded money order for P500,000.
v. Company checks that have been written and recorded amounting to P600,000.

The proper amount to be reported on Lamaeyo’s statement of financial position for cash at December 31, 2019 is

a. 2,250,000
b. 2,450,000
c. 1,650,000
d. 2,850,000

8. The accounts below were taken from the unadjusted trial balance of Kitty company as at December 31, 2016:

Cash, net of bank overdraft of P150,000 600,000

Notes receivable (including discounted note of P100,000) 500,000
Trade accounts receivable, net of customers’ credit balances of P50,000 700,000
Merchandise inventory 800,000
Trade accounts payable, net of creditors’ debit balances of P100,000 800,000

What is the correct amount of current assets on December 31, 2016?

a. 2,800,000
b. 2,700,000
c. 2,600,000
d. 2,900,000

9. The cash account shows a balance of $90,000 before reconciliation. The bank statement does not include a
deposit of $4,600 made on the last day of the month. The bank statement shows a collection by the bank of
$1,880 and a customer's check for $640 was returned because it was NSF. A customer's check for $900 was
recorded on the books as $1,080, and a check written for $158 was recorded as $194. The correct balance in the
cash account was
a. $91,024.
b. $91,096.
c. $91,456.
d. $95,696.

10. Western Company reported a total cash and cash equivalent of P6,325,000 on December 31,2019, which
includes the following information:

 Two certificates of deposit, each totaling P500,000. These certificates have a maturity date of 120 days.
  A check that is dated January 12, 2020 in the amount of P125,000.

 A commercial paper of P2,100,000 which is due in 30 days.

 Currency and coins on hand amounted to P7,700.

Western Company has agreed to maintain a cash balance of P500,000 in one of its banks at all times and it is not
available for withdrawal to ensure future credit availability (this amount was include in the above balance). How
much is the correct amount of cash and cash equivalents that Western Company should report in its December
31, 2019 statement of financial position?

a. 2,600,000

b. 3,100,000

c. 4,700,000

d. 5,200,000

11. The following information is shown in the accounting records of Washington Company:

Balances as of January 1

Cash 620,000

Accounts Receivable 670,000

Merchandise Inventory 860,000

Accounts Payable 530,000

Balances as of December 31

Accounts Receivable 910,000

Merchandise Inventory 780,000

Account Payable 480,000

The total sales and cost of goods sold for the current year were P7,980,000 and P5,830,000, respectively. All
sales and all merchandise purchases were made on credit. Various expenses of P1,070,000 were paid in cash.
Deferred income tax liability increased by P75,000 during the year. There were no other pertinent transactions.
The cash balance on December 31 should be

a. 1,080,000

b. 2,560,000

c. 1,490,000

d. 3,050,000

12. The following limited information were made available from the cash record of Clarence Company and its bank
statement for the month of December:
Book receipts 4,462,500
Bank receipts 4,830,000
November 30 deposit in transit (of which 50,000 remained to
 Be outstanding as of December 31, 2019) 650,000
Erroneous bank credit for December 25,000
Erroneous book credit for November, corrected in December 50,000
Erroneous book debit 20,000
Erroneous bank debit in November, corrected in December 12,500
Credit memo for December not yet recorded by Clarence 300,000
Credit memo for November, recorded by Clarence in December 375,000
Customer’s check received and deposited but posted as disbursement 150,000

What is the total amount of deposit in transit as of December 31, 2019?

a. 245,000
b. 275,000
c. 325,000
d. 375,000

13. The following information were included in the July bank reconciliation for Yvette Co.:

Checks an charges recorded by bank in July (including a July service charge of P10,000) P986,080; Service charge
made by bank in June and recorded in books in July, P12,000; total credits to cash in all journals in July, P977,600;
Customer’s NSF check returned as a bank charge in July (no entry made in books), P60,000; Customer’s NSF
check returned in June, recorded by the company in July, P75,000; Outstanding checks in July 31, P200,000;
Checks issued in July for P20,000 recorded by the company as P2,000; Erroneous bank charge in July, P20,000;
Erroneous bank credit in June corrected in July, P30,000; Erroneous book receipt in June corrected in July,
P5,000. What is the correct disbursement for the month of July?
a. 949,600
b. 964,600
c. 973,600
d. 995,600

14. Which of the following is/are true about “compensating balance”?

I. They are reserve balances maintained for emergency spending requirements.
II. If compensating balances are legally restricted, they must be segregated on the statement of financial
position.
III. Compensating balances are overstated if “float” are included as part of the cash.
a. II only
b. I and III
c. I, II, and III
d. II and III

15. On December 31, 2018, Trex Company has the following information concerning its cash and cash equivalents
and some other items:
Currencies and coins P 50,000
Checks received from customers 600,000
Certificate of deposit, term: 12 months 800,000
Petty Cash Fund 4,000
Postage Stamps 600
Bank A, checking account balance 2,100,000
Postdated check received from customer 10,000
Money order from customer 15,000
Cash in savings account 100,000
Bank draft from customer 40,000
Utility deposit to Gas Company, refundable 5,000
IOUs received from customer 8,000
NSF check, C Company 20,000
Cash advance to company executive 200,000
Bank B checking account, overdraft 20,000
IOUs from employees 100,000

What amount of cash and cash equivalents should Trex Company report in its December 31, 2018 balance sheet?
2,909,000
16. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the
following except the:
a. General ledger
b. Bank confirmation
c. Cutoff bank statement
d. Year-end bank statement

17. The following information was included in the bank reconciliation for Sougba Company for October and
November of 2019:
 Checks and charges recorded by bank in November, including a November service charge of P4,000
totaled P550,000.
 Service charge made by bank in October and recorded on the books in November, P2,500.
 Total of credits to cash in all journals during November, P620,000.
 Customer’s NSF check returned as a bank charge in November (no entry made on books in either
October or November), P20,000.
 Customer’s NSF check returned in October and redeposited in November (no entry made on books in
either October or November), P40,000.
 Outstanding checks at October 31, 2015 that chat were cleared in November, P230,000.
 Deposits in transit at November 30, P300,000.

What were the total outstanding checks on November 30, 2019?

a. P281,500
b. P300,000
c. P321,500
d. P301,500

18. Russ Company is preparing its March 31 bank reconciliation. The following data are available:
From the February 28 bank reconciliation:
Deposits in transit, P1,700
Outstanding checks, P3,900

March Data:
Per bank Per book
Balance, February 28 P 74,140 P 71,940
March deposits reflected 47,600 49,000
March checks reflected* (61,700) (61,000)
Note collected (including P200 interest) 20,000
Service Charge (120)
Balance, March 31 P 79,920 P 59,940
*Erroneously includes a check drawn by Ever Company for P1,500.
Determine the amount of deposits in transit and outstanding checks at March 31. DIT 3,100; OC 4,700

19. Benson Plastics Company deposits all receipts and makes all payments by check. The following information is
available from the cash records:

MARCH 31 BANK RECONCILIATION

Balance per bank $26,746

Add: Deposits in transit 2,100
Deduct: Outstanding checks (3,800)
Balance per books $25,046

Month of April Results

Per Bank Per Books
Balance April 30 $27,995 $27,355
April deposits 11,784 13,889
April checks 11,100 10,080
 April note collected (not included in April deposits) 3,000 -0-
April bank service charge 35 -0-
April NSF check of a customer returned by the bank
(recorded by bank as a charge) 900 -0-

What is the April 30 adjusted cash balance? $29,420

20. Significant deposits in a foreign bank subject to foreign exchange restrictions should be classified
a. As non-trade receivables with appropriate disclosures
b. As part of noncurrent assets with appropriate disclosures
c. As cash and cash equivalents with appropriate disclosures
d. As held-to-maturity securities with appropriate disclosures

21. The following information were provided by Franco Corp. as of the fiscal year ended September 30, 2018:

August 31 September 30
Loan proceeds directly credited by the bank to Franco Corp.’s 200,000 250,000
account
Note receivable collections by the bank on Franco Corp.’s 80,000
behalf
Loan payments directly charged by the bank to the 96,000 50,000
company’s account
Bank service charge 24,000 26,000
Undeposited collections 450,000 ?
Outstanding checks 180,000 ?
Total credits per bank statement 1,955,000
Total debits per bank statement 1,655,000
Total debits per books 1,795,000
Total credits per books 1,800,000
Additional information:
i. A P100,000 collections was erroneously recorded twice in the books in September, the company
discovered the error and corrected the same immediately in September.
ii. A P50,000 disbursement check was recorded in the books as P5,000 in August. The correction was made
in September.
iii. The bank erroneously credited the company P80,000 in August for a collection of Frankie Corp. The bank
corrected the error in September.
iv. The unadjusted balance per book in August was at P640,000. The unadjusted balance per bank in
September was at P785,000.

What is the correct cash in bank balance as of September 30?

a. 860,000
b. 825,000
c. 885,000
d. 889,000

22. The following is an excerpt of the Markat Corporation’s trial balance as of December 31, related to the
company’s cash accounts:

Petty Cash Fund P 40,000

Cash in Bank 543,910
Additional information:
i. You rendered a cash count on the company’s petty cash fund on December 31.

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 stamp 500
 A disbursement check payable to the custodian 15,600
An enveloped marked “collections for charity” with list of names and
corresponding amounts contributed. There is no money inside the 2,500
envelope.

What is the petty cash shortage as of December 31, 2016?

a. 3,860
b. 1,360
c. 3,950
d. 5,860

23. The following data are available for purposes of stating the financial position of Deli Company on December 31,
2019:
Cash P 1,200,000
Investment securities – Trading (includes long-term
investment of P500,000 in ordinary shares of A Developers) 2,000,000
Inventories (net of amount still due to suppliers of P200,000) 800,000
Prepaid expenses (includes a deposit of P40,000 made on
inventories to be delivered in 18 months) 150,000
Property, plant, and equipment (excluding P300,000 of equipment
still in use, but fully depreciated) 10,000,000
Goodwill (based on estimate by the president of Deli) 1,000,000
Total Assets P15,150,000

Further analysis of cash shows the following:

Cash in general checking account 600,000
Cash in fund to be used to retire bonds in 2018 500,000
Cash held to pay sales taxes 100,000

How much is the current assets that should be shown in the statement of financial position as of December 31,
2019?

a. 3,650,000
b. 3,310,000
c. 3,350,000
d. 3,810,000

24. The accountant for the Theo Company assembled the following data:

June 30 July 31
Cash account balance 15,882 39,745
Bank statement balance 107,082 137,817
Deposits in transit 8,201 12,880
Outstanding checks 27,718 30,112
Bank service charge 72 60
Customer's check deposited July 10, returned by
bank on July 16 marked NSF, and redeposited
immediately; no entry made on books for
return or redeposit - 8,250
Collections by bank of company's notes receivable 71,815 80,900

The bank statements and the company's cash records show these totals:
Disbursements in July per bank statement 218,373
Cash receipts in July per Theo’s books 236,452

How much is the adjusted cash balance and the cash shortage, if any? cash balance, 120,585; cash shortage, 0

25. Presented below are account balances and related information on December 31, 2016 for Dwight, Inc.
Cash on hand and in banks P248,000
Accounts Receivable 80,000
Allowance for Bad Debts (10,000)
Inventories 116,000
Prepaid Insurance 25,000
Total Current Assets P459,000

Related information are as follows:

i. The cash balance consists of the following:

Cash in bank, net of bank overdraft of P2,000 maintained in a separate bank, P40,000
Cash set aside by Board of Directors for purchase of plant site, P150,000
Petty Cash, P3,500
Cash withheld from wages for income tax of employees, P2,000
General cash, P52,000
ii. The merchandise inventory includes goods held on consignment, P4,000 and goods of P8,000 received
on December 31, 2016. Neither of these items having been recorded as a purchase.
iii. The prepaid insurance includes cash surrender value of P5,000.

The total current assets that should be shown in the balance sheet at December 31, 2016 is 301,500.

26. The cash account of the Mikasa Corporation as of December 31, 2018 consists of the following:
On deposit in current account with Red Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient fund 150,000
A check drawn by the Vice-President of the Corporation dated January 15, 2019 70,000
A check drawn by a supplier dated December 28, 2018 for goods
returned by the Corporation 60,000
A check dated May 31,2018 drawn by the Corporation against
the Power Bank 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 Power Bank account 410,000
Petty Cash fund of which P5,000 is in currency;
P3,600 in form of employees’ I.O.U. s;
and P1,400 is supported by approved petty cash vouchers
for expenses all dated prior to closing of the books
on December 31, 2018 10,000
Total 1,950,000
Less: Overdraft with Power Bank secured by a Chattel mortgage
on the inventories 300,000
Balance per ledger P1,650,000

At what amount will the account “Cash” appear on the December 31, 2018 balance sheet? 1,425,000

27. You obtained the following information on the current account of Rosa Company during your examination of its
financial statements for the year ended December 31, 2018.
The bank statement on November 30, 2018 showed a balance of P306,000. Among the bank credits in November
was customer’s note for P100,000 collected for the account of the company which the company recognized in
December among its receipts. Included in the bank debits were cost of checkbooks amounting to P1,200 and a
P40,000 check which was charged by the bank in error against Rosa Co. account. Also in November you
ascertained that there were deposits in transit amounting to P80,000 and outstanding checks totaling P170,000.
 The bank statement for the month of December showed total credits of P416,000 and total charges of P204,000.
The company’s books for December showed total debits of P735,600, total credits of P407,200 and a balance of
P485,600. Bank debit memos for December were: No. 121 for service charges, P1,600 and No. 122 on a
customer’s returned check marked “Refer to Drawer” for P24,000.

On December 31, 2018 the company placed with the bank a customer’s promissory note with a face value of
P120,000 for collection. The company treated this note as part of its receipts although the bank was able to
collect on the note only in January, 2019.

A check for P3,960 was recorded in the company cash payments books in December as P39,600.

How much is the adjusted cash balance as of December 31, 2018? 375,640

28. It consists of misappropriating a collection from one customer and concealing this defalcation by applying a
subsequent collection made from another customer
a. Window dressing
b. Lapping
c. Kiting
d. Imprest system

29. The Vale Corporation was organized on January 15, 2018 and started operation soon thereafter. The Company
cashier who acted also as the bookkeeper had kept the accounting records very haphazardly. The manager
suspects him of defalcation and engaged you to audit his account to find out the extent of the fraud, if there is
any.

On November 15, when you started the examination of the accounts, you find the cash on hand to be P25,700.
From inquiry at the bank, it was ascertained that the balance of the Company’s bank deposit in current account
on the same date was P131,640. Verification revealed that the check issued for P9,260 is not yet paid by the
bank. The corporation sells at 40% above cost.

Your examination of the available records disclosed the following information:

Capital stock issued at par for cash P1,600,000

Real state purchased and paid in full 1,000,000
Mortgage liability secured by real state 400,000
Furniture and fixtures (gross) bought on which there is still
balance unpaid of P30,000 145,000
Outstanding notes due to bank 160,000
Total amount owed to creditors on open account 231,420
Total sales 1,615,040
Total amount still due from customers 426,900
Inventory of merchandise on November 15 at cost 469,600
Expenses paid excluding purchases 303,780

As of November 15. 2018, compute the unadjusted cash balance. 537,580

30. Shown below is the bank reconciliation for Marikina Company for November 2018:
Balance per bank, Nov. 30, 2018 P150,000
Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2018 P136,000

The bank statement for December 2018 contains the following data:
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a service charge of P400 96,000
All outstanding checks on November 30, 2006, including the bank credit, were cleared in the bank in December
2018. There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2018.

The adjusted cash in bank balance as of December 31, 2018 is? 172,000