CHAPTER 3 - Audit of Cash &Cash Equivalents

Problem 1The following items are found in the cash account of Ivie Company at December 31, 2006. The company’s controller asks your opinion whether the items listed below should be considered as part of cash account and come up with adjusting entry to adjust the cash account.

1. Customers’ check dated December 25, 2006, P25,000.2. Company’s check (P30,000) dated December 26, 2006 which was drawn in payment

for merchandise purchased on that date but not delivered until January 3, 2007. This check was deducted in the cash balance.

3. A check worth P196,000 from customer who paid the account net of the 2% discount. The company records the transaction as credit to Accounts Receivable for the proceeds.

4. Cash in closed bank (Urban Bank), P95,000.5. Redemption fund, P100,0006. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds

payable.7. Metro Bank Checking Account No. 0004568, P210,000.8. RCBC Checking Account No. 0002347, P115,000.9. Overdraft in PNB Checking Account No. 00011256, P50,000.10. Company’s check dated January 3, 2007 in payment of account, P50,000. This was

recorded in the company’s disbursement ledger at December 31, 2006.11. Overdraft in RCBC Checking Account No. 0056791, P15,000.12. Postage stamps, P2,000.13. 90-day Treasury Bills (purchase on November 1, 2006), P100,00014. Treasury Bills that matures on February 1, 2007, P50,000.15. Change fund, P10,000.16. Customers’ certified check, P20,000.17. Company’s certified check, P50,000. (This was included in the cash disbursement for

December).

Problem 2Your audit of the December 31, 2006, financial statements of Mato Corporation reveals the following:

1. Current account at PBCom P (35,000)2. Current account at PNB 65,0003. Treasury bills (acquired 3 months before maturity) 200,0004. Treasury bills (maturity date is 12/31/07) 500,0005. Payroll account 175,0006. Foreign bank account - restricted (translated using the

12/31/06 exchange rate) 900,0007. Postage stamps 6008. Employees’ checks marked “DAIF” 10,0009. IOU from the vice-president 50,00010. Credit memo from a supplier for a purchase returns 25,00011. Traveler’s check 60,00012. Money order 10,00013. Company’s check dated 12/30/06 but not mailed at year-end 30,00014. Petty cash fund (P4,000 in currency and expense receipts for

(P6,000) 10,000

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Questions

1. The entry to adjust the employees’ checks marked “DAIF” is:a. Accounts receivable 10,000

Cash 10,000b. Cash 10,000

Accounts receivable 10,000c. Employees’ advances 10,000

Cash 10,000d. Cash 10,000

Employees’ advances 10,000

2. MATO CORPORATION’S adjusted cash and cash equivalents balance at December 31, 2006 is:a. P 560,000 b. P 544,000 c. P 514,000 d. P 509,000

Problem 3The controller of Pacatang Company is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. The following information is provided:

a. Commercial savings account of P1,000,000 and a commercial checking account balance of P900,000 are held at Phil. Banking Corporation.

b. Money market fund account held at Allied Bank, P600,000c. Travel advance of P180,000 for executive travel for the first quarter of next year

(employee to reimburse through salary reduction)d. A separate fund in the amount of P1,500,000 is restricted for the retirement of long-

term debt.e. Petty cash fund, P5,000f. An IOU from David Santos, a company officer, in the amount of P10,000.g. A bank overdraft of P110,000 has occurred at one of the banks the company uses to

deposit its cash receipts. At the present time, the company has no other deposits at this bank.

h. The company has two certificates of deposit, each totaling P500,000. These certificates of deposit have a maturity of 120 days.

i. Pacatang Company has received a check that is dated January 12, 2007 in the amount of P125,000.

j. Currency and coins on hand amounted to P5,300.Questions

1. PACATANG COMPANY’S adjusted cash and cash equivalents balance at December 31, 2006 is:a. P 1,910,300 b. P 2,400,300 c. P 2,510,300 d. P 3,510,300

2. The travel advance of P180,000 for executive travel should be classified as:a. Accounts receivable c. Prepaid expensesb. Travel expenses d. Advances to employees

Problem 4Present journal entries to record the following transactions in the books of Marites Corporation, which uses a calendar year as accounting period. Assume that the company is using the imprest method in accounting for petty cash fund:

a. A petty cash fund was set up on November 1, 2006 in the amount of P2,400.

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b. On November 29, 2006, a check was issued to replenish the fund, the composition of which was as follows:

Currency – bills and coins 166Vouchers showing expenditures for:

Office supplies 270Charges from purchased of supplies 124Repairs and maintenance 350Wages paid to casual employees 950Charges from purchased of goods to be sold 400

c. On December 18, 2006, the fund was replenished and correspondingly increased to P3,000; its composition included the following:

Currency – bills and coins 158Vouchers showing expenditures for:

Store supplies 304Accounts payable 914Charges from purchased of goods to be sold 242Miscellaneous expenses 782

d. An examination on December 31, 2006, disclosed the following composition of the fund, although it was not replenished on this date:

Currency – bills and coins 958Check of office manager, dated January 5, 2007 1,000Vouchers showing expenditures for:

Office supplies 126Miscellaneous expenses 90Accounts payable 800

e. On January 5, 2007, the check of office manager was cashed and the proceeds were added to the petty cash fund.

f. On January 6, 2007, replenished disbursement from December 18, 2006 to January 5, 2007.

Questions1. The entry to record the November 29 replenishment of petty cash fund is:

a. Operating expenses 1,694Freight-in 400 Cash short/over 140

Cash 2,234b. Operating expenses 2,234

Petty cash fund 2,234 c. Operating expenses 1,694

Freight-in 400Cash short/(over) 140

Petty cash fund 2,234d. No entry since the company is using an impress fund system.

2. The adjusted Petty Cash Fund balance of MARITES CORPORATION at December 31, 2006 is:a. P 3,000 b. P 1,958 c. P 984 d. P 958

3. The entry to record the December 31, 2006 adjustment of petty cash fund is:a. Operating expenses 216

Accounts payable 800

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Cash short/over 26 Petty cash fund 1,042

b. Operating expenses 216 Accounts payable 800 Cash short/over 26 Cash 1,042

c. Operating expenses 216Accounts payable 800Advances – employees 1,000Cash short/(over) 26

Petty cash fund 2,042d. No entry since there is no replenishment yet.

4. The entry to record the January 6, 2004 replenishment of petty cash fund is:a. Operating expenses 216

Accounts payable 800 Cash short/over 26 Petty cash fund 1,042

b. Operating expenses 216Accounts payable 800 Cash short/over 26 Cash 1,042

c. Operating expenses 216Accounts payable 800Advances – employees 1,000Cash short/(over) 26

Cash 2,042d. No entry since the account has been adjusted on December 31.

Problem 5Your audit of the petty cash (P10,000) of Juliet Company as of December 31, 2006 revealed the following: (cash count date is January 3, 2007 at 5:00 pm)

Bills: 10 - P500 bill 15 - P100 bill 18 - P50 15 - P20 5 - P10Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.IOU’s submitted were:

Dec. 18 Nap R. - P 750Dec. 28 Ruel R. 125Dec. 30 Sonny S. 500

Cashed checks:Dec. 28, 2006 check drawn by the manager P 1,125Dec. 28, 2006 check drawn by an employee 500Dec. 30, 2006 check drawn by a customer 350Jan 1, 2007 check drawn by an employee 1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open certain payroll envelopes unclaimed by employees and use the cash found herein. They were as follows:

Dec. 15, 2006 - Ed A. P 1,250Dec. 30, 2006 - Andoy 1,750Dec. 30, 2006 - Macky 650Dec. 30, 2006 - Paz 1,000

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The cashier also informed you that all cash sales receipts were passed through his fund and that cash sales tickets Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4 for P350, 500 and P545, respectively, had not yet been turned over to the general cashier.

The petty cash vouchers found in the petty cash box were as follows:Dec. 30, 2006 Transportation P515Dec. 30, 2006 Token gifts to visitors 650Dec. 30, 2006 Freight for office supplies purchase 215Jan. 1, 2007 Freight for mdse. purchased 125Jan. 2, 2007 Freight for mdse. sold 575

Questions

1. JULIET COMPANY’S cash shortage at December 31, 2006 is:a. P 2,072.75 b. P 1,370.00 c. P 1,027.75 d. P 327.75

2. The adjusted petty cash balance of JULIET COMPANY at December 31, 2006 is:a. P 10,000 b. P 9,625 c. P 5,975 d. P 4,625

3. The entry to adjust the unclaimed payroll at December 31, 2006 is:a. Petty Cash Fund c. Cash

Salaries expense Accrued salariesb. Salaries expense d. Accrued salaries

Petty cash fund Cash

4. The cashed check dated January 1, 2007 a. Should be adjusted since it was dated January 1, 2007, hence a postdated check.b. Should be adjusted since it was received December 31, 2006 but the check is dated

January 1, 2007, hence a postdated check.c. Should not be adjusted since the check is dated January 1, 2007.d. Should not be adjusted since the check was received December 31, 2007.

5. The Cash account (excluding PCF) of JULIET COMPANY is understated at December 31, 2006 by:a. P 4,650 b. P 4,900 c. P 6,045 d. P 6,370

Problem 6You are making an audit of the Darwin Corporation for the past calendar year. The balance of the Petty Cash account at December 31, 2006 was P1,300. Your count of the imprest cash count made at 8:30 am on January 3, 2007, in the presence of the petty cash custodian, revealed:

Currency and coins 571.38

Checks: Date Maker Bank 12/28/06 Macky, vice-president PNB 360.00 12/29/06 Andy, employee DBP 60.00 12/31/06 Bobot, customer RCBC 153.80 01/02/07 Neil, customer PNB 121.36 01/10/07 Jeff, employee PNB 60.00

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(check received Dec. 29)(These checks were all considered good when deposited after dates shown on the checks. The first four checks were actually deposited Jan. 3; the last check was deposited Jan. 11; all five checks proved to be good.)

Vouchers:Dec. 11 #261 Richard, shipping clerk – temporary advance for the use of the

receiving department. Your count of Mr. Richard’s fund revealed: currency – P28.80; merchandise freight bills, P31.20. P 60.00

Dec. 28 # 301 Postage 12.00Dec. 29 # 302 Freight bill on merchandise purchases 47.30Dec. 31 # 305 Freight bill on office supplies 88.93Jan. 2 # 500 Freight bill on merchandise purchases 29.36

IOU Dec. 21 Mabel, employee 36.00

Sales Invoices (for cash sales, collections handled by the petty cashier):Invoice # 315 Dec. 30 P 120.00

328Dec. 31 153.80 334Jan. 2 121.36

(As a general rule, the petty cashier endeavored to turn over the proceeds of cash sales to the general cashier on the 10th, 20th and last days of each month. Proceeds on these sales were recorded and deposited by the general cashier.)

Postage Stamps:Three one-peso stamps. The petty cashier handled postage stamps. These stamps represent the unused stamps purchased on Voucher # 301.

Questions1. The petty cash fund shortage at December 31, 2006 is:

a. P 216.39 b. P 123.83 c. P 98.03 d. P 95.03

2. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006 is:a. P 900.74 b. P 960.74 c. P 1,174.54 d. P 1,234.54

3. DARWIN CORPORATION’S operating expenses found in the petty cash fund at December 31, 2006 is:a. P 208.23 b. P 205.75 c. P 174.03 d. P 97.93

4. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at December 31, 2006 by:a. P 395.16 b. P 273.80 c. P 153.80 d. P 120.00

Problem 7Mary Jane is the cashier of Adlawan Corporation. AS representative of the Zarate and Associates, CPAs, you were assigned to verify her cash on hand in the morning of January 3, 2007. You began to count at 9:00 AM in the presence of Mary Jane. In the course of your

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counting, you found currencies in paper bills and coins together with checks, vouchers, and other items, which are mentioned below:

Bills: (2) P500; (8) P100; (12) P50; (5) P20

Coins: P 5.00 11 loose 1.00 24 loose

0.25 5 rolls and 32 loose (50 pieces to a roll) 0.10 10 rolls and 15 loose (50 pieces to a roll)

0.05 14 rolls and 20 loose (40 pieces to a roll)Checks:

Date Maker Payee Amount12/22/06 Vivian, Asst. Mgr Adlawan Corp. P 6,00012/26/06 Mary Jane, cashier Adlawan Corp. 4,000

IOUs:Date Maker Amount12/20/06 Yap, Janitor P 50012/22/06 Felix, clerk 75012/24/06 Ablay, bookkeeper 500

PETTY CASH VOUCHERS FOR REPLENISHMENTDate Payee Accounts Charged Amount12/16/06 Wagan, messenger Advances to employees P1,000.0012/17/06 Maren and Co. Supplies 545.0012/18/06 Eeman Liner Freight in 982.5012/18/06 Posts Office Supplies 300.0012/20/06 Alejandre, carpenter Repairs 2,950.0012/21/06 Violan Miscellaneous expense 554.00

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P20,000.00.

2. Cash sale of January 2, 2007 amounted to P8,650 per sales records, while cash receipts book and bank deposit slip showed that only P7,650 was deposited in the bank on January 3, 2007

3. The following employees’ pay envelopes had been opened and the money removed. Each envelope was marked “Unclaimed” - Ernesto, P332.50; Secinando, P447.50.

Questions

1. The petty cash shortage of ADLAWAN CORPORATION at December 31, 2006 is:a. P 2,748.50 b. P 1,748.50 c. P 968.50 d. P 188.50

2. The adjusted petty cash balance of ADLAWAN CORPORATION at December 31, 2006 is:a. P 10,950 b. P 11,950 c. P 11,730 d. P 12,730

3. The undeposited sales/collection of ADLAWAN CORPORATION at December 31, 2006 is:a. P 8,650 b. P 7,650 c. P 1,000 d. P 0

Problem 8

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The following data are gathered from the cash books and bank statement received from Davao Bank by Grace Company:

The cash in bank ledger account shows a debit balance of P290,438.50 as of May 31.

The bank statement shows a credit balance of P318,560 as of May 31.

An examination of the checks encashed by the bank shows that the following checks are not presented for payment:

No. 187, P3,608; No. 189, P15,499; No. 191, P4,400; No. 192, P1,545.50, No. 193, P23,001

A certified check for P24,750 payable to creditor, was encashed by the bank during May.

The bank statement shows a deduction of P10,802 for check No. 184. The check was actually made out at P10,208.

A check deposited on May 27 for P34,100 was returned by the bank on May 28 marked Refer to Maker.

A non-interest bearing note for P44,000 was collected by the bank for the account Grace Company. Collection fee deducted by the bank is P330.

A deposit for P20,900 was recorded in the books twice.

Check No. 179 for P26,400 was erroneously recorded in the books as P46,200.

Interest on an outstanding loan payable, deducted by the bank on May 31, P1,320.Collections on May 31 to be deposited on June 1, P26,488.Questions

1. GRACE COMPANY’S adjusted cash balance at May 31, 2006 is:a. P 341,939.50 b. P 283,288.50 c. P 297,588.50 d. P 273,168.50

2. The recorded cash of GRACE COMPANY at May 31 is:a. Understated by P 17,270 c. Overstated by P 7,150b. Understated by P 7,150 d. Overstated by P 17,270

Problem 9The following data pertaining to the cash transactions and bank account of Abiso Company for May 2006 are available to you:

Cash balance, per accounting records, May 31, 2006 P 51,582Cash balance, per bank statement, May 31, 2006 95,874Bank service charge for May 327 Debit memo for the cost of printed checks delivered by the bank; the charge has not been recorded in the accounting records 375Outstanding checks, May 31, 2006 20,184Deposit of May 30 not recorded by bank until June 1 14,610Proceeds of bank loan on May 30, not recorded in the accounting records, net of interest of P900 17,100Proceeds from a customer’s promissory note; principal amount P24,000, collected by the bank, taken up in the books with interest 24,300

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Check No. 1086 issued to a supplier entered in the accounting records as P6,300 but deducted in the bank statement at an erroneous amount of 3,600Stolen check lacking an authorized signature, deducted from Abiso’s

account by the bank in error 2,400

Customer’s checks returned by the bank marked NSF, indicating that thecustomer’s balance was not adequate to cover the checks; no entry hasbeen made in the accounting records to record the returned check 2,280

Questions

1. The adjusted cash in bank balance of ABISO COMPANY at May 31, 2006 is:a. P 87,570 b. P 90,000 c. P 90,570 d. P 90,900

2. The cash in bank balance of ABISO COMPANY at May 31, 2006 is:a. Understated by P39,318 c. Understated by P38,418b. Understated by P38,988 d. Understated by P35,988

Problem 10In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATIONDecember 31, 2006

Balance per ledger, 12/31/03 P 34,349.72Add: Collections received on the last day of December and charged to “Cash in Bank” on books but not deposited 5,324.50

Debit memo for customer’s checks returned unpaid (check is on hand but no entry has been

made on the books) 4,000.00 Debit memo for bank service charge for December 1,000.00

P 46,674.22Deduct:

Outstanding checks P 18,625 (see details below)

Credit memo for proceeds of a note receivable which had been left at the bank for collection but which has not been recorded as collected 8,000

Check for an account payable entered on books as P12,625 but drawn and paid by bank as

16,225 3,600 32,225.00Computed balance P 14,449.22Unlocated difference 36,601.00Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKSDecember 31, 2006

Check No. Amount14344 P 5,82014358 1,29514367 3,54314399 2,00114401 4,89214407 5,074

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P 18,625

Questions:

1. The adjusted cash balance at December 31, 2006 is:a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by bank as 16,225a. Should not be included in the reconciliation since the bank already gave the money

to the payee.b. Should not be included in the reconciliation since bank’s record is always followed.c. Should be included as deduction in the book reconciliation since this is considered as

book error, thus a reconciling item.d. Should be included as addition in the book reconciliation since this is considered as

book error, thus a reconciling item.

3. The outstanding checks at December 31, 2006 is:a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

4. The cash balance of the company per record at December 31, 2006 is:

a. Overstated by P600 c. Understated by P 3,400b. Overstated by P1,200 d. Overstated by P 6,600

Problem 11The cash books of Grace Corporation show the following entries during the month of June 2006.

Cash Receipts Journal Check RegisterDate Amount Date Check No. AmountJune 1Balance 762,000 June2 801 15,625

4Deposit 113,000 3 802 7,526 4Deposit 811,000 5 803 229,205 7Deposit 152,200 7 804 169,55510 Deposit 11,300 8 805 74,93610 Deposit 12,700 10 806 274,60011 Deposit 73,000 11 807 34,84217 Deposit 110,075 13 808 250,00018 Deposit 3,725 14 809 1,070,00018 Deposit 65,000 17 810 167,30019 Deposit 26,463 19 811 3,13020 Deposit 133,037 21 812 82,73027 Deposit 273,628 23 813 127,20030 Deposit 92,400 25 814 93,080

30 815 720

The bank statement for the month of June 2006 shows:

Checks No. Deposits Date AmountBalance May 31 798,000

924,000 June 5 1,722,000800 36,000 6 1,686,000804 169,555 7 1,516,445805 74,936 217,200 8 1,658,709801 16,525803 229,205 9 1,412,979

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807 34,842 97,000 12 1,475,137924 75,000

200 40,400 CM 13 1,440,337(collection charge)809 1,070,000 14 370,337808 250,000 15 120,337

198,000 CM 16 318,337810 167,300 113,800 19 264,837812 82,730 159,500 21 341,607806 274,600 24 67,007

273,628 28 340,635811 3,130DM 300 30 337,205

Upon investigation, the following are discovered:

CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of Grace Company.

CM - Represents a 60-day, 6% own note for P200,000 discounted by Grace Corporation with the bank and not yet recorded in the books.

DM - Represents bank service charge for the month.Check No. 924 represents a check signed by Graciele Company.Collection charge – represents collection fee charged by the bank.

Questions

1. The unadjusted cash ledger balance of GRACE CORPORATION at June 30, 2006 is:a. P 114,079 b. P 113,179 c. P 39,079 d. P 38,179

2. The unadjusted cash bank balance of GRACE CORPORATION at June 30, 2006 is:a. P 261,305 b. P 336,305 c. P 337,205sd. P 412,205

3. The deposit in transit of GRACE CORPORATION at June 30, 2006 is:a. P 92,400 b. P 104,500 c. P 182,000 d. P 0

4. The outstanding checks of GRACE CORPORATION at June 30, 2006 is:a. P 302,806 b. P 228,526 c. P 227,806 d. P 153,526

5. The adjusted cash balance of GRACE CORPORATION at June 30, 2006 is:a. P 277,879 b. P 276,079 c. P 261,305 d. P 201,079

6. The error made in check number 801 is known as:a. Fundamental error c. Transplacement errorb. Balance sheet error d. Transposition error

7. In the discounting of P200,000 note, the company should credit a. Notes receivable discounting c. Notes payableb. Notes Receivable d. Notes discounting

Problem 12 The following information pertains to the cash of Jenny Company:

Nov 31 Dec. 31Balance shown on bank statement P 27,380 P 26,960Balance shown in general ledger before

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reconciling the bank account 25,780 25,000Outstanding checks 8,630 10,150Deposits in transit 6,850 12,450

For Dec.Deposits shown in bank statement P 55,880Charges shown on bank statement 56,300Cash receipts shown in company’s books 53,980Cash payments shown in company’s books 54,760

The bank service charge was P180 in November (recorded by the company during December) and P240 in December (not yet recorded by the company).

Included with the December bank statement was a check for P5,000 that had been received on December 25 from a customer on account. The returned check marked “NSF” by the bank, has not yet been recorded on the company’s books.

During December the bank collected P7,500 of bond interest for the company and credited the proceeds to the company’s account. The company earned the interest during the current accounting period but has not yet recorded it.

During December the company issued a check for P6,960 for equipment. The check, which cleared the bank during December, was incorrectly recorded by the company for P8,960.Questions

1. The adjusted cash receipts of JENNY COMPANY at December 31 is:a. P 61,480 b. P 53,980 c. P 50,280 d. P 46,480

2. The adjusted cash disbursements of JENNY COMPANY at December 31 is:a. P 63,980 b. P 61,980 c. P 57,820 d. P 54,780

3. In a proof of cash, the NSF check:a. Should be added in the December 31 column since this was

returned back by the bank.b. Should be deducted in the December 31 column since this

was returned back by the bank.a. Should be deducted in the December 31 column since this was returned back and not

paid by the bank, thus not considered as receipts.b. Should be added in the December 31 column since this was returned back and not

paid by the bank, thus not considered as receipts.

4. The adjusted December 31 cash balance of JENNY COMPANY is:a. P 29,760 b. P 29,260 c. P 27,260 d. P 25,600

5. The adjusted November 31 cash balance of JENNY COMPANY is:a. P 29,160 b. P 27,260 c. P 26,160 d. P 25,600

6. The check issued but was incorrectly recorded as P8,960 should be adjusted by:a. Accounts payable 2,000 c. Cash 2,000

Cash 2,000 Accounts payable 2,000b. Equipment 2,000 d. Cash 2,000

Cash 2,000 Equipment 2,000

Problem 13ELEFANTE’s check register shows the following entries for the month of December

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Date Checks Deposits Balance2006Dec 1 Beginning Balance P 83,900

5 Deposit P 65,0007 Check # 14344 32,500 120,800

11 Check # 14345 14,000 106,800 26 Deposit 49,000 29 Check #14346 8,600 147,200

ELEFANTE’s bank reconciliation for November revealed one outstanding check (No.14343) for P12,000 (written on November 28), and one deposit in transit for P5,550 (made November 29).

The following is from Elefante’s bank statement for December 2006:

Date Checks Deposits Balance2006Dec. 1 Beginning balance P 95,970

1 Deposit P 5,550 101,3004 Check No. 14344 P 32,500 68,8005 Deposit 56,000 124,80014 Check No. 14345 14,000 110,80015 Loan Proceeds 500,000 610,80020 NSF check 7,600 603,20029 Service charge 1,000 602,20031 Interest 3,600 605,800

Note: All errors noted in this problem were committed by the Elefante, not the bank. It is also noted that the company failed to record one deposit in the book.

Questions

1. The unadjusted cash receipts per ledger of ELEFANTE COMPANY for the month of December is:a. P 119,620 b. P 114,000 c. P 110,620 d. P 105,000

2. The unadjusted cash receipts per bank of ELEFANTE COMPANY for the month of December is:a. P 574,150 b. P 568,600 c. P 565,150 d. P 559,600

3. The adjusted December 1 cash ledger balance of ELEFANTE COMPANY is:a. P 95,970 b. P 89,520 c. P 83,900 d. P 78,280

4. The adjusted December31 cash bank balance of ELEFANTE COMPANY is:a. P 634,420 b. P 628,800 c. P 623,180 d. P 577,620

5. The overstatement of deposit should be:a. Deducted in the bank December 31 column.b. Added in the bank December 31 column.c. Deducted in the book December 31 column.d. Added in the book December 31 column.

Problem 14

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You are asked to audit the cash of Letty Corporation. Letty Corporation carries its checking account with Mindanao Bank. The following data are available:

a. Letty Company Cash account for December:

Balance, November 30 P 20,900Deposits during December 93,400Checks written during December ( 83,000)Balance, December 31 P 32,300

b. Bank statement for December:

Balance, November 30 P 20,000Deposits during December 92,300Checks cleared during December ( 82,150)Funds transferred from foreign operations revenue

(in peso amount not yet recorded by Letty Corp.) 25,000NSF check, Customer Nelly ( 180)Bank Service charge ( 70)Balance, December 31 P 54,900

c. Additional data:1. Balance in Petty Cash account, P200 (not included in Letty Cash account).2. The deposits of P93,400 by Letty Company are overstated by P100; the bank

recorded the correct amount.3. The checks cleared by the bank of P82,150 erroneously included a P300 check

drawn by Laity Corporation; the bank has not yet corrected this error.4. November 30: deposits outstanding, P2,000; and checks outstanding, P1,500.

Questions

1. The deposit in transit of LETTY COMPANY at December 31 is:a. P 3,100 b. P 3,000 c. P 2,900 d. P 2,000

2. The outstanding checks of LETTY COMPANY at December 31 is:a. P 1,650 b. P 1,500 c. P 2,050 d. P 2,350

3. The adjusted cash balance of LETTY COMPANY at December 31 is:a. P 56,050 b. P 55,950 c. P 55,650 d. P 55,550

4. The cash shortage of LETTY COMPANY at December 31 is:a. P 0 b. P 400 c. P 500 d. P 600

Problem 15In Your audit of the accounts of Cleenenth Company, you find the following facts on December 31, 2006.

Balance of cash in bank account P1,350,000Balance of bank statement 1,200,000Outstanding checks, December 31:

No. 000567 10,000581 55,000582 40,000602 25,000615 65,000616 70,000 265,000

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Receipts of December 31, deposited the following month 275,000The bank statement shows the following charges:

Service charge for December 5,000NSF check received from a customer 85,000

Additional information:

The stub for check number 000581 and the invoice relating thereto show that it was for P35,000 but was incorrectly recorded as P55,000. This was in payment of the accounts payable.

Payment has been stopped on check number 000567 which was drawn in payment of accounts payable. The payee cannot be located.

Included in the bank statement was a canceled check the company had failed to record. The check was in payment of accounts payable.

Questions

1. The unrecorded disbursement of CLEENETH COMPANY at December 31, 2006 is:a. P 80,000 b. P 50,000 c. P 40,000 d. P 10,000

2. Cancellation of check number 567 should be recorded as:a. Debit to Accounts Payable c. Credit to Accounts Payableb. Credit to Cash d. No adjustment/entry

3. Cash shortage of CLEENETH COMPANY at December 31, 2006 is:a. P 0 b. P 50,000 c. P 40,000 d. P 10,000

4. The adjusted cash balance of CLEENETH COMPANY at December 31, 2006 is:a. P 1,290,000 b. P 1,240,000 c. P 1,210,000 d. P 1,180,000

Problem 16Dema-ala Company is very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Maria handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliation.

The balance per bank statement on October 31, 2006, was P73,520. Outstanding checks were: No. 62 for P507, No. 183 for P600, No. 284 for P1,103, No. 862 for P762.84, No. 863 for P907.20, No. 864 for P661.12. Included with the statement was a credit memorandum of P800 indicating the collection of a note receivable for Dema-ala Company by the bank on October 25. Dema-ala Company has not recorded this memorandum.

The company’s ledger showed one cash account with a balance of P87,570.88. The balance included undeposited cash on hand. Because of the lack of internal control, Maria took for personal use all the undeposited receipts in excess of P15,182.04. She then prepared the following bank reconciliation in an effort to conceal her theft of cash.

Cash balance per books, October 31 P 87,570.88Add: Outstanding checks

No. 862 P 762.84

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No. 863 907.20No. 864 661.12 1,931.16

P 89,502.04Less: Undeposited receipts 15,182.04Unadjusted balance per bank, October 31 P 74,320.00Less: Bank credit memorandum 800.00Cash balance per bank statement, October 31 P 73,520.00

Questions

1. DEMA-ALA COMPANY’S cash shortage at October 31 is:a. P 4,210 b. P 3,410 c. P 1,600 d. P 800

2. DEMA-ALA COMPANY’S adjusted cash balance at October 31 is:a. P 88,370.88 b. P 87,570.88 c. P 86,770.88 d. P 84,160.88

Problem 17On December 15 of the current year, Darwin, who owns Herald Corporation, asks you to investigate the cash-handling activities in his firm. He thinks that an employee might be stealing funds. “I have no proof” he say, “but I’m fairly certain that the November 30 undeposited receipts amounted to more than P6,000 although the November 30 bank reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he has notified the bank to stop payment on them and he had made the necessary payment on the books.

At your request, Darwin showed you the following November 30 bank reconciliation prepared by the cashier.

Bal. Per bank statement P2,360.12 Bal. Per Books P 5,385.22Deposit in transit 3,619.20 Bank Service charge ( 30.00)Outstanding checks Unrecorded bank CM ( 600.00)

# 2351 550.10 2353 289.16

2354 484.84 ( 1,224.10 ) ________Adjusted Balance P 4,755.22 Adjusted Balance P 4,755.22

You discover that the P600 unrecorded bank credit represents a note collected by the bank on Darwin’s behalf. It appears in the deposits column of the November bank statement. Your investigation also reveals that the October 31 bank reconciliation showed three checks that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for P233.45, and No. 1512 for P126.55.

You also discover that these items were never added back into the cash account in the books. In confirming that the checks shown on the cashier’s November 30 bank reconciliation were outstanding on that date, you discover that check No. 2353 was actually a payment of P829.16 and had been recorded on the books for the amount.

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To confirm the amount of undeposited receipts at November 30, you request a bank statement for December 1-12 (called a cut-off bank statement). This indeed shows a December 1 deposit of P3,619.20.

Questions

1. The amount of fund stolen by the cashier is:a. P 3,160 b. P 2,500 c. P 1,840 d. P 580

2. The total outstanding checks of HERALD CORPORATION at November 30 is:a. P 2,524.10 b. P 1,884.10 c. P 1,864.10 d. P1,224.10

3. The adjusted cash balance of HERALD CORPORATION at November 30 is:a. P 5,955.22 b. P 5,355.22 c. P 4,115.22 d. P 3,455.22

Problem 18In connection with the general examination of the accounts of Nelson Trading Company at December 31, 2006, you obtained the information and data as shown below relative to your verification of Cash.

The record kept by the accountant showed the following:

(a) Balances at the end of the month:

December 1, 2006 December 31, 2006Per Bank Statement P 54,000 P101,100

Per Books 50,400 70,215Undeposited collections 3,300 7,200Outstanding checks 6,900 * 12,000 *

* Composed of the following #6515 510 #6552 P 1,800 6517 2,250 6553 5,700 6518 2,400 6554 2,550 6519 1,740 6555 1,950

(b) Totals for the month of December, 2006:Cash Book:

Receipts P 425,550Disbursement 405,735

Bank StatementReceipts P 444,225Disbursement 397,125

After application of the necessary auditing procedures, the following were noted:

a. Footing of disbursement should be P 404,235, instead of P 405,735.b. Bank service charge of P15 for December has not been booked.c. Cancelled checks (returned together with the December bank statement) include the

following which were charged in the statement:1. Check #6530 dated December 15, 2006 for P2,400 - this was issued as

replacement of check # 6518 which was returned by the payee because of certain erasures. No entry has been made to record the cancellation of check #6518.

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2. Check #6517 for P225 - this was erroneously recorded on the books as P2,250.

3. Check of Neil Trading for P900 - this was charged by bank in error.d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted

directly by the broker to the bank and credited on December 31, 2006. No entry has been made on the books to record this sale of stock investment.

e. The company failed to record disbursement for payment of accounts payable at December 31, 2006 for P1,500.

Questions

1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31, 2006 is:a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550

2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December 31, 2006 is:a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125

3. The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31, 2006 is:a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31, 2006 is:a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:a. P 765 b. P 675 c. P 575 d. P 390

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