Module 4 Cash and Cash Equivalents, Bank Reconciliation, and Proof of Cash

Question 1

Easy Company reported the ff. information on December 31.
a. Cash of P1,700,000 in the form of coins, currency, savings and checking accounts.
b. Newly replenished petty cash fund amounted to P5,000.
c. Investment securities of P500,000. These shares are very actively traded in the market.
d. Investment securities of P1,000,000 in government treasury bills. These bills have a 10-year term and purchased on December 30,
which will mature on February 28, the following year.
e. Investment securities of P750,000 in the form of commercial papers which have a term of nine months. These securities were purchased on December 31, and mature on March 31, the following year.
f. Bond sinking fund for bonds payable with remaining term of 2 years, amounting to P3,000,000.

1. What amount should be reported as cash at the end of the current year?
2. What amount of cash equivalents should be reported at the end of the year?

Answer 1

1. 1,705,000
2. 1750000

Question 2

Jayco had the following balances at December 31, 2019:
Cash in checking account P 35,000
Cash in money market account 75,000
Shares in DITO Telecom, purchased 11/1/2018 350,000
Treasury bill, purchased 12/1/2019, maturing 3/31/2021 400,000

1. What amount should Jayco report as cash and cash equivalents in its December 31, 2019 statement of financial position?

Answer 2

1. 110000

Question 3

As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer signed the request, it was mailed by the assistant treasurer. What is the flaw in this audit procedure?
*The request was mailed by the assistant treasurer
*The confirmation request was signed by the treasurer
*Sending the request is useless because the account was closed before the year-end
*The CPA did not sign the request before it was mailed.

Answer 3

The request was mailed by the assistant treasurer

Question 4

The petty cash fund of Manda consisted of the following items as of December 31, 2021.

Bills and coins P2,000
IOUs 1,600
Currency inside envelope marked with collections for charity” with names listed. 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Manda payable to petty cash custodian 4,000
Check from customer dated December 31, 2021 Empty envelope representing unclaimed salary with payslip inside indicating net pay of 3,000
The GL balance of the petty cash fund is P8,000.

1. What is the amount of overage (shortage)?

Answer 4

1. shortage 600

Question 5

Jayco had the following balances at December 31, 2019:

Cash in checking account 35000
Cash in money market account 75000
Treasury bill, purchased 11/1/2019, maturing 1/31/2020 350000
Treasury bill, purchased 12/1/2019, maturing 3/31/2021 400000

1. What amount should Jayco report as cash and cash equivalents in its December 31, 2019 statement of financial position?

Answer 5

1. 460000

Question 6

Heart, Inc. has the ff. information about their cash on December 31, 2018.

a. Petty cash fund of P50,000 has the ff. composition:
Coins and currencies, P5000
Petty cash vouchers, P40000
Refundable deposit for returnable containers, P5000
b. Checkbook balance, P4,000,000
c. Undeposited collections, P400,000
d. A check of P40,000 was drawn on December 31, 2019 payable to the petty cash custodian.
e. A customer check amounting to P200,000 dated January 2, 2019 was included in the Dec 31 checkbook balance.
f. Another customer check for P500,000 deposited on December 22, 2018 was included in the checkbook balance but returned by the bank for insufficiency of funds. This check was redeposited on December 26, 2018 and cleared by the bank two days later.
g. A P400,000 check to a supplier dated and recorded on December 30, 2018, was mailed on January 3, 2019.

1. What total amount should be reported as cash on December 31, 2018?
2. What is the adjusted cash in bank or checkbook balance on December 31, 2018?

Answer 6

1. 4645000
2. 4200000

Question 7

In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous income. Select the most effective method for detecting this type of error.
*Send a bank confirmation as of year-end
*Prepare a bank transfer schedule as of year-end
*Foot the cash receipts journal for October
*Prepare bank reconciliation as of year end.

Answer 7

Send a bank confirmation as of year-end

Question 8

Maybelline Corp. maintains a petty cash fund of P5,000. The ff. information are obtained.

Coins and currency, P2,200
Petty cash vouchers:
Gasoline, 300
Medical supplies, 100
Repairs, 150
IOU from employee, 350
Check drawn payable to the order of Anne Curts,
the PCF custodian, representing her salary, 1500
Check of an employee returned by the bank as “NSF”, 300
A sheet of paper in an envelope with names of employees together with a contribution for birthday gift with money in the envelope amounting to, P500

1. What amount of shortage should be reported?
2. What amount of petty cash fund should be reported if the fund was not replenished at reporting date?

Answer 8

1. 100
2. 3700

Question 9

The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to:
*Request information about contingent liabilities and secured transactions
*Provide the data necessary to prepare a proof of cash.
*Detect kiting activities that may otherwise not be discovered.
*Corroborate information regarding deposit and loan balances.

Answer 9

Corroborate information regarding deposit and loan balances.

Question 10

Jaya Corp.’s checkbook balance on December 31, 2019, was P5,000. In addition, Jaya held the following items in its safe on that date:

a. P2,000 check payable to Jaya Corp., dated January 2, 2020, in payment of a sale made in December 2019, was included in December 31 checkbook balance
b. P500 check payable to Jaya Corp., 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.
c. P300 check drawn on Jaya Corp.’s account, payable to a vendor, dated and recorded in Jaya’s books on December 31 but not mailed until January 10, 2020.

1. The proper amount to be shown as Cash on Jaya’s balance sheet at December 31, 2019, is:

Answer 10

1. 2800

Question 11

Dave Company had the following account balances at December 31, 2011:

Cash in banks, 2250000
Cash on hand, 125000
Cash legally restricted for additions to plant (expected to be disbursed in 2012), 1600000
Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements. The compensating balances are not legally restricted as to withdrawal by Dave.

1. In the current assets section of Dave’s December 31, 2011 statement of financial position, total cash should be reported at:
2. In the current assets section of Dave’s December 31, 2019 statement of financial position, total cash should be reported at:

Answer 11

1. 2375000
2. 1775000

Question 12

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may
*Not have access to the client’s cutoff bank statement.
*Sign and return the form without inspecting the accuracy of the client’s bank reconciliation.
*Not believe that the bank is obligated to verify confidential information to a third party
*Be unaware of all the financial relationships that the bank has with the client.

Answer 12

Be unaware of all the financial relationships that the bank has with the client.

Question 13

Which of the following cash transfers results in a misstatement of cash at December 31, 2019?

Bank Transfer Schedule

Disbursement Recorded in books; Disbursement Paid by bank; Receipt Recorded in books; Received by bank
1. 12/31/19; 1/4/2020; 12/31/19; 12/31/19
2. 1/4/2020; 1/5/2020; 12/31/2020; 1/4/2020
3. 12/31/19; 1/5/2020; 12/31/2020; 1/4/2020
4. 1/4/2020; 1/11/2020; 1/4/2020; 1/4/2020

Answer 13

2. 1/4/2020; 1/5/2020; 12/31/2020; 1/4/2020

Question 14

Airy Fairy Co. has a petty cash fund GL balance of P2,000. The ff. were found on Oct 1, inside the petty cash box, under the custody of Ms. Diwata Magno. Millan

Coins and bills, P123
Vouchers:
Gasoline, 400
Fare, 210
Pantry Supplies, 250
IOUs from employees, 500
Check payable to Ms. Diwata, 600 Check payable to Airy Fairy Co.*, 300
*Note: Check payable to Airy Fairy was issued by Ms. Diwata on Oct 1, but dated Sept 30, and hurriedly placed inside the petty cash box, when she heard that the auditor is on the way to her table.

1. The journal entry to replenish the petty cash fund would have a credit amount of:
2. What is the amount of overage (shortage)?

Answer 14

1. 1277
2. overage 83

Question 15

Thankful, Inc. provided the ff. data for July:

> Cash balance per ledger, 2120000
Cash balance per bank statement, ???
July service charge, 5000
Deposit of July 31, recorded by bank Aug 1, 450000
Outstanding checks, including certified check Amounting to P50,000, 750000
Proceeds of bank loan not recorded in ledger, 500000
Collection by bank from customer note, face P450,000, with collection fee of P15,000, 435000
A check payment entered in the books as P20,000 and was erroneously paid by bank at, 200000
A customer check was returned by bank as NSF, 50000

1. The compound adjusting entry would NOT include a:
   *Debit Loans Receivable 500,000
   *Credit Notes Receivable 450,000
   *Debit Cash in Bank 435,000
   *Debit Accounts Receivable 50,000
2. How much is the net adjustment to cash per books?
3. What is the correct cash balance per ledger?

Answer 15

1. Debit Loans Receivable 500,000
2. 880000
3. 3000000

Question 16

NAIA CO. The bank statement for bank account of Naia Co. showed a balance of P585,284 as of December 31, 2018. The ff. are information obtained from the company:
· Outstanding checks were P52,810
· The December 31, 2018 cash receipts of P23,000 were not deposited in the bank until January 2, 2019.
· One check written in payment of rent of P8,940, was correctly recorded by the bank, but was recorded by Naia as P9,840.
· The bank debited the account of Naia for P18,000 in December as automatic payment of Naia’s mortgage note payable. The interest payment of the payment was P8,000. No entry was made in Naia’s books.
· A bank service charge of P740 was noted in the bank statement.
· A deposit of P35,000 was recorded by the bank on December 12, but it did not belong to Naia.
· The bank statement included a charge of 3,400 for a DAIF check. The company will seek payment from the customer.
· Naia maintains an 8,000 petty cash fund balance, that was appropriately reimbursed at the end of December.
· Per instructions from Naia on December 30, the bank withdrew P400,000 from the account and purchased treasury bills for Naia. The company recorded the transaction in its books on December 31 when it received notice from the bank. Half of the treasury bills mature in three months and the other half in six months.

1. What is the unadjusted cash in bank balance per books on December 31, 2018?
2. What is the adjusted cash in bank balance (per books and bank) on December 31, 2018?
3. What amount of cash and cash equivalents should be shown under current assets on December 31, 2018?

Answer 16

1. 541714
2. 520474
3. 928474

Question 17

Which of the following substantive audit procedures is least likely to be performed by the auditor to gather evidence in support of the deposits in transit?
*Trace items on the bank reconciliation to cutoff bank statement
*Inspect bank credit memo
*Trace to cash receipts journal
*Inspect supporting documents for reconciling item not appearing on the cutoff bank statement

Answer 17

Inspect bank credit memo

Question 18

You are assigned to audit the financial statements of Missing Something. You arrived at the company premises on January 15, 2019, and obtained the ff. information pertaining to cash:

//Cash balance per ledger, December 31, 2018, 494400
//Cash per bank statement,December 31, 2018, 528190
//Outstanding checks (per bank reconciliation), 50650
//Check of XYZ, Co. charged by bank to account of Missing Something., was corrected by the bank on January 3, 2019., 1500
//Deposit in transit, (per bank reconciliation), 7000

· From January 3, 2019 to January 15, 2019, the date of your cash count, total receipts
appearing in the cash records amounted to P107,000. During the same period, the bank had credited total deposits of P95,930.

· The ff. cash and petty cash items were on hand at the close of business on January 15, 2019.
o Currency in petty cash, 2850
o Customers’ checks, 3900
o Expense vouchers (paid out of currency from January 3-15), 750

Further investigation revealed the ff:
· The ff. transactions with cash received on account from customers had the ff. entries:
July 5, 2018 Allowance for bad debts 8000
Accounts receivable 8000
Dec. 10, 2018 Inventory 6000
Accounts receivable 6000
Dec. 15, 2018 No entry made for the 7000 collection

· Unrecorded but deposited checks received from customers from January 3-15, 2019 totalled P4,000.

· The cashier presented copies of receipts for collections from customers on January 10, 2019 totalling P9,000. These were unrecorded and undeposited.

1. Compute for the adjusted balances per bank and book for December 31, 2018.
2. Compute for the amount of shortage as of December 31, 2018.

Answer 18

1. 486040
2. 29360

Question 19

Information pertaining to Apple Company for the month of August appears below:

//Balance per bank statement, 310,000
//Balance per books, 187500
//Deposit in transit, ???
//Service charges, 2500
//Note collected by bank, 75000
//Outstanding checks, 150000

An analysis of the cancelled checks returned with the bank statement reveals the following:
a. Check for the purchase of merchandise was drawn for P155,000 but was recorded as P150,000.
b. The management wrote a check for traveling expenses of P25,000 while out of town. The check was not recorded.

1. What is the amount of deposit in transit on August 31?

Answer 19

1. 70000

Question 20

Jasmine Company had the following bank reconciliation at March 31:
Balance per bank statement, March 31, P 93,000
Add deposit in transit, 20,600
P 113,600
Less outstanding checks, 25,200
Balance per books, March 31 P 88,400

//Data per bank statement for the month of April follows:
Deposits P 116,800
Disbursements P 99,400
//All reconciliation items at March 31 cleared through the bank in April. 3. Outstanding checks at April 30 totalled P15,000.

1. Compute for adjusted balance of cash per books on April 30.
2. What is the amount of cash disbursements per books in April?

Answer 20

1. 95,400
2. 89,200

Question 21

You are conducting an audit of the Green Jacket, Inc. for the year ended December 31, 2018. The internal control procedures surrounding cash transactions were not adequate. Joana Cruz, the bookkeeper-cashier handles cash receipts, maintains accounting records and prepares the monthly reconciliations of the bank account. She prepared the following reconciliation at the end of the year:

Balance per bank statement 315000
Add : Deposit in transit 157725
Note collected by bank 13500
Balance 486225
Less : Outstanding checks 222075
Balance per general ledger 264150

In the process of your audit, you gathered the following:
a. At December 31, 2018, the bank statement and the general ledger showed balances of P315,000 and P264,150 respectively.
b. The cut off bank statement showed a bank charge on January 02, 2009 for P35,250 representing a correction of an erroneous bank credit.
c. Included in the list of outstanding checks were the following:
//A check payable to a supplier, dated December 29, 2008, in the amount of P13,275 released on January 05, 2019.
//A check representing advance payment to a supplier in the amount of P33,489, the date of which is January 04, 2019, and released
in December 2018.
d. On December 31, 2018, the company received and recorded customer’s postdated check amounting to P45,000.

1. Compute the adjusted outstanding checks as of December 31, 2018.
2. Compute the adjusted deposit in transit as of December 31, 2018.
3. Compute the adjusted cash to be presented in the balance sheet as at December 31, 2018.
4. Compute for the amount of shortage.

Answer 21

1. 175,311
2. 112,725
3. 217,164
4. 62,250

Question 22

Kayakoto, Inc. had weak internal controls over its cash transactions. Information was obtained pertaining to their November 30, 2018 balances.

The cash books showed a balance of P94,508, which included undeposited receipts. A credit of P500 on the bank’s records did not appear in the books of the company. The balance per bank statement was 77,750. Outstanding checks were no. 8420 for P581, no. 8422 for P750, no. 8430 for P1,266, no. 8621 for P954, no. 8623 for P1,034 and no. 8632 for P726.

The cashier stole all undeposited receipts in excess of P18,972 and prepared the ff. reconciliation:
Balance per books, Nov. 30, 2018. 94508
Add: Outstanding checks
8621 954
8623 1034
8632 726 2214
Balance. 96722
Less: Undeposited receipts. 18972
Balance per bank, Nov. 30, 2018. 77750
Less: Unrecorded credit. 500
Total cash, Nov. 30, 2018. 77250

1.Compute for the amount stolen by the cashier.
2. Compute for adjusted balance of cash on November 30, 2018?

Answer 22

1. 3597
2. 91411

Question 23

Information pertaining to Apple Company for the month of August appears below:

//Balance per bank statement, 310,000
//Balance per books, 187500
//Deposit in transit, 70000
//Service charges, 2500
//Note collected by bank, 75000
//Outstanding checks, ???

An analysis of the cancelled checks returned with the bank statement reveals the following:
a. Check for the purchase of merchandise was drawn for P155,000 but was recorded as P150,000.
b. The management wrote a check for traveling expenses of P25,000 while out of town. The check was not recorded.

1. What is the amount of outstanding checks on August 31?

Answer 23

1.150000

Question 24

Joyful Corp provided the ff. data concerning their cash records for September and October.
Sept 30. Oct 31
Book balance. 1900000 ????
Total cash receipts per book - ????
Total cash disbursements per book - 2400000
Bank balance 2100000 800000
Total charges in bank statement - 2500000
Total credits in bank statement - 1200000
Deposit in transit ??? 260000
Outstanding checks 270000 ????
NSF check 60000 40000
Collections of note by bank 30000 50000
Overstatement of check in payment of accounts,
corrected in books in subsequent month 90000 120000

1. How much is the adjusted cash balance per books on Oct 31?
2. What is the amount of outstanding checks on Oct 31?
3. How much is the unadjusted cash balance per books on Oct 31?

Answer 24

1. 1,030,000
2. 30,000
3. 900,000

Question 25

Proof of Cash. The ff. are the information obtained from HG Wells, Co.
Nov 30. Dec 31
Cash per ledger. 200000 270000
Cash receipts ??? 150000
Bank statement balance 206600 276950
Total bank credits ??? 159000
Credit memo for note collected. 9000 13000
Bank service charge 100 150
Deposits in transit 10000 11000
Outstanding checks 4200 1800
Erroneous bank credit 6000 4000
Erroneous bank charge 3200 1400

Additional information:
· Check issued by HG in November was mutilated as returned by the payee. A replacement check was issued. Both checks were entered in the check register, but no entry was made to cancel the mutilated check of P700.
· The company issued a stop payment order to the bank in December for a check issued in December which was not yet received by the payee. A new check was written and recorded in the check register in December. The old check was written off by a journal entry, also in December for P1,200.

1. Compute for the unadjusted bank disbursements in December.
2. Compute for adjusted cash balance per ledger in November.

Answer 25

1. 88650
2. 209600

Question 26

Below is the bank reconciliation for Kina Co. for November 30, 2021

Balance per bank, Nov. 30, 2021 150000
Add: Deposit in Transit 24000
Subtotal 174000
Less: Outstanding checks 28000
Bank credit recorded in error 10000
Cash balance per books, Nov. 30, 2021. 136000

The bank statement for December 2021 contains the ff:
Total deposits. 110000
Total charges, including NSF check P8,000
and service charge of P400 96000

*All outstanding checks on November 30, 2021, including the bank credit were cleared in the bank in December 2021
*There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2021.

1. What is the adjusted cash in bank balance as of December 31, 2021?

Answer 26

1. 172000

Question 27

Which of the following substantive audit procedure is least likely to be performed by the auditor to gather evidence in support of outstanding checks?
*Trace items on the bank reconciliation to cutoff bank statement
*Trace to cash disbursements journal
*Confirm directly with the bank
*Ascertain reason for unusual delay

Answer 27

Confirm directly with the bank