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AUDIT OF CASH AND CASH EQUIVALENTSPROBLEM NO. 1In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you gathered the following: Current account at Metrobank P2,000, Current account at BPI (100,000) Payroll account 500, Foreign bank account – restricted (in equi...

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CEBU CPAR CENTER, INC INC.

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AUDIT OF CASH AND CASH EQUIVALENTS PROBLEM NO. 1 In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you gathered the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Current account at Metrobank Current account at BPI Payroll account Foreign bank account – restricted (in equivalent pesos) Postage stamps Employee’s post dated check IOU from controller’s sister Credit memo from a vendor for a purchase return Traveler’s check Not-sufficient-funds check Money order Petty cash fund (P4,000 in currency and expense receipts for P6,000) Treasury bills, due 3/31/07 (purchased 12/31/06) Treasury bills, due 1/31/07 (purchased 1/1/06)

P2,000,000 (100,000) 500,000 1,000,000 1,000 4,000 10,000 20,000 50,000 15,000 30,000 10,000 200,000 300,000

Question: Based on the above information and the result of your audit, compute for the cash and cash equivalent that would be reported on the December 31, 2006 balance sheet. a. P2,784,000 c. P2,790,000 b. P3,084,000 d. P2,704,000 Suggested Solution: Current account at Metrobank Payroll account Traveler’s check Money order Petty cash fund (P4,000 in currency) Treasury bills, due 3/31/07 (purchased 12/31/06) Total

P2,000,000 500,000 50,000 30,000 4,000 200,000 P2,784,000

Answer: A PROBLEM NO. 2 In the course of your audit of the Las Piñas Corporation, its controller is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. The following information is provided: 1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank. 2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction). 3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt. 4. Petty cash fund of P10,000. 5. An I.O.U. from a company officer in the amount of P40,000. 6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank. 7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days. 8. Las Piñas has received a check dated January 2, 2007 in the amount of P150,000. 9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit availability. 10. Currency and coin on hand amounted to P15,000. Question: Based on the above and the result of your audit, how much will be reported as cash and cash equivalent at December 31, 2006? a. P3,025,000 c. P2,575,000 b. P2,825,000 d. P5,025,000

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Suggested Solution: Savings account at PS Bank Checking account at PS Bank Petty cash fund Currency and coin Total

P1,200,000 1,800,000 10,000 15,000 P3,025,000

Answer: A PROBLEM NO. 3 The cash account of the Makati Corporation as of December 31, 2006 consists of the following: On deposit in current account with Real Bank Cash collection not yet deposited to the bank A customer’s check returned by the bank for insufficient fund A check drawn by the Vice-President of the Corporation dated January 15, 2007 A check drawn by a supplier dated December 28, 2006 for goods returned by the Corporation A check dated May 31,2006 drawn by the Corporation against the Piggy 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 Piggy Bank account 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, 2006 Total Less: Overdraft with Piggy Bank secured by a Chattel mortgage on the inventories Balance per ledger

P 900,000 350,000 150,000

70,000 60,000

410,000

10,000 1,950,000 300,000 P1,650,000

Question: At what amount will the account “Cash” appear on the December 31, 2006 balance sheet? a. P1,315,000 c. P1,495,000 b. P1,425,000 d. P1,725,000 Suggested Solution: Current account with Real Bank Undeposited collection

P 900,000 350,000

Supplier's check for goods returned by the Corporation Unexpended petty cash Current account with Piggy Bank (P410,000 - P300,000) Total

60,000 5,000 110,000 P1,425,000

Answer: B PROBLEM NO. 4 You noted the following composition of Malabon Company’s “cash account” as of December 31, 2006 in connection with your audit: Demand deposit account Time deposit – 30 days NSF check of customer Money market placement (due June 30, 2007) Savings deposit in a closed bank IOU from employee Pension fund Petty cash fund Customer’s check dated January 1, 2007 Customer’s check outstanding for 18 months Total

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P2,000,000 1,000,000 40,000 1,500,000 100,000 20,000 3,000,000 10,000 50,000 40,000 P7,760,000

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Additional information follows: a) Check of P200,000 in payment of accounts payable was recorded on December 31, 2006 but mailed to suppliers on January 5, 2007. b) Check of P100,000 dated January 15, 2007 in payment of accounts payable was recorded and mailed on December 31, 2006. c) The company uses the calendar year. The cash receipts journal was held open until January 15, 2007, during which time P400,000 was collected and recorded on December 31, 2006. Question: The cash and cash equivalents to be shown on the December 31, 2006 balance sheet is a. P3,310,000 c. P2,910,000 b. P1,910,000 d. P4,410,000 Suggested Solution: Demand deposit account as adjusted: Demand deposit account per books Undelivered check Postdated check issued Window dressing of collection Time deposit - 30 days Petty cash fund Cash and cash equivalents

P2,000,000 200,000 100,000 (400,000)

P1,900,000 1,000,000 10,000 P2,910,000

Answer: C PROBLEM NO. 5 You were able to gather the following from the December 31, 2006 trial balance of Mandaluyong Corporation in connection with your audit of the company: Cash on hand Petty cash fund BPI current account Security Bank current account No. 01 Security Bank current account No. 02 PNB savings account PNB time deposit

P 500,000 10,000 1,000,000 1,080,000 (80,000) 1,200,000 500,000

Cash on hand includes the following items: a.

Customer’s check for P40,000 returned by bank on December 26, 2006 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2007. b. Customer’s check for P20,000 dated January 2, 2007, received on December 29, 2006. c. Postal money orders received from customers, P30,000. The petty cash fund consisted of the following items as of December 31, 2006. Currency and coins Employees’ vales Currency in an envelope marked “collections for charity” with names attached Unreplenished petty cash vouchers Check drawn by Mandaluyong Corporation, payable to the petty cashier

P 2,000 1,600 1,200 1,300 4,000 P10,100

Included among the checks drawn by Mandaluyong Corporation against the BPI current account and recorded in December 2006 are the following: a.

Check written and dated December 29, 2006 and delivered to payee on January 2, 2007, P80,000. b. Check written on December 27, 2006, dated January 2, 2007, delivered to payee on December 29, 2006, 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, 2006. 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.

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Questions: Based on the above and the result of your audit, determine the adjusted balances of following: 1. Cash on hand a. P410,000 b. P530,000

c. P470,000 d. P440,000

2. Petty cash fund a. P6,000 b. P7,200

c. P2,000 d. P4,900

3. BPI current account a. P1,000,000 b. P1,120,000

c. P1,080,000 d. P1,040,000

4. Cash and cash equivalents a. P2,917,200 b. P3,074,900

c. P3,052,000 d. P3,066,000

Suggested Solution: Question No. 1 Unadjusted cash on hand NSF check Post dated check received

P500,000 (40,000) (20,000)

Adjusted cash on hand

P440,000

Question No. 2 Petty cash fund per total Employees' vales (IOU) Currency in envelope marked "collections for charity" Unreplenished petty cash vouchers

P10,100 (1,600) (1,200) (1,300)

Petty cash fund, as adjusted

P 6,000

Alternative computation: Currency and coins Replenishment check Petty cash fund, as adjusted

P 2,000 4,000 P 6,000

Question No. 3 Unadjusted BPI current account Unreleased check Post dated check delivered

P1,000,000 80,000 40,000

Adjusted BPI current account

P1,120,000

Question No. 4 Cash on hand (see no. 1) Petty cash fund (see no. 2) BPI current account (see no. 3) Security Bank current account (net of overdraft of P80,000) PNB time deposit Cash and cash equivalents, as adjusted

P 440,000 6,000 1,120,000 1,000,000 500,000 P3,066,000

Answers: 1) D; 2) A; 3) B; 4) D

PROBLEM NO. 6 The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31, 2006. The bank statement as of December 31 showed a balance of P547,800. Additional information that might be useful in reconciling the two balances follows:

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(a) Check number 748 for P30,000 was originally recorded on the books as P45,000. (b) A customer's note dated September 25 was discounted on October 12. The note was dishonored on December 29 (maturity date). The bank charged Manila's account for P142,650, including a protest fee of P2,650. (c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000. (d) Outstanding checks totaled P98,850 as of December 31. (e) There were bank service charges for December of P2,100 not yet recorded on the books. (f) Manila's account had been charged on December 26 for a customer's NSF check for P12,960. (g) Manila properly deposited P6,000 on December 3 that was not recorded by the bank. (h) Receipts of December 31 for P134,250 were recorded by the bank on January 2. (i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27, and the bank charged a P360 collection fee. Questions: Based on the above and the result of your audit, determine the following: 1. Adjusted cash in bank balance a. P583,200 b. P577,200

c. P589,200 d. P512,400

2. Net adjustment to cash as of December 31, 2006 c. P 98,370 a. P104,370 b. P110,370 d. P175,170 Suggested Solution: Question No. 1 Balance per bank statement, 12/31/06 Add: Deposits in transit Bank error-deposit not recorded Total Less: Outstanding checks

P547,800 P134,250 6,000

Adjusted bank balance, 12/31/06 Balance per books, 12/31/06 Add: Book error - Check No. 748 Customer note collected by bank Total Less: Dishonored note Book error-improperly recorded deposit NSF check Bank service charges

140,250 688,050 98,850 P589,200 P687,570

P15,000 46,290

61,290 748,860

142,650 1,950 12,960 2,100

Adjusted book balance, 12/31/06

159,660 P589,200

Question No. 2 Unadjusted balance per books, 12/31/06 Adjusted book balance, 12/31/06

P687,570 589,200

Net adjustment to cash – credit

P 98,370

Answers: 1) C; 2) C

PROBLEM NO. 7 Shown below is the bank reconciliation for Marikina Company for November 2006: Balance per bank, Nov. 30, 2006 Add: Deposits in transit Total Less: Outstanding checks Bank credit recorded in error Cash balance per books, Nov. 30, 2006

P150,000 24,000 174,000 P28,000 10,000

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38,000 P136,000

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The bank statement for December 2006 contains the following data: Total deposits Total charges, including an NSF check of P8,000 and a service charge of P400

P110,000 96,000

All outstanding checks on November 30, 2006, including the bank credit, were cleared in the bank 1n December 2006. There were outstanding checks of P30 ,000 and deposits in transit of P38,000 on December 31, 2006. Questions: Based on the above and the result of your audit, answer the following: 1. How much is the cash balance per bank on December 31, 2006? a. P154,000 c. P164,000 b. P150,000 d. P172,400 2. How much is the December receipts per books? a. P124,000 c. P110,000 b. P 96,000 d. P148,000 3. How much is the December disbursements per books? a. P96,000 c. P89,600 b. P79,600 d. P98,000 4. How much is the cash balance per books on December 31, 2006? c. P180,400 a. P150,000 b. P170,400 d. P162,000 5. The adjusted cash in bank balance as of December 31, 2006 is a. P141,600 c. P172,000 b. P162,000 d. P196,000 Suggested Solution: Question No. 1 Balance per bank, Nov. 30, 2006 Add: Total deposits per bank statement Total Less: Total charges per bank statement Balance per bank, Dec. 31, 2006

P150,000 110,000 260,000 96,000 P164,000

Question No. 2 Total deposits per bank statement Less deposits in transit, Nov. 30 Dec. receipts cleared through the bank Add deposits in transit, Dec. 31 December receipts per books

P110,000 24,000 86,000 38,000 P124,000

Question No. 3 Total charges per bank statement Less: Outstanding checks, Nov. 30 Correction of erroneous bank credit December NSF check December bank service charge Dec. disb. cleared through the bank Add outstanding checks, Dec. 31 December disbursements per books

P96,000 P28,000 10,000 8,000 400

46,400 49,600 30,000 P79,600

Question No. 4 Balance per books, Nov. 30, 2006 Add December receipts per books Total Less December disbursements per books Balance per books, Dec. 31, 2006

P136,000 124,000 260,000 79,600 P180,400

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Question No. 5 Balance per bank statement, 12/31/06 Deposits in transit Outstanding checks Adjusted bank balance, 12/31/06

P164,000 38,000 ( 30,000) P172,000

Balance per books, 12/31/06 NSF check Bank service charges Adjusted book balance, 12/31/06

P180,400 ( 8,000) ( 400) P172,000

Answers: 1) C; 2) A; 3) B; 4) C; 5) C

PROBLEM NO. 8 The accountant for the Muntinlupa Company assembled the following data: Cash account balance Bank statement balance Deposits in transit Outstanding checks Bank service charge 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 Collection by bank of company's notes receivable

June 30 P 15,822 107,082 8,201 27,718 72

July 31 P 39,745 137,817 12,880 30,112 60 8,250

71,815

80,900

The bank statements and the company's cash records show these totals: Disbursements in July per bank statement Cash receipts in July per Muntinlupa's books

P218,373 236,452

QUESTIONS: Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1. How much is the adjusted cash balance as of June 30? a. P87,565 c. P107,082 b. (P3,695) d. P15,822 2. How much is the adjusted bank receipts for July? a. P253,787 c. P245,537 b. P214,802 d. P232,881 3. How much is the adjusted book disbursements for July? a. P220,767 c. P181,782 b. P212,517 d. P206,673 4. How much is the adjusted cash balance as of July 31? a. P137,817 c. P22,513 d. P120,585 b. P112,335 5. How much is the cash shortage as of July 31? a. P8,250 c. P196,144 b. P71,815 d. P0

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Suggested Solution: Muntinlupa Company Reconciliation of Receipts, Disbursements, and Bank Balance For the month ended July 31

Balance per bank statement Deposits in transit: June 30 July 31 Outstanding checks: June 30 July 31 NSF check redeposited Adjusted bank balance Balance per books Bank service charge: June July Collection of notes receivable: June July Adjusted book balance a

Beginning June 30

Receipts

Disb.

Ending July 31

P107,082

P249,108a

P218,373

P137,817

8,201

(8,201) 12,880

12,880

(27,718)

(27,718) 30,112

(30,112)

(8,250)

(8,250)

P 87,565

P245,537

P212,517

P120,585

P 15,822

P236,452

P212,529b

P 39,745

(72) 60

(60)

(72)

71,815

P 87,565

(71,815) 80,900

80,900

P245,537

P212,517

P120,585

(P137,817 + P218,373 – P107,082) (P15,822 + 236,452 – P39,745)

b

Answers: 1) A; 2) C; 3) B; 4) D; 5) D PROBLEM NO. 9 In the audit of Pasig Company’s cash account, you obtained the following information: The company’s bookkeeper prepared the following bank reconciliation as of November 30, 2006: Bank balance – November 30, 2006 Undeposited collections Bank service charges Bank collection of customer’s note Outstanding checks:

P90,800 5,000 100 (8,000) Number 7159 7767 7915

Amount P3,000 5,000 2,000

Book balance – November 30, 2006

(10,000) P77,900

Additional data are given as follows: a.

Company recordings for December: Total collections from customers Total checks drawn

b. Bank statement totals for December : Charges Credits c.

P165,000 98,000 P123,800 169,000

Check no. 7159 dated November 25, 2006, was entered as P3,000 in payment of a voucher for P30,000. Upon examination of the checks returned by the bank, the actual amount of the check was P30,000.

d. Check no. 8113 dated December 20, 2006 was issued to replace a mutilated check (no.7767), which was returned by the payee. Both checks were recorded in the amount drawn, P5,000, but no entry was made to cancel check no. 7767. e.

The December bank statement included a check drawn by Sipag Company for P1,500.

f.

Undeposited collections on December 31, 2006 - P8,000.

g.

The service charge for December was P150 which was charged by the bank to another client.

h. The bank collected a note receivable of P7,000 on December 28, 2006, but the collection was not received on time to be recorded by Pasig.

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CEBU CPAR CENTER, INC INC. i.

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The outstanding checks on December 31, 2006, were: Check No. 7767 8856

Amount P5,000 1,300

Check No. 8910 8925

Amount P2,300 4,100

QUESTIONS: Based on the above and the result of your audit, determine the following: 1. Unadjusted cash balance per boo...