CASH CASH Equivalents TEST BANK PDF

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Junior Philippine Institute of Accountants University of Cebu – Banilad ChapterCASH & CASH EQUIVALENTS TEST BANKA. TRUE or FALSE__1. Cash is measured at face value. __2. Savings accounts are usually classified as cash on the balance sheet. __3. Restricted cash may be available to meet the no...

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Junior Philippine Institute of Accountants University of Cebu – Banilad Chapter

CASH & CASH EQUIVALENTS TEST BANK A. TRUE or FALSE __________1. Cash is measured at face value. __________2. Savings accounts are usually classified as cash on the balance sheet. __________3. Restricted cash may be available to meet the normal operating needs of a company. __________4. Certificates of deposit are usually classified as cash on the balance sheet. __________5. Companies include postdated checks and petty cash funds as cash. __________6. Cash equivalents are investments with original maturities of six months or less. __________7. Bank overdrafts are always offset against the cash account in the balance sheet. __________8. Postdated checks received cannot be considered as cash yet because these checks are unacceptable by the bank for deposit and immediate credit or outright encashment. __________9. Equity securities may qualify as cash equivalents. __________10. If the deposit is not legally restricted because of an informal compensating balance agreement, the compensating balance is part of cash if the related loan is short-term.

B. MULTIPLE CHOICE - THEORY 1. As contemplated in accounting, cash includes a. Money only b. Money and any negotiable instrument c. Any negotiable instrument d. Money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit 2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be a. Unrestricted in use for current operations b. Available for the purchase of property, plant and equipment c. Set aside for the liquidation of long-term debt d. Deposited in the bank 3. Cash equivalents are a. Short-term and highly liquid investments that are readily convertible into cash b. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months c. Short-term and highly liquid investments that are readily convertible into cash and acquired three months before maturity d. Short-term and highly liquid marketable equity securities

4. All of the following can be classified as cash and cash equivalents, except? a. Redeemable preference shares acquired and due in 60 days b. Commercial papers held and due for repayment in 90 days c. Equity investments d. A bank overdraft 5. Which is false concerning measurement of cash and cash equivalents? a. Cash is measured at face value b. Cash in foreign currency is measured at the current exchange rate c. If a bank or financial institution holding the funds of the company is in bankruptcy or financial difficulty, cash should be written down to estimated realizable value d. Cash equivalents should be measured at maturity value, meaning face value plus interest. 6. If material, deposits in foreign bank which are subject to foreign exchange restriction should be classified a. Separately as current asset, with appropriate disclosure b. Separately as a non-current asset with appropriate disclosure c. Be written off as an extraordinary loss d. As part of cash and cash equivalents 7. Bank overdraft a. Is a debit balance in a cash in bank account b. Is offset against demand deposit account in another bank c. Which cannot be offset is classified as a current liability d. Which cannot be offset is classified as non-current liability 8. A compensating balance a. Must be included in cash and cash equivalent b. Which is legally restricted and related to a long-term loan is classified as a current asset c. Which is legally restricted and related to a short-term loan is classified separately as a current asset d. Which is not legally restricted as to withdrawal is classified separately as current asset 9. Unreleased checks (checks drawn before the end of reporting period but held for later delivery to creditors) a. Shall be treated as outstanding checks b. Shall be restored to the cash balance c. Shall be treated as outstanding checks if the date is shortly after the end of reporting period. d. Shall be treated as outstanding checks if they are ultimately encashed. 10. Which of the reporting purposes?

following

shall

not

be

considered

a. Petty cash funds and change funds b. Money orders, certified checks and personal checks c. Coin, currency and available funds d. Postdated checks and IOUs

“cash”

for financial

11. Which of the following is usually considered cash? a. Certificates of deposit b. Checking accounts c. Money market saving certificate d. Postdated check 12. Petty cash fund is a. Separately classified as current asset b. Money kept on hand for making minor disbursements of coin and currency rather than by writing checks c. Set aside for the payment of payroll d. Restricted cash 13. The petty cash account under the imprest fund system is debited a. Only when the fund is created b. When the fund is created and every time it is replenished c. When the fund is created and when the size of the fund is increased d. When the fund is created and when the size of the fund is decreased 14. The internal control feature that is specific to petty cash is a. Separation of duties b. Assignment of responsibility c. Proper authorization d. Imprest system 15. What is the major purpose of an imprest petty cash fund? a. To effectively plan cash inflows and outflows b. To ease the payment of cash to vendors c. To determine the honesty of the petty cashier d. To effectively control cash disbursements

MULTIPLE CHOICE – COMPUTATIONAL 16. Consider the following: Cash in Bank – checking account of $13,500, Cash on hand of $500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling $124,000. How much should be reported as cash in the balance sheet? a. $ 13,500. b. $ 14,000. c. $ 17,500. d. $131,500 17. On January 1, 2010, Lynn Company borrows $2,000,000 from National Bank at 11% annual interest. In addition, Lynn is required to keep a compensatory balance of $200,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Lynn pays on its $2,000,000 loan is a. 10.0%. b. 11.0%.

c. 11.5%. d. 11.6% 18. Kennison Company has cash in bank of $10,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of a. $9,000. b. $10,000. c. $12,000. d. $13,000. 19. Kaniper Company has the following items at year-end: Cash in bank Petty cash Short-term paper with maturity of 2 months Postdated checks Kaniper should report cash and cash equivalents of

$20,000 300 5,500 1,400

a. $20,000. b. $20,300. c. $25,800. d. $27,200. 20. Lawrence Company has cash in bank of $15,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of a. $13,000. b. $15,000. c. $18,000. d. $19,000.

C. AUDIT of CASH & CASH EQUIVALENTS PROBLEM NO. 1 In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you gathered the following: Current account at Metrobank

P2,000,000

Current account at BPI

(100,000)

Payroll account

500,000

Foreign bank account – restricted (in equivalent pesos)

1,000,000

Postage stamps

1,000

Employee’s post dated check

4,000

IOU from controller’s sister

10,000

Credit memo from a vendor for a purchase return Traveler’s check

20,000 50,000...