CHAPTER 1 CASH AND CASH EQUIVALENTS TECHNICAL KNOWLEDGE To understand the concept of cash. To understand the concept of cash equivalents. To identify items considered cash. To identify items considered cash equivalents. To know the accounting for petty cash fund. isDEFINITION OF CASH From the point of view of a layman, “cash” simply meang money. Money is the standard medium of exchange in business transactions. Money refers to the currency and coins which are in circulation and legal tender. However, in the accounting parlance, the term “cash” has a special and broader meaning and connot tes more than money, As contemplated in accounting, cash includes money and any other negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. Accordingly, cash includes checks, bank drafts and money orders because these are acceptable by the bank for depésit or immediate encashment. For example, when checks are received in full settlement of an account receivable, cash is immediately debited. But postdated checks received cannot be considered as cash yet because the postdated checks are unacceptable by the bank for deposit and immediate credit or outright encashment. Unrestricted cash There is no specific standard dealing with "cash". The only guidance is found in PAS 1, paragraph 66, which provides fat an entity shall classify an asset as current when the asset is cash or a cash equivalent unless it is restricted to settle a liability for more than twelve months after the end of the reporting period. Accordingly, to be reported as “cash”, an item must be unrestricted in use. i ailable in the is means that the cash must be readily availa roa of current obligations and not be subject to any restrictions, contractual or otherwise. 2 Mii titCash items included in cash a. Cash on hand includes undeposited cash collections and other cash items awaiting deposit such as customers’ checks, cashier's or manager’s checks, traveler’s checks, bank drafts and money orders. b. Cash in bank includes demand deposit or checking account and saving deposit which are unrestricted as to withdrawal. c. Cash fund set aside for current Purposes such as petty: cash fund, payroll fund and dividend fund. Cash equivalents PAS 7, paragraph 6, defines cash equivalents as short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rate. The standard further states that only highly liquid investments acquired three months before maturity can qualify as cash equivalents. Examples of cash equivalents are: a. Three-month BSP treasury bill b. Three-year BSP treasury bill purchased three months before date of maturity c. Three-month time deposit d. Three-morith money market instrument or commercial paper Equity securities cannot qualify as cash equivalents because shares do not have a maturity date. However, preference shares with. specified redemption date and acquired three months before redemption date can qualify as cash equivalents. Note that what is important is the date of purchase which should be. three months or less before maturity. Thus, a BSP treasury bill that was purchased one year ago cannot qualify as cash equivalent even if the remaining maturity is three months or less from the end of reporting period. 3ss cash Investment of exces is an ii it aspect of f cash is an important ct of cag trol and proper use of cai vortal Sdophemasicrys et the entity must maintain sufficient cash, ms : t for use in current operations. on i of that needed for current y cash accumulated in excess eed. aaa should be invested even temporarily ii some type of revenue earning investment. Accordingly, excess cash may be invested in time deposits, money market instruments and treasury bills for the Purpose of earning interest income. Classifications of investment of excess cash Investments in time deposit, money market instruments and treasury bills should be properly classified. a. If the term is three months or less, such instruments are classified as cash equivalents and therefore included in the caption “cash and cash equivalents”, b. If the term is more than three months but within one year, such investments are classified as short-term financial ¢. If the term is more than one + such i classified as none Fern uch investments are ‘urrent or long-term investments, However, such investments that beco: e end of the reporting mporary investment me due within one Period are reclassified ts,Measurement of cash Cash is measured at face value. Cash in foreign currency is measured at the current exchange rate. Ifa bank or financial institution holding the funds of an entity is in bankruptcy or financial difficulty, cash should be written down to estimated realizable value if the amount recoverable is estimated to be lower than the face value. Financial statement presentation The caption cash and cash equivalents should be shown as the first line item under current assets. This caption includes all cash items, such as cash on hand, cash in bank, petty cash fund and cash equivalents which are unrestricted in use for current operations. However, the details comprising the cash and cash equivalents should be disclosed in the notes to financial statements. Foreign currency Cash in foreign currency should be translated to Philippine pesos using the current exchange rate. Deposits in foreign countries which are not subject to any foreign exchange restriction are included in “cash”. Deposits in foreign bank which are subject to foreign exchange restriction should be classified separately among noncurrent assets and the restriction clearly indicated. Cash fund for a certain purpose If the cash fund is set aside for use in current operations or for the payment of current obligation, it is a current asset. The cash fund is included as part of cash and cash equivalents. Examples of this fund are petty cash fund, payroll fund, travel fund, interest fund, dividend fund and tax fund. On the other hand, if the cash fund is set aside for noncurrent purpose or payment of noncurrent obligation, it is shown as long-term investment. Examples of this fund are sinking fund, preference share redemption fund, contingent fund, insurance fund and fund for acquisition or construction of property, plant and equipment. 5Classification of cash fund The classification of a cash fund as current o! should parallel the élassification of the related liabitig’ For example, a sinking fund that is set aside to payable ‘shall be classified as current asset ‘hen the Pond payable is already due within one year after the end at reporting period. of However, a cash fund set aside for the acquisition of a noncurrent asset should be classified as noncurrent regardless of the year of disbursement. Bank overdraft When the cash in b to be an overdraft. account results from the issuance of deposits. A bank overdraft not be offset against o' For example, an entity maintains two bank accounts: nk — First Bank, which is overdrawn by P10,000. alance of ank account has a credit balance, it is said The credit balance in the cash in bank checks in excess of the is classified as a current liability and should ther bank accounts with debit balances. a. Cashin bat b. Cash in bank - Second Bank, with a debit b: P100,000. The net cash balance is ‘90,000. er statement classification of the two accounts is: The props Current asset: Cash in bank - Second Bank 100,000 Current liabili Ba avedeaft First Bank 10,000 Note that it is not necessary to adjust and open a bank overdraft account in the ledger. In other words, the Cash in Bank — First Bank account is maintained in the ledger with a credit balance. Generally, overdrafts are not permitied in the Philippines. |Exception to the rule on overdraft When an entity maintains two or more accounts in one bank and one account, results in an overdraft, such overdraft can be offset against the other bank account with a debit balance in order to show cash, net of bank overdraft or bank overdraft, net of other bank account. An overdraft can also be offset against the other bank account if the amount is not material. Under IFRS, bank overdraft can be offset against other bank account when payable on demand-and often fluctuates from positive to negative as an integral part of cash management. Compensating balance A compensating balance generally takes the form of minimum checking or demand deposit. account balance that must be maintained in corinection with a. borrowing arrangement with a bank. { For example, an entity borrows, P5,000,000 from a bank and agrees to maintain a 10% or P500,000 minimum compensating balance in a’ demand deposit account. In effect, this arrangement results in the reduction of the amount borrowed because the compensating balance provides a source of fuind to the bank as partial compensation for the loan extended. Classification of compensating balance If the deposit is not legally restricted as to withdrawal by the borrower because of an informal compensating balance agreement, the compensating balance is part of cash, If the deposit is legally restricted because of a formal compensating balance agreement, the compensating balance is classified separately as “cash held as compensating balance” under current assets if the related loan is short-term. If the related loan is long-term, the compensating balance is classified as noncurrent investment. 7Undelivered or unreleased check An undelivered or unreleased check i i is one th: drawn and recorded but not given to the payee at an end of reporting period. ‘OF® the There is nto payment when the check ii i i payee at the end of reporting period. sea delivery to ite The reason is that undelivered check is still subject to the enti control and may thus be canceled ime before deli c discretion of the entity. aoe ksttietid Accordingly, an adjusting entry is required to restore the cash balance and set up the liability. Cash = Accounts payable or appropriate account x In practice, the foregoing adjustment is sometimes ignored because the amount is not very substantial and there is no evidence of actual cancelation of the check in the subsequent period. ' Postdated check delivered A postdated check delivered is a check drawn, recorded and already given to the payee but it bears a date subsequent to the end of reporting period. entry recording a delivered postdated check iginal aah fore restored to the cash shall also be reversed and there balance. xx Cash : 7 Accounts payable or appropriate account can be here is no payment until the check is that t] i Lae nk for encashment or deposit. presented to the bai ii aanStale check or check long outstanding A stale check is a check not encashed by the payee within a relatively long period of time. The question is how long a time must the check remain outstanding? The Negotiable Instruments Law provides that where the instrument is payable on demand, presentment must be made within a reasonable time after issue. In determining what is a reasonable time, consideration should be made regarding the nature of the instrument, the usage of trade or business, if any, with respect to such instrument and the facts of the particular case. Clearly, the law does not specify a definite period within which checks must be presented for encashment. Reference is made to usage of trade or business practice. In banking practice, a check becomes stale if not encashed within six months from the time of issuaneé. Of course, this is a matter of entity policy. Thus, even after three months only; the entity may issue a stop payment order to the bank for the cancelation of a previously issued check. If the amount of stale check is immaterial, it is simply accounted for as miscellaneous income. Cash =x Miscellaneous income x However, if the amount is material and liability is expected to continue, the cash is restored and the liability is again set up. ‘Accounts payable or appropriate account xAccounting for cash shortage h which is less than the Where the cash count ahows cas is to be recorded halance per book, @ cash shortage Xxx Cash abort or over Cash m over account is only a temporary or suspense The oash short or statements are prepared the same should account. When financial be adjusted. Hence, if the cashier or cash custodian is held responsible for the cash shortage, the adjustment should be: Due from cashier xx Cash short or over xx However, if reasonable efforts fail to disclose the cause of the shortage, the adjustment is Loss from cash shortage x Cash short or over Accounting for cash overage f Where the cash count shows cash which is more than the balance per book, a cash overage is to be xx Cash short or over x Note that whether it is a cash shortage or cash overage, the offsetting account is cash short or over account. Such account should be adjusted when statements are made. The cash overage is treated as miscellaneous income if there is no claim on the same. Cash short or over XX Miscellaneous income xx But where the cash overage i t age is properly found to be the money of the cashier, the journal entry is: Cash short or over Payable to cashier : x 10 ,Imprest system The imprest system is a system requires that all cash receipts shoul all cash disbursements should be made by means of check. While internal control ideally requires that all payments should be made by means of check, this is sometimes impossible. ‘There are occasions when the issuance of checks becomes impractical or inconvenient such as when small amounts are paid or things are hurriedly bought or customers are entertained. Consequently, in such ins' and convenient to pay in cash rathe! of control of cash which Id be deposited intact and tances, it may be more economical than issue checks. Petty cash fund The petty cash fund is money set aside to pay small expenses which cannot be paid conveniently by means of check. There are two methods of handling the petty cash, namely: a. Imprest fund system b. Fluctuating fund system Imprest fund system ‘The imprest fund system is the one usually followed in handling petty cash transactions. Accounting procedures a. Acheck is drawn to establish the fund. Petty cash fund Cash in bank b. Payment of expenses out of the fund. No formal journal entries are made. The petty cashier generally. requires a signed petty cash voucher for such payments and simply prepares memorandum entries in the petty cash journal: 11c. Replenishment of petty cash payments. Whenever the petty cash fund runs low, a check-is drawn to replenish the fund. The replenishment check is usually equal to the petty cash disbursements. It is at this time that the petty cash disbursements are recorded. Expenses x Cash in bank x It is to be pointed out that the petty cash disbursements should be replenished only by means of check and not from undeposited collections. d. At the end of the accounting period, it is necessary to adjust the unreplenished expenses in order to state the correct petty cash balance. nses Petty cash fund x The adjustment is to be reversed at the beginning of the next ‘accounting period. The reversal is made in order that the normal replenishment, procedures may be followed by simply debiting expenses and crediting cash in bank without distinguishing whether the expenses pertain to the current period or prior period. e. An increase in the fund is recorded normally. Petty cash fund x Cash in bank x £. A decrease in the fund is recorded normally. Cash in bank oy Petty cash fund x 12 LeIllustration 2021 Nov. 10 The entity established an imprest fund of P10,000. Petty cash fund 10,000 ash in bank 10,000 29 Replenished the fund. The petty cash items include the following: Currency and coin 2,000 Supplies 5,000 Telephone 1,800 Postage 1,200 Nov. 29 The journal entry to record the replenishment is: Supplies 5,000 Telephone 1,800 Pe 1,200 ‘Cash in bank 8,000 Dee: 81 The fund was not replenished. An adjustment is necessary to record\the unreplenished expenses. The fund is composed of the following: currency and coin P7,000, supplies P1,500, postage P500, miscellaneous expense P1,000. Supplies 1,500 Postage 500 Miscellaneous expense 1,000 Petty cash fund 3,000 2022 Jan. 1 The adjustment made on December 31, 2021 is reversed. Petty cash fund 3,000 Supplies 1,500 Postage 500 Miscellaneous expense 1,000 13Illustration Nov. 10 The entity established a pett; h eipo00! petty cash fund of Petty cash fund 10,000 Cash in bank 10,000 Nov. 11-28 Petty cash disbursements amounted to P8,000, Expenses 8,000 Petty cash fund 8,000 Nov. 29 Issued a check for P10,000 to replenish the fund. Petty cash fund 10,000 Cash in bank 10,000 At this point, the petty cash balance per book is P12,000. Dec. 1-30 Petty cash expenses amounted to P9,000. Expenses 9,000 Petty.cash fund 9,000 31 Issued a check for P15,000 to replenish the fund. Petty cash fund 15,000 Cash in bank 15,000 At this point, the petty cash balance is P18,000. 16“ QUESTIONS 1. Define cash. 2. Explain the meaning of unrestricted cash. 3. Define cash equivalents. 4, Explain the measurement of cash. 5. Explain the financial statement presentation of cash and cash equivalents. 6. Explain the classification of investments of excess cash in’ time deposits, money market instruments and treasury bills. 7. Explain the treatment of foreign currency. 8. Explain the classification of a cash fund. 9. Explain a bank overdraft. 10. Explain a compensating balarice. 11. Explain undelivered check, postdated check delivered and stale check. 12. Explain the accounting for cash shortage or cash overage. 13. Explain the imprest system of internal control. 14. Explain the nature and purpose of a petty cash fund? 15. Explain the two methods of accounting for petty cash fund.PROBLEMS Problem 1-1 (IAA) On December 31, 2021, Albania Company provided the following data: Cash in bank 3,000,000 Time deposit — 30 days 1,000,000 Money market placement due on June 30, 2022 2,000,000 Saving deposit in closed bank 100,000 Sinking fund for bond payable due June 30, 2023 1,500,000. 20,000 Petty cash fund * The cash in bank included customer check of P200, 000 outstanding for 18 months. Check of P250,000‘in payment of accounts payable was dated and recorded on December 31, 2021 but mailed to creditors on January 15, 2022. Check of P100,000 dated January 31, 2022 in payment of accounts payable was recorded and mailed December 31, 2021. The reporting period is the calendar year. The cash receipts journal was held open until January 15, 2022 during which time an amount of P450,000 was collected and recorded on December 31, 2021. Required: Prepare adjusting entries on December 31, 2021. Compute the total amount of cash and cash equivalents that should be reported on December 31, 2021. Explain the presentation of the items excluded from cash and cash equivalents. 18Problem 1-2 (IAA) Argentina Company reported the following accounts on December 31, 2021: Cash on hand 1,000,000 Petty cash fund 50,000 Security Bank current account 2,000,000 PNB current account 1,500,000 BDO current account (overdraft) (200,000) BSP treasury bill - 120 days 3,000,000 BPI time deposit -90 days 2,000,000 Bond sinking fund 2,500,000 * The cash on hand included a customer postdated check of P150,000 and postal money order of P50,000. * The petty cash fund included unreplenished petty cash vouchers for P10,000 and an employee check for P5,000 deted January 31, 2022. * The BPI time deposit is set aside for acquisition of land to be made in early January 2022. * “The bond sinking fund is set aside for payment of bond payable due December 31, 2022. Required: 1. Prepare adjusting entries on December 31, 2021. 2. Compute the total amount of cash and cash equivalents. 3. Explain the presentation of the items excluded from cash and cash equivalents. 19Problem 1-3 (AA) -menia Company reported the following i 7 aryomber 31, 2021: lowing information o, ash on hand oe cash fund 1,000,009 Cash in bank 50,000 Saving deposit 4,000,009 2,000,000 ——— Cash on hand included the following: a. Customer check of P100,000 returned by bank , Dect 26, 202: 1 due to insufficient fund but, abe redeposited and cleared by bank January 5, 2022, b. Customer check for P150,000 dated January 15, 2022 received December 22, 2021. c. Postal money orders received from customers, P200,000. * The petty cash fund consisted of the following items: Currency and coins 2,000 Employees’ IOUs 10,000 Currency in envelope marked collections for Christmas party 5,000 Check drawn by Armenia payable to petty cashier 33,000 50,000 * Check written and dated December 22, 2021 and delivered to payee on January 5, 2022, P200,000. r 26, 2021 and dated January 31, * Check written Decembe! on December 26, 2021, P300,000. 2022 delivered to payee Required: 1. Prepare adjusting entries on Decem! 2. Compute the total cash on December 31, 20 ber 31, 2021. 2021. —|Problem 1-4 (PHILCPA Adapted) Callous Company reported the following accounts on December 31, 2021: Cashonhand ~ 200,000 Petty cash fund 20,000 Philippine Bank current account 5,000,000 City Bank current account No. 1 4,000,000 City Bank current account No. 2 (overdraft) (100,000) Asia Bank saving account 250,000 Asia Bank time deposit, 90 days 2,000,000 * Cash on hand included the following items: Customer check for P35,000 returned by bank December 26, 2021 due to insufficient fund but subsequently redeposited and cleared by the bank on January 10, 2022. Customer check for P15,000 dated Januarv 10, 2022, received December. 23, 2021. * ‘The petty cash fund consisted of the following items: Currency and coins 5,000 10Us from officers 2,000 Unreplenished petty cash vouchers 12,000 * Included among. the checks drawn by Callous Company against the Philippine Bank current account and recorded in December 2021 were the following: Check written and dated December 23, 2021 and delivered to payee on January 31, 2022, P25,000. Check written December 26, 2021, dated January 30, 2022, delivered to payee on December 28, 2021, P45,000. Required: 1. Compute the total cash and cash equivalents. 2. Prepare adjusting entries on December 31, 2021. 21Problem 1-5 (ACP) Zealous Company established a petty cash fund. 1. Established a petty cash fund of P10,000 on January 2. 2. Petty cash expenses — January 2-31 are: Postage e 1 Supplies i a Transportation 1.200 eous expense "B00 3. The fund is replenished on February 1 and iner. P5,000. eee Required: Prepare journal entries to record the transactions under the fluctuating fund system and imprest fund system. Problem 1-6 (ACP) Zenith Company provided the -following chronological transactions in relation to petty cash: 1. The entity established a petty cash fund of P10,000. 2. Petty cash disbursements were: Postage 1,500 Supplies 3,000 3. Petty cash disbursements were: ‘Transportation 1,000 Accounts payable 8,500 4. Issued check for an amount to replenish the fund and bring the balance of the petty cash to P20,000. Required: Prepare journal entries to record the transactions under fluctuating fund system and imprest fund system. 22.Problem 1-7 (IAA) Laborious Company closed the accounts on June 30. The entity provided the following transactions: May 2 The entity established an imprest fund of P10,000. 29 The fund is replenished. The petty cash items include: Currency and coin 2,000 Postage f 1,000 Supplies 3,000- Transportation 2,500 Miscellaneous expense 1,500 June30 The fund was not replenished. The fund is composed of the following: Currency arid coin 6,000 Supplies 2,000 Postage 1,000 Transportation ' 1,000 July 15 The fund is replenished and increased to P15,000. Currency and coin 3,000 Supplies 3,500 Postage 1,500 Transportation 1,500 Miscellaneous expense 500 Required: Prepare journal entries to record the transactions under imprest fund system and fluctuating fund system. 23Problem 1-10 (AICPA Adapted) Tranvia Company revealed the following information on December 31, 2021: Cash in checking account 350,000 Cash in money market account : 750,000 Treasury bill, purchased November 1, 2021 maturing January 31, 2022 3,500,000 ‘Time deposit purchased December 1, 2021 maturing March 31, 2022 4,000,000 What amount should be reported as cash and cash equivalents on December 31, 2021? 1,100,000 3,850,000 4,600,000 8,600,000 Problem 1-11 (IAA) At year-end, Myra Company reported cash and cash equivalents which comprised the following: a.G) x p Cash on hand- 500,000 Demand deposit 4,000,000 Certificate of deposit 2,000,000 Postdated customer check «¢#\xo'< 300,000 Petty cash fund, 50,000 Traveler check — 200,000 Manager chetk ~ 100,000 oe 150,000 What total amount should be reported as cash at year-end? 7,000,000 4,800,000 6;800,000 - 5,000,000 Ro OP 26Problem 1-12 PHILCPA Adapted) Starex Company provided the following information at year-end: Checking account at Metrobank~ 3,000,000 Employee's postdated check 120,000 Foreign bank account unrestricted and in equivalent pesos-2,600,000 IOU from company president reco. 500,000 NSF customer check 100,000 Petty cash fund, expense receipts P40,000 50,000 + Postage stamps 10,000 Treasury bonds 500,000 Value added tax account 1,500,000 What amount should be reported as unrestricted cash? a. + 7,050,000 b. 5,500,000 c. 7,010,000 d. 5,510,000 Problem 1-13 (PHILCPA Adapted) At year-end, ABC Company reported cash account per ledger at P4,700,000 which consisted of the following: Petty cashfund ~ 50,000 Undeposited receipts, including a postdated customer check for P100,000 1,500,000- '" * Cashinbank ~- 2,500,000 Deposit in bank closed by BSP 500,000 Vouchers paid out of collectioris, not yet recorded 150,000 JOUs signed by employees, faken from collections 100,000. 4,800,000 What amount should be reported as cash at year-end? a. 3,750,000 "b, 3,950,000 c. 4,250,000 d. 4,050,000 27Problem 1-14 (AICPA Adapted) Thor Company provided the following data on December 31, 2021: Checkbook balance ~~ 4,000,000 Bank statement balance, ‘| 5,000,000 Check drawn on Thor's account, payable to supplier, dated and recorded on December 31, 2021 but not eon 0d ailed until J: 31, 2022 , mailed until January sooo Cash in sinking fund ‘On December 31, 2021, what amount should be reported as cash under current assets? 4) 4,500,000 b. 5,500,000. c, 3,500,000 d. 6,500,000 Problem 1-15 (AICPA Adapted) Joana Company had the following account balances on December 31, 2021: Petty cash fund 50,000- 005 Cash on hand 500,000 -»), Cash in bank — current account 4,000,000 Cash in bank — payroll account 1,000,000 Time deposit 2,000,000 Cash in bank — restricted account for plant addition, expected to be disbursed in early January 2022 500,000 Cash in sinking fund set aside for bond payable due dune 30, 2022 1,600,000. The petty cash fund included unreplenished December 2021 Po cash expense vouchers of P5,000 and employee IOU of 5,000. The cash on hand included a P100,000 check payable to Joana Company dated January 31, 2022. What total amount should be reported as cash and cash equivalents on:Décember 31, 2021? (@ 6,940,000 ; 8,940,000 7,940,000 . 7,440,000 aes 28Problem 1-16 (AICPA Adapted) On December 31, 2021 Lamentable Company had the following cash balances: ash in bank — current account 6,000,000 Petty cash fund — all funds were reimbursed at year-end 50,000 ‘Time deposit - three months, due January 15, 2022 2,500,000 ‘Saving deposit 1,000,000 Cash in bank included {P400,000\of compensating balance against short term borrowing arrangement. The compensating balance is legally restricted as. to withdrawal. What total amount should be reported as cash and cash equivalents? a. 9,500,000 b 9,150,000 c. 9,100,000 d. 6,950,000 Problem 1-17 (AICPA Adapted) Baloney Company had the following account balances on December 31, 2021: Cash in bank — Cash on hand~ 2,250,000 125,000 Cash restricted for addition to plant in January 2022 1,600,000 Cash in bank included P600,000 of compensating balance against short-term borrowing arrangement. The compensating balance is not legally restricted as to withdrawal. What total amount should be reported as cash on December 31, 2021? Bo op 1,775,000 2,250,000 2,375,000 3,975,000 29Problem 1-18 (IAA) Yasmin Company provided the following on December 31, 202). Petty cash fund 50,000 Current account - First Bank 4,000,000 Current account — Second Bank (overdraft) © 250,000) Money market placement — Third Bank 1,000,000 Time deposit - Fourth Bank 2,000,000 * A check for P100,000 was drawn against First Bank current account dated and recorded December 29, 209) but delivered to payee on January 15, 2022. * The Fourth Bank time deposit is set aside for lang acquisition in early January 2022. What total amount should be reported as cash and cash equivalents on December 31, 2021? a. 5,050,000 be 5,150,000 c. 4,900,000 d. 4,150,000 Problem 1-19 (IAA) On December 31, 2021, Roma Company reported cash balance. of P9,950,000. Undeposited collections 600,000 Cash in bank - BDO checking account 4,000,000 Undeposited NSF check received from customer, dated December 1, 2021 150,000= Undeposited check from a customer, dated January 15,2022 250,000» Cash in bank - BDO fund for payroll 1,000,000 Cash in bank - BDO time deposit, 90 days 2,000,000 Cash in foreign bank restricted 1,500,000" Cash in bank - BDO value added tax account 460,000 Total 9,950,000 On December 31, 2021, what total. amount should be reported as cash and cash equivalents? 30Problem 1-20 (AICPA Adapted) Ral Company reportéd the checkbook balance on December 31, 2021 at P5,000,000 and held the following items on same date: Check payable to Ral, dated January 2, 2022in payment ofa sale made in December 2021, not included in December 31 checkbook balance 2,000,000 Check payable to Ral, 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, 2022 and cleared on January 9, 2022 500,000 Check drawn on Ral's account, payable to a vendor, dated and récorded in Ral’s books on December 31, 2021 but not mailed until January 10, 2022 300,000 Certificate of time deposit 1,000,000 What amount should be reported as cash on December 31, 2021? @ 4,800,000 b. * 5,300,000 c. 6,500,000 d. 5,800,000 Problem 1-21 (IAA) Everlast Company reported the following information at year-end: i Shere of P1,000,000 that are very actively traded. Government treasury bills of P2,000,000 with a 10-year term but purchased on December 31 with two months to go until maturity. Cash of P3,400,000 in the form of coin, currency, saving account and checking account. Commercial papers of P1,500,000 with term of nine months but purchased on December 31 with three months to go until maturity. What total amount should be reported as cash and cash equivalents? * 31Problem 1-22 (AICPA Adapted) Isabel Company provided the following information oy December 31, 2021: Cash on hand 400,000 Security Bank current account 5,000,000 Manila Bank current account No. 1 4,000,000 Manila Bank current account No. 2 (bank overdraft) ( 500,000) BDO account set aside for bond payable due December 31, 2022 =i! 3,000,000 United Bank saving account for equipment acquisition —_1,500,000 United Bank time deposit, 90 days 2,000,000 Treasury bills 1,000,000 Included among the checks drawn by Isabel Company against the Security Bank current account and recorded in December 2021 are: Check written and dated December 23, 2021 and delivered to payee on Jantiary 3, 2022, P100,000. Check written December 26, 2021, dated January 30, 2022 delivered to payee on December 28, 2021, P150,000. 1. What total amount should be reported as cash on December 31, 2021? a. 12,150,000 b. 12,650,000 c. 9,150,000 d. 9,400,000 What total amount should be reported as cash equivalents on December 31, 2021? 3,000,000 4,500,000 2,000,000 2,500,000 ae opProblem 1-23 (ACP) Love Company reported the following information in relation to cash on December 31, 2021: * Checkbook balance, P4,000,000. * Undeposited collections, P400,000. * A customer check amounting to P200,000 dated January 2, 2022 was included in the December 31, 2021 checkbook balance. * Another customer check for P500,000 deposited on December 22, 2021 was included in the checkbook balance but returned by the bank for insufficiency of fund. This check was redeposited on December 26, 2021 and cleared two days later. * A P400,000 check payable to supplier dated and recorded on December 30, 2021 was mailed on January 16, 2022. * A petty cash fund of P60,000 comprised the following on December 31, 2021: Coins and currencies 5,000- Petty cash vouchers 40,000- Refundable deposit for returnable containers 5,000 50,000 * A check of P40,000 was drawn on December 31, 2021 payable to Petty Cash. 1. What amount should be reported as adjusted cash in bank on Decémber 31, 2021? wicks 400,00 Cuadietede 4,899,000 . 4,600,000 an ee be 00,000 ee ee ¢. 4,400,000 d. 3,700,000 2. What total amount should be reported as cash on December 31, 2021? 4000 200 ac 4,645,000 ee 20, Do) b 4,845,000 {ocd ak pe ape 80,000 - ty cok vouttang Geen 33 d. 4,650,000Problem 1-24 (PHILCPA Adapted) Marjorie Company established a petty cash fund of P50,o99 with the following information: Coins and currency 22,000. Petty cash vouchers: Gasoline 3,000 Medical supplies 1,000 Repairs 1,500 IOU from an employee 3,500 Check drawn payable to the order of Ann Cruz, petty cash custodian, representing her salary 15,000- Check of an employee returned by bank marked "NSF" 3,000 A sheet of paper with the names of several employees together with a contribution for a birthday party and attached to the sheet of paper is a currency of 5,000 What amount of petty cash fund should be reported? a. 42,000 b. 27,000 ¢ 387,000 d. 22,000 Problem 1-25 (PHILCPA Adapted) Admirable Company had a petty cash fund which included the following details: Coins and currency 2,000, Paid vouchers Transportation 600 ine 400 Office supplies 500 Postage stamps 300 an00 Due from employees 1,200 5 Employee's check returned by bank marked “NSF” ’ Toy Check drawn to the order of of petty cash custodian: What amount of petty cash should be reported? a. 2,000 b. 7,000 c/ 6,000 d. 9,000 34Problem 1-26 (PHILCPA Adapted) On December 1, 2021, Andi Company established a petty cash fund of P50,000. On December 31, 2021, the petty cash fund was examined and found to comprise the following information: Coins and currencies Petty cash vouchers for expenses 6,000 46,000 The petty cash fund was replenished on December 31, 2021. 1. What amount should be reported as cash shortage or cash overage? a: 2,000 over b. 2,000 short ec. 4,000 short ad 0 2. What entry should Andi Company make on December 31, 2021 to record the replenishment of petty cash fund? a. Petty cash Cash in bank Cash short and over b. Miscellaneous expenses Cash in bank Cash short and over c. Miscellaneous expenses Cash short and over Cash in bank d. Miscellaneous expenses Petty cash Cash short and over 35 46,000 46,000 44,000 2,000 46,000 44,000 2,000 44,000 2,000 46,000 44,000 2,000Problem 1-27 Multiple choice (IAA) 1. Which of the following should not be considered cash? a. Petty cash fund b. Money order c. Coin and currency d. IOU 2. Which of the following is usually considered cash? a. Certificate of deposit b. Checking account c. Money. market certificate d. Postdated check 8. Which of the following should not be included in cash? a. Travel cash advance b.. Certified check c. Personal check d. Manager check 4. All of the following may be included in cash, except a. Currency b. Money market instrument c. Checking account balance d. Saving account balance 5. Under IFRS, which of the following statements is true about reporting bank overdraft? a. Overdraft typically cannot be offset against positive balance in other cash account but reported as current liability. b. Generally, cash overdraft is not allowed. c. Overdraft can be offset against other bank account when payable on demand and often fluctuates from Positive to overdrawn as an integral part of cash management. d.’ All of these statements are true about bank overdraft. 8610. . Technically, cash may not include Foreign currency Money order Restricted cash Undeposited customer check fe rE . Restricted deposits in foreign bank are classified as a. Current asset with appropriate disclosure. b. Noncurrent asset with appropriate disclosure. c. Be written off as loss. d. As part of cash and cash equivalents. . What is a compensating balance? Saving account balance Demand deposit account balance Temporary investment as collateral for loan Minimum deposit required to be maintained in” connection with a borrowing arrangement - Bo op ). Compensating balante represents a. Fund ina bank account that cannot be spent b. Balance in a payroll checking account c. Account that is subject to bank service charge d.’ Account on which a bank pays interest A compensating balance a. Must be included in cash and cash equivalent. b. Which is legally restricted and related to a long-term Joan is classified as current asset. c. Which is legally restricted and related to a short-term loan is classified separately as current asset. d. Which is not legally restricted as to withdrawal is classified separately as current asset. 87Problem 1-28 Multiple choice (IAA) 1, A cash equivalent is a short-term, highly liquid investmeny readily convertible into known amount of cash and Is acceptable as a means to pay current liability a, b. Has a greater current fair value Bears a prime interest rate a : Is so near maturity that it presents insignificant risk of change in interest rate ao 2. Highly liquid investments are cash equivalents if the maturity is 90 days or less a. From. the date the investments are acquired b. From the. end of reporting period c. From the date of issue of financial statements d. From the beginning of reporting period 3. All of the following can be classified as cash and cash equivalents, except a. Redeemable preférence shares due in 60 days b. Commercial papers due for repayment in 90 days c. Equity investments d. A bank overdraft 4. Cash equivalents do not include a. Money market funds b. High grade marketable equity investments c. BSP treasury bills d. Commercial papers. 5. Cash equivalents are a. Treasury bills and money market instruments. b, Investments with original maturity of three months or less. ¢. Readily convertible into known amount of cash. d. All of these are features of cash equivalents.Problem 1-29 Multiple choice (IAA) 1. The internal control feature specific to petty cash is a. Separation of duties b. Assignment of responsibility ¢. Proper authorization d. Imprest system 2. 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 3. The imprest petty cash fund account is debited a. Only when the fund is created. b. When the fund is created and everytime 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. 4. A cash over and short account a. Is not generally accepted. b.. Is debited when the petty cash fund proves out over. c. Is debited when the petty cash fund proves out short. d. Isa contra account to cash. 5. 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