PROBLEMS AND THEORIES

Theories
1. Among the following, which can’t be considered cash?
a. Petty cash fund
b. Money orders
c. Coins and currency
d. IOUs

2. A cash equivalent is a short-term, highly liquid investment that is readily convertible

into known amount of cash and
a. is acceptable as a means to pay current liabilities
b. Has a current market value that is greater than the original cost
c. Bears an interest rate that is at least equal to the prime interest rate at the
date of liquidation
d. Is so near maturity that it presents insignificant risk of change in interest
rate

3. Which of the following is not considered as a cash equivalent?

a. A three-year treasury notes maturing on January 31 of the next year
purchased by the entity on December 1 of the current year.
b. A three-year treasury notes maturing on January 31 of the next year
purchased by the entity on October 1 of the current year
c. A 90-day T-bill
d. A 60-day money market placement

4. 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

5. On October 31, year 2, Dingo, Inc. had cash accounts at three different banks. One
account balance is segregated solely for a November 15, year 2 payment into a bond
sinking fund. A second account, used for branch operations, is overdrawn. The third
account, used for regular corporate operations, has a positive balance. How should
these accounts be reported in Dingo’s October 31, year 2 classified balance sheet?
a. The segregated account should be reported as a noncurrent asset, the
regular account should be reported as a current asset, and the overdraft
should be reported as a current liability.
b. The segregated and regular accounts should be reported as current
assets, and the overdraft should be reported as a current liability.
c. The segregated account should be reported as a noncurrent asset, and the
regular account should be reported as a current asset net of the overdraft.
d. The segregated and regular accounts should be reported as current assets
net of the overdraft.

6. Which of the following items must be added to the cash balance per ledger in
preparing a bank reconciliation which ends with adjusted cash balance?
a. Note receivable collected by bank in favor of the depositor and credited to
the account of the depositor
b. NSF customer check
c. Service charge
d. Erroneous bank debit

7. In preparing a bank reconciliation, interest paid by the bank on the combined current
and saving account is
a. Added to the bank balance
b. Subtracted from the bank balance
 c. Added to the book balance
d. Subtracted from the book balance

8. Which of the following would be added to the balance per bank statement to arrive at
the correct cash balance?
a. Outstanding check
b. Bank service charge
c. Deposit in transit
d. A customer’s note collected by the bank on behalf of the depositor

9. Bank statements provide information about all of the following, except

a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor

10. These refer to all items credited to the account of the depositor
a. Book debits
b. Bank credits
c. Book credits
d. Bank debits

Problems

Problem #1 (Cash and Cash Equivalents)

Pibikit Company provided the following information at year-end comprising the cash
account:
Bills and coins 400,000
Cash in bank – demand deposit 5,000,000
Cash in bank – savings deposit 1,000,000
Certificate of time deposit, 2 years 1,500,000
Postage stamps unused 5,000
Money order 50,000
Manager check 100,000
Traveler check 1,000,000
Bank Draft 60,000
Postdated customer check 500,000
Change Fund 22,000
Petty Cash Fund 50,000
Emergency Fund 175,000
Compute for the total amount of cash at year end.
Answer: 7,682,000

Problem #2 (Cash and Cash Equivalents)

Clay Solace Company had the following account balances on December 31, 2021:

Cash in bank 2,500,000

Cash on hand 125,000
Cash restricted for addition to plant in 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.

Compute for the total amount of cash at year end.

Answer: 2,625,000

Problem #3 (Cash and Cash Equivalents)

Dudas Company reported the following on its cash and cash equivalents accounts
on December 31, 2021:

Cash on hand 200,000

Petty cash fund 20,000
Good Bank current account 5,000,000
Morning Bank current account No.1 4,000,000
Morning Bank current account No. 2 (overdraft) (100,000)
Afternoon Bank saving account 250,000
Afternoon Bank time deposit, 90 days 2,000,000

 Cash on hand included the following items:

1. Customer check for 35,000 returned by bank December 21, 2021 due to
insufficient fund but subsequently redeposited and cleared by the bank on
January 10, 2022.
2. Customer check for P15,000 dated January 10,2022, received December
23, 2021.

 The petty cash fund consisted of the following items:

Currency and coins 5,000

IOUs from officers 2,000
Unreplenished petty cash vouchers 12,000

 Included among the checks drawn by Dudas Company against the Good Bank
current account and recorded in December 2021 were the following:
1. Check written and dated December 23, 2021 and delivered to payee on
January 31, 2022, P25,000.
2. Check written December 26, 2021, dated January 30, 2022, delivered to
payee on December 28, 2021, P45,000.

Compute the total cash and cash equivalents at year end.

Answer: 11,375,000

Problem #4 (Cash and Cash Equivalents)

Chelsea Company reported the following information at the end of the current year.

 Investment securities of P1,000,000. These securities are share investments

in entities that are traded in the Philippine Stock Exchange.

As a result, the shares are very actively traded in the market.

 Investment securities of P2,000,000. These securities are government

treasury bills.

The treasury bills have a 10- year term and purchased on November 30 at
which time they had two months to go until they mature.

 Investment securities of P1,500,000. These securities are commercial papers

or money market placements.

The term of the commercial papers is three months and the instruments
were purchased on December 31 at which time they had one and a half
month to go until they mature.

What total amount should be reported as cash equivalents at the end of

current year? Answer: 3,500,000

Problem #5 (Petty Cash Fund)

Gupit Company closed the accounts on June 30. The entity provided the following
transactions:
May 1 The entity established an imprest fund of P10,000.

30 The fund is replenished. The petty cash items include:

Currency and coin 2,000

Postage 1,000
Supplies 3,000
Transportation 2,500
Miscellaneous expense 1,500

June 30 The fund was not replenished. The fund is composed of the following:

Currency and 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
Prepare journal entries to record the transactions under:
Imprest fund system
Fluctuating fund system.

Imprest Fund System Fluctuating Fund System

May 1 PCF 10,000 PCF 10,000
Cash in Bank 10,000 Cash in Bank 10,000
May 30 Postage 1,000 Postage 1,000
Supplies 3,000 Supplies 3,000
Transportation 2,500 Transportation 2,500
Misc. Expense 1,500 Misc. Expense 1,500
Cash in Bank 8,000 Petty Cash Fund 8,000

Petty Cash Fund 8,000

Cash in Bank 8,000
June 30 Supplies 2,000 Supplies 2,000
Postage 1,000 Postage 1,000
Transportation 1,000 Transportation 1,000
Petty Cash Fund 4,000 Petty Cash Fund 4,000
July 1 Petty Cash Fund 4,000 NO ENTRY
Supplies 2,000
Postage 1,000
Transportation 1,000
July 15 Petty Cash Fund 5,000 Supplies 1,500
Cash in Bank 5,000 Postage 500
Transportation 500
Supplies 3,500 Misc. Expense 500
Postage 1,500 Petty Cash Fund 3,000
Transportation 1,500
Misc. Expense 500 Petty Cash Fund 12,000
Cash in Bank 7,000 Cash in Bank 12,000

Problem #6 (Cash and Cash Equivalents)

YG Company had the following account balances at December 31, year 2:
Cash in banks 2,250,000
Cash on hand 125,000
Cash legally restricted for additions
to plant (expected to be disbursed in year 3) 1,600,000
Cash in banks includes 600,000 of compensating balances against short-term
borrowing arrangements. The compensating balances are not legally restricted as to
withdrawal by YG. In the current assets section of YG’s December 31, year 2
balance sheet, total cash should be reported at:
a. 1,775,000
b. 2,250,000
c. 2,375,000
d. 3,975,000

Problem #7 (Cash and Cash Equivalents)

SM Corp.’s checkbook balance on December 31, year 2, was 5,000. In addition, SM
held the following items in its safe on that date:
Check payable to SM Corp., dated January 2, 2,000
year 3, in payment of a sale made in December
year 2, not included in December 31 checkbook
balance

Check payable to SM Corp., deposited December 500

15 and included in December 31 checkbook
balance, but returned by bank on December 30
stamped “NSF.” The check was redeposited on
January 2, year 3, and cleared on January 9

Check drawn on SM Corp.’s account, payable to a 300

vendor, dated and recorded in SM’s books on
December 31 but not mailed until January 10,
year 3

The proper amount to be shown as Cash on SM’s balance sheet at

December 31, year 2, is
a. 4,800
b. 5,300
c. 6,500
d. 6,800

Problem #8 (Cash and Cash Equivalents)

HYBE Co. had the following balances at December 31, year 2:
Cash in checking account 35,000

Cash in money market account 75,000

Treasury bill, purchased 11/1/year 2, maturing 350,000

1/31/year 3

Treasury bill, purchased 12/1/year 2, maturing 400,000

3/31/year 3

Trans’s policy is to treat as cash equivalents all highly liquid investments with a
maturity of three months or less when purchased. What amount should Trans
report as cash and cash equivalents in its December 31, year 2 balance sheet?
a. 110,000
b. 385,000
c. 460,000
d. 860,000

Problem #9 (Cash and Cash Equivalents)

You noted the following composition of PNation Company’s “cash account” as of
December 31, 2020 in connection with your audit:

Demand deposit account 2,000,000

Time deposit – 30 days 1,000,000
 NSF check of customer 40,000
Money market placement (due June 30, 2021) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2021 50,000
Customer’s check outstanding for 18 months 40,000
Total 7,760,000

Additional information follows:

a) Check of P200,000 in payment of accounts payable was recorded on
December 31, 2020 but mailed to suppliers on January 5, 2021.
b) Check of P100,000 dated January 15, 2021 in payment of accounts payable
was recorded and mailed on December 31, 2020.
c) The company uses the calendar year. The cash receipts journal was held
open until January 15, 2021, during which time P400,000 was collected
and recorded on December 31, 2020.

The cash and cash equivalents to be shown on the December 31,

2020 balance sheet is

a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000

Demand deposit account as adjusted:

Demand deposit account per books P2,000,000
Undelivered check 200,000
Postdated check issued 100,000
Window dressing of collection (400,000) P1,900,000
Time deposit - 30 days 1,000,000
Petty cash fund 10,000
Cash and cash equivalents P2,910,000

Problem #10 (Petty Cash Fund)

YGX Company reported an imprest petty cash fund of P50,000 with the following
details:

Currencies 20,000

Coins 2,000

Petty cash vouchers:

Gasoline payments for delivery equipment 3,000

Medical supplies for employees 1,000

Repairs of office equipment 1,500

Loans to employees 3,500

A check drawn by the entity payable to the order of Grace de la 15,000

Cruz, petty cash custodian, representing her salary

An employee’s check returned by the bank for 3,000

insufficiency of funds

A sheet of paper with names of several employees together 5,000

with contribution for a birthday gift of a co employee. Attached
to the sheet of paper is a currency of
What amount of petty cash fund should be reported in the
statement of financial position?
a) 42,000
b) 27,000
c) 37,000
d) 22,000

Problem #10 (Cash and Cash Equivalents)

The books of BP Service, Inc. disclosed a cash balance of P687,570 on December
31, 2020. 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:
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 c. P589,200
b. P577,200 d. P512,400
2. Net adjustment to cash as of December 31, 2020
a. P104,370 c. P 98,370
b. P110,370 d. P175,170

Problem #11 (Cash and Cash Equivalents)

Shown below is the bank reconciliation for BTS Company for November 2020:
Balance per bank, Nov. 30, 2020 P150,000
Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2020 P136,000

The bank statement for December 2020 contains the following data:
Total deposits P110,000
Total charges, including an NSF check of P8,000 and a
service charge of P400 96,000

All outstanding checks on November 30, 2020, including the bank credit, were
cleared in the bank in December 2020.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on

December 31, 2020.

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, 2020?
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, 2020?
a. P150,000 c. P180,400
b. P170,400 d. P162,000

5. The adjusted cash in bank balance as of December 31, 2020 is

a. P141,600 c. P172,000
b. P162,000 d. P196,000

Problem #12 (Proof of Cash)

The accountant for the Seventeen Company assembled the following data:
June 30 July 31
Cash account balance P 15,822 P 39,745
Bank statement balance 107,082 137,817
Deposits in transit 8,201 12,880
Outstanding checks 27,718 30,112
Bank service charge 72 60
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 8,250
Collection by bank of company's notes receivable 71,815 80,900

The bank statements and the company's cash records show these totals:
Disbursements in July per bank statement P218,373
Cash receipts in July per Muntinlupa's books 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 bank receipts for July?
a. P253,787 c. P245,537
b. P214,802 d. P232,881
2. How much is the adjusted book disbursements for July?
a. P220,767 c. P181,782
b. P212,517 d. P206,673
3. How much is the adjusted cash balance as of July 31?
a. P137,817 c. P22,513
b. P112,335 d. P120,585
Answer Key:

Theories

1. D
2. D
3. B
4. B
5. A
6. A
7. C
8. C
9. D
10. B