Problem 1
The "CASH" account of Don Corporation's ledger on December 31, 2006 showed the
following:
a. Petty cash fund (Including P7,500 unreplenished voucher P 15,000
of which P2,400 is dated January 3, 2007)
b. Redemption Fund Account – PNB 500,000
c. Traveler's check 100,000
d. Money order 10,000
e. Treasury bill, purchased December 1, 2006 (due on Feb. 1, 2007) 50,000
f. Time deposit due on March 31, 2007 50,000
g. 180-day Treasury bill, due March 15, 2007 120,000
h. Note receivable in the possession of a collecting agency 20,000
i. PNB - Checking Account #211-009-091 325,900
j. Cash on hand, including customer postdated check of P15,000 23,000
k. Savings deposit, earmarked for acquisition of equipment 210,000
l. A check payable to San Ignacio Incorporated,
dated January 5, 2007, that was Included In the
December 31 PNB Checking Account #211-009-091 50,000
m. Bond Sinking Fund (used to finance the maturing
long-term obligation on March 31, 2007) 150,000
n. Overdraft in PNB Checking Account #211-099-085 ( 50,000)
o. Check #801 in payment to Accounts Payable,
dated Dec. 31, 2006 not malled until January 5, 2007 20,000
p. Advances to Officers/Employees for Seminars
(no liquidation is required) 80,000
q. Money market placement (due June 30, 2007) 600,000
r. Listed stock held as temporary Investment 100,000
s. Check #789 in payment to Suppliers, dated January 5, 2007
and recorded December 31, 2006. 35,000
t. Customers' certified checks 10,000
u. Pension Fund 150,000
TOTAL 2,568,900
Questions
1. The entry to correct/adjust item F is:
a. Investment 50,000
Cash 50,000
b. Other assets 50,000
Cash 50,000
c. Short-term Investment 50,000
Cash 50,000
d. No adjustment
2. The entry to correct/adjust item L Is:
a. Accounts payable 50,000
Cash 50,000
b. Cash 50,000
Other liabilities 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustment
3. The entry to correct/adjust item M is:
a. Investment 150,000
Cash 150,000
b. Other assets 150,000
Cash 150,000
c. Short-tem investment 150,000
Cash 150,000
d. No adjustment
4. DON CORPORATION'S cash and cash equivalents balance at December 31, 2006 is:
a. Overstated by P1,950,100
b. Overstated by P 1,895,100
c. Overstated by P 1,845,100
d. Overstated by P 1,795,100
5. DON CORPORATION'S adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 618,800
b. P 623,800
c. P 673,800
d. P 723,800
Problem 2
The following items are found in the cash account of Ivie Company at December 31, 2006.
The company's controller asks your opinion whether the items listed below should be
considered as part of cash account and come up with adjusting entry to adjust the cash
account.
1. Customers' check dated December 25, 2006, P25,000.
2. Company's check (P30,000) dated December 26, 2006 which was drawn in payment for
merchandise purchased on that date but not delivered until January 3, 2007. This check
was deducted in the cash balance.
3. A check worth P196,000 from customer who paid the account net of the 2% discount.
The company records the transaction as credit to Accounts Receivable for the proceeds. 4.
Cash in closed bank (Urban Bank), P95,000.
5. Redemption fund, P100,000
6. Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds payable.
7. Metro Bank Checking Account No. 0004568, P210,000.
8. RCBC Checking Account No. 0002347, P115,000.
9. Overdraft in PNB Checking Account No. 00011256, P50,000.
10. Company's check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the company's disbursement ledger at December 31, 2006.
11. Overdraft in RCBC Checking Account No. 0056791, P15,000.
12. Postage stamps, P2,000.
13.90-day Treasury Bills (purchase on November 1, 2006), P100,000
14. Treasury Bills that matures on February 1, 2007, P50,000.
15. Change fund, P10,000.
16. Customers' certified check, P20,000.
17. Company's certified check, P50,000. (This was included in the cash disbursement for
December).
Questions
1. The entry to correct/adjust item number 3 is:
a. Accounts receivable 4,000
Sales discounts 4,000
b. Sales discounts 4,000
Accounts receivable 4,000
c. Accounts receivable 4,000
Sales 4,000
d. No adjustments
2. The entry to correct/adjust item number 10 is:
a. Accounts payable 50,000
Cash 50,000
b. Other liabilities 50,000
Cash 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustment
3. The entry to correct/adjust item number 17 is:
a. Accounts payable 50,000
Cash 50,000
b. Cash 50,000
Accounts receivable 50,000
c. Cash 50,000
Accounts payable 50,000
d. No adjustments
4. The entry to correct/adjust item number 16 is:
a. Accounts receivable 20,000
Cash 20,000
b. Cash 20,000
Accounts payable 20,000
c. Cash 20,000
Accounts receivable 20,000
d. No adjustments
5. IVIE COMPANY'S adjusted cash and cash equivalents balance at December 31, 2006 is:
a. P 771,000
b. P 741,000
c. P 721,000s
d. P 691,000
Problem 25
In connection with the general examination of the accounts of Nelson Trading Company at
December 31, 2006, you obtained the information and data as shown below relative to your
verification of Cash.
The record kept by the accountant showed the following:
(a) Balances at the end of the month:
December 1, 2006 December 31, 2006
Per Bank Statement P 54,000 P101,100
Per Books 50,400 70,215
Undeposited collections 3,300 7,200
Outstanding checks 6,900 * 12,000*
* Composed of the following #6515 510 #6552 1,800
6517 2,250 6553 5,700
6518 2,400 6554 2,550
6519 1,740 6555 1,950
(b) Totals for the month of December, 2006:
Cash Book:
Receipts P 425,550
Disbursement 405,735
Bank Statement
Receipts P 444,225
Disbursement 397,125
After application of the necessary auditing procedures, the following were noted:
a. Footing of disbursement should be P 404,235, instead of P 405,735.
b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the
following which were charged in the statement:
1. Check #6530 dated December 15, 2006 for P2,400 this was issued as
replacement of check # 6518 which was returned by the payee because of certain
erasures. No entry has been made to record the cancellation of check #6518.
2. Check #6517 for P225 this was erroneously recorded on the books as P2,250.
3. Check of Neil Trading for P900- this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted
directly by the broker to the bank and credited on December 31, 2006. No entry has been
made on the books to record this sale of stock investment.
e. The company failed to record disbursement for payment of accounts payable at
December 31, 2006 for P1,500.
Questions
1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 448,800
b. P 448,125
c. P 444,225
d. P 425,550
2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December
31, 2006 is:
a. P 401,325
b. P 402,000
c. P 405,735
d. P 406,125
3. The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500
4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500
5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:
a. P 765
b. P 675
c. P 575
d. P 390
Theories:
1. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all of the following except
A. cut-off bank statement C. year-end bank statement
B. bank confirmation D. general ledger
39. Which of the following sets of information does an auditor usually confirm on one form?
A. Accounts payable and purchase commitments.
B. Cash in bank and collateral for loans.
C. Inventory on consignments and contingent liabilities.
D. Accounts receivable and accrued interest receivable
2. Which of the following error will be discovered as a result of the audit of the bank
reconciliation?
A. Failure to record bank deposits
B. Billing customer for an improper amount
C. Payment for raw materials that were not received
D. Payment of interest to an affiliate for an amount in excess of the existing rate
3. An auditor ordinarily sends a standard confirmation request to all banks with which the
client has done business during the year under audit, regardless of the year-end balance. A
purpose of this procedure is to
A. Provide the data necessary to prepare a proof of cash
B. Request that cut-off bank statement and related checks be sent to the auditor.
C. Detect kiting activities that may otherwise no bet discovered.
D. Seek information about other deposit and loan amounts that come to the attention of
the institution in the process of completing the confirmation
4. The auditors’ count of cash should be coordinated with the:
A. Consideration of the internal controls with respect to cash.
B. Close business on the balance sheet date
C. Count of marketable securities
D. Count of inventories
5. The receipt of the completed standard bank confirmation form would provide the auditor
with all of the following items except
A. The balances in all bank accounts with that bank C. The adjusted cash balances
B. Any restrictions on withdrawals D. Loan balances with that bank
6. Jones embezzled P10, 000 from his company’s account in Bank A. At year-end he did the
shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not
recorded
the transaction on the books. This an example of
A. Effective cash management C. Related party transactions
B. Kiting D. Lapping
7. Which of the following is most likely to be effective in detecting kiting?
A. Bank confirmation
B. Bank transfer schedule prepared using only the cash receipts and cash disbursements
C. Comparison of bank cut-off statement to the cash receipts and disbursements records
D. Receivable confirmation
8. If material, deposits in foreign bank which are subject to foreign exchange restriction
shall be classified as
A. Separately as current asset, with appropriate disclosure
B. Separately as noncurrent asset with appropriate disclosure
C. Be written off as a loss
D. As part of cash and cash equivalents
9. Most preferred form of reconciling book and bank balance is
A. Book to Bank Method C. Proof of Cash Method
B. Bank to Book Method D. Adjusted Balance Method
10. Bank reconciliations are normally prepared on a monthly basis to identify adjustments
needed in the depositor’s
records and to identify bank errors. Adjustments on the part of the depositor should be
reported for
A. Bank errors, outstanding checks and deposits in transit
B. All items except bank errors, outstanding checks and deposit in transits
C. Book errors and bank errors only
D. Outstanding checks and deposits in transit
11. If the balance shown in the bank statement is less than the correct cash balance and
neither the entity nor the bank
has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the entity
B. Outstanding checks
C. Deposits in transit
D. Bank charges which are not yet recorded by the entity
12. A customer’s post- dated check is treated as
A. Accounts Receivable C. Prepaid expenses
B. Cash D. Acounts payable
13. Which of the following should not be considered cash for financial reporting purposes?
A. Money orders, certified checks and personal checks funds
B. Post-dated checks and IOUs
C. Coin, currency and available
D. Petty cash funds and change funds
14. 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 funds increased
D. when the fund is created and the size of the funds decreased.
15. Which of the following items must be added to the cash balance per ledger in preparing
a bank reconciliation which ends with the adjusted cash balance?
A. Notes 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 debt