Chapter 1-cash And Cash Equivalents.docx 5o583s

Audit of Cash and Cash Equivalents Audit Program for Cash Audit Objectives To determine that: 1. Cash balances at the end of the reporting period represent cash and cash items on hand, in transit to, or in depository banks. 2. Cash transactions have been properly recorded. 3. Cash balances are properly described and classified, and adequate disclosures with respect to amounts restricted to withdrawal are made in the financial statements. Audit Procedures 1. Conduct a cash count of undeposited collections, petty cash and other funds.  Obtain custodians signature to acknowledge return of items counted.  Reconcile items counted with general ledger balances.  Trace undeposited collections counted to bank reconciliation.  Follow up dispositions of items in cash counted: o Undeposited collections should be traced to bank deposits o Checks accommodated in petty cash should be deposited after the count to establish their validity o IOU’s in the petty cash should be confirmed and traced to collections in the next payroll period. o Expense vouchers should be traced to the succeeding replenishment voucher. 2. Confirm bank balance by direct correspondence with all banks in which the client has had deposits and loans during the year 3. Obtain or prepare bank reconciliation.  Check arithmetical accuracy of reconciliation.  Trace balance per book to the general ledger balance of cash .  Trace balance per bank to bank statement and compare with amount confirmed by the bank.  Establish authenticity of reconciling items by reference to their respective sources, like: o Bank debit or credit advices o Duly approved journal vouchers  Investigate checks outstanding for a long period of time. o Consider adjustments, especially if the check is already stale o Consider the possibility of an erroneous preparation of the check.  Investigate any unusual reconciling items  Where internal control over cash is weak, consider preparing a proof of cash reconciliation. 4. Obtain cut off bank statement showing the clients transactions with the bank at least one week after the reporting date and:  trace year end reconciling items like: o deposit of the year end undeposited collections o completeness of year end outstanding checks o corrections of bank errors  Examine ing documents of year end outstanding checks that did not clear in the cut off bank statement. 5. Obtain a least of interbank transfer of funds a few days before and after the reporting date.  Vouch ing documents  Ascertain that the related receipts and disbursements were booked by the client within the same day or at least within the same month.

6. Test reasonable of cut off by:



Comparing dates of checks returned with cut off bank statement to dates of recording in the cash disbursement .  Tracing receipts recorded a few days before the reporting date to bank deposits. 7. Inspect savings book and certificates of deposits.  Reconcile with book balances  Update interest earned posting on books, if necessary.  Compare balances with bank confirmation reply 8. Determine any restrictions on availability of cash. 9. Determine propriety of financial statement presentation and adequacy of disclosures.

Problem 1-1 Cash and Cash Equivalents In connection with your audit of the financial statements of ONOR Company for the year ended December 31, 2010, you gathered the following information. 1. The company maintains its current with Tsunami Bank. The bank statement on December 31, 2010 showed a balance of P638,340. Your audit of the company’s with Tsunami Bank disclosed the following: 

   

  

A check for P22,500 received from a customer whose is current had been deposited and then returned by the bank on December 28, 2010. No entry was made for the return of this check. The customer replaced the check on January 15, 2011. A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January 2, 2011. A check for P3,500 representing payment of an employee advance was received and deposited on December 27, 2010 but was not recorded until January 3, 2011. Post dated checks totaling P67,300 were included in the deposits in transit. These represent collections of current s receivable from customers. The checks were actually deposited on January 5, 2011. Various debit memos for drafts purchased for payment of importation of equipment totaling P230,000 were not yet recorded. These purchases were previously set up as s payable. Said equipment arrived in December 2010. Interest earned on the bank balance for the 4th quarter of 2010 amounting to P1,950 was not recorded. Deposit in transit and outstanding checks at December 31, 2010 totaled P136,250 and P276,380mrespectively. Bank service charges totaling P1,260 were not recorded.

2. Various expenses from the company’s imprest petty cash fund dated December 2010 totaled P16,250 while those dated January 2011 amounted to P3,500 a replenishment of petty cash fund was made on January 8, 2011. 3. The company’s trial balance on December 31, 2010 includes the following s: Cash in bank-Tsunami Bank Cash in bank-Earthquake Bank ( restricted for plant expansion, expected to be disbursed in 2011) Petty cash fund Time deposit, placed December 20, 2010

P748,320

700,000 30,000

and due March 20,2011 Money market placement-Prudential Bank

1.

1,000,000 4.000.000

What is the adjusted Petty cash fund balance on December 31, 2010? a.P4,347 b.P10,250 c.P30,000 d.P24,097

2.

The petty cash shortage on December 31, 2010 is a. P 0 b. P5,903 c. P3,500 d. P4,347

3. What is the adjusted cash in bank Tsunami bank balance on December 31,2010? a. P500,000 b. P748,320 c. P432,710 d. P429,110 4. The entry to adjust the cash in bank – Tsunami bank should include a debit to a. s receivable for P89,800 b. s receivable for P86,300 c. s payable for P228,200 d. Interest expense for P1,950 5. The December 31, 2010 statement of financial position should show “Cash and Cash Equivalents” at a. P6,142,960 b.P5,439,360 c. P4,442,960 d. P5,442,960

Solution 1-1 1.

Petty cash fund Various expenses dated December 2010 Employee cash advance Adjusted petty cash fund balance

P30,000 (16,250) (3,500) P10,250

Answer: B 2. The petty cash shortage cannot be determined because of insufficient information. Answer: A

3.

Unadjusted balances NSF checks Bank error (7520-5720) Unrecorded cash receipt Post dated checks Deposit in transit (136,250-67300) Banf debit memos Interest earned Bank service charges Outstanding checks Adjusted balances 4. s Receivable (P22,500 + 67, 300) s payable Bank service charges Cash in bank – Tsunami Bank Advances to employees Interest income

Book P748,320 (22,500)

Bank P638,340 1,800

3,500 (67,300) 68,950 (230,000) 1,950 (1,260) P432,710

(276,380) P432,710

89,800 230,000 1,620 315,610 3,500 1,950

Answer: A Cash in bank – Tsunami Bank Petty cash fund Time Deposit Money Market Placement Cash and Cash Equivalent

P432,710 10,250 1,000,000 4,000,000 P5,442,960

Problem 1-2 Computation of Correct Cash Balance The following are the cash balances of LEONOR, INC. at December 31, 2010:

Undeposited collections (in currency and coins) Current – unrestricted Disbursement checks written and recorded in December 2010 but are to be released to the payees in January 2011 Restricted time deposits (expected use in June 2011 )

P40,200 620,000

130,000 2,000,000

Leonor, Inc has agreed to maintain a P200,000 compensating balance in its unrestricted current in accordance with the loan covenant. How much should Leonor, Inc. report as cash on its December 31, 2010 statement of financial position? A. P590, 200 B. P2,790,200 C. P790,200 D. P750,000 Solution 1-2 Undeposited collections Current - unrestricted Unreleased/undelivered checks Total Problem 1-3

P40,200 620,000 130,000 P790,200

Cash and Cash Equivalents The ant of Santiago Company is in the process of preparing the company’s financial statements for the year ended December 31, 2010. He is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset on the statement of financial position. The following items are being considered        

Balances in the company’s s at the Metropolitan bank: o Current P81,000 o Savings P132,600 Undeposited customers checks of P22,200 (including a customer check dated January 2, 2011 for 3,000). Currency and coins on hand of P3,480 Savings at the Northern Philippines Bank with a balance of P2,400,000. This is being used to accumulate cash for future plant expansion (in 2011) The petty cash fund of P4,000 (currency of P1,200 and unreplenished vouchers for P2,800). P120,000 in a current at the Northern Philippines Bank. This represents a 20% compensating balance for P600,000 loan with the bank. Santiago Company is legally restricted to withdraw the funds until the loan is due in 2013. Treasury bills: Two month maturity bills P90,000 Seven month bills 120,000 Time deposit P100,000

What is the correct cash balance of cash and cash equivalents to be reported in the current assets section of the statement of financial position? a. P547,480 b.P427,480 c.P430,280 d.P327,480 Solution 1-3 Savings and current s – Metropolitan Bank (|P132,000 + 81,000) Undeposited customers checks (22,200-3,000) Currency and coins on hand Petty cash Two-month treasury bills Time deposit Total Cash and cash equivalents

P213,600 19,200 3,480 1,200 90,000 100,000 P427,480

Answer: B

The ff. items are not included in the solution above: 1. P3,000 postdated customer check. 2. P2,400,000 cash balance at Northern Philippines Bank to be used for future plant expansion. 3. P120,000 in a checking at Northern Philippines Bank which represents a compensating balance that is restricted as to withdrawal. 4. 7-month treasury bills totaling P120,000

Problem 1-4

Identifying Cash Items Which of the following items should be included in the cash balance at December 31, 2010? I.

A check payable to the company, dated January 3, 2011, in payment of sale made in December 2010. II. A check payable to a vendor, dated and recorded in the company’s books on December 31, 2010, but not released until January 4, 2011.

a. I only b. II only c. Both I and II d. Neither I nor II Solution 1-4  

The check payable to the company is a postdated check, dated after the end of the reporting period. The amount should be shown as a receivable on the December 31, 2010 statement of financial position. The disbursement check was not released until after the end of the reporting period, the amount should be included in the cash balance at December 31, 2010.

Answer: B

Problem 1-5 Cash and Cash Equivalents on the Statement of Financial Position Your audit of the December 31, 2010, financial statements of Dionisio Corp. reveals the following: Current at Prime Bank Current at Prudential Bank Treasury Bills (acquired 3 months before maturity) Treasury bills (maturity date is December 31, 2011) Payroll Foreign bank – restricted (translated using the December 31, 2010 exchange rate) Postage stamps Employees postdated check IOU from the vice president Credit memo from a supplier for a purchase return Traveler’s check Money order Petty cash fund (3,000 in currency and expense receipts for 12,000)

P(30,000) 135,000 300,000 1,500,000 390,000 2,000,000 1,250 4,500 8,000 8,100 21,000 12,900 15,000

What amount would be reported as “Cash and Cash Eequivalents on the statement of financial position on the December 31, 2010? A. P840,050 B. P873,900 C. P849,400 D. P861,900

Solution 1-5 Current at Prudential Bank Treasury Bills (acquired 3 months before maturity) Payroll Traveler’s check Money order Petty cash fund Total Cash and Cash Equivalents

P135,000 300,000 390,000 21,000 12,900 3,000 P861,900

Answer: D

Problem 1-6 Compensating Balance VICTORIA, INC. needs P2,000,000 to finance its expansion program. Victoria, Inc. is negotiating a loan with Metropolis Bank which requires the company to maintain a compensating balance of 10% of the loan principal on deposit in a current at the bank. Victoria, Inc. currently maintains a balance P20,000 in its current . The current earns interest of 2% per annum; the interest rate on the loan is 12% per annum. 1. What is the principal amount of the loan? a. P2,200,000 b. P2,000,000 c. P1,980,000 d. P2,220,000 2. What is the effective interest rate on the loan? a.13.2% b.11.8% c.13% d.12% Solution 1-6 1. X=Principal amount of the loan 10%X 10%X 10%X-X 90%X X X

= = = = = =

20,000 + (X-2,000,000) 20,000 + X-2,000,000 - 1,980,000 1,980,000 1,980,000 / 90% 2,200,000

Answer:A 2. Annual interest payment (2,200,000) Interest income on the loan proceeds in the compensating balance (200,000 x 2%) Effective interest Divide by loan proceeds Effective interest rate Answer: A Problem 1-7

264,000 4000 260,000 2,000,000 13%

Computation of Correct Cash balance The cash of the BEA CORPORATION as of December 31, 2010 was composed of the following: On deposit in current with the bank of PI Cash collection not deposited by the bank A customers check returned by the bank for insufficient fund A check drawn by the vice president of the company dated January 15, 2001 A check drawn by a supplier dated December 28, 2010 for goods returned by the company A check dated may 31, 2010 drawn by the company the bank of Manila in payment of custom duties Since the importation did not materialize, the check was returned by the customs broker, this check was an outstanding check in reconciliation of Bank of Manila Petty cash fund of which P10,000 in in currency, 7200 in form of employee’s IOUs and 2,800 is ed by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2010. Total Less: Overdraft with Bank of Manila secured by a chattel mortgage on the inventories Cash balance per ledger

P900,000 350,000 150,000 70,000 60,000

410,000

20,000

300,000 P1,660,000

What is the amount to be reported on the December 31, 2010 statement of financial position of BEA company? Solution 1-7 Current – bank of PI Undeposited collections Suppliers check for goods returned by the company Petty cash fund Bank of Manila Correct cash balance

P900,000 350,000 60,000 10,000 110,000 P1430,000

Problem 1-8 Petty Cash Fund On January 1,2010, JERVS COMPANY established a petty cash fund of P10,000. on December 31,2010, the petty cash fund was examined and found to have receipts and documents for miscellaneous general expenses amounting to P8,120. in addition, there was cash amounting to P1,500. 1. What is the amount of petty cash shortage or overage? a. P380 overage b. P380 shortage c. P1880 Shortage d. P1,880 overage

2. What entry would be required to adjust the petty cash fund on December 31,2010?

a. Miscellaneous general expenses Cash short or over Petty cash fund b. Miscellaneous general expenses Cash short or over Petty cash fund c. Miscellaneous general expenses Petty cash fund d. Miscellaneous general expenses Cash short or over Petty cash fund

8120 380 8500 8120 380 7,740 8120 8120 8,500 380 8120

Solution 1-8 1. Cash Miscellaneous general expenses Petty cash ed Petty cash per ledger Petty cah shortage Answer: B 2. Miscellaneous general expenses Cash short or over Petty cash fund

P1,500 8,120 (9,620) 10,000 P 380

8,120 380 8,500

Answer: A Problem 1-9 Petty Cash Fund The auditor for Samantha, Inc. examined the petty cash fund immediately after the close of business, July 31, 2010, the end of the company’s natural business year. The petty cash custodian presented the following during the count:  

   

Currency Petty cash vouchers o Postage o Office supplies expense o Transportation expense o Computer repairs o Advances to office staff A check drawn by Samantha, Inc payable to the petty cash custodian Postage stamps An employees check, returned by the bank, marked NSF An envelope containing currency of P1,890 for a gift for a retiring employee

P1,650

The general ledger shows an imprest petty cash fund balance of P16,000. 1. How much is the petty cash shortage or overage? a. P2,190 overage b. P2,190 shortage c. P1,890 shortage d.P1,890 overage 2. What is the adjusted balance of the petty cash fund at July 31, 2010?

420 900 340 800 1,500 7,200 300 1000 1,890 P16,000

a. P10,740 b.P3,540 c.P7,200 d.P8,850 Solution 1-9

1. Currency Petty cash vouchers (420+900+340+800+1,500) Replenishment check Employee’s NSF check Petty cash ed Petty cash fund per ledger Petty cash shortage

P1,650 3,960 7,200 1,000 13,810 16,000 P2,190

Answer: B 2. Currency Replenishment check Adjusted petty cash balance

P1,650 7,200 P8,850

Answer: D

Problem 1-10 Petty Cash Fund On January 1, TANYA CO. establishes a petty cash and designates Orly Reyes as petty cash custodian. The original amount included in the petty cash fund is P10,000. The following disbursements are made from the fund:   

Office supplies Postage Entertainment

P3,460 2,240 840

The balance in the petty cash box is 3,200. 1. The person responsible at all times for the amount of the petty cash fund is the a. Chairman of the Board of Directors b. President of the company c. Petty cash custodian d. General cashier 2. The following are appropriate procedures for controlling the petty cash fund, except a. To monitor variations in different types of expenditures, the petty cash custodian files petty cash vouchers by category of expenditure after replenishing the fund. b. To replenish the fund, the general cashier issues a company check to the petty cash custodian, rather than cash. c. To determine that the fund is being ed for satisfactorily, surprise counts of the fund are made from time to time by the internal auditor or other responsible official. D. Each individual to whom petty cash is paid is required to present signed receipts to the petty cash custodian. 3. The entry to replenish the fund is

a. Office supplies expense Postage expense Entertainment expense Cash

3,460 2,240 840

b. Office supplies expense Postage expense Entertainment expense Cash over or short Petty cash

3,460 2,240 840 260

c. Office supplies expense Postage expense Entertainment expense Cash over or short Cash

3,460 2,240 840 260

d. Office supplies expense Postage expense Entertainment expense Petty cash

3,460 2,240 840

6,540

6,800

6,800

6,540

4. The objective of establishing a petty cash fund is to a. Cash checks for employees b. for all cash receipts and disbursements c. for cash sales d. Facilitate payment of small, miscellaneous items 5. What is the effect of not replenishing the petty cash at year end and not making any adjusting entries? a. A detailed audit is essential b. The petty cash custodian should turn over the petty cash to the general cashier c. Cash will be overstated and expenses understated d. Expenses will be overstated and cash will be understated Solution 1-10 1. One individual, the petty cash custodian, should be responsible for the petty cash fund. Answer: C 2. The petty cashier should not have custody of paid petty cash vouchers to prevent their reuse. Answer: A 3. Office supplies expense Postage expense Entertainment expense Cash over or short Cash Answer: C 4. Facilitate payment of small, miscellaneous items. Answer: D 5. Cash will be overstated and expenses understated.

3,460 2,240 840 260 6,800

Answer: C Problem 1-11 Count of Petty Cash Fund and Undeposited Collections In connection with your audit of the financial statements of Benjamin Corp. for the year ended December 31,2010, you conducted a surprise count of the company’s petty cash fund and undeposited collections at 8:20 a.m. on January 3, 2011. Your count disclosed the following: Bills and Coins Bills P100.00 5 pieces 50.00 40 pieces 20.00 48 pieces

Coins 5.00 1.00 0.25

18 pieces 206 pieces 32 pieces

Postage stamps (unused) – P365 Checks Date Dec. 30 Dec. 30 Dec. 31 Dec. 31 Dec. 31 Dec. 31

Payee Cash Benjamin Corp. Benjamin Corp. Benjamin Corp. Benjamin Corp. Taiwan Corp. (not endorsed)

Maker

Amount

Custodian SLV, Inc. Mario Lansang, Sales manager MSU Corp Ateneo, Inc.

P 1,200 14,000

Benjamin Corp.

27,000

1,680 17,800 8,300

Unreimbursed Vouchers Date Dec. 23 Dec. 28 Dec. 29 Dec. 39

Payee Mario Lansang, Sales manager Central Post Office Messengers Byte, Inc.

Description

Amount

Advance for trip to Tagaytay City Postage stamps, Transportation Computer repair

P 20,000 14,000 1,620 150 800

Other items found inside the cash box: 1. Unclaimed pay envelope of Juan MacDonut. Indicated on the pay slip is his net salary of P7,500. Your inquiry revealed that Juan’s salary is mingled with the petty cash fund. 2. The sales manager’s liquidation report for his Tagaytay City trip. Cash advance received on December 23 Less: Hotel accommodation, meals, etc. 16,000 Bus fare for two 1,200 Cash given to Pablo, salesman 1,000 Balance

P20,000

18,200 P1,800

Additional information: 1. The custodian is not authorized to cash checks. 2. The last official receipt included in the deposit on December 30 is No. 4351 and the last official receipt issued for the current year is No. 4355. The following official receipts are all dated December 31, 2010.

OR No.

Amount

Form of Payment

4352 4353 4354 4355

P 13,600 17,800 3,600 8,300

Cash Check Cash Check

3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund was made on December 22, 2010. 1. What is the amount of shortage due from the sales manager? a. P240 b. P1,800 c. P120 d. P 0 2. What is the amount of undeposited collections on December 31, 2010? a. P44,300 b. P84,300 c. P57,300 d. P41,000 3. The adjusting entries on December 31, 2010 should include a net debit to Travel Expenses of a.P17,320 b.P18,320 c.P18,200 d.P18,080 4. What is the total unreimbursed vouchers on January 3, 2011 (count date)? a. P22,450 b. P22.085 c. P22,570 d. P22,205 5. What is the total cash shortage? a. P22,166 b. P8,166 c. P22,406 d. P20,486 Solution 1-11 1. Cash advance Less: Actual cash disbursed Hotel, meals, etc Bus fare Pablo (1,000-120) Cash that should be returned Cash actually returned Shortage due from sales manager

P 20,000 P16,000 1,200 880

18,080 1,920 1,680 P 240

Answer: A 2. Collections per OR nos 4352 - 4355 Unreceipted collections Total undeposited collections 3. Travel expenses (P16,000 + 1,200 + 880)

P 43,300 14,000 P 57,300 P18,080

Answer: D 4. Unreimbursed vouchers (20,000 + 1,620 + 150 + 800)

P22,570

Answer: C 5. Total cash shortage

P22,166

Answer: A Benjamin corp. Cash Count Sheet January 3, 2011 – 8:20 a.m. Bills and Coins: Denomination P 100.00 50.00 20.00 5.00 1.00 0.25 Checks Date Dec. 30 Dec. 30 Dec. 31 Dec. 31 Dec. 31

Quantity 5 40 48 18 206 32

Amount P500 2,000 960 90 206 8

Maker

Total

P3,764

Amount

Custodian SLV, Inc. Mario Lansang, Sales manager MSU Corp Ateneo, Inc.

P 1,200 14,000 1,680 17,800 8,300

P42,980

Unreimbursed Vouchers Date Dec. 23 Dec. 28 Dec. 29 Dec. 39



Amount

Advances Postage Transportation Repairs

P 20,000 1,620 150 800

Total cash ed Less: abilities Petty cash Collections (per official receipts) Unclaimed Salary Excess travel advance Unreceipted collection from SLV, Inc. Cash shortage

Benjamin corp.

P22,570 P69,314 P25,000 43,300 7,500 1,680 14,000

91,480 (P 22,166)

Adjusting Journal Entries December 31, 2010 1. Cash s receivable

14,000 14,000

2. Advances to officers and employees Postage expense Transportation expense Repairs expense Petty cash fund

20,000 1,620 150 800 22,570

3. Unused postage Postage expense

365

4. Cash

7,500

365

Salaries Payable

7,500

5. Receivable from custodian Cash

22,166 22,166

6. Travel expenses (16,000 + 1,200 + 880) Petty cash fund Advances to officers and employees

18,080 1,680 19,760

Problem 1-12 Bank Reconciliation; Computation of Undeposited Collections On July 7, 2011, Aning Corp. received its bank statement for the month ending June 30. The statement showed a P209, 500 balance while the cash balance on June 30 was P35, 000. In reconciling the balances, the auditor discovered the following: 1. The June 30 collections amounting to P176,000 were recorded on the books but were not deposited until July. 2. The banks charged the company for a DAUD (Drawn Against Uncollected Deposit) check of a customer. 3. A paid check for P24,300 was entered incorrectly in the cash disbursements journal as P42,300. 4. Outstanding checks as of June 30 was totaled P354,400. 1. What is the amount of the customer’s DAUD check? A. P14,100 C. P21,900 B. P 3,900 D. P334,900 2. The adjusted cash balance is A. P31,100 B. P 387,900

C. P38,900 D. P4,900

3. The cash balance per ledgers should be increased (decreased) by A. P3,900 C. P(3,900) B. P 178,400 D. P(178,400) 4. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all the following except A. Year-end bank statement B. Cutoff bank statement C. Bank confirmation D. General ledger

Solution 1-12

1. Customer’s DAUD check (see no. 2)

P21,900

2

Book Unadjusted balances

P

Bank charge for DAUD check Overstatement of Book Disbursement Outstanding checks Undeposited collections (SQUEEZED) Adjusted balances

35,000.00

Bank P

209,500.00

(21,900.00) 18,000.00 (354,400.00) 176,000.00 P

31,100.00

P

31,100.00

3. Adjusting Journal Entries June 30, 2011 a. s receivable Cash

21,900

b. Cash s payable

18,000

21,900

18,000

Net decrease in cash balance (21,900 – 18,000)

P3,900

Or Balance of cash in bank per ledger Adjusted cash balance Net decrease in cash balance 4. D

P35,000 (31,100) P 3,900

General ledger

Problem 1-13 Bank Reconciliation: unadjusted to adjusted balance format: The following data were taken from Garay’s check for the month of April. Garay’s bank reconciliation for March showed one outstanding check no. 178 for P2,150 (written on March 20), and one deposit in transit for P4,350 (made on March 31). Date Item Checks Deposits Balance 2011 April 1 Beginning balance 6,150 1 Deposits 26,167 32,317 1 Check No. 179 250 32,567 4 Check No. 180 10,672 21,898 27 Deposits 11,774 33,672 29 Check No. 181 13,217 20,490 The following is from Garay’s Bank statement for April: Date Item Checks Deposits Balance 2010 April 1 Beginning balance 3,950 3 Check No.179 250 3,700 3 Deposits 4,350 8,050 5 Check No. 180 10,673 (2,623) 5 Automatic loan 8,150 5,527 5 Deposits 26,417 31,944 20 NSF check 1,000 30,944 20 Service charge 600 30,344 30 Interest 82 30,426 Assume that any errors or discrepancies you find are Garay’s, not the banks

What is the adjusted cash balance as of April 30? A. P26,833 C. P30,426 B. P26,838 D. P26,872 Solution 1-13

Unadjusted balances Outstanding checks: Check No. 178 Check No. 181 Deposit in trasit Error in recording deposits (26,417-26,167) Automatic loan Interest NSF check Bank service charge Arithmetic error for: Check No. 179 (32,567-32,067) Check No. 180 (21,898-21,894) Check No. 181 (20,490-20,455) Adjusted balances

Book 20,490 2,150 13,217

Bank 30,426

(15,367) 11,774 250 8,150 82 (1,000) (600) (500) (4) (35) 26,833

26,833

Answer: A Problem 1-14 Bank Reconciliation: Bank to Book Format The information below relates to Charmaine Company’s cash in bank: Balance per bank statement, Dec. 31, 2011 Collections recorded but not yet deposited in bank NSF check- not recorded on the books nor redeposited Bank charges not recorded Note collected by bank and not recorded on the books Outstanding checks

P27,910 1,950 2,000 40 2,800 3,000

The cash balance in the books of Charmaine Company on December 31, 2011, is: A. P26,020 C. P22,200 B. P32,100 D. P26,100 Solution 1-14 Balance per bank Collections not yet deposited NSF check Bank charges Note collected by bank Outstanding checks Balance per books Answer: D

Problem 1-15

P27,910 1.950 2,000 40 (2,800) (3,000) P26,100

Computation of outstanding checks The bank reconciliation for December for Donnie Co. included the following information: Checks and debit memos recorded by bank in December, including a December Service charge of P1,000 November bank service charge recorded on the books in December Cash disbursement per books during December Customer’s NSF check returned by bank in December (no entry on company books) Customer’s NSF check returned by bank in November and Redeposited in December (no entry in Nov. and Dec.) Deposits in transit, December 31 Outstanding checks, December 31

P24,320 2,000 34,658 16,000 7,600 5,421 37,450

The outstanding checks at November 30 totaled A. P12,112 C. P27,112 B. P13,112 D. P10,112 Solution 1-15 Outstanding checks, November 30 (SQUEEZE) Add: Checks issued during the December Book disbursement during Dec. Less: Nov. bank service charge Total Less: Checks paid by the bank during December Bank disbursement during the Dec. Less: NSF check in Dec. Dec. bank service charge Outstanding checks, December 31

12,112 34,658 2,000

32,658 44,770

24,320 16,000 1,000

17,000

7,320 37,450

Answer: A Problem 1-16 Bank Reconciliation: Unadjusted to Adjusted Balance Format Elaine Inc.’s newly hired ant prepared the following cash reconciliation as of June 30, 2011: BANK BOOK Unadjusted balance 268,367 79,367 Deposits in transit (15,000) Bank service charge 1,000 Check written and recorded on June 30 but was released on July (12,000) Outstanding checks 36,000 NSF check 17,000 Loan proceeds (company not informed) 200,000 Erroneous bank debit 15,000 Customers' check received on June 29 (all dated July 6) included in DIT 9,000 Certified check 11,000 Unlocated difference 345,000 Total 477,367 477,367 The adjusted cash balance of Elaine Inc. on June 30, 2011, should be A. P265,367 C. P273,367

B. P253,367

D. P264,367

Solution 1- 16 BOOK 79,367

Unadjusted balance Deposits in transit, net of postdated checks Bank service charge Unreleased check Outstanding checks, net of certified check NSF check Loan proceeds (company not informed) Erroneous bank debit Postdated checks Total

BANK 268,367 6,000

(1,000) 12,000 (25,000) (17,000) 200,000 15,000 (9,000) 264,367

264,367

Answer: D Problem 1-17 Bank Reconciliation: Unadjusted to Adjusted Balances Format The following information pertains to Flint Corp.: Flint Corp. Bank Reconciliation November 30,2011 Balance per bank statement Less: outstanding checks No. 4321 No. 4329 No. 4340 No. 4341 Total Add: Deposits in transit Balance per books

Date Dec. 1 3 7 12 15 16 18 21 22 28 Total

Payee San Beda, Inc. Miriam Corp. UE Enterprise PSBA Corp Payroll BU, Inc. New Era Co. UST, Inc. Petty cash fund Payroll

435,000 6,000 15,000 1,700 4,675

CHECK December 2011 No. Vouchers Payable 4342 10,000 4343 4,200 4344 3,755 4345 12,000 4346 96,000 4347 6,300 4348 14,200 4349 7,000 4350 10,000 4351 98,000 261,455

BANK STATEMENT BANKABLE BANK

27,375 407,625 16,200 423,825

Discount 500 120 142 762

Cash 9,500 4,200 3,755 11,880 96,000 6,300 14,058 7,000 10,000 98,000 260,693

PERIOD: NOVEMBER 30, 2011- DECEMBER 31, 2011 No: 001-43-44 Date Dec. 1 1 4 4 5 6 8 10 15 22 28 29 29

Description Balance last statement Cash Deposit Check Issued Check Issued Check Issued Check Deposit Check Issued Check Deposit Check Issued Encashment Encashment Encashment DM-service charge CM-interest

Check No.

Debit

Credit 16,200

4329 4342 4341

15,000 9,500 4,675 49,000

4343

4,200

4344 4346 4350 4351

3,755 96,000 10,000 98,000 1,000

14,000

1550

Balance 435,000 451,200 436,200 426,700 422,025 471,025 466,825 480,825 477,070 381,070 371,070 273,070 272,070 273,620

Deposits in transit at December 31 totaled P49,000. 1. What is the total book receipts for December? A. P113,550 C. P63,000 B. P80,750 D. P112,000 2. What is the cash balance per books on December 31, 2011? A. P275,132 C. P291,332 B. P226,132 D. P274,370 3. What is the total outstanding checks on December 31,2011? A. P68,313 C. P46,938 B. P39,238 D. P40,938 4. What is the adjusted cash balance on November 30,2011? A. P446,375 C. P423,825 B. P417,825 D. P435,000 5. What is the adjusted cash balance on December 31,2011? A. P281,682 C. P226,682 B. P275,682 D. P274920 Solution 1- 17 1. Dec. 5 Deposit 8 Deposit 31 Deposit in transit Total collections/Book receipts Answer: D 2. Cash balance, November 30 Add: December receipts (see no.1) Total Less: Disbursement per check Cash balance, December 31 Answer: A 3. Outstanding checks, December 31:

49,000 14,000 49,000 112,000

432,825 112,000 544,825 260,693 284,132

Check no.

4321 4340 4345 4347 4348 4349

Total

6,000 1,700 11,880 6,300 14,058 7,000 46,938

Answer: A 4. Adjusted cash balance, Nov. 30, 2011 The balance per books as determined and shown on the November 30 reconciliation is also the adjusted cash balance on that date. Notice that there are no book reconciling items in November Answer: C 5. Book 275,132

Unadjusted balances Deposits in transit Outstanding check Service charge Interest Adjusted balances

(1,000) 1,550 275,682

Bank 273,620 49,000 (46,938)

275,682

Answer: B Problem 1-18 Bank Reconciliation: Unadjusted to Adjusted Balances Format Edgardo Co. was organized on January 2, 2011. The following items are from the company’s trial balance on December 31, 2011. Ordinary share capital Share Merchandise inventory Land Building Furniture and Fixtures s receivable s payable Notes payable- bank Sales Operating expenses (including dep'n of P400,000)

1,500,000 150,000 69,000 1,000,000 1,400,000 367,000 165,400 389,650 500,000 6,235,200 1,005,150

Additional information as follows: 1. Deposits in transit, December 31 2. Service charge for December 3. Outstanding checks, December 31 4. Bank balance, December 31 5. Edgardo Co.’s mark up on sales is 30% 1. What is the total collections from sales? A. P6,114,967

P384,660 2,000 475,000 892,000

C. P6,235,200

B. P4,119,240

D. P6,069,800

2. What is the total payments for merchandise purchases? A. P3,905.990 C. P4,043,990 B. P4,649,140 D. P5,914,550 3. What is the total cash receipts per books? A. P7,819,800 C. P8,219,800 B. P8,169,800 D. P8,069,800 4. What is the total cash disbursement per books? A. P7,816,140 C. P8,021,290 B. P7,416,140 D. P7,278,140 5. What is the cash balance per books on December 31? A. P653,660 C. P1,203,660 B. P803,660 D. P707,060 6. What is the adjusted cash balance on December 31? A. P801,660 C. P1,201,660 B. P651,660 D. P803,660 Solution 1-18 1. Sales Less: s receivable Collections from customer

P6,235,200 165,400 P6,069,800

Answer: D 2. Cost of sales (6,235,200x70%) Add: Merchandise inventory ,December 31 Goods available for sale Less: s payable, December 31 Payments for purchases

P4,364,640 69,000 P4,433,640 389,650 P4,043,990

Answer: C 3. Issue price of ordinary shares (1,500,000+150,000) Notes payable-bank Collections Total cash receipts per books

P1,650,000 500,000 6,069,800 P8,219,800

Answer: C 4. Land Building Furniture and fixtures Operating expense, net of dep’n Payment for Purchases Total cash disbursement per books

P1,000,000 1,400,000 367,000 605,150 4,043,990 P7,416,140

Answer: B 5. Cash Receipts per books (no.3) Cash Disbursement per books (no.4) Cash balance per books, December 31

P8,219,800 7,416,140 P801,660

Answer: B 6. Book

Bank

Unadjusted balances Deposits in Transit Service charge Outstanding check Adjusted balances

803,660

892,000 384,660

(2,000) 801,660

(475,000) 801,660

Answer: A

Problem 1-19 Computation of Cash receipts and Disbursements In connection with your audit of cash of Annie Corp., you gathered the following information. a. Balance per bank, December 1, 2011 b. Total bank receipts in December c. Balance per bank, December 31, 2011 d. Outstanding checks, Nov.30, 2011 (including P12,000 paid by bank in November) e. Outstanding checks, December 31,2011 ( including check issued in November) f. Deposits in transit, November 30,2011 g. A customer’s check received on December 4, 2011, was returned by bank on December 7, 2011 marked “NSF”. It was redeposited on December 8,2011. The only entry made was to take up the collectionon December 4, 2011.

P145,000 346,000 114,500 67,000 94,162 39,458

11,143

1. What is the total book receipts in December? A. P295,399 C. P334,857 B. P306,542 D. P346,000 2. What is the total bank Disbursement in December? A. P315,500 C. P231,500 B. P376,500 D. P201,000 3. What is the total book disbursement in December? A. P447,519 C. P403,662 B. P331,519 D. P392,519 Solution 1-19 1. Bank receipts in December Less: Deposits in transit,November 30 NSF check redeposited in December Book receipts in December Answer: A 2. Bank balance, December 1, 2011 Add: Bank receipts in December Total Less: Bank balance, December 31, 2011 Bank disbursement in Decemer Answer: B 3. Bank disbursement in December

346,000 39,458 11,143

50,601 295,399

145,000 346,000 491,000 114,500 376,500

376,500

Add: Book disbursement in December but not in December bank disbursement: check issued in December, outstanding at December 31: Outstanding checks, Dec 31 Less: Check issued in Nov., still outstanding at Dec. 31 (67000-12000) Total Less: Bank disbursement in December but not in the book disbursement in Dec. November outstanding checks paid by bank in December NSF check Book disbursement in December

94,162

55,000

12,000 11,143

39,162 415,662

23,143 392,519

Answer: D Problem 1-20 Petty Cash Fund ; Bank Reconciliation Your audit of the cash of Junie Corp. disclosed the following information: 1. Cash in bank balance per books, Dec. 31, 2011 2. Bank statement balance, December 31, 2011 3. Note collected by bank in December (principal plus Interest of P800, less collection fee of P200) 4. Debit memo for a checkbook 5. Deposits in transit, Dec. 31, 2011 6. Transposition error made by bank In recording deposit of December 28: Correct amount P45,000 Recorded as 54,000 7. Erroneous bank debit 8. Included in the Cash in bank is petty cash fund Of P10,000. Your count on December 31,2011 revealed The following fund items: Currency and coins P3,000 Supplies 2,400 Transportation 100 IOUs 4,000 9. Erroneous bank Credit 10. Outstanding checks (including a certified check of P10,000)

P35,000 60,000

1. What is the principal amount of the note collected by bank in December? A. P27,600 C. P28,200 B. P26,800 D. P27,000 2. What is the adjusted cash in bank balance at December 31, 2011? A. P52,500 C. P53,000 B. P52,700 D. P51,900 3. The cost of checkbook? A. P600 B. P300

C. P0 D. P100

4. What is the amount of petty cash shortage at December 31, 2011 A. P400 C. P100

27,600 ? 15,200

9,000 26,700

9,500 11,000 39,400

B. P500

D. P0

5. What is the adjusted petty cash balance? A. P9,500 C. P3,000 B. P3,500 D. P10,000 Solution 1-20 1. Principal (SQUEEZE) Interest Collection of fee Proceeds credited by bank

P27,000 800 (200) P27,600

2. Unadjusted Balances Note collected by bank Debit memo for checkbook Deposit in transit Transposition error in recoding deposit (54000-45000) Erroneous bank debit Petty cash fund Erroneous bank credit Outstanding check, net of certified check Adjusted balances

Book 35,000 27,600 (100)

Bank 60,000

15,200 (9,000) 26,700 (10,000) (11,000) (29,400) 52,500

52,500

Answer: A 3. Cost of checkbook (see no. 2)

P100

Answer: D 4. Petty cash fund per ledger Petty cash ed Petty cash shortage

P10,000 9,500 500

Answer: B 5. Adjusted petty cash balance – currency and coins

P3,000

Answer: C Problem 1- 21 Computation of Book Disbursement Presented below is the November 30, 2011, reconciliation of the cash of Ram, Inc.: Balance per bank statement, November 30, 2011 Add: Deposits in transit Total Less: Outstanding checks P49,500 Erroneous bank credit 18,436 Balance per books, November 30, 2010

P78,750 36,415 P115,165 67,936 P47,229

Additional information: 

Balance per bank statement, December 31, 2011

P 59,214

  

Bank credits in December Bank disbursement in December (Including all outstanding checks on November 30, 2011, The erroneous bank credit in November) Outstanding checks, December 31, 2011

139,461

124,554 74,110

1. What is the total book disbursement in December? A. P149,164 C. P118,380 B. P130,728 D. P124,554

Solution 1-21 Bank disbursement in December Add: Book disbursement in December not yet taken up by bank: Outstanding checks, Dec 31 Total Less: Bank disbursement in December but not on books: Outstanding checks, Nov.30 Correction of Nov. Erroneous bank credit Book disbursement in Decmber

124,554

74,110 198,664

49,500 18,436

67,936 130,728

Answer: B

Cash and Cash Equivalents Problem 1-22 The Cash receipts and the cash payments of LIEZEL COMPANY for April 2010 is as follows Cash Receipts (CR) Cash Payment () Date Cash Debit Check No. Cash Credit April 2 P 208,700 4113 P 44,550 8 20,350 4114 7,350 10 27,950 4115 96,500 16 109,350 4116 33,200 22 92,700 4117 73,600 29 53,000 4118 50,000 30 16,850 4119 31,600 Total P 528,900 4120 83,750 4121 5,000 4122 120,650 Total P 546,200 The cash of Liezel Company shows the following information at April 30, 2010: Date Item Ref Debit Credit Balance April 1 Balance 95,550 30 CR 6 528,900 624,450 30 Cr 11 546,200 78,250 Liezel Company received the following bank statement on April 30, 2010: Bank Statement for April 2010 Beginning balance Deposit other credits: April 1 4 9 12 17

P P

16,300 EFT 208,700 20,350 27,950 109,350

95,550

22 23 Checks and other Debits April 7 13 14 15 18 21 26 30 30 Ending balance

68,400 BC 92,700

543,750

P 44,550 69,500 45,150 US 7,350 33,200 10,950 EFT 73,600 50,000 1,000 SC P

(335,300) 304,000

EFT – Electronic funds transfer BC – Bank collection US – unauthorized signature SC – service charge Additional data for the bank reconciliation include the following: a. b. c. d.

The EFT deposit was a receipt of monthly rent. The EFT debit was a monthly insurance payment. The US check was received from Lester Soon. The P68,400 bank collection of a not receivable on April 22 included P9,250 interest revenue. The correct amount of check number 4115, a payment on , is P69,500. (Liezel’s ant mistakenly recorded the check for P96,500)

1 What is the amount of deposit in transit on April 30? a. P53,000 c. P45,150 b. P69,850 d. P115,000 2 What is the amount of outstanding checks on April 30? a. P241,000 c. P286,150 b. P337,500 d. P310,500 3 What is the amount of bank receipts in April? a. P543,750 b. P527,450

c. P459,050 d. P528,900

4 What is the amount of bank disbursements in April? a. P290,150 c. P289,150 b. P335,300 d. 316,150 5 What is the correct cash balance as of April 30? a. P132,850 b. P87,700

c. P122,150 d. P223,150

PROBLEM 1-23 Fermin Company’s check shows the following entries for the month of December: Date 2010 Check Deposit Balance Dec Beginning Balance P 89,300 1 5 Deposit P 65,000 154,300 7 Check # 14344 P 32,500 120,800 11 Check # 14345 14,000 106,800 26 Deposit 49,000 155,800 29 Check # 14346 8,600 147,200 Fermin’s bank reconciliation for November revealed one outstanding check (# 14343) for P12,000 (written on November 28), and one deposit in transit for P5,550 (made on November 29).

The following is from Fermin’s banks statement for December 2010: Date Checks Deposits

Balance

2010

Dec 1

Beginning Balance 1 4 5 14 15 20 29 31

Deposit Check # 14344 Deposit Check # 14345 Loan Proceed NSF Check Service Charge Interest

P 95,750 P 65,000 P 32,500 26,000 14,000 500,000 7,600 1,000 3,600

101,300 68,800 124,800 110,800 610,800 603,200 602,200 605,800

Assume that all errors were committed by Fermin Company, not the Bank. Based on the preceding information, determine the following: 1. Adjusted cash balance on November 30 a. P89,300 c. P102,200 b. P95,750 d. P101,300 2. Outstanding checks on December 31 a. P46,500 b. P45,500

c. P8,600 d. P20,600

3. Deposit in Transit on December a. P52,600 b. P49,000

c. P5,550 d. P43,450

4. Total bank receipts in December a. P114,000 b. P119,550

c. P565,150 d. P61,550

5. Adjusted cash balance on December 31 a. P663,800 b. P634,200

c. P748,200 d. P597,200

Problem 1-24 The ant of Narcisa Co. provided the following data in recording the April 30 cash in bank balance Balance per Bank, April 30 P 130,350 Balance per book, April 30 85,000 Bank service charge 2,000 Deposit in transit 49,000 Outstanding check 17,650 Note collected by bank including P11,200 interest (Narcisa Co., not yet informed) 136,000 Check drawn by XYZ Co. erroneously charge by bank to Narcisa’s 54,600 A transposition error was made in recoding a sale and deposit in the sales journal and cash receipts journal in April Correct amount P 13,658 Recorded amount P16,358 1. What is the adjusted cash balance on April 30? a. P219,000 b. P221,700

c. P216,3000 d. P161,700

2. Prepare journal entries to correct the cash Problem 1-25 The following information is included in Emil Corporation’s bank statement for the month of March: A costumer’s check has been marked “NSF” by the bank and returned P 13,000 Bank service charge for the March 1,200 In comparing the bank statement to the company’s cash records, you found: Outstanding checks on March 31 P 184,000 Deposit made but are not yet shown in April Bank statement 14,000 The deposit in transit and outstanding checks have been correctly taken up in the company’s books. You also found a costumer’s check for P17,400 that had not yet been deposited and had not yet been recorded in Emil’s books. Your clients books shows a cash balance of P36,420 What is Emil Corporation’s correct cash balance at March 31? a. P52,620 c. P P22,220 b.P53,620 d. P39,620 Problem 1-26 The following information to the checking of a company at June 30,2010. Balance per bank statement Interest for the second quarter Outstanding check Customer’s check returned for insufficient funds Deposit in transit At June 30,2010, the cash balance per books is a. P214, 500 b. P210,000

P 200,000 500 15,000 5,000 25,000

c. P185,50 d. P200,000

Problem 1-27 A company is reconciling its bank statement with internal records. The cash balance per company’s books is P45,000. There are P5,00 of bank charges not yet recorded, P7,500 of outstanding checks, P12,500 of deposit in transit, and P15,000 of bank credits and collections not yet taken up in the company’s books. What is the cash balance per bank? a. P20,000 b. P30,000

c. P40,000 d. P50,000

Problem 1-28 A company shows a cash balance of P175,000 on its bank statement stated June 3. As of June 30, there are P55,000 of outstanding checks and P37,500 of deposit in transit.

What is the correct cash balance on the company books as of June 30? a. P212,500 c. P120,000 b. P267,500 d. P157,500 Problem 1-29 The cash shows a balance of P225,000 before reconciliation. The bank statement does

not include a deposit of P11,500 made on the last day of the month. The bank statement shows a collection by the bank of P4,700 and a customer’s check for P1,600 was returned because it was NSSF. A customer’s check for P2,250 was recorded on the books as P2,700 and a check written for P395 was recorded as P485. What should be the correct cash balance? a. P227,740 b. P239,240

c. P228,640 d. P227,560

Problem 1-30 On July 5, 2010, Emilia Corp, received its bank statement for the month ending June 30. The statement showed a P209,500 balance while cash balance on June 30 was P35,000. In reconciling the balances, the auditor discovered the following 1. The June 30 collections of P176,000 were recorded on the books but were not deposited until July. 2. The bank service charges for the month June totaled P3,000. 3. A paid check for P24,300 was entered incorrectly in the cash payment journals as P34,200.

What is the total outstanding check at June 30, 2010? a. P75,400 c. P363,400 b. P343,600 d. P353,500 Problem 1-31 In connection with an audit you are given the following bank reconciliation. BANK RECONCILAITION December 31,2010 Balance per ledger, December 31, 2010 Add: Collection received on the last day of December and charged to Cash in Bank on books but not deposited Debit memo for the customer’s returned unpaid (check is on hand but no entry has been made on the books) Debit memo for the bank service charge for December Deduct: Outstanding checks (see listed below) Credit memo for the proceeds of a note receivable which had been left at the bank for the collection but which has not been recorded as collected Check for an payable entered on books as P12,625 but drawn and paid by bank as P16,225

P 34,350 5,325 4,000 1,000 P 46,675 P 18,625 8, 000

3,600 32,225

Computed balance Unlocated difference Balance per bank (checked to confirmation) List of Outstanding Checks Check No. 14344 14358 14367 14399 14401 14407 1. What is the correct amount of outstanding checks on December 31? a. P18,625 c. P17,625 b. P22,625 d. P21,625 2.The journal entry to correct the outstanding checks should include a

P 14,450 36,600 P 51,050

Amount P 5,820 1,295 3,543 2,001 4,892 5,074 P 18,625

a. Dr to Cash in bank of P4,000 b. Cr to Cash in bank of P4,000

c. Dr to s payable of P4,00 d. No journal entry is necessary

3. The correct amount of unlocated difference is ? a. P32,600 b. P35,600

c. P36,600 d. P 0

4. The cash in Bank to be shown on the company’s December 31, 2010 statement of financial position is ? a. P34,750 c. P33,750 b. P37,350 d. P37,750 5. The journal entry to adjust the Cash in bank as of December 31 should be a. Dr to Cash in Bank for P8,000 c. Net Cr to Cash in Bank of P600 b. Cr to Cash in Bank for P8,600 d. Net Dr to Cash in Bank of P600 Problem 1-32 In connection with you audit of the Marcelo Company at December 31,2010 the following bank reconciliation was submitted to you by employee of your client: Balance per Bank P 30,534 Deposit in Transit 37,856 P 68,390 Outstanding Check 42,756 Balance per books P 25,634 As part of your verification, you obtain the bank statement and canceled checks from the bank on January 15, 2011. According to the records of the company, checks issued from January 1 to January 15, 2011, amounted to P22,482. Checks returned by the bank on January 15,2011, totaled P58,438. Of the checks outstanding on December 31, 2010, P9,600 were not returned by the bank with January 15,2011, bank statement; and of those issued, according to the records of the company, in January 2011, P7,200 were not returned by the bank. Based on the above data, calculate the disbursements per company records 1. The difference between the disbursement per books as company and reported is a. P61,912 c. P10,000 b. P2,800 d. P29,874 2. Suggest three possible explanations for the difference between the disbursement per company as computed an as reported. Problem 1-33 In auditing Hector Company, you obtained the bank statement canceled checks, and other memoranda which related to the company bank for December 2010. In reconciling the bank balance with that shown on the company’s books, you observed the facts set forth below: Balance per Bank Statement, 12/31/10 Balance per Books 12/31/10 Outstanding 12/31/10 Receipts of 12/31/10 and, deposited 1/2/11 Service charge for November, per Bank memo of 12/15/10 Proceeds of Bank loan, 12/15/10, discounted for 3 months at 18% per annum, omitted From company books Deposit of 12/22/10, omitted from bank statement Check of Milano Company, returned on 12/21/10 for absence of counter-signature and redeposit with complete signature on 1/3/11, no entry

P47,174 19,289 63,000 6,260 1,000

47,750 9,170

on the books having been made for the return or redeposit Error on Bank statement in entering deposit of 12/18/10 Correct amount P1,600 Entered in statement 160 Check No. 021261 of Yek Company, charge by bank in error to company’s Proceeds of not of Harthur Co., collected by bank 12/10/10, not entered in cash book (principal amount Of P25,000 plus interest of P1,125, less collection fee) Erroneous debit memo of 12/28/10, to charge company’s with settlement of bank loan which was paid by check no. 112170 on same date Error on bank statement in entering deposit of 12/4/10 Entered as P14,200.62 Correct amount 12,400.62 Deposit of Bunso Co. of 12/02/10, credited in error to this company

77,320

1,440

13,600

25,625

5,000

1,800

3,500

1. What is the principal amount of the loan obtained by the bank in December? a. P50,000 c. P48,125 b. P47,750 d. P49,625 2. What amount of the prepaid interest should be shown on Hector’s December 31,2010 statement of financial position? a. P2,250 c. P375 b. P 0 d. P1,875 3. The amount of the collection of fee is a. P 625 b. P1,625

c. P500 d. P 0

4. What is the adjusted Cash in bank balance as of December 31,2010? a. P14,344 c. P17,944 b. P11,464 d. P9,344 5. The cash in bank per ledger as of December 31,2010, should be increased (decreased) by a. P4,945 c. P(4,945) b. P5945 d. P(5,945)

SOLUTIONS Problem 1-22 1. Deposit in Transit, April 30 April 29 collection per CR April 30 collection per CR Total Answer: B 2 Outstanding checks, April 30: Check no. 4119 Check no. 4120

P 53,000 16,850 P 69,850

P 31,6000 83,750

Check no. 4121 Check no. 4122 Total Answer: A 3

4

5,000 120,650 P 241,000

Bank Receipts in April ( Total deposits and other credits) Answer A

P 543,750

Bank disbursements in April (Total checks and other debits) Answer B

5

P 335,300

Book Unadjusted balances, April 30 Deposit in Transit Outstanding checks Error in check no. 4115 (P96,500 – P69,500) EFT – rent Bank collection Unauthorized signature check EFT – insurance Service charge Adjusted balances, April 30 Answer B

Problem 1-23 1. Balance per Bank, Nov 30 Outstanding check (# 14343) Deposit in Transit Adjusted bank Balance, Nov. 30 Answer A 2. Outstanding Check on December 31 Check # 14343 Check # 14646 Total Answer D 3. Deposit in Transit on December 31 Dec. 26 collection Answer B 4.. Total bank receipt in December

Bank P 78,250

P 304,000 69,850

( 241,000 ) 27,000 16,300 68,400 ( 45,150 ) ( 10,950 ) P 132,850

P 132,850

P 95,750 (12,000) 5,550 P 89,300

P 12,000 8,600 P 20,600

P 49,000

P 565,150

Answer C 5. Unadjusted balances Deposit in Transit Outstanding check Error in recording deposit ( 65,000 – 56,000) Error in arithmetic for Check # 14344 Loan Proceeds NSF check Interest Service charge Adjusted Balance Answer B

Book

Bank P 147,200

P 605,800 49,000 (20,000)

(9,000) 1,000 500,000 (7,600) 3,600 (1,000) P 634,200

P 634,200

Problem 1-24 1. Unadjusted balances Deposit in Transit Outstanding check Transposition error ( 16,358 – 13,358) Collection of note Erroneous bank debit Bank Service charge Adjusted Balance Answer C 2. Adjusting journal entries Bank service charge Cash in bank Cash in bank Interest income Notes receivable Sales Cash in bank Problem 1-24 Balance per books Unrecorded and undeposited costumer’s check Bank service charge NSF check Adjusted cash balance Answer D Problem 1-26 Balance per bank statement Outstanding checks Deposit in transit Interest earned NSF Check

Book

Bank P 85,000

P 13,350 49,000 (17,650)

(2,700) 136,000 54,600 (2,000) P 216,300

P 216,300

2,000 2,000 136,000 11,200 124,800 2,700 2,700

P 36,420 17,400 (1,200) (13,000) P 39,620

P 200,000 (15,000) 25,000 (500) 5,000

Balance per books at June 30, 2010 Answer A

P 214,500

Problem 1-27 Balance per books Bank charges Outstanding checks Deposit in transit Bank credits and collections Balance per bank Answer D

P 45,000 (5,000) 7,500 (12,500) 15,000 P 50,000

Problem 1-28 Balance per bank statement Outstanding checks Deposit in Transit Adjusted cash balance Answer D

P 175,000 (55,000) 37,500 P 157,500

Problem 1-29 Balance per books Bank collection Customer’s NSF check Overstatement of Cash receipt (2,700-2,250) Overstatement of Cash disbursement (485-395) Adjusted cash balance Answer A Problem 1-30 Balance per books, June3 0 Bank service charges Overstatement of disbursement (34,20024,300) Adjusted cash balance Balance per books, June 30 Add: Undeposited collection Total Less: Adjusted cash balance Outstanding checks, June 30

P 225,000 4,700 (1,600) (450) 90 P 227,740

P 35,000 (3,000) 9,900

P 41,900 P 209,500 176,000 385,500 41,900 P 343,600

Problem 1-31 1. Outstanding checks December 31 (correct total of the list ) P 22,625 Answer B 2. No journal entry is necessary. There is no information in the problem that will dictate that those included in the list of outstanding checks were not taken up properly on the books Answer D 3. A correct reconciliation (see no. 4) shows that there is actually no unloctaed difference.

Answer D

4 Unadjusted balances Deposit in Transit Customer’s Check returned Bank service charge Outstanding checks Credit memo for note collected Understatement of books disbursement Adjusted balances Answer C

Book P 34,350

Bank P 51,050 5,325

(4,000) (1,000) (22,625) 8,000 (3,600) P 33,750

5. Adjusting Journal Entries s Receivable Cash in Bank

P 33,750

4,000 4,000

Bank Service Charge Cash in Bank

1,000

Cash in Bank Notes Receivable

8,000

s payable Cash in Bank

3,600

1,000

8,000

3,600z

Debit to Cash in Bank Credit to Cash in Bank (4,000 + 1,000 + 3,600) Net credit to Cash in Bank Answer C Problem 1-32 1. Outstanding checks, January 15: From December or before From January Add: Disbursements per bank statement Total Less: Outstanding checks, December 31 Disbursement per books as computed Disbursement per books as computed Disbursement per books as reported Difference in Disbursements Answer C

P 8,000 (8,600) (P 600)

P 9,600 7,200

P 16,800 58,348 75,238 42,756 P 32,482

P 32,482 22,482 P 10,000

2. Three possible explanation for the above differences: a. The bank disbursements (58,438) may be overstated by P10,000. Another company check for P10,000 may have been charge erroneously by the bank against the clients’ . b. The December 31 outstanding checks may be understated by P10,000. Since the bank reconciliation given in the problem was prepared by the company employee, there is no assurance that it is correct. c. The client’s employee may failed to record check/s issued in January thus understating the book disbursements (P22,482)

Problem 1-33 1. Proceeds

= Principal – Interest 47,750 47,750 47,750 P P

= = = = =

P – (P x 18% x 3/12) P – 0.045P 0.955 P 47,750 / 0.955 P 50,000

Answer A 2. Prepaid Interest, December 31 ( 2,250 x 2.5/3) Answer D

P 1,875

3. Principal

P 25,000 1,125 26,125 (500) P 25,625

Interest Income Maturity Value Collection fee (SQUEEZE) Proceeds Answer C 4. Unadjusted balances Outstanding Checks Receipts of 12/31/10 and, deposited 1/2/11 Service charge for November Proceeds of Bank loan Deposit of 12/22/10, omitted from bank statement Check of Milano Company, charge back Error in entering deposit of 12/18/10 Check No. 021261 of Yek Company charge in error to Hector Company Proceeds of note of Harthur Co. Erroneous debit memo of 12/28/10, to charge by bank in settlement of bank loan which was paid by check no. 112170 Error in entering deposit of 12/4/10 Deposit of Bunso Co. of

Book P 19,289

Bank P 47,147 (63,000) 6,260

(1,0000 47,750 9,170 (77,320) 1,440

13,600 25,625

5,000

(1,800)

12/02/10, credited in error to Hector company ADJUSTED BALANCES Answer A

(3,500) P 14,344

P 14,344

5. Adjusted Cash in bank balance (see no. 4) Cash in bank balance per ledger Net credit adjustment Decrease Answer B

P 14,344 19,289 P 4,945

Problem 1 – 34 Bank Reconciliation You are auditing general cash for the DION COMPANY for the fiscal year ended July 31, 2010. The client has not prepared the July 31 bank reconciliation. After a brief discussion with the owner you agree to prepare the reconciliation, with assistance from one of Dion Company’s clerks. You obtain the following information:

Beginning balance Deposits Cash receipts journal Checks cleared Cash disbursement journal July bank service charge Note paid directly NSF check Ending balance

General Ledger Bank Statement P 46, 110 P 57, 530 250,560 254,560 (236, 150) (218, 110) (870) (61,000) (3, 110) P 82,560 P 6,960

June 30 Bank Reconciliation Information in General Ledger and Bank Statement Balance per bank Deposits in transit Outstanding checks Balance per books

P

57,530 6,000 17,420 46, 110

Additional information obtained is: 1. Checks clearing that were outstanding on June 30 totaled P16,920. 2. Checks clearing that were recorded in the July disbursement journal totaled P204,670. 3. A check for P10,600 cleared the bank, but had not been recorded in the cash disbursements journal. It was for an acquisition of inventory. Dion uses the periodic inventory method. 4. A check for P3,960 was charged to Dion Company but had been written on a different company’s bank . 5. Deposits included P6,000 from June and P244,560 for July. 6. The bank charged Dion Company’s for a nonsufficient check totaling P3, 110. The credit manager concluded that the customer intentionally closed its and the owner left the city. The check was turned over to a collection agency.

7. A note for P58,000, plus interest, was paid directly to the bank under an agreement signed four months ago. The note payable was recorded at P58,000 on Dion Company’s books. Based on the facts given, answer the following: 1. The checks outstanding on June 30 amount to A. P9,980 C. P13,940 B. P10,380 D. P3, 340 2. The deposits in transit on June 30 amount to A. P6,890 C. P6,000 B. P10,000 D. P9, 110 3. The adjusted cash balance on July 31 is A. P6,980 C. P3,870 B. P10,940 D. P3,020 4. Which of the following audit procedures would be used to the payment of note in July? A. Examine checks returned with July bank statement. B. Check for absence of note on July 31 bank confirmation. C. Trace payment to duplicate deposit slip. D. Obtain cutoff bank statement. 5. The auditor would perform the following procedures to the umrecorded check of P10,600, except A. Obtain cutoff bank statement. B. Examine checks returned with July bank statement. C. Trace check number to absence in July cash disbursement journal and recording in August. D. Examine ing document. Solution 1. C Outstanding checks, June 30 Add: checks issued in July (P218, 110 per cash disbursement journal + P10,600 unrecorded check) Total Less: checks paid by bank in July (P236, 150 - P3,960 erroneous check charged by bank) Outstanding checks, July 31

P

17,420 228,710 246, 130

P

232, 190 13,940

P

500

P

13,440 13,940

Alternative computation: Checks outstanding on June 30 that did not clear in July (P17,420 - P16,920) Checks issued in July that did not clear in July (P218, 110 – P204,670) Outstanding checks, July 31 2. B Deposit in transit, June 30 Add: July deposits per cash receipts journal Total Less: deposits credited by bank in July Deposits in transit, July 31 3. A

P

P

6,000 254,560 260,560 250,560 10,000

Book Unadjusted balances Outstanding checks (see no. 1) Deposits in transit (see no. 2) Bank service charge Unrecorded check Check erroneously charged to Dion NSF check Note payment (P58,000 principal + P3,000 interest) Adjusted balances

P

Bank 82,560 P

6,960 (13,940) 10,000

(870) (10,600) 3,960 (3, 110)

P

(61,000) 6,980 P

6,980

4. B The following audit procedures would be performed to the note payment: a. Examine cancelled check. b. Recompute interest. c. Check for absence of note on July 31 bank confirmation. 5. A The following audit procedures would be performed to the unrecorded check: a. Examine check returned with July bank statement. b. Trace number to absence in July cash disbursements journal and recording in August. c. Examine ing documentation d. Investigate why it was unrecorded. The cutoff bank statement will no longer show the unrecorded check because it was already paid by bank in July. Problem 1 – 35 Cash Transfers In the audit of the DENISSE SUPPLY COMPANY, a large branch that maintains its own bank , cash is periodically transferred to the central in Makati City. On the branch ’s records, bank transfers are recorded as a debit to the home office clearing and a credit to the branch . Similarly, the home office is recorded as a debit to the central bank and a credit to the branch office clearing . Ram V. is the head bookkeeper for both the home office and the branch bank s. Since he also reconciles the bank , the senior auditor, Hershey de Jesus, is concerned about the internal control weakness. As part of the year-end audit of bank transfers, Hershey asks you to schedule the transfers for the last few days in 2010 and the first few days of 2011. you prepare the following list:

Amount of transfer P 120,000 260,000 140,000 110,000 150,000 280,000 370,000

Date recorded in the Home Office Cash Receipts Journal 12-27-10 12-28-10 01-02-11 12-26-10 01-02-11 01-07-11 01-04-11

Date recorded in the Branch Office Cash Disbursements Journal 12-29-10 01-02-11 12-30-10 12-26-10 01-02-11 01-05-11 01-06-11

Date deposited in the Home Office Bank 12-26-10 12-28-10 12-28-10 12-28-10 12-28-10 12-28-10 01-03-11

Date cleared the Branch Bank 12-27-10 12-29-10 12-29-10 01-03-11 12-31-10 01-03-11 01-05-11

1. In ing the bank transfers, which of the following audit procedures should be performed?

A. List bank transfers made a few days before and after the end of the reporting period. B. Trace bank transfers included in the schedule of bank transfers to the appropriate ing records, bank reconciliations, and bank records to determine propriety of recording. C. Both A and B. D. A only 2. Which of the following transfers would be included as deposits in transit in the December 31, 2010 bank reconciliation for the Home Office ? A. 3, 5 and 6 C. 3 and 5 B. 1, 2 and 4 D. No deposits in transit on December 31

3. Which of the following transfers would be included as outstanding checks in the December 31, 2010, bank reconciliation for the Branch Office ? A. 1, 2 and 3 C. 4 and 6 B. 7 D. No outstanding checks on December 31 4. The cash in bank on Home Office books should be increased by A. P290,000 C. P860,000 B. P570,000 D. P430,000 5. The cash in bank on Branch Office books should be decreased by A. P430,000 C. P740,000 B. P280,000 D. P690,000 Solution 1. C The following procedures should be performed to the bank transfers: a. List bank transfers made a few days before and after the end of the reporting period. b. Trace these bank transfers to the appropriate ing records, bank reconciliations, and bank records to propriety of recording. 2. D There are no deposits in transit on December 31. The list of transfers does not disclose transfers recorded in December 2010 on Home Office cash receipts journal but deposited in January 2011. 3. C Transfers no. 4 Transfers no. 6 Total

P110,000 280,000 P390,000

These checks were issued ( i.e., deposited in the Home Office bank ) in December 2010 but cleared the Branch Office bank in January 2011. 4. B Transfers no. 3 Transfers no. 5 Transfers no. 6 Total

P140,000 150,000 280,000 P570,000

These transfers were deposited in the Home Office bank in December 2010 but recorded in January 2011.

5. D Transfer no. 2 Transfer no. 5

P260,000 150,000

Transfer no. 6 Total

280,000 P690,000

These checks were issued (i.e., deposited in the Home Office bank ) in December 2010 but recorded in the Branch Office cash disbursement journal in January 2011.

Problem 1 – 36 Proof of Cash: Unadjusted to Adjusted Balances Format The cash of VELASCO COMPANY shows the following activities: Date Debit Credit Balance Nov. 30 Balance P 115,000 Dec. 2 November bank charges P 50 114,950 4 November bank credit for notes receivable collected P 10,000 124,950 15 NSF check 1, 300 123,650 20 Loan proceeds 48,500 172,150 21 December bank charges 60 172,090 31 Cash receipts book 707, 300 879,390 31 Cash disbursement book 408,000 471,390

Date

CASH BOOKS RECEIPTS OR No. Amount

PAYMENTS Check No. Amount

Dec.

1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 23 23 26 28 28 29 29 29

110-120 121-136 137-150 151-165 166-190 191-210 211-232 233-250 251-275 276-300 301-309 310-350 351-390 391-420 421-480 481-500 501-525 526-555 556-611 612-630 -

Totals Date Dec.

1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 23 23 26 28 28 29 29 29

Totals

P

11,000 801 21,300 802 20,000 803 56,000 804 39,000 805 66,000 806 88,000 807 77,000 808 21,000 809 30,000 810 55,000 811 8,000 812 19,000 813 9,000 814 17,000 816 21,000 817 32,000 818 819 820 74,000 821 5,000 822 823 38,000 824 826 827 P 707,300 BANK STATEMENT Check No. Charges 792 P 2,500 802 3,000 804 3,000 EC 81,000 805 12,000 CM 16 799 7,050 DM 57 1,300 808 30,000 803 1,000 809 61,000 DM 61 60 813 20,000 CM 20 815 6,000 816 36,000 811 8,000 801 2,000 814 22,000 818 50,000 DM 112 120 821 3,000 CM 36 820 4,000 P 353,030

Additional information: 1. DMs 61 and 112 are for service charges. 2. EC is error corrected. 3. DM 57 is for an NSF check.

P

P

2,000 3,000 1,000 3,000 12,000 19,000 26,000 30,000 61,000 7,000 8,000 16,000 20,000 22,000 36,000 11,000 50,000 7,000 4,000 3,000 12,000 13,000 29,000 2,000 11,000 408,000 Credits

P

P

8,500 11,000 21,300 20,000 81,000 95,000 12,000 154,000 77,000 21,000 85,000 8,000 19,000 48,500 47,000 32,000 74,000 5,000 12,000 831, 300

4. CM 20 is for loan proceeds, net of P150 interest charges for 90 days. 5. CM 16 is for the correction of an erroneous November bank charge. 6. CM 6 is for customers’ notes collected by bank in December. 7. Bank balance on December 31 is P592,270.

1. The total outstanding checks at November 30 should be A. P9,550 C. P13,050 B. P7,050 D. P15,550

2. The total outstanding checks at December 31 should be A. P147,000 C. P153,000 B. P162,550 D. P159,000 3. The deposit in transit at November 30 should A. P8,500 C. P48,500 B. P19,500 D. P0 4. The deposit in transit at December 31 should be A. P44,000 C. P46,500 B. P0 D. P38,000 5. The adjusted book balance at November 30 should be A. P125,000 C. P115,000 B. P124,950 D. P136,950 6. The adjusted bank receipts for the month of December should be A. P763,800 C. P765,800 B. P773,800 D. P767,800 7. The adjusted book disbursements for the month of December should be A. P403,480 C. P415,480 B. P415,540 D. P409,480 8. The adjusted bank balance at December 31 should be A. P592,270 C. P558,270 B. P477,270 D. P483,270

Solution 1. A Outstanding checks November 30: Check no. 792 P2,500 799 7,050 Total P9,550 2. C Outstanding checks, December 31: Check no. 806 P19,000 807 26,000 810 7,000 812 16,000 817 11,000 819 7,000 822 12,000 823 13,000 824 29,000 825 2,000 826 11,000 Total P153,000

3. A Deposits in transit, November 30 P8,500 4. D Deposit in transit, November 30 (see no. 3) Add: Collections per cash receipts book Total Less: Deposits credited by bank: Bank receipts Correction of erroneous bank charge in December Correction of erroneous bank charge in November Loan proceeds Note collected Deposit in transit, December 31

Balances per bank Bank error corrected the same date Erroneous bank charge in November Deposit in transit: November 30 December 31 Outstanding checks: November 30 December 31 Adjusted bank balances

Balances per book Bank service charges: November 30 December 31 Notes collected by bank: November 30 December 31 Unrecorded disbursement – check no. 815 Adjusted bank balances 5. B 6. D 7. C 8. B

P

P

8,500 707,300 715,800

831,300 (81,000) (12,000) (48,500) (12,000) P

677,800 38,000

PROOF OF CASH December 1-31 Balance Balance Nov. 30 Receipts Disbursements Dec. 31 P 114,000 P 831,300 P 353,030 P 592,270 (81,000)

(81,000)

12,000

(12,000)

8,500

(8,500) 38,000

38,000

767,800

(9,550) 153,000 (153,000) 415,480 P 477,270

(9,550) P

124,950 P

P

Balance Balance Nov. 30 Receipts Disbursements Dec. 31 P 115,000 P 765,800 P 409,410 P 471,390 (50)

10,000

P

124,950 P

(50) 120

(120)

(10,000) 12,000

12,000

767,800

6,000 (6,000) 415,480 P 477,270

P

Problem 1 – 37 Proof of Cash: Bank to Book Balances Format Shown below is the May 31, 2010, bank reconciliation prepared by your client’s staff. RECONCILIATION May 31, 2010 Bank balance Add: Deposit in transit Total Less: Outstanding checks No. 640 652 653 Adjusted bank balance

P

P

Book balance Add: Proceeds of note receivable collected in May Deposit on May 31 not recorded on books until June Total Less: Bank service charge Adjusted book balance

10,000 8,000 2,000

P

652,000 10,000 662,000

20,000 642,000 P

570,800

P

72,000 642,800 800 642,000

70,000 2,000

The June 2010 bank statement is shown below: Pasig Bank Period covered: May 31, 2010 – June 30, 2010 No.: 0021261 Date June

1 8 11 13 16 21 27 29 30 30

Checks 8,000 2,000 14,000 1,000 4,000 12,000 18,000 1,000 200 3,000

Deposits 10,000

DM

20,000 1,000 56,000

EC SV DM

1,000 EC

SV – Service Charges DM – Debit Memo EC – Error Corrected CM – Credit Memo The paid checks accompanying this bank statement (all clearing in June) are the following: No. 652 No. 653

P8,000 P2,000

No. 654 No. 655

P14,000 P 4,000

No. 657 No. 658

P12,000 P18,000

The check reveals that the last check issued in June is No. 659 for P5,000 and that check no. 656 is for P2,600. Cash received for the period June 22 through June 30 of P70,000 was deposited in the bank on July 1. The debit memos on June 13 and 30 represent customers’ NSF checks returned by the bank. The June 13 NSF check was immediately redeposited without entry. The June 30 NSF check was redeposited on July 1 without entry. 1. What is the total bank receipts in June?

A. P87,000 B. P88,000

C. P77,000 D. P78,000

2. What is the total bank disbursements in June? A. P59,200 C. P58,200 B. P58,000 D. P63,200 3. What is the balance per bank statement on June 30, 2007? A. P676,800 C. P732,400 B. P627,200 D. P729,200 4. What is the total book receipts in June? A. P88,000 C. P146,000 B. P220,000 D. P218,000 5. What is the total book disbursements in June? A. P53,000 C. P56,400 B. P57,400 D. P63,200 6. What is the book balance on June 30, 2007? A. P732,200 C. P732,400 B. P729,200 D. P676,800

Solution 1. B Bank receipts in June (arrived at by footing the Deposits column of the bank statement) P88,000 2. D Bank disbursements in June (arrived at by footing the checks column of the bank statement) P63,200. 3. A Bank balance, May 31 Add: Bank receipts in June Total Less: Bank disbursements in June Bank balance, June 30

Bank balances Deposits in transit: May 31 June 30 Outstanding checks: May 31 June 30 Bank service charges: May 31 June 30 Bank collection in May

P652,000 88,000 740,000 63,200 P676,800

PROOF OF CASH June 1 – 30, 2010 Balance Balance May 31 Receipts Disbursements June 30 P 652,000 P 88,000 P 63,200 P 676,800 10,000

(10,000) 70,000

(20,000)

800 (70,000)

70,000

70,000 (20,000) 17,600

(17,600)

800 (200)

200

May deposit recorded by the company in June NSF checks: Already redeposited Not yet redeposited Bank error corrected on the same date Book balances 4. D 5. C 6. C

(2,000)

2,000 (1,000)

P

570,800 P

(1,000) 218,000 P

(1,000) (3,000) (1,000) 56,400

3,000

P

732,400

Problem 1 – 38 Proof of Cash: Bank to Book Balances Format The following information was obtained in an audit of the cash of CHELSEE COMPANY as of December 31, 2010. Assume that the A has satisfied himself as to the propriety of the cash book, the bank statements, and the returned checks, except as noted: 1. The bookkeeper’s bank reconciliation at November 30, 2010. Balance per bank statement Add: Deposit in transit Total Less: Outstanding checks No. 1434 1562 1571 1584 1591 Balance per books

P

P

1,400 7,500 5,800 8,000 300 P

194,000 11,000 205,000

23,000 182,000

2. A summary of the bank statement for December 2010. Balance brought forward Deposits Total Charges Balance, December 31, 2010

P

P

194,000 1,487,000 1,681,000 (1,325,000) 356,000

3. Included with cancelled checks returned with the December bank statement were the checks listed below. 4. The Chelsee Company discounted its own 60-day note for P90,000 with the bank on December 1, 2010. The discount rate was 6 percent. The ant recorded the proceeds as a cash receipt at the face value of the note. 5. The ant records customers’ dishonored checks as a reduction of cash receipts. When the dishonored checks are redeposited they are recorded as a regular cash receipt. Two NSF checks for P1,800 and P2,200 were returned by the bank during December. Both checks were redeposited and were recorded by the ant. 6. Cancellation of Chelsee Company checks are recorded by a reduction of cash disbursements. 7. December bank charges were P200. In addition, a P100 service charge was made in December for the collection of a note receivable in November. These charges were not recorded on the books. 8. Check no. 144 listed in the November outstanding check was drawn in 2008. Since the payee cannot be located, the president of Chelsee Company agreed to the A’s suggestion that the check be written back into the s by a journal entry. 9. Outstanding checks at December 31, 2010, totaled P49,400, including checks 1434 and 1584. 10. The cutoff bank statement disclosed that the bank had recorded a deposit of P24,000 on January 2, 2011. The ant had recorded this deposit on the books on December 31, 2010, and then mailed the deposit to the bank. Cancelled Checks Returned with the December Bank Statement

Number 1562

1571

1583

1588

----

---1595

1599

Amount of Date of Check Check Comments 11/28/10 P 750 This check was in payment of an invoice for P7,500 and was recorded in the cash book as P7,500. 11/28/10 5,800 This check was in payment of an invoice for P5,800 and was recorded in the cash book as P5,800. 12/04/10 1,500 Examination of this check was revealed that it was unsigned. A discussion with the client disclosed that it had been mailed inadvertently before it was signed. The check was endorsed and deposited by the payee and processed by the bank even though it was a legal nullity. The check was recorded in the cash disbursements journal. 12/12/10 8,000 This check replaced 1584, which was returned by the payee because it was mutilated. Check 1584 was not cancelled on the books. 12/19/10 2,000 This was a counter check drawn at the bank by the president of the company as a cash advance for travel expense. The president overlooked informing the bookkeeper about the check. 12/20/10 3,000 The drawer of this check was the Chelsee Company. 12/20/10 3,500 This check had been labeled NSF and returned to the payee because the bank had erroneously believed that the check was drawn by the Chelsee Company. Subsequently, the payee advised was advised to redeposit the check. 01/05/11 100,000 This check was given to the payee on December 30, 2010, as a postdated check with the understanding that it would not be deposited until January 5. The check was not recorded on the books in December.

1. What is the correct amount of outstanding checks on December 31? A. P41,400 C. P48,000 B. P33,250 D. P40,000 2. What is the amount of cash receipts per book in December? A. P1,496,900 C. P1,495,100 B. P1,504,900 D. P1,487,000 3. What is the amount of cash disbursements per book in December? A. P1,254,850 C. P1,256,850 B. P1,252,850 D. P1,248,850 4. What is the cash in bank balance per book as of December 31? A. P426,050 C. P430,050 B. P428,250 D. P343,050 5. What is the adjusted cash balance as of December 31? A. P343,000 C. P347,000 B. P340,200 D. P344,200

Solution: 1. D Outstanding checks, Dec. 31 ( P49,400 – P1,400 – P8,000)

Per bank statement Outstanding checks: Nov. 30 Dec. 31 Deposit in transit: Nov. 30 Dec. 31 Interest on note discounted P90,000x6%x60/360 NSF checks Bank service charge Cancellation of check no 1434 Error in recording check no. 1562 P7,500 – P750 Cancellation of check no. 1584 Counter check drawn by president Check of Chelsee charge in error Postdated check presented for payment Per book balances

2. A 3. D 4. C

P40,000

PROOF OF CASH Balance Balance Nov. 30 Receipts Disbursements Dec. 31 P 194,000 P 1,487,000 P 1,325,000 P 356,000 (23,000)

(23,000) 40,000

11,000

(11,000) 24,000

24,000

900 (4,000)

P

182,000

P

1,496,900

(40,000)

900

P

(4,000) (300)

300

1,400

(1,400)

6,750

(6,750)

8,000

(8,000)

(2,000)

2,000

(3,000)

3,000

(100,000) 1,248,850 P

100,000 430,050

5. A Unadjusted balances Outstanding checks Deposits in transit Interest on note discounted Bank service charge Cancellation of check no. 1434 Error in recording check no 1562 Cancellation of check no. 1584 Counter check Check of Chelsee charged in error Postdated check presented for payment Adjusted balance

P

Book 430,050 P

Bank 356,000 (40,000) 24,000

(900) (300) 1,400 6,750 8,000 (2,000) 3,000 P

(100,000) 343,000 P

343,000

Problem 1-39 Proof of Cash: Book to Bank Balances Format The following information was obtained in connection with the audit of PINKY COMPANY’s cash as of December 31, 2010. Outstanding checks, 11/30/10 Outstanding checks, 12/31/10 Deposit in transit, 11/30/10 Cash balance per general ledger 12/31/10 Actual company collections from its customers during December Company checks paid by bank in December Bank service charges recorder on company books in December Bank service charges per December bank statement Deposits created by bank during December November bank service charges recorded on company books in December

P 16,250 12,500 12,500 37,500 152,500 130,000 2,500 3,250 145,000 1,500

The cash receipts book of December is underfooted by P2,500. The bank erroneously charged the company’s for a P3,750 check of another depositor. This bank error was corrected in January 2011. 1. How much is the deposit in transit on December 31, 2010? a. P5,000 b. P20,000 c. P22,500 d. P17500 2. The total unrecorded bank service charges as of December 31,2010 is a. P750 b. P2250 c. P1750 d. P4250 3. What is the total book receipts in December? a. P150000 b. P152500 c. P155000 d. P147500 4. What is the total amount of company checks issued in December?

a. b. c. d.

P130000 P123000 P133750 P126250

5. What is the total book disbursements in December? a. P123750 b. P128500 c. P126250 d. P128750 6. What is the book balance on November 30, 2010? a. P16250 b. P21250 c. P37500 d. P35000 7. What is the bank balance in November 30, 2010? a. P23000 b. P18500 c. P43500 d. P16250 8. What is the total bank receipts in December? a. P120000 b. P140000 c. P145000 d. P150000 9. What is the total bank disbursements in Decmber? a. P154500 b. P132500 c. P129500 d. P137000 10. What is the bank balance in December 31, 2010? a. P21500 b. P26500 c. P31000 d. P33250

Solution 1-39 1. Deposit in transit, November 30 Add: Company collection in December Total Less: Deposits credited by bank in December Deposit in transit, December 30 Answer: B

P12,500 152,500 165,000 145,000 P20,000

2. Bank service charges per December bank statement Less: December bank service charges recorded On company books in December (P2,500-P1,500) Unrecorded December bank service charges Answer: B

P3,250

1,000 P2,250

3. Actual company collections in December Less: Underfooting of December cash receipts books Book receipts in December

P152,500 2,500 P150,000

Answer: A 4. Outstanding checks, December 31 Add: checks paid by bank in December Total Less: Outstanding checks, November 30 Outstanding checks in December Answer: D

P12,500 130,000 142,500 16,250 P 126,250

5. Checks issued in December (see no. 4) Add: Bank service charges recorded in December Book disbursement in December Answer: D

P 126.250 2,500 P128,750

6. Book balance, December 31 Add: Book Disbursements in Dec. (see no. 5) Total Less: Book receipts in Dec. (see no. 3) Book balance, November 30 Answer: A

P37,500 128,750 166,250 150,000 P16,250

Pinky Co. PROOF OF CASH For the month of December 2010 Nov Book balances P16,250 Outstanding Checks: Nov. 16250 Dec. Deposit in transit: Nov. (12500) Dec. Bank service charges: Nov. (1500) Dec. Underfooting (receipts) Error bank charge (Dec) Bank balances P18500

Receipts P150,000

Disbursements P128,750 16250 (12500)

12500 (20000)

2500

7. Bank balance, November 30, 2010

12500

(20000) (1500) 2250

P145000

Dec. P37,500

3750 P137000

(2250) 2500 (3750) P26500 P18500

Answer: B 8. Total bank receipts in December Answer: C 9. Total bank disbursements in December Answer: D 10. Bank balance, December 31 Answer: B

P145000 P137000 P26500

Problem 1-40 Proof of Cash: Unadjusted to Adjusted Balances Format In your audit of HARRY INC.’s cash as of December 31,2010, you ascertain the following information: The bookkeeper’s bank reconciliation on November 30,2010,is as follows: Balance pre bank statement, Nov 30 P24,298 Add: Deposit in transit 3,648 Total P27,946 Less: Outstanding checks No. 3408 P440 No. 3413 300 No. 3414 6,820 No. 3416 3,924 No. 3417 800 12,284 Balance P15,662 Add: Bank service charge for November 36* Balance per General Ledger Nov 30 P15,698 *entered in check in December The Cash Receipts Journal shows total receipts for December of P371,766. The Check reflects total checks issued in December of P377,632. A collection of P5,912 was recorded on company books on December 31 but was not deposited until January 2, 2011. The balance per bank statement at December 31,2010,is P17,516. This statement shows total receipts of P373,502 and checks paid of P380,284. Your examination reveals the following additional information: a) Check No. 3413 datd November 24, 2010,was entered in the Check as P300. Your examination of the paid checks returned with December bank statement reveals the amount of this check is P30. b) Check No. 3417 was mutilated and returned by payee. A replacement check (no.3453) was issued. Both checks were entered in the Check but no entry was made to cancel check no. 3417. c) The December bank statement includes an erroneous charge of P480. d) On January 3, 2011, the bank informed your client that a December bank service charge of P42 was omitted from the statement. e) Your examination of the bank credit memo accompanying the December bank statement discloses that it represents proceeds from note receivable collection in December for P4,000. f) Outstanding checks at December 31, 2011, are as follows: No. 3408 P440 No. 3417 800

No. 3418 No. 3419 1.

2.

2814 5788

What is the total book disbursement for the month of December? a. P377,668 b. P377,710 c. P377,632 d. P377,596 What is the book balance at December 31? a. P9832 b. P9868 c. P9754 d. P9796 3. The outstanding checks in December 31 totaled a. P8602 b. P9072 c. P9042 d. P9842 4. What is the adjusted bank balance on November 30? a. P16690 b. P16732 c. P16804 d. P16774 5. The adjusted book receipts for the month of December should be a. P375724 b. P371766 c. P371238 d. P375766 6. The adjusted book disbursements for the month of December should be a. P377,590 b. P377662 c. P377674 d. P377632 7. What is the adjusted book balance on December 31? a. P14824 b. P14866 c. P14908 d. P14782 8. A proof of cash provided by an auditor a. Provides that the client’s year-end balance of cash is fairly stated. b. Confirms that the client has properly separated the custody function from the reconciling function with respect to cash. c. Validates that the client’s bank did not make an error during the period being examined d. Determines whether any unauthorized disbursements or unrecorded deposits were made for the given time period.

Solution 1-40 1. Company checks issued in December Add: November bank service charge Total book disbursements in December

P 377,632 36 P377,668

Answer: A 2. Book balance, Nov.30 Add: Dec. book receipts Total Less: December book disbursements Book balance, Dec. 31

P15,698 371,766 387,464 377,668 P9,796

Answer: D 3. Outstanding checks at December 31: No. 3408 P440 No. 3418 2814 No. 3419 5788 Total P9042 Answer: C

Nov P15,698

Book balances Bank service charges: Nov. (36) Dec. Overstatement of Nov disb.(#3413) 270 Mutilated check (#3417) Book balances P16732

Nov P24,298

Bank balances P17,516 Outstanding Checks: Nov. (11,214) Dec. Deposit in transit: Nov. 3,648 Dec. Bank service charges Error bank charge Bank balances P16732

Receipts P371,776

Disbursements P377,668

Dec. P9,796

(36) 42

(42)

4000 P375766

P377674

Receipts P373,502

Disbursements P380,284

`

Dec.

(11,214) 9,042

(9,042)

42 (480) P377,674

5,912 (42) 480 P14,824

(3,648) 5,912

P375766

270 4000 P14824

4. Adjusted Bank balance, November 30, 2010 P16732 Answer: B 5. Adjusted book receipts in December P375766 Answer: D 6. Adjusted book disbursements in December P377,674 Answer: C 7. Adjusted nook balance, December 31 P14,824 Answer: A 8. A proof of cash usually consists of four columns, with reconciliations of beginning and end-of-period cash balances and reconciliations of cash receipts and disbursements during the period. The amounts appearing in the ledger and on the bank statement should reconcile both horizontally and vertically. This reconciliation therefore directs unauthorized disbursements and unrecorded deposits for the period. This is useful when internal control over cash transactions is weak or inadequate. Answer: D

Problem 1-41 Proof of Cash: Unadjusted to Adjusted Balances Format The following data are assembled by the ant of the HAROLD COMPANY: Nov.30, 2010 Dec. 31,2010 Cash balance 41,175 100,712.50 Bank statement balance 267,705 344,542.50 Deposits in transit 20,502.50 32,200 Outstanding checks 69,295 75,280 Bank service charges 1,800 1,500 NSF checks* 20,625 Company’s NR collected 179,537.50 202,250 *Redeposited in the same month. No entries made to take up the return and redeposit. The bank statement and the company’s cash records show the following totals: Cancelled checks and debit memos P545,932.50 Cash receipts per cash book 411,592.50 Checks written per cash book 529,792.50 Deposits and credit memos per bank statement 622,770 1. What is the total book receipts in December? a. P613,842.50 b. P591,130 c. P411,592.50 d. P580,330 2. What is the total book disbursements in December? a. P531,592.50 b. P529,792.50 c. P533,092.50 d. P531,292.50 3. What is the adjusted book balance on November 30? a. P220,712.50 b. P222,512.50 c. P218,912.50

d. P217,412.50 4. The adjusted bank receipts in December should be a. P634,168.50 b. P622,770 c. P632,667.50 d. P634,467.50 e. 613,842.50 5. The adjusted book disbursements in December should be a. P545,932.50 b. P552,517.50 c. P548,917.50 d. P551,917.50 e. 531,292.50 6. What is the adjusted book balance on December 31? a. P301,462.50 b. P302,662.50 c. P322,087.50 d. P280,537.50

Solution 1-41 1. Cash receipts per cash book Add: Notes collected by the bank in November Total book receipts in December

P411,592.50 179,537.50 P591,130.00

Answer: B 2. Checks written per cash book Add: Bank service charge in November Total book disbursements in December

P529,792.50 1,800.00 P531,592.50

Answer: A

Balance per bank Outstanding Checks: Nov. Dec. (75280) Deposit in transit: Nov. Dec. NSF check:

Bank balances

Nov P267,705 (69295)

20502.50

P218912.50

Receipts P622,770 `

(20502.50) 32200 (20625)

P613,842.50

Disbursements Dec. P545,932.50 P344,542.50 (69295) 75280

32200 (20625)

P531,292.50 P301462.50

(Adjusted)

Balance per books Bank service charges: Nov. Dec. Collections of notes: Nov. Dec. Book balances (Adjusted)

Nov P41,175

Receipts P591,130

Disbursements Dec. P531,592.50 P100,712.50

(1800)

179537.50 P218912.50

(179537.50) 202250 P613,842.50

(1800) 1500

(1500)

P531,292.50

202250 P301462.50

3. Adjusted Book balance, November 30, 2010 Answer: C 4. Adjusted bank receipts in December Answer: SHOULD BE E P613,842.50 NOT D P634467.50 5. Adjusted book disbursements in December Answer: SHOULD BE E NOT P531,292.50 D P551917.50 6. Adjusted nook balance, December 31 Answer: A

P218912.50

P301462.50

Problem 1-42 Proof of Cash: Book to Bank Balances Format The auditor of Tsikoy Company gathered the following information: a. The November 30 bank statement balance include bank service charges of P2,000. b. The November 30 cash balance in the general ledger was P244,500. c. Outstanding checks o November 30 were P63,000 while undeposited receipts were P36,000. d. The bank service charges as shown on the bank statement totaled P3,000. e. The December 31 cash balance in the general ledger was P319,750, which recognizesP482,750 for December receipts and P405,500 for checks written during December . in transit to the bank were receipts of P28,750. Checks of P15,000 written prior to December and checks of P60,500 written in December had not yet cleared the bank. 1. What is the total book disbursements for December? a. P403,500 b. P404,500 c. P407,500 d. P405,500 2. What is the November 30 bank balance? a. P271500

b. P269500 c. P268500 d. P266500 3. What is the total bank receipts in December? a. P490000 b. P482750 c. P497250 d. P488000 4. What is the total bank disbursements in December? a. P419000 b. P405500 c. P408500 d. P396000 5. What is the bank balance on December 31? a. P316750 b. P363500 c. P322750 d. P366500

Solution 1-42 1. Checks written during December Add: November bank service charges recorded on Company books in December Total book disbursements in December Answer: C

Balance per books P319,750 Bank service charges: Nov. Dec. Outstanding Checks: Nov. Dec. Undeposited receipts: Nov. Dec. Balance per bank

Nov P244,500

Receipts P482,750

(2000)

63000

(36000) P269,500

`

36,000 (28,750) P490,000

P405,500 2,000 P407,500

Disbursements P407,500

Dec.

(2,000) 3,000

(3000)

63,000 (75,500)

75500

P396,000

(28750) P363,500

2. Bank balance, November 30 Answer: B

P269,500

3. Total bank receipts in December Answer: A

P490,000

4. Total bank disbursements in December Answer: D 5. Bank balance, December 31

P396,000 P363,500

Answer: B

Problem 1-43 Proof of Cash: Unadjusted to Adjusted Balances Format RODELIO CO., has current in Pinoy Bank. Your audit of the company’s cash reveals the following: a. Balances taken from the company’s general ledger: Cash balance, Nov. 30, 2010 Cash balance, Dec. 31,2010 Receipts, Dec. 1-31, 2010 b. Balances taken from the December bank statement:

P637, 860 576,420 306,220

Bank balance, Nov. 30, 2010 Bank Balance, Dec. 31, 2010 Disbursements (debits) c. Outstanding checks, Nov. 30, 2010 (P26,140 was paid

P685,180 637, 220 356,080

by bank in December) d. Checks written and recorded in December; not included

64,140

In the checks returned with the Dec. bank statement

36, 080

e. Deposit in transit, Nov. 30, 2010 f. Deposit in transit, Dec. 31, 2010 g. A bank credit memo was issued in December to correct an erroneous charge made in Nov. h. Note collected by bank in December (company was not informed of the collection) i. A check for P2,020 (payable to supplier) was recorded

15,260 16,140 1,500 2,060

In the Check in December as P3,000 j. A check for P2,240 was charged by the bank as P2,420

980

In December k. Rodelio Co. Issued a stop payment order to the bank in

180

December. This pertains to a check written in December which was not received by the payee. A new check was written and recorded in the Check in December. The old check was written off by a journal entry also in December. l. Bank service charge , November 30, 2010 1. What is the total book disbursement in December? a. P367,660 b. P244,780 c. P369,720 d. P368,540 2. What is the total bank receipts in December? a. P260,160 b. P308,120

780 60

c. P306,060 d. P309,020 3. What is the total outstanding checks on December 31? a. P100,220 b. P38,000 c. P62,220 d. P74,080 4. What is the adjusted bank balance on November 30? a. P636,300 b. P685,180 c. P637,800 d. P634,800 5. What is the adjusted book receipts in December? a. P307,500 b. P306,220 c. P303,380 d. P305,440 6. What is the adjusted bank disbursements in December? a. P353,980 b. P365,840 c. P345,960 d. P366,020 7. What is the adjusted book balance on December 31? a. P577,500 b. P577,400 c. P576,420 d. P579,460

Solution 1-43 1. Book balance, Nov. 30 P637,860 Add: Book receipts in December Total Less: Book disbursements in December (squeeze) Book balance, December 31 Answer: A 2. Bank balance, November 30 P685,180

306,220 944,080 367,660 P576, 660

Add: Bank receipts in December (Squeeze) Total Less: Bank Disbursement in December Bank balance, December 31

308,120 993,300 356,080 P637, 220

Answer: B 3. Checks issued prior to Dec. (P64,140-P26,140) Checks issued in December

P38,000 36,080

Total outstanding checks, December 31 Answer: D

Nov P637,860

Balance per books P576,420 Bank service charges: Nov. (60) Overstatement of book disb in Dec(3000-2020) Check stopped for payment Collections of notes: Dec. Book balances (Adjusted)

P637, 800

Nov P685,180

Balance per bank P637,220 Outstanding Checks: Nov. (64,140) Dec. (74,080) Deposit in transit: Nov. 15,260 Dec. Erroneous bank charge In Nov 1,500 Overstatement of bank Disb. In Dec. Bank balances

P637, 800

P74,080

Receipts P306,220

Disbursements P367,660

Dec.

(60) (980) (780)

(780)

2,060 P307,500

Receipts P308,120

`

980

P365,840

2,060 P579,460

Disbursements P356,080

Dec.

(64,140) 74,080

(15,260) 16,140

16,140

(1,500) (180) P307,500

4. Adjusted bank balance, November 30 Answer: C 5. Adjusted book receipts in December Answer: A

180

P365,840

P579,460 P637, 800

P307,500

6. Adjusted bank disbursements in December Answer: B

P365,840

7. Adjusted book balance , December 31 Answer: D

P579,460

Problem 1-44 Proof of Cash: Unadjusted to Adjusted Balances Format Data for Annabelle, Inc are shown below: Nov.30, 2010 Cash balance P20, 340 Bank statement balance 107, 060 Deposits in transit 8,200 Outstanding checks 27,700 Bank service charges for the mo. not shown on company books 720 NSF checks returned by bank, not Shown in company books 4,300 NR collected 72,240 Additional information: a. Deposits and credit memos per bank statement

Dec. 31,2010 P48, 540 137,820 12,880 30,100 600 8,240 80,900

P249,100

b. Cancelled checks and debit memos per bank statement

218,340

c. Cash receipts per cash book

172,880

d. Checks written per cash book

211,900

1. What is the total book receipts in December? a. P172,880 b. P245,120 c. P253,780 d. P181,540 2. What is the total book disbursements in December? a. P 211,900 b. P216,200 c. P211,180 d. P216,920 3. What is the adjusted cash balance on November 30? a. P89,000 b. P87,560 c. P71,160

d. P96,160 4. What is the adjusted cash balance on December 31? a. P120,600 b. P94,840 c. P137,080 d. P155,040 5. What is the adjusted book receipts in December? a. P253,780 b. P236,460 c. P244,420 d. P270,180 6. What is the adjusted bank disbursements in December? a. P215,940 b. P220,740 c. P248,440 d. P204,260

Solution 1-44 1. Cash receipts per cash book

P172,880

Add: November bank collections Total book receipts (debits) in December Answer: B 2. Checks written per cash book Add: Bank service charges in November NSF checks returned in November Total book disbursements (Credits) in December

72,240 P245,120

P211,900 P720 4,300

5,020 P 216,920

Answer: D

Balance per books Bank service charges: Nov. Dec. NSF check: Nov. Dec. Collections of notes: Nov.

Nov P20,340

Receipts P245,120

(720)

(4,300)

72,240

(72,240)

Disbursements P216,920

Dec. P48,540

(720) 600

(600)

(4,300) 8,240

(8,240)

Dec. Adj. Book balances

Balance per bank P137,820 Outstanding Checks: Nov. Dec. (30,100) Deposit in transit: Nov. Dec. Bank balances (Adjusted)

80,900 P253,780

P220,740

Receipts P249,100

Disbursements P218,340

P87,560 Nov P106,060

(27,700)

`

8,200

P87,560

80,900 P120,600 Dec.

(27,700) 30,100

(8,200) 12,880 P253,780

3. Adjusted cash balance, November 30 Answer: B 4. Adjusted cash balance, December 31

12,880 P220,740

P120,600

P87,560

P120,600

Answer: A 5. Adjusted book receipts in December

P253,780

Answer: A 6. Adjusted bank disbursements in December

P220,740

Answer: B

Problem 1-45 Cash Shortage Computation The bookkeeper-cashier of the TANYING COMPANY absconded on the evening of April 16, 2011, apparently with a large portion of the company’s cash. He had taken with him certain ing records, including the cash journals and the general ledger. You are called upon to ascertain, if possible, the shortage with which the missing employee may be charged. You obtained the following information from the available subsidiary journals, ledgers, and other data. Balances at close of business, April 16, 2011: s Receivable s Payable Cash in bank, less checks outstanding

P442,550 207,300 98,830

Transactions, January 1-April 16, 2011: Sales, per receivable clerk Cash sales Sales allowance in customers’ s Cash purchase of furniture, per dealer’s invoice Total merchandise purchases Expenses paid, ed by paid invoices and payrolls Cash dividend declared, P50,000 (of which, P10,000 Remains unpaid)

P5,876,170 none 18,330 3,000 3,615,260 1,865,830 40,000

A check for P100,000 had been cashed by the bookkeeper shortly before his departure. Although the signature on the check had been obviously forged, it was paid by the bank and returned with other cancelled checks. A statement of financial position prepared from the books and other files follows: Tanying Company Statement of Financial Position December 31, 2010 ASSETS Cash s Receivable Inventory (at cost) Furniture Less: Accumulated Depreciation Total Assets

P 32,670 226,230 440,350 P74,560 31,800

42,760 P742,010

LIABILITIES AND SHAREHOLDER’S EQUITY s Payable Capital Stock Retained Earnings Total liabilities and shareholder’s equity

P114,720 500,000 127,290 P742,010

1. What is the total amount paid for merchandise purchases? a. P3,615,260 b. P3,293,240 c. P3,522,680 d. P3,707,840 2. What is the total amount of collections from sales? a. P5,641,520 b. P5,659,850 c. P6,074,160 d. P6,092,490 3. What is the total amount of cash disbursements from January – April 1, 2011?

a. b. c. d.

P5,524,090 P5,202,070 P5,431,510 P5,432,510

4. What is the cashier’s ability (correct cash balance before shortage) on April 15, 2011? a. P242,680 b. P98,830 c. P143,850 d. P43,850 5. What is the amount of cash shortage chargeable against the cashier? a. P100,00 b. P43,850 c. P143,850 d. P242,680

Solution 1-45 1. s Payable, Dec 31, 2010 Purchases Total s Payable, April 16, 2011 Payments for merchandise purchases Answer: C

P114,720 3,615,260 3,729,980 (207,300) P 3,522,680

2. s receivable, Dec. 31, 2010 Net sales (P 5,876,170-P18,330) Total s receivable, April 16, 2011 Collections from sales Answer: A

P226,230 5,867,840 6,084,070 442,550 P5,641, 520

3. Payments for purchases Furniture Expenses Dividends Total cash disbursements Answer: C

P3,522,680 3,000 1,865,830 40,000 P5,431,510

4. Cash balance, December 31, 2010 Collections Disbursements Cash balance, April 16, 2011 (ability) Answer: A 5. Cash ability Cash ed Total shortage

P 32, 670 5,641,520 (5,431,510) P 242,680

P242,680 (98,830) 143,850

Shortage chargeable against bank Shortage chargeable against the cashier Answer: B

(100,000) P 43,850

 1-46 Computation of Cash Shortage The JUNNEL COMPANY had weak internal controls over its cash transactions. Facts about it cash position at November 30, 2010 were as follows: The cash books showed a balance of P94, 508, which included undeposited receipts. A credit of P500 on the bank’s records did not appear on the books of the company. The balance per bank statement was P77,750. Outstanding checks were no. 8420 for P581, no. 8422 for P750, no. 8430 for P1,266, no. 8621 for P954, no.8623 for P1,034, and no. 8632 for P726. The cashier stole all undeposited receipts in excess of P18,972 and prepared the following reconciliation: P94,508 Balance per books, Nov. 30, 2010 Add: Outstanding check 8621 P 954 8623 1,034 8632 726 __2,214 96,722 Less: Undeposited receipts _18,972 Balance per bank, Nov. 30 77,750 Less: Unrecorded credit ___500 True cash, Nov. 30, 2010 P77,250 1. What is the correct amount of cash that should be on hand for deposit on November 30, 2010? A. P23,069 C. P22,569 B. P18,972 D. P22,069 2. How much was stolen by the cashier? A. P3,597 C. P4,097 B. P3,097 D. P0 3. The cashier attempted to conceal his theft by I. Not listing all outstanding checks. II. Underfooting outstanding checks shown on the reconciliation. III. Adding an item to the bank balance that should be deducted from the book balance. A. I and II only C. I and III only B. II and III only D. I, II, and III 4. Taking only the information given, which of the following internal control deficiencies allowed the cashier to steal cash and conceal his theft? A. The cashier is also responsible for preparing the reconciliation. B. No one other than the cashier is responsible for tracing cash receipts to the deposit in the bank. C. Both A and B. D. Neither A nor B. 5. What is the adjusted cash balance as of November 30, 2010? A. P95,008 C. P94,008 B. P91,411 D. P87,814

1-46

 1.

1. Balance per books, Nov. 30, 2010 Add: Bank credit Adjusted cash balance(on hand and in bank) Less: Adjusted bank balance:

P94,508 500 95,008

Bank balance, Nov. 30 Less: Outstanding checks No. 8420 P 581 8422 750 8430 1,266 8621 954 8623 1,034 8632 726 Cash that should be on hand for deposit

P77,750

5,311

72,439 P22,569

Answer: C 2. Cash that should be on hand for deposit (see no 1) Cash reported Amount of theft

P22,569 18,972 P3,597

Answer: A 3. The cashier attempted to conceal his theft by: 1. Not listing all outstanding checks. 2. Underfooting outstanding checks shown on the reconciliation. 3. Subtracting an item from the bank balance that should be added to book balance. Answer: A 4. The following internal control deficiencies are noticeable: 1. The cashier is also responsible for preparing the cash reconciliation. 2. No other than the cashier is responsible for tracing cash receipts to the deposits in the bank. Answer: C 5. Unadjusted balances Unrecorded credit Outstanding checks Undeposited receipts Corrected balances Cash storage (amount of theft) Adjusted cash balances Answer: B

Book

Bank

P94,508

P77,750

500 (5,311) 18,972 95,008 (3,597) P91,411

91,411 P91,411

 1-47 Computation of Cash Shortage Presented below is the cash receipts book of APPLE, INC.:

Date

CASH RECEIPTS BOOK June 1-30, 2010 s Cash Receivabl e Sales

June 1 Cash Sales

Sales Discoun t

P 800

Net Cash P 800

P 10 BA 15 BO 20 BE 20 Cash Sales 25 BU 26 BO 26 BE 30 BO 30 BA

P 3,200 6,000 4,800

64 120 96 2,400

10,800 4,000 12,000 3,600 800

216 240 3,600

P45,200

P3,200

P936

3,136 5,880 4,664 2,400 10,504 4,000 11,680 800 P47,46 4

The following are the company’s s receivable subsidiary ledgers. All the debits represent sales. The credit are 2%-10days, net 30 days. BA BO June 3 3,200 June 10 3,200 June 2 6,000 June 15 6,000 4 4,800 30 800 9 4,000 26 4,000 30 3,600 BU BE June 2 6,000 June 25 10,800 June 15 4,800 June 20 4,800 10 4,800 16 12,000 26 12,000 1. What is the correct amount of cash receipts in June? A. P47,800 B. P47,600

C. P48,000 D. P47,664

2. What is the cash shortage on June 30? A. P336 C. P200 B. P 0 D. P536



1-47

Cash receipts per book P47,464 Understatement of cash receipts by: Recording sales discounts for collections made beyond the discount period: P June 15 120 June 25 216 336 Overfooting the sales discounts column

(P936-P736) Cash receipts as corrected

200* P48,000

1.

*To balance, the following extensions to the “Cash” column are understated.

June 20 (P4,800-P96) June 25 (P10,800-P216) June 26 (P12,000-P240) Total Answer: C

Correct Amount P 4,704 10,584 11,760

Amount Extended P 4,664 10,504 11,680

Understatement P 40 80 80 P200

2.

Cash receipts as corrected Cash receipts per book Cash shortage, June 30

P48,000 47,464 P 536

Answer: D

 1-48 Computation of Cash Shortage You started the audit of the financial statements of ARCHIE, INC. on January 15, 2011, for the year ended December 31, 2010. The general ledger shows cash balance of P247,200 as at December 31, 2010. The following items are included in the December 31, 2010, reconciliation prepare by the cashier: Cash per records, December 31, 2010 P247,200 Cash per bank statement, December 31, 2010 264,095 Outstanding checks 25,325 Check of Tsikoy Co., charged by bank in error on December 28, 2010;corrected by bank on January 2, 2011 750 Deposit in transit 3,500 From January 2, 2011, to January 15, 2011,the date of your cash count, total cash receipts appearing in the cash records amounted to P53,500.During the same period, the bank has credited total deposits of P47,965. The following cash and cash items were on hand at the close of business on January 15, 2011: Currency Customer's checks Expense vouchers

P1,425 1,950 375 P 3,750

Your further investigation revealed the following: a. Cash received on from customers: AMOUN DATE T ENTRY MADE 7/5/2010 P400 Allowance for bad debts s receivable

4,000 4,000

12/10/201 0

12/15/201 0

P3,000

Inventory s receivable

P3,500

3,000 3,000

Not recorded

b. Unrecorded but deposited checks received from customers from January 2, 2011, to January 15, 2011, totaled P2,000. c. The cashier presented receipts for collections from customers on January 10, 2011, totaling P4,500; these were unrecorded and undeposited. 1. What adjusting entries would you provide for items (a) through (c)? 2. What is the total cash shortage as of December 31, 2010? A. P21,180 B. P16,180

C. P14,680 D. P4,180

3. What is the total cash shortage as of January 15, 2011? A. P26,465 C. P27,680 B. P18,430 D. P24,930

1-48



1. ADJUSTING JOURNAL ENTRIES:

a. 1. Cash

4,000 Allowance for bad

debts 2. Cash

3,000 3,000 Inventory

3,000

3. Cash

3,500 s receivable

3,500

b. 4. Cash

2,000 s receivable

2,000

c. 5. Cash

4,500 s receivable

2. Unadjusted balances Outstanding checks Bank error Deposit in transit AJE 1 2 3 Corrected balances SHORTAGE as of Dec. 31, 2010

4,500 Book

Bank

P247,200

P264,095 -25,325 750 3,500

4,000 3,000 3,500 P257,700 (14,680)

P243,020

Adjusted balances

P243,020

P243,020

Answer: C 3. Deposit in transit, Dec. 31, 2010 Add: Company collections, Jan. 2-15, 2011 Per records AJE 4 P2,000 5 4,500 Total Less: Deposits credited by bank, Jan.2-15, 2011 Deposit in transit, Jan, 15, 2011 Cash and cash items per count on Jan. 15, 2011 Cash shortage, Jan 2-15, 2011 Add: Cash shortage as of Dec. 31, 2010(see no 2) Total shortage as of January 15, 2011

P3,500

P53,500 6,500

60,000 63,500 47,965 15,535 (3,750) P11,785 14,680 P26,465

Answer: A

 1-49 Computation of Cash Shortage The LEINOR COMPANY does not have adequate controls over its cash transactions. During an audit, you found the following data concerning its cash position at December 31, 2010. 1. On the company’s records the cash balance is P173,500. 2. A credit of P2,500 for a note collected by the bank does not appear on the company’s records. 3. The bank statement balance is P135,500. 4. Outstanding checks are as follows: Number Amount 1428 P5,200 1431 3,600 1445 4,080 1446 3,460 The cashier made the following reconciliation: Balance per bank statement Deduct: Outstanding checks: No. 1431 1445 1446

P135,500 P3,600 4,080 3,460

Add: Undeposited collections (per count) Collected note Cash per books, December 31, 2010

P46,140 2,500

1. What is the total shortage? A. P11,200 B. P8,700

10,140 P124,860

C. P5,000 D. P6,000

2. How did the cashier attempt to conceal the shortage?

48,640 P173,500



1-49

1. Unadjusted balances Note collected by the bank outstanding checks Undeposited collections Corrected balances SHORTAGE Adjusted balances

Book

Bank

P173,500 2,500

P135,000 (16,340) 46,140 P164,800

P176,000 (11,200) P164,800

P164,800

Answer: A 2. Concealment of shortage:

Omission of Outstanding check no. 1428 Underfooting of outstanding checks in reconciliation (P11,140-P10,140) Adding (instead of deducting) the unrecorded note collected by the bank Total shortage

P5,200 1,000 5,000 P11,200

 1-50 Computation of Cash Shortage The following table summarizes the cash receipts and disbursements of LOI COMPANY for the last six months of 2010:

Month July August September October November December

Receipts P102,000 70,000 120,000 172,000 260,000 80,000 P964,000

Disbursements P60,000 110,000 68,000 92,000 122,000 180,000 P668,000

Additional information: 1. Bank balance, July 1, 2010 2. Bank balance, December 31, 2010 3. Outstanding checks, December 31, 2010 (No checks were outstanding on July 1 4. Undeposited receipts, December 31, 2010 (included in the December receipts) 5. Bank deposits, July 1 through December 31 1. What is the total shortage? A. P 0 B. P76,000

C. P30,000 D. P66,000

P200,000 524,000 42,000

24,000 914,000



1-50

Book balance, July1 (see note 1) Add: total book receipts as corrected (see note 2) Total Less: Total book disbursements as corrected (see note 2) Corrected book balance, December 31 Bank balance, December 31 Add: Undeposited receipts Total Less: Outstanding checks Adjusted bank balance Corrected book balance (ability) Cash shortage

P200,000 1,004,000 1,204,000 632,000 P572,000 P524,000 24,000 548,000 42,000 506,000 (572,000) P(66,000)

Answer: D NOTES: 1. Because there were no book and bank reconciling items on July 1, the balance on that date was also the cash balance per books. 2. The receipts column of the table of cash receipts and disbursements is underfooted by P40,000 (P1,004,000 correct total – P964,000) while the disbursements column is overfooted by P36,000 (P668,000 – P632,000 correct total.)

 1-51 Computation of Cash Shortage In connection with the audit of the financial statements of JEM COMPANY for the year ended October 31, 2010, you have conducted a surprise count of undeposited receipts on October 31, 2010. It was witnessed by the company’s cashier whose ability on October 31 was determined to be P80,000. Your count revealed the following: Currency and coins unused postage stamps Checks: Date Payee 1-22 Cash 10 -19 Jem Company 10 -28 Jem Company 10 -31 C. Co office supplies paid out of receipts Total per count

P48,840 440 Maker Cashier DWU, Inc. PSU Co. Jem Company

4,000 9,400 7,840 3,600 6,400 P80,520

1. What is the cash shortage on October 31, 2010? A. P7,080 B. P3,480

C. P30,080 D. P7,600

2. A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable assets to cash. Because of this, which of the following is vital? A. Simultaneous confirmations B. Simultaneous bank reconciliations C. Simultaneous verification

D. Simultaneous surprise cash count



1-51

1. Cashier's ability ed for as follows: Total per count Less: Cashier's stale check

P80,000 P80,520 P4,000

Unreleased disbursement check Cash Shortage

3,600

7,600

72,920 P 7,080

Answer: A 2. Simultaneous verification Answer: C

1-52



Computation of Working Capital &Current Ratio Jam Company’s unadjusted trial balance at December 31, 2010, included the following s:

Cash s receivable Merchandise inventory s payable Accrued expenses

Debit P69,200 102,650 947,160

Credit

P789,715 13,214

Jam Co.‘s year-end is December 31. At the end of 2010, it held its cash book open so that its statement of financial position would show a more favorable financial condition. Your audit revealed the following items: 1. The December cash book include January cash receipts of P65,460, of which P36,010 represents cash sales and P29,450 represents collections from customers, net of 5% cash discounts. 2. The December check included payments of s to suppliers of P37,240 on which discounts of P1,240 were taken. 3. The merchandise inventory balance was determined by physical count on December 31, 2010. 1. What are Jam’s working capital and current ratio at December 31, 2010, based on balances per company books?

A. B. C. D.

Working Capital P316,081 316,081 329,295 329,295

Current Ratio 1.42 1.39 1.42 1.39

2. What are Jam’s correct working capital and current ratio at December 31, 2010?

A. B. C. D.

Working Capital P244,381 278,831 330,835 280,381



1-52

Current Ratio 1.29 0.33 1.40 1.33

ADJUSTING JOURNAL ENTRIES December 31, 2010 a. s receivable (P29,450 ÷ 95%) Sales Cash Sales discounts (P31,000 × 5%) b. Cash Purchase discounts s payable

31,000 36,010 65,460 1,550 36,000 1,240 37,240

COMPUTATION OF WORKING CAPITAL AND CURRENT RATIO

Current assets: Cash (P69,200 - P65,460 + P36,000) s receivable (P102,650 + P31,000) Merchandise inventory Total Current liabilities: s payable (P789,715 + P37,240) Accrued expenses Total Working Capital (CA - CL) Current ratio (CA ÷ CL)

Per Books

Per Audit

P69,200

P 39,740

102,650 947,160 P1,119,010

133,650 947,160 P1,120,550

P789,715

P826,955

13,214 P802,929

13,214 P840,169

P316,081

P280,381

1.39

1.33

1. Answer: B 2. Answer: D

 1-53 Computation of Cash Shortage Fe Company, organized on March 1, 2010, has a very poor internal control system. The company’s cashier is also its ant. After 9 months of operations, the company’s manager suspects that the cashier ant has been

misappropriating company collections. You have been engaged to audit the company’s s to determine the extent of fraud, if any. You started the audit on November 15. On that date, the cash on hand per your surprise count was P5,140. Also on that date, the bank confirmed that the balance of the company’s current was P26,328. Your examination of the records reveals that a check for P1,852 was outstanding on November 15. The company’s mark up is 40% of sales. Further examination of the company’s records reveals the following balances at November 15, 2010: Ordinary share capital P300,000 Share 20,000 Real property purchased for cash 200,000 Mortgage payable 80,000 Furniture and fixtures (of the acquisition cost, P6,000 remains unpaid as of Nov. 15) 29,000 Notes payable - bank 32,000 s payable - trade 46,284 Expenses paid (excluding purchases) 60,756 Merchandise inventory at cost 93,920 s receivable - trade 85,380 Total sales 340,000 1. How much was paid for inventory purchases? A. P157,716 B. P293,716

C. P183,636 D. P251,636

2. How much was collected from customers? A. P118,620 B. P254,620

C. P50,620 D. P340,000

3. How much is the cashier’s ability at November 15, 2010? A. P131,228 C. P145,228 B. P83,228 D. P151,228 4. What is the adjusted bank balance as of November 15, 2010? A. P31,468 C. P29,616 B. P26,328 D. P23,040 5. The cash shortage as of November 15, 2010? A. P121,612 C. P127,612 B. P101,612 D. P206,992



1-53

1. Cost of sales (P340,000 total sales × 60%) Add: Merchandise inventory, November 15 Purchases Less: s payable - trade, November 15 Payments for purchases Answer: D

2. Sales Less: s receivable-trade, November 15 Collection from sales

P204,000 93,920 297,920 46,284 P251,636

P340,000 85,380 P254,620

Answer: B 3. Cashier's ability: Receipts: Issuance of ordinary shares (P300,000 + 20,000) Mortgage payable Note payable - bank Collections from sales (see no.2) Total Disbursements: Real property Furniture and fixtures (P29,000 - P6,000) Expenses Purchases (see no.1) Cash balance Answer: D

P320,000 80,000 32,000 254,620 686,620 P200,000

23,000 60,756 251,636

4. Bank balance, Nov. 15 Add: undeposited collections Total Less: outstanding check Adjusted bank balance, Nov.15 Answer: C

535,392 P151,228

P26,328 5,140 31,468 1,852 P29,616

P151, 228 (29,616) P121,612

5. Cashier's ability ( see no.3) Cash ed (see no.4) Cash shortage as of Nov. 15, 2010 Answer: A

 1-54 Computation of Cash Shortage Your client, a successful small business, has never given much attention to a sound internal control. In its employ is Alex Coopit, the company’s cashier bookkeeper. Alex handles cash receipts, makes small disbursements from the cash receipts, maintains ing records, and prepares the monthly bank reconciliation. The bank statement for the month ended March 31, 2010, shows a cash balance of P590,000. The following checks are outstanding on March 31:

No. No. No. No. No. No.

7163 7282 7285 8722 8724 8733

P8,623 7,320 10,612 6,322 12,280 6,200

The company’s general ledger shows a cash balance of P696,469 on March 31, 2010. Realizing that being the cashier – ant of the company he can easily misappropriate collections and conceal it, Alex removed all the cash on hand in excess of P127,301, and then prepared the following reconciliation in an effort to conceal this theft.

BANK RECONCILIATION

Balance per ing records Add: outstanding checks No. 8722 P6,322 No. 8724 12,280 No. 8733 6,200 Total Deduct: Cash on hand Balance per bank statement, March 31

P696,499

20,802 717,302 127,301 P590,000

1. How much was taken by the cashier ant? A. P30,555 C. P4,000 B. P157,856 D. P26,555 2. What is the amount of cash that should be on hand at November 15, 2010? A. P127,301 C. P157,856 B. P131,301 D. P30,555



1-54

1.

Unadjusted balances Outstanding checks: No. 7163 P8,623 No. 7284 7,320 No. 7285 10,612 No.8722 6,322 No. 8724 12,280 No. 8733 6,200 Undeposited collections Corrected balances CASH SHORTAGE Adjusted balances Answer: A 2. Cash on hand Add: Cash shortage (see no.1) Cash that should be on hand, Nov. 15 Answer: C

Book

Bank

P696,499

P590,000

P696,499

(51,357) 127,301 P665,994

(30,555) P665,994

P665,944

P127,301 30,555 P157,856