Cash and Cash Equivalents

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CASH and CASH EQUIVALENTS
Problem 1-2
The accountant of SANTIAGO Company is in the process of preparing the company’s financial statements for the year ended
December 31, 2014. He is trying to determine the correct balance of cash and cash equivalents to be reported as current asset on the
statement of financial position. The following items are being considered:
 Balances in the company’s accounts at the Metropolitan Bank:
o Current Account
81, 000
o Saving Account
132,600
 Undeposited customer checks of P22, 200 (including a customer check date January 2, 2015 for P3,000)
 Currency and coins on hand of P3, 480
 Saving account at the Northern Philippines Bank with balance of P2,400,000. This account is being used to accumulate cash
for future plant expansion (in 2015)
 Petty cash of P4,000 (currency of P1,200 and unreplenished vouchers of P2,800)
 P120,000 in a current account at the Northern Philippine Bank. This represents a 20% compensating balance for P600,000
loan with the bank. Santiago Company is legally restricted withdraw the funds until the loan is due in 2017.
 Treasury bill:
o Two-month maturity bills 90,000
o Seven-month bills
120,000
 Time Deposit
100, 000
What is the correct 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:
Metropolitan Bank, Savings and Current account
(132,600 + 81,000)
Undeposited customer check
(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
Problem 1-3
Your audit of the December 31, 2014, financial statements of DIONISIO Corp., reveals the following
Current account @ Prime Bank
Current account @ Prudent Bank
Treasury bills (acquired 3 months before maturity)
Treasury bills (maturity date is Dec. 31, 2015)
Payroll Account
Foreign bank account- restricted (translated using the Dec. 31, 2014, exchange rate)
Postage Stamp
Employee’s postdated check
IOU from the vice-president
Credit memos from a supplier for a purchase return
Traveler’s check
Money order
Petty cash fund (P3,000 in currency and expense receipts for P12,000)
(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 equivalents in the statement of financial positon on December 31, 2014?
a. P840,050
b. P873,900
c. P849,400
d. P861,900
Solution:
Current account @ Prudent Bank
Treasury bills (acquired 3mos. Before maturity)
Payroll account
Traveler’s Check
Money Order
Petty cash fund
Total cash and cash equivalents
135,000
300,000
390,000
21,000
12,900
3,000
861,900
Problem 1-4
The Cash account of BEA Corporation as of December 31, 2014 was composed of the following:
CASH and CASH EQUIVALENTS
On deposit in current account with the Bank of PI
Cash collection not yet deposited to the bank
A customer’s check returned by the bank for insufficient fund
A check drawn by the Vice-president of the company dated January 12, 2015
A check drawn by a supplier dated Dec. 28, 2014 for goods returned by the company
A check dated May 31,2014 drawn by the company against the Bank of Manila in payment of
customs duties. Since the importation did not materialize, the check was retuned by
the customs broker. This check was an outstanding check in the reconciliation of
Bank of Manila
Petty cash fund of which P10,000 is in currency, P7,200 in form of employees IOUs; and
P2,800 is supported by approved petty Cash vouchers for expended all dated
Prior to closing of the books on Dec. 31, 2014
Total
Less: overdraft with the Bank of Manila secured by a chattel mortgage on the inventories
Cash Balance per ledger
900,000
350,000
150,000
70,000
60,000
410,000
20,000
P1,960,000
300,000
P1,660,000
What is the amount of cash to be reported in the Dec. 31, 2014 statement of financial position of Bea Company?
Solution:
Current Account – Bank of PI
900,000
Undeposited collection
350,000
Supplier’s check for goods returned by the company 60,000
Petty cash fund
10,000
Bank of Manila (410,000 – 300,000)
110,000
Correct cash balance
P1,430,000
Problem 1-5
In connection with your audit of the financial statements of ONOR Company for the year ended December 31,2014, you gathered the
following information:
1. The company maintains its current account with Tsunami Bank. The bank statement on December 31, 2014 showed a balance
of P638,340.
2.
3.
I.
Your audit of the company’s account with Tsunami Bank disclosed the following:
 A check of P22,500 received from a customer whose account is current had been deposited and then returned by the
bank on Dec. 28, 2014. No entry was made for the return of this check. The customer replaced the check on January
15, 2015.
 A check of P5,720 was cleared by the Bank as P7,520. The bank made the correction on January 2, 2015.
 A check for P3,500 representing payment of an employee advance was received and deposited on Dec. 27, 2014, but
was not recorded until January 3, 2015.
 Postdated checks totaling P67,300 were included in the deposits in transit. These represent collection of current
accounts receivable from customers. The checks were actually deposited on January 5, 2015.
 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 accounts payable. Said equipment arrived in December 2014.
 Interest earned on the bank balance for the for the 4 th quarter of 2014, amount to P1,950 was not recorded.
 Bank service charge totaling P1,260 were not recorded
 Deposit in transit and outstanding checks at December 31, 2014 totaled P136,250 and P276,380, respectively.
Various expenses from the company’s imprest petty cash fund dated December 2014 totaled P16,250, while those dated
January 2015 amounted to P5,903. Another disbursement from the fund dated December 2014 was a cash advance to an
employee amounting to P3,500. A replenishment of the petty cash fund was made on January 8, 2015.
The company’s trial balance on December 31, 2014 includes the following accounts:
Cash in Bank – Tsunami bank
P748,320
Cash in Bank – Earthquake (restricted account for plant expansion,
expected to be disbursed in 2015
700,000
Petty cash Fund
30,000
Time deposit, placed on Dec. 20, 2014 and due on March 20, 2015
1,000,000
Money market placement – Prudential Bank
4,000,000
What is the adjusted petty cash fund balance on December 31, 2014?
a. P4,347
b. P10,250
c. P30,000
II. The petty cash shortage on December 31, 2014 is
a. P 0
b. P5,903
c. P3,500
d. 24,097
d. P4,347
III. What is the adjusted cash in bank –Tsunami Bank balance on December 31, 2014?
a. P500,010
b. P748,320
c. P432,710
d. P429,110
IV. The entry to adjust the Cash in Bank – Tsunami Bank account should include a debit to:
a. Accounts receivable for P89,800
b. Accounts receivable for P86,300
c. Accounts payable for P228,200
d. Interest expense for P1,950
CASH and CASH EQUIVALENTS
V. The December 31, 2014 statement of financial position should show cash and cash equivalent at
a. P6,142,960
b. P5,439,360
c. P4,442,960
d. P5,442,960
Solutions:
I.
Petty cash Fund per trial balance
Various expenses dated Dec. 2014
Employee cash advance
Adjusted petty cash fund balance
P30,000
(16,250)
( 3,500)
P 10,250
Answer: B
II.
The petty cash shortage cannot be determined because of insufficient information. Answer: A
III.
Unadjusted balances
NSF Check
Bank Error (7,520 – 5,720)
Unrecorded cash receipt
Deposit in Transit (136,250 -67,300)
Bank Debit Memos
Interest earned
Bank Service Charge
Outstanding Check
Adjusted Balances
Book
P748,320
(22,500)
Bank
P638,340
1,800
3,500
68,950
(230,000)
1,950
(1,260)
(276,380)
P432, 710
P432,710
Answer: C
IV.
Accounts receivable (22,500 + 67,300)
Accounts payable
Bank Service Charges
Cash in Bank – Tsunami Bank
Advances to employees
Interest income
89,800
230,000
1,260
315,610
3,500
1,950
Answer: A
V.
Cash in Bank –Tsunami Bank
Petty cash Fund
Time deposit
Money Market placement
Cash and cash equivalents
Answer: D
P432,710
10,250
1,000,000
4,000,000
P5,442,960
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