IA-1 Q1 Chapters 1-2
The adjusting entries for a bank reconciliation may include a credit to accounts payable for a check drawn
eight months ago.
True
In preparing bank reconciliation, outstanding checks will cause the cash balance per ledger to be lesser than
the balance reported by the bank, all other things being equal.
True
In preparing a monthly bank reconciliation, a deposit in transit is added to the balance per book to arrive at
the correct cash balance.
False
Under the fluctuating system, payment of expenses out of petty cash fund involves a credit to petty cash
fund account.
True
Deposit in a foreign bank that is unrestricted in use shall be presented as part of cash.
True
Checks drawn but are postdated should be reverted to cash even if the checks are already delivered to the
payees.
True
A compensating balance that is legally restricted as to withdrawal should be classified as a separate current
asset and not as part of cash and cash equivalents.
False
In most situations, the petty cash fund is reimbursed prior to the year-end to avoid adjusting entry, the
understatement of cash, and the overstatement of expenses.
False
Which of the following is not a basic characteristic of a system of cash control?
Internal audits at irregular intervals
Use of a voucher system
Daily deposit of all cash received
Combined responsibility for handling and recording cash
Classify to which line item an account given below will be presented:
Bank overdraft - Current liability
Time deposit - 6 months term - Short-term Investment
Plant Expansion Fund - Long-term investment
Cash deposited with a closed bank -Other noncurrent asset
Treasury bills - maturing in 18 months - Long-term investment
Bonds payable - Noncurrent Liability
Which of the following may be used to compute for the adjusted balance of cash?
Balance per books + Credit memo – Debit memo + Overstatement of cash disbursements
In replenishing a petty cash fund, which of the following entries is required?
Debit individual expense accounts, credit Cash in bank
Which statement in relation to bank reconciliation is true?
Credit memos will cause the cash balance per ledger to be higher than that reported by the bank, all other
things being equal.
The cash amount reported in the statement of financial position must be the balance reported in the bank
statement.
Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the
bank, all other things being equal.
Bank service charge will cause the cash balance per ledger to be higher than that recorded by the
bank, all other things being equal.
Which of the following should not be considered cash?
Coin and currency
Bank draft
Petty cash fund
Money market instrument
Which of the following would be added to the balance per bank statement to arrive at the correct cash
balance?
Deposit in transit
Which of the following is considered cash or financial reporting purposes?
Money orders, certified checks, and personal checks.
Which of the following should not be included in cash?
Cash collections not deposited at year-end
Checks received from customers
Bank overdraft
Checks drawn but not delivered to a payee
Which of the following may qualify as cash equivalent?
One-year money market placements
Investment in ordinary shares acquired on December 31, 2020, expected to be sold within the next three
months.
Investments in redeemable preference shares acquired on December 1, 2020, maturing February 28,
2021.
Treasury notes acquired on November 1, 2020, maturing on March 31, 2021.
Unrestricted deposits in foreign bank are classified as
As part of cash and cash equivalents.
The petty cash fund of an entity on December 31, 2021 is composed of the following:
Currencies
4,200
Coins
1,050
Petty cash vouchers:
Gasoline
2,625
Supplies
1,575
IOUs
3150
Employee’s check, dated Jan. 5, 2022
2,100
Check drawn by the entity to the order of a petty cash custodian
4,300
The petty cash general ledger account has an imprest balance of P20,000.
Assuming no replenishment on December 31, 2021, what is the year-end entry to adjust the petty cash
fund? (Click only the letter that corresponds to your entry)
C.
Gasoline
2,625
Supplies
1,575
Receivable from employee
5,250
Cash short or Over
1,000
Petty cash fund
10,450
The following information pertains to an entity as of December 31, 2020:
Cash balance per bank statement
Checks outstanding (including a certified check of P100,000)
Customer note collected by bank of the entity
NSF checks of customers returned by bank
4,000,000
500,000
150,000
200,000
Bank service charge shown in December bank statement
20,000
Error made by the entity in recording a check that cleared the bank in December (check
was drawn in December for P100,000 but recorded at P10,000)
90,000
Deposit in transit
1,300,000
What is the cash balance per ledger on December 31, 2020?
5,060,000
The cash balance per book of an entity on July 31 had an ending balance of P3,455,000. The following data
were assembled in the course of reconciling the bank balance:
•
•
The bank erroneously credited the entity’s account for P21,000 on July 22.
During the month, the bank charged back NSF checks amounting to P23,000 of which P8,000 had
been redeposited by July 25.
•
Collection for July 31 totaling P103,000 was deposited the following month.
•
Checks outstanding on July 31 amounted to P302,000.
•
Note collected by the bank for the entity was P80,000 and the corresponding bank charge was P5,000.
What is the cash balance per bank statement?
3,735,000
In an audit of an entity on December 31, 2021, the following data are gathered:
Balance per book
Bank charges
2,800,000
7,000
Outstanding checks
665,000
Deposit in transit
840,000
Customer note collected by bank, (including interest of P42,000)
1,092,000
Customer check returned NSF
175,000
Depositor’s note charged by bank against an entity’s account
700,000
A check written in December for P200,000 in payment of an account payable had been
recorded as
20,000
What is the adjusted cash in bank balance on December 31, 2021?
2,830,000
While checking the cash accounts of an entity on December 31, 2021, you find the following information:
Balance per books
P677,600
Balance in checking account (outstanding checks per books of P98,760)
653,230
Deposit in bank closed by BSP
160,000
Bank charges not yet taken up in the books
Book error in recording a check, the correct amount as paid by the bank is P8,900
instead of P9,800 as recorded in the books, or a difference of
580
900
Currency and coins counted
95,000
Petty cash fund (of which P4,500 is in the form of paid vouchers)
10,000
Bond sinking fund cash
Receivables from employees
What is the correct cash in bank balance to be reported on December 31, 2021?
677,920
100,000
7,000
On December 31, 2021, the company has the following information concerning its cash and cash equivalents
and some other items:
Undeposited cash collections
BDO, current account
25,000
1,200,000
Checks received from customer, dated Jan. 2, 2022
300,000
Certificate of deposit
400,000
Petty cash fund, (P4,000 in the form of vouchers)
Postage stamps
Savings account in a closed bank
Check drawn against entity’s account but not mailed until Jan. 3, 2022
10,000
300
300,000
5,000
Bank draft from customer
20,000
NSF check returned by bank
10,000
What amount of “cash” should the company report in its December 31, 2021 statement of financial position?
P1,256,000
An entity’s checkbook balance on December 31, 2021 was P2,160,000. The same date, the entity held the
following items in its safe:
A P67,500 check payable to the entity, dated January 2, 2022, was included in the December 31,
checkbook balance.
A P47,250 check payable to the entity deposited December 22 and included in the December 31
checkbook balance, that was returned by the bank on December 24 marked “NSF”. The check was
redeposited December 26, 2021, and cleared December 29, 2021.
A P337,500 check payable to a supplier and drawn on the entity’s account, that was dated and
recorded December 31, but not mailed until January 15, 2022.
It its December 31, 2021 statement of financial position, the entity should report cash at
2,430,000
An entity shows the following account balances in its financial records as of December 31, 2021:
Checking account at Metro Bank
1,000,000
Checking account at Land Bank
( 40,000)
Payroll account – PNB
200,000
Foreign bank account-unrestricted
1,500,000
Commercial paper with maturity of 3 months
44,000
Savings deposit in closed bank
200,000
I.O.U from president’s brother
150,000
Traveler’s check
100,000
Cash in sinking fund set aside for bonds payable due December 31, 2023
1,000,000
Petty cash fund (P18,000 in currency & expenses receipts for P32,000)
50,000
Money order
25,000
Time deposit, 120 days
100,000
What total amount of “cash and cash equivalent” should be reported on December 31, 2021?
2,887,000
The petty cash fund account of the company on December 31, 2021 showed the following:
Coins and currency
10,320
Paid vouchers:
Transportation
748
Gasoline
336
Office supplies
560
Postage stamps
448
Due from employees
2,688
Digging deeper into the records, you realized that there is a Manager's check for P2,540. There is also an
employee’s check, dated December 31, 2021 representing her salary, P5,000 and a check drawn by company
to the order of petty cash custodian amounting to 7,360.
What is the amount of the petty cash fund for statement of financial position presentation?
25,220
An entity provided the following data on December 31, 2021:
Checkbook balance
2,250,000
Bank statement balance
1,800,000
Check drawn on entity’s account, payable to supplier, dated and recorded on
December 31, 2021 but not mailed until January 31, 2022
Deposit made by another entity erroneously credited by the bank to the entity.
450,000
100,000
Cash in sinking fund set aside for bonds payable due March 31, 2022
675,000
Treasury bills, purchased November 1, 2021 and maturing March 1, 2022
1,125,000
Maybank time deposit, 90 days
500,000
The May bank time deposit is set aside for the acquisition of equipment to be made early in March 2022.
What amount should be reported as cash and cash equivalents on December 31, 2021?
3,375,000
The December 31, 2020 trial balance of an entity includes the following accounts:
Cash on hand
500,000
Petty cash Fund
50,000
Bank draft
100,000
Sinking fund cash
1,000,000
Metro Bank current account
7,500,000
Banco De Oro current account
3,750,000
Allied Bank current account
(500,000)
China Bank saving deposit -closed bank
312,500
Maybank time deposit, 60 days, restricted for equipment acquisition early in 2021.
2,500,000
Treasury bills, purchased Dec. 1, 2020 and due March 1, 2021
1,000,000
Money market instruments
250,000
Cash on hand includes the following items:
Customer’s check for P25,000 dated December 20, 2020, received December 29, 2020.
Customer’s check for P62,500 returned by bank December 23, 2020 due to insufficient fund
but subsequently redeposited and cleared by the bank January 5, 2021.
Petty cash Fund consisted of the following items as of December 31, 2020:
Currency and coins
IOUs from employees
18,750
7,500
A check drawn by an entity to the order of
petty cash custodian, representing her salary
Unreplenished petty cash vouchers
13.750
10,000
Metro Bank current account:
Check of P500,000 was drawn against Metro Bank current account in payment of accounts
payable was dated and recorded on December 31, 2020 but mailed to creditors on January 10,
2021.
Check of P75,000 dated January 2, 2021 in payment of accounts payable was recorded and
delivered to payee on December 30, 2020.
What entry should be made to adjust Metro Bank current account?:
Debit Metro Bank current account P575,000 and Credit Accounts Payable P575,000
What is the correct amount of total “cash” to be reported?:
12,395,000
What is the total amount of cash and cash equivalents to be reported?:
13,645,000
IA-1 Q2 Chapters 3-5
The term “FOB destination” means that ownership of the goods purchased is vested in the buyer once the
goods are loaded to the carrier.
False
Accounting for bad debts using the allowance method is the one acceptable under generally accepted
accounting principles.
True
The entry to write off an uncollectible account under the direct write-off method is a debit to Doubtful
Accounts Expense and a credit to Accounts Receivable.
True
Trade receivables are classified as current assets even if they are collectible beyond one year but as long as it
is within the normal operating cycle.
True
A credit memo of the current month is deducted from the book receipts column in preparing a proof of cash.
False
In preparing a proof of cash, an overstatement of check in payment of the current month's expenses
corrected in a subsequent month is an addition to the disbursement column.
False
When the percent of receivables method is used to compute doubtful accounts, proper matching of cost
against revenue is fully achieved.
False
A seller entity receives a sale order on March 29, 20x1 and ships the ordered goods on March 30, 20x1. The
customer received the goods on April 2, 20x1. If the term of the sale is FOB shipping point, the sale price of
the goods shipped will be reported as receivable and sale in the seller entity’s March 31, 20x1 financial
statements.
True
The beginning balance of allowance for doubtful accounts is P60, the bad debts expense during the period is
P40, while write-offs of accounts during the period is P30. The ending balance of allowance for doubtful
accounts is P50.
False
An entity’s allowance for bad debts has a beginning balance of P30. During the period, the entity wrote-off
a P15 account recovered a P9 account receivable. If the required balance of the allowance at the end of the
period is P45, the bad debts charged to expense must beP6.
False
Identify the proper classification or to which line item the account given below should be presented.
Sales discount forfeited - Income
Subscription receivable - Equity
Doubtful accounts - expense
Advances to subsidiary - Long-term investments
Advances from customers - Current Liability
Allowance for freight charge - Trade and other receivables
Which of the following does not change the balance in accounts receivable?
Bad debts expense adjusting entry
Write-off
Collection from customers
Return on credit sales
A method of estimating uncollectible accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on
Aging the accounts receivable
Credit balances in accounts receivable are classified as
Current liabilities
What is the effect upon the total assets of a business when an account receivable has been collected?
No change in total assets
When preparing a proof of cash, an outstanding check for the current month is
Extended to the bank disbursements column as an addition
The category “trade receivables” includes
Installment sales
Subscription receivable
Claims against insurance companies for casualties sustained.
Advances to affiliates
The journal entry debiting allowance for doubtful accounts and crediting accounts receivable account would
be made when
A customer’s account was proven worthless.
All of the following are problems associated with the measurement of accounts receivable, except
Uncollectible accounts
Cash discounts under the net method
Allowance granted
Returns
Which of the following is incorrect?
The operating cycle sometimes is shorter than one year in duration.
The operating cycle sometimes is longer than one year in duration.
The operating cycle always is one year in duration
The operating cycle is a concept applicable both to manufacturing and retailing enterprises.
When the allowance method of recognizing bad debts expense is used, the entries at the time of collection
of a small account previously written off would
No effect on accounts receivable
On May 9, 2020 Seller Company, sold merchandise with a list price of P150,000 to Buyer Company on
account. Seller Company allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the
sale was made F.O.B destination. The Buyer Company paid P6,000 for delivery costs upon receipt of the
goods.
What amount should Buyer Company remit to Seller Company as full payment on May 24, 2020?
\76,320
An entity provided the following information for the current year in relation to accounts receivable:
Accounts receivable, January 1
1,500,000
Credit sales
7,500,000
Collection from customers, excluding the recovery of accounts written off
6,000,000
Sales return
375,000
Accounts written off as worthless
75,000
Recovery of accounts written off
37,500
Estimated future sales return on December 31
112,500
Estimated uncollectible accounts per aging at year-end
225,000
What amount should be reported as net realizable value of accounts receivable on December 31?
2,212,500
An entity started its business on January 1, 2021. After considering the collections experience of other
companies in the industry, an entity established an allowance for bad debts estimated to be 5% of credit
sales.
Further analysis of the company’s accounts showed that merchandise purchased in 2021 amounted to
P3,600,000 and ending merchandise inventory was P375,000. Goods were sold at 40% based on gross sales.
80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds
from cash sales, amounted to P1,500,000. Accounts written off during 2021 totaled P12,500.
What amount should be reported as sales on account?
4,300,000
On December 31, 2021, the “Receivables” account of an entity shows a debit balance of P4,000,000. The
allowance for doubtful accounts shows a credit balance of P100,000. Subsidiary details show the following:
Trade accounts receivable, P1,550,000; Trade notes receivable, P200,000; installments receivable, normally
due one (1) year to two (2) years, P600,000; Customers’ accounts reporting credit balances arising from
sales returns, P60,000; Advance payments for purchase of merchandise, P300,000; Customers’ accounts
reporting credit balances arising from advance payments, P40,000; Cash advances to subsidiary, P800,000;
Claims from insurance company, P30,000; Subscription receivable P600,000; Accrued interest receivable,
P20,000.
How much should be presented as “trade and other receivables” under current assets?
2,600,000
The following information was included in the bank reconciliation for Auto Company for June:
Checks and charges recorded by bank in June (including a June service charge of P600), P344,200; Service
Charge made by bank in May and recorded on the books in June, P400; Total of credits to cash in all
journals during June, P396,040; Customer’s NSF check returned as a bank charge in June (no entry made on
books), P2,000; Customer’s NSF check returned in May and redeposited in June (no entry made on books in
either May or June), P5,000; Outstanding checks at June P161,200 and deposit in transit in June P12,000.
What was the total outstanding checks at the beginning of June?
107,160
The entity’s allowance for doubtful accounts was P4,000,000 at the end of 2021 and P3,600,000 at the end
of 2020. For the year ended December 31, 2021, the entity reported doubtful accounts expense of P640,000
in the income statement and recovery of accounts written off in 2020 was P10,000.
What amount was debited to the appropriate account to write off uncollectible accounts in 2021?
250,000
An entity provided the following data on December 31, 2021:
Accounts receivable
50,000
Claims against common carriers
Accrued interest income
10,000
Employee IOUs
8,000
Customers’ account with credit balance 14,000
Advances to affiliates
Allowance for doubtful accounts
Advances from customers
Deposit on contract bids
3,000
50,000
12,000
110,000
Dividends receivable
8,000
22,000
What amount of “trade and other receivables” should reported as current assets?
99,000
An entity provided the following information for the current year:
January 1
Accounts receivable
December 31
1,440,000
Allowance for doubtful accounts
72,000
Sales
9,600,000
Cash collected from customers
8,400,000
The cash collections included a recovery of P12,000 from a customer whose account had been written off as
worthless in prior year. During the year, it was necessary to recognize doubtful accounts expense of
P120,000 and write off worthless customer’s accounts of P36,000. At year end, a customer settled an
account by issuing a 12%, six month note for P480,000.
What is the net realizable value of accounts receivable on December 31?
1,968,000
An entity provided for doubtful accounts expense monthly at 3% of credit sales. The balance in the
allowance for doubtful accounts was P500,000 on January 1, 2020.
During 2020, credit sales totaled P10,000,000, interim provisions for doubtful accounts were made at 3% of
credit sales, P100,000 accounts were written off, and recoveries of previously written off amounted to
P25,000.
An aging of accounts receivable was made on December 31, 2020.
Age of receivables
Amount
Collectibility
0 – 60 days
3,000,000
90%
61 – 180 days
1,000,000
80%
181 - 360 days
750,000
70%
More than one year
200,000
50%
Answer the following questions:
What amount should be reported as doubtful accounts expense for current year?:
400,000
What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2020?:
100,000 credit
The records of Tim Company showed the following:
March 31
Cash in bank balance
April 30
100,000
?
Book credits
360,000
Book debits
400,000
Bank statement balance
165,000
?
Bank debits
280,000
Bank credits
332,000
Note collected by bank:
30,000
50,000
NSF check
14,000
16,000
Deposit in transit
40,000
110,000
Outstanding checks
89,000
186,000
A customer’s check for P2,000 was recorded by the depositor as
20,000
Check of Tom Company charged by bank against Tim account
15,000
Answer the following questions:
How much is the adjusted receipts for the month of April?:
P402,000
How much is the adjusted cash balance for the month of April?:
P156,000