PRACTICE PROBLEMS
ANSWER KEY
PROBLEM 1
Requirement 1 – Adjusting entries
Accounts Receivable
Cash in bank
200,000
200,000
Cash in bank
Accounts payable
250,000
250,000
Cash in bank
Accounts payable
100,000
100,000
Accounts receivable
Cash in bank
450,000
450,000
Explanation to 4th adjusting entry:
• The collections should be recorded and reported in 2018 not in 2017. When there is
collection, the journal entry is debit-cash in bank; credit-accounts receivable, but this
entry should be done in 2018. The company may intentionally record this in 2017 to have
better financial position, the opening of books beyond the reporting period is called as
window dressing. Since in this case the collections is recorded in 2017, even if should not
be reported, the entry should be reversed to correct the amount.
Requirement 2 – Correct amount of cash and cash equivalent
Cash in bank (3M – 200k + 250k + 100k – 450k)
Time deposit – 30 days
Petty cash fund
Total cash and cash equivalents
2,700,000
1,000,000
20,000
3,720,000
Notes:
1. Money market placement is not considered as cash equivalent because this is an
investment that is more than 3 months. Hence, it shall be classified as short-term
marketable security.
2. Savings deposit in closed bank is considered as a receivable.
3. Sinking fund for bond payable due June 30, 2018 is not part of cash because its
corresponding liability is long-term. Therefore, the sinking fund may be classified as
long-term investment as part of noncurrent assets. But if the corresponding liability is
currently due, the sinking fund will be part of cash and cash equivalent.
PROBLEM 2
Requirement 1 – Adjusting Entries
Accounts receivable
Cash on hand
Expenses
Advances to employees
Petty cash fund
150,000
150,000
10,000
5,000
15,000
Requirement 2 – Total amount of cash and cash equivalent
Cash on hand (1,000,000 – 150,000)
Petty cash fund (50,000 – 10,000 – 5,000)
Security Bank – current account
PNB – current account
Bond sinking fund
Total cash and cash equivalents
850,000
35,000
2,000,000
1,500,000
2,500,000
6,885,000
Notes:
1. BDO current account – overdraft, should be reported separately as current liability.
2. BSP Treasury bill – 120 days, is more than the “three-month” rule for cash equivalent,
hence will be included as part of short-term marketable security, but sill as a current
asset.
3. BPI Time deposit – 90 days is set aside for the acquisition of a long-term asset, i.e. land.
In this case, regardless of when the actual disbursement will be made, (in here, will be
made the following month after the closing period, Dec. 31, 2017), if the fund is set
aside for the acquisition of long-term asset, it will always be long-term, which may be
classified as long-term investment. Upon the actual disbursement, the long-term
investment will be reclassified to Land (if used to acquire land) or PPE.
4. Since the bond will be due within a year, such liability will be part of current liability.
Therefore, the corresponding sinking fund will be classified as part of cash and cash
equivalent, i.e. when the corresponding liability is current, the amount set aside will be
part of cash, if the liability is non-current the corresponding fund will be noncurrent.
PROBLEM 3
Requirement 1 – Adjusting entries
Accounts receivable
Cash on hand
100,000
100,000
Accounts receivable
Cash on hand
150,000
150,000
Advances to employees
Cash shortage or overage
Petty cash fund
Solution:
Petty cash fund total
Employee IOUs
Supposed petty cash fund
Actual Cash (33,000 + 2,000)
Cash shortage
10,000
5,000
15,000
50,000
(10,000)
40,000
35,000
5,000
Note: The check drawn to the petty cashier is a replenishment check. The collection for
Christmas party is a collection not part of petty cash fund, because these are personal
money. The cash shortage once established, may be considered as receivable from petty
cashier or loss (if whose fault is not confirmed)
Cash held as compensating balance
Cash in bank
100,000
100,000
Note: The unreleased and postdated checks written no longer needs adjustments
because the checks are “included” in the cash in bank, however, if these checks are
excluded in the cash in bank or are disbursed the journal entry should have been debitcash in bank, credit-accounts payable. Cash held as compensating balance may be
considered as short-term receivable or long-term receivable depending on the
corresponding liability from which this is restricted.
•
The cash collected by cashier not included in cash amounting to P10,000 is a receivable
or due from cashier. Since this is not included in cash already, the journal entry should
be debit-Due from Cashier; credit – Cash short or over.
Cash on hand (1,000,000 – 100,000 – 150,000)
Petty cash fund (50,000 – 15,000)
Cash in bank (4,000,000 – 200,000 – 300,000 – 100,000)
Saving deposit
Total cash
750,000
35,000
3,900,000
2,000,000
6,685,000
PROBLEM 4
IMPREST FUND SYSTEM
Nov 2
Petty cash fund
Cash in bank
10,000
10,000
Nov 29
No entry
Nov 30
Postage
Supplies
Petty cash fund
Cash in bank
2,000
5,000
10,000
17,000
Dec 30
No entry
Dec 31 – Adjusting Entry (year-end)
Postage
Supplies
Deposit receivable
Petty cash fund
Jan 1 – Reversing entry
Petty cash fund
Postage
Supplies
Deposit Receivable
3,000
4,000
2,000
9,000
9,000
3,000
4,000
2,000
Jan 2
No entry
Jan 30
No entry
Jan 31
Postage
Supplies
Accounts payable
Cash in bank
5,500
6,000
7,000
18,500
FLUCTUATING FUND SYSTEM
Nov 2
Petty cash fund
Cash in bank
Nov 29
Postage
Supplies
Petty cash fund
Nov 30
Petty cash fund
Cash in bank
Dec 30
Postage
Supplies
Deposit receivable
Petty cash fund
10,000
2,000
5,000
17,000
3,000
4,000
2,000
10,000
7,000
17,000
9,000
Dec 31 – Adjusting Entry (year-end)
No need for adjusting entry because the fund is updated.
Jan 1 – Reversing entry
No reversing entry
Jan 2
Petty cash fund
Deposit receivable
2,000
Jan 30
Postage (5,500-3,000)
Supplies (6,000 – 4,000)
Accounts payable
Cash in bank
2,500
2,000
7,000
Jan 31
Petty cash fund
Cash in bank
18,500
2,000
11,500
18,500
Balance of petty cash fund is computed as follows:
Total petty cash fund
20,000
Total disbursements on Dec 30
( 9,000)
Collection of deposit (Jan 2)
2,000
Additional disbursement in Jan 30
(11,500)
Petty cash fund balance-1/30
1,500
Total fund balance should be
20,000
Amount to be replenished-1/31
18,500