PROBLEMS AND THEORIES
Theories
1. Among the following, which can’t be considered cash?
a. Petty cash fund
b. Money orders
c. Coins and currency
d. IOUs
2. A cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amount of cash and
a. is acceptable as a means to pay current liabilities
b. Has a current market value that is greater than the original cost
c. Bears an interest rate that is at least equal to the prime interest rate at the date of
liquidation
d. Is so near maturity that it presents insignificant risk of change in interest rate
3. Which of the following is not considered as a cash equivalent?
a. A three-year treasury notes maturing on January 31 of the next year purchased
by the entity on December 1 of the current year.
b. A three-year treasury notes maturing on January 31 of the next year purchased
by the entity on October 1 of the current year
c. A 90-day T-bill
d. A 60-day money market placement
4. Petty cash fund is
a. Separately classified as current asset
b. Money kept on hand for making minor disbursements of coin and currency rather
than by writing checks
c. Set aside for the payment of payroll
d. Restricted cash
5. On October 31, year 2, Dingo, Inc. had cash accounts at three different banks. One account
balance is segregated solely for a November 15, year 2 payment into a bond sinking fund. A
second account, used for branch operations, is overdrawn. The third account, used for regular
corporate operations, has a positive balance. How should these accounts be reported in
Dingo’s October 31, year 2 classified balance sheet?
a. The segregated account should be reported as a noncurrent asset, the regular
account should be reported as a current asset, and the overdraft should be reported
as a current liability.
b. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current liability.
c. The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft.
d. The segregated and regular accounts should be reported as current assets net of the
overdraft.
6. Which of the following items must be added to the cash balance per ledger in preparing a
bank reconciliation which ends with adjusted cash balance?
a. Note receivable collected by bank in favor of the depositor and credited to the
account of the depositor
b. NSF customer check
c. Service charge
d. Erroneous bank debit
7. In preparing a bank reconciliation, interest paid by the bank on the combined current and
saving account is
a. Added to the bank balance
b. Subtracted from the bank balance
c. Added to the book balance
d. Subtracted from the book balance
8. Which of the following would be added to the balance per bank statement to arrive at the
correct cash balance?
a. Outstanding check
b. Bank service charge
c. Deposit in transit
d. A customer’s note collected by the bank on behalf of the depositor
9. Bank statements provide information about all of the following, except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
10. These refer to all items credited to the account of the depositor
a. Book debits
b. Bank credits
c. Book credits
d. Bank debits
Problems
Problem #1 (Cash and Cash Equivalents)
Pibikit Company provided the following information at year-end comprising the cash
account:
Bills and coins
400,000
Cash in bank – demand deposit
5,000,000
Cash in bank – savings deposit
1,000,000
Certificate of time deposit, 2 years
1,500,000
Postage stamps unused
5,000
Money order
50,000
Manager check
100,000
Traveler check
1,000,000
Bank Draft
60,000
Postdated customer check
500,000
Change Fund
22,000
Petty Cash Fund
50,000
Emergency Fund
175,000
Compute for the total amount of cash at year end.
Answer: 7,682,000
Problem #2 (Cash and Cash Equivalents)
Clay Solace Company had the following account balances on December 31, 2021:
Cash in bank
Cash on hand
Cash restricted for addition to plant in 2022
2,500,000
125,000
1,600,000
Cash in bank included P600,000 of compensating balance against short-term
borrowing arrangement.
The compensating balance is not legally restricted as to withdrawal.
Compute for the total amount of cash at year end.
Answer: 2,625,000
Problem #3 (Cash and Cash Equivalents)
Dudas Company reported the following on its cash and cash equivalents accounts on
December 31, 2021:
Cash on hand
Petty cash fund
Good Bank current account
Morning Bank current account No.1
Morning Bank current account No. 2 (overdraft)
Afternoon Bank saving account
Afternoon Bank time deposit, 90 days
 Cash on hand included the following items:
200,000
20,000
5,000,000
4,000,000
(100,000)
250,000
2,000,000
1. Customer check for 35,000 returned by bank December 21, 2021 due to
insufficient fund but subsequently redeposited and cleared by the bank on
January 10, 2022.
2. Customer check for P15,000 dated January 10,2022, received December
23, 2021.
 The petty cash fund consisted of the following items:
Currency and coins
IOUs from officers
Unreplenished petty cash vouchers
5,000
2,000
12,000
 Included among the checks drawn by Dudas Company against the Good Bank
current account and recorded in December 2021 were the following:
1. Check written and dated December 23, 2021 and delivered to payee on
January 31, 2022, P25,000.
2. Check written December 26, 2021, dated January 30, 2022, delivered to
payee on December 28, 2021, P45,000.
Compute the total cash and cash equivalents at year end.
Answer: 11,375,000
Problem #4 (Cash and Cash Equivalents)
Chelsea Company reported the following information at the end of the current year.
 Investment securities of P1,000,000. These securities are share investments
in entities that are traded in the Philippine Stock Exchange.
As a result, the shares are very actively traded in the market.
 Investment securities of P2,000,000. These securities are government
treasury bills.
The treasury bills have a 10- year term and purchased on November 30 at
which time they had two months to go until they mature.
 Investment securities of P1,500,000. These securities are commercial papers
or money market placements.
The term of the commercial papers is three months and the instruments were
purchased on December 31 at which time they had one and a half month to
go until they mature.
What total amount should be reported as cash equivalents at the end of
current year? Answer: 3,500,000
Problem #5 (Petty Cash Fund)
Gupit Company closed the accounts on June 30. The entity provided the following
transactions:
May 1
30
The entity established an imprest fund of P10,000.
The fund is replenished. The petty cash items include:
Currency and coin
Postage
Supplies
Transportation
Miscellaneous expense
June 30
2,000
1,000
3,000
2,500
1,500
The fund was not replenished. The fund is composed of the following:
Currency and coin
Supplies
Postage
Transportation
July 15
6,000
2,000
1,000
1,000
The fund is replenished and increased to P15,000.
Currency and coin
3,000
Supplies
3,500
Postage
1,500
Transportation
1,500
Miscellaneous expense
500
Prepare journal entries to record the transactions under:
Imprest fund system
Fluctuating fund system.
May 1
May 30
June 30
July 1
July 15
Imprest Fund System
PCF
10,000
Cash in Bank
10,000
Postage
1,000
Supplies
3,000
Transportation 2,500
Misc. Expense 1,500
Cash in Bank
8,000
Supplies
2,000
Postage
1,000
Transportation
1,000
Petty Cash Fund 4,000
Petty Cash Fund 4,000
Supplies
2,000
Postage
1,000
Transportation
1,000
Petty Cash Fund 5,000
Cash in Bank
5,000
Supplies
Postage
Transportation
Misc. Expense
Cash in Bank
3,500
1,500
1,500
500
7,000
Fluctuating Fund System
PCF
10,000
Cash in Bank
10,000
Postage
1,000
Supplies
3,000
Transportation 2,500
Misc. Expense 1,500
Petty Cash Fund
8,000
Petty Cash Fund 8,000
Cash in Bank
8,000
Supplies
2,000
Postage
1,000
Transportation 1,000
Petty Cash Fund 4,000
NO ENTRY
Supplies
1,500
Postage
500
Transportation 500
Misc. Expense
500
Petty Cash Fund
3,000
Petty Cash Fund
Cash in Bank
12,000
12,000
Problem #6 (Cash and Cash Equivalents)
YG Company had the following account balances at December 31, year 2:
Cash in banks
2,250,000
Cash on hand
125,000
Cash legally restricted for additions
to plant (expected to be disbursed in year 3)
1,600,000
Cash in banks includes 600,000 of compensating balances against short-term
borrowing arrangements. The compensating balances are not legally restricted as to
withdrawal by YG. In the current assets section of YG’s December 31, year 2 balance
sheet, total cash should be reported at:
a. 1,775,000
b. 2,250,000
c. 2,375,000
d. 3,975,000
Problem #7 (Cash and Cash Equivalents)
SM Corp.’s checkbook balance on December 31, year 2, was 5,000. In addition, SM
held the following items in its safe on that date:
Check payable to SM Corp., dated January 2, year
3, in payment of a sale made in December year
2, not included in December 31 checkbook
balance
2,000
Check payable to SM Corp., deposited December
15 and included in December 31 checkbook
balance, but returned by bank on December 30
stamped “NSF.” The check was redeposited on
January 2, year 3, and cleared on January 9
500
Check drawn on SM Corp.’s account, payable to a
vendor, dated and recorded in SM’s books on
December 31 but not mailed until January 10, year
3
300
The proper amount to be shown as Cash on SM’s balance sheet at
December 31, year 2, is
a. 4,800
b. 5,300
c. 6,500
d. 6,800
Problem #8 (Cash and Cash Equivalents)
HYBE Co. had the following balances at December 31, year 2:
Cash in checking account
35,000
Cash in money market account
75,000
Treasury bill, purchased 11/1/year 2, maturing 350,000
1/31/year 3
Treasury bill, purchased 12/1/year 2, maturing 400,000
3/31/year 3
Trans’s policy is to treat as cash equivalents all highly liquid investments with a
maturity of three months or less when purchased. What amount should Trans report
as cash and cash equivalents in its December 31, year 2 balance sheet?
a. 110,000
b. 385,000
c. 460,000
d. 860,000
Problem #9 (Cash and Cash Equivalents)
You noted the following composition of PNation Company’s “cash account” as of
December 31, 2020 in connection with your audit:
Demand deposit account
Time deposit – 30 days
NSF check of customer
Money market placement (due June 30, 2021)
Savings deposit in a closed bank
IOU from employee
Pension fund
Petty cash fund
Customer’s check dated January 1, 2021
Customer’s check outstanding for 18 months
Total
Additional information follows:
2,000,000
1,000,000
40,000
1,500,000
100,000
20,000
3,000,000
10,000
50,000
40,000
7,760,000
a) Check of P200,000 in payment of accounts payable was recorded on
December 31, 2020 but mailed to suppliers on January 5, 2021.
b) Check of P100,000 dated January 15, 2021 in payment of accounts payable
was recorded and mailed on December 31, 2020.
c) The company uses the calendar year. The cash receipts journal was held
open until January 15, 2021, during which time P400,000 was collected and
recorded on December 31, 2020.
The cash and cash equivalents to be shown on the December 31,
2020 balance sheet is
a. P3,310,000
b. P1,910,000
c. P2,910,000
d. P4,410,000
Demand deposit account as adjusted:
Demand deposit account per books
Undelivered check
Postdated check issued
Window dressing of collection
Time deposit - 30 days
Petty cash fund
Cash and cash equivalents
P2,000,000
200,000
100,000
(400,000)
P1,900,000
1,000,000
10,000
P2,910,000
Problem #10 (Petty Cash Fund)
YGX Company reported an imprest petty cash fund of P50,000 with the following
details:
Currencies
20,000
Coins
2,000
Petty cash vouchers:
Gasoline payments for delivery equipment
3,000
Medical supplies for employees
1,000
Repairs of office equipment
1,500
Loans to employees
3,500
A check drawn by the entity payable to the order of Grace de la
Cruz, petty cash custodian, representing her salary
15,000
An employee’s check returned by the bank for insufficiency
of funds
3,000
A sheet of paper with names of several employees together with
contribution for a birthday gift of a co employee. Attached to
the sheet of paper is a currency of
5,000
What amount of petty cash fund should be reported in the statement
of financial position?
a) 42,000
b) 27,000
c) 37,000
d) 22,000
Problem #10 (Cash and Cash Equivalents)
The books of BP Service, Inc. disclosed a cash balance of P687,570 on December 31,
2020. The bank statement as of December 31 showed a balance of P547,800.
Additional information that might be useful in reconciling the two balances follows:
a) Check number 748 for P30,000 was originally recorded on the books as
P45,000.
b) A customer's note dated September 25 was discounted on October 12. The
note was dishonored on December 29 (maturity date). The bank charged
Manila's account for P142,650, including a protest fee of P2,650.
c) The deposit of December 24 was recorded on the books as P28,950, but it was
actually a deposit of P27,000.
d) Outstanding checks totaled P98,850 as of December 31.
e) There were bank service charges for December of P2,100 not yet recorded on
the books.
f) Manila's account had been charged on December 26 for a customer's NSF
check for P12,960.
g) Manila properly deposited P6,000 on December 3 that was not recorded by the
bank.
h) Receipts of December 31 for P134,250 were recorded by the bank on January
2.
i) A bank memo stated that a customer's note for P45,000 and interest of P1,650
had been collected on December 27, and the bank charged a P360 collection
fee.
Questions:
Based on the above and the result of your audit, determine the following:
1. Adjusted cash in bank balance
a. P583,200
c. P589,200
b. P577,200
d. P512,400
2. Net adjustment to cash as of December 31, 2020
a. P104,370
c. P 98,370
b. P110,370
d. P175,170
Problem #11 (Cash and Cash Equivalents)
Shown below is the bank reconciliation for BTS Company for November 2020:
Balance per bank, Nov. 30, 2020
P150,000
Add: Deposits in transit
24,000
Total
174,000
Less: Outstanding checks
P28,000
Bank credit recorded in error
10,000
38,000
Cash balance per books, Nov. 30, 2020
P136,000
The bank statement for December 2020 contains the following data:
Total deposits
P110,000
Total charges, including an NSF check of P8,000 and a
service charge of P400
96,000
All outstanding checks on November 30, 2020, including the bank credit, were
cleared in the bank in December 2020.
There were outstanding checks of P30,000 and deposits in transit of P38,000 on
December 31, 2020.
Questions:
Based on the above and the result of your audit, answer the following:
1. How much is the cash balance per bank on December 31, 2020?
a. P154,000
c. P164,000
b. P150,000
d. P172,400
2. How much is the December receipts per books?
a. P124,000
c. P110,000
b. P 96,000
d. P148,000
3. How much is the December disbursements per books?
a. P96,000
b. P79,600
c. P89,600
d. P98,000
4. How much is the cash balance per books on December 31, 2020?
a. P150,000
c. P180,400
b. P170,400
d. P162,000
5. The adjusted cash in bank balance as of December 31, 2020 is
a. P141,600
c. P172,000
b. P162,000
d. P196,000
Problem #12 (Proof of Cash)
The accountant for the Seventeen Company assembled the following data:
June 30
July 31
Cash account balance
P 15,822
P 39,745
Bank statement balance
107,082
137,817
Deposits in transit
8,201
12,880
Outstanding checks
27,718
30,112
Bank service charge
72
60
Customer's check deposited July 10, returned by
bank on July 16 marked NSF, and redeposited
immediately; no entry made on books for
return or redeposit
8,250
Collection by bank of company's notes receivable
71,815
80,900
The bank statements and the company's cash records show these totals:
Disbursements in July per bank statement
P218,373
Cash receipts in July per Muntinlupa's books
236,452
QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of
the above data, you are to provide the answers to the following:
1. How much is the adjusted bank receipts for July?
a. P253,787
c. P245,537
b. P214,802
d. P232,881
2. How much is the adjusted book disbursements for July?
a. P220,767
c. P181,782
b. P212,517
d. P206,673
3. How much is the adjusted cash balance as of July 31?
a. P137,817
c. P22,513
b. P112,335
d. P120,585
Answer Key:
Theories
1. D
2. D
3. B
4. B
5. A
6. A
7. C
8. C
9. D
10.B