AUDIT OF CASH AND CASH EQUIVALENTS

PROBLEM 1-1

The accountant of MACO DE ORO COMPANY is in the process of preparing the company's financial statements for the
year ended December 31, 2020. He is trying to determine the correct balance of cash and cash equivalents to be reported
as a current asset in the statement of financial position. 000 The following items are being considered:
 Balances in the company's accounts at the Metropolitan Bank:
 Current account P81,000
 Savings account P132,600
 Undeposited customer checks of P22,200 (including a customer check dated January 2, 2021, for P3,000).
 Currency and coins on hand of P3,480.
 Savings account at the Northern Philippines Bank with a balance of P2,400,000. This account is being used to
accumulate cash for future plant expansion (in 2021).
 Petty cash of P4,000 (currency of P1,200 and unreplenished vouchers for P2,800).
 P120,000 in a current account at the Northern Philippines Bank. This represents a 20% compensating balance for
P600,000 loan with the bank. MACO DE ORO Company is legally restricted to withdraw the funds until the loan
is due in 2021.
 Treasury bills:
Two-month maturity bills P 90,000
Seven-month bills P 120.000
 Time deposit (placement term is 2 months) P 100,000

What total amount of cash and cash equivalents should be reported under current assets?

PROBLEM 1-2

The following information has been extracted from the accounting records of the TAGUM COMPANY at December 31,
2020:

a. Cash on hand (see note below) P230,000

b. Impukan Bank saving account (the required
minimum Monthly Average Daily Balance is P10,000) 9,500
c. 364-day Treasury bills purchased March 1, 2020 400,000
d. Petty cash fund (see note below) 20,000
e. Tipid Bank current account (see note below) 160,000
f. Time deposit replacements:
Date Term
Dec. 15, 2020 30 days 30,000
Oct. 31, 2020 90 days 40,000
Nov. 30, 2020 180 days 25,000
g. Employee travel advances 7,000
h. Cash in bond sinking fund 500,000
i. Customer’s note receivable 45,000
j. Postage stamps 2,400

The following are included in cash on hand:

 A customer check for P43,000 returned by the bank on December 28, 2018. It was redeposited and cleared the
bank on January 2, 2021.
 A customer check for P75,000 dated January 3, 2021, received December 27, 2020.
 PHLPost money orders received from customers, P30,000.
The petty cash fund consists of the following:
Currency and coins P13,500
IOUS from officers and employees 3,000
Unreplenished petty cash disbursements 1,500
 Currency in envelope with the notation:
“We were Bang Quay’s workers. Words may not be
adequate to express how sorry we feel. Please
accept our heartfelt sympathies on the loss of
your loved one.” 1,500
P20,000
The following information pertains to Tipid Bank current account:
 A check for P13,000 was dated and recorded on December 29, 2020, but was delivered to payee on January 5,
2021.
 A check for P5,000 dated January 10, 2021, payable to a supplier was recorded and released to payee on
December 19, 2020. TIpid Bank requires current account depositors to maintain a monthly average daily balance
of P50,000.
What amount should be recorded as cash and cash equivalents on December 31, 2018?

PROBLEM 1-3

The controller of the MONKAYO MINING CO. is trying to determine the amount of cash and cash equivalents to be
reported on its December 31, 2020, statement of financial position. The following information is provided:
1. Balances in the company’s account at the Montevista Bank:
 Checking account-P540,000
 Savings account-P884,000
2. Undeposited customer checks of P208,000.
3. Currency and coins on hand of P23,200.
4. Savings account at the Nabunturan Bank with a balance of P350,000.
This account is being used to accumulate cash for future plant expansion (in 2022).
5. P800,000 balance in a checking account at the Nabunturan Bank.
6. Treasury bills; 30-day maturity bills totaling P600,000 and 180-day bills totaling P800,000.

On December 31, 2020, What amount should be reported as cash and cash equivalents?

PROBLEM 1-4

The following facts apply to PANABO COMPANY during 2020:

1. Savings account of P900,000 and a checking account balance of P1,200,000 are held at Davao Bank.
2. Money market placement with maturity of 3 months, P7,500,000.
3. Currency and coins on hand amounted to P11,550.
4. Travel advances of P270,000 for the first quarter of next year (employee reimbursement will be through salary
deduction).
5. Panabo Company has purchased P3,150,000 of commercial paper of Mendez Corp. which is due in 60 days.
6. A separate cash fund amounting to P2,250,000 is restricted for the retirement of long-term debt.
7. Petty cash fund of P1,500.
8. An IOU from an employee of the Panabo Company in the amount of P2,000.
9. Two certificates of deposit, each totaling P500,000. These CDs have a maturity of 120 days.
10. Panabo Company has received a check from a customer in the amount of P187,500 dated January 15, 2021.
11. On January 1, 2020, Panabo Company purchased marketable equity securities to held as “trading” for P3,000,000.
On December 31, 2020, its market value is P4,300,000.
What amount should be reported as cash and cash equivalents on December 31, 2018?

PROBLEM 1-5

Your audit of the December 31, 2020, financial statements of DIONISIO CORP. reveals the following:

Current account at Prime Bank P (30,000)

Current account at Prudent Bank 135,000
 Treasury bills (acquired 3months before maturity) 300,000
Treasury bills (maturity date is Dec. 31, 2021) 1,500,000
Payroll account 390,000
Foreign bank account – restricted (translated using the December 31, 2020, exchange
rate)
Postage stamps 1,250
Employee’s postdated check 4,500
IOU from the vice-president 8,000
Credit memo from supplier for a purchase return 8,100
Traveler’s check 21,000
Money order 12,900
Petty cash fund (P3,000 in currency and expense receipts for P12,000) 15,000

What amount would be reported as “cash and cash equivalents” in the statement of financial position on December 31,
2018?
A. P840,050 B. 873,900
C. 849,400 D. 861,900

PROBLEM 1-6

The Cash account of the MADAUM CORPORATION as of December 31, 2020, was composed of the following:
On deposit in current account with the Bank of PI P900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient fund 150,000
A check drawn by the Vice-President of the company dated January 15, 2021 70,000
A check drawn by a supplier dated December 28, 2020, for goods returned by the 60,000
company
A check dated May 31, 2020, drawn by the company against the Bank of Manila in
payment of customs duties. Since the importation did not materialize, the check was
returned by the customs broker. This check was an outstanding check in the reconciliation
of the Bank of Manila 410,000
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 expenses all dated prior to
closing of the books on December 31, 2020 20,000
Total 1,960,000
Less: Overdraft with the Bank of Manila secured by a chattel mortgage on the inventories 300,000
Cash balance per ledger 1,660,000

What is the amount of cash to be reported on the December 31, 2020, statement of financial position of Madaum
Corporation?

PROBLEM 1-7

In connection with your audit of the financial statements of LASANG COMPANY for the year ended December 31,
2020, you gathered the following information:

1. The company maintains its current account with Tsunami Bank. The bank statement on December 31, 2020,
showed a balance of P638,340.

Your audit of the company’s account with Tsunami Bank disclosed the following:

 A check for P22,500 received from a customer whose account is current had been deposited and then
returned by the bank on December 28, 2020. No entry was made for the return of this check. The
customer replaced the check on January 15, 2021.
 A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January 2, 2021.
  A check for P3,500 representing payment of an employee advance was received and deposited on
December 27, 2020, but was not recorded until January 3, 2021.
 Postdated checks totaling P67,300 were included in the deposits in transit. These represent collections of
current accounts receivable from customers. The checks were actually deposited on January 5, 2021.
 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 2020.
 Interest earned on the bank balance for the 4th quarter of 2020, amounting to P1,950 was not recorded.
 Bank service charges totaling P1,260 were not recorded.
 Deposit in transit and outstanding checks at December 31, 2020, totaled P136,250 and P276,380,
respectively.
2. Various expense from the company’s imprest petty cash fund dated December 2020, totaled P16,250, while those
dated January 2021, amounted to P5,903. Another disbursement from the fund dated December 2020 was a cash
advance to an employee amounting to P3,500. A replenishment of the petty cash fund was made on January 8,
2021.
3. The company’s trial balance on December 31, 2020, includes the following accounts:

Cash in Bank-Tsunami Bank P748,320

Cash in Bank-Earthquake Bank (restricted account for plant expansion, 700,000
expected to be disbursed in 2021)
Petty cash fund 30,000
Time deposit, placed December 20, 2020, and due March 20, 2021 1,000,000
Money market placement – Prudential Bank 4,000,000

1. What is the adjusted petty cash fund balance on December 31, 2020?

2. The petty cash shortage on December 31, 2020, is

3. What is the adjusted Cash in bank – Tsunami Bank account balance on December 31, 2020?

4. The entry to adjust the Cash in bank – Tsunami Bank account should include a debit to
5. The December 31, 2020, statement of financial position should show “Cash and cash equivalents” at

PROBLEM 1-8

The auditor for LASANG, INC. examined the petty cash fund immediately after the close of business, July 31, 2020, the
end of the company’s natural business year. The petty cash custodian presented the following during the count:
Currency P1,650
Petty cash vouchers:
Postage 420
Office supplies 900
Transportation expense 340
Computer repairs 800
Advances to office staff 1,500
A check drawn by Samantha, Inc., payable to the petty cash custodian 7,200
Postage stamps 300
An employee’s check, returned by bank, marked NSF 1,000
An envelope containing currency of P1,890 for a gift for a retiring employee 1,890
P16,000
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, 2018?
A. P10,740 B. P3,540
 C. P7,200 D. P8,850

PROBLEM 1-9 (PETTY CASH FUND)

On January 1, TANYA CO. establishes a petty cash account 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 P 3,460

Postage 2.240
Entertainment 840
The balance in the petty cash box is P3,200.

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 accounted 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 cash custodian.
3. The entry to replenish the fund is
A. Office supplies 3,460
Postage expense 2,240
Entertainment expense 840
Cash 6,540
B. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash over and short 260
Petty cash 6,800
C. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash over and short 260
Cash 6,800
D. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Petty cash 6,540
4. The objective of establishing a petty cash fund is to
A. Cash checks for employees
B. Account for all cash receipts and disbursements
C. Account 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 the appropriate adjusting entry?
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

PROBLEM 1-10 (Count of Petty Cash Fund and Undeposited Collections)

In connection with your audit of the financial statements of BUNAWAN CORP. for the year ended December 31, 2020,
you conducted a surprise count of the company’s petty cash fund and undeposited collections at 8:20 a.m. on January 3,
2021. Your count disclosed the following:

Bills and coins

Bills Coins
P 100.00 5 pieces 5.00 18 pieces
50.00 40 pieces 1.00 206 pieces
20.00 48 pieces 0.25 32 pieces
Postage stamps (unused) – P365
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Benjamin Corp. SLV, Inc. 14,000
Dec. 31 Benjamin Corp. Mario Lansang sales manager 1,680
Dec. 31 Benjamin Corp. MSU Corp. 17,800
Dec. 31 Benjamin Corp. Ateneo, Inc 8,300
Dec. 31 Taiwan Corp. Benjamin Corp. 27,000

Unreimbursed vouchers
Date Payee Description Amount
Dec. 23 Mario Lansang sales manager Advance for trip to Tagaytay City P20,000
Dec. 28 Central Post Office Postage stamps 1,620
Dec. 29 Messenger Transportation 150
Dec. 29 Byte, Inc. Computer repair 800

Other items found inside the cash box:

1. Unclaimed pay enveloped 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 Dec. 23 P20,000
Less: Hotel accommodation, meals, etc. P16,000
Bus fare for two 1,200
Cash given to Pablo, salesman 1,000 18,200
Balance
Accounted for as follows:
Cash returned by Pablo to sales manager P 120
Personal check of the sales manager 1,680
Total 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 receipts issued for
the current year is No.4355. the following official receipts are all dated December 31, 2020.
OR No. Amount Form of Payment
4352 P13,600 Cash
 4353 17,800 Check
4354 3,600 Cash
4355 8,300 Check
3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund was made on December
22, 2020.

1. What is the amount of shortage due from the sales manager?

2. What is the amount of undeposited collections on December 31, 2020?
A. P44,300 B. P84,300
C. P57,300 D. P41,000
3. The adjusting entries on December 31, 2020, should include a net debit to Travel expenses of
4. The cash count should include total checks of
5. What is the total cash shortage?

PROBLEM 1-11

PETTY CASH FUND; BANK RECONCILIATION

Anying Velasco is reviewing the cash accounting for ABX, Inc. Anying’s review will focus on the petty cash account and
the bank reconciliation for the month ended May 31, 2020. She has collected the following information from ABX’s
bookkeeper for this task.

Petty Cash Fund

1. The petty cash fund was established on May 2, 2020, in the amount of P10,000.
2. Expenditures from the fund by the custodian as of May 31, 2020, were evidenced by approved petty cash
vouchers for the following:
Various office supplies P3,920
IOU from employees 1,200
Shipping charges 2,298
Miscellaneous expense 1,526

On May 31, 2020, the petty cash fund was replenished and increased to P12,000; currency and coins in the fund at that
time totaled P756.

Bank Reconciliation
Shore Bank
Bank Statement
Disbursements Receipts Balance
Balance, May 1, 2020 P350,760
Deposits P1,120,000
Note payment direct from 37,200
customer (interest of P1,200)
Checks cleared during May P1,246,000
Bank Service charges 1,080
Balance, May 31, 2018 260,880

ABX, Inc.’s Cash Account

Balance, May 1, 2020 P354,000
Deposits during May 2020 1,240,000
Checks written during May 2020 1,273,000

Deposits in transit are determined to be P120,000, and checks outstanding at May 31 total P34,000. Cash on hand (besides
petty cash) at May 31, 2020, is P9,840.

1. What is the amount of petty cash shortage?

2. The journal entry to record the replenishment of, and increase in the petty cash fund includes a credit to
3. What amount of cash should be reported in the May 31, 2018, statement of financial position?