Chapter 1 Audit of Cash and Cash Equivalents
Chapter 1 Audit of Cash and Cash Equivalents
Chapter 1 Audit of Cash and Cash Equivalents
Audit of
Cash & Cash
Equivalents
Audit Objectives:
To determine that:
Page 2
Audit Procedures:
Problem 1-1
Time deposit, placed December 20, 2010 and due March 20,
2011 1,000,000
Solution 1-1
Answer: B
Answer: A
Page 7
3. Book Bank
Unadjusted balances P748,320 P638,340
NSF check (22,500)
Bank error (P7,520 – P5,720) 1,800
Unrecorded Cash receipt 3,500
Post dated checks (67,300)
Deposits in transit (P136,250 – P67,300) 68,950
Bank debit memos (230,000)
Interest earned 1,950
Bank service charges (1,260)
Outstanding checks (276,380)
Adjusted balances P432,710 P432,710
Answer: C
4. Accounts receivable (P22,500 + P67,300) 89,800
Accounts payable 230,000
Bank service charges 1,260
Cash in bank – Tsunami Bank 315,610
Advances to employees 3,500
Interest income 1,950
Answer: A
Answer: D
Page 8
Problem 1-2
A. P590,200 C. P790,200
B. P2,790,200 D. P750,000
Solution 1-2
Total P790,200
Answer: C
Page 9
Problem 1-3
Page 10
Solution 1-3
Answer: B
Page 11
Problem 1-4
1-4
The check payable to the company (I) is a postdated
check, i.e., dated after the end of the reporting
period. The amount should be shown as a receivable on
the December 31, 2010 statement of financial
position.
The disbursement check (II) was not released until
after the end of the reporting period. The amount
should be included in the cash balance at December
31, 2010.
Answer: B
Page 12
Problem 1-5
A. P840,050 C.P849,400
B. P873,900 D.P861,900
Solution 1-5
Page 13
Answer: D
Problem 1-6
Compensating Balance
Solution 1-6
Answer: A
Page 14
Answer: C
Problem 1-7
Total P1,960,000
Page 15
Solution 1-7
Solution 1-8
1. Cash P1,500
Miscellaneous general expenses 8,120
Petty cash accounted 9,620
Petty cash per ledger 10,000
Petty cash P 380
Answer: B
Ansawer: A
Problem 1-9
The auditor for SAMANTHA, INC. examined the petty cash fund
immediately after the close of business, July 31, 2010, the end
of the company’s natural business year. The petty cash custodian
presented the following during the count:
Currency P1,650
Page 17
Postage 420
P16,000
Solution 1-9
1. Currency P1,650
Petty cash vouchers (P420 + P900 + P340 + P800
+ P1,500) 3,960
Replenishment check 7,200
Employee’s NSF heck 1,000
Petty cash accounted 13,810
Petty cash fund per ledger (custodian’s
accountability) 16,000
Petty cash shortage P 2,190
Answer: B
Page 18
2. Currency P1,650
Replenishment check 7,200
Adjusted petty cash balance P8,850
Answer: D
Problem 1-10
Postage P2,240
Entertainment 840
The balance in the petty cash box is P3,200.
Page 19
Page 20
Solution 1-10
Answer: A
Answer: C
Page 21
Answer: C
Problem 1-11
Checks
Unreiumbursed vouchers
Balance P 1,800
Total P1,800
Additional information:
Page 23
Answer: A
Page 24
Answer: C
Answer: D
4. Unreimbursed vouchers
(P20,000 + P1,620 + P150 + P800) P22,570
Answer: C
Answer: A
Benjamin Corp.
CASH COUNT SHEET
January 3, 2011 – 8:20 a.m.
P100.00 5 P 500
50.00 40 2,000
20.00 48 960
5.00 18 90
0.25 32 8 P 3,764
Checks:
Page 25
Unreimbursed vouchers:
Less: Accountabilities
Benjamin Corp.
December 31,2010
1. Cash 14,000
Accounts receivable 14,000
4. Cash 7,500
Salaries payable 7,500
Page 26
6. Travel expenses
(P16,000 + P1,200 + P880) 18,080
Problem 1-12
On July 7, 2010, ANING CORP. received its bank statement for the
month ending June 30. The statement showed a P209,500 balance
while the cash account balance on June 30 was P35,000. In
reconciling the balances, the auditor discovered the following:
Solution 1-12
Answer: C
2. Book Bank
Unadjusted balances P35,000 P209,500
Bank charge for a DAUD check (21,900)
Overstatement of book disbursement
(P42,300 – P24,300)) 18,000
Outstanding checks (354,400)
Undeposited collections(SQUEEZE) 176,000
Adjusted balances P31,100 P31,000
Answer: A
Or
Answer: C
4. General ledger
Answer: D
Problem 1-13
The following data were taken from GARAY’s check register for
the month of April. Garay’s bank reconciliation for March showed
one outstanding check, check No. 178 for P2,150 (written on
March 20), and one deposit in transit for P4,350 (made on March
31).
2010
2010
30 Interest 82 30,426
A. P26,833 C. P30,426
B. P26,838 D. P26,872
Solution 1-13
Book Bank
Outstanding checks
Check no.178 P2,150
Check no.181 13,217 (15,367)
Interest 82
Answer: A
Page 30
Problem 1-14
A. P26,020 C. P22,200
B. P32,100 D. P26,100
Solution 1-14
Bank charges 40
Answer: D
Page 31
Problem 1-15
The bank reconciliation for December for DONNIE CO. included the
following information:
A. P12,112 C. P27,112
B. P13,112 D. P10,112
Solution 1-15
Answer: A
Problem 1-16
Bank Book
Solution 1-16
Book Bank
Unadjusted balances P79,367 P268,367
Deposits in transit, net of post-dated
checks (P15,000 – P9,000) 6,000
Bank service charges (1,000)
Unreleased check 12,000
Page 33
Answer: D
Problem 1-17
BANK RECONCILIATION
CHECK REGISTER
December 2010
Vouchers
Date Payee No. Payable Discount Cash
Page 35
Solution 1-17
Answer: D
Answer: A
Page 36
4345 11,880
4347 6,300
4348 14,058
4349 7,000
Total P46,938
Answer: C
4. Adjusted cash balance, Nov. 30, 2010 P423,825
Answer: C
5. Book Bank
Unadjusted balances P275,132 P273,620
Deposits in transit 49,000
Outstanding checks (46,938)
Service charge (1,000)
Interest 1,550
Adjusted balances P275,682 P275,682
Answer: B
Problem 1-18
Page 37
☺Solution 1-18
1. Sales P6,235,200
Less: Accounts Receivables 165,400
Collections from customers P6,069,800
Answer: D
2. Cost of Sales (P6,235,200 x 70%) P4,364,640
Add: Merchandise Inventory, December 31 69,000
Goods Available for sale/Purchases (there is
no beginning inventory) 4,443,640
Less: Accounts Payable, December 31 389,650
Payments for purchases P4,043,990
Answer: C
4. Land P1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Operating Expenses paid(P1,005,150-P400,000) 605,150
Payment for purchases 4,043,990
Total cash disbursements per books P7,416,140
Answer: B
6. Book Bank
Unadjusted balances P803,660 P892,000
Deposit in transit 384,660
Service charge (2,000)
Outstanding checks (475,000)
Adjusted Balances P801,660 P801,660
Answer: A
Problem 1-19
Computation of Cash Receipts and Disbursements
Answer: A
Answer: B
Page 41
Alternative computation:
Answer: D
Problem 1-20
Page 43
Solution 1-20
1. Principal(SQUEEZE) P27,000
Interest
Collection free
Proceeds credited by bank
Answer: A
2. Book Bank
Unadjusted balances P35,000 P60,000
Note collected by bank 27,600
Debit memo for a checkbook (100)
Deposit in transit 15,200
Transposition error in recording deposit
(P54,000 – P45,000) (9,000)
Erroneous bank debit 26,700
Petty cash fund 10,000
Erroneous bank credit (11,000)
Outstanding checks, net of certified check
(P39,400 – P10,000) (P29,400)
Adjusted balances P52,500 P52,500
Answer: A
Answer: B
Answer: C
Page 44
Problem 1-21
Additional Information:
• Balance per bank statement, December 31, 2010 P59, 214
• Bank receipts (credit) in December 139, 461
• Bank disbursements (debits) in December
(Including all outstanding checks on
November 30, 2010, and the erroneous
Bank credit in November) 124, 554
• Outstanding checks, December 31, 2010 74, 110
What is the total book disbursements in December?
A. P149, 164 C. P118, 380
B. P130, 728 D. P124, 554
Solution 1-21
Page 45
Total 198, 664
Less: Bank disbursements in December
But not on books:
Outstanding checks, Nov. 30 P 49, 500
Correction of November erroneous
Bank credit 18, 436 67, 936
Book disbursements in December P 130, 728
Answer: B
Problem 1-22
Bank Reconciliation
The cash receipts and the cash payments of LIEZEL COMPANY for
April 2010 follow:
Cash Receipts (CR) Cash Payment (CP)
Date Cash Debit Check No. Cash Credit
April 2 P 208, 700 4113 P 44, 550
8 20, 350 4114 7, 350
10 27, 950 4115 96, 500
16 109, 350 4116 33, 200
22 92, 700 4117 73, 600
29 53, 000 4118 50, 000
30 16, 850 4119 31, 600
Total P 528, 900 4120 83, 750
4121 5, 000
4122 120, 650
Total P 546, 200
The cash account of Liezel Company shows the following
information at April 30, 2010:
Page 46
Cash
Page 47
Additional data for the bank reconciliation include the
following:
a. The EFT deposit was a receipt of the rent. The EFT debit
was a monthly insurance payment.
Page 48
Solution 1-22
5. Book Bank
Unadjusted balances, April 30 P 78,250 P 304,000
Deposits in transit 69,850
Outstanding checks (241,000)
Error in check no. 4115
(P 96,500-P 69,500) 27,000
EFT-rent 16,300
Bank collection 68,400
Unauthorized signature check 45,150
Page 49
EFT-insurance (10,950)
Service charge (1,000)
Adjusted balances, April 30 P 132,850 P 132,850
Answer: A
Problem 1-23
Page 50
Assume that all errors were committed by Fermin Company, not the
bank.
Solution 1-23
Page 51
Note that because there are no book reconciling items in
November. The adjusted bank balance agrees with the cash in bank
balance per ledger on November 30.
The total bank receipt is the total amount credited by the bank
during the period.
5. Book Bank
Unadjusted balances P 147,200 P 605,800
Deposit in transit 49,000
Outstanding checks (see no. 2) (20,600)
Error in recording deposit
(P 65,000-P 56,000) (9,000)
Error in arithmetic for Check No. 14344 1,000
Loan proceeds 500,000
NSF check (7,600)
Interest 3,600
Service charge (1,000)
Adjusted balances P 634,200 P634,200
Answer: B
Page 52
Problem 1-24
Solution 1-24
1. Book Bank
Unadjusted balances P 85,000 P 130,350
Bank service charge (2,000)
Page 53
Deposits in transit 49,000
Outstanding checks (17,650)
Collection of note 136,000
Erroneous Bank debit 54,600
Transposition error
(P 16,358-P 13,658) (2,700)
Adjusted Balances P 216,300 P 216,300
Answer: C
Problem 1-25
Page54
Outstanding checks on March 31 P 184,000
Deposits made but are not yet shown in the
April bank statement 14,000
The deposits in transit and outstanding checks have been
correctly taken up in the company's books. You also found a
customer's check for P 17,400 that had not yet been deposited
and had not been recorded in Emil's book. Your client's books
show a cash balance of P 36,420.
Solution 1-25
Problem 1-26
Page 55
At June 30, 2010, the cash balance per books is
A. P 214,500 C. P 185,500
B. P 210,000 D. P 200,000
Solution 1-26
Problem 1-27
Solution 1-27
Problem 1-28
Problem 1-29
Page 57
What should be the correct cash balance?
A. P 227,740 C. P 228,640
B. P 239,240 D. P 227,560
Solution 1-29
Problem 1-30
Page 58
What is the total outstanding checks at June 30, 2010?
A. P 75,400 C. P 363,400
B. P 343,600 D. P 353,500
Solution 1-30
Problem 1-31
Page 60
2. The journal entry to correct the outstanding checks should
include a
A. Debit to cash in bank of P 4,000
B. Credit to cash in bank of P 4,000
C. Debit to accounts payable of P 4,000
D. No journal entry is necessary
Solution 1-31
Page 61
4. Book Bank
Unadjusted balances P 34,350 P 51,050
Deposits in transit 5,325
Customer's check returned (4,000)
Bank service charge (1,000)
Outstanding checks (22,625)
Credit memo for note collected 8,000
Understatement of book
Disbursement (3,600)
Adjusted balances P 33,750 P 33,750
Answer: C
Page 62
Problem 1-32
Page 63
Solution 1-32
Page 64
Problem 1-33
Page 65
(11) Proceeds of note of Harthur Co.,
Collected by bank, 12/10/10, not
Entered in cash book (principal amount of
P 25,000 plus interest of P 1,125, less collection
Fee) 25,625
Page 66
5. The cash in bank per ledger as of December 31, 2010, should
be increased (decreased) by
A. P 4,945 C. P (4,945)
B. P 5,945 D. P (5,945)
Solution 1-33
1. Proceeds = Principal-Interest
47,750 = P-(Px18%x3/12)
47,750 = P-0.045P
47,750 = 0.955 P
P = 47,750 /0.955
P = P 50,000
Answer: A
3. Principal P 25,000
Interest income 1,125
Maturity value 26,125
Collection fee (SQUEEZE) (500)
Proceeds P 25,625
Answer: C
4. Book Bank
Unadjusted balances P 19,289 P 47,174
Outstanding checks (63,000)
Receipts of 12/31/10, deposited 1/01/11 6,260
Service charge for November (1,000)
Proceeds of bank loan 47,750
Deposit of 12/22/10, omitted from bank
Statement 9,170
Check of Milano Company charged back (77,320)
Error in entering deposit of 12/18/10 1,440
Check of Yek Company charged in
Error to Hector Company 13,600
Proceeds of note of Harthur Co. 25,625
Erroneous debit memo of 12/28/10,
Charged by bank in settlement
Of loan paid by check no. 112170 5,000
Page 67
Error in entering deposit of 12/04/10 (1,800)
Deposit of Bunso Co., credited in error
To Hector Company (3,500)
Adjusted Balances P 14,344 P 14,344
Answer: A
Problem 1-34
Bank Reconciliation
You are auditing general cash for the DION COMPANY for the
fiscal year ended July 31, 2010. The client has not prepared the
July 31 bank reconciliation. After a brief discussion with the
owner you agree to prepare the reconciliation, with assistance
from one of Dion Company's clerks. You obtain the following
information:
General Ledger Bank Statement
Beginning Balance P 46,110 P 57,530
Deposits 250,560
Cash receipts journal 254,560
Checks cleared (236,150)
Page 68
3. A check for P10,600 cleared the bank, but had not been
recorded in the cash disbursements journal. It was for an
acquisition of inventory. Dion uses the periodic inventory
method.
4. A check for P3,960 was charged to Dion Company but had been
written on a different company’s bank account.
Solution 1-34
Answer: C
Alternative computation:
Checks outstanding on June 30 that did not
clear in July (P17,420 – P16,920) P500
Checks issued in July that did not clear in July
(P218,110 – P204,670) 13,440
Outstanding checks, July 31 P13,940
Answer: B
3. Book Bank
Unadjusted balances P82,560 P 6,960
Outstanding checks(see no. 1) (13,940)
Deposits in transit(see no. 2) 10,000
Bank service charge (870)
Unrecorded check (10,600)
Check erroneously charged to Dion 3,960
NSF check (3,110)
Note payment (P58,000 principal +
P3,000 interest) (61,000)
Adjusted balances P 6,980 P 6,980
Answer: A
Page 71
4. The following audit procedures would be performed to verify
the note payment:
1. Examine cancelled check.
2. Recompute interest.
3. Check for absence of note on July 31 bank
confirmation.
Answer: A
Problem 1-35
Cash Transfers
Solution 1-35
a. List bank transfers made a few days before and after the end
of the reporting period.
b. Trace these bank transfers to the appropriate accounting
records, bank reconciliations, and bank records to verify the
propriety of recording.
Answer: C
Answer: D
Answer : C
Answer: B
5. Transfer no. 2 P260,000
Transfer no. 5 150,000
Transfer no. 6 280,000
Total P690,000
Answer: D
Problem 1-36
CASH BOOKS
RECEIPTS PAYMENTS
Page 76
BANK STATEMENT
Additional information:
Page 77
6. CM 36 is for customer’s notes collected by bank in December.
Answer: A
Answer: C
Answer: A
PROOF OF CASH
December 1-31
Balance Balance
Nov.30 Receipts Disbursements Dec.31
Deposits in transit:
Outstanding checks
Unrecoreded disbursement –
Check no. 815 6,000 (6,000)
Page 80
Answer: B
Answer: D
Answer: C
Answer: B
Problem 1-37
Total P662,000
652 8,000
Page 81
Total P642,800
Pasig bank
June 8 2,000
June 16 4,000
June 27 18,000
June 30 200 SV
June 30 3,000 DM
The check register reveals that the last check issued in June is
No. 659 for P5,000 and that check no. 656 is for P2,600.
Solution 1-37
Answer: B
Answer: D
Page 83
Total 740,000
Answer: A
PROOF OF CASH
Balance J u n e Balance
May 31 Receipts Disbursements June 30
Deposits in transit:
Outstanding checks:
Bank collection
in May (70,000) 70,000
NSF checks:
Answer: D
Page 84
Answer: C
Answer: C
Problem 1-38
Total P205,000
1562 7,500
1571 5,800
1584 8,000
Deposits 1,487,000
Total P1,681,000
Charges (1,325,000)
Page 85
10. The cutoff bank statement disclosed that the bank had
recorded a deposit of P24,000 on January 2, 2011. The
accountant had recorded this deposit on the books on December
31, 2010, and then mailed the deposit to the bank.
Page 86
Page 87
Page 88
Answer: D
Outstanding checks:
Deposit in transit:
Answer: A
Answer: D
Answer: C
5. Book Bank
Answer: A
Problem 1-39
Page 91
Solution 1-39
Total 165,000
Answer: B
Answer: B
Answer: A Page 92
Total 142,500
Less: Outstanding checks, November 30 16,250
Answer: D
Answer: D
Total 166,250
Answer: A
Pinky Co.
PROOF OF CASH
Outstanding checks:
Deposits in transit:
Page 93
Underfooting of December
book receipts 2,500 2,500
Answer: B
Answer: C
Answer: D
Answer: B
Problem 1-40
Page 94
Balance P15,662
1.) Check no. 3413 dated November 24, 2010, was entered in the
Check Register as P300. Your examination of the paid checks
returned with the December bank statement reveals that the
amount of this check is P30.
2.) Check no. 3417 was mutilated and returned by the payee. A
replacement check (no. 3453) was issued. Both checks were
entered in the Check Register but no entry was made to
cancel check no. 3417.
Solution 1-10
Answer: A
Answer: D
December 31 42 (42)
Overstatement of Nov.
disbursement
(check #3413) 270 270
Page 97
Note collected by
bank 4,000 4,000
Deposits in transit:
Outstanding checks:
Answer: B
Answer: D
Answer: C
Answer: A
Answer: D
Problem 1-41
The bank statement and the company’s cash records show the
following totals:
Answer: B
2. Checks written per cash book P529,792.50
Add: Bank service charge in November 1,800.00
Total book disbursements in December P531,592.50
Answer: A
Page 100
Balance December Balance
Nov. 30 Receipts Disbursements Dec. 31
Balance per
Bank
statement P267,705.00 P622,770.00 P545,932.50 P344,542.50
Deposits in transit
Nov. 30 20,502.50 (20,502.50)
Dec. 31 32,200.00
Outstanding checks
Nov. 30 (69,295.00) (69,295.00)
Dec. 31 _________ ________ _75,280.00 _(75,280.00)
Correct bank
balance P218,912.50 P634,467.50 P551,917.50 P301,462.50
Page 101
Problem 1-42
Proof of Cash: Book to Bank Balances Format
Solution 1-42
Answer: C
Problem 1-43
Proof of Cash: Unadjusted to Adjusted Balances Format
RODELIO CO. Has a current account in Pinoy Bank. Your audit of the
company’s cash account reveals the following:
Solution 1-43
Page 106
Balance December Balance
Nov. 30 Receipts Disbursements Dec. 31
Balance per
Books P637,860 P306,220 P367,660 P576,420
Note collected
By bank in
December 2,060 2,060
Overstatement of
December book
disbursement
(P3,000-P2,020) (980) 980
Check stopped for
Payment (780) (780)
Bank service
charge in
November ____(60) ________ ____(60) ________
Adj. book
balances P637,800 P307,500 P365,840 P579,460
Problem 1-44
Solution 1-44
Answer: D
Page 109
Balance December Balance
Nov. 30 Receipts Disbursements Dec. 31
Unadj. bank
balances P20,340 P245,120 P216,920 P48,540
Bank service
charges:
November 30 (720) (720)
December 31 600 600
NSF checks:
November 30 (4,300) (4,300)
December 31 8,240 (8,240)
Bank collections:
November 30 72,240 (72,240)
December 31 _______ __80,900 _____________ __80,900
Adj. bank
Balances P87,560 P253,780 P220,740 P120,600
Unadj. bank
balances P102,060 P249,100 P218,340 P137,820
Deposits in
Transit:
November 30 8,200 (8,200)
December 31 12,880 12,880
Outstanding checks:
November 30 (27,700) (27,700)
December 31 _______ ________ _______30,100 (30,100)
Adj. bank
Balances P87,560 P253,780 P220,740 P120,600
Page 110
Problem 1-45
Page 111
A check for P100,000 had been cashed by the bookkeeper shortly
before his departure. Although the signature on the check had been
obviously forged, it was paid by the bank and returned with other
cancelled checks.
Tanying Company
Statement of Financial Position
December 31, 2010
ASSETS
Cash P 32,670
Accounts receivable 226,230
Inventory (at cost) 440,350
Furniture P74,560
Less: Accumulated depreciation 31,800 42,760
Total Assets P742,010
Solution 1-45
Problem 1-46
Computation of Cash Shortage
The JUNNEL COMPANY had weak internal controls over its cash
transactions. Facts about its cash position at November 30,2010
Were as follows:
Page 115
Solution 1-46
5. Book Bank
Unadjusted balances P94,508 P77,750
Unrecorded credit 500
Outstanding checks (5,311)
Undeposited receipts _______ 18,972
Corrected balances 95,008 91,411
Cash shortage(amount of theft) (3,597) ______
Adjusted cash balances P91,411_ P91,411
Answer: B
Problem 1-47
Computation of Cash Shortage
Page 117
The following are the company’s accounts receivable subsidiary
ledgers. All the debits represent sales. The credit terms are 2%-
10days, net 30 days.
BA BO
June 3 3,200 June 10 3,200 June 2 6,000 June 15 6,000
4 4,800 30 800 9 4,000 26 4,000
15 3,600 30 3,600
BU BE
June 2 6,000 June 25 10,800 June 15 4,800 June 20 4,800
10 4,800 16 12,000 26 12,000
Solution 1-47
Page 118
*To balance, the following extensions to the “Cash” column are
understated:
Correct Amount
Amount Extended Understatement
June 20(P4,800-P96) P4,704 P4,664 P 40
June 25(P10,800-P216) 10,584 10,504 80
June 26(P12,000-P240) 11,760 11,680 80
Total P200
Answer: C
Problem 1-48
Computation of Cash Shortage
Currency P1,425
Customer’s check 1,950
Expense vouchers 375
1. What adjusting entries would you provide for items (a) through
(c)?
Page 120
Solution 1-48
a. 1. Cash 4,000
Allowance for bad debts 4,000
2. Cash 3,000
Inventory 3,000
3. Cash 3,500
Accounts receivable 3,500
b. 4. Cash 2,000
Accounts receivable 2,000
c. 5. Cash 4,500
Accounts receivable 4,500
2. Book Bank
Unadjusted balances P247,200 P264,095
Outstanding checks (25,325)
Bank error 750
Deposit in transit 3,500
AJE 1 4,000
2 3,000
3 3,500 _____
Corrected balances P257,700 P243,020
SHORTAGE as of Dec. 31, 2010 (14,680) _____
Adjusted balances P243,020_ P243,020
Page 121
Per records P53,500
AJE 4 P2,000
5 4,500 6,500 60,000
Total 63,500
Less: Deposits credited by bank,
Jan.2-15,2011 47,965
Deposit in transit, Jan.15,2011 15,535
Cash and cash items per count on
Jan.15,2011 (3,750)
Cash shortage, Jan.2-15,2011 P11,785
Add: Cash shortage as of Dec. 31,2010 14,680
Total shortage as of January 15,2011 P26,465
Answer: A
Problem 1-49
Computation of Cash Shortage
The LEINOR COMPANY does not have adequate controls over its
cash transactions. During an adult, you found the following date
connecting its cash position at December 31,2010.
Solution 1-49
1. Book Bank
Unadjusted balances P173,500 P135,000
Note collected by the bank 2,500
Outstanding checks (16,340)
Undeposited collections ________ 46,140
Corrected balances P176,000 P164,800
SHORTAGE (11,200) ________
Adjusted Balances P164,800 P164,800
Answer: A
2. Concealment of shortage:
Page 123
Problem 1-50
Computation of Cash Shortage
Solution 1-50
Page 124
Total 1,204,000
Less: Total book disbursements as corrected 632,000
Corrected book balance, December 31 P 572,000
NOTES:
Problem 1-51
Computation of Cash Shortage
In connection with the audit of the financial statements of JEM
COMPANY for the year ended October 31,2010, you conducted a
surprise count of undeposited receipts on October 31,2010. It was
witnessed by the company’s cashier whose accountability on
October31 was determined to be P80,000. You count revealed the
following:
Page 125
Checks:
Date Payee Maker
1-22 Cash Cashier 4,000
10-19 Jem Company DWU, Inc. 9,400
10-28 Jem Company PSU Co. 7,840
10-31 CCP Co. Jem Company 3,600
Office supplies paid out of receipts 6,400
Total per count P80,520
Solution 1-51
2. Simultaneous verification
Answer: C
Page 126
Problem 1-52
Jam Co.’s year end December 31. At the end of 2010, it held is
cash book open so that its statement of financial position would
show a more favourable financial condition. You audit revealed the
following items:
Page 127
Working Current
Capital Ratio
A. P244,381 1.29
B. 278,831 0.33
C. 330,835 1.40
D. 280,381 1.33
Solution 1-52
Current liabilities:
Accounts payable
(P789,650+P37,240) P789,715 P826,955
Accrued expenses 13,214 13,214
Total P802,929 P840,169
Page 128
1. Answer: B
2. Answer: D
Problem 1-53
Computation of Cash Shortage
You started the audit on November 15. On that date the on hand per
your surprise count was P5,140. Also on that date, the bank
confirmed that the balance of the company’s current account was
P26,328. Your examination of the records reveals that a check for
P1,852 was outstanding on November 15. The company’s mark up is
40% of sales.
Page 129
Solution 1-53
1. Cost of sales(P340,000 total sales x 60%) P204,000
Add: Merchandise inventory, November 15 93,920
Purchases 297,920
Less: Accounts payable-trade, November15 46,284
Payments for purchases P251,636
Answer: D
Page 130
2. Sales P340,000
Less: Accounts receivable-trade, November 15 85,380
Collections from sales P254,620
Answer: B
3. Cashier’s Accountability
Receipts:
Issuance of ordinary shares
(P300,000+P20,000) P320,000
Mortgage payable 80,000
Note payable-bank 32,000
Collections from sales(see no.2) 254,620
Total 686,620
Disbursements:
Real property 200,000
Furniture and fixtures
(P29,000-P6,000) 23,000
Expenses 60,756
Purchases(see no.1) 251,636 535,392
Cash balance P151,228
Answer: D
Page 131
Problem 1-54
The bank statement for the month ended March 31,2010, shows a cash
balance of P590,000. The following checks are outstanding on March
31:
BANK RECONCILIATION
Balance per accounting records P696,499
Add: Outstanding checks
No. 8722 P6,322
No. 8724 12,280
No. 8733 6,200 20,802
Total 717,301
Deduct: Cash on Hand 127,301
Balance per bank statement, March 31 P690,000
Page 132
1. How much was taken by the cashier-accountant?
A. P30,555 C. P4,000
B. P157,856 D. P26,555
1. Book Bank
Unadjusted balances P696,499 P590,000
Outstanding checks
No. 7163 P8,623
No. 7284 7,320
No. 7285 10,612
No. 8722 6,322
No. 8724 12,280
No. 8733 6,200 (51,357)
Undeposited collections 127,301
Corrected balances P696,499 P665,944
CASH SHORTAGE (30,555)
Adjusted balances P665,944 P665,944
Answer: A
Answer: C