AUDITING PROBLEMS

AUDIT OF CASH

The bank statement for the checking account of ABC, Inc. showed a December 31, 2019, balance 1)
of P1,463,212. Information that might be useful in preparing a bank reconciliation is as follows

a) Outstanding checks were P132,025

b) The December 31, 2019, cash receipts of P57,500 were not deposited in the bank until
January 2, 2020

c) One check written in payment of rent for P24,600 was correctly recorded by the bank but
was reorded by ABC as P26,400

d) In accordance with prior authorization, the bank withdrew P45,000 directly from the
checking account as payment on a mortgage not payable. The inteest portion of that 2)
payment was P35,000. ABC has made no entry to record the automatic payment.

e) Bank service charges of P1,400 were listed on the bank statement.

f) A deposit of P87,500 was recorded by the bank on December 13, but it did not belong to
ABC. The deposit should have been made to the checking account of DEF, Inc.
3)
g) The bank statement included a charge of P8,500 for an NSF check. The check was returned
with the bank statement and the company will seek payment from the customer.

h) ABC maintains a P20,000 petty cash fund that was appropriately reimbursed at the end of
December.

i) According to instruction for ABC on December 30, the bank withdrew P1,000,000 from the
account and purchased Treasury Bills for ABC. ABC recorded the transaction in its books on
December 31 when it received notice from the bank. Half of the treasury bills mature in
two months and the other half in six months.

Questions:
1) What is the cash in bank balance per books on December 31, 2019?
2) What is the corrected cash in bank balance on December 31, 2019?
3) What amount of cash and cash equivalents should be reported in the current asset section
of the balance sheet on December 31, 2019?
Balance per bank, Dec. 31, 2019 1,463,212
Less: Outstanding checks 132,025
Wrong deposit recorded 87,500
Wrong recording of disbursemen 1,800 221,325
1,241,887
Add: Payment on notes 45,000
Bank service charge 1,400
NSF check 8,500
Deposit in transit 57,500 112,400
1,354,287

Balance per bank, Dec. 31, 2019 1,463,212

Less: Outstanding checks 132,025
Wrong deposit recorded 87,500 219,525
1,243,687
Add: Deposit in transit 57,500
1,301,187

Cash in bank 1,301,187

PCF 20,000
Treasury bills 500,000
Cash and cash equivalents 1,821,187
The cash account of PRRD COMPANY shows the following activities:
Date Debit Credit Balance
Nov. 30 Balance 345,000
Dec. 2 November bank charges 150 344,850
4 November bank credit for notes
receivable collected 30,000 374,850
15 NSF check 3,500 370,950
20 Loan proceeds 145,500 516,450
21 Dec ember bank charges 180 516,270
31 Cash receipts book 2,121,900 2,638,170
31 Cash disbursements book 1,224,000 1,414,170

CASH BOOKS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 33,000 801 6,000
2 121-136 63,900 802 9,000
2 137-150 60,000 803 3,000
4 151-165 168,000 804 9,000
5 166-190 117,000 805 36,000
8 191-210 198,000 806 57,000
9 211-232 264,000 807 78,000
10 233-250 231,000 808 90,000
11 251-275 63,000 809 183,000
12 276-300 90,000 810 21,000
15 301-309 165,000 811 24,000
16 310-350 24,000 812 48,000
17 351-390 57,000 813 60,000
18 391-420 27,000 814 66,000
19 421-480 51,000 816 108,000
22 481-500 63,000 817 33,000
23 501-525 96,000 818 150,000
23 - - 819 21,000
23 - - 820 12,000
26 526-555 222,000 821 9,000
28 556-611 15,000 822 36,000
28 - - 823 39,000
29 612-630 114,000 824 87,000
29 - - 825 6,000
29 - - 826 33,000
Totals 2,121,900 1,224,000

BANK STATEMENT
Date Check Charges Amount
Dec. 1 792 7,500 25,500
2 802 9,000 33,000
2 - 63,900
4 804 9,000 60,000
5 EC 243,000 243,000
8 805 36,000 285,000
9 CM 16 - 36,000
10 799 21,150 462,000
11 DM 57 3,900 231,000
12 808 90,000 63,000
15 803 3,000 -
16 809 183,000 255,000
17 DM 161 180 24,000
18 813 60,000 57,000
 19 CM 20 - 145,500
22 815 18,000 -
23 816 108,000 141,000
23 811 24,000 -
23 801 6,000 -
26 814 66,000 96,000
28 818 150,000 222,000
28 DM 112 360 -
29 821 9,000 15,000
29 CM 36 - 36,000
29 820 12,000 -
Totals 1,059,090 2,493,900

Additional Information:
1) DMs 61 and 112 are for service charges
2) EC is error corrected
3) DM 57 is for an NSF check
4) CM 20 is for loan proceeds, net of P450 interest charges for 90 days
5) CM 16 is for the correction of an erroneous November bank charges
6) CM 36 is for customers' notes collected by bank in December
7) Bank balance on December 31, is P1,776,810

REQUIRED:
Compute for:
1) Outstanding checks at December 31
2) Deposit in transit at December 31
3) Adjusted bank receipts for the month of December
4) Adjusted book disbursement for the month of December
5) Adjusted bank balance at December 31
You are examining the financial statements of SALUYOT COMPANY for the year ended
December 31, 2019. your audit of the accounts receivable and other related accounts
disclosed the following information:

1) The December 31, 2019, balance in the Accounts Receivable control account is P788,000.

2) The only entries in the Bad Debts Expense account were:

a) A credit for P1,296 on December 1, 2019, because customer A remitted in full for the
account charged off October 31, 2019.
b) A debit on December 31 for the amount of the credit to Allowance for Bad Debts.

3) The Allowance for Bad Debts account is presented below:

Date Particulars Debit Credit Balance

Jan. 1 Balance 15,250
Oct. 31 Uncollectible
Customer A 1,296
Customer B 3,280
Customer C 2,256 6,032 9,218
Dec. 31 3% of P788,000 23,640 32,858

4) An aging schedule of the accounts receivable as of December 31, 2019, and the decisions are
as shown below:
Amount to which the allowance
Net Debit is to be adjusted after adjustments
Age Balance and corrections have been made
0-1 month 372,960 1%
1-3 months 307,280 2%
3-6 months 88,720 3%
over 6 months 24,000 definitely uncollectible, P4,000;
P8,000 is considered to be 50%
uncollectible; the remainder is
estimated to be 80% collectible
792,960

5) There is a credit balance in one account receivable (0-1 month) of P8,000; it represents an
advance on a sales contract; also there is a credit balance in one of the 1-3 months accounts
receivable of P2,000 for which merchandise will be accepted by the customer.

6) The Accounts Receivable control account is not in agreement with the subsidiary ledger. The
differences cannot be located, and the company's accountant decides to adjust the control to
the sum of the subsidiaries after corrections are made.

REQUIRED:
1.. Prepare the adjusting entry to correct the entry made on December 1, 2019.
2.. Compute the required allowance balance (per aging) on December 31, 2019
3.. How much is the net realizable value of Saluyot's accounts receivable on December 31, 2019?
4.. How much should Saluyot report as bad debt expense for 2019?
5.. What entry is necessary to adjust the allowance account at December 31, 2019?