Intermediate Accounting 1 PROF: JOHN BO S.

CAYETANO, CPA, MBA

La Consolacion University of the Phhilippines February 24, 2022

PRELIM EXAMINATION

TEST 1 – THEORIES (1 point each)

1. Which of the following is not considered cash for financial reporting purposes?
A. Petty cash fund and postal money order C. Dividend, interest and tax fund
B. Unrestricted compensating balance D. Postdated and stale checks from customers

2. Which of the following is cash for financial reporting purposes assuming the balance sheet date is December 31,
2021?
A. Check payable to a supplier unreleased at the balance sheet date.
B. Check received from a customer dated January 5, 2022.
C. Check received from a customer marked as DAUD/DAIF.
D. Undeposited customer’s check which is already outstanding for more than 6 months at the balance sheet date.

3. The following reconciling items are deducted from the bank balance of cash in order to arrive at the unadjusted
book balance of cash expect
A. Erroneous bank credit B. Outstanding check C. Credit memo D. Erroneous bank charge

4. The following statements relate to Cash

I. Credit balances in bank accounts can be offset against demand deposit balances in other accounts in the same
bank, as well as, demand deposit balances in other banks.

II. Credit balances in bank accounts as shown in the books which cannot be offset are to be shown as current
liabilities.

A. True, true B. True, false C. False, true D. False, true

5. Which of the following checks would not be classified as cash?

A. Traveler’s check B. Manager’s check C. Undelivered check D. None of the above

6. In replenishing a petty cash fund, which one of the following entries is required?
A. Debit Cash in Bank, credit individual expense accounts. C. Debit Patty Cash, and credit Cash in Bank
B. Debit individual expense accounts, credit Cash in Bank. D. Debit Cash in Bank, credit Petty Cash

7. If the balance shown on a company’s bank statement is less than the correct cash balance, and neither the company
nor the bank has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the company
B. Outstanding check
C. Bank charges not yet recorded by the company
D. Deposits in transit

8. A petty cash system is designed to

A. Cash checks for employees C. Account for all cash receipts and disbursements
B. Handle cash sales D. Pay small miscellaneous expenses
9. Which of the following statements in incorrect?
A. Cash which is restricted and not available for use within one year of the reporting period should be included in
noncurrent assets.
B. Cash in a demand deposit account, being held specifically for retirement of long-term debts not maturing
currently, should be excluded from current assets and shown as a noncurrent investment.
C. Investments which can be liquidated at once and with little risk of loss of principal may be classified as cash
equivalent and included in the caption “Cash and Cash Equivalents”.
D. Compensating balances are cash amounts that are not immediately accessible by the owners.
E. Cash and cash equivalents is always presented first in statement of financial position when presenting current
and non-current classifications.

10. Which of the following is not considered cash for financial reporting purposes?
A. Petty cash funds and change funds
B. Money orders, certified checks, and personal checks
C. Coin, currency, and available funds
D. Postdated checks and I.O.U.’s

11. Which of the following may qualify as cash equivalent?

A. Investment in ordinary shares acquired on December 31, 2021 expected to be sold within the next three months.
B. Treasury notes acquired on November 1, 2021, maturing on March 31, 2022.
C. One-year money market placements.
D. Investments in redeemable preference shares acquired on December 31, 2021, maturing on February 28, 2022.

12. Bank statements provide information about all of the company except
A. Checks cleared during the period C. Bank charges for the period
B. NSF checks D. Errors made by the company

13. Which of the following items would be added to the book balance on a bank reconciliation?
A. Outstanding checks.
B. A check written for P63 entered as P36 in the accounting records.
C. Interest paid by the bank.
D. Deposit in transit

14. In preparing a bank reconciliation, interest paid by the bank on the account is
A. Added to the bank balance C. Added to the book balance
B. Subtracted from the bank balance D. Subtracted from the book balance

15. The amount reported as “Cash” on a company’s balance sheet normally should exclude
A. Cash in a payroll account C. Postdated checks that are payable to the company
B. Petty cash D. Undelivered checks written and signed by the company

16. Which of the following would not be classified as cash?

A. Personal checks B. Traveler’s check C. Cashier’s check D. Postdated checks

17. What is the proper accounting treatment for a stale check of the company?
A. Revert back to cash and accounts payable C. Ignored
B. Revert back to cash and credit gain D. Either A or B

18. Which of the following statement is not an example of cash equivalents?

A. 90-day treasury bills.
B. Treasury bills purchased one month prior to its maturity.
C. Money market fund purchased six months prior to its maturity but with remaining maturity of 2 months after the
balance sheet date.
 D. Redeemable preference shares that are to be reacquired by the issuing corporation at a determined redemption
date purchased within 3 months before the redemption date.

19. To qualify for reporting as part of cash in the current assets section of the statement of financial position, cash item
must be any of the following, except:
A. Unrestricted
B. Intended for the payment of operating expenses
C. Cash fund for the acquisition of non-current asset which is expected to be disbursed within 12 months from
reporting date
D. Intended for the settlement of current liabilities

20. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash
and
A. Is acceptable as a means to pay current liabilities.
B. Has a current market value that is greater than its original cost
C. Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation.
D. Is so near its maturity that it presents insignificant risk of changes in value because of the changes in market
interest rate.

TEST 2 – PROBLEMS (2 points each)

21. Ralf Corporation had the following account balances at December 31, 2016:

Cash on hand and in bank P2,500,000

Cash restricted for bonds payable due on June 30, 2017 1,000,000
Time deposit 3,000,000
Savings deposit set aside for dividends payable on June 30, 2017 500,000

The total amount to be reported as cash and cash equivalents as of December 31, 2016 is
a. P7,000,000 c. P6,500,000
b. P6,000,000 d. P5,500,000

22. On December 31, 2016, Alfonso Company had the following cash balances:

Cash in bank P15,000,000

Petty cash fund 50,000
Time deposit 5,000,000
Saving deposit 2,000,000

Cash in bank includes P500,000 of compensating balance against short term borrowing arrangement at
December 31, 2016. The compensating balance is legally restricted as to withdrawal by Alfonso. A check of
P300,000 dated January 15, 2017 in payment of accounts payable was recorded and mailed on December 31,
2016. In the current assets section of the December 31, 2016 statement of financial position, what amount
should be reported as “cash and cash equivalents”?
a. P21,850,000 c. P21,800,000
b. P16,850,000 d. P14,850,000

23. On December 31, 2016, the cash account of Jen Company has a debit balance of P3,500,000. An analysis of the
cash account shows the following details:

Undeposited collections P 60,000

Cash in bank-PCIB checking account 500,000
Cash in bank-PNB (overdraft) (50,000)
Undeposited NSF check received from a customer, dated December 1, 15,000
 2016
Undeposited check from a customer, dated January 15, 2017 25,000
Cash in bank-PCIB (fund for payroll) 150,000
Cash in bank-PCIB (savings deposit) 100,000
Cash in bank-PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed stock held as temporary investment 120,000
P3,500,000

Cash and cash equivalents on Jen’s December 31, 2016 statement of financial position should be
a. P2,760,000 c. P2,885,000
b. P2,810,000 d. P2,935,000

24. Diversity Corporation's checkbook balance on December 31, 2016, was P800,000. In addition, Diversity held
the following items in its safe on December 31:

Check payable to Diversity Corporation, dated January 2, 2017, not included

P200,000
in December 31 checkbook balance
Check payable to Diversity Corporation, deposited December 20, and
included in December 31 checkbook balance, but returned by bank on
40,000
December 30, stamped "DAIF." The check was redeposited January 2,
2017, and cleared January 7
Check drawn on Diversity Corporation's account, payable to a vendor, dated
100,000
and recorded December 31, but not mailed until January 15, 2017

The proper amount to be shown as cash on Diversity's statement of financial position at December 31, 2016, is

a. P760,000 c. P860,000
b. P800,000 d. P975,000

25. The Ingersoll Co.’s ledger showed a balance in its cash account at December 31, 2016 of P337,900 which was
determined to consist of the following:

Petty cash fund P 1,800

Cash per bank statement with a check for P3,000 still outstanding 168,375
Notes receivable in the possession of a collecting agency 12,500
Undeposited receipts, including postdated check for P5,250 and traveler’s check for 89,000
P5,000
Bond sinking fund – cash 63,750
IOUs signed by employees 2,475
Total P 337,900

At what amount should “Cash on hand and in bank” be reported on Ingersoll’s balance sheet?
a. P267,375 c. P331,125
b. P250,925 d. P314,675
26. The cash account in the current asset section of the statement of financial position of Restoration Company
showed a balance of P55,500. It was found to include the following items:

Petty cash fund (P100 is in the form of paid vouchers) P 500

Checking account balance in the BPI Company, per bank statement (a
P2,500 check is still outstanding) 25,500
Undeposited receipts, including a post-dated check for P500 12,000
Currencies and coins awaiting deposit 5,500
Bond sinking fund – cash 10,000
Check drawn by management, returned by bank marked NSF 2,000

The correct cash balance for Restoration Company’s statement of financial position is
A. 43,000 C. 42,400
B. 42,900 D. 40,000

27. The Mask 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. These securities are
government treasury bills. The treasury bills have a 10-year term and purchased December 31 at which
time they had two months to go until they mature.
● Cash of P4,500,000 in form of coin, currency, saving account and checking account.
● Investment securities of P1,500,000. These securities are commercial paper. The term of the papers is nine
months and they were purchased on December 31 at which time they had three months to go until they
mature.

How much should be reported as Cash and Cash Equivalents at the end of the current period?
A. 6,500,000 C. 8,000,000
B. 7,500,000 D. 9,000,000

28. Hindu Company had the following account balances at December 31, 2022:

Bond sinking fund cash for bonds payable due June 30, 2023 P 1,000,000
Cash restricted for additions to plant expected to be disburse in
2023 2,000,000
Preference share redemption fund (redemption date May 31, 2024) 2,500,000
Pension fund 900,000
Savings and demand deposits 5,000,000
Currency and coins 200,000
Time deposits 500,000

Cash in bank included P1,000,000 compensating balance against short-term borrowing arrangement. The
compensating balance is not legally restricted as to withdrawal by Gee. What amount should be reported as
total cash on December 31, 2022?
A. 6,200,000 C. 4,200,000
B. 5,200,000 D. 6,700,000
29. Wildest Company showed a balance on its cash account at December 31, 2022 of P181,500 which determined
to consist of the following:

Petty Cash Fund (note 1) P 2,500

Payroll Account – Meow Bank 30,000
Restricted foreign bank account 12,500
Demand deposit – Muning Bank (overdraft) (10,000)
Cash in bank – Feline Bank (note 2) 45,000
Cash set aside for the acquisition of equipment to be disbursed 4 months
after reporting date 15,000
Bond sinking fund 22,500
DAIF check 5,000
Cash Surrender Value 4,000
Treasury bill, due 3/30/23 (purchased 12/31/22) 35,000
Treasury bill, due 1/31/23 (purchased 5/1/22) 20,000

Note 1 – Including expense receipts of P500, IOUs of P250 and Employee’s post-dated check of P100.
Note 2 – Net of undelivered check payable to creditors of P10,000 and P5,000 checks paid to creditors dated
January 15, 2023.

How much is the amount of Cash and Cash Equivalents at December 31, 2022?
A. 126,650 C. 141,650
B. 91,650 D. 111,650

30. Chad Corporation for the year ended December 31, 2022, has this balances:

Traveler’s check P 150,000

Money orders 90,000
Customer’s not-sufficient-fund check 30,000
Customer’s check dated January 5, 2023 15,000
Current account at Bank of the Philippine Island 6,000,000
Current account at Equitable PCI Bank (300,000)
Payroll account 1,500,000
Foreign bank account – restricted (in USD)** 60,000
Postage stamps 3,000
Employee’s postdated check 12,000
IOU from a key officer 30,000
Credit memo from a vendor for a purchase return 60,000
Petty cash fund (P12,000 currency and expense vouchers for P18,000) 30,000
Treasury bills, due 3/31/23 (purchased 12/31/22) 600,000
Treasury bills, due 3/31/23 (purchased 1/1/22) 900,000
Change fund 10,000
Bond sinking fund 1,000,000
 Exchange rate as of December 31, 2022 is at P50 for every USD.
Average exchange rate is at P45 for every USD.

What is the total cash and cash equivalent to be reported by the company in its December 31, 2022 balance
sheet?
A. 9,262,000 C. 8,362,000
B. 8,380,000 D. 8,112,000

Use the following information for the next two (2) questions:
John Cena Company provided the following data for the purposes of reconciling the cash balance per book:

Balancer per book 220,000

Outstanding checks 50,000
Deposit in transit 90,000
December NSF checks 30,000
Erroneous credit to John Cena’s account, representing proceeds of loan granted to John Bo 60,000
Company
Proceeds of note collected by bank for John Cena, net of service charge of P4,000 150,000
Erroneous bank charge 3,000
A check of P5,000 in payment of account was recorded by the company as 50,000

31. How much is the correct cash balance?

A. 295,000 B. 385,000 C. 389,000 D. 299,000

32. How much is the cash in bank balance as shown in the bank statement?
A. 402,000 B. 385,000 C. 312,000 D. 406,000

33. Wingbow Corporation records showed the following:

Outstanding checks, November 30 900,000
Customer’s NSF check recorded in December but returned in November 60,000
Service charges made by the bank in November and recorded in December 24,000
Total credits to the cash account in all journals during December 2,304,000
Checks and charges returned by bank in December including a December service charge of 1,950,000
P30,000 and NSF check of P120,000

How much is the outstanding checks as of December 31?

A. 1,320,000 B. 420,000 C. 1,170,000 D. 1,470,000
Numbers 34-35
Petty cash fund of Jireh at the end of the fiscal year ended September 30, 2021 is composed of the following:

Currencies and coins P 750

Replenishment check dated September 15, 2021 1,750
Paid vouchers for expenses and loans dated September 16 – 30, 2021
Supplies 600
Postage stamps 150
Loans to employees 750
Unused supplies 60
Check drawn by office manager marked NSF 1,250
Check drawn by employee dated Oct 5, 2021 250
Enveloped containing cash donation for the departed parent of one employee
(currencies attached) 750

The general ledger balance of the imprest petty cash fund at September 30, 2021 is 8,750.

34. How much is the correct patty cash fund balance on September 30, 2021?
A. 750 C. 2,500
B. 2,750 D. 5,750

35. How much is the cash shortage or overage?

A. 3,190 short C. 3,250 short
B. 3,190 over D. 3,250 over