Bornasal III-AMA

AUDIT OF CASH AND CASH EQUIVALENTS (13 Feb 2021)

PROBLEM NO. 1
In the course of your audit of the Las Piñas Corporation, its controller is attempting to determine
the amount of cash to be reported on its December 31, 2020 balance sheet. The following
information is provided:

1. Commercial savings account of P1,200,000 and a commercial checking account balance

of P1,800,000 are held at PS Bank.
2. Travel advances of P360,000 for executive travel for the first quarter of the next year
(employee to reimburse through salary deduction).
3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long
term debt.
4. Petty cash fund of P10,000.
5. An I.O.U. from a company officer in the amount of P40,000.
6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit
its cash receipts. At the present time, the company has no deposits at this bank.
7. The company has two certificates of deposit, each totaling P1,000,000. These certificates
of deposit have maturity of 120 days.
8. Las Piñas has received a check dated January 2, 2021 in the amount of P150,000.
9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to
ensure future credit availability.
10. Currency and coin on hand amounted to P15,000.

Question:
Based on the above and the result of your audit, how much will be reported as cash and
cash equivalent at December 31, 2020?
a. P3,025,000 c. P2,575,000
b. P2,825,000 d. P5,025,000
PROBLEM NO. 2
You were able to gather the following from the December 31, 2020 trial balance of
Mandaluyong Corporation in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security Bank current account No. 01 1,080,000
Security Bank current account No. 02 (80,000)
PNB savings account 1,200,000
PNB time deposit 500,000

Cash on hand includes the following items:

a. Customer’s check for P40,000 returned by bank on December 26, 2020 due to insufficient
fund but subsequently redeposited and cleared by the bank on January 8, 2021.
b. Customer’s check for P20,000 dated January 2, 2021, received on December 29, 2020.
c. Postal money orders received from customers, P30,000.

The petty cash fund consisted of the following items as of December 31, 2020.
Currency and coins P 2,000
Employees’ vales 1,600
Currency in an envelope marked “collections for charity” with
names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mandaluyong Corporation, payable to the
petty cashier 4,000
P10,100

Included among the checks drawn by Mandaluyong Corporation against the BPI current
account and recorded in December 2020 are the following:
a. Check written and dated December 29, 2020 and delivered to payee on January 2,
2021, P80,000.
b. Check written on December 27, 2020, dated January 2, 2021, delivered to payee
on December 29, 2020, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess
of the deposit balance. These checks were still outstanding at December 31, 20

The savings account deposit in PNB has been set aside by the board of directors for acquisition of
new equipment. This account is expected to be disbursed in the next 3 months from the balance
sheet date.

Questions:
Based on the above and the result of your audit, determine the adjusted balances of following:

1. Cash on hand
a. P410,000 c. P470,000
b. P530,000 d. P440,000
2. Petty cash fund
a. P6,000 c. P2,000
b. P7,200 d. P4,900
3. BPI current account
a. P1,000,000 c. P1,080,000
b. P1,120,000 d. P1,040,000
4. Cash and cash equivalents
a. P2,917,200 c. P3,052,000
b. P3,074,900 d. P3,066,000
PROBLEM NO. 3
The books of Manila's 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 NO. 4
In the audit of Pasig Company’s cash account, you obtained the following information:
The company’s bookkeeper prepared the following bank reconciliation as of November 30, 2020:

Bank balance – November 30, 2020 P90,800

Undeposited collections 5,000
Bank service charges 100
Bank collection of customer’s note (8,000)
Outstanding checks:
Number Amount
7159 P3,000
7767 5,000
7915 2,000 (10,000)
Book balance – November 30, 2020 P77,900

Additional data are given as follows:

a. Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
b. Bank statement totals for December :
Charges P123,800
Credits 169,000
c. Check no. 7159 dated November 25, 2020, was entered as P3,000 in payment of a voucher for
P30,000. Upon examination of the checks returned by the bank, the actual amount of the check
was P30,000.
d. Check no. 8113 dated December 20, 2020 was issued to replace a mutilated check (no.7767),
which was returned by the payee. Both checks were recorded in the amount drawn, P5,000, but
no entry was made to cancel check no. 7767.
e. The December bank statement included a check drawn by Sipag Company for P1,500.
 f. Undeposited collections on December 31, 2020 - P8,000.
g. The service charge for December was P150 which was charged by the bank to another client.
h. The bank collected a note receivable of P7,000 on December 28, 2020, but the collection was not
received on time to be recorded by Pasig.
i. The outstanding checks on December 31, 2020, were:
Check No. Amount Check No. Amount
7767 P5,000 8910 P2,300
8856 1,300 8925 4,100
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Unadjusted cash balance per books as of December 31, 2020
a. P152,800 c. P144,900
b. P152,750 d. P165,700
2. Adjusted cash balance as of November 30, 2020
a. P85,800 c. P63,800
b. P58,800 d. P90,800
3. Adjusted book receipts for December 2020
a. P170,500 c. P172,000
b. P182,000 d. P173,000
4. Adjusted bank disbursement for December 2020
a. P120,150 c. P125,150
b. P 76,150 d. P 98,150
5. Adjusted cash balance as of December 31, 2020
a. P132,650 c. P137,800
b. P137,650 d. P134,650

Unadjusted book balance, 11/30/20 P77,900

Add unadjusted book receipts:

Collection from customers P165,000
Note collected by bank in Nov.
presumed recorded in Dec. 8,000 173,000
Total 250,900
Less unadjusted book disbursements:
Checks drawn 98,000
BSC for Nov. presumed recorded in Dec. 100 98,100
Unadjusted book balance, 12/31/20 P152,800

2 to 5

Pasig Company
Proof of Cash
For the month ended December 31, 2020

Beginning Ending
Nov. 30 Receipts Disb. Dec. 31

Balance per bank

statement P90,800 P169,000 P123,800 P136,000a
Deposits in transit:
November 30 5,000 (5,000)
December 31 8,000 8,000
Outstanding checks:
November 30 (32,000) (32,000)
December 31 7,700 (7,700)
Bank errors – Dec.
Check of Sipag Co. (1,500) 1,500
BSC charged to
another client 150 (150)
Adjusted bank
balance P63,800 P172,000 P 98,150 P137,650

Balance per books P77,900 P173,000 P98,100 P152,800

Customer's note

collected by bank:
November 8,000 (8,000)
December 7,000 7,000

Bank service charge:

November (100) (100)
December 150 (150)

Beginning Ending
Nov. 30 Receipts Disb. Dec. 31
Book errors:
Check no. 7159
(P30,000-P3,000) (27,000) (27,000)
Check no. 7767
(mutilated check) 5,000 5,000
Adjusted book balance
P63,800 P172,000 P 98,150 P137,650

PROBLEM NO. 5
You obtained the following information on the current account of Parañaque Company during
your examination of its financial statements for the year ended December 31, 2020.

The bank statement on November 30, 2020 showed a balance of P306,000. Among the bank credits
in November was customer’s note for P100,000 collected for the account of the company which the
company recognized in December among its receipts. Included in the bank debits were cost of
checkbooks amounting to P1,200 and a P40,000 check which was charged by the bank in error
against Parañaque Co. account. Also in November you ascertained that there were deposits in
transit amounting to P80,000 and outstanding checks totaling P170,000.

The bank statement for the month of December showed total credits of P416,000 and total charges
of P204,000. The company’s books for December showed total debits of P735,600, total credits of
P407,200 and a balance of P485,600. Bank debit memos for December were: No. 121 for service
charges, P1,600 and No. 122 on a customer’s returned check marked “Refer to Drawer” for P24,000.

On December 31, 2020 the company placed with the bank a customer’s promissory note with a face
value of P120,000 for collection. The company treated this note as part of its receipts although the
bank was able to collect on the note only in January, 2021.

A check for P3,960 was recorded in the company cash payments books in December as P39,600.

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 undeposited collections as of December 31, 2020?
a. P339,600 c. P219,600
b. P179,600 d. P139,600
2. How much is the outstanding checks as of December 31, 2020?
a. P191,960 c. P361,960
b. P397,600 d. P363,160
3. How much is the adjusted cash balance as of November 30, 2020?
a. P216,000 c. P176,000
b. P256,000 d. P157,200
4. How much is the adjusted bank receipts for December?
a. P635,600 c. P475,600
b. P515,600 d. P435,600
5. How much is the adjusted book disbursements for December?
 a. P395,960 c. P225,960
b. P431,600 d. P397,160
6. How much is the adjusted cash balance as of December 31, 2020?
a. P625,640 c. P220,000
b. P195,640 d. P375,640

Deposits in transit, 11/30/20 P80,000

Add collections in December:
December book receipts P735,600
Less receipts not representing
collections in December:
Customer’s note collected by
bank in Nov. recorded in P100,000
Dec.
Uncollected customer's note
treated as receipts 120,000 220,000 515,600
Total 595,600

Less deposits credited by the bank

in December:
December bank receipts P416,000
Less receipts not representing
deposits:
Erroneous bank debit, Nov.;
corrected Dec. 40,000 376,000
Deposits in transit, 12/31/20 P219,600

Outstanding checks, 11/30/20 P170,000

Add checks issued in December:
December book disbursements P407,200
Less disbursements not
representing checks issued
in December:
Bank service charge, Nov.;
recorded Dec. P1,200
Error in recording a check
(should be P3,960,
recorded as P39,600) 35,640 36,840 370,360
Total 540,360
Less checks paid by the bank in
December:
December bank disbursements P204,000
Less disbursements not
representing checks:
Bank service charge, Dec. P1,600
NSF check, Dec. 24,000 25,600 178,400
Outstanding checks, 12/31/20 P361,960

3 to 6
Parañaque Company Proof
of Cash
For the month ended December 31, 2020

Beginning Ending
Nov. 30 Receipts Disb. Dec. 31

Balance per bank

statement P306,000 P416,000 P204,000 P518,000a
Deposits in transit:
November 30 80,000 (80,000)
December 31 219,600 219,600
Outstanding checks:
November 30 (170,000) (170,000)
December 31 361,960 (361,960)
Erroneous bank debit-
November 40,000 (40,000)
Adjusted bank balance
P256,000 P515,600 P395,960 P375,640

Balance per books P157,200 P735,600 P407,200 P485,600

Customer's note
collected by bank -
November
100,000 (100,000)
Bank service charge:
November (1,200) (1,200)
December 1,600 (1,600)
NSF check - December
24,000 (24,000)
Book errors - December
 Uncollected
customer's note
treated as
receipts (120,000) (120,000)
Error in
recording a
check (should
be P3,960,
recorded as (35,640) 35,640
P39,600)
Adjusted book balance
P256,000 P515,600 P395,960 P375,640

PROBLEM NO. 6
You were able to obtain the following information in connection with your audit of the Cash
account of the Pasay Company as of December 31, 2020:
November 30 December 31
a. Balances per bank P480,000 P420,000
b. Balances per books 504,000 539,000
c. Undeposited collections 244,000 300,000
d. Outstanding checks 150,000 120,000

e. The bank statement for the month of December showed total credits of P240,000 while
the debits per books totaled P735,000.

f. NSF checks are recorded as a reduction of cash receipts. NSF checks which are later
redeposited are then recorded as regular receipts. Data regarding NSF checks are as
follows:
1. Returned by the bank in Nov. and recorded by the company in Dec., P10,000.
2. Returned by the bank in Dec. and recorded by the company in Dec., P25,000.
3. Returned by the bank in Dec. and recorded by the company in Jan., P29,000.

g. Check of Pasaway Company amounting to P90,000 was charged to the company’s account
by the bank in error on December 31.

h. A bank memo stated that the company’s account was credited for the net proceeds of
Anito’s note for P106,000.

The company has hypothecated its accounts receivable with the bank under an agreement whereby the
bank lends the company 80% of the hypothecated accounts receivable. The
company performs accounting and collection of the accounts. Adjustments of the loan are made from
daily sales reports and deposits.

j. The bank credits the company account and increases the amount of the loan for 80% of the
reported sales. The loan agreement states specifically that the sales report must be accepted by
the bank before the company is credited. Sales reports are forwarded by the company to the
bank on the first day following the date of sale. The bank allocates each deposit 80% to the
payment of the loan, and 20% to the company account. Thus, only 80% of each day’s sales and
20% of each collection deposits are entered on the bank statement. The company accountant
records the hypothecation of new accounts receivable (80% of sales) as a debit to Cash and a
credit to the bank loan as of the date of sales. One hundred percent of the collection on
accounts receivable is recorded as a cash receipt; 80% of the collection is recorded in the cash
disbursements books as a payment on the loan. In connection with the hypothecation, the
following facts were determined:

• Included in the undeposited collections is cash from the hypothecation of accounts

receivable. Sales were P180,000 on November 30, and P200,000 at December 31. The
balance was made up from collections which were entered on the books in the manner
indicated above.
• Collections on accounts receivable deposited in December, other than deposits in transit,
totaled P725,000.
k. Interest on the bank loan for the month of December charged by the bank but not recorded
in the books, amounted to P38,000.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted cash balance as of November 30, 2020?
 a. P574,000 c. P430,000
b. P394,000 d. P350,000
2. How much is the adjusted book receipts for December, 2020?
a. P860,000 c. P876,000
b. P280,000 d. P296,000
3. How much is the adjusted book disbursements for December, 2020?
a. P180,000 c. P180,000
b. P905,000 d. P760,000
4. How much is the adjusted cash balance as of December 31, 2020?
a. P690,000 c. P440,000
b. P530,000 d. P490,000
5. How much is the cash shortage as of December 31, 2020?
a. P32,000 c. P8,000
b. P90,000 d. P0

Pasay Company
Proof of Cash
For the month ended December 31, 2020

Beginning Ending
Nov. 30 Receipts Disb. Dec. 31

Balance per bank

P240,00
statement P480,000 0 P300,000a P420,000
Deposits in transit:
November 30 100,000c (100,000)
December 31 140,000d 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank

debit-December (90,000) 90,000

Deposits with loan
payment
(P725,000 x 80%) 580,000 580,000
Adjusted bank
P860,00
balance P430,000 0 P760,000 P530,000

Balance per books P504,000 P735,000 P700,000b P539,000

NSF checks:
Returned in Nov.,

recorded in Dec. (10,000) 10,000

Returned and

recorded in Dec. 25,000 25,000

Returned in Dec.,

recorded in Jan. 29,000 (29,000)

Customer's note
collected by bank -
December 106,000 106,000
Anticipated loan
proceeds from AR
hypothecation:
Nov. 30 sales

(P180,000 x 80%) (144,000) 144,000

Dec. 31 sales
(160,000)
(P200,000 x 80%) (160,000)

Anticipated loan payment from

undeposited collections:
Nov. 30
(P100,000 x 80%) 80,000 80,000
Dec. 31
(P140,000 x 80%) (112,000) 112,000
Interest charge for bank loan in Dec.
38,000 (38,000)
Adjusted book
balance P430,000 P860,000 P760,000 P530,000

a. (P480,000 + P240,000 – P420,000)

b. (P504,000 + 735,000 – P539,000)
c. [P244,000 – (P180,000 x 80%)]
d. [P300,000 – (P200,000 x 80%)]

PROBLEM NO. 7
In connection with your audit, Quezon Metals Company presented to you the following information:
Quezon Metals Company
Comparative Balance Sheets
December 31, 2020 and 2019
2020 2019
Assets
Current Assets:
Cash P 476,000 P 392,000
Available for sale securities 236,000 -
Accounts Receivable 1,248,000 1,016,000
Inventory 1,112,000 956,000
Prepaid expenses 140,000 84,000
Total Current Assets 3,212,000 2,448,000
Property, plant, and equipment 2,144,000 1,636,000
Accumulated depreciation (304,000) (212,000)
1,840,000 1,424,000
Total Assets P5,052,000 P3,872,000
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable P 848,000 P 792,000
Accrued expenses 392,000 304,000
Dividends Payable 160,000 -
 Total Current Liabilities 1,400,000 1,096,000
Notes Payable - due 2008 500,000 -
Total Liabilities 1,900,000 1,096,000
Stockholders' Equity:
Common Stock 2,400,000 2,200,000
Retained earnings 752,000 576,000
Total Stockholders' Equity 3,152,000 2,776,000
Total Liabilities and Stockholders' Equity P5,052,000 P3,872,000

Quezon Metals Company

Condensed Comparative Income Statements
For the Years Ended December 31, 2020 and 2019
2020 2019
Net sales P14,244,000 P13,016,000
Cost of Goods Sold 11,156,000 10,272,000
Gross Profit 3,088,000 2,744,000
Expenses 2,084,000 1,944,000
Net Income P 1,004,000 P 800,000

Additional information for Quezon:

(a) All accounts receivable and accounts payable relate to trade merchandise.
(b) The proceeds from the notes payable were used to finance plant expansion.
(c) Capital stock was sold to provide additional working capital.

QUESTIONS:
Based on the above and the result of your audit, compute the following for 2020:
1. Cash collected from accounts receivable, assuming all sales are on account.
a. P14,012,000 c. P14,476,000
b. P 796,000 d. P16,508,000
2. Cash payments made on accounts payable to suppliers , assuming that all purchases of
inventory are on account.
a. P11,368,000 c. P10,944,000
b. P11,212,000 d. P11,256,000
3. Cash payments for dividends.
a. P 828,000 c. P 668,000
b. P1,020,000 d. P1,180,000
4. Cash receipts that were not provided by operations.
a. P192,000 c. P700,000
b. P500,000 d. P 0
5. Cash payments for assets that were not reflected in operations.
a. P1,412,000 c. P 508,000
b. P 744,000 d. P1,176,000

Question No. 1

Accounts receivable, 1/1/20 P 1,016,000

Add sales for 2020 14,244,000
Total collectible accounts 15,260,000
Less accounts receivable, 12/31/20 1,248,000
Cash collected from accounts receivable P14,012,000

Question No. 2

Accounts payable, 1/1/20 P 792,000

Add purchases for 2020:
Cost of goods sold for 2020 P11,156,000
Add Inventory, 12/31/20 1,112,000
Total goods available for sale 12,268,000
Less Inventory, 1/1/20 956,000 11,312,000
Total accounts to be paid 12,104,000
Less accounts payable, 12/31/20 848,000
Cash payments made on AP P11,256,000

Question No. 3

Retained earnings, 1/1/20 P 576,000

Add net income for 2020 1,004,000
Total 1,580,000
Less retained earnings, 12/31/20 752,000
Total dividends declared 828,000
Less increase in dividends payable 160,000
Cash payments for dividends P 668,000

Question No. 4

Proceeds from notes payable P500,000

Proceeds from issuance of common stock
(P2,400,000 - P2,200,000) 200,000
Cash receipts not provided by operations
(cash provided from financing) P700,000

Question No. 5

Purchase of available for sale securities P236,000

Purchase of PPE (P2,144,000 - P1,636,000) 508,000
Cash payments for assets that were not reflected in
operations P744,000

PROBLEM NO. 8
The Valenzuela Corporation was organized on January 15, 2020 and started operation soon
thereafter. The Company cashier who acted also as the bookkeeper had kept the accounting records
very haphazardly. The manager suspects him of defalcation and engaged you to audit his account to
find out the extent of the fraud, if there is any.
On November 15, when you started the examination of the accounts, you find the cash on hand to
be P25,700. From inquiry at the bank, it was ascertained that the balance of the Company’s bank
deposit in current account on the same date was P131,640. Verification revealed that the check
issued for P9,260 is not yet paid by the bank. The corporation sells at 40% above cost.
Your examination of the available records disclosed the following information:
Capital stock issued at par for cash P1,600,000
Real state purchased and paid in full 1,000,000
Mortgage liability secured by real state 400,000
Furniture and fixtures (gross) bought on which there
is still balance unpaid of P30,000 145,000
Outstanding notes due to bank 160,000
Total amount owed to creditors on open account 231,420
Total sales 1,615,040
Total amount still due from customers 426,900
Inventory of merchandise on November 15 at cost 469,600
Expenses paid excluding purchases 303,780
QUESTIONS:
Based on the above and the result of your audit, compute for the following as of November 15, 2020:
1. Collections from sales
a. P1,188,140 c. P1,615,040
b. P1,153,600 d. P2,041,940
2. Payments for purchases
a. P1,854,620 c. P1,207,204
b. P1,391,780 d. P 922,180
 3. Total cash disbursements
a. P2,340,960 c. P2,810,560
b. P3,273,400 d. P2,625,984
4. Unadjusted cash balance
a. P 74,740 c. P1,007,180
b. P722,156 d. P 537,580
5. Cash shortage
a. P574,076 c. P859,100
b. P389,500 d. P 0

Question No. 1

Sales P1,615,040
Less accounts receivable, 426,900
Collections from sales P1,188,140

Question No. 2

Cost of sales (P1,615,040/1.4) P1,153,600

Add Merchandise inventory 469,600
Purchases 1,623,200
Less Accounts payable 231,420
Payments for purchases P1,391,780

Question No. 3

Purchase of real estate P1,000,000

Payment for furniture and fixtures
(P145,000 - P30,000) 115,000
Expenses paid 303,780
Payments for purchases 1,391,780
Total cash disbursements P2,810,560

Question No. 4

Proceeds from issuance of common stock P1,600,000

Proceeds from mortgage note payable 400,000
Proceeds from notes payable - bank 160,000
Collections from sales 1,188,140
Total cash receipts 3,348,140
Less cash disbursements 2,810,560
Unadjusted cash balance P 537,580

Question No. 5

Cash accountability P537,580

Less cash accounted (Adjusted cash
balance):
Unadjusted bank balance P131,640
Deposit in transit 25,700
Outstanding checks (9,260) 148,080
Cash shortage P389,500

PROBLEM NO. 9
You were engaged to audit the accounts of Taguig Corporation for the year ended December 31,
2020. In your examination, you determined that the Cash account represents both cash on hand
and cash in bank. You further noted that the company’s internal control over cash is very poor.
You started the audit on January 15, 2021. Based on your cash count on this date, cash on hand
amounted to P19,200. Examination of the cash book and other evidence of transactions disclosed
the following:
a. January collections per duplicate receipts, P75,200.
b. Total duplicate deposit slips, all dated January, P44,000. This amount includes a deposit
representing collections on December 31.
c. Cash book balance at December 31, 2020 amounted to P186,000, representing both cash
on hand and cash in bank.
d. Bank statement for December showed a balance of P170,400.
e. Outstanding checks at December 31:
November checks December checks
No. 280 P1,800 No. 331 P2,400
290 6,600 339 1,600
345 20,000
353 3,600
364 10,000
f. Undeposited collections at December 31, 2020 amounted to P20,000.
g. An amount of P4,400 representing proceeds of a clean draft on a customer was credited
by bank, but is not yet taken up in the company’s books.
h. Bank service charges for December, P400.
The company cashier presented to you the following reconciliation statement for December,
2020, which he has prepared:
Balance per books, December 31, 2020 P180,600
Add outstanding checks:
No. 331 P2,400
339 1,600
345 2,000
353 3,600
364 1,000 10,600
Total 191,200
Bank service charge (400)
Undeposited collections (20,400)
Balance per bank, December 31, 2020 P170,400

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted cash balance as of December 31, 2020?
a. P152,800 c. P180,200
b. P144,400 d. P 0
2. How much is the cash shortage as of December 31, 2020?
a. P45,600 c. P37,200
b. P 4,400 d. P41,200
3. How much is the cash shortage for the period January 1 to 15, 2021?
a. P30,800 c. P31,200
b. P32,400 d. P32,000
4. Which of the following is not a method used by the cashier to cover-up the shortage as
of December 31, 2020?
a. Understating outstanding checks by P27,000.
b. Not recording the bank collection of P4,400.
c. Understating the book balance by P5,400.
d. Overstatement of undeposited collections by P400.
5.
Questions No. 1 and 2

Bank Books
Unadjusted balances P170,400 P186,000
Add (deduct) adjustments:
Outstanding checks: (46,000)
Undeposited collections 20,000
Unrecorded bank collection 4,400
Bank service charge (400)
Balances 144,400 190,000
Shortage (45,600)
 Adjusted balances P144,400 P144,400

Question No. 3

Collections per records P75,200

Add undeposited collections, Dec. 31 20,000
Total cash that should be deposited in January 95,200
Less January deposits 44,000
Undeposited collections, Jan. 15 51,200
Less undeposited collections per cash count 19,200
Shortage, Jan. 1 to 15 P32,000

Question No. 4

Cover-up for the December 31, 2020 shortage:

Non-recording of bank collection P 4,400
Understatement of book balance
(P186,000 - P180,600) 5,400
Understatement of outstanding checks
(P46,000 - P10,600) 35,400
Overstatement of undeposited collections
(P20,400 - P20,000) 400
Total shortage, December 31, 2020 P45,600

Select the best answer for each of the following:

1. An auditor would consider a cashier’s job description to contain compatible duties if the
cashier receives remittance from the mailroom and also prepares the
a. Daily deposit slip. c. Remittance advices.
b. Prelist of individual checks. d. Monthly bank reconciliation.
2. Which of the following internal control procedures will most likely prevent the concealment of
a cash shortage resulting from improper write-off of a trade account receivable?
a. Write-offs must be supported by an aging schedule showing that only receivables
overdue for several months have been written off.
b. Write-offs must be approved by the cashier who is in a position to know if the
receivables have, in fact, been collected.

c. Write-offs must be approved by a responsible officer after review of credit

department recommendations and supporting evidence.
d. Write-offs must be authorized by company field sales employees who are in a position
to determine the financial standing of the customers.
3. An entity’s internal control structure requires every check request that there be an approved
voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To
determine whether checks are being issued for unauthorized expenditures, an auditor most
likely would select items for testing from the population of all
a. Cancelled checks. c. Purchase orders.
b. Approved vouchers. d. Receiving reports.

4. Which of the following auditing procedures would the auditor not apply to a cutoff
bank statement?
a. Trace year end outstanding checks and deposits in transit to the cutoff bank statement.
b. Reconcile the bank account as of the end of the cutoff period.
c. Compare dates, payees and endorsements on returned checks with the cash
disbursements record.
d. Determine that the year end deposit in transit was credited by the bank on the first
working day of the following accounting period.

5. A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of
P100,000. The other account, Bank B, has a positive balance of P50,000. To conceal the
overdraft from the auditor, the client may decide to
a. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the receipt but
not the disbursement and list the receipt as a deposit in transit. Record the disbursement at
the beginning of the following year.
b. Draw a check for at least P100,000 on Bank B for deposit in Bank A. Record the receipt but
not the disbursement and list the receipt as a deposit in transit. Record the disbursement at
the beginning of the following year.
c. Draw a check for P100,000 on Bank B for deposit in Bank A. Record the disbursement but
not the receipt. List the disbursement as an outstanding check, but do not list the receipt as
a deposit in transit. Record the receipt at the beginning of the following period.
 d. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the
disbursement but not the receipt and list the disbursement as an outstanding check. Record
the receipt at the beginning of the following year.

6. While performing an audit of cash, an auditor begins to suspect check kiting. Which of the
following is the best evidence that the auditor could obtain concerning whether kiting is taking
place?
a. Documentary evidence obtained by vouching credits on the latest bank statement
to supporting documents.
b. Documentary evidence obtained by vouching entries in the cash account to
supporting documents.
c. Oral evidence obtained by discussion with controller personnel.
d. Evidence obtained by preparing a schedule of interbank transfers.

7. Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term
bank loan by a debit to cash and a credit to sales. Which of the following is the most effective
procedure for detecting this type of error?
a. Analyze bank confirmation information.
b. Analyze the notes payable journal.
c. Prepare year-end bank reconciliation.
d. Prepare a year-end bank transfer schedule.

8. Postdated checks received by mail in settlement of customer’s accounts should be

a. Returned to customer.
b. Stamped with restrictive endorsement.
c. Deposited immediately by the cashier.
d. Deposited the day after together with cash receipts.

9. The cashier of Milady Jewelries covered a shortage in the cash working fund with cash obtained
at December 31 from a bank by cashing but not recording a check drawn on the company out of
town bank. How would you as an auditor discover themanipulation?
a. By confirming all December 31 bank balances.
b. By counting the cash working fund at the close of business on December 31.
c. By investigating items returned with the bank cut-off statements of the succeeding month.
d. By preparing independent bank reconciliations as of December 31

10. An essential phase of the audit of the cash balance at the end of the year is the auditor's review
of cutoff bank statement. This specific procedure is not useful in determining if
a. Kiting has occurred.
b. Lapping has occurred.
c. The cash receipts journal was held open.
d. Disbursements per the bank statement can be reconciled with total checks written.