AUDIT OF CASH AND CASH EQUIVALENTS

Problem 1: Problem 3:
The following information has been extracted from the The controller of the OTO Company is in the process of
accounting records of the Hazelnut Company at December 31, preparing the company’s December 31, 2014 financial
2014: statements. He is trying to determine the correct balance of
cash and cash equivalents reported as a current asset in the
Cash on hand (undeposited sales receipts) P 40,800 statement of financial positon. The following items are being
Certificate of time deposit with maturity of considered:
3months 1,000,000  Savings account of P900,000 and a checking account
Customer’s note receivable 40,000 balance of P1,200,00 are held at Manila Bank.
Reconciled balance in AA Bank checking account (14,000)  Money market placement with maturity of 3 months,
Reconciled balance in BB Bank checking account 374,000 P7,500,000.
Balance in CC savings account 342, 400  Currency and coins on hand amounted to P11,550
Customers postdated check 54,000  Travel advances of P270,000 for the first quarter of
Employee travel advances 64,000 next year (employee reimbursement will be through
Cash in bond sinking fund 48,000 salary deduction)
Bond sinking fund investments 323,600  Oto Company has purchased P3, 150,000 of
Postage stamp 17,200 commercial paper of Mendez Corp. which is due in
60 days.
What amount should Hazelnut Company report as “cash” at  A separate cash fund amounting to P2, 250,000 is
December 31, 2014? restricted for the retirement of long-term debt.
a. 805,200
 Petty cash fund of P1,500
b. 757,200
 An IOU from an employee of Oto Company in the
c. 743,200
amount of P2,000
d. 703,200
 Two certificates of deposit, each totaling P500,000.
These CDs have a maturity of 120 days.
Solution:
 Oto company has received a check from a customer
Cash on hand (undeposited sales receipts) P 40,800
in the amount of P187,500 dated January 15, 2015.
Reconciled balance in BB Bank checking account 374,000
 Oto Company has agreed to maintain a cash balance
Balance in CC savings account 342, 400
of P50,000 at all times at Manila Bank to ensure
Total Cash P757,200
future credit availability.
 On January 1, 2014, Oto Company purchased
Problem 2:
marketable equity securities to be held as trading for
The controller of the Lyric Co. is trying to determine the
P3, 000,000. On December 31, 2014, its market calue
amount of cash and cash equivalents to be reported on its
of P4,300,000.
December 31, 2014, statement of financial position. The
following information is provided:
What should be reported as cash and cash equivalents of
December 31, 2014?
 Balances in the company’s account at the Monte a. P13, 763,050
Bank: b. P12,575,550
Checking account – P 540,000 c. P12,751,500
Savings account - P 884,000 d. P12,763,050
 Undeposited customer checks of P208,000
 Currency and coins on hand of P 23,200
Solution:
 Savings account at the Naic bank with a balance of Savings account-Manila Bank P 900,000
P350,000. This account is being used to accumulate Checking account- Manila Bank 1,200,000
cash for future plant expansion (in 2016). Money Market placement 7,500,000
 P800,000 balance in a checking account at the Naic Petty cash 1, 500
Bank. In exchange for a line credit, Lyric Co. has Commercial paper 3,150,000
agreed to maintain a minimum balance of 100,000 in Currency and coins on hand 11,550
this account. Total cash and cash equivalents P12,763,050
 Treasury bills: 30-day maturity bills totaling
P600,000 and 180-day bills totaling P800,000.

What total amount of “cash and cash equivalents” should be

reported in the current asset section of the 2014 statement of
financial positon?
a. 3, 055,200
b. 2, 455,200
c. 2, 955,200
d. 2, 355,200

Solution:
Balance in Monte Bank Checking account P 540,000
Balance in Monte Bank Savings account 884,000
Undeposited customer checks of 208,000
Currency and coins on hand of 23,200
Checking account at the Naic Bank 800,000
Treasury bill - 30-day maturity 600,000
Total cash and cash equivalents P 3, 055,200