SGPET CPA Review Batch 9

Auditing Problem (AP)

HOMEWORK: Audit of Cash and Cash Equivalents
CPA I CAN, CPA WE CAN!

CPA 2018
 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 1

The controller of MANILYN COMPANY is attempting to determine the amount of cash to be reported on its December 31,
2016 Statement of Financial Position. The following information is provided:

a. Commercial savings account of P1,000,000 and a commercial checking account balance of P900,000 are held at
Phil. Banking Corporation.
b. Money market fund account held at Allied Bank (6 months term and will mature on January 31, 2017), P600,000.
c. Travel advance of P180,000 for executive travel for the first quarter of next year (employee to reimburse through
salary reduction)
d. A separate fund in the amount of P1,500,000 is restricted for the retirement of long-term debt.
e. Petty cash fund, P5,000
f. An IOU from David Santos, a company officer, in the amount of P10,000.
g. A bank overdraft of P110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the
present time, the company has no other deposits at this bank.
h. The company has two certificates of deposit, each totaling P500,000. These certificates of deposit have a maturity
of 120 days.
i. Manilyn Company has received a check that is dated January 12, 2017 in the amount of P125,000.
j. Currency and coins on hand amounted to P5,300.

Questions:

1. MANILYN COMPANY’S adjusted cash and cash equivalents balance at December 31, 2016 is:
a. P 1,910,300 b. P 2,400,300 c. P 2,510,300 d. P 3,510,300

2. The travel advance of P180,000 for executive travel should be classified as:
a. Accounts receivable c. Prepaid expenses
b. Travel expenses d. Advances to employees

SGPET CPA Review Batch 9 | Ora et Labora 1

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 2

Present journal entries to record the following transactions in the books of MAHALLA CORPORATION, which uses a
calendar year as accounting period. Assume that the company is using the imprest method in accounting for petty cash
fund:

a. A petty cash fund was set up on November 1, 2016 in the amount of P2,400.

b. On November 29, 2016, a check was issued to replenish the fund, the composition of which was as follows:
Currency – bills and coins 166
Vouchers showing expenditures for:
Office supplies 270
Charges from purchased of supplies 124
Repairs and maintenance 350
Wages paid to casual employees 950
Charges from purchased of goods to be sold 400

c. On December 18, 2016, the fund was replenished and correspondingly increased to P3,000; its composition included
the following:
Currency – bills and coins 158
Vouchers showing expenditures for:
Store supplies 304
Accounts payable 914
Charges from purchased of goods to be sold 242
Miscellaneous expenses 782

d. An examination on December 31, 2016, disclosed the following composition of the fund, although it was not
replenished on this date:
Currency – bills and coins 958
Check of office manager, dated January 5, 2017 1,000
Vouchers showing expenditures for:
Office supplies 126
Miscellaneous expenses 90
Accounts payable 800

e. On January 5, 2017, the check of office manager was cashed and the proceeds were added to the petty cash fund.

f. On January 6, 2017, replenished disbursement from December 18, 2016 to January 5, 2017.

SGPET CPA Review Batch 9 | Ora et Labora 2

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

Questions:

1. The entry to record the November 29 replenishment of petty cash fund is:
a. Operating expenses 1,694
Freight-in 400
Cash short/over 140
Cash 2,234
b. Operating expenses 2,234
Petty cash fund 2,234
c. Operating expenses 1,694
Freight-in 400
Cash short/(over) 140
Petty cash fund 2,234
d. No entry since the company is using an impress fund system.

2. The adjusted Petty Cash Fund balance of MAHALLA CORPORATION at December 31, 2016 is:
a. P 3,000 b. P 1,958 c. P 984 d. P 958

3. The entry to record the December 31, 2016 adjustment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Petty cash fund 2,042
d. No entry since there is no replenishment yet.

4. The entry to record the January 6, 2017 replenishment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Cash 2,042
d. No entry since the account has been adjusted on December 31.

SGPET CPA Review Batch 9 | Ora et Labora 3

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 3

In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATION
December 31, 2016
Balance per ledger, 12/31/16 P 34,349.72
Add: Collections received on the last day of
December and charged to “Cash in Bank”
on books but not deposited 5,324.50
Debit memo for customer’s checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00
Debit memo for bank service charge for December 1,000.00
P 46,674.22
Deduct:
Outstanding checks P 18,625
(see details below)
Credit memo for proceeds of a note receivable
which had been left at the bank for collection
but which has not been recorded as collected 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKS

December 31, 2016
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

SGPET CPA Review Batch 9 | Ora et Labora 4

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

Questions:

1. The adjusted cash balance at December 31, 2016 is:

a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by bank as 16,225
a. Should not be included in the reconciliation since the bank already gave the money to the payee.
b. Should not be included in the reconciliation since bank’s record is always followed.
c. Should be included as deduction in the book reconciliation since this is considered as book error, thus a
reconciling item.
d. Should be included as addition in the book reconciliation since this is considered as book error, thus a reconciling
item.

3. The outstanding checks at December 31, 2016 is:

a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

4. The cash balance of the company per record at December 31, 2016 is:
a. Overstated by P600 c. Understated by P 3,400
b. Overstated by P1,200 d. Overstated by P 6,600

SGPET CPA Review Batch 9 | Ora et Labora 5

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 4

On December 15 of the current year, Michael, who owns RUBY CORPORATION, asks you to investigate the cash-
handling activities in his firm. He thinks that an employee might be stealing funds. “I have no proof” he say, “but I’m fairly
certain that the November 30 undeposited receipts amounted to more than P6,000 although the November 30 bank
reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank reconciliation doesn’t show several
checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the
reconciliation because he has notified the bank to stop payment on them and he had made the necessary payment on
the books.

At your request, Michael showed you the following November 30 bank reconciliation prepared by the cashier.

Bal. Per bank statement P 2,360.12 Bal. Per Books P 5,385.22

Deposit in transit 3,619.20 Bank Service charge ( 30.00)
Outstanding checks Unrecorded bank CM ( 600.00)
# 2351 550.10
2353 289.16
2354 484.84 ( 1,224.10) ________
Adjusted Balance P 4,755.22 Adjusted Balance P 4,755.22

You discover that the P600 unrecorded bank credit represents a note collected by the bank on Michael’s behalf. It appears
in the deposits column of the November bank statement. Your investigation also reveals that the October 31 bank
reconciliation showed three checks that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for
P233.45, and No. 1512 for P126.55.

You also discover that these items were never added back into the cash account in the books. In confirming that the
checks shown on the cashier’s November 30 bank reconciliation were outstanding on that date, you discover that check
No. 2353 was actually a payment of P829.16 and had been recorded on the books for the amount.

To confirm the amount of undeposited receipts at November 30, you request a bank statement for December 1-12 (called
a cut-off bank statement). This indeed shows a December 1 deposit of P3,619.20.

Questions

1. The amount of fund stolen by the cashier is:

a. P 3,160 b. P 2,500 c. P 1,840 d. P 580

2. The total outstanding checks of RUBY CORPORATION at November 30 is:

a. P 2,524.10 b. P 1,884.10 c. P 1,864.10 d. P1,224.10

3. The adjusted cash balance of RUBY CORPORATION at November 30 is:

a. P 5,955.22 b. P 5,355.22 c. P 4,115.22 d. P 3,455.22

SGPET CPA Review Batch 9 | Ora et Labora 6

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 5

In connection with the general examination of the accounts of MAHALLA TRADING COMPANY at December 31, 2016,
you obtained the information and data as shown below relative to your verification of Cash.

The record kept by the accountant showed the following:

(a) Balances at the end of the month:

December 1, 2016 December 31, 2016

Per Bank Statement P 54,000 P101,100
Per Books 50,400 70,215
Undeposited collections 3,300 7,200
Outstanding checks 6,900 * 12,000 *

* Composed of the following #6515 510 #6552 P 1,800

6517 2,250 6553 5,700
6518 2,400 6554 2,550
6519 1,740 6555 1,950

(b) Totals for the month of December, 2016:

Cash Book:
Receipts P 425,550
Disbursement 405,735
Bank Statement
Receipts P 444,225
Disbursement 397,125

After application of the necessary auditing procedures, the following were noted:

a. Footing of disbursement should be P 404,235, instead of P 405,735.

b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the following which were
charged in the statement:
1. Check #6530 dated December 15, 2016 for P2,400 - this was issued as replacement of check # 6518
which was returned by the payee because of certain erasures. No entry has been made to record the
cancellation of check #6518.
2. Check #6517 for P225 - this was erroneously recorded on the books as P2,250.
3. Check of Neil Trading for P900 - this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted directly by the broker to the
bank and credited on December 31, 2016. No entry has been made on the books to record this sale of stock
investment.
e. The company failed to record disbursement for payment of accounts payable at December 31, 2016 for P1,500.

SGPET CPA Review Batch 9 | Ora et Labora 7

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

Questions:

1. The adjusted cash receipts per ledger of MAHALLA TRADING COMPANY at December 31, 2016 is:
a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550

2. The adjusted cash disbursement per bank of MAHALLA TRADING COMPANY at December 31, 2016 is:
a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125

3. The adjusted cash ledger balance of MAHALLA TRADING COMPANY at December 31, 2016 is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

4. The adjusted cash in bank balance of MAHALLA TRADING COMPANY at December 31, 2016 is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

5. The cash shortage of MAHALLA TRADING COMPANY at December 31, 2016 is:
a. P 765 b. P 675 c. P 575 d. P 390

SGPET CPA Review Batch 9 | Ora et Labora 8

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

PROBLEM 6

Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of
December, 2015.

The bank reconciliation prepared by JACKIE ROSE COMPANY at November 30 is reproduced below:

Unadjusted bank balance P96,800 Unadjusted book balance P58,640

Add: deposit in transit 18,000 Add: CM - Note collected 40,320
Total 114,800 Total 98,960
Less outstanding checks: Less: DM bank charges 160
No. 276 P2,400
282 7,200
284 4,800
285 1,600 16,000 .
Adjusted bank balance P98,800 Adjusted balance P98,800

The December bank statement, which has a beginning balance of P96,800, is reproduced below:

May Bank
Account Name: Jackie Rose Company
Date Debits Credits
December 01 P18,000
December 02 P7,200 40,000
December 04 24,000
December 06 48,000
December 08 400,000 CM83
December 10 40,000 DM97
December 11 56,000
December 16 20,000
December 18 64,000
December 21 72,400
December 28 36,000 80,000
December 31 4,000 DM98 64,000 CM84
Totals P131,200 P842,400

DM97 – Customer’s DAIF check CM83 – Note collected by the bank

DM98 – Service Charges CM84 – Account collected by the bank

SGPET CPA Review Batch 9 | Ora et Labora 9

 AUDITING PROBLEMS (AP) – AUDIT OF CASH AND CASH EQUIVALENTS CPA 2018

The company’s cash receipts and cash disbursements journals for the month of December 2015 are provided below:

Cash Receipts Journal Cash Disbursements Journal

Date OR No. Amount Date Check No. Amount
Dec. 01 415 P40,000 Dec. 01 286 P16,000
05 416 48,000 03 287 24,000
10 417 56,000 10 288 32,000
17 418 64,000 14 289 20,000
20 419 72,000 20 290 28,000
30 420 80,000 23 291 36,000
31 421 88,800 26 292 40,000
28 293 44,000
. 31 294 48,000
Total P440,800 Total P304,000

The company’s Cash in Bank ledger appears below:

Cash in Bank
Balance P58,640 12/31/2015 CDJ P304,000
12/01/2015 GJ 40,320
12/10/2015 GJ (CM83) 400,000
12/31/2015 CRJ 440,800

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 outstanding checks as of December 31, 2015?

a. P208,000 b. P232,800 c. P216,800 d. P224,000

2. How much is the adjusted book receipts for December, 2015?

a. P985,200 b. P771,600 c. P913,200 d. P904,800

3. How much is the adjusted book disbursements for December, 2015?

a. P347,840 b. P348,000 c. P332,000 d. P339,200

4. How much is the adjusted cash balance as of December 31, 2015?

a. P664,000 b. P688,800 c. P680,000 d. P672,800

5. How much is the cash shortage as of December 31, 2015?

a. P24,240 b. P23,840 c. P15,840 d. P0

SGPET CPA Review Batch 9 | Ora et Labora 10