MANUEL L.

QUEZON UNIVERSITY
Diliman, Quezon City

INTEGRATED REVIEW I
CASH AND CASH EQUIVALENT

PROBLEM 1: BREAKDOWN OF CASH AND CASH EQUIVALENTS

In connection with your audit of LESTERRIFIC Corporation for the year ended December 31, 2018, you
gathered the following:

Cash on hand P 55,500

Reconciled balance in Eastwest Bank checking account 800,400
Reconciled balance in BPI checking account 550,000
Current account at Unionbank 300,080
Current account at BDO (25,000)
Certificate of time deposit with maturity of 3 months 1,500,000
Customer’s note receivable 80,000
Foreign bank account (restricted) 800,000
Postage stamps 1,000
Employee’s post dated check 4,000
IOU from employees 10,000
Petty cash fund (P8,000 in currency and expense 20,000
Receipts for 12,000)
Money order 30,000
Treasury bills, due 6/30/18 (purchased 3/30/18) 200,000
Treasury bills, due 12/1/18 (purchased 2/1/18) 300,000
Cash in bond sinking fund 68,000
Bond sinking fund investments 355,500
Savings deposit in a closed bank 80,000
Payroll account 775,000

1) What total amount should Lesterrific Corporation report as “cash” at December 31, 2018? _________

2) What total amount should Lesterrific Corporation report as “cash and cash equivalents” at December
31, 2018? _______________

1. As defined in PAS 7 cash comprises:

a. Cash on hand
b. Demand deposits
c. Cash equivalents
d. Both a and b

2. Which statement is incorrect regarding cash equivalents?

a. Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
b. An investment normally qualifies as a cash equivalent only when it has a short maturity of
say, three months or less from the date of acquisition
c. Equity investments are excluded from cash equivalents unless they are, in substance, cash
equivalents, for example in the case of preferred shares acquired within a short period of their
maturity and with a specified redemption date.
d. All the statements are correct

PROBLEM 2: ANALYSIS OF CASH AND CASH EQUIVALENT TRANSACTIONS

The Controller of the GREAT OCHO COMPANY is in the process of preparing the Company’s December
31, 2018 financial statements. The following items are provided to determine the correct balance of cash
and cash equivalents:

a) Savings account of P2,300,000 and a commercial checking account balance of P1,200,000 are held at
Metrobank.

INTEGRATED REVIEW I Page 1

b) Currency and coins on hand amounted to P22,400.
c) Travel advances of P189,000 for Finance and Administrative Chief for the second quarter of next year
(employee to reimburse through salary deduction).
d) Money market placement with maturity of 3 months, P10,000,000.
e) A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt.
f) The company purchased P2,255,888 of commercial paper of Gudi Corp which is due in 60 days.
g) Petty cash fund of P7,000.
h) An I.O.U. from a company supervisor in the amount of P36,000.
i) The company has two certificate of deposits, each totalling P2,000,000. These certificates of deposit
have maturity of 80 days.

Bases on the result of your audit, how much will be reported as cash and cash equivalents at December
31, 2018? ______________________

3. Compensating balance:
a. Is a minimum or average balance on deposit with a bank
b. Constitutes support for existing borrowing arrangements
c. Provides a source of funds to the lender as partial compensation for the credit extended
d. All of these

4. Which statement is correct regarding presentation of compensating balances?

a. “legally restricted” deposits held as compensating balances should be segregated and
reported separately
b. Deposits held as compensating balances that are not “legally restricted” are not shown
separately. However, footnote disclosure is necessary.
c. Both a and b
d. Neither a nor b

5. Which of the following is not a basic characteristic of a system of cash control?

a. Use of voucher system
b. Segregated responsibility for handling and recording cash
c. Internal audits at irregular intervals
d. Weekly deposit of all cash received

PROBLEM 3: ANALYSIS OF CASH AND CASH EQUIVALENT TRANSACTIONS

The following data were taken from your current working papers in connection with your audit of the
Lechoke James Company’s financial statements for the year ended December 31, 2018:

Cash account consists of the following items:

Petty cash fund P 25,000
Security Bank checking account (37,500)
Allied Bank current account 344,250
Total per GL 331,750

a) The count of cashier’s accountability on January 2, 2019, revealed total bills and coins of P9,000.
Unreplenished vouchers for various expenses totalled P16,000, of which P3,000 pertains to January
2018.
b) On December 29, 2018, a check for P87,500 was drawn against Security Bank current account
resulting in bank overdraft of P37,500. The check was picked up by the supplier on January 3, 2019.
c) Bank reconciliation statement prepared by the cashier for the Allied Bank account follows:

Bank balance P 310,500

Add: Deposit in transit P 61,250
Bank service charges 1,250 62,500
Total 373,000
Less: Outstanding checks
Check No. Amount
214 P 2,500 *
219 20,750
225 6,000
228 8,500 28,750
Book Balance P344,250
*Check certified by the bank in December 2018.

All reconciling items were traced to the bank statement. Further investigation indicated that the deposits in
transit include a customer’s post-dated check amounting to P40,000. The check represents a collection
from account customer for sales made in the middle of October 2018.

INTEGRATED REVIEW I Page 2

Based on the above and the result of your audit, answer the following:

1. How much is the adjusted balance of petty cash fund as of December 31, 2018?

a) P 12,000 b) P 9,000 c) P 13,000 d) P 16,000 e) None of the choices

2. How much is the adjusted Allied Bank current account as of December 31, 2018?

a) P 336,500 b) P 296,500 c) P 305,500 d) P 330,250 e) None of the

choices

3. How much is the cash shortage as of December 31, 2018?

a) P 46,500 b) P 9,000 c) P 6,500 d) P 0 e) None of the choices

4. How much is the adjusted cash as of December 31, 2018?

a) P 335,500 b) P 367,500 c) P 398,500 d) P 358,500 e) None of the

choices

PROBLEM 4: BANK RECONCILIATION

The following data are assembled by the accountant of the BEASTIE COMPANY:

Nov. 30, 2018 Dec. 31, 2018

Cash account balance P 41,175.00 P100,712.50
Bank statement balance 267,705.00 344,542.50
Deposit in transit 20,502.50 32,200.00
Outstanding checks 69,295.00 75,280.00
Bank service charges 1,800.00 1,500.00
NSF check 20,625.00
Credit Memos 179,537.50 202,250.00

*Redeposited in the same month. No entries made to take up the return and redeposit.

The bank statement and the company’s cash records show the following totals:

Cancelled checks and debit memos per bank statement P545,932.50

Cash receipts per cash book 591,130.00
Cash written per cash book 531,592.50
Deposits and credit memos per bank statement 622,770.00

1. What is the total book receipts in December?

a) P 580,330.00 b) P 411,592.50 c) P 591,130.00 d) P 613,842.50

2. What is the total book disbursements in December?

a) P 531,292.50 b) P 533,092.50 c) P 529,792.50 d) P 531,592.50

3. What is the adjusted book balance on November 30?

a) P 220,712.50 b) P 222,512.50 c) P 218,912.50 d) P 217,412.50

4. The adjusted bank receipts in December should be?

a) P 634,467.50 b) P 632,667.50 c) P 622,770.00 d) P 634,168.50

5. The adjusted bank disbursements in December should be?

a) P 551,917.50 b) P 548,917.50 c) P 552,517.50 d) P 545,932.50

6. What is the adjusted book balance on December 31?

a) P 280,537.50 b) P 322,087.50 c) P 302,662.50 d) P 301,462.50

INTEGRATED REVIEW I Page 3

PROBLEM 5: BOOK TO BANK METHOD

The auditor of PASTOR HOKAGE INC. gathered the following information:

A. The November 30 bank statement balance include bank service charges of P2,000.

B. The November 30 cash balance in the general ledger was P244,500.

C. Outstanding checks on November 30 were P63,000 while undeposited receipts were P36,000.

D. The bank service charges as shown on the bank statement totalled P3,000.

E. The December 31 cash balance in the general ledger was P319,750, which recognized
P482,750 for December receipts and P407,500 for checks written during December. In transit to
the bank were receipts of P28,750. Checks of P15,000 written prior to December and checks of
P60,500 written in December had not yet cleared the bank.

1. What is the total book disbursements for December?

a) P 405,500 b) P407,500 c) P 404,500 d) P 403,500

2. What is the November 30 bank balance?

a) P 266,500 b) P268,500 c) P 269,500 d) P 271,500

3. What is the total bank disbursements in December?

a) P 396,000 b) P408,500 c) P 405,500 d) P 419,000

4. What is the total bank receipts in December?

a) P 488,000 b) P497,250 c) P 482,750 d) P 490,000

5. What is the total bank balance on December 31?

a) P 366,500 b) P322,750 c) P 363,500 d) P 316,750

6. Important elements of an internal control system for cash disbursements include each of the
following except:
a. Only authorized personnel should sign checks
b. All expenditures should be authorized before a check is prepared
c. All disbursements, other than very small disbursements, should be made by check
d. The same person that prepares the check should also record it the proper journal

7. The cash receipts function should be separated from the related record keeping in an
organization to
a. Physically safeguard the cash receipts
b. Establish accountability when the cash is first received
c. Prevent paying cash disbursements from cash receipts
d. Minimize undetected misappropriations of cash receipts

8. Which of the following is true regarding the imprest petty cash system?
a. Entries are made to the Petty Cash account only to increase or decrease the size of the fund
b. The Petty Cash account is debited when the fund is replenished
c. The imprest petty cash system in effect adheres to the rule of disbursement by check
d. All of these are not true

9. A cash over or short account:

a. Is not generally accepted
b. Is debited when the petty cash proves out over
c. Is debited when the petty cash fund proves out short
d. Is a contra account to cash

INTEGRATED REVIEW I Page 4