PROBLEM 1.

R117
MM Co. organized on March 1, 2020 has a very poor internal control system. The cashier is also its accountant.
After 9 months of operation, the company’s manager suspects that the cashier-accountant has been misappropriating
company collections. You have been engaged to audit the company’s accounts to determine the extent of fraud if any.
You started the audit on Nov. 15. On that date, COH per your surprise count was 5,140. Also on that date, the
bank confirmed that the balance of the company’s current account was 26,238. Your examination of the records reveals
that a check for 1,852 was outstanding on Nov. 15. The company’s mark up is 40% of sales.
Further examination of the company’s record reveal the ff. balances at Nov. 15, 2020:
OS capital 300,000
Share premium 20,000
Real property purchased for cash 200,000
Mortgage payable 80,000
Furniture and fixtures (of the acquisition cost, 6,000
Remains unpaid as of Nov. 15) 29,000
Notes payable-bank 32,000
Accounts payable-trade 46,284
Expenses paid (excluding purchases) 60,756
Merchandise inventory at cost 93,920
Accounts receivable-trade 85,380
Total sales 340,000

1. How much cash was paid for inventory purchases?

2. How much was collected from the customers?

3. How much is the cashier’s accountability at Nov. 15, 2020?

4. What is the adjusted bank balance s of Nov. 15, 2020?

5. The cash shortage as of Nov. 15, 2020 ____________

Problem 2. R31
The ff. data were taken from MM check register for the month of April. MM bank reconciliation for March
showed one outstanding check, check no. 178 for 2,150 (written on march 20), and one deposit in transit for 4,350
(made on march 31)

DATE ITEM CHECKS DEPOSITS BALANCE

2020
April 1 beg. Bal. 6,150
1 deposit 26,167 32,317
1 check no. 179 250 32,567
4 check no. 180 10,673 21,898
27 deposit 11,774 33,672
29 check no. 181 13,217 20,490

The ff. is from MM’s bank statement for April :

DATE ITEM CHECKS DEPOSITS BALANCE

 2020
April 1 beg. Bal. 3,950
3 check no. 179 250 3,700
3 deposit 4,350 8,050
5 check no. 180 10,673 (2,623)
5 automatic loan 8,150 5,527
5 deposit 26,417 31,944
20 NSF check 1,000 30,944
20 service charge 600 30,344
30 interest 82 30,426

Assume that any errors or discrepancies you find are MM’s not the bank’s.

WHAT IS THE ADJUSTED CASH BALANCE AS OF APRIL 30?__________________

PROBLEM 3 o29
In connection of your audit of MM Corporation for the year ended Dec. 31, 2017, you gathered the following:
Current account at Metrobank 2,000,000
Current Account at BPI (100,000)
Payroll account 500,000
Foreign bank account-restricted (in pesos) 1,000,000
Postage stamps 1,000
Employee’s PDC 4,000
IOU from president’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
NSF checks 15,000
Money order 30,000
PCF (4,000 in currency and 6,000 expense receipts) 10,000
Treasury bills due 3/30/18 (purchased 12/29/17) 200,000
Treasury bills due 1/31/18 (purchased 2/1/17) 300,000
Compute the cash and cash equivalents to be reported on Dec. 31, 2017.

PROBLEM 4 o33
You noted the composition of MM Company’s “cash account” as of Dec. 31, 2017 in connection with your audit.
Demand deposit account 2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 2018) 1,500,000
Savings deposit on closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
PCF 10,000
Customer’s check dated Jan. 1, 2018 50,000
Customer’s outstanding for 18 months 40,000

Additional information follows:

-Check of 200,000 in payments of accounts payable was recorded on 12/31/2017 but mailed to suppliers on
1/5/2018.
-Check of 100,000 dated 1/15/2018 in payments of accounts payable was recorded and mailed on
12/31/2017.
-The company uses the calendar year. The cash receipts journal held open until 1/15/2017, during which
time 400,000 was collected and recorded on 12/31/2017.
PROBLEM 5 o34

The cash account in the ledger of MM Co. had a balance of 844,800 at Dec. 31, 2017. An examination of the
account, however, disclosed the following:

1. The sales book left open up to Jan. 5, 2018 and cash sales totaling 120,000 were considered as sales in Dec.
2. Checks of 74,400 in payment of liabilities were prepared before Dec. 31, 2017, recorded in the books, but
not mailed or delivered to payees.
3. PDC totaling 62,400 are being held by the cashier as part of cash. The company’s experience shows that PDC
are eventually realized.
4. Customer’s check for 12,000 deposited but returned by the bank, NSF on Dec. 27, 2017.
5. The cash accounts includes 3320,000 earmarked for the purchase of personal computers which will be soon
be delivered.

The cash to be shown on statement on financial position on Dec. 31, 2017 should be…

PROBLEM 6 o35

You were able to gather the ff. from Dec. 31, 2017 trial balance of MM Corp. in connection with your audit of the
company.

Cash on hand 500,000

PCF 10,000

BPI current account 1,000,000

Security bank current account # 1 1,080,000

Security bank current account # 2 (80,000)

PNB savings account 1,200,000

PNB time deposit 500,000

Cash on hand includes the ff. items:

1. Customer’s check for 40,000 returned by the bank on Dec. 26, 2017 due to insufficient fund but
subsequently redeposit and cleared by the bank on Jan. 8, 2018.
2. Customer’s check for 20,000 dated Jan. 2, 2018 received on Dec. 29, 2017.
3. Postal money orders received from customers, 30,000.

The PCF consisted of the ff. items as of Dec. 31, 2017:

Currency and coins 2,000

Employee’s vales 1,600

Currency in an envelope marked “collection for charity” w/ names attached 1,200

Unreplenished petty cash vouchers 1,300

Check drawn by MM Corp., payable to petty cash custodian 4,000

Included among the checks drawn by MM Corp. against the BPI current account and recorded on Dec. 10, 2017 are the
ff.

a. Check written and dated Dec, 29, 2017 and delivered to payee on Jan. 2, 2018, 80,000.
b. Check written on Dec. 27, 2017, dated Jan. 2, 2018, delivered to payee on Dec. 29, 2017, 40,000.

The credit balance in the Security Bank current account #2 represents checks drawn in excess of the deposit balance.
These checks are still outstanding at Dec. 31, 2017.

The savings account deposit in PNB has been set aside by the board of directors for the acquisition of equipment. The
account is expected to be disbursed in the next 3 months after the end of the reporting period.

Determine the correct amount of cash and cash equivalents…