MULTIPLE CHOICE QUESTIONS – THEORY

1. According to IAS 7 – Statement of Cash Flows, Cash equivalent are

A. Short-term and highly liquid investments that are readily convertible into cash
B. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months
C. Short-term and highly liquid investments that are readily convertible into cash and
acquired three months before maturity
D. Short-term and highly liquid marketable equity securities

2. All of the following can be classified as cash and cash equivalents, except?
A. Redeemable preference shares acquired and due in 60 days
B. Commercial papers held and due for repayment in 90 days
C. Equity investments
D. Bank overdraft

3. Which of the following shall not be considered “cash” for financial reporting purposes?
A. Petty cash funds and change funds
B. Money orders, certified and bank drafts
C. Coin, currency and available funds
D. Postdated checks and IOUs

4. Bank overdraft
A. Is a debit balance in a cash in bank account
B. Is offset against demand deposit account in another bank
C. Which cannot be offset is classified as current liability
D. Which cannot be offset is classified as noncurrent liability

5. Cash set aside for a particular purpose (i.e. restricted) is

A. Immediately classified as non-current
B. May be classified as current or non-current depending on the purpose for its
establishment
C. Still classified as current asset regardless of the purpose for its establishment
D. Recorded in off-balance sheet records

6. Which of the following statements is incorrect

A. The accounting functions should be separate from the custodianship of entity assets
B. Certain clerical personnel in an entity should be rotated among various jobs.
C. The responsibility for receiving merchandising and paying for it should usually be
given to one person
D. An entity personnel should be given well defines responsibilities.

7. When a petty cash fund is used, which of the following is true?

A. The balance of the petty cash fund should be reported on the balance sheets as
investment
 B. The petty cashier summaries of petty cash payments serve as a journal entry that is
posted to the appropriate general ledger account.
C. The reimbursement of the petty cash fund should be credited to the cash account.
D. Entries that include a credit to the cash account should be recorded at the time the
payment from the petty cash fund is made.

8. A bank reconciliation is
A. A formal statement that lists all of the bank account balances of the entity.
B. A merger of two banks that previously were competitors.
C. A statement sent by the bank to depositor on a monthly basis.
D. A schedule that accounts for the difference between an entity’s cash balance as
shown in the bank statement and the cash balance shown in the general ledger.

9. Which of the following items must be added to the cash balance per ledger in preparing a bank
reconciliation which ends with adjusted balance?
A. Note receivable collected by the bank in favor of the depositor and credited to the
account of the depositor.
B. NSF customer check
C. Service charge
D. Erroneous bank credit

10. A proof of cash

A. is a physical count of currencies on hand at the end of reporting period.
B. is a formal statement showing the total cash receipts during the year.
C. is a four-column bank reconciliation showing reconciliation of cash balances per
book and per bank at the beginning and end of the current month and
reconciliation of cash receipts and cash disbursement of the bank and the depositor
during the current month.
D. is a summary of cash receipts and cash payments.

STRAIGHT PROBLEMS

PROBLEM 1
The controller of Clint Eastwood Co. is attempting to determine the amount of cash to be
reported on its December 31, 2014, statement of financial position. The following information is
provided.

1. Commercial savings account of P600, 000 and a commercial checking account balance of
P900, 000 are held at First National Bank of Yojimbo.
2. Money market fund account are held at Valonte Co. (a mutual fund organization) permits
Eastwood to write checks on this balance, P5, 000, 000.
3. Travel advances of P180, 000 for exclusive travel for the first quarter of next year (employee
to reimburse through salary reduction).
4. A separate cash fund in the amount of P1, 500, 000 is restricted for the retirement of long-term
debt.
5. Petty cash fund of P1, 000.
6. An I.O.U. from Marianne Koch, a company customer, in the amount of P190, 000.
7. 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 deposits at this bank.
8. The company has two certificates of deposit, each totaling P500, 000. These CDs have a
maturity of 120 days.
9. Eastwood has received a check that is dated January 12, 2015, in the amount of P125, 000.
10. Eastwood has agreed to maintain a cash balance of P500, 000 at all times at First National
Bank of Yojimbo to ensure future credit availability.
11. Eastwood has purchased P2, 100, 000 of commercial paper of Sergio Leone Co. which is due
in 60 days.
12. Currency and coin on hand amounted to P7, 700.

Required:
Compute the amount of cash and cash equivalents to be reported on Eastwood Co.’s statement of
financial position at December 31, 2014.

Answer: P8, 608, 700

PROBLEM 2
The controller of ARTS Company, in an attempt to determine the amount to be reported on its
December 31, 2014 statement of financial position as cash and cash equivalents, has identified
the following items;
 Correct cash balance in BPI, restricted for payroll payment, P350, 000
 Special account in BDO used as a bond sinking fund, P350, 000
 Postal money orders, P90, 000
 Treasury warrants, P100, 000
 Check from a customer on hand dated January 2, 2013; P180, 000
 Traveler’s check on hand, P200, 000
 Utility deposit receipt (made to Electron Company), P250, 000
 Checks to suppliers on hand (dated December 29, 2012), P45, 000

Required:
The amount to be reported by ARTS Company as cash and cash equivalents is

Answer: P785, 000

PROBLEM 3
The following data pertain to Anhie Corporation on December 31, 2014:

Current account at Metrobank P1, 800, 000

Current account at Allied Bank (100, 000)
Payroll account 500, 000
Foreign bank account (in equivalent pesos) 800, 000
Savings deposit in a closed bank 150, 000
Postage stamps 1,000
Employee’s postdated check 4, 000
IOU from employees 10, 000
Credit memo from a vendor for a purchase return 20, 000
Traveler’s check 50, 000
Money order 30, 000
Petty cash fund (P4, 000 in currency and expense receipts for P6, 000) 10, 000
Pension fund 2, 000, 000
DAIF check of customer 15, 000
Customer’s check dated 1/1/15 80, 000
Time deposit – 30 days 200, 000
Money market placement (due 6/30/15) 500, 000
Treasury bills, due 3/31/15 (purchased 12/31/14) 200, 000
Treasury bills, due 1/31/15 (purchased 1/1/14) 300, 000

Required:
Compute for the cash and cash equivalents that should be reported on the December 31, 2014
statement of financial position.

Answer: P3, 584, 000

PROBLEM 4
Intesshar Company has the following investments of excess cash as of December 31, 2013
 8%, one-year term bonds issued by James Company, dated February 1, 2013 acquired on
October 1, 2012, P420, 000
 9%, one-year term bonds issued by Duncan Company, dated March 1, 2013 acquired on
December 1, 2012, P350, 000
 100, 000, ordinary shares of Cavaliers Company acquired on December 20, 2013,
P300,000
 5,000, 8%, P50 par value redeemable preferred shares of Pistons Company was acquired
on November 1, 2013. The redemption date will be on April 1, 2014.

Required:
The amount included under cash and cash equivalents on the December 31, 2013 statement of
financial position is

Answer: P350, 000

PROBLEM 5
Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its
small cash expenditures. The following information is available for the month of April.

1. On April 1, it established a petty cash fund in the amount of P200.

2. A summary of petty cash expenditures made by the petty cash custodian as of April 10 is as
follows:
Delivery charges paid on merchandise purchased P60.00
Supplies purchased and used 25.00
Postage expense 33.00
I.O.U. from employees 17.00
Miscellaneous expense 36.00
The petty cash fund was replenished on April 10. The balance in the fund was P27.
3. The petty cash fund balance was increased from P100 to P300 on April 2.

Required:
Prepare the journal entries to record transactions related to petty cash for the month of April
using:
1. Imprest fund system
2. Fluctuating balance system

PROBLEM 6
The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains the
following:
1. Coins and currency P15.20
2. Postage stamps 2. 90
3. An I.O.U. from Richie Cunningham, an employee, for cash advance 40.00
4. Check payable to Fonzarelli’s Auto Repair from Pottsie Weber,
an employee, marked NSF 34.00
5. Vouchers for the following:
Stamps P20.00
Two Rose Bowl tickets for Nick Fonzarelli 170.00
Printer cartridge 14.35 204.35
P296.45
The general ledger account Petty cash has a balance of P300.

Required;
Prepare the journal entry to record the reimbursement of the petty cash fund.

Entries:

Accounts receivable- employee P74

Owner’s Drawings* 170
Maintenance and repairs expense 14.35
Postage expense (20-2.9) 17.10
Supplies expense 2.90
Cash short/over 6.45
Cash in bank 284.80

*this debit might also be made to the capital account.

PROBLEM 7
Angela Lansbury Company deposits all receipts and makes all payments by check. The
following information is available from cash records.

June 30 Bank Reconciliation

Balance per bank P7, 000
Add: Deposits in transit 1, 540
Deduct: outstanding checks (2,000)
Balance per books P6, 540

Month of July Results

Per Bank Per Books
Balance July 31 P8, 650 P9, 250
July deposits 5, 000 5, 810
July checks 4, 000 3, 100
July note collected (not included in July deposit) 1, 000 ------
July bank service charge 15 ------
July NSF check from a customer, returned by the bank
(recorded by bank as a charge) 335 ------

Required:
a.) Prepare a bank reconciliation going from balance per bank and balance per book to correct
cash balance.
b.) Prepare the general journal entry or entries to correct the Cash account.

PROBLEM 8
Logan Bruno Company has just received the August 31, 2014, bank statement, which is
summarized below.

Country National Bank Disbursements Receipts Balance

Balance, August 1 P9, 369
Deposits during August P32, 200 41, 569
Note collected for depositor, including P40 interest 1, 040 42, 609
Checks cleared during August P34, 500 8, 109
Bank service charges 20 8, 089
Balance, August 31 8, 089

The general ledger Cash account contained the following entries for the month of August.

Cash
Balance, August 1 10, 050 Disbursements in August 34, 903
Receipts during August 35, 000
Deposits in transit at August 31 are P3, 800, and checks outstanding at August 31 total P1, 050.
Cash on hand at August 31 is P310. The bookkeeper improperly entered one check in the books
at P146.50 which was written for P164.50 for supplies (expense); it cleared the bank during the
month of August.

Required:
a. Prepare a bank reconciliation dated August 31, 2014, proceeding to a correct balance.
b. Prepare any entries necessary to make the books correct and complete.
c. What amount of cash should be reported in August 31 statement of financial position?

MULTIPLE CHOICE QUESTIONS

BASIC CONCEPTS
1. On December 31, 2014, the cash account of Jacq Company has a debit balance of P3,500,000.
An analysis of the cash account shows the following details:

Undeposited collections P60, 000

Cash in bank-PCIB checking account 500, 000
Cash in bank-PNB (overdraft) (50, 000)
Undeposited NSF check received from a customer, dated Dec. 1, 2014 15, 000
Undeposited check from a customer, dated January 15, 2015 25, 000
Cash in bank-PCIB (fund for payroll) 150, 000
Cash in bank-PCIB (savings deposit) 100, 000
Cash in bank-PCIB (money market instrument, 90 days) 2, 000,000
Cash in foreign bank (restricted) 100, 000
IOUs from officers 30, 000
Sinking fund cash 450, 000
Listed stock held as temporary investment 120, 000
P3,500,000

Cash and cash equivalents on Jacq’s December 31, 2014 statement of financial position should
be
A. P2,760,000 C. P2,885,000
B. P2,810,000 D. P2,935,000

2. The following items were included as cash in the books of Gotch Co.:

Checking account at Security Bank (P1, 200)

Checking account at BPI 5,335
Checking account at Citytrust used for payment of salaries 5,500
Postage stamps 107
Employee’s post-dated check 2,300
I.O.U. from an employee 200
A check marked “DAIF” 1, 250
Postal money order 500
Petty cash fund (P324 in expense receipts) 500
Certificate of time deposit with BPI 5, 000
A gold ring surrendered as security by a customer who lost
his wallet (at market value) 1, 500

The correct amount that should be reported as cash is

A. P11,835 C. P16,511
B. P11,011 D. P11,511

3. Burr Company had the following account balances at December 31, 2014:
Cash in banks P2, 250, 000
Cash on hand 125, 000
Cash legally restricted for additions to plant
(expected to be disbursed in 2015) 1, 600, 000

Cash in banks includes P600, 000 of compensating balances against short-term borrowing
arrangements. The compensating balances are not legally restricted as to withdrawal by Burr. In
the current assets section of Burr’s December 31, 2014 statement of financial position, total cash
should be reported at
A. P1, 775, 000 C. P2, 375, 000
B. P2, 250, 000 D. P3, 975, 000

4. Ral Corp.’s checkbook balance on December 31, 2014, was P5, 000. In addition, Ral held the
following items in its safe on that date:
Check payable to RAl Corp., dated January 2, 2015, in
payment of a sale made in December 2014, not included
in December 31 checkbook balance P2, 000
Check payable to Ral Corp., deposited December 15 and
included in December 31 checkbook balance, but returned
by bank on December 30 stamped “NSF”. The check was
redeposited on January 2, 2015, and cleared on January 9, 500
Check drawn on Ral Corp.’s account, payable to a vendor,
dated nad recorded in Ral’s books on December 31 but not
mailed until January 10, 2015 300
The proper amount to be shown as cash on Ral’s statement of financial position at December 31,
2014, is
A. P4, 800 C. P6, 500
B. P5, 300 D. P6, 800

5. Trans Co. had the following balances at December 31, 2014:

Cash in checking account P35, 000
Cash in money market account 75, 000
PH Treasury bill, purchased 11/1/2014, maturing 1/31/2015 350, 000
PH Treasury bill, purchased 12/1/2014, maturing 3/31/2015 400, 000
Trans’s policy is to treat as cash equivalents all highly liquid investments with a maturity of three
months or less when purchased. What amount should Trans report as cash and cash equivalents
in its December 31, 2014 statement of financial position?
A. P110, 000 C. P460, 000
B. P385, 000 D. P860, 000

6. Aguinaldo Corporation had the following transactions in its first year of operations:

Sales (90% collected in the first year) P750, 000

Disbursements for costs and expenses 600, 000
Purchases of equipment for cash 200, 000
Proceeds from issuance of ordinary shares 250, 000
Payments on short-term borrowings 25, 000
Proceeds from short-term borrowings 50, 000
Depreciation on equipment 40, 000
Disbursements for income taxes 45, 000
Bad debt write-offs 30, 000

What is the cash balance at December 31 of the first year?

A. P75, 000 C. P85, 000
B. P105, 000 D. P140, 000

7. If a petty cash fund is established in the amount of P250, and contains P200 in cash and P45 in
receipts for disbursements when it is replenished, the journal entry to record replenishment
should include credit to the following accounts
A. Petty cash, P45
B. Petty cash, P50
C. Cash, P45; Cash over and Short, P5
D. Cash, P50

8. The petty cash fund of Guiguinto Company on December 31, 2014 is composed of the
following:

Coins and currencies P14, 000

Petty cash vouchers:
Gasoline payments 3, 000
Supplies 1, 000
Cash advances to employees 2, 000
Employee’s check returned by bank marked NSF 5, 000
Check drawn by the company payable to the order of the
petty cash custodian, representing her salary 20, 000
A sheet of paper with names of employees together with contribution
for a birthday gift of a c-employee in the amount of 8, 000
P53, 000
The petty cash ledger account has an imprest balance of P50, 000. What is the correct amount of
petty cash on December 31, 2014?
A. P34, 000 C. P39, 000
B. P14, 000 D. P42, 000

9. In preparing its August 31, 2014 bank reconciliation, Apex Corp. has available following
information:
Balance per bank statement, 8/31/14 P18, 050
Deposit in transit, 8/31/14 3, 250
Return of customer’s check for insufficient funds, 8/31/14 600
Outstanding checks, 8/31/14 2, 750
Bank service charges for August 100

At August 31, 2014, Apex’s correct cash balance is

A. P18, 550 C. P17, 850
B. P17, 950 D. P17, 550

10. Poe, Inc. had the following bank reconciliation at March 31, 2014:
Balance per bank statement, 3/31/14 P46, 500
Add: Deposit in transit 10, 300
56, 800
Less: Outstanding checks 12, 600
Balance per books, 3/31/14 P44, 200
Data per bank for the month of April 2014 follow:
Deposits P58, 400
Disbursements 49, 700

All reconciling items at March 31, 2014, cleared the bank in April. Outstanding checks at April
30, 2014, totaled P7, 000. There were no deposits in transit at April 30, 2014. What is the cash
balance per books at April 30, 2014?
A. P48, 200 C. P55, 200
B. P52, 900 D. P58, 500

11. The bookkeeper of Santa Clara Co. recently prepared the following bank reconciliation:
Santa Clara Co.
Bank Reconciliation
December 31, 2014

Balance per bank statement P126, 420

Add:
Deposit in transit P8, 700
Checkbook printing charge 210
Error made in recording check No. 25 (issued in Dec.) 1, 600
NSF check 5, 000 15, 510
Deduct:
Outstanding checks P4, 480
Note collected by bank (includes P50 interest) 9, 500 P13, 980
Balance per books P127, 950

Santa Clara has P9, 100 cash on hand on December 31, 2014.

The amount Santa Clara should report as cash on the statement of financial position as of
December 31, 2014 should be
A. P120, 260 C. P130, 640
B. P139, 740 D. P132, 240

12. Reconciliation of Heaven Company’s bank account at May 31, 2014 is:
Balance per bank statement 2, 100, 000
Deposits in transit 300, 000
Checks outstanding (30, 000)
Correct cash balance 2, 370, 000

Balance per book 2, 372, 000

Bank service charge (2, 000)
Correct cash balance 2, 370, 000

June data as follows:

Bank
Total credits 1, 620, 000
Total debits 2, 300, 000
Collection by bank (P400, 000 note plus interest) 420, 000
NSF check 10, 000
Balance 1, 420, 000

Books
Deposits recorded 1, 800, 000
Checks recorded 2, 360, 000
Balance 1, 810, 000

The deposits in transit on June 30, 2014 amount to

A. P120, 000 C. P900, 000
B. P480, 000 D. P 0