Assessment Task 1: Cash & Cash Equivalent

QUESTIONS

1. Explain the meaning of “cash equivalents”

Cash equivalents are short-term investment securities with assets; they have a

high credit rating and are extremely liquid. Cash equivalents, also known as
"cash and equivalents," are one of the three main asset classes in financial
investment along with stocks and bonds.

2. Explain the classification of investments of excess cash in time deposits, money market
instruments and treasury bills.

Investment in time deposit, money market instruments and treasury bills should be
classified as follows:a.If the term is three months or less– considered as cash
equivalentsb.If the term is more than three months but within one year – classified
as short-term financialassets or temporary investments and presented separately as
current assets.c.If the term is more than one year– classified as noncurrent or long-
term investments. However,when such investments become due within one year
from the end of reporting period, they are reclassified as current or temporary
investments

3. What is a compensating balance? Explain its treatment and classification.

4. Explain the imprest system of internal control.

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5. Explain the two methods of accounting for petty cash fund. Which method is preferable?
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Multiple choice (ACP)

1. Which of the following shall not be considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks and personal checks
c. Coin, currency and available funds
d. Postdated checks & IOUs

2. Which of the following is usually considered cash?

a. Certificate of deposit
b. Checking account
c. Money market saving certificate
d. Postdated check

3. To be reported as “cash and cash equivalent”; the cash item must be

a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation on long-term debt
d. Deposited in bank

4. Cash equivalents 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 investment that are readily convertible into
cash and acquired three months before maturity
d. Short-term and highly liquid marketable equity securities

5. The amount reported as "Cash" on a company's statement of financial position

normally should exclude
a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.
6. Which of the following would not be classified as cash?
a. Personal checks
b. Travelers' checks
c. Cashiers' checks
d. Postdated checks

7. What is the proper accounting treatment for a stale check?

a. Revert back to cash and accounts payable.
b. Revert back to cash and a credit to gain.
c. Ignored
d. Either a or b

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

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

9. The principal purpose of a voucher system is to provide assurance that

a. all cash receipts are deposited intact in the bank.
b. all cash disbursements are approved before a check is issued.
c. all cash receipts are recorded in the accounting records.
d. all purchase invoices are supported by debit memoranda.

10. On January 1, 2020, Kyle Corporation established a petty cash fund of ₱400. On
December 31, 2020, the petty cash fund was examined and found to have receipts and
documents for miscellaneous expenses amounting to ₱364. In addition, there was
cash amounting to ₱44. What entry would be required to record replenishment of the
petty cash fund on December 31, 2020?

a. Petty Cash.................... 364

Cash Short and Over......... 8
Cash in bank 356
b. Miscellaneous Expense......... 364
Cash Short and Over......... 8
Petty Cash.................. 356
c. Miscellaneous Expense......... 364
Cash Short and Over......... 8
Cash in bank 356
d. Miscellaneous Expense......... 356
Cash Short and Over......... 8
Cash in bank 364

11. On December 31, 2019, West Company had the following cash balances:
 Cash in banks P1,800,000
Petty cash funds (all funds were reimbursed on 12/31/19) 50,000 Cash in
banks includes P600,000 of compensating balances against short-term borrowing
arrangements at December 31, 2019. The compensating balances are not legally
restricted as to withdrawal by West. In the current assets section of West's December
31, 2019, balance sheet (statement of financial position), what total amount should be
reported as cash?
a. P1,200,000
b. P1,250,000
c. P1,800,000
d. P1,850,000
12. Trans Co. had the following balances at December 31, 2019:
Cash in checking account P 35,000
Cash in money market account
75,000
Treasury bill, purchased 11/1/2019, maturing 1/31/2020
350,000
Treasury bill, purchased 12/1/2019, maturing 3/31/2020
400,000
Tran’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, 2019, balance sheet
(statement of financial position)? a. P110,000
b. P385,000
c. P460,000
d. P860,000

13. The cash balance of Flexibond Co. comprises the following:

Cash on hand 300,000
Cash in bank – savings – BPI 600,000
Cash in bank – current – BPI (240,000)
Cash in bank – deposit in escrow – Metrobank 300,000
Cash in bank – current – Metrobank ( 60,000)
Cash in bank – current – BDO ( 90,000)
Total 810,000

Additional information:
• Cash on hand includes undeposited collections of P60,000.
• The cash in bank – savings maintained at BPI includes a P150,000 compensating
balance which is not restricted.
What amount of cash is reported in the financial statements?
a. 660,000
b. 810,000
c. 900,000
d. 960,000
 14. As of December 31, 2019, the petty cash fund of APOSTOL Co. with a general
ledger balance of P15,000 comprises the following:
Coins and currencies P 2,550
Petty cash vouchers:
Gasoline for delivery equipment P3,000
Medical supplies for employees 2,040 5,040
IOU’s:
Advances to employees 2,220
A sheet of paper with names of several employees
together with contribution to bereaved employee,
attached is a currency of 2,400
Checks:
Check drawn to the order of the petty cash custodian 3,000
Personal check drawn by the petty cash custodian 2,400
The entry to record the replenishment of the petty cash fund includes
a. A debit to cash short/overage account of P2,190 and a credit to cash on hand of P9,450.
b. A credit to cash short/overage account of P810 and a credit to cash of P12,450.
c. A debit to cash short/overage account of P810 and a credit to petty cash fund of P12,450.
d. A debit to cash short/overage account of P2,190 and a credit to cash in bank of P9,450.

15. Burr Company had the following account balances on December 31, 2020:

Cash in bank 2,250,000

Cash on hand 125,000
Cash restricted for addition to plant and
Expected to be disbursed in 2021 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term

borrowing arrangement. The compensating balance is not legally restricted as to
withdrawal by Burr Company.

In the December 31, 2020 statement of financial position, what amount should be
reported as “cash”? a. 1,775,000
b. 2,250,000
c. 2,375,000
d. 3,975,000

PROBLEM SOLVING:

Problem 1.
On December 31, 2020, the cash account of Tonette Company has a debit balance of P3,500,000.
An analysis of the cash account shows the following details:
Undeposited collections 60,000
Cash in bank – PCIB checking account 500,000
Cash in bank – PNB (overdraft) (50,000)
Undeposited NSF check received from the customer,
 Dated December 1, 2020 15,000
Undeposited check from a customer, dated
January 15, 2021 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) 2,000,0
00
Cash in foreign bank (restricted)
100,000
IOUs from officers 450,000
Sinking fund cash 120,000
Listed shares held as trading investment
3,500,000

Required:
a. Compute the cash and cash equivalents that should be reported in the statement of
financial position.
b. Prepare one adjustment to correct the cash account.
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Problem 2.

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The December 31, 2020 trial balance of Karla Company includes the following accounts:
Cash on hand 500,000
Petty cash fund 20,000
Security Bank current account
1,000,000
PNB current account No. 1 400,000
PNB current account No. 2 (50,000)
BSP treasury bill – 60 days 3,000,000
The BPI time deposit- 30 days 2,000,000
• BPI time deposit – 30 The cash on hand includes a customer postdated check of
P100,000 and postal money order of P40,000.
• The petty cash fund includes unreplenished petty cash vouchers for P2,000 and an
employee check for P3,000 dated January 31, 2021.
• A check for P200,000 was drawn against Security Bank account, dated January
15, 2021, delivered to the payee and recorded December 31, 2020.
• The BPI time deposit is set aside for acquisition of land to be used as a factory
site.
Required:
1. Cash on hand
2. Petty cash fund
3. Security Bank current account
4. Cash and cash equivalents
5. Adjusting entries on December 31, 2020
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Problem 3.
Lynx Company closed its book on June 30, 2020. Lynx Company provided the following
transactions:
May 2 The entity established an imprest fund of P10,000.
29 The fund is replenished. The petty cash items include:
Currency and coin 2,000
Postage 1,000
Supplies 3,000
Transaction 2,500
Miscellaneous expenses 1,500
June 30 The fund was not replenished. The fund is composed of the following:
Currency and coin 6,000
Supplies 2,000
Postage 1,000
Transportation 1,000
July 15 The fund is replenished and increased to P15,000.
Currency and coin 3,000
Supplies 3,500
Postage 1,500
Transportation 1,500
Miscellaneous expenses 500
Required: Prepare entries to record the transactions under imprest fund system and fluctuating
fund system.
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Problem 4.
The December 31, 2020 trial balance of Celine Company includes the following accounts:
Cash on hand 200,000
Petty cash fund 20,000
Philippine Bank current account 5,000,000
Manila Bank current account 4,000,000
City Bank current account (100,000)
Asia Bank saving account 250,000
Asia Bank time deposit, 90 days 2,000,000

• Cash on hand includes the following items:

o Customer’s check for P35,000 returned by bank December 26, 2020 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 10,
2021.
o Customer’s check for P15,000 dated January 10, 2021 received December 23, 2020.

• The petty cash consists of the following items on December 31, 2020
Currency and coins 5,000
IOUs from officers 2,000
Unreplenished petty cash vouchers 12,000

• Included among the checks drawn by Celine against the Philippine Bank current account
and recorded in December 2020 are the following:
o Check and written and dated December 23, 2020 and delivered to payee on January
3, 2021, P25,000. o Check written December 26, 2020, dated January 30, 2021,
delivered to payee on December 28, 2020, P45,000.

• The credit balance in City Bank current account represents checks drawn in excess of the
deposit balance which are still outstanding at December 31, 2020.

• The saving account deposit in Asia bank has been set aside by the Board of Directors for
acquisition of new equi8pment. This amount is expected to be disbursed in the next 3
months from the end of the reporting period.

Required:
1. Cash on hand
2. Petty cash fund
3. Philippine Bank current account
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4. Cash and cash equivalents
5. Adjusting entries on December 31, 2020
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Problem 5.
The cash account of Maniego Company on December 31, 2019 includes the following:
Cash on hand 500,000
Petty cash fund 20,000
Cash in bank 2,000,000

• Cash on hand includes:

a. Customer check of P40,000 return by Bank December 26, 2019 due to
insufficient fund but subsequently redeposited and cleared by bank January 5,
2020
b. Customer check for P60,000 dated January 15, 2020 received December 22,
2019.
c. Postal money orders received from customer P50,000

 The petty cash fund consists of the following items:

 Currency and coins 1,00
0
Employee’s vales 3,00
Currency in envelope marked “collections for 0
Christmas party 14,0
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Check drawn by Karen payable to petty cash 20,0
00

• Included among the checks drawn by Maniego against its current account and
recorded in December 2019 are:
a. Check written and dated December 22, 2019 and delivered to payee on January
5, 2020, P100,000.
b. Check written December 26, 2019 and dated January 31, 2020delivered to
payee on December 26, 2019, P150,000

Required: Compute for the following:

1. Cash on hand 3. Cash in bank
2. Petty cash fund 4. Adjusting entries on December 31, 2019
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