73) Junior Philippine Institute of Accountants C3 University of Cebu - Banilad Chapter CASH & CASH EQUIVALENTS TEST BANK A. TRUE or FALSE 4. Cash is measured at face value. 2, Savings accounts are usually classified as cash on the balance sheet. ___"3. Restricted cash may be available to meet the normal operating needs ofa ‘company. 4. Certificates of deposit are usually classified as cash on the balance sheet 5. Companies include postdated checks and petty cash funds as cash. 6. Cash equivalents are investments with original maturities of six months or less. __7. Bank overdrafts are always offset against the cash account in the balance sheet. 8. Postdated checks received cannot be considered as cash yet because these checks are unacceptable by the bank for deposit and immediate credit or outright encashment. Equity securities may qualify as cash equivalents. 10. If the deposit is not legally restricted because of an informal compensating balance agreement, the compensating balance is part of cash if the related loan is short-term, B. MULTIPLE CHOICE - THEORY 1. As contemplated in accounting, cash includes a. Money only b. Money and any negotiable instrument c. Any negotiable instrument d.Money and any negotiable instrument that is payable inmoney and acceptable by the bank for deposit and immediate credit 2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be a. Unrestricted in use for current operations b. Available for the purchase of property, plant and equipment ¢. Set aside for the liquidation of long-term debt 4. Deposited in the bank 3, 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 investments that are readily convertible into cash and juired three months before maturity d. Short-term and highly liquid marketable equity securities4. All of the following can be classified as cash and cash equivalents, except? a. Redeemable preference shares acquired and due in 60 days ». Commercial papers held and due for repayment in 90 days . Equity investments 4. Abank overdraft 5. Which is false concerning measurement of cash and cash equivalents? a. Cash is measured at face value b.Cash in foreign currency is measured at the current exchange rate ¢. If a bank or financial institution holding the funds of the company isin bankruptcy or financial difficulty, cash should be written down to estimated realizable value Cash equivalents should be measured at maturity value, meaning face value plus interest. 6. If material, deposits in foreign bank which are subject to foreign exchange restriction, should be classified 8. Separately as current asset, with appropriate disclosure bb. Separately as a non-current asset with appropriate disclosure ¢. Be written off as an extraordinary loss d. As part of eash and eash equivalents 7. Bank overdraft a Is adebit balance in a cash in bank account ’. Is offset against demand deposit account in another bank Which cannot be offset is classified as a current liability @LWhich cannot be offset is classified as non-current liability 8, A compensating balance ‘a. Must be included in cash and cash equivalent b.Which is legally restricted and related to a long-term loan is classified as a current asset . Which is legally restricted and related to a short-term loan is classified separately as a current asset 4. Which is not legally restricted as to withdrawal is classified separately as, current asset 9, Unreleased checks (checks drawn before the end of reporting period but held for later delivery to creditors) a. Shall be treated as outstanding checks . Shall be restored to the cash balance Shall be treated as outstanding checks if the date is shortly after the end of reporting period, .Shall be treated as outstanding checks if they are ultimately encashed. 10. Which of the following shallot be considered “cash” for financial reporting purposes? a, Petty cash funds and change funds b. Money orders, certified checks and personal checks Coin, currency and available funds d. Postdated cheeks and IOUs11. Which of the following is usually considered cash? a. Certificates of deposit b. Checking accounts ¢. Money market saving certificate 4d. Postdated check 12. Petty cash fund is a. Separately classified as current asset b, Money kept on hand for making minor disbursements of coin and currency rather than by writing checks ¢. Set aside for the payment of payroll Restricted cash 13. The petty cash account under the imprest fund system isdebited a, Only when the fund is created b. When the fund is created and every time it is replenished . When the fund is created and when the size of the fund is increased dl. When the fund is created and when the size of the fund is decreased 14. The internal control feature that is specific to petty cash is, a. Separation of duties b. Assignment of responsibility ¢. Proper authorization 4d. Imprest system 15, What is the major purpose of an imprest petty cash fund? a. To effectively plan cash inflows and outflows . To ease the payment of cash to vendors ¢. To determine the honesty of the petty cashier 4. To effectively control cash disbursements MULTIPLE CHOICE ~ COMPUTATIONAL, 16. Consider the following: Cash in Bank ~ checking account of $13,500, Cash on hand of $500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling $124,000. How much should be reported as cash in the balance sheet? a. $13,500. b. $14,000. ©. $ 17,500. 4. $131,500 17. On January 1, 2010, Lynn Company borrows $2,000,000 from National Bank at 11% annual interest. In addition, Lynn is required to keep a compensatory balance of 200,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Lynn pays on its $2,000,000 loan is a. 10.0%. b. 11.0%.115%, 4.116% 18. Kennison Company has cash in bank of $10,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of a. $9,000, b. $10,000, ©. $12,000. 4. $13,000. 19. Kaniper Company has the following items at year-end. Cash in bank $20,000 Petty cash 300 Short-term paper with maturity of 2 months 5,500 Postdated checks 3.400 Kaniper should report cash and cash equivalents of a. $20,000, b. $20,300. ¢. $25,800. a. $27,200 20. Lawrence Company has cash in bank of $15,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of a. $13,000. 'b. $15,000. €. $18,000, d. $19,000. C. AUDIT of CASH & CASH EQUIVALENTS PROBLEM NO. 1 In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, 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 41,000,000 equivalent pesos) Postage stamps 1,000 Employee's post dated check 4,000 IU from controller's sister 10,000 Credit memo from a vendor for a 20,000 purchase return Traveler's check 50,000Not-sufficient-funds check 15,000 Money order 30,000 Petty cash fund (P4,000 in currency 10,000 and expense receipts for P6,000) ‘Treasury bills, due 3/31/07 (purchased 200,000 12/31/06) ‘Treasury bills, due 1/31/07 (purchased 300,000 1/1/06) Question: Based on the above information and the result of your audit, compute for the cash and cash equivalent that would be reported on the December 31, 2006 balance sheet. a. P2,784,000 €. P2,790,000 b. P3,084,000, 4. P2,704,000 PROBLEM NO. 2 In the course of your audit of the Las Pifias Corporation, its controller is attempting to determine the amount of cash to be reported on its December 31, 2006 balance sheet. ‘The following information is provided: 1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank. 2, Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction). 3-A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt. 4. Petty cash fund of P10,000. 5-An .0.U. from a company officer in the amount of P40,000. 6. A bank overdraft of P250,000 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. 7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days. 8. Las Pifias has received a check dated January 2, 2007 in the amount of P150,000. 49. Las Pifias has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit availability 10. Currency and coin on hand amounted to P15,000. Question: Based on the above and the result of your audit, how much will be reported as cash and ash equivalent at December 31, 2006? 3,025,000 ¢. P2,575,000 b. P2,825,000, 4. P5,025,000PROBLEM NO. 3 The cash account of the Makati Corporation as of December 31, 2006 consists of the following: (On deposit in current account with Real Bank P-900,000 Cash collection not yet deposited to the bank 350,000 Acustomer’s check returned by the bank for insufficient 150,000 fund Acheck drawn by the Vice-President of the Corporation, dated January 15, 2007 70,000 Accheck drawn by a supplier dated December 28, 2006 for goods returned by the Corporation 60,000 A check dated May 31,2006 drawn by the Corporation against the Piggy Bank in payment of customs duties. Since the importation did not materialize, the check was 410,000 returned by the customs broker. This check was an ‘outstanding check in the reconciliation of the Piggy Bank account, Petty Cash fund of which P5,000 is in currency; P3,600 in form of employees’ I.0.U. s; and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2006 10,000 Total 1,950,000 Less: Overdraft with Piggy Bank secured by a Chattel mortgage on the inventories gaan Balance per ledger 21,650,000 Question: At what amount will the account “Cash” appear on the December 31, 2006 balance sheet? a. P1,315,000 ¢. P1,495,000 b. Pi,g25,000 4. Pi,725,000B, MULTIPLE CHOICE. MULTIPLE CHOICE. COMPUTATIONAL, Answer Derivation 16. b $13,500 + $500 = $14,000. wd $2,000,000 .11 = $220,000 $200,000 x (.11-.05)= __12,000 Interest $232,000 $232,000 + $2,000,000 = .116 = 11.6%. ia 19, © $20,000 + $300 + $5,500 = $25,800. 20, b C. AUDIT ON CASH AND CASH EQUIVALENTS PROBLEM 1. ‘Suggested Solution: Current account at Metrobank 2,000,000 Payroll account ‘500,000 ‘Traveler's check 50,000 Money order 30,000 Petty cash fund (P4,000 in currency) 4,000 ‘Treasury bills, due 3/31/07 (purchased 12/31/06) 200,000 Total Answer: A.PROBLEM 2. Suggested Solution: Savings account at PS Bank P1,200,000 Checking account at PS Bank 1,800,000 Petty cash fund 10,000 Currency and coin 15,000 Total 3.025.000 Answer: A PROBLEM 3. ‘Suggested Solution: Current account with Real Bank P 900,000 Undeposited collection 350,000 ‘Supplier's check for goods returned by the Corporation 60,000 Unexpended petty cash 5,000 Current account with Piggy Bank (P+10,000 - P300,000) 110,000 ope 1.425.000 Answer: B