ACTIVITY 1 (A01) – Overview of Cash and Cash Equivalents

PROBLEM 1

EXTRA Company reported a total cash and cash equivalents in the amount of P9,000,000 as
of the year ended 2019. The details were as follows:

Cash on hand ₱ 2,000,000

Cash in bank 2,500,000
Cash funds 2,500,000
Total Cash ₱ 7,000,000
BSP treasury bills ₱ 1,000,000
Commercial papers 500,000
Money market placements 300,000
Time deposits 200,000
Total cash equivalents ₱ 2,000,000
Total cash and cash equivalents ₱9,000,000

Additional information:

1. The cash on hand reflected includes P800,000 “restricted” for real estate expansion.
2. The cash in bank reflected equals the cash in the bank’s records.
3. The cash funds are as follows:
• Half of which represents long-term sinking fund.
• The remaining half are all considered part of “unrestricted cash”, and which
includes petty cash fund of P20,000 (bills and coins: P2,000; voucher
expenses: P15,000; IOUs: P3,000).
4. The commercial papers were purchased two months prior to maturity.
5. The money market placements with three-year maturity period was purchased
three months ago. December 31, 2019 is the maturity date.
6. The BSP treasury bills was purchased one year ago with a remaining two months to
mature.

Requirements:
Based on the information given and showing your solutions, compute for the following:

1. Correct “cash” balance.

2. Correct “cash equivalents” balance.
3. Correct “cash and cash equivalents” balance.

Requirement 1:

Cash on Hand ₱ 1,200,000

Cash in Bank 2,500,000 Cash Funds
1,232,000
Total Cash ₱ 4,932,000

Solution:

Cash on Hand (Unadjusted) ₱ 2,000,000

Restricted Cash Fund for Real Estate Expansion (800,000)
Cash on Hand (Adjusted) ₱ 1,200,000

Cash Funds (Unadjusted) ₱ 2,500,000

Long-term Sinking Fund (1,250,000)
Voucher Expenses (15,000)
 Employees IOU’s (3,000)
Cash Funds (Adjusted) ₱ 1,232,000
Requirement 2:

Commercial Papers ₱ 500,000

Money Market Placements 300,000 Time
Deposits 200,000
Total Cash Equivalents ₱ 1,000,000

Requirement 3:

Cash on Hand ₱ 1,200,000

Cash in Bank 2,500,000 Cash
Funds 1,232,000
Total Cash ₱ 4,932,000 Commercial Papers ₱ 500,000
Money Market Placements 300,000 Time
Deposits 200,000
Total Cash Equivalents ₱ 1,000,000
Total Cash and Cash Equivalents ₱ 5,932,000

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PROBLEM 2

FONT Company had the following transactions during the current year 2019 related to
accounts payable:

• Purchased raw materials from a supplier for P32,000 on November 10. A check was
drawn and recorded for the same amount during that day, but remained
undelivered at the end of the year.
• Availed the services of REPAIR Shop for computer repairs on October 15. The
billings were received for P40,000 and drawn and recorded a check for the same
amount on the same day but the check bears a date of January 31, 2020.
• Received a phone call from a bank that two stale checks were presented for
encashment by payees. The first check amounted to P3,000 and is considered
immaterial, and the second check for P10,000 and is considered material.

Requirements:
1. Compute the total adjustment to “cash”.
2. Compute the total adjustment to “accounts payable”.
3. Prepare the required adjusting journal entry in additional information “a”.
4. Prepare the required adjusting journal entry in additional information “b”.
5. Prepare the required adjusting journal entry in additional information “c”.

Requirement 1:

Undelivered Check Payable to Supplier ₱ 32,000

Post-dated Check 40,000
Stale Check #1 (Immaterial) 3,000
Stale Check #2 (Material) 10,000
Total amount as adjustment to Cash ₱ 85,000

Requirement 2:

Undelivered Check Payable to Supplier ₱ 32,000

 Post-dated Check 40,000 Stale Check #2 (Material) 10,000
Total amount as adjustment to Accounts Payable ₱ 82,000

Requirement 3:

Cash/Cash in Bank ₱ 32,000 Accounts

Payable ₱ 32,000
To adjust cash due from undelivered check

Requirement 4:

Cash/Cash in Bank ₱ 40,000 Accounts

Payable ₱ 40,000
To adjust cash due from post-dated check

Requirement 5:

Cash/Cash in Bank ₱ 3,000

Other Income ₱ 3,000
To adjust cash due to stale checks (Immaterial)

Cash/Cash in Bank ₱ 3,000 Accounts Payable ₱ 3,000

To adjust cash due to stale checks (Material)