Accounting 3

Quiz # 1 – January 17/18, 2022

Name: __Key to Correction

I - Modified True or False: : On your answer sheet, write “True” if the statement is correct and if the statement is
incorrect underline the word or group of words that makes the statements incorrect.

1. Cash includes cash on hand and in bank.

2. Cash is measured at face value.
3. Money that is readily available for unrestricted used is part of cash.
4. Cash and cash equivalents should be presented as first item as current assets.
5. Undeposited customer’s checks are always presented as cash.
6. Cash includes coins and currents, bank drafts, money orders and postdated customer’s check.
7. PSA1 states that only highly liquid investments acquired three to months before maturity can qualify as cash
equivalents.
8. A compensating balance that is legally restricted as to withdrawal can be included as part of cash and cash
equivalents.
9. Checks drawn which are postdated should be reverted back to cash even if the checks are already delivered to the
payee.
10. Cash fund set aside for use in current operations is included as part of cash and cash equivalents.
11. Imprest system requires all cash receipts deposited intact with the bank and cash disbursement are made
through checks.
12. There is cash overage if cash per count is more than the cash balance per bank
13. Deposit in foreign bank should be translated at current exchange rate as of the reporting date and is always
included in cash.
14. Bank overdraft should always be offset from another bank account with a positive balance.
15. There is cash shortage if cash per count is less than the cash balance per book

II – Classification:

ABC Co. had the following balances at December 31, 2021, end of the accounting period. On your answer sheet,
write a checkmark (√) if the accounts below is to be included as part of Cash and cash equivalents. Ignore if not
included as part of Cash and cash equivalents.
1. Coins and currencies
2. Cash in checking account
3. Petty cash fund
4. Customer’s check dated , January 31, 2022
5. Travel fund
6. ABC’s check dated December 31, 2021 already mailed
7. RSL’s check dated December 30, 2021
8. Employees’ checks representing unclaimed salaries held by the treasurer
9. Money orders
10. Treasury bills acquired on November 1, 2020, maturing on January 31, 2021.
11. Investment in ordinary shares acquired on Dec. 31, 2021 expected to be sold within 3 months.
12. IOUs from employees
13. One year money market placements.
14. Investment in redeemable preference shares acquired on December 1, 2021, maturing on
March 28, 2022.
15. Checks drawn on December 26, 2021 and delivered to the payee on January 3, 2022
16. PNB current account ( bank overdraft)
17. PFR’s check received on December 27, 2021, dated January 10, 2022
18. Time deposit, 60 days
19. Cash in sinking fund set aside for bonds payable due June 30, 2024
20. Cash in a special fund for plant expansion
21. Treasury notes acquired on August 1, 2021, maturing on January 31, 2022
22. Time deposit, 120 days
 23. US$ 2,000.
24. TRJ’s check dated December 30, 2021 and received December 31, 2021.
25. Investment in money market instruments acquired on October 1, 2021, maturing on
February 28, 2022.

III – Multiple Choice: On your answer sheet, write the letter of the correct answer.

1. Which of the following is considered cash?

a) Certificate of deposit c) money market certificate
b) Checking account d) postdated check

2. All of the following may be included in cash, except?

a) currency c) checking account balance
b) money market instrument d) saving account balance

3. Technically, cash may not include:

a) foreign currency c) restricted cash
b) money order d) undeposited customer check.

4. A compensating balance is:

a) Savings account balance
b) Loan account with bank
c) Temporary investment serving as collateral for loan
d) Minimum deposit required to be maintained in connection with borrowing arrangement.

5. The internal control feature specific to petty cash is:

a) Separation of duties c) proper authorization
b) Assignment of responsibility d) imprest system

6. Deposits held as compensating balance

a) Usually do not earn interest
b) If legally restricted and held against short-term credit may be included as cash.
c) If legally restricted and held against long-term credit may be included as current assets.
d) None of the above

7. A petty cash fund is designed to

a) Cash checks for employees
b) Handle cash sales
c) Pay small miscellaneous expenses
d) Account for all cash receipts and disbursements

8. A cash equivalent is a short term highly liquid investment that is readily convertible into known amount of cash
and:
a) Is acceptable as a means to pay current liabilities.
b) Has a current market value that is greater than the original cost
c) Bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation.
d) Is so near maturity that it presents insignificant risk of change in interest rate.

9. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if
the investments have a maturity of 90 days or less:
a) From the date the investment are acquired
b) From the end of the reporting period
c) Form the date of issue of financial instruments
d) From the date the investments are acquired or from the end of the reporting period.

10. What is the major purpose of an imprest petty cash fund?

a) To effectively control cash disbursements
b) To effectively plan cash inflows and outflows
c) To ease the payment of cash to vendors
d) To determine the honesty of the petty cashier.

11. Which of the following are is not a basic characteristic of a system of internal control?
a) Surprise cash counts c) combined responsibility for handling and recording cash.
b) Voucher system d) daily deposit of all cash received
12. A petty cash fund is
a) Separately classified as current asset
b) Set aside for the payment of payroll
c) Restricted cash
d) Money kept on hand for making minor disbursements rather than by writing checks

13. Which statement in relation to petty cash fund is incorrect?

a) Each disbursement from petty cash should be supported by a petty cash voucher.
b) The establishment of a petty cash fund requires a journal entry to reflect the transfer of fund out of the
general cash fund.
c) At any time, the sum of the cash in the petty cash fund and the total of the petty cash vouchers should
equal the amount for which the petty cash fund was established.
d) With the establishment of an imprest petty cash fund, one person is given authority and responsibility for
issuing checks to cover minor disbursements.

14. Restricted deposits in foreign bank are classified as:

a) Current assets with appropriate disclosure
b) Noncurrent assets with appropriate disclosure.
c) Be written off as loss
d) As part of cash and cash equivalents

15. all of the following may be included in cash equivalents, except?

a) three month BSP treasury bill
b) three months money market instrument or commercial paper
c) three month time deposit
d) BSP Treasury bill purchased on July 1, 2021 maturing on January 30, 2022.

End
Accounting 3
Quiz # 1 – January 17, 2022
ANSWER SHEET
Name: ________________ Course__________

I – Modified True or False II – Classification III – Multiple Choice

1. 1. 16. 1.
2. 2. 17. 2.
3. 3. 18. 3.
4. 4. 19. 4.
5. 5. 20. 5.
6. 6. 21. 6.
7. 7. 22. 7.
8. 8. 23. 8.
9. 9. 24. 9.
10. 10. 25. 10.
11. 11. 11.
12. 12. 12.
13. 13. 13.
14. 14. 14.
15. 15. 15.