PHINMA-UNIVERSITY OF PANGASINAN

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

SECOND PERIODICAL EXAMINATION

Name: __________________________________ Date: _________

Section: ____________

PART I

True or False – Theories

Instructions: Letter A: True; Letter B: False

1. Cash is measured at face value.

2. The objective of PAS 1 Presentation of Financial Statements is to
prescribe the basis for presentation of general purpose financial
statements, to ensure faithful representation and verifiability. False (Intra-
Inter comparability)
3. Savings accounts are usually classified as cash on the balance sheet.
4. Restricted cash may be available to meet the normal operating needs of a
company.
5. Certificates of deposit are usually classified as cash on the balance
sheet.
6. Internal control is mainly concerned with the amount of authority a
supervisor exercises over a subordinate.
7. A highly automated computerized system of accounting eliminates the
need for internal control.
8. The safeguarding of assets is an objective of a company's system of
internal control.
9. Management is responsible for establishing a system of internal control.
10. Companies include postdated checks and petty cash funds as cash.
11. Cash equivalents are investments with original maturities of six
months or less.
12. Bank overdrafts are always offset against the cash account in the
balance sheet.
13. 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.
14. Equity securities may qualify as cash equivalents.
15. 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.
 16. Internal control consists of the plan of organization and all of the related
methods and measures adopted within a business to (a) safeguard its
assets, and (b) enhance the accuracy and reliability of its accounting
records.
17. In general, documents should be prenumbered and all documents should
be accounted for.
18. Collusion may result when one individual circumvents prescribed controls
and may significantly impair the effectiveness of a system.
19. Personnel who handle cash receipts should have the option of taking a
vacation or not.
20. The duties of approving an item for payment and paying the item should be
done by different departments or individuals.
21. The custodian of the petty cash fund has the responsibility of recording a
journal entry every time cash is used from the fund.
22. A debit memorandum could show the collection of a note receivable by the
bank.
23. To obtain maximum benefit from a bank reconciliation, the reconciliation
should be prepared by an employee who has no other responsibilities
pertaining to cash.
24. Petty cash fund is money set aside to pay small expenses which cannot be
paid conveniently by means of check.
25. Imprest fund system is the one usually followed in handling petty cash
transaction.
26. If the deposit is not legally restricted as to withdrawal by the borrower
because of an informal compensating balance agreement, the
compensating balance is part of cash.
27. If cash shortage is not material; it can be debited to miscellaneous
expense.
28. Cash can be restricted and unrestricted in use.
29. Three-year BSP treasury bill purchased three months before date of
maturity is considered as cash.
30. Internal control over cash refers to the processes, procedures, and
measures put in place by an organization to safeguard its cash assets,
ensure accuracy in cash transactions, and prevent fraud or
misappropriation of funds.

Multiple Choice - Theories

31. 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 in money and
acceptable by the bank for deposit and immediate credit

32. 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
c. Set aside for the liquidation of long-term debt
d. Deposited in the bank

33. 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 acquired three months before maturity
d. Short-term and highly liquid marketable equity securities

34. 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 draft

35. 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
c. If a bank or financial institution holding the funds of the company
is in bankruptcy or financial difficulty, cash should be written
down to estimated realizable value
d. Cash equivalents should be measured at maturity value, meaning
face value plus interest.
36. If material, deposits in foreign bank which are subject to foreign exchange
restriction should be classified

a. Separately as current asset, with appropriate disclosure

b. Separately as a non-current asset with appropriate disclosure
c. Be written off as an extraordinary loss
d. As part of cash and cash equivalents

37. 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 a current liability
d. Which cannot be offset is classified as non-current liability

38. 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
c. Which is legally restricted and related to a short-term loan is classified
separately as a current asset
d. Which is not legally restricted as to withdrawal is classified
separately as current asset

39. Unreleased checks (checks drawn before the end of reporting period but
held for later delivery to creditors)

a. Shall be treated as outstanding checks

b. Shall be restored to the cash balance
c. Shall be treated as outstanding checks if the date is shortly
after the end of reporting period.
d. Shall be treated as outstanding checks if they are ulti mately
encashed.

40. 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 and IOUs
41. Which of the following is usually considered cash?

a. Certificates of deposit
b. Checking accounts
c. Money market saving certificate
d. Postdated check

42. 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
c. Set aside for the payment of payroll
d. Restricted cash

43. The petty cash account under the imprest fund system is
debited

a. Only when the fund is created

b. When the fund is created and every time it is replenished
c. When the fund is created and when the size of the fund is increased
d. When the fund is created and when the size of the fund is decreased

44. The internal control feature that is specific to petty cash is

a. Separation of duties
b. Assignment of responsibility
c. Proper authorization
d. Imprest system

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

a. To effectively plan cash inflows and outflows

b. To ease the payment of cash to vendors
c. To determine the honesty of the petty cashier
d. To effectively control cash disbursements

46. Under the indirect method, the cash flow from operating activities is
determined by adjusting the reported profit by (choose the incorrect
statement)

a. adding back non-cash expenses

b. adding back decreases in operating assets
c. deducting decreases in operating liabilities
d. adding back increases in operating assets

47. Under the indirect method, the cash flow from operating activities is
determined by adjusting the reported profit by (choose the incorrect
statement)

a. deducting non-cash income

b. deducting increases in operating assets
c. deducting decreases in nonoperating liabilities
d. deducting gains on sale of nonoperating assets

48. When preparing a statement of cash flows using the direct method,
amortization of patent is

a. shown as an increase in cash flows from operating activities.

b. shown as a reduction in cash flows from operating activities.
c. included with supplemental disclosures of noncash transactions.
d. not reported in the statement of cash flows or related disclosures.

49. Which one of the following is not an objective of a system of internal

controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors

50. Internal controls are concerned with

a. only manual systems of accounting.
b. the extent of government regulations.
c. safeguarding assets.
d. preparing income tax returns
PART II

Multiple Choice – Computational and Journal Entry (2 pts each)

51. Andres Ganzagan Company has cash in bank of $15,000, restricted

cash in a separate account of $3,000, and a bank overdraft in an
account at another bank of $1,000.
Apple should report cash of

a. $9,000.
b. $15,000.
c. $12,000.
d. $13,000.

52. Shad 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 1,400
Shad should report cash and cash equivalents of

a. $20,000.
b. $20,300.
c. $25,800.
d. $27,200.

53. Harry 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.
Harry should report cash of

a. $13,000
b. $15,000
c. $18,000.
d. $19,000

54. Consider the following: Cash in Bank – checking account of

$15,000, Cash on hand of $8,000, 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. $ 26,500
b. $ 23,000
 c. $ 150,000
d. $ 15,000
55. Establishment of Petty Cash Fund
a. Dr. Cash on Hand; Cr. Petty Cash Fund
b. Dr. Petty Cash Fund; Cr. Cash in Bank
c. Dr. Petty Cash Fund; Cr. Cash on Hand
d. Dr. Petty Cash Fund; Cr. Expenses

56. Replenishment of Petty Cash Fund Disbursement in Imprest System

a. Dr. Expenses; Cr. Cash in Bank
b. Dr. Petty Cash Fund; Cr. Cash in Bank
c. Dr. Cash in Bank; Cr. Expenses
d. No Entry

57. Disbursement of Petty Cash Fund in Fluctuating System

a. No Entry
b. Dr. Petty Cash Fund; Cr. Expenses
c. Dr. Petty Cash Fund; Cr. Cash in Bank
d. Dr. Expenses; Cr. Petty Cash Fund

58. Disbursement of Petty Cash Fund in Imprest System

a. No Entry
b. Dr. Petty Cash Fund; Cr. Expenses
c. Dr. Petty Cash Fund; Cr. Cash in Bank
d. Dr. Expenses; Cr. Petty Cash Fund

59. Increase of Fund in Imprest System

a. Dr. Cash on Hand; Cr. Petty Cash Fund
b. Dr. Petty Cash Fund; Cr. Cash in Bank
c. Dr. Petty Cash Fund; Cr. Cash on Hand
d. Dr. Petty Cash Fund; Cr. Expenses

60. Increase of Fund in Fluctuating System

a. Dr. Cash on Hand; Cr. Petty Cash Fund
b. Dr. Petty Cash Fund; Cr. Cash in Bank
c. Dr. Petty Cash Fund; Cr. Cash on Hand
d. Dr. Petty Cash Fund; Cr. Expenses

61. Bobby Company has the following account balances on December 31,
2022.
● Cash in bank 3,000,000
● Cash on hand 125,000
 ● Cash restricted for addition to plant and expected to be distributed in 2023
1,600,000
● Cash on bank included P 600,000 compensating balance against short-term
borrowing arrangement. The compensating balance is not legally restricted as
to withdrawal.

On December 31, 2022, what total cash should be reported under current
assets?
a. 3,125,000
b. 3,000,000
c. 2,525,000
d. 3,975,000

62. On December 31, 2022, Funny Company had the following balances.
● Cash in bank P3,000,000
● Petty cash fund – all funds were reimbursed on 12/31/2022 P50,000
● Time deposit due August 1, 2023 P250,000
● Cash in the bank included P600,000 of compensating balance against
short-term borrowing arrangement on December 31, 2022. The compensating
balance is legally restricted as to withdrawal.

On December 31, 2023, what total amount should be reported as cash and
cash equivalents?
a. 3,050,000
b. 2,450,000
c. 3,000,000
d. 3,300,000

63. Jomarie Moreno had the following account balances on December 31,
2022:
● Cash in bank P3,250,000
● Cash on hand P125,000
● Cash restricted for plant acquisition (to be disbursed in 2023) P3,200,000
● Cash in the bank included P100,000 of compensating balance against long-
term borrowing. The compensating balance is not legally restricted as to
withdrawal.

On December 31, 2022, what is the total cash to be reported under current
assets?
a. P 6,575,000
b. P 6,475,000
c.P 3,350,000
d. P 3,375,000
 64. On December 31, 2022, Kimberly had the following cash balances:
● Cash in bank P1,800,000
● Petty cash fund (all funds were reimbursed on 12/31/22) P50,000.
● Time deposit (due September 1, 2023) P250,000
● Cash in the bank included P600,000 of compensating balance against short-
term borrowing arrangement on 12/31/22. The compensating balance is legally
restricted as to withdrawal.

On December 31, 2022, what is the amount that is to be reported as cash and
cash equivalents?
a. P 2,100,000
b. P 1,950,000
c. P 1,500,000
d. P1,250,000

65. On December 31, 2022, Merwin Inc. reported cash accounts with the
following details
● Undeposited collections P70,000
● Cash in bank – PCIB checking account P500,000
● Cash in bank – PNB (overdraft) P(50,000)
● Undeposited NSF check received from customer dated 12/01/21 P15,000
● Undeposited customer check, dated 01/15/34 P25,000
● Cash in bank – PCIB (fund for payroll) P150,000
● Cash in bank – PCIB (savings deposit) P100,000
● Cash in bank – PCIB (90-day money market instrument) P2,000,000
● Cash in foreign bank – restricted P100,000
● IOUs from officers P30,000
● Sinking fund cash P450,000
● Financial asset held for trading P120,000

On December 31, 2021, what total amount should be reported as cash and cash
equivalents?

a. P 2,660,000
b. P 2,810,000
c. P 2,770,000
d. P 2,820,000