Chapter 2 – Cash and Cash Equivalents

CHAPTER 2
CASH AND CASH EQUIVALENTS

PROBLEMS
2-1. (Money Company)

Checking account in Metrobank P105,200

Savings account at Far East Bank 30,800
Petty cash fund (1,500 – 250) 1,250
Cash on hand (undeposited sales receipts) 4,200
Cash in foreign bank (in equivalent pesos) 65,000
Customers’ check on hand:
Traveler’s check 14,000
Manager’s check 23,120
Total amount of cash P243,570

Alternative computation:
Reported total P330,820
Less Sinking fund cash ( 35,000)
Short term treasury bills ( 52,000)
Unreplenished petty cash expenses ( 250)
Correct cash balance P243,570

The outstanding checks of P15,200 was ignored since the given balance of cash is a cash balance
per books. Short-term treasury bills of P52,000 is reported as part of trading securities unless
there is an indication of a maturity of three months or less in which case, they are included as
part of cash and cash equivalents. Meanwhile, sinking fund cash of P35,000 is reported as a
noncurrent financial asset.

2-2. (Cotton Company)

Reported checkbook balance P180,000

Adjustments:
Customer’s post dated check included in the balance ( 65,000)
Customer’s check returned by bank marked DAIF ( 20,000)
Company check recorded but not yet mailed 15,000
Cash reported on December 31, 2013 statement of financial position P110,000

2-3. (Grain Company)

Balance per general ledger P2,205,600
Non-cash items:
Customer’s NSF checks P 20,000
IOUs 1,200
Postage stamps 600
Cash in sinking fund 500,000
Customers’ post dated checks 5,400
Travel advances 4,000 531,200
Correct cash balance P1,674,400

NSF checks, IOUs and customers’ post dated checks are reported as receivables while postage
stamps and travel advances are prepaid expenses. Meanwhile, cash in sinking fund is reported
as a noncurrent financial asset.

2-4. (Rod Company)

Petty cash (10,000 – 1,250) P 8,750

Cash on hand (625,000 – 2,500) 622,500
Cash in bank- General (750,000 + 12,500) 762,500
Cash in bank, Payroll (320,000 + 10,000) 330,000
Total P1,723,750

2
Chapter 2 – Cash and Cash Equivalents

IOU from an employee and customers’ post dated check are receivable items; the bank overdraft
in another bank is reported as a current liability (offset can be made only if the accounts are with
the same bank); the savings deposit is a non-current item since it is intended for a non-current
purpose (for plant expansion).

2-5. (Latte Company)

Cash and cash equivalents:

Savings account with Allied Bank
Per books P 900,000
Customer’s postdated check (320,000) P580,000
Checking account with Allied Bank
Per books P1,400,000
Issued postdated check 300,000 1,700,000
Bills and coins in the petty cash fund 9,850
Money market fund which allows check writing 2,000,000
Certificate of deposit with term of 90 days 1,000,000
Payroll fund with BDO
Per books P6,000,000
Unissued but recorded check 50,000 6,050,000
Cash balance with BPI 5,000,000
Correct cash and cash equivalents P16,339,850

The items not included in cash and cash equivalents shall be presented as follows:
Expenses in the statement of comprehensive income (P150
cash shortage in petty cash fund + expense receipts of P5,000) P 5,150
Current assets:
Certificates of deposit (with term of 120 days) 2,000,000
Accounts receivable (customer’s postdated check) 320,000
Non-current assets:
Cash fund for retirement of bonds payable 1,500,000
Current liabilities
Accounts payable (PDC issued to supplier) 300,000
Salaries payable (unissued check to employee) 50,000

2-6. (Jessie Company)

Nov. 20 Petty cash fund 5,000

Cash in bank 5,000
Nov. 20 to No entry
Dec. 15
Dec. 16 Transportation expense 1,500
Representation expense 1,200
Freight-in 1,300
Repairs expense 920
Cash in bank 4,920
Dec. 16 –31 No entry
Dec. 31 Transportation expense 340
Supplies expense 1,400
Petty cash fund 1,740
Jan. 1 Petty cash fund 1,740
Transportation expense 340
Supplies expense 1,400
Jan. 1-8 No entry

3
Chapter 2 – Cash and Cash Equivalents

Jan. 9 Transportation expense (340 + 120) 460

Supplies expense (1,400 + 1,300) 2,700
Representation expense 1,800
Cash in bank 4,960
9 Petty cash fund 3,000
Cash in bank 3,000

2-7. (Coral Company)

(a) Petty cash fund P5,000.00

Amount of cash on hand P 670.40
Total petty cash vouchers:
Office supplies P 341,60
Postage 780.00
Representation 1,000.00
Transportation 1,321.40
Miscellaneous 837.60 4,280.60 4,951.00
Shortage in the petty cash fund P 49.00

(b) Office supplies expense 341.60

Postage expense 780.00
Representation expense 1,000.00
Transportation expense 1,321.40
Miscellaneous expense 837.60
Cash short and over 49.00
Petty cash fund 4,329.60

2-8. (Prada Company)

1. May 2 Petty cash fund 8,000
Cash in bank 8,000

2. May 2-20 No entry

3. No entry
4. May 20 Freight-in 2,500
Freight-out 3,000
Supplies expense 800
Cash in bank 6,300
5. No entry
6. May 31 Freight in 1,200
Transportation expense 150
Employee benefit expense 320
Advances to employees (IOU of 500 + short of 130) 630
Petty cash fund (8,000 – 5,700) 2,300

Per count
Bills and coins P5,700
Paid petty cash vouchers
(1,200 + 150 + 320 + 500) 2,170
Total P7,870
Petty cash fund, imprest balance 8,000
Cash shortage P 130

2-9. (Canon Company)

(a) Bills and coins 2,450

PCVs dated July 2013 (undisbursed as of June 30) 800
Adjusted balance of petty cash fund 3,250

4
Chapter 2 – Cash and Cash Equivalents

(b) Per count

Bills and coins P 2,450
PCVs dated June 3,300
PCVs dated July 800
IOUs 1,400
PDC drawn by Juvy Victoria 2,000
Total P 9,950
Petty cash fund, per ledger 10,000
Cash shortage P 50

(c) Miscellaneous expenses 3,300

Receivable from employees (IOU + PDC) 3,400
Cash short/over 50
Petty cash fund 6,750

2-10. (Giordano Corporation)

Giordano Corporation
Bank Reconciliation
December 31, 2013
Balance per bank statement P199,925
Add: Cash on hand for undeposited receipts P13,025
Deposit in transit 35,000 48,025
Total P252,950
Deduct: Outstanding checks 204,055
Adjusted balance P 43,895

Balance per books P(32,560)

Add: Note receivable collected by bank, incl interest of P2,500 252,500
Total P219,940
Deduct: Customer’s NSF check returned by bank P42,040
Customer’s check for P29,040 erroneously
recorded as P94,020 64,980
Cash sales missing 64,025
Petty cash fund 5,000 176,045
Adjusted balance P 43,895

(b) Adjusting entries:

Cash in bank 252,500

Notes Receivable 250,000
Interest Revenue 2,500

Accounts Receivable (42,040 + 64,980) 107,020

Loss from Theft 64,025
Petty Cash Fund 5,000
Cash in bank 176,045

Miscellaneous Expenses 1,800

Petty Cash Fund 1,800

Total Cash on the statement of financial position

Petty cash fund of P3,200 + Cash in bank of P43,895 P47,095

5
Chapter 2 – Cash and Cash Equivalents

2-11. (Pound Company)

(a) Per Bank Per Books
Balances before adjustments P31,948 P17,194
Bank service charge ( 109)
Debit memo for printed checks ( 125)
Outstanding checks (6,728)
Deposit of July 31 not yet recorded by bank 4,880
Proceeds of a bank loan, net of P300 interest 5,700
Proceeds from customer’s note, including P100 interest 8,100
Check #1210 for P2,100 erroneously deducted by bank as P1,200 (900)
Stolen check lacking authorized signature deducted by bank in error 800
Customer’s NSF check returned by bank _______ (760)
Correct cash balance P30,000 P30,000

(b) Adjusting entry at July 31, 2013 (compound form)

Miscellaneous Expenses (109 + 125) 234

Accounts Receivable 760
Interest Expense 300
Cash in Bank 12,806
Bank Loan 6,000
Notes Receivable 8,000
Interest Revenue 100

2-12. (Bench Company)

Per Bank Per Books

Balances before adjustments P892,346.30 P590,884.60
Outstanding checks (333,788.20)
Receipts of 12/31/13 deposited on 1/2/14 53,172.00
Service charges for December ( 225.00)
Proceeds of bank loan omitted from company records 97,000.00
Deposit of 12/23/13 omitted from bank statement 28,924.10
Check of Rome Products charged for lack of counter signature (8,737.40)
Bank error for a deposit of P31,824 recorded as P31,814 10.00
Check of Birch Company erroneously charged by bank 26,900.00
Proceeds of note collected by bank 20,350.00
Erroneous debit by bank for bank loan paid by company 50,000.00
Bank error for a deposit of P48,071 recorded as P48,171 ( 100.00
Deposit of Birch Company erroneously credited by bank (18,192.00) __________
Adjusted cash balance P699,272.20 P699,272.20

2-13. (Amethyst Corporation)

Balance per bank statement P169,263

Deposit in transit, April 30 18,200
Outstanding checks, April 30 ( 59,435)
Erroneous charge by bank 2,200
NSF checks not yet redeposited (3,435 – 1,835) 1,600
Proceeds of note collected by bank ( 7,548)
Bank service charge 180
Unadjusted book balance for cash, April 30, 2013 P124,460

2-14. (Silver Company)

Balance per bank statement P380,750

Deposits in transit 52,000
Outstanding checks (67,500 – 9,000) (58,500)
Erroneous credit by bank ( 4,000)
Check of Silver Lining charged by bank to Silver Co.’s account 12,000
Correct cash balance P382,250

6
Chapter 2 – Cash and Cash Equivalents

2-15. Cash balance per books, March 1 P115,963.70

Cash receipts during March 246,475.00
Cash disbursements during March (334,709.10)
Bank service charge for March (92.00)
Cash balance per books at March 31 P 27,637.60
Cash balance per bank statement P15,341.40
Deposit in transit 9,000.00
Outstanding checks (2,703.80)
Cash balance reflected per bank 21,637.60
Suspected cash shortage (undeposited collections) P 6,000.00

2-16. (Pearl Corporation)

Balance per bank statement P400,000

Add receipts of 12/31/13 not yet deposited 100,000
Balance per bank statement before outstanding checks P500,000
Balance per books P387,000
Bank service charge for December ( 1,000)
Paid check for P40,000 recorded as P4,000 ( 36,000)
Customer’s check returned by bank marked DAIF ( 22,000) 328,000
Outstanding checks at December 31, 2013 P172,000

Proof: Balance per bank Balance per books

Reported balances P400,000 P387,000
Receipts not yet deposited 100,000
December bank service charge ( 1,000)
Paid check for P40,000 recorded as P4,000 ( 36,000)
Customer’s check returned by bank ( 22,000)
Outstanding checks at December 31 (see above) (172,000)
Correct cash balance P328,000 P328,000

2-17. (ABC Services, Inc.) ABC Services, Inc.

Four-Column Reconciliation
November 30-December 31, 2013
December December
Nov. 30 Receipts Disbursement Dec. 31
s
Balances per bank statement P294,771.00 P1,065,620.00 P1,211,405.00 P148,986.00
Receipts not yet deposited
November 30 21,270.00 (21,270.00)
December 31 32,925.00 32,925.00
Outstanding checks
November 30 (40,525.00) (40,525.00)
December 31 35,191.50 (35,191.50)
Erroneous charge by bank __________ ____________ _____(625.00) _____625.00
Correct balances P275,516.00 P1,077,275.00 P1,205,446.50 P147,344.50

Balances per books P270,311.00 P1,072,850.00 P1,195,536.50 P147,624.50

Bank service charges
November 30 (295.00) (295.00)
December 31 158.00 (158.00)
Interest credit by bank
November 30 5,500.00 (5,500.00)
December 31 4,925.00 4,925.00
Uncollectible customer’s check 5,947.00 (5,947.00)
NSF returned and redeposited
in Dec. 5,000.00 5,000.00
Check #137412 for P2,300
recorded as P3,200 in error __________ ____________ _____(900.00) _____900.00
Correct balances P275,516.00 P1,077,275.00 P1,205,446.50 P147,344.50

7
Chapter 2 – Cash and Cash Equivalents

2-18. (Bruins Company)

Bruins Company
Proof of Cash
March 31 – April 30, 2013
April April
March 31 Receipts Disbursements April 30
Balances per bank statement P2,203,500 P5,251,500 P4,357,750 P3,097,250
Outstanding checks:
March 31 (275,000) (275,000)
April 30 580,000 (580,000)
Deposits in transit
March 31 125,000 (125,000)
April 30 670,000 670,000
Erroneous bank credit (20,000) (20,000)
Undeposited receipts
Erroneous bank debit memo (45,000) 45,000
Adjusted balances P2,053,500 P5,776,500 P4,617,750 P3,212,250

Balances per books P2,055,300 P5,567,000 P4,619,800 P3,002,500

Note collected by bank in April 17,000 17,000
Bank service charges
March (1,800) (1,800)
April 2,450 (2,450)
Company’s note discounted with
the bank 200,000 – (200,000 x 12%
x 6/12) 188,000 188,000
Overstatement in book (2,700) 2,700
disbursements
Understatement of April receipts 4,500 4,500
Adjusted balances P2,053,500 P5,776,500 P4,617,750 P3,212,250

2-19. (Lily Company)

a. August deposits per bank statement P275,000

Deposit in transit at August 31 35,000
Deposit in transit at July 31 (40,000)
Note collected by bank in behalf of Lily Company (50,000)
Cash receipts per books during August P220,000

b. August disbursements per bank statement P220,000

Outstanding checks at August 31 25,000
Outstanding checks at July 31 (60,000)
Erroneous bank credit in July corrected in August (10,000)
NSF check (35,000)
Service charge by bank (1,500)
Cash disbursements per books during August P138,500

c. Balance per books at July 31 P150,000

Cash receipts per books (see a) 220,000
Cash disbursements per books (see b) (138,500)
Unadjusted cash balance per books at August 31 P231,500

or
Unadjusted bank statement balance at August 31
(180,000 + 275,000 – 220,000) P235,000
Outstanding checks, August 31 (25,000)
Deposits in transit, August 31 35,000
NSF check 35,000
Bank service charges 1,500
Note collected by bank (50,000)

8
Chapter 2 – Cash and Cash Equivalents

Unadjusted cash balance per ledger at August 31 P231,500

d. Unadjusted bank statement balance P235,000
Outstanding checks ( 25,000)
Deposits in transit 35,000
Correct cash balance at August 31 P245,000
or

Unadjusted cash balance per books P231,500

NSF check ( 35,000)
Bank service charges ( 1,500)
Note collected by bank 50,000
Correct cash balance at August 31 P245,000

2-20. (Leo Company)

a. Outstanding checks, July 31, 2013 P 6,400

Disbursements per books during August 349,000
Checks cleared during August ( 344,000)
Outstanding checks, August 31, 2013 P 11,400

b. Deposits in transit, August 31, 2013 P 40,000

Deposits per bank records during August 320,000
Cash receipts per books during August ( 350,000)
Deposits in transit, July 31, 2013 P 10,000

2-21. (VAB, Inc.)

Outstanding checks at April 30 P 30,000

Add cash disbursements per books:
Total credits in all journals during May P90,000
Less Service charge in April recorded in May ( 1,000) 89,000
Total P119,000
Less checks cleared during May:
Checks and charges by bank in May P80,000
Less: May service charge ( 500)
NSF check returned as a bank charge in May (10,000) 69,500
Outstanding checks at May 31 P
49,500

2-22. (Lorna Cruz’ Hearing Aid)

Deposits in transit at July 31 P 4,500

Receipts per books (27,000 – 3,120) 23,880
Deposits per bank (30,600 – 6,300) (24,300)
Deposits in transit at August 31 P 4,080

Proof: August Receipts

Per bank Per books
Reported P30,600 P27,000
Deposits in transit, July 31 (4,500)
Note collected by bank in August 6,300
Note collected by bank in July recorded
by the company in August (3,120)
Deposits in transit at August 31 (see above) 4,080
Correct totals P30,180 P30,180

2-23. (Real Gem Company)

Outstanding checks, 12/31/13 P37,855.00
Add checks cleared by bank during December
Bank disbursements during December P62,277.00
Outstanding checks, 11/30/13 ( 24,750.00)

9
Chapter 2 – Cash and Cash Equivalents

Erroneous bank credit in November

cleared in December ( 9,218.00) 28,309.00
Cash disbursements per books during December P66,164.00
2-24. (Lira Company)
Deposits in transit, August 31 P 9,500
Add cash receipts per general ledger 30,500
Less deposits per bank (30,200)
Deposits in transit, September 30 P 9,800

Outstanding checks, September 30 P 2,000

Add checks cleared by bank during September 23,600
Less cash disbursements per general ledger (24,000)
Outstanding checks, August 31 P 1,600

2-25. (Euro Company)

Petty Cash Fund
Currency and coins P 1,490
Replenishment check 1,830 P 3,320
Cash on hand
Reported amount P 19,700
Less: Customer’s NSF check returned (5,000)
Customer’s post dated check (1,500) 13,200
Cash in Metrobank
Reported amount P110,200
Add: Undelivered check #1214 2,500
Post dated check #1219 4,300 117,000
Cash in Allied Bank
General account P162,000
Less credit balance in Payroll account (4,000) 158,000
Correct cash balance P291,520

Employee advances of P880 is reported as a receivable; unreplenished petty cash vouchers are
expenses; and currency in an enveloped marked collections for charity is a non-company fund.
Postal money orders of P1,800 is a proper inclusion to cash. The savings account deposit in
Security Bank is reported as a non-current asset since it is intended for a non-current purpose.

10
Chapter 2 – Cash and Cash Equivalents

MULTIPLE CHOICE QUESTIONS

Theory
MC1 C MC11 C MC21 B
MC2 C MC12 B MC22 A
MC3 D MC13 D MC23 B
MC4 D MC14 C MC24 D
MC5 D MC15 D MC25 B
MC6 D MC16 A MC26 D
MC7 A MC17 C MC27 D
MC8 A MC18 C MC28 A
MC9 D MC19 C
MC10 B MC20 B

Problems
MC29 C 2,250,000 + 125,000 = 2,375,000
MC30 D 50,000 + 20,000 = 70,000
MC31 C 320,000 + 580 = 320,580
MC32 B 682,250 – 25,000 – 10,500 – 127,500 – 4,950 – 6,450 = 507,850
or 3,600 + (336,750-6,000) + (178,000-10,500) = 501,850
MC33 D Dr. Expenses-950; Dr. Cash Short and Over-50; Cr. Cash in Bank-1,000
MC34 B 3,800 + 12,00 + 12,500 = 17,500
MC35 C
MC36 B 1,825 + 1,500 + 5,150 = 8,475
MC37 A 10,000 – (1,825 + 1,500 + 280 + 650 + 500 + 5,150) = 95
MC38 D 50,000 + 20,000 – 15,000 = 55,000; 43,000 – 6,000 + 15,000 = 52,000
55,000 – 52,000 = 3,000
MC39 B 180,500 + 32,500 – 27,500 = 185,500
MC40 B 677,600 – 580 + 900 = 677,920
or 653,230 – 98,760 + 123,450 = 677,920
MC41 B 95,000 + (10,000 – 4,500) = 100,500
MC42 B 17,000 + 490,000 – 476,000 = 31,000
MC43 A 39,000 + 610,000 – (617,000 – 15,000) = 47,000
MC44 C 768,370 – 132,274 + 20,750 = 656,846
MC45 B 450,000 + 9,400 – 3,200 - 900 + 180 = 455,480
MC46 B 67,000 + 798,000 – 91,000 = 774,000 collections from sales;
583,000+78,000–86,000 + 53,000 – 48,000 = 580,000 payments to trade creditors;
62,000 + 774,000 – 580,000 – 107,000 =149,000
MC47 D 1,500 + 5,000 + 486,000 + 12,000 = 504,500
MC48 D 96,000 – 4,000 + 7,000 = 99,000
MC49 C 650,000+1,300,000–1,100,000 = 850,000 + 150,000–84,000+7,500 = 923,500
MC50 D 1,154,800 + 180,000 + 2,700 = 1,337,500
MC51 B 1,123,500 – 4,500 + 6,000 – 56,000 + 48,000 = 1,117,000
MC52 D 70,000 – 2,000 + 290,000 + 50,000 – 50,000 – 280,000 + 80,000 – 35,000 – 83,500 =
39,500
MC53 B 25,000 + 224,200 – 78,200 = 171,000
MC54 A 261,000 – 41,500 – 15,000 = 204,500
MC55 D 217,200 – 25,000 – 192,200
MC56 C (45,000 + 10,000 + 8,000) – (34,000 – 300 – 3,200 – 3,600 + 2,700) = 33,400

11