AUDITING PROBLEMS RYAN JAY J.

CARASCO
CASH AND CASH EQUIVALENT

Problem 1
Your audit of the December 31, 2016, financial statements of FREYA Corporation reveals the
following:
1. Current account at PBCom P (35,000)
2. Current account at PNB 65,000
3. Treasury bills (acquired 3 months before maturity) 200,000
4. Treasury bills (maturity date is 12/31/7) 500,000
5. Payroll account 175,000
6. Foreign bank account - restricted (translated using the
12/31/16 exchange rate) 900,000
7. Postage stamps 600
8. Employees’ checks marked “DAIF” 10,000
9. IOU from the vice-president 50,000
10.Credit memo from a supplier for a purchase returns 25,000
11. Traveler’s check 60,000
12.Money order 10,000
13.Company’s check dated 12/30/16 but not mailed at year-end 30,000
14. Petty cash fund (P4,000 in currency and expense receipts for
(P6,000) 10,000
Questions
FREYA CORPORATION’S adjusted cash and cash equivalents balance at December 31,
2016 is:

Problem 2
The controller of Sun Company is attempting to determine the amount of cash to be
reported on its December 31, 2016 balance sheet. The following information is provided:

a. Commercial savings account of P1,000,000 and a commercial checking account

balance of P900,000 are held at Phil. Banking Corporation.

b. Money market fund account held at Allied Bank, P600,000

c. Travel advance of P180,000 for executive travel for the first quarter of next year
(employee to reimburse through salary reduction)

d. A separate fund in the amount of P1,500,000 is restricted for the retirement of longterm
debt.

e. Petty cash fund, P5,000

f. An IOU from Kimmy Santos, a company officer, in the amount of P10,000.

g. A bank overdraft of P110,000 has occurred at one of the banks the company uses to
deposit its cash receipts. At the present time, the company has no other deposits at this
bank.

h. The company has two certificates of deposit, each totaling P500,000. These
certificates of deposit have a maturity of 120 days.
i. Sun Company has received a check that is dated January 12, 2017 in the
amount of P125,000.

j. Currency and coins on hand amounted to P5,300.

Questions
1. SUN COMPANY’S adjusted cash and cash equivalents balance at December 31,
2016

Problem 3

Present journal entries to record the following transactions in the books of Chou
Corporation, which uses a calendar year as accounting period. Assume that the company is
using the imprest method in accounting for petty cash fund:

a. A petty cash fund was set up on November 1, 2016 in the amount of P2,400.

b. On November 29, 2016, a check was issued to replenish the fund, the composition of
which was as follows:
Currency – bills and coins 166
Vouchers showing expenditures for:
Office supplies 270
Charges from purchased of supplies 124
Repairs and maintenance 350
Wages paid to casual employees 950
Charges from purchased of goods to be sold 400

c. On December 18, 2016, the fund was replenished and correspondingly increased to
P3,000; its composition included the following:

Currency – bills and coins 158

Vouchers showing expenditures for:
Store supplies 304
Accounts payable 914
Charges from purchased of goods to be sold 242
Miscellaneous expenses 782

d. An examination on December 31, 2016, disclosed the following composition of the fund,
although it was not replenished on this date:

Currency – bills and coins 958

Check of office manager, dated January 5, 2017 1,000
Vouchers showing expenditures for:
Office supplies 126
Miscellaneous expenses 90
Accounts payable 800

e. On January 5, 2017, the check of office manager was cashed and the proceeds were
added to the petty cash fund.

f. On January 6, 2017, replenished disbursement from December 18, 2016 to January 5,

2017.
Questions

The adjusted Petty Cash Fund balance of CHOU CORPORATION at December 31,
2016

Problem 4
Your audit of the petty cash (P10,000) of Gatot Company as of December 31, 2016 revealed
the following: (cash count date is January 3, 2017 at 5:00 pm)
Bills: 10 - P500 bill 15 - P100 bill 18 - P50 15 - P20 5 - P10
Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.

IOU’s submitted were:

Dec. 18 Nap R. - P 750
Dec. 28 Ruel R. 125
Dec. 30 Sonny S. 500

Cashed checks:
Dec. 28, 2016 check drawn by the manager P 1,125
Dec. 28, 2016 check drawn by an employee 500
Dec. 30, 2016 check drawn by a customer 350
Jan 1, 2017 check drawn by an employee 1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open
certain payroll envelopes unclaimed by employees and use the cash found herein. They
were as follows:
Dec. 15, 2016 - Ed A. P 1,250
Dec. 30, 2016 - Andoy 1,750
Dec. 30, 2016 - Macky 650
Dec. 30, 2016 - Paz 1,000

The cashier also informed you that all cash sales receipts were passed through his fund
and that cash sales tickets Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4
for P350, 500 and P545, respectively, had not yet been turned over to the general
cashier.

The petty cash vouchers found in the petty cash box were as follows:
Dec. 30, 2016 Transportation P515
Dec. 30, 2016 Token gifts to visitors 650
Dec. 30, 2016 Freight for office supplies purchase 215
Jan. 1, 2017 Freight for mdse. purchased 125
Jan. 2, 2017 Freight for mdse. sold 575

Questions
1. GATOT COMPANY’S cash shortage at December 31, 2016 is:

2. The adjusted petty cash balance of GATOT COMPANY at December 31, 2016 is:
3. The entry to adjust the unclaimed payroll at December 31, 2016 is:
4. The Cash account (excluding PCF) of GATOT COMPANY is understated at December 31,
2016 by:

Problem 5
Esmeralda is the cashier of ADR Corporation. AS representative of the Zarate and
Associates, CPAs, you were assigned to verify her cash on hand in the morning of January
3, 2017. You began to count at 9:00 AM in the presence of Esmeralda. In the course of
your counting, you found currencies in paper bills and coins together with checks, vouchers,
and other items, which are mentioned below:
Bills: (2) P500; (8) P100; (12) P50; (5) P20

Coins:
P 5.00 11 loose
1.00 24 loose
0.25 5 rolls and 32 loose (50 pieces to a roll)
0.10 10 rolls and 15 loose (50 pieces to a roll)
0.05 14 rolls and 20 loose (40 pieces to a roll)

Checks:
Date Maker Payee Amount
12/22/16 Vivian, Asst. Mgr ADR Corp. P 6,000
12/26/16 Esmeralda, cashier ADR Corp. 4,000

IOUs:
Date Maker Amount
12/20/16 Yap, Janitor P 500
12/22/16 Felix, clerk 750
12/24/16 Ablay, bookkeeper 500

PETTY CASH VOUCHERS FOR REPLENISHMENT

Date Payee Accounts Charged Amount
12/16/16 Wagan, messenger Advances to employees P1,000.00
12/17/16 Maren and Co. Supplies 545.00
12/18/16 Eeman Liner Freight in 982.50
12/18/16 Posts Office Supplies 300.00
12/20/16 Alejandre, carpenter Repairs 2,950.00
12/21/16 Violan Miscellaneous expense 554.00

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P20,000.00.
2. Cash sale of January 2, 2017 amounted to P8,650 per sales records, while cash
receipts book and bank deposit slip showed that only P7,650 was deposited in the
bank on January 3, 2017
3. The following employees’ pay envelopes had been opened and the money removed.
Each envelope was marked “Unclaimed” - Ernesto, P332.50; Secinando, P447.50.

Questions
1. The petty cash shortage of ADR CORPORATION at December 31, 2016
2. The adjusted petty cash balance of ADR CORPORATION at December 31, 2016
3. The undeposited sales/collection of ADR CORPORATION at December 31, 2016

Problem 6
The following data are gathered from the cash books and bank statement received from
Davao Bank by Zilong Company:
The cash in bank ledger account shows a debit balance of P290,438.50 as of May 31.
The bank statement shows a credit balance of P318,560 as of May 31.
An examination of the checks encashed by the bank shows that the following checks are not
presented for payment:
No. 187, P3,608; No. 189, P15,499; No. 191, P4,400; No. 192, P1,545.50,
No. 193, P23,001

A certified check for P24,750 payable to creditor, was encashed by the bank during May.
The bank statement shows a deduction of P10,802 for check No. 184. The check was
actually made out at P10,208.
A check deposited on May 27 for P34,100 was returned by the bank on May 28 marked
Refer to Maker.

A non-interest bearing note for P44,000 was collected by the bank for the account Zilong
Company. Collection fee deducted by the bank is P330. A deposit for P20,900 was recorded
in the books twice. Check No. 179 for P26,400 was erroneously recorded in the books as
P46,200. Interest on an outstanding loan payable, deducted by the bank on May 31,
P1,320. Collections on May 31 to be deposited on June 1, P26,488.

Questions
1. ZILONG COMPANY’S adjusted cash balance at May 31, 2016

Problem 7
The following data pertaining to the cash transactions and bank account of Martis Company
for May 2016 are available to you:
Cash balance, per accounting records, May 31, 2016 P 51,582

Cash balance, per bank statement, May 31, 2016 95,874

Bank service charge for May 327

Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting records 375

Outstanding checks, May 31, 2016 20,184

Deposit of May 30 not recorded by bank until June 1 14,610

Proceeds of bank loan on May 30, not recorded in the accounting

records, net of interest of P900 17,100

Proceeds from a customer’s promissory note; principal amount P24,000,

collected by the bank, taken up in the books with interest 24,300

Check No. 1086 issued to a supplier entered in the accounting records

as P6,300 but deducted in the bank statement at an erroneous amount
of 3,600
Stolen check lacking an authorized signature, deducted from Martis’s
account by the bank in error 2,400

Customer’s checks returned by the bank marked NSF, indicating that the
customer’s balance was not adequate to cover the checks; no entry has
been made in the accounting records to record the returned check 2,280

Questions
1. The adjusted cash in bank balance of MARTIS COMPANY at May 31, 2016 is:
Problem 8

In connection with an audit, you are given the following bank reconciliation.
BANK RECONCILIATION
December 31, 2016

Balance per ledger, 12/31/16 P 34,349.72

Add: Collections received on the last day of
December and charged to “Cash in Bank”
on books but not deposited 5,324.50

Debit memo for customer’s checks returned

unpaid (check is on hand but no entry has been
made on the books) 4,000.00

Debit memo for bank service charge for December 1,000.00

P 46,674.22
Deduct:
Outstanding checks P 18,625
(see details below)
Credit memo for proceeds of a note receivable
which had been left at the bank for collection
but which has not been recorded as collected 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKS

December 31, 2016
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

Questions:
1. The adjusted cash balance at December 31, 2016
2. The outstanding checks at December 31, 2016 is:

Problem 9
The cash books of Zilong Corporation show the following entries during the month of June
2016.
Cash Receipts Journal Check Register
Date Amount Date Check No. Amount
June 1 Balance 762,000 June2 801 15,625
4 Deposit 113,000 3 802 7,526
4 Deposit 811,000 5 803 229,205
7 Deposit 152,200 7 804 169,555
10 Deposit 11,300 8 805 74,936
10 Deposit 12,700 10 806 274,600
11 Deposit 73,000 11 807 34,842
17 Deposit 110,075 13 808 250,000
18 Deposit 3,725 14 809 1,070,000
18 Deposit 65,000 17 810 167,300
19 Deposit 26,463 19 811 3,130
20 Deposit 133,037 21 812 82,730
27 Deposit 273,628 23 813 127,200
30 Deposit 92,400 25 814 93,080
30 815 720

The bank statement for the month of June 2016 shows:

Checks No. Deposits Date Amount
Balance May 31 798,000
924,000 June 5 1,722,000
800 36,000 6 1,686,000
804 169,555 7 1,516,445
805 74,936 217,200 8 1,658,709
801 16,525
803 229,205 9 1,412,979
807 34,842 97,000 12 1,475,137
924 75,000
200 40,400 CM 13 1,440,337
(collection charge)
809 1,070,000 14 370,337
808 250,000 15 120,337
198,000 CM 16 318,337
810 167,300 113,800 19 264,837
812 82,730 159,500 21 341,607
806 274,600 24 67,007
273,628 28 340,635
811 3,130
DM 300 30 337,205

Upon investigation, the following are discovered:

CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of
Zilong Company.

CM - Represents a 60-day, 6% own note for P200,000 discounted by Zilong Corporation

with
the bank and not yet recorded in the books.

DM - Represents bank service charge for the month.

Check No. 924 represents a check signed by Graciele Company.

Collection charge – represents collection fee charged by the bank.

Questions
1. The unadjusted cash ledger balance of ZILONG CORPORATION at June 30, 2016

2. The unadjusted cash bank balance of ZILONG CORPORATION at June 30, 2016 is:
3. The deposit in transit of ZILONG CORPORATION at June 30, 2016 is:

4. The outstanding checks of ZILONG CORPORATION at June 30, 2016 is:

5. The adjusted cash balance of ZILONG CORPORATION at June 30, 2016 is:

END

The difference between the impossible and the possible lies in a man's determination