200

ANALYSIS OF ACCOUNTS & AUDIT OF CASH

EXERCISE 1

1. If prepaid insurance amounted to P15,000 at the beginning of the period and total insurance
premium paid during the period amounted to P18,000, what would be the ending balance
of prepaid insurance if insurance expense for the period amounted to P6,000?
Answer: P27,000
Solution:
Prepaid Insurance beg. P15,000
Add: Payment 18,000
Less: Insurance Exp. (6,000)
Prepaid Insurance End P 27,000

2. If beginning and ending interest receivable were P16,000 and P5,000, respectively. Total
interest received for the period amounted to P52,000, how much would be the amount of
interest income for the period?
Answer: P41,000
Solution:
Interest receivable end P 5,000
Add: Collection 52,000
Less: Interest receivable beg. (16,000)
Interest income P41,000

3. Assuming salaries payable at the beginning and at the end of the period amounted to
P12,000 and P38,000 respectively. Salaries paid during the period totaled P183,000. How
much would be the salaries expense for the period?
Answer: P 209,000
Solution:
Salaries Payable, end P 38,000
Add: Payment 183,000
Less: Salaries Payable, beg. (12,000)
Salaries Expense P 209,000

4. Assume all rent revenues are received in advance and accounted for as unearned rent.
Beginning and ending balances of unearned rent are P14,000 and P6,000, respectively. If
total rent collections for the period amounted to P45,000, what would be the amount of
rent income for the period.
Answer: P53,000
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Solution:
Unearned Revenue, beg. P 14,000
Add: Collection 45,000
Less: Unearned Revenue, end (6,000)
Rent Income P 53, 000

EXERCISE 2

JGS maintain its accounting records on the cash basis. During 2015, he collected P95,000
from his clients and paid P67,000 in expenses. Upon examination of additional evidence, the
following information was obtained:

01/01/2015 12/31/2015
Accounts receivable P4,000 P15,000
Unearned service revenue P7,000 P14,000
Accrued expenses P13,000 P 2,000
Prepaid expenses P 8,000 P12,000

1. What is the total revenue in 2015?

a. P95,000 b. P86,000 c. P104,000 d. P101,000
Answer: P99,000

Solution: AR/ Unearned Revenue

AR beg- 4,000 15,000- AR, end

USR, end- 14,000 7,000- USR, beg

95,000- collection

P 99,000- Total revenue

2. What is the total expense of JGS in 2015?

a. P67,000 b. P61,000 c. P29,000 d. 42,000
Answer: P 52,000

Solution: Prepaid Exp. / Accrued Exp.

Prepaid Exp., beg- 8,000 12,000- Prepaid Exp., end

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Accrued Exp.,end- 2,000 13,000- Accrued Exp. Beg

Collection- 67,000

P52,000

3. The correct net income of JGS, for the year 2015 is:
a. P63,000 b. P80,000 c. P64,000 d. P77,000
Answer: P 47,000

Solution:
Total revenue in P 99,000
Less: total expense (52,000)
Net Income P47,000

EXERCISE 3

The following data have been abstracted from the financial statement of Prentiss, Inc., a
calendar year merchandising corporation:

 Balance sheet data:

December 31, 2014 December 31,2015
Trade accounts receivable-net 84,000 78,000
Inventory 150,000 140,000
Accounts Payable (95,000) (98,000)

 Total sales for 2015 were P1, 200, 000 and for 2015 were P1,100,000. Cash sales were
20% of total sales each year.
 Cost ratio is 70% of sales.
 Variable general and administrative (G&A) expenses for 2015 were P120,000. They have
varied in proportion to sales and have been paid 50% in the year incurred and 50% the
following year. Unpaid G&A expenses are not included in accounts payable above.
 Fixed general and administrative expenses including P35,000 depreciation and P5,000 bad
debt expense totaled P100,000 each year. The amount of such expenses involving cash
payments were paid 80% in the year incurred and 20% in the following year. Each year
there were a P5,000 bad-debt estimate and a P5,000 write-off. Unpaid G&A expenses are
not included in accounts payable above.

1. How much cash was collected during 2015 resulting from total sales in 2014 and 2015?
a. P961,000 b. P966,000 c. P1,201,000 d. P1,206,000
Answer: c
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Solution: AR

Beginning- 84,000 78,000- End

Sales- 1,200,000 5,000- Write-off

P 1,201,000

2. How much was the total credit sales in 2014?

a. P960,000 b. P964,800 c. P220,000 d. P880,000
Answer: d
Solution:
Sales 2014 P 1,100,000
Cash sales (20% of 1,100,000) 220,000
Credit sales P 880,000

3. How much cash was disbursed during 2015 for purchases of merchandise?
a. P818,700 b. P827,000 c. P838,500 d. P847,000
Answer: b
Solution:
Accounts payable beg. P95,000
Add: purchases 830,000
Less: AP, end (98,000)
Payments P827,000

4. How much was the total purchases of merchandise in 2015?

a. P840,000 b. P287,000 c. P838,500 d. P830,000
Answer: d

Solution:
Merch. Inv. P 150,000 COS= 840,000 (70% of 1,200,000)
Add: COS 840,000
Less: MI, end (140,000)
Payment (20,000)
Total P 830,000
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5. How much cash was disbursed during 2015 for variable and fixed general and
administrative expenses?
a. P175,000 b. P180,000 c. P215,000 d. P220,000
Answer: a

Solution:
Variable G & A Exp. P 120,000
Fixed G&A Exp. 35,000
Unpaid Exp. (100T *20%) 20,000
Total P 175,000

EXERCISE 4

The work-in process inventory of ABC Paints was completely destroyed by fire on April 1,
2015. You were able to establish the physical inventory figures as follows:

January 1, 2015 April 1, 2015

Raw materials 30,000 60,000
Work in process 100,000
Finished goods 140,000 120,000

Sales from January 1 to March 31, were P300,000. Purchases are raw materials were P100,000
and freight on purchases, P10,000. Direct labor during the period was P80,000. It was agreed
with the insurance adjusters that an average gross profit rate of 32.5% be used and that
manufacturing overhead was 45% of direct labor cost.

1. The value of goods manufactured and completed as of April 1, 2015:

a. P120,000 b. P180,000 c. P190,000 d. P182,50 e. None of these.
Answer: d

Solution:
FG, end. P 120,000
Add: COGS (300T*6.75%) 202,500
Less: FG, beg. (140,000)
Total CGM P 182,500

2. Raw material used were:

a. P50,000 b. P70,000 c. P80,000 d. P90,000 e. None of these.
Answer: c

Solution:
RM, beg. P 30,000
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Add: RM-Purch. 100,000

Freight-in 10,000
Less: RM, end (60,000)
RM-used P 80,000

3. The total value of goods put in process amounted to:

a. P296,000 b. P300,000 c. P336,000 d. P316,000 e. None of these.
Answer: a
Solution:
Raw M aterials P 80,000
Direct Labor 80,000
FOH 36,000
TMC P196,000
Add: WIP, beg 100,000
Goods put into process P296,000

4. The work in process inventory destroyed as computed by the adjuster would be:
a. P113,500 b. P131,500 c. P173,500 d. P121,500 e. None of these.
Answer: a
Solution:
Total value of goods put into process P 296,000
Less: Cost of Goods Manufactured (182,500)
WIP Inventory destroyed P 113,500

EXERCISE 5

You were engaged to audit the financial statement of Frost, Inc. on January 15, 2016. Presented
below is a copy of the trial balance as of January 2 and December 31, 2015 given by the
company’s account.

Trial Balance Trial Balance

January 2, 2015 December 31, 2015
Debit Credit Debit Credit
Cash P500,000
Accounts Receivable 124,000 P187,000
Merchandise inventory 230,000 245,000
Unexpired insurance 3,500 2,000
Land 150,000 150,000
Buildings 200,000
Acc. Depreciation-bldg P70,000
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Equipment 80,000
Acc. Depreciation-eqiuip 24,000
Accounts Payable 173,000 P86,790
Advances from Customers 9,000 5,500
Salaries Payable 6,000 15,950
Utilities Payable 5,500 9,650
Capital stock- P100 par 1,000,000 1,000,00
P1,287,500 P1,287,500

No formal books have been kept during 2015. The following information has been gathered from
the checkbooks, deposit slips and other sources:

1. Most balance sheet account balances at December 31, 2015 have been determined and
recorded on the worksheet.
2. Cash receipts for the year are summarized as follows:
Advances from customers P 7,000
Cash sales and collections on accounts receivable (after sales
discounts of P15,200 and sales returns and allowances of P19,400) 1,265,400
Sale of equipment costing P50,000 on which P10,000
of depreciation had accumulated 45,000
P1,317,400
3. Cash disbursement for the year are summarized as follows:
Insurance premiums P 8,250
Purchase of equipment 180,000
Addition to building 46,000
Cash purchase and payments on accounts payable
( after purchase discounts of P11,500 and purchase returns
and allowances of P18,000) 820,500
Salaries paid to employees 430,700
Utilities 18,500
Dividends paid 15,000
Total cash disbursement P1518,950
4. Dividends of P0.75 per share declared on June 30, September 30, and December 31.
5. Depreciation expense for 2015 was: building P4,000, equipment P17,500.
6. Bad debts are estimated to be 1.2% of total sales for the year. The ending accounts
receivable balance of P187,000 has been reduced by P6,500 for specific accounts which
were written off as uncollectible.
Compute the following in 2015:

1. Total sales
a. P1,373,500 b. P1,380,000 c. P1,369,500 d. P1,373,000
Answer: b
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Solution:
Accounts Receivable end P187,000 Adv. Frm cust.,beg P9,000
Add: collection 1,265,400 add: collection 7,000
Sales discount 15,200 less: end (5,500)
Sales ret& allow. 19,400 Gross sale P10,500
Write-off 6,500
Less: AR beginning (124,000)
Gross Sales P1,369,500

Gross sales P1,369,000

Add: GS frm adv. Frm Cust. 10,500
Total sales P1,380,000

2. Total purchases
a. P936, 210 b. P906,710 c. P734,290 d. P763,790
Answer: d

Solution:
Accounts Payable, end P86,790
Add: Payments 820,500
Purch. Discounts 11,500
Purch. Ret. & allow. 18,000
Less: AP, beg (173,000)
Purchases P763,790

3. Cost of goods sold

a. P719,290 b. P748, 790 c. P689,290 d. P718,790
Answer: a
Solution:
Net Purchases P763,790
Less: sales disc. (11,500)
Sales ret & allow. (18,000)
Total Purchase P734,290
Add: beg inventory 230,000
Less: end inventory (245,000)
Cost of Goods Sold P719,290
4. Gain or (loss) on sale of equipment
a. (P5,000) b. P10,000 c. P5,000 d. P0
Answer: c
Solution:
Equipment sold @ P 45,000
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Cost of equip. (50T less dep’n 10T) (10,000)

Gain on sale P5,000

5. Insurance expense
a. P8,250 b. P6,750 c. P6,250 d. 9,750
Answer: d
Solution:
Prepaid insu., beg. P 3,500
Add: Payment 8,250
Less: Prep. Insu, end (2,000)
Insurance Expense P 9,750

6. Salaries expense
a. P434,850 b. P430,700 c. P440,650 d. P420,750
Answer: c
Solution:
Salaries payable, end P 15,950
Add: Payment 430,700
Less: Salaries payable, beg (6,000)
Salaries Expense P440,650

7. Utilities expense
a. P28,150 b. P14,350 c. P18,500 d. P22,650
Answer: d
Solution:
Utilities payable, end P 9,650
Add: Payment 18,500
Less: Util. pay., beg (5,600)
Utilities Expense P 22,650

8. Bad debt expense

a. P16,482 b. P16,560 c. P16,398 d. P16,434
Answer: b
Solution:
Total sales P1,380,000
x Bad debt exp. 1.2%
Bad debt expense P16,560
9. Net income
a. P120,000 b. P154,600 c. P113,578 d. P148,178
Answer: a
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Solution:
Gross sales P1,380,000
Less: SD (15,200)
SRA (19,400)
Net sales P1,345,400
Less: COS (719,290)
Gross Profit P626,110
Less: Insu. Exp. (9,750)
Sal. Exp. (440,650)
Util. Exp (22,650)
BD Exp. (16,560)
Dep’n (21,500)
Add: Gain 5,000
Net Income P120,000
10. Dividend
a. P15,000 b. P7,500 c. P30,000 d. P22,500
Answer: d
Solution:
Capital Stock P 1,000,000 x 3mos (June 30 to Sept. 30)
Per par 100
= 30,000 x 0.75
= P 22,500

11. Allowance for bad debts

a. P9,982 b. P10,060 c. P9,898 d. P9,934
Answer: b
Solution:
Bad Debt Expense P16,560
Write- off (6,500)
Allowance for bad debts P10,060

EXERCISE 6

SAVERS, a retailer, maintained inadequate records. You were engaged to prepare an income
statement for the year ended December 31, 2014. Purchases of merchandise were paid by check,
but most other items of cost were paid out of cash receipts. Weekly, the amount of cash on hand
was deposited in a bank account. No record was kept of cash in bank nor was a record kept of
sales. Accounts receivable was recorded only by keeping a copy of the charge tickets, and copies
of these tickets are given to the customers when they pay their accounts.
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Savers had started in business on January 1, 2014 with P200,000 cash and a building which had a
cost of P150,000 of which one third was the value of the building site. The building depreciated
4% a year. An analysis of the bank statements showed total deposits, including the original cash
investment of P1,305,000. The balance in a bank per bank statement on December 31, 2014 was
paid by the bank until January. Cash on hand December 31 was P3,340.

An inventory of merchandise taken on December 31, 2014 showed P167,100 of merchandise on

a cost basis. Tickets for account receivable totaled P12,700, but P1,230 of that amount is
probably not collectible. Unpaid suppliers’ invoices for merchandise amounted to P37,800.
During the year, SAVERS had borrowed P100,000 from his bank but repaid by check P50,000
principal and P1,000 interest. He had taken from the collections cash for personal expenses of
P48,000. Expenses paid in cash were as follows:

Utilities P5,540
Advertising 500
Sales Help (part time) 5,900
Supplies, stationary, etc. 1,000
Insurance 2,340
Real estate taxes 3,500

Store fixtures with a list price of P70,000 were purchase early in January on one year installment
basis. During the year, check for the down payment and all maturing installments totaled P56,000.
At December 31, the final installment of P15,250 remains unpaid . the fixtures have an
estimated useful life of ten years.
Compute the following items:

1. Sales
a. P1,087,820 b. P1,075,120 c. P1,095,000 d. P1,086,270
Answer: a

Solution:
Total deposit P1,305,000
Initial investment (200,000)
Loan proceeds (100,000)
Accounts Receivable 12,700
Cash 3,340
Expenses 18,780
Cash Collection 48,000
Sales P1,087,820

2. Cost of Sales
a. P1,004,300 b. P1,037,200 c. P1,071,500 d. P870,000
Answer: b
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Solution:
Deposit P1,305,000
Balance ( 53,000)
Disbursement 1,252,000
Check payment (51,000)
Down-payment fix (56,000)
Accounts Payable 37,800
Outstanding check 21,500
Purchases 1,204,300
Ending Inventory (167,100)
Cost of Sales P1,037,200

3. Operating expense
a. P31, 010 b. P18,780 c. P32,010 d. P33,260
Answer: a
Solution:
Building (150T x 2/3 x 4%) P4,000
Fixtures (70,000/10yrs) 7000
Bad Debts 1,230
Expenses 18,780
Operating Expenses P31,010

4. Interest expense
a. P0.00 b. P1,000 c. P2,250 d. P1,250
Answer: c

Solution:
Store Fixtures
P70,000
(56,000)
P14,000
(15,250)
P1,250
1,000

Interest Expense P2,250

5. Net income
a. P17,400 b. P17,360 c. P12,128 d. P6,781
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Answer: b
Solution:
Sales P1,087,820
COS (1,037,200)
OpEx (31, 010)
Int. Exp. (2,250)
Net Income P17,360

EXERCISE 7

The cash account in the ledger of JAMIE Company had a balance of P105,600 at December 31,
2015. An examination of the account, however, disclosed the following.

a. The sales book was left open up to January 5, 2016, and cash sales totaling P15,000 were
considered as sales in December.
b. Checks of P9,300 in payment of liabilities were prepared before December 31, 2015,
recorded in the books, but not mailed or delivered to payees.
c. Post-dated checks totaling P7,800 are being held by the cashier as part of cash. The
company’s experience shows that post-dated checks are eventually realized.
d. Customer’s check for P1,500 deposited with but returned by Bank “NSF”, on December
27, 2015. Return was not recorded in the book.
e. The cash account includes P40,000 earmarked for the purchase of a mini-computer which
will soon be delivered.
Required:

1. What is the cash balance to be shown on the balance sheet December 31, 2015?
Answer: P 90,600

Solution:
Per Book:
P105,600
(15,000)
9,300
(7,800)
(1,500)
Cash Balance 12/31/15 P90,600

EXERCISE 8
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The cash account of SELF DEFENSE, CO. disclosed a balance of book on October 31. The Bank
statement as of October 31 showed a balance of P44,894. Upon comparing the statement with the
cash records, the following facts were developed:

a. The company’s account were charged on October 26 for customers uncollectible check
amounting to P11,000.
b. A two-month, 17% P50,000 customers note dated August 25, discounted on October 12,
was dishonored October 25 and the bank charged the company P55,000 which included a
protest fee of P5,000.
c. A customer’s check for P10,350 was entered as P1,350 by both the depositor and the bank
but was later corrected by the bank.
d. Check No. 143 for P11,765 was entered in the cash disbursement journal as P1,675 and
check No. 156 for P5, 170 was entered as P51,700.
e. Bank service charges of P1,000 fo October not yet recorded on the books.
f. A bank memo stated that customer’s not for P25,000 and interest of P1,000 had been
collected on October 28; and the bank charged P500. (No entry was made on the books
when the note was sent to the bank for collection).
g. Receipts for October 31 for P16,450 were deposited November 1.

The following checks were outstanding on October 31:

No. 101 P 3,450 127 P 6400
105 7,280 129 7,150
110 3,150 142 3,180
115 2,420 150 13,970
Required:

1. What is the adjusted cash balance?

Answer: P14,344

Solution:
Bank balance P44,894
Receipts 16,450
Outstanding Checks (47,000)
Adjusted cash balance P14,344

EXERCISE 9

The internal control procedures for cash transactions in the Alrene Co. were not adequate. Alvin,
the cashier-bookkeeper handles cash receipts, made small disbursement from cash receipts,
maintained accounting records, and prepared the monthly reconciliation of the bank account. At
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November 30, the bank statement showed the balance of P17,500. The outstanding checks were
as follows:

No. 7062 P268.55 No. 8621 P175.19

7183 170.00 8623 341.00
7284 261.45 8632 172.80
The cash balance as shown on the Alrene Co. records was P20,258.31, and this included the cash
on hand. The bank statement for November showed a credit of P200 arising from the collection of
a note left with the bank. The company’s book did not include an entry to record the collection.

The cashier prepared the following reconciliation in an attempt to conceal his theft.

Balance per book, Nov. 30 P 20,258.31

Add: Outstanding checks
No. 8621 P 175.19
8623 341.00
8632 172.80 588.99
P 20,847.30
Less: Cash on hand 3,347.30
Balance per bank statement P 17,500.00
Less: Unrecorded credit 200.00
True cash, Nov. 30 P 17,300.00

Required:

1. Compute the amount of cash shortage.

Answer:P1,000

Solution:
Book Bank
20,258 17,500
200 1,388.99
3,347.30
20,458.31 19,458.31

Book Bal. P20,458.31

Bank Bal. (19,458.31)
Cash Shortage P1,000
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EXERCISE 10

Old Navy Corporation was organized on January 2, 2014. You were engaged to perform a detailed
examination of the transactions to determine whether irregularities exist.

You started the examination on June 30 and surprise count conducted on this date revealed a cash
on hand of P1,285. A bank statement as of the same date disclosed a balance of P6,582. However,
further verification revealed that a check issued for P463 has not yet cleared the bank.

Based on the available records and documents you were able to obtain the following information:

1. Old Navy issued P50,000 par value stocks for P80,000.

2. P 50,000 of the total proceeds from issuance of stocks was used to acquire a real property.
3. The real property was mortgage to secure a bank loan of P28,000.
4. Other furniture and equipment were acquired for a total cost of P7,250. Of the total price,
P1,500 remains unpaid.
5. Outstanding purchase invoices amounted to P11,571. Inventory as of June 30 amounted to
P23,480.
6. Total sales for the period amounted to P80,752. Old Navy sells at 40% above cost.
7. Total amount still due from customers amounted to P21,345.
8. Various operating expenses paid totaled P15,189.
Required: Based on the above data, answer the following:

1. Cash paid to supplies for merchandise purchases.

a. P57,680 b. P81,160 c. P69,589 d. P92,731
Answer: b

Solution: Accounts Payable

11,571 0
69,581
P81,160

2. Cash received from customers.

a. P80,752 b. P59,407 c. P102,097 d. P60,692
Answer: b
Solution:
Accounts Receivable
0 21,345
80,752
P59,407
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3. Total cash accountability.

a. P26,879 b. P25,594 c. P34,283 d. P7,867
Answer: a
Solution:
Cash
0
80,000 50,000
28,000 5,750
59,407 69,589
15,189
P26,879

4. Cash balance to be reported on June 30 financial statements.

a. P7,867 b. P7,404 c. P6,119 d. P26,879
Answer:b
Solution:
Cash on hand P1,285
Balance disclosed 6,582
Less: check not cleared (463)
Cash Balance P7,404

5. Cash shortage.
a. P19,475 b. P7,867 c. P18,190 d. P25,594
Answer: a

Solution:
Cash to be accounted for P26,879
Cash accounted for (7,404)
Cash shortage P19,475

EXERCISE 11

Kournikova Co., organized on March 1, 2015, has a very poor internal control system. The
company cashier is also its accountant. After 9 months of operation, the company manager
suspects that the cashier-accountant has been misappropriating company collections. You have
been engaged to audit the company’s accounts to determine the extent of fraud, if any.

You started the audit on November 15. On that date, the cash on hand per your surprise count was
P5,140. Also on that date, the bank confirmed that the balance of the company’s current account
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was P26,328. Your examination of the records reveals that a for P1,852 was outstanding on
November 15. The company’s mark-up is 40% of sales.

Further examination of the company’s record reveals the following balances at November 15,
2015:

Ordinary shares P300,000

Share premium from ordinary shares 20,000
Mortgage payable 200,000
Furniture and Fixtures (of the acquisition cost,
6,000 remains unpaid as of November 15 29,000
Notes payable- bank 32,000
Accounts payable- trade 46,284
Expenses paid (excluding purchases) 60,756
Merchandise inventory at cost 93,920
Accounts receivable- trade 85,380
Total sales 340,000
1. How much was paid for inventory purchase?
a. 157,716 b. 293,716 c. 183,636 d. 251,636
Answer: d
Solution:
Cash
320,000 151,228
80,000 23,000
32,000 60,756
254,620
P251,636 Inventory Purchase

2. How much was collected from customers?

a. 118,620 b. 254,620 c. 50,620 d. 340,000
Answer: b
Solution:
Sales P340,000
Less: A/R 85,380
Collections P254,620

3. How much is the cash shortage as of November 15, 2015?

a. P121,612 b. 101,612 c. 127,612 d. 206,992
Answer: a
Solution:
Cash on hand P5,140
Bal. of Company 26,328
OC (1,852)
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Cash accounted P29,616

Cash to be accounted for P151,228
Cash accounted 29,616
Cash shortage P121,612

EXERCISE 12

The bank statement for the account of KAMPING COMPANY at December 31, 2013 showed a
credit balance of P20,000, while the company’s ledger balance of the cash account as of
November 30, 2013 was a debit balance of P40,000. During December 2013, the ledger showed
two postings: a debit of P60,000 and a credit of P39,000 from the Cash receipts and Check
Disbursement Journal, respectively.

Your examination revealed that the cash column of the receipts book was underfooted by P6,400.
The receipts book recorded only the collections from customers and did not include bank credit
in December for P8,000, representing loan proceeds of a P10.000 promissory note.

The December Check Disbursement Journal which was overfooted by P500, records only the
checks issued by the company. In the month of December 2013, the bank charged KAMPING
COMPANY for P5,000 representing a loan guaranteed by the client but was dishonored by the
maker, the company’s vice- president. The outstanding checks as of December 31, 2013
amounted to P5,600.

In the morning of January 2, 2014, a cash count conducted disclosed a cash on hand in the form
of bills and coins totaling P38,700.

Required:

How much is the cash shortage as of December 31, 2013?

Answer: P17,800

Solution:

Book Bank P70,900

61,000* 20,000 (53,100)
6,400 (5,600) P121,612 shortage
8,000 38,700
500
(5,000) ________
P70,900 P53,100
*Beg. Receipt (Nov.) P60,000
Less: Dec. R (39,000)
Add: Nov. debit bal. 40,000
 219

Total Receipts P61,000

EXERCISE 13

You were engaged to audit the books of accounts of E Enterprise for the year ended December
31, 2014. From the records of the Co.you gathered the following information:

E Enterprises started the operation on October 2, 2014 with E investing P200,000 cash. Monthly
bank reconciliation statements have not been prepared for 2014; however, bank statement for
October, November, and December were made available to you. Your analysis of these bank
statements revealed total bank credits (deposits) of P1,140,000 including E’s initial investment
and bank loan, details of which are in the additional data. The bank statement in December, 2014
showed an ending balance of P60,760.

Examination of the paid checks disclosed that checks totaling P9,000 were issued by the Co. in
December, 2014 and were presented for payment only in January, 2015. Cash count of the
Cashier that P10,000 of these, in checks, were cash sales on December 29, 2014, deposited on
January 3, 2015. The balance, in currency and coins, represents Petty Cash Fund.

Additional data:

1. Accounts receivable subsidiary ledger had a total balance of P140,000 at December 31,
2014. P10,000 of this was estimated to be uncollectible.
2. Supplier’s unpaid voices for merchandise totaled P30,000; while an account for store
fixtures bought on October 2, 2014 for P100,000 had an unpaid balance of P10,000.
Fixtures are depreciated at 10% per annum.
3. Merchandise inventory at December 31, 2014 amounted to P60,000.
4. The bank statement in October showed a bank credit for P190,000 dated October 2, 2014.
Inquiry from the Cashier disclosed that the amount represents proceeds of a 90-day, 20%
discounted bank note. P160,000 of this loan was paid by check in December, 2014.
5. Operating expenses paid during the period totaled P351,500; while merchandise purchases
amounted to P500,000.\

REQUIRED:

1. Petty cash fund as of December 31, 2014.

a. P12,600 b. P5,000 c. P11,600 d. P2,600
Answer: d

Solution:
Cash count P12,600
 220

Sales in cash (10,000)

PCF P2,600

2. Adjusted cash balance per bank.

a. P61,760 b. P51,760 c. P60,760 d. P70,760
Answer: a
Solution:
Bank Balance P60,760
Error: 1,000
Adjusted cash P61,760

3. Total sales in 2014.

a. P902,600 b. P910,000 c. P900,000 d. P890,000
Answer: c
Solution:
Accounts receivable P140,000
Fixtures Purch. 100,000
Merch. Purch 500,000
Proceeds 160,000
Sales P900,000
4. Total cash paid to suppliers for merchandise purchases.
a. P500,000 b. P470,000 c. P530,000 d. P560,000
Answer: b
Solution:
Merchandise purchase P500,000
Less: unpaid merch. (30,000)
Merch. Purch P470,000

5. Cost of sales in 2014.

a. P560,000 b. P530,000 c. P440,000 d. P500,000
Answer: c
Solution:
Purchases P500,000
Less: inv., end (60,000)
COS P440,000

6. Cash shortage as of December 31, 2014.

a. P14,140 b. P16,740 c. P4,140 d. P6,740
Answer: a

Solution:
Cash to be accounted for P78,500
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Cash accounted (64,360)

Shortage P14,140

EXERCISE 14

Data for the STAR RISE COMPANY are assembled as follows:

Nov. 30, 201 Dec. 31, 2015

Cash account balance P1,000 P 3,790
Bank statement balance 6,690 10,350
Deposit in transit 400 600
Checks outstanding 1,300 1,500
Bank service charges for month, not shown
on the company’s cash book 10 40
Bank charges for N.S.F. checks not shown
On the company’s cash books 200 300
Collection by bank from STAR RISE
Company customers, not shown on the
Company’s cash books 5,000 6,000
Tapes for bank and company cash data offer the following totals:
Deposit and credit memos per bank statement, P13,800;
Canceled checks and debit memos per bank statement, P10, 140;
Cash collected from customers per cash book, P8,000; Checks issued, P10,000.

1. The unadjusted book receipts in December is:

a. P8,000 b. P13,800 c. P14,000 d. P13,000
Answer: d
Solution:
Receipts P8,000
Collections 5,000
Total unadj. receipts P13,000

2. The adjusted cash balance as of November 30 is:

a. P6,690 b. P1,000 c. P5,790 d. P9,450
Answer: c

3. The adjusted cash balance as of December 31 is:

a. P9,450 b. P10,350 c. p3,790 d. P5,790
Answer: a

Solution:
Nov.30,2015 Receipts Disbursements Dec. 31, 2015
 222

Bank bal. 6,690 13,800 10,140 10,350

DIT: beg. 400 (400)
End 600 600
OC: beg. (1,300) (1,300)
End 1,500 (1,500)
Total P5,790 P14,000 P10,340 P9,450

EXRCISE 15

You have been asked by the proprietor of FRESH Company to verify the accountability
of the cashier-bookkeeper, who was allowed to take a vacation leave a few days ago.

a. The bank reconciliation statements prepared by the cashier-bookkeeper are presented

below:
Nov. 30, 2013:
Balance per bank statement P21,500
Cash on hand 500
Total P22,000
Outstanding Checks:
No.2520 P2,000
2521 1,400
2522 1,900 (3,300)
Erroneous bank charge 2,000
Erroneous bank credit (500)
Bank balance P20,200

Dec. 31, 2013:

Balance per bank statement P135,000
Cash on hand 6,300
Total P141,300
Outstanding checks:
No. 2674 P31,000
2675 10,300
2676 5,000 (41,300)
Erroneous bank charge 3,000
Erroneous bank credit (600)
Book balance P102,400
b. The cash in bank account in the general ledger shows the following debits and credits
during Dec. of 2013:
Cash in bank

Dec. Dec.
 223

1 Balance 20,200 1 Check issued 2,000

2 Received frm customer 4,500 5 Check issued 5,200
3 Received frm customer 5,000 14 Check issued 31,000
12 Received frm customer 20,000 24 Check issued 46,000
17 Received frm customer 30,000 28 Check issued 7,600
23 Received frm customer 9,000
27 Received frm customer 70,000
31 Received frm customer 48,500 31 Balance 102,400
Total 198,200 Total 198,200

c. The following summarized transactions were taken from the bank statement for the month
of Dec. 2013:

Balance, Dec. 1, 2013 P 16,500

Total bank credits 173,700
The total credits per bank statement include:
Collection of notes receivable 5,000
Correction of Nov. erroneous bank charge 2,000
Dec. 10 deposit of Flesh credited in error to FRESH 600
Total bank disbursement 65,200
The total disbursement per bank statement include:
Correction of Nov. erroneous bank credit 500
Dec. check of Freeze charged in error to FRESH 3,000
d. Cash on hand per count in the early morning of Jan. 2, 2014 amounted to P6,300.
e. Before leaving his company for a one week vacation, the proprietor had left several signed
bank checks that the cashier-bookkeeper had cashed for his personal use.

1. What is the adjusted cash balance on Nov. 30, 2013?

a. P16,500 b. P13,200 c. P20,200 d. P14,500
2. What is the adjusted cash balance in Dec. 31, 2013?
a. P102,400 b. P125,000 c. P87,400 d.P11,400
Answer: c

Solution:
Nov.30,2013 Receipts Disbursements Dec. 31, 2013
Bank bal. 16,500 173,700 65,200 125,000
DIT: beg. 2,000 (2,000)
Error (600) (600)
OC: beg. (500) (500)
Error (3,000) 3,000
6,300 6,300
500 (500)
(5,300) (5,300)
46,300 (46,300)
 224

Total P13,200 P176,900 P102,700 P87,400

EXERCISE 16

The auditor for STAR Company, examined the petty cash fund immediately after the close of the
business June 30, 2013, the end of the company’s fiscal year. The following fund composition was
arrived at:

Bills and coins P972

Unreplenished vouchers:
Supplies 388
Transportation 240
Repairs 170
Stamps 400
Check drawn by STAR payable to Richard, cash
Custodian representing his salary 1,100
An employee check returned by bank, marked NSF 230
An empty envelope and a sheet of paper bearing the signatures of several
Employees, together with the list of their contributions for a gift
To a departing employee 400
The petty cash fund general ledger account has an imprest balance of P4,000.
Required:

1. Compute the amount of cash shortage, if any.

Answer: P900
Solution:
Bills & coins P572
Unreplenished voucher 1,198
Chech accom. 1,100
Adv. To employees 230
P3,100
(400)
Cash shortage P900

EXERCISE 17

The following cash count sheet and additional information pertain to the accounts of Lance
Corporation for the year ended December 31, 2013.

Cash Count Date. December 16, 2013.

Currency- Details omitted 4,800
 225

Unreplenished petty cash vouchers

Voucher Date Explanation Amount
11/20/2013 Postage stamps 100
12/04/2013 Repair of typewriter 150
12/15/2013 Transportat5ion-Messenger 60
12/15/2013 Office Supplies 90 400
Advances- all properly approved 500
Total amount counted 5,700
Accountability:
Petty cash fund 1,000
Undeposited collections 4,900 5,900
Shortage 200
1. The last replenishment of the fund was made on December 14, 2013 covering the period
from December 1 to 14, 2013.
2. Found inside the cash box were two pay envelopes which had been opened and the contents
aggregating P240 removed. The face of the envelope bore the notation “unclaimed”.
Required: Compute the amount of cash shortage.

Answer: P690

Solution:

Bills & coins P4,800 Accountable:

Unrep. Vouch 150 PCF 1000
IOU’s 500__ coll. 4,900
Total accounted P5,450 UnE wage 240__
P6,140
TA P5,450
Acc (6,140)
Shortage P 690

EXERCISE 18

Regina Reyes is the cashier of the Maharlika Company. As representative of the ABC and
Associates, CPA’s. you were assignned to verify her cah on hand in the morning of January 4,
2014. You began the count at 9:00AM, in the presence of Miss Reyes. In the courde of your
counting, you found currencies in paper bills and coins together with checks, vouchers and other
items, which are mentioned below:

Bills
2 one hundreds, 2 fifties, 8 twenties
Coins
P1.00 8 loose
0.50- 6 rolls and 12 loose (20 pieces to a roll)
0.25- 5 rolls and 32 loose (50 pieces to a roll)
 226

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
Maker Date Payee Amount
Kris Cruz, Asst. Mangr. 12/23/13 Maharlika Co. P60
Ms. Reyes, Cashier 07/26/13 Maharlika Co. 40
I.O.Us
Mr. Chew, Janitor 12/20/13 35
R. Hermosilla,Clerk 12/22/13 25
J. Salosagcol, President 12/24/13 15

Petty cash voucher for replenishment

Payee Date Account Charged Amount
E. Sayson, Messenger 12/16/13 Advances to employees P10.00
Fortune Co. 12/18/13 Supplies 14.50
Victory Liner 12/18/13 Freight- in 18.25
Bureau of Posts (stamps) 12/20/13 Supplies 30.00
A. Vale, Carpenter 12/20/13 Repairs 45.00
B. Bo 12/21/13 Miscellaneous Exp. 15.40

Your investigation also disclosed the following;

1. The balance of petty cash fund per books is P900.

2. The cashier is not allowed to encash personal checks.
3. Cash sales on January 2, 2014 amounted to P865 per sales records, while cash receipts
book and deposit slip showed that only 765 was deposited in the bank on January 3, 2014.
4. The following employees’ pay envelopes have been opened and the money removed. Each
envelope was marked “unclaimed”
A. King P33.25
J. Lim 25.75

Required: Compute the amount of cash shortage. Answer: P104.85

Solution:
Bills & coins P685 Accountable:
Adv. To E 85 PCF 900
Check 60 coll. 100
Unrepl. 123.15` UnE wage 58__
Total accounted P953.15 P1,058
TA P953.15
Acc (1,058)
Shortage P104.85