ADAMSON UNIVERSITY

Intermediate Accounting 1 – (CASH) Prelims Assignment 4

Prof. Judith Francisco – Luna

Name _____________________________________________ Schedule _____________ Date ________________

FAMILY NAME FIRST NAME M.I.

I. RIGHT/WRONG
Write in CAPITALS the word RIGHT if the statement is correct or the word WRONG if the statement is incorrect.
___________ 1. Cash may be offset against a liability only if a legal right of offset exists or the deposit of funds
in a restricted account clearly constitutes the legal discharge of the liability.
___________ 2. Generally, overdrafts are not permitted in the Philippines.
___________ 3. Short-term or temporary placements of excess cash which can be pre-terminated may be
shown as part of the Cash account.
___________ 4. Bankers’ acceptance or commercial papers which cannot be pre-terminated form part of cash.
___________ 5. Cash not available for current operations, such as those reserve for the acquisition and
construction of noncurrent assets, or those segregated for liquidation of long-term debt should be excluded
from current assets and shown under a noncurrent asset heading on the balance sheet.
___________ 6. An unrecorded bank service charge should be added to the balance shown in the bank statement
if the “Bank-to-Book” form of reconciliation is prepared.
___________ 7. The bank corrects both bank and book errors.
___________ 8. Bank reconciliation must be done on a daily basis.
___________ 9. A check is considered outstanding until it is presented by the payee for encashment or deposit.
__________ 10. Deposits in transit are added back to the book balance under the adjusted balance method.
__________ 11. Debit memos include not-sufficient-funds checks.
__________ 12. Bank service charges are deducted from the book balance to arrive at the adjusted cash balance.
__________ 13. A certified check is considered an outstanding check for bank reconciliation purposes.
__________ 14. The adjusting entries to be recorded after preparing a bank reconciliation would include
adjustments for bank reconciling items.
__________ 15. NSF checks are considered as receivables.
II. Write the CAPITAL LETTER of the best answer for each of the following items.
_____ 1 . The account “cash” on the balance sheet includes currency or cash items on hand as well as peso or
foreign currency deposits in bank which are
A. available for the purchase of merchandise.
B. restricted for the payment of bonds.
C. unrestricted and immediately available for use in noncurrent operations.
D. unrestricted and immediately available for use in current operations.
_____ 2. Credit balances in bank accounts
A. can be offset against demand deposit balance in other accounts in the same bank.
B. can be offset against demand deposit balances in other banks if the amount is not material.
C. which cannot be offset are to be shown as current liabilities.
D. All of the above.
_____ 3. Unreleased checks (checks drawn before balance sheet date but held for later delivery to creditors)
A. should be treated as outstanding checks.
B. should be restored to the cash balance.
C. should be treated as outstanding checks if the date is shortly after balance sheet date.
D. should be treated as outstanding checks if they are ultimately encashed.
_____ 4. If material, deposits in foreign countries which are subject to foreign exchange restrictions should be
shown A. separately as current asset with no disclosure of the restriction.
B. separately as non-current asset with no disclosure of the restriction.
C. separately as current asset with disclosure of the restriction.
D. separately as non-current asset with disclosure of the restriction.
_____ 5. Postage stamps and IOUs found in cash drawers should be reported as
A. supplies and receivables. C. petty cash.
B. cash because they represent the equivalent of money. D. investments
_____ 6. The Petty Cash account is debited under the imprest system
A. only when the fund is established.
B. when the fund is established and everytime it is replenished.
C. when the fund is established and when the size of the fund is increased.
D. when the fund is established, replenished and increased in size.
_____ 7. Statement 1 – Unless the balance sheet is prepared for special purposes, it is not necessary to classify
cash to distinguish between currency on hand, undeposited checks, cash in bans or deposits at various
locations.
Statement 2 – Cash not available for current operations, such as those reserved for acquisition of
noncurrent asset or those segregated for the liquidation of long-term debt should be excluded from cash shown
as currents assets.
Statement 1 Statement 2 Statement 1 Statement 2
A. True True C. False False
B. True False D. False True
_____ 8. Which of the following statements is false?
A. Not all items included in cash constitute legal tender.
B. Cash may be offset against a liability if the deposit of funds in a restricted account clearly constitutes the
legal discharge of the liability.
C. Legally restricted bank deposit held as compensating balances should be segregated from the cash account
and reported under a separate caption.
D. Bankers’ acceptance and commercial paper may be shown as part of the cash account provided this is
disclosed.
_____ 9. Which one of the following statements describes a procedure which should be followed to safeguard
cash receipts?
A. The firm’s bookkeeper should count the cash receipts daily and then enter the totals into the accounting
records.
B. To avoid getting too many persons involved, one person should handle both cash receipts and cash
disbursements.
C. As soon as cash is received, a record of the receipt should be made.
D. To avoid the cost and time involved, as many cash disbursements as possible should be made before cash
receipts are deposited in the bank.
_____ 10. On R Company‘s bank reconciliation at the end of May, the amount of P300 is deducted from the
bank statement balance as one step in determining the adjusted balance which should appear as cash on the
Balance Sheet. A possible explanation for this P300 deduction is:
A. a check deposited by R Company has been returned marked ‘NSF”.
B. the bank has collected a note for the company.
C. a deposit-in-transit in the amount of P300.
D. the bank erroneously put Q Company’s deposit on R Company’s bank statement.
III. Write the CAPITAL LETTER of the best answer for each of the following items.
_____ 1. On December 31, 2019, Winner Company has the following cash balances:
Cash in bank P 900,000
Petty cash fund (all funds were reimbursed on 12/31/19) 25,000
Time deposits (due March 1, 2020) 125,000
Cash in bank includes P300,000 of compensating balance against short-term borrowing arrangements at
December 31, 2019. The compensating balance is legally restricted as to withdrawal by Winner.
What total cash amount should be reported by Winner in the balance sheet at December 31, 2019?
A. P750,000 B. P625,000 C. P925,000 D. P1,050,000
_____ 2. In preparing its bank reconciliation for the month of March 2019, Derby Company has the following
available information:
Balance per bank statement, 3/31/19 P 36,050
Deposit in Transit, 3/31/19 6,250
Outstanding checks, 3/31/19 5,750
Credit erroneously recorded by bank in Derby’s account, 3/31/19 250
Bank service charges for March 50
What should be the correct balance of cash at March 31, 2017?
A. P 35,250 B. P 36,250 C. P 36,300 D. P 36,550
_____ 3. The Cash account of Island Corp. has a balance of P96,000 on December 31, 2019. Your review of the
cash transactions recorded in December revealed the following:
Cash receipts included customer’s checks for P4,000 dated January 10, 2020.
Cash disbursements included:
Check of P10,000 payable to Ace Company. The check, dated December 23, was delivered to Ace on
December 24, but had not been paid by the bank as of December 31.
Check of P7,000 payable to King Co. The check was dated December 29 but still undelivered as of
December 31.
What is the correct cash balance at December 31, 2019?
A. P75,000 B. P89,000 C. P97,000 D. P99,000
_____ 4. On December 31, 2019, West Company had the following cash balances:
Cash in banks P 1,800,000
Petty Cash Fund (all funds were reimbursed on 12/31/2019) 50,000
Cash in banks includes P600,000 of compensating balances against short-term borrowing arrangements at
December 31, 2019. The compensating balances are not legally restricted as to withdrawal by West. In the
current assets section of West’s December 31, 2019, Balance Sheet, what total amount should be reported as
Cash?
A. P1,200,000 B. P1,250,000 C. P1,800,000 D. P1,850,000
_____ 5. JHARI has the following Petty Cash fund items:
Currency and Coins P8,600
Paid Voucher
Postage stamps P 100
Transportation 300
Due from employees 500 900
Check drawn by the company
Payable to the custodian 3,400
Manager’s check returned by
Bank marked “NSF” 2,000
What was the amount of petty cash fund for balance sheet purposes?
A. P6,600 B. P7,500 C. P12,000 D. P14,000