FAR EASTERN UNIVERSITY

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

AUDITING PROBLEMS
First Semester AY 2017-2018
QUIZ 3 – AUDIT OF CASH
Name Date
(Family Name) (First Name) (Middle Name) Section
Professo Day/Tim
r e
Stud. No. Score /56 items
Room Rating

ANSWER SHEET
PART 1 – MULTIPLE CHOICE PROBLEMS (36 POINTS)
MC1 A MC8 (1) D MC9 (1) D
MC2 C (2) A (2) C
MC3 A (3) C (3) C
MC4 D (4) C (4) B
MC5 A (5) B (5) B
MC6 D (6) A
MC7 A

PART 2 – PROOF OF CASH (14 POINTS)

Requirement 1- Proof of Cash (10 POINTS)
DAVAO CORPORATION
Proof of Cash
For the month of December, 2016

December
Items PTS November 30 Receipts Disbursements December 31

Unadjusted book 1 423,825 112,000 260,693 275,132

balance
Bank Service Charge 1 1,000 (1,000)
Interest income 1 1,550 1,550
Adjusted book balance 1 423,825 113,550 261,693 275,682

Unadjusted bank 1 435,000 80,750 242,130 273,620

balance
Outstanding checks:
November 1 (27,375) (27,375)
December 1 46,938 (46,938)
Deposit in transit:
November 1 16,200 (16,200)
December 1 49,000 49,000
Adjusted bank balance 1 423,825 113,550 261,693 275,682

Requirement 2 – Adjusting Journal Entries PER ITEM at December 31, 2016 (4 POINTS).

Date Account Names Debit Credit

2016 (AJE NO. 1)
Dec. 31 Bank Service Charge 1,000
2 pts. Cash 1,000

(AJE NO. 2)
31 Cash 1,550
2 pts. Interest Income 1,550

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PART 1 - MULTIPLE CHOICE (36 POINTS)
Choose the correct answer among the given choices.
Supporting computation is not necessary. Write the
letter of your choice on the answer sheet provided.
Use CAPITAL LETTERS.
A sheet of paper with names of
several employees together with
contribution for a birthday gift of a
co-employee. Attached to the
sheet of paper is a currency of 2,000

MC Problem 1 The petty cash general ledger account has an imprest

During your audit of Manila Company, the ledger of its balance of P 40,000.
cash account showed a balance of P 441,500 as of
December 31, 2016. The analysis of this account is Based on the above data, what is the amount of petty
presented below. cash fund that should be shown on the balance sheet
as of August 31, 2016?
Petty cash fund P 2,400 a. P 31,500
Undeposited receipts, including a b. P 31,000
post-dated check for P 7,000 122,000 c. P 28,400
Cash in in BPI, per bank d. P 27,800
statement, with a check for
P 4,000 still outstanding 224,500 Solutions:
Bond sinking fund 85,000 Currencies P 11,600
Vouchers paid out of collection, Coins 1,600
not yet recorded 4,300
IOUs signed by employees, taken A check drawn by the company
from collections 3,300 payable to the order of Vina Toh,
TOTAL P 441,500 petty cash custodian representing
her salary 15,200
What is the amount of cash on hand and in bank that PCF to be reported in the BS P 28,400
should be reported on the company’s statement of (Letter C)
financial position?
a. P 337,900 Notes:
b. P 341,900  Petty cash vouchers are no longer in the form of
c. P 348,900 petty cash fund.
d. P 441,500  The 1,520 is a replenishment check.
 NSF check is a receivable.
Solution:
Petty cash fund P 2,400
 Employee contributions for a birthday gift is not
Undeposited receipts the property of the company.
(P 122,000 – P 7,000 PDC) 115,000
Cash in in BPI
(P 224,500 – P 4,000 outstanding
checks) 220,500 MC Problem 3
You are auditing the Tagaytay Golf Course (TGC) for
TOTAL P 337,900
the year 2016. The following bank accounts are
(Letter A) presented to you by the accountant:
Notes: Overdraw checking account P (50,000)
 Bond sinking fund is a non-current asset – Payroll account 50,000
investment. Tax Fund 10,000
 Vouchers paid out of collection are expenses.
 IOUs are receivables (advances to employees). In addition to the bank accounts, TGC has the
following items in office:

MC Problem 2 Postage stamps P 1,000

The Petty Cash Fund of Quezon Company Employee’s post-dated check 1,500
immediately at the close of business on August 30, IOU from a friend golfer 5,000
2017, the end of company’s fiscal year is composed A wristwatch (reported at market
of the following: value, surrendered as security
by a customer who forgot his
Currencies P 11,600 wallet) 7,000
Coins 1,600 Credit memo from a vendor for a
purchase return 3,000
Petty Cash Vouchers Traveler’s checks 2,000
 Gasoline payments for Insufficient fund check 4,000
delivery equipment 3,240 Ten cases of empty soft drink
 Medical supplies for bottles (returnable value) 1,200
employees 960 Petty cash fund (P 1,000 in
 Repairs of office equipment 1,600 currency and expense receipts
 Loans to employees 3,200 for P 4,000) 5,000
Postal Money order 6,000
A check drawn by the company
payable to the order of Vina Toh, How much cash may be reported on TGC’s statement
petty cash custodian representing of financial position?
her salary 15,200 a. P 69,000
b. P 49,000
An employee check returned by c. P 9,000
the ban for insufficiency of fund 3,200 d. P 29,000

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 Adjusted cash balance P 723,600
Solution: (Letter D)
Payroll account P 50,000 Notes:
Tax Fund 10,000  Notes receivable in the possession of the
Traveler’s checks 2,000 collecting agency is still a receivable because this
Petty cash fund 1,000 is in the process of collection.
Postal Money order 6,000
 Receipts of expenses are expense items.
Total cash to be reported in SFP P 69,000
 Customers PDC and NSF checks are
(Letter A)
receivables.
Notes:  Checks in payment of accounts, still in the safe of
the cashier, awaiting instructions for delivery to
 Bank overdraft is a current liability.
payees, are undelivered checks.
 Postage stamps are supplies.
 Employee’s PDC is a receivable.
 IOUs are receivables. MC Problem 5
 The wristwatch is not a property of the company. Makati’s bank statement for July shows a balance of
It is an item held for safekeeping and may be P 200,000. Makati’s general ledger balance is P
reported as contingent liability. 150,000. Using the information below, determine the
 CM form a vendor is a reduction in accounts adjusted cash balance as shown in its bank
receivable. reconciliation:
 Insufficient fund check is a receivable.
 The returnable value of empty soft drink bottles Deposit in transit P 50,000
are deposits to supplier. Checks outstanding 70,000
 In petty cash fund, only the P 1,000 in currency is An error in Makati’s books
included. The expense receipts are in the form of overstates disbursements by 5,000
vouchers and no longer qualify as petty cash The bank recorded a deposit of P
fund. 775,000 as 700,000
The bank collected a rental
payment of P 100,000
MC Problem 4 deposited directly to Makati’s
The unaudited statement of Pasay Corporation as at account
December 31, 2016 showed the cash amount of P
873,000. It was found to include the following: Makati’s adjusted cash balance is:
a. P 255,000
PMOs from customers P 24,000 b. P 330,000
Notes receivable in the c. P 395,000
possession of a collecting d. P 175,000
agency 32,000
Receipts of expenses advanced Solutions:
for the account of certain Book Bank
suppliers 16,000 Unadjusted balances 150,000 200,000
Customers’ post-dated checks 15,000 Deposit in transit 50,000
Customers’ checks returned by Checks outstanding (70,000)
the bank marked “NSF” 18,000 An error in Makati’s books
Currencies and coins on hand 6,000 overstates disbursements by
Checks in payment of accounts, P 5,000 5,000
still in the safe of the cashier, The bank recorded a deposit of
awaiting instructions for delivery P 775,000 as P 700,000 75,000
to payees 60,000 The bank collected a rental
Petty cash fund (P 1,600 in payment of P 100,000
currency and P 8,400 in deposited directly to Makati’s
expense receipts) 10,000 account 100,000
Adjusted balances 255,00 255,000
The correct cash balance for the statement of (Letter A)
financial position is:
a. P 825,000
b. P 765,000 MC Problem 6
c. P 816,600 The cash account of Pasig Motor Shop as of
d. P 723,600 December 31, 2016 consists of the following:
Solutions: Cash in bank P 116,560
Unadjusted balance P 873,000
Petty cash fund (replenished
Notes receivable in the
12.31.2016) 3,000
possession of a collecting
Materials purchasing fund
agency (32,000)
(replenished 12.15.2016) 10,000
Receipts of expenses advanced
Total P 129,560
for the account of certain
suppliers (16,000)
Customers’ post-dated checks (15,000) Bank reconciliation items as of December 31, 2016
Customers’ checks returned by include the following:
the bank marked “NSF” (18,000)
Checks in payment of accounts, Checks issued in November and
still in the safe of the cashier, December, 2016, cleared the
awaiting instructions for delivery bank in January, 2017 P 44,750
to payees (60,000) Bank CM dated December 27,
Expense receipts from Petty cash 2016 for Pasig Motor Shop’s
fund (8,400) account, as transfer from

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 Diamond Motors, a customer, NSF – No sufficient fund check
as payment for long overdue SC – Bank Service Charge
account 10,300 INT – Interest income

The materials purchasing fund was replenished on Assume that errors or discrepancies you find are
January 2, 2017 and included purchase in December, Cebu Company’s, not the banks.
2016 of brake pads amounting to P 4,750.
What is the adjusted balance as of April 30, 2017?
The audited balance of the Cash account as at a. P 26,833
December 31, 2016 is: b. P 26,838
a. P 139,860 c. P 30,426
b. P 90,360 d. P 26,872
c. P 82,110
d. P 135,110 Solutions:
Book Bank
Solution:
Cash on Cash in Unadjusted balances 20,490 30,426
Hand Bank Book balance - overstated (539)
Adjusted bank balance 116,560 Deposit in transit 11,774
Petty cash fund (replenished Outstanding checks:
12.31.2016) 3,000 No. 178 (2,150)
Materials purchasing fund No. 181 (13,217)
(P 10,000 – P 4,750) 5,250 Understated book receipts 300
Bank CM dated December 27, Proceeds of bank loan 8,150
2016 for Pasig Motor NSF Check (1,000)
Shop’s Service Charge (600)
account, as transfer from Interest income 82
Diamond Motors, a Adjusted balances 26,833 26,833
customer, as payment for 10,300 (Letter A)
long overdue account
Adjusted balance 18,550 116,560 Notes:
Total cash to be reported 135,110 Book balance at April 30, 2017 is overstated by P 539
(Letter D) (Error P 20,490 – Correct P 19,951)

Notes:
 Checks issued in November and December, MC Problem 8
2016, cleared the bank in January, 2017 The following information pertains to Davao
(Outstanding check), are ignored because the P Corporation:
116,560 is already an adjusted cash in bank
balance. DAVAO CORPORATION
 The Bank CM is included in the computation Bank Reconciliation
because no unadjusted book balance is given. November 30, 2016

Balance per bank statement 435,000

MC Problem 7 Less Outstanding checks:
The following data were taken from Cebu Company’s :
check register for the month of April. The bank No. 4321 6,000
reconciliation for March showed one outstanding No. 4329 15,000
check, Check No. 178 for P 2,150 (written on March No. 4340 1,700
20), and one deposit in transit for P 4,350 (made on No. 4341 4,675 27,375
March 31). 407,625
Add: Deposit in Transit 16,200
Date Item Checks Deposit Balances Balance per books 423,825
s
2017
4/1 Beg. Bal. 6,150 CHECK REGISTER
4/1 Deposit 26,167 32,317 Check Vouchers
4/1 Check 179 250 32,567 Date No. Payable Discount Cash
4/4 Check 180 10,673 21,898
Dec
4/27 Deposit 11,774 33,672
.
4/29 Check 181 13,217 20,490
1 4342 10,000 500 9,500
3 4343 4,200 4,200
The following is from Cebu’s bank statement for April:
7 4344 3,755 3,755
Date Item Checks Deposit Balances 12 4345 12,000 120 11,880
s 15 4346 96,000 96,000
2017 16 4347 6,300 6,300
4/1 Beg. Bal. 3,950 18 4348 14,200 142 14,058
4/3 Check 179 250 3,700 21 4349 7,000 7,000
4/3 Deposit 4,350 8,050 22 4350 10,000 10,000
4/5 Check 180 10,673 (2,623) 28 4351 98,000 98,000
4/5 Loan 8,150 5,527
4/5 Deposit 26,417 31,944 Notes:
4/20 NSF 1,000 30,944 Check Nos. 4346 and 4351 are payroll checks.
4/20 SC 600 30,344
4/30 INT 82 30,426 BANK STATEMENT

Legend: Bankable Bank

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Period: November 30, 2016 – December 31, 2016
Date Description Debit Credit Balance 4. What is the adjusted cash balance on November
Dec 30, 2016?
. a. P 446,375
1 Balance 435,000 b. P 417,825
1 Cash dep 16,200 451,200 c. P 423,825
1 CK 4329 15,000 436,200 d. P 435,000
4 CK 4342 9,500 426,700
4 CK 4341 4,675 422,025
5 CK dep 49,000 471,025
6 CK 4343 4,200 466,825
8 CK dep 14,000 480,825
10 CK 4344 3,755 477,070 Solution:
15 CK 4346 96,000 381,070 Book Bank
22 CK 4350 10,000 371,070 Unadjusted balances 423,825 435,000
28 CK 4351 98,000 273,070 Deposit in transit 16,200
29 DM – SC 1,000 272,070 Outstanding checks (27,375)
29 CM - INT 1,550 273,620 Adjusted balances 423,825 423,825
(Letter C)
Notes:
CK means Check.
SC means Bank Service Charge 5. What is the adjusted cash balance on December
INT means interest income 31, 2016?
a. P 281,682
Deposit in transit at December 31 totaled P 49,000. b. P 275,682
c. P 226,682
Questions: d. P 274,920
1. What is the total book receipts for December?
a. P 113,550 Solution:
b. P 80,750 Book Bank
c. P 63,000 Unadjusted balances 275,132 273,620
d. P 112,000 Deposit in transit 49,000
Outstanding checks (46,938)
Solutions: DM – Service charge (1,000)
December 5 cash deposit P 49,000 CM - Interest 1,550
December 8 check deposit 14,000 Adjusted balances 275,682 275,682
December 31 deposit in transit 49,000 (Letter B)
Total book receipts for Dec. P 112,000
(Letter D)
MC Problem 9
LOVE BUN Company was organized on January 2,
2. What is the cash balance per books on 2016. The following items are from the company’s trial
December 31, 2016? balance on December 31, 2016:
a. P 275,132
b. P 226,132 Ordinary share capital P 1,500,000
c. P 291,332 Share premium 150,000
d. P 274,370 Merchandise inventory 69,000
Land 1,000,000
Solutions: Building 1,400,000
Balance per books, December 1 P 423,825 Furniture and Fixtures 367,000
Total book receipts, December 112,000 Accounts Receivable 165,400
Total Check payments, December (260,693) Accounts Payable 389,650
Balance per books, December P 275,132 Notes Payable – Bank 500,000
31 Sales 6,235,200
(Letter A) Operating expenses (including
depreciation of P 400,000) 1,005,150

Additional information is as follows:

3. What is the total outstanding checks on 1 Deposit in transit, December
December 31, 2016? . 31
a. P 68,313 P 384,660
b. P 39,238 2 Service charge for
c. P 46,938 . December
d. P 40,938 2,000
3 Outstanding checks,
Solutions: . December 31
No. 4321 P 6,000 475,000
No. 4340 1,700 4 Bank balance, December 31 892,000
No. 4345 11,880 .
No. 4347 6,300 5 Love Bun’s mark-up on sales
No. 4348 14,058 . is 30%
No. 4349 7,000
Outstanding CKS, December 31 P 46,938
(Letter A) Questions:
1. What is the total collections from sales?
a. P 6,114,967

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 b. P 4,119,240 6. What is the adjusted cash balance on December
c. P 6,235,200 31?
d. P 6,069,800 a. P 801,660
b. P 651,660
Solutions: c. P 1,201,660
Credit Sales P 6,235,200 d. P 803,660
Accounts receivable balance, 12/31 (165,400)
Total collections from sales P 6,069,800 Solutions:
(Letter D) Book Bank
Unadjusted, 12/31 803,660 892,000
Deposit in transit, 12/31 384,660
2. What is the total payments for merchandise Outstanding checks, 12/31 (475,000)
purchases? Service charge for Dec. (2,000)
a. P 3,905,990 Adjusted, 12/31 801,660 801,660
b. P 4,649,140 (Letter A)
c. P 4,043,990
d. P 5,914,550
Solutions: PART 2 - PROOF OF CASH (36 POINTS)
Cost Sales (P 6,235,200 x 70%) P 4,364,640 Using the same information in MULTIPLE CHOICE
Merchandise inventory, 12/31 69,000 PROBLEM 8:
Total goods available for sale P 4,433,640
Merchandise inventory, 1/2 0 1. Prepare the proof of cash of Davao Corporation
Total credit purchases in 2016 P 4,433,640 for the month of December to determine the
Accounts payable balance, 12/31 (389,650) adjusted balances, including receipts and
Total payments for purchases P 4,043,990 disbursements.
(Letter c)
2. Prepare the necessary adjusting journal entries
at December 31, 2016.
3. What is the total cash receipts per books?
a. P 7,819,800 USE THE SOLUTION GUIDE PROVIDED.
b. P 8,169,800
c. P 8,219,800
d. P 8,069,800

Solutions:
Total collection from sales (No. 1) P 6,069,800
Proceeds from ordinary share sale
At par value 1,500,000
Share premium 150,000
Proceeds of notes payable - bank 500,000
Total receipts per books P 8,219,800
(Letter C)

4. What is the total cash disbursements per book?

a. P 7,816,140
b. P 7,416,140
c. P 8,021,290
d. P 7,278,140

Solutions:
Payments for purchases (No. 2) P 4,043,990
Payment for acquisition of:
Land 1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Payment of operating expenses
(P 1,005,150- P 400,000 dep.) 605,150
Total receipts per books P 7,416,140
(Letter B)

5. What is the cash balance per books on

December 31?
a. P 653,660
b. P 803,660
c. P 1,203,660
d. P 707,060

Solutions:
Cash balance per book, 1/1 P 0
Total cash receipts (No. 3) 8,219,800
Total cash disbursements (No. 4) (7,416,140)
Cash balance per books, 12.31 P 803,660
(Letter B)