(Test Bank) Accounting Misc / Auditing Problems

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Test Bank

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1 I - AUDIT OF CASH AND CASH EQUIVALENTS PROBLEM NO. 1 - Composition of Cash and Cash Equivalents The following data pertain to PRTC Corporation at December 31, 2015: Current account at Metrobank P 1,800,000 Current account at Allied Bank (100,000) Payroll account 500,000 Foreign bank account (in equivalent pesos) 800,000 Savings deposit in a closed bank 150,000 Postage stamps 1,000 Employee's postdated check 4,000 IOUs from employees 10,000 Credit memo from a vendor for a purchase return 20,000 Traveler's check 50,000 Money order 30,000 Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000 Pension fund 2,000,000 DAIF check of customer 15,000 Customer's check dated 1/1/16 80,000 Time deposit - 30 days 200,000 Money market placement (due 6/30/16) 500,000 Treasury bills, due 3/31/16 (purchased 12/31/15) 200,000 Treasury bills, due 1/31/16 (purchased 2/1/15) 300,000 REQUIRED: Determine the cash and cash equivalents to be reported on the entity's December 31, 2015 statement of financial position. SOLUTION: Items included: Current account at Metrobank 1,800,000 Payroll account 500,000 Foreign bank account (in equivalent pesos) 800,000 Traveler’s check 50,000 Money order 30,000 Petty cash fund - currency 4,000 Time deposit – 30 days 200,000 Treasury bills, due 3/31/13 (purchased 12/31/12) 200,000 3,584,000 2 Items not included: Current account at Allied Bank (100,000) Short term borrowing Savings deposit in a closed bank 150,000 Other noncurrent assets Postage stamps 1,000 Unused supplies (Other CA) Employee’s post dated check 4,000 Trade and other receivables IOU from employees 10,000 Trade and other receivables Credit memo from a vendor for a purchase return 20,000 Deduction from accounts payable Petty cash fund - expense receipts 6,000 Expenses Pension fund 2,000,000 Noncurrent asset DAIF check of customer 15,000 Trade and other receivables Customer’s check dated 1/1/13 80,000 Trade and other receivables Money market placement (due 6/30/13) 500,000 Short term investment Treasury bills, due 1/31/13 (purchased 2/1/12) 300,000 Short term investment PROBLEM NO.2 - Computation of adjusted cash and cash equivalents You were able to gather the following from the December 31, 2015 trial balance of PRTC Corporation in connection with your audit of the company: Cash on hand P 372,000 Petty cash fund 10,000 BPI current account 950,000 Security Bank current account No.01 1,280,000 Security Bank current account No.02 (40,000) PNB savings account 500,000 PNB time deposit 300,000 Cash on hand includes the following items: a) Customer's check for P60,000 returned by bank on December 26, 2015 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2016. b) Customer's check for P30,000 dated January 2, 2016, received on December 29, 2015. c) Postal money orders received from customers, P36,000. 3 The petty cash fund consisted of the following items as of December 31, 2015: Included among the checks drawn by PRTC Corporation against the BPI current account and recorded in December 2015 are the following: a) Check written and dated December 29, 2015 and delivered to payee on January 2, 2016, P50,000. b) Check written on December 27, 2015dated January 2, 2016, delivered to payee on December 29, 2015, P86,000. The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31,2015. The savings account deposit in PNB has been set aside by the board of directors for acquisition of new equipment. This account is expected to be disbursed in the next 3 months from the balance sheet date. REQUIRED: 1. Compute for the adjusted balances of following: a. Cash on hand b. Petty cash fund c. BPI current account d. Cash and cash equivalents 2. Adjusting entries as of December 31, 2015 SOLUTION: Requirement No. 1.a Cash on hand, per trial balance 372,000 Currency and coins P 2,100 Employees' vales 1,600 Currency in an envelope marked "collections for charity" with names attached 1,200 Unreplenished petty cash vouchers 800 Check drawn by PRTC Corporation, payable to the petty cashier 4,600 P10,300 4 (a) NSF check (60,000) (b) Postdated check received (30,000) Cash on hand, as adjusted 282,000 Adjusting journal entries Accounts receivable 60,000 Cash on hand 60,000 Accounts receivable 30,000 Cash on hand 30,000 Requirement No. 1.b Petty cash fund per total 10,300 Employees' vales (1,600) Currency in envelope marked "collections for charity" (1,200) Unreplenished petty cash vouchers (800) Petty cash fund, as adjusted 6,700 Alternative computation: Currency and coins 2,100 Replenishment check 4,600 Petty cash fund, as adjusted 6,700 Adjusting journal entries: Advances to officers and employees 1,600 Expenses 800 Cash short/over (balancing figure or see computation below) 900 Petty cash fund (P10,000 - P6,700) 3,300 Computation of shortage: Currency and coins 2,100 Employees' vales 1,600 Unreplenished petty cash vouchers 800 Replenishment check 4,600 Cash and cash items counted 9,100 Cash accountability 10,000 Unaccounted/Shortage 5 (900) Requirement No. 1.c BPI current account, per trial balance 950,000 Unreleased check 50,000 Post dated check delivered 86,000 BPI current account, as adjusted 1,086,000 Adjusting journal entries: BPI current account 50,000 Accounts payable 50,000 Accounts receivable 86,000 Cash on hand 86,000 Requirement No. 1.d Cash on hand (see no. 1.a) 282,000 Petty cash fund (see no. 1.b) 6,700 BPI current account (see no. 1.c) 1,086,000 Security Bank current account no. 1 1,280,000 Security Bank current account no. 2 (40,000) 1,240,000 PNB time deposit (cash equivalent) 300,000 Cash and cash equivalents, as adjusted 2,914,700 Note: The P500,000 PNB savings account should be presented separately from cash and cash equivalents since it has been earmarked for the acquisition of a noncurrent asset. 6 PROBLEM NO. 3 - Cash count and shortage computation In connection with the audit of the financial statements of Rupee Company for the year ended December 31, 2015,you performed a surprise count of the petty cash fund and undeposited collections under the custody of Ms. Jessie at 8:15 a.m. on January 3, 2016. Your count disclosed the following: Bills and Coins Bills Coins P 100 10 pieces P 1.00 410 pieces 50 80 pieces 0.50 324 pieces 20 70 pieces 0.25 64 pieces 10 54 pieces Unused postage stamps - P730 Checks Date Payee Drawer Amount Dec. 30 Cash Ms. Jessie P 2,400 Dec. 30 Rupee Company Robert 28,000 Dec. 31 Rupee Company Jay Ar, sales manager 3,360 Dec. 31 Rupee Company Francis 35,600 Dec. 31 Rupee Company Ryan 16,600 Dec. 31 German Corp. Rupee Company 54,000 Expense Vouchers Date Payee Description Amount Dec. 23 Jay Ar, sales manager Cash advance for trip to Baguio City P 14,000 Dec. 27 Central Post Office Postage stamps 3,240 Dec. 29 Messengers Transportation 300 Dec. 29 PC Express Computer repair 1,600 Other items found inside the cash box: a) Two pay envelopes which had been opened and the contents aggregating P15,000 representing unclaimed salaries had been removed. b) The sales manager's liquidation report for his Baguio trip: Cash advance received on Dec. 23 P 14,000 Less: Hotel accomodation P 9,000 Bus fare for two 800 Cash given to Roy, salesman 600 10,400 Balance P 3,600 7 Accounted for as follows: Cash returned by Roy to the sales manager P 240 Personal check of sales manager 3,360 Total P 3,600 Additional information: a) The custodian is not authorized to cash checks. b) The last official receipt included in the deposit on December 30 is No. 351 and the last official receipt issued for the current year is No. 355. The following official receipts are all dated December 31, 2015. O.R. No. Amount Form of payment 352 P 27,200 Cash 353 35,600 Check 354 7,200 Cash 355 16,600 Check c) The Petty Cash balance per general ledger is P20,000. The last replenishment of the fund was made on December 22, 2015. REQUIRED: 1. Determine shortage or overage, if any 2. Adjusting entries as of December 31, 2015 SOLUTION: Requirement No. 1 Bills and coins Denomination Quantity Amount Total P100.00 10 1,000 50.00 80 4,000 20.00 70 1,400 10.00 54 540 1.00 410 410 0.50 324 162 0.25 64 16 7,528 8 Checks Date Drawer Amount Dec. 30 Ms. Jessie 2,400 Dec. 30 Robert 28,000 Dec. 31 Jay Ar 3,360 Dec. 31 Francis 35,600 Dec. 31 Ryan 16,600 85,960 Unreplenished vouchers Date Account Amount Dec. 23 Advances 14,000 Dec. 27 Postage 3,240 Dec. 29 Transportation 300 Dec. 29 Repairs 1,600 19,140 AJE 1&2 Total cash and cash items counted 112,628 Less accountabilities: Petty cash 20,000 Undeposited collections - per OR 86,600 Undeposited collections - without OR 28,000 AJE 4 Excess travel advance returned 3,360 AJE 3 Unclaimed salaries 15,000 152,960 AJE 5 Cash shortage (40,332) AJE 6 Requirement No. 2 1 Advances to officers and employees 14,000 Postage expense 3,240 Transportation expense 300 Repairs and maintenance 1,600 Petty cash fund 19,140 2 Unused postage 730 Postage expense 730 9 3 Travel expense [P9,000+P800+(P600-P240)] 10,160 Petty cash fund (personal check of sales manager) 3,360 Advances to officers and employees 13,520 4 Cash 28,000 Accounts receivable 28,000 5 Cash 15,000 Salaries payable 15,000 6 Cash short/over (Receivable from custodian) 40,332 Cash 40,332 7 Cash 54,000 Accounts payable 54,000 PROBLEM NO. 4 - Bank reconciliation The Cash in Bank account of Dollar Company disclosed a balance of P203,000 as of December 31. The bank statement as of December 31 showed a balanced of P106,000. Upon comparing the bank statement with cash records, the following facts were developed: a. The company's account was charged on December 26 for a customer's uncollectible check amounting to P30,000. b. A two-month, 17% P60,000 customer's note dated October 25, discounted on November 25, was dishonored on December 25, and the bank charged the company P62,000, which included a protest fee of P2,000. 10 c. A customer's check for P15,400 was entered as P14,500 by both the depositor and the bank but was later corrected by the bank. d. Check no. 142 for P12,425 was enter in the cash disbursement journal at P12, 245 and check no. 156 for P3,290 was entered as P32,900. e. Bank service charges of P1,830 for December were not yet recorded on the books. f. A bank memo stated that a customer's note for P25,000 and interest of P1,000 had been collected on December 28, and the bank charged P500 (No entry was made on the books when the note was sent to the bank for reconciliation). g. Receipts for December 31 for P24,000 were deposited on January 2. No. 123 P 3,000 No. 154 P 4,000 143 2,000 157 6,000 144 7,000 159 7,000 147 3,000 169 5,000 *Certified by the bank in December i. A deposit of P20,000 was recorded by the bank on December 5, but it should have been recorded for Dolor Company rather than Dollar Company. j. Petty cash of P10,000 was included in the Cash in Bank balance. k. Proceeds from cash sales of P60,000 for December 18 were stolen. The company expects to recover this amount from insurance company. The cash receipts were recorded in the books, but no entry was made for the loss. l. The December 21 deposit included a check for P20,000 that had been returned on December 15 marked NSF. Dollar Company had made no entry upon return of the check. the redeposit of the check on December 21 was recorded in the cash receipts journal of Dollar Company as collection on account. REQUIRED: 1. Bank reconciliation using: a. Bank to book method; b. Book to bank method; and c. Adjusted balance method 2. Adjusting entries as of December 31, 2015. 11 SOLUTION: DOLLAR COMPANY Bank Reconciliation - Bank to Book Method December 31, 2012 Balance per bank 106,000 Add (deduct): a) Customer's uncollectible check (NSF) 30,000 b) Dishonored note receivable (including P2,000 protest fee) 62,000 c) Book error in recording collection (P15,400 - P14,500) (900) d) Book errors in recording disbursements Check no. 142 (P12,425 - P12,245) - under 180 Check no. 156 (P3,290 - P32,900) - over (29,610) e) December bank service charges 1,830 f) Note collected by bank (including interest income of P1,000 and net of service charge of P500) (25,500) g) Deposits in transit 24,000 h) Outstanding checks (35,000) I) Bank error in recording deposit (20,000) j) Petty cash fund 10,000 k) Stolen cash sales to be recovered from insurance co. 60,000 l) Double counted deposit - NSF 20,000 Balance per books 203,000 DOLLAR COMPANY Bank Reconciliation - Book to Bank Method December 31, 2012 Balance per books 203,000 Add (deduct): a) Customer's uncollectible check (NSF) (30,000) b) Dishonored note receivable (including P2,000 protest fee) (62,000) c) Book error in recording collection (P15,400 - P14,500) 900 d) Book errors in recording disbursements Check no. 142 (P12,425 - P12,245) - under (180) Check no. 156 (P3,290 - P32,900) - over 29,610 e) December bank service charges (1,830) f) Note collected by bank (including interest income of P1,000 and net of service charge of P500) 25,500 g) Deposits in transit (24,000) 12 h) Outstanding checks 35,000 I) Bank error in recording deposit 20,000 j) Petty cash fund (10,000) k) Stolen cash sales to be recovered from insurance co. (60,000) l) Double counted deposit - NSF (20,000) Balance per bank 106,000 DOLLAR COMPANY Bank Reconciliation - Adjusted Balance Method December 31, 2012 BANK BOOKS Unadjusted balances, December 31 106,000 203,000 Add (deduct): a) Customer's uncollectible check (NSF) (30,000) AJE No. 1 b) Dishonored note receivable (including P2,000 protest fee) (62,000) AJE No. 2 c) Book error in recording collection (P15,400 - P14,500) 900 AJE No. 3 d) Book errors in recording disbursements Check no. 142 (P12,425 - P12,245) - under (180) AJE No. 4 Check no. 156 (P3,290 - P32,900) - over 29,610 AJE No. 5 e) December bank service charges (1,830) AJE No. 6 f) Note collected by bank (including interest income of P1,000 and net of service charge of P500) 25,500 AJE No. 7 g) Deposits in transit 24,000 h) Outstanding checks (35,000) I) Bank error in recording deposit (20,000) j) Petty cash fund (10,000) AJE No. 8 k) Stolen cash sales to be recovered from insurance co. (60,000) AJE No. 9 l) Double counted deposit - NSF (20,000) AJE No. 10 Adjusted balances, December 31 75,000 75,000 Adjusting Journal Entries 1) Accounts receivable 30,000 Cash in bank 30,000 2) Notes receivable - dishonored 62,000 Cash in bank 62,000 Notes receivable - discounted 60,000 Notes receivable 60,000 3) Cash in bank 900 Accounts receivable 900 4) Accounts payable 180 13 Cash in bank 180 5) Cash in bank 29,610 Accounts payable 29,610 6) Bank service charge 1,830 Cash in bank 1,830 7) Cash in bank 25,500 Bank service charge 500 Notes receivable 25,000 Interest income 1,000 8) Petty cash fund 10,000 Cash in bank 10,000 9) Claims from insurance co. 60,000 Cash in bank 60,000 10) Accounts receivable 20,000 Cash in bank 20,000 PROBLEM NO. 5 - Bank reconciliation and shortage computation You are conducting an audit of the Swerte Company for the year ended December 31, 2015. The internal control procedures surrounding cash transactions were not adequate. The bookkeeper-cashier handles cash receipts, maintains accounting records, and prepares the monthly bank reconciliations. The bookkeeper-cashier prepared the following reconciliation at the end of the year: Balance per bank statement P 350,000 Add: Deposit in transit P 175,250 Note collected by bank 15,000 190,250 Total 540,250 Less: Outstanding checks 246,750 Balance per general ledger 293,500 In the process of your audit, you gathered the following: • At December 31, 2015, the bank statements and general ledger showed balances of P350,000 and P293,500, respectively. • The cut-off bank statement showed a bank charge on January 2,2016 for P30,000 representing correction of an erroneous bank credit. • Included in the list of outstanding checks were the following: 14 a. A check payable to a supplier, dated December 29, 2015, in the amount of P14,750, released on January 5,2016. b. A check representing advance payment to a supplier in the amount of P37,210, the date of which is January 4, 2016, and released in December, 2015. • On December 31, 2015, the company received and recorded customer's postdated check amounting to P50,000. REQUIRED 1. Compute for the following as at December 31, 2015: a. Adjusted deposit in transit b. Adjusted outstanding checks c. Adjusted cash in bank d. Cash shortage 2. Adjusting entries as of December 31, 2015 SOLUTION: Requirement No. 1.a Unadjusted deposit in transit 175,250 Post dated check received (50,000) Adjusted deposit in transit 125,250 Requirement No. 1.b Unadjusted outstanding checks 246,750 Unreleased check (14,750) Post dated check issued (37,210) Adjusted outstanding checks 194,790 Requirement No. 1.c&d Bank Books Unadjusted balances 350,000 293,500 Add (deduct) adjustments: Post dated check received (50,000) AJE 1 Deposit in transit (see 1.a) 15 125,250 Unreleased check 14,750 AJE 2 Post dated check issued 37,210 AJE 3 Note collected by bank 15,000 AJE 4 Outstanding checks (see 1.b) (194,790) Erroneous bank credit (30,000) Balances 250,460 310,460 Shortage (60,000) AJE 5 Adjusted balances 250,460 250,460 Requirement No. 2 1 Accounts receivable 50,000 Cash 50,000 2 Cash 14,750 Accounts payable 14,750 3 Cash 37,210 Accounts payable 37,210 4 Cash 15,000 Notes receivable 15,000 5 Cash short/over (Receivable from cashier) 60,000 Cash 60,000