APPLIED AUDITING
CHAPTER 1
AUDIT OF CASH AND CASH EQUIVALENTS
Objective
1. Solving Audit of Cash and Cash Equivalent Problems
2. Theory of Audit of Cash and Cash Equivalents.
PROBLEM NO. 1
In connection with your audit of Caloocan Corporation for the year ended
December 31, 2006, you gathered the following:
1. Current account at Metrobank P2,000,000
2. Current account at BPI (100,000)
3. Payroll account 500,000
4. Foreign bank account – restricted (in equivalent 1,000,000 pesos)
5. Postage stamps 1,000
6. Employee’s post dated check 4,000
7. IOU from controller’s sister 10,000
8. Credit memo from a vendor for a purchase 20,000 return
9. Traveler’s check 50,000
10. Not-sufficient-funds check 15,000
11. Money order 30,000
12. Petty cash fund (P4,000 in currency and
expense receipts for P6,000) 10,000
13. Treasury bills, due 3/31/07 (purchased 200,000
12/31/06)
14. Treasury bills, due 1/31/07 (purchased 1/1/06) 300,000
Question:
,APPLIED AUDITING
Based on the above information and the result of your audit, compute for the
cash and cash equivalent that would be reported on the December 31, 2006
balance sheet.
a. P2,784,000 c. P2,790,000
b. P3,084,000 d. P2,704,000
Suggested Solution:
Current account at Metrobank P2,000,000
Payroll account 500,000 Traveler’s check 50,000
Money order 30,000
Petty cash fund (P4,000 in currency) 4,000
Treasury bills, due 3/31/07 (purchased 12/31/06) 200,000
Total P2,784,000
Answer: A
PROBLEM NO. 2
In the course of your audit of the Las Piñas Corporation, its controller is
attempting to determine the amount of cash to be reported on its December 31,
2006 balance sheet. The following information is provided:
1. Commercial savings account of P1,200,000 and a commercial checking
account balance of P1,800,000 are held at PS Bank.
2. Travel advances of P360,000 for executive travel for the first quarter of the
next year (employee to reimburse through salary deduction).
3. A separate cash fund in the amount of P3,000,000 is restricted for the
retirement of a long term debt.
4. Petty cash fund of P10,000.
5. An I.O.U. from a company officer in the amount of P40,000.
6. A bank overdraft of P250,000 has occurred at one of the banks the company
uses to deposit its cash receipts. At the present time, the company has no
deposits at this bank.
7. The company has two certificates of deposit, each totaling P1,000,000.
These certificates of deposit have maturity of 120 days.
8. Las Piñas has received a check dated January 2, 2007 in the amount of
P150,000.
9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times
at PS Bank to ensure future credit availability.
10.Currency and coin on hand amounted to P15,000.
Question:
Based on the above and the result of your audit, how much will be reported as
cash and cash equivalent at December 31, 2006?
,APPLIED AUDITING
a. P3,025,000 c. P2,575,000
b. P2,825,000 d. P5,025,000
Suggested Solution:
Savings account at PS Bank P1,200,000
Checking account at PS Bank 1,800,000
Petty cash fund 10,000
Currency and coin 15,000
Total P3,025,000
Answer: A
PROBLEM NO. 3
The cash account of the Makati Corporation as of December 31, 2006 consists
of the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for 150,000
insufficient fund
A check drawn by the Vice-President of the
Corporation dated January 15, 2007 70,000
A check drawn by a supplier dated December 28,
2006 for goods returned by the Corporation 60,000
A check dated May 31,2006 drawn by the
Corporation against the Piggy Bank in payment of
customs duties. Since the importation did not
materialize, the check was returned by the
customs broker. This check was an outstanding
check in the reconciliation of the Piggy Bank 410,000
account
Petty Cash fund of which P5,000 is in currency;
P3,600 in form of employees’ I.O.U. s; and
P1,400 is supported by approved petty cash
vouchers for expenses all dated prior to closing of 10,000
the books on December 31, 2006
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a
Chattel mortgage on the inventories 300,000
Balance per ledger P1,650,000
Question:
At what amount will the account “Cash” appear on the December 31, 2006
balance sheet?
, APPLIED AUDITING
a. P1,315,000 c. P1,495,000
b. P1,425,000 d. P1,725,000
Suggested Solution:
Current account with Real Bank P 900,000
Undeposited collection 350,000
Supplier's check for goods returned by the Corporation 60,000
Unexpended petty cash 5,000
Current account with Piggy Bank (P410,000 - P300,000) 110,000
Total
P1,425,000
Answer: B
PROBLEM NO. 4
You noted the following composition of Malabon Company’s “cash account” as
of December 31, 2006 in connection with your audit:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 1,500,000
2007)
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2007 50,000
Customer’s check outstanding for 18 40,000
months
Total P7,760,000
Additional information follows:
a) Check of P200,000 in payment of accounts payable was recorded on
December 31, 2006 but mailed to suppliers on January 5, 2007.
b) Check of P100,000 dated January 15, 2007 in payment of accounts payable
was recorded and mailed on December 31, 2006.
c) The company uses the calendar year. The cash receipts journal was held
open until January 15, 2007, during which time P400,000 was collected and
recorded on December 31, 2006.
Question:
The cash and cash equivalents to be shown on the December 31, 2006 balance
sheet is
a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000
CHAPTER 1
AUDIT OF CASH AND CASH EQUIVALENTS
Objective
1. Solving Audit of Cash and Cash Equivalent Problems
2. Theory of Audit of Cash and Cash Equivalents.
PROBLEM NO. 1
In connection with your audit of Caloocan Corporation for the year ended
December 31, 2006, you gathered the following:
1. Current account at Metrobank P2,000,000
2. Current account at BPI (100,000)
3. Payroll account 500,000
4. Foreign bank account – restricted (in equivalent 1,000,000 pesos)
5. Postage stamps 1,000
6. Employee’s post dated check 4,000
7. IOU from controller’s sister 10,000
8. Credit memo from a vendor for a purchase 20,000 return
9. Traveler’s check 50,000
10. Not-sufficient-funds check 15,000
11. Money order 30,000
12. Petty cash fund (P4,000 in currency and
expense receipts for P6,000) 10,000
13. Treasury bills, due 3/31/07 (purchased 200,000
12/31/06)
14. Treasury bills, due 1/31/07 (purchased 1/1/06) 300,000
Question:
,APPLIED AUDITING
Based on the above information and the result of your audit, compute for the
cash and cash equivalent that would be reported on the December 31, 2006
balance sheet.
a. P2,784,000 c. P2,790,000
b. P3,084,000 d. P2,704,000
Suggested Solution:
Current account at Metrobank P2,000,000
Payroll account 500,000 Traveler’s check 50,000
Money order 30,000
Petty cash fund (P4,000 in currency) 4,000
Treasury bills, due 3/31/07 (purchased 12/31/06) 200,000
Total P2,784,000
Answer: A
PROBLEM NO. 2
In the course of your audit of the Las Piñas Corporation, its controller is
attempting to determine the amount of cash to be reported on its December 31,
2006 balance sheet. The following information is provided:
1. Commercial savings account of P1,200,000 and a commercial checking
account balance of P1,800,000 are held at PS Bank.
2. Travel advances of P360,000 for executive travel for the first quarter of the
next year (employee to reimburse through salary deduction).
3. A separate cash fund in the amount of P3,000,000 is restricted for the
retirement of a long term debt.
4. Petty cash fund of P10,000.
5. An I.O.U. from a company officer in the amount of P40,000.
6. A bank overdraft of P250,000 has occurred at one of the banks the company
uses to deposit its cash receipts. At the present time, the company has no
deposits at this bank.
7. The company has two certificates of deposit, each totaling P1,000,000.
These certificates of deposit have maturity of 120 days.
8. Las Piñas has received a check dated January 2, 2007 in the amount of
P150,000.
9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times
at PS Bank to ensure future credit availability.
10.Currency and coin on hand amounted to P15,000.
Question:
Based on the above and the result of your audit, how much will be reported as
cash and cash equivalent at December 31, 2006?
,APPLIED AUDITING
a. P3,025,000 c. P2,575,000
b. P2,825,000 d. P5,025,000
Suggested Solution:
Savings account at PS Bank P1,200,000
Checking account at PS Bank 1,800,000
Petty cash fund 10,000
Currency and coin 15,000
Total P3,025,000
Answer: A
PROBLEM NO. 3
The cash account of the Makati Corporation as of December 31, 2006 consists
of the following:
On deposit in current account with Real Bank P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for 150,000
insufficient fund
A check drawn by the Vice-President of the
Corporation dated January 15, 2007 70,000
A check drawn by a supplier dated December 28,
2006 for goods returned by the Corporation 60,000
A check dated May 31,2006 drawn by the
Corporation against the Piggy Bank in payment of
customs duties. Since the importation did not
materialize, the check was returned by the
customs broker. This check was an outstanding
check in the reconciliation of the Piggy Bank 410,000
account
Petty Cash fund of which P5,000 is in currency;
P3,600 in form of employees’ I.O.U. s; and
P1,400 is supported by approved petty cash
vouchers for expenses all dated prior to closing of 10,000
the books on December 31, 2006
Total 1,950,000
Less: Overdraft with Piggy Bank secured by a
Chattel mortgage on the inventories 300,000
Balance per ledger P1,650,000
Question:
At what amount will the account “Cash” appear on the December 31, 2006
balance sheet?
, APPLIED AUDITING
a. P1,315,000 c. P1,495,000
b. P1,425,000 d. P1,725,000
Suggested Solution:
Current account with Real Bank P 900,000
Undeposited collection 350,000
Supplier's check for goods returned by the Corporation 60,000
Unexpended petty cash 5,000
Current account with Piggy Bank (P410,000 - P300,000) 110,000
Total
P1,425,000
Answer: B
PROBLEM NO. 4
You noted the following composition of Malabon Company’s “cash account” as
of December 31, 2006 in connection with your audit:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due June 30, 1,500,000
2007)
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated January 1, 2007 50,000
Customer’s check outstanding for 18 40,000
months
Total P7,760,000
Additional information follows:
a) Check of P200,000 in payment of accounts payable was recorded on
December 31, 2006 but mailed to suppliers on January 5, 2007.
b) Check of P100,000 dated January 15, 2007 in payment of accounts payable
was recorded and mailed on December 31, 2006.
c) The company uses the calendar year. The cash receipts journal was held
open until January 15, 2007, during which time P400,000 was collected and
recorded on December 31, 2006.
Question:
The cash and cash equivalents to be shown on the December 31, 2006 balance
sheet is
a. P3,310,000 c. P2,910,000
b. P1,910,000 d. P4,410,000
