CASH AND CASH EQUIVALENTS

1.Which of the following is not considered cash for financial reporting purposes?

a. Petty cash funds and change funds

b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.'s
2.Which of the following is considered cash?

a. Certificates of deposit (CDs)

b. Money market checking accounts
c. Money market savings certificates
d. Postdated checks
3.Travel advances should be reported as

a. supplies.
b. cash because they represent the equivalent of money.
c. investments.
d. none of these.
4.Which of the following items should not be included in the Cash caption on the balance sheet?

a. Coins and currency in the cash register

b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
5.A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and

a. is acceptable as a means to pay current liabilities.

b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation.
d. is so near its maturity that it presents insignificant risk of changes in interest rates.
6.Bank overdrafts, if material, should be

a. reported as a deduction from the current asset section.

b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
7.Deposits held as compensating balances

a. usually do not earn interest.

b. if legally restricted and held against short-term credit may be included as cash.
c. if legally restricted and held against long-term credit may be included among current assets.
d. none of these.
8.Which of the following is not true?

a. The imprest petty cash system in effect adheres to the rule of disbursement by check.
b. Entries are made to the Petty Cash account only to increase or decrease the size of the fund or to
adjust the balance if not replenished at year-end.
c. The Petty Cash account is debited when the fund is replenished.
d. All of these are not true.
9.A Cash Over and Short account

a. is not generally accepted.

b. is debited when the petty cash fund proves out over.
c. is debited when the petty cash fund proves out short.
d. is a contra account to Cash.
10. The journal entries for a bank reconciliation

a. are taken from the "balance per bank" section only.

b. may include a debit to Office Expense for bank service charges.
c. may include a credit to Accounts Receivable for an NSF check.
d. may include a debit to Accounts Payable for an NSF check.
11. When preparing a bank reconciliation, bank credits are

a. added to the bank statement balance.

b. deducted from the bank statement balance.
c. added to the balance per books.
d. deducted from the balance per books.
12. In which account are customers’ postdated checks received classified?
a. Accounts receivable
b. Prepaid expenses
c. Cash
d. Accounts payable
13. Which items should be excluded from cash and cash equivalents?
a. The minimum cash balance in the entity’s current account which is maintained to avoid service
charges.
b. A check issued by the entity on December 27 of the current year but dated January 15 of next year.
c. Time deposit which matures in one year.
d. A customer’s check denominated in a foreign currency.
14. All of the following can be classified as cash and cash equivalents, except?
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft
15. Which of the following statements is incorrect concerning measurement of cash and cash equivalents?
a. Cash is measured at face value
b. Cash in foreign currency is measured at the current exchange rate
c. If a bank or financial institution holding the funds of the entity is in bankruptcy or financial difficulty,
cash shall be written down to estimated realizable value
d. Cash equivalents shall be measured at maturity value, meaning face value plus interest

1. D 4. D 7. D 10. B 13. A
2. B 5. D 8. C 11. C 14. D
3. D 6. D 9. C 12. D 15. D
1. On January 1, 2014, Mann Company borrows $2,000,000 from National Bank at 11% annual interest.
In addition, Mann is required to keep a compensatory balance of $200,000 on deposit at National Bank which
will earn interest at 5%. The effective interest that Mann pays on its $2,000,000 loan is

Solution:
2,000,000*11% = 220,000
200,000*(11%-5%) = 12,000
232,000
232,000/2,000,000 = 11.6%

2. The statement of financial position of Kwarta Company shows cash of 330,820. The following items were
found to comprise this total amount:

Checking account in Metrobank (outstanding checks as of

year-end totaled 15,200) 105,200.00

Savings account is Far East bank 30,800.00

Petty cash fund (including expense receipts for 250) 1,500.00

Cash on hand (undeposited sales receipts) 4,200.00

Sinking fund cash 35,000.00

Cash in foreign bank (in equivalent pesos) 65,000.00

Customers' check on hand

Traveler's Check 14,000.00

Manager's Check 23,120.00

Short term treasury bills 52,000.00

What is the correct amount of cash?

Solution:
Book balance 330,820
Sinking Fund Cash (35,000)
Short-term treasury bill (52,000)
Unreplenished petty cash expense ( 250)
Correct cash balance 243,570

Or

Checking account in Metrobank 105,200

Savings account at Far East Bank 30,800
Petty cash fund (1,500-250) 1,250
Cash on hand (undeposited sales receipt) 4,200
Cash in foreign bank (equivalent in pesos) 65,000
Customer check on hand:
Traveler’s check 14,000
Manager’s check 23,120
Correct cash balance 243,570

3. In your cash count of the petty cash fund of Canyon Company as of July 4, 2014, you found the following
composition of its petty cash fund:
 Bills and coins counted 2,450.00

Approved and signed petty cash vouchers

Dated June 2014 3,300.00

Dated July 1-4, 2014 800.00

IOU from Joe Santos, an employee 1,400.00

A check drawn by Juvy Victoria, an employee, dated July 15,

2014 2,000.00

The petty cash fund has an imprest balance of 10,000. The company’s reporting period ends on June
30.

What is the correct balance of the petty cash fund?

How much is the cash shortage or overage?

Solution:
Bills and coins counted 2,450
PCV dated July 2012 (undisbursed as of June 2012) 800
Correct cash balance 3,250

Bills and coins counted 2,450

PCVs:
Dated June 2014 3,300
Dated July 1-4, 2014 800
IOU 1,400
Check drawn by employee, dated July 15, 2014 2,000
9,950
PCF, per ledger 10,000
Cash shortage 50

4. In reconciling the book and bank balance of the cash account of Perlas Corporation, you discover the
following for the month of December 2014:

Balance per bank statement 400,000.00

Balance per books 387,000.00

Receipts not yet deposited 100,000.00

Bank service charge 1,000.00

Customer's check returned by bank marked

DAIF 22,000.00

A paid check for 40,000 was recorded in the cash book as 4,000.

Assuming no other errors were noted, what is the amount of the outstanding checks at December 31,
2014?
Solution:
Balance per bank statement 400,000
Add: Receipts not yet deposited 100,000
Bank service charge 1,000
DAIF 22,000
 Error (40,000-4,000) 36,000
Balance per book statement (387,000)
Outstanding checks 172,000

5. In preparing its May 31, 2014 bank reconciliation, Dogg Co. has the following information available:

Balance per bank statement, 5/31/2014 $30,000

Deposit in transit, 5/31/2014 5,400

Outstanding checks, 5/31/2014 4,900

Note collected by bank in May 1,250

The correct balance of cash at May 31, 2014 is

Solution:
Balance per bank statement 30,000
Add: Deposit in transit 5,400
Less: Outstanding checks 4,900
Correct cash balance 30,500

6. The cash account shows a balance of $45,000 before reconciliation. The bank statement does not include a deposit of
$2,300 made on the last day of the month. The bank statement shows a collection by the bank of $940 and a
customer's check for $320 was returned because it was NSF. A customer's check for $450 was recorded on the
books as $540, and a check written for $79 was recorded as $97. The correct balance in the cash account was

Solution:
Balance per book statement 45,000
Collection by the bank 940
NSF (320)
Error (90)
18
Correct cash balance 45,548

7. Tanner, Inc.’s checkbook balance on December 31, 2014 was $21,200. In addition, Tanner held the following items in
its safe on December 31.

(1) A check for $450 from Peters, Inc. received December 30, 2014, which was not included in the
checkbook balance.

(2) An NSF check from Garner Company in the amount of $900 that had been deposited at the bank, but
was returned for lack of sufficient funds on December 29. The check was to be redeposited on January
3, 2015. The original deposit has been included in the December 31 checkbook balance.

(3) Coin and currency on hand amounted to $1,450.

The proper amount to be reported on Tanner's balance sheet for cash at December 31, 2014 is

Solution:
Checkbook balance 21,200
Collection 450
NSF returned (900)
Coin and currency on hand 1,450
Total cash 22,200
8. Green Company’s general ledger showed a balance of 2,205,600 in its cash account on December 31,
2014. Included in this balance are the following items:

DAIF checks returned by bank 20,000.00

750,000.0
Savings account 0

IOUs 1,200.00

Postage stamps 600.00

Bank draft 10,000.00

Cash on hand 30,000.00

500,000.0
Cash sinking fund 0

Customer's checks dated January

2013 5,400.00

Travel advances 4,000.00

Traveler's Checks 8,000.00

What is the correct balance of cash?

Solution:
Balance per book statement 2,205,600
Customer’s NSF checks (20,000)
IOUs (1,200)
Postage stamps (600)
Cash in Sinking fund (500,000)
Customer’s postdated check (5,400)
Travel advances (4,000)
Correct cash balance 1,674,400

9. Sandy, Inc. had the following bank reconciliation at March 31, 2014:

Balance per bank statement, 3/31/2014 $37,200

Add: Deposit in transit 10,300

47,500

Less: Outstanding checks 12,600

Balance per books, 3/31/2014 $34,900

Data per bank for the month of April 2014 follow:

Deposits $46,700

Disbursements 49,700
 All reconciling items at March 31, 2014cleared the bank in April. Outstanding checks at April 30, 2014 totaled
$6,000. There were no deposits in transit at April 30, 2007. What is the cash balance per books at April 30, 2014?

Solution:

April
Mar 31 Receipts Disbursements April 30
Balance per bank 37,200 46,700 49,700 34,200
Deposit in transit:
March 10,300 (10,300)
April
Outstanding check:
March (12,600) (12,600)
April 6,000 (6,000)
Adjusted bank bal 34900 36,400 43,100 28,200

10. The following data related to Jennifer Services Incorporated were gathered:

31-Dec-
30-Nov-2014 2014

270,311.0
Balance per books 0

294,771.0
Balance per bank statement 0 148,986.00

Receipts not yet deposited 21,270.00 32,925.00

Outstanding checks 40,525.00 35,191.50

Bank service charges 295.00 158.00

Interest credit by bank 5,500.00 4,925.00

Other information:
 Receipts and disbursements per books during December are P1,072,850 and P1,195,536.50,
respectively.
 Total credits reflected in the bank statement amounted to P1,065,620.
 Check #137412 for P2,300 recorded by depositor as P3,200 in error.
 Customer check for P5,947 deposited on December 28, 2014 was found to be uncollectible.
 Interest for P625 chargeable to Jennyfer Services was erroneously charged by the bank to the
company.
 No sufficient fund checks in the amount of P5,000 was returned by the bank and redeposited by
the company during December. No entry was made on the books for the return or redeposit.

Solution:
11. You are attempting to determine an apparent cash shortage that you believe resulted from an
employee’s theft. You have assembled the following information for the month of March:

Cash balance per books, March 1 115,963.70

Cash receipts for March per books 246,475.00

Cash disbursements for March per books 334,709.10

Cash balance per bank statement, March 31 15,341.40

Deposit in transit, March 31 9,000.00

Outstanding checks, March 31 2,703.80

Bank service charge for March 92.00

What is the amount of cash shortage?

Solution:
12. Enipr Company had the following account balances at December 31, 2014:
Cash on Hand and in Bank 5,000,000.00

Cash restricted for bond payable due on June 30, 2013 2,000,000.00

Time Deposit 6,000,000.00

Saving deposit set aside for dividend payable on June 30, 2012 1,000,000.00

In the December 31, 2014 statement of financial position, what total amount should be reported
as “cash and cash equivalents”?

Solution:

Cash on Hand and in Bank 5,000,000

Time Deposit 6,000,000

Saving deposit 1,000,000

12,000,000

13. During the audit of Maganda Company on December 31, 2014, the following data are
gathered:
4,000,000.0
Balance per book 0

Bank charges 10,000.00

Outstanding checks 950,000.00

1,200,000.0
Deposit in transit 0

1,500,000.0
Customer note collected by bank 0

Interest on customer note 60,000.00

 Customer check returned NSF 250,000.00

1,000,000.0
Depositor's note charged to account 0

The correct cash balance amounts to ____.

Solution:

Balance per book 4,000,000

Bank charges (10,000)

Customer note collected by bank 1,500,000

Interest on customer note 60,000

Customer check returned NSF (250,000)

Depositor's note charged to account (1,000,000 )

4,300,000

14. The “cash” account in Jen Company’s ledger on December 31, 2014 showed a balance of P
5,250,000 which included the following:
Petty Cash Fund 50,000.00

Undeposited receipts, including a post-dated customer 1,300,000.0

check of P200,000 0

2,500,000.0
Cash in Bank 0

1,000,000.0
Cash in Sinking Fund 0

Expenses paid out of collections, not yet recorded 250,000.00

IOUs signed by employees 150,000.00

5,250,000.0
0

At what amount should Jen Company report as “cash” in the December 31, 2014 statement of
financial position?

Solution:
Petty Cash Fund 50,000.00

Undeposited receipts (1,300,000-200,000) 1,100,000.00

Cash in Bank 2,500,000.00

3,650,000.00

15. Leona Company had the following account balances on December 31, 2014:
Cash in Bank- current account 4,000,000

Cash in Bank- payroll account 1,500,000

Cash on Hand 500,000

Cash in Bank- restricted for equipment acquisition on 2015 1,000,000

Treasury bill purchased November 1, 2014 to mature on February 1,

2015 2,000,000

The cash on hand includes a P 200,000 customer check payable to Leona Company, dated
January 15, 2015. What should be reported as “cash and cash equivalents” on December 31,
2014?

Solution:

Cash in Bank- current account 4,000,000

Cash in Bank- payroll account 1,500,000

Cash on Hand (500,000-200,000) 300,000

Treasury bill purchased November 1, 2014 to mature on February 1, 2015 2,000,000

7,800,000