FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA.

FAR 02: CASH AND CASH EQUIVALENTS

MULTIPLE CHOICE THEORIES:

1. At December 31 of the current year, an entity had cash accounts at three different banks. One account balance is
segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is overdrawn.
The third account, used for regular operations, has a positive balance. How should these accounts be reported in
the December 31 classified statement of financial position?
a. The segregated account should be reported as noncurrent asset, the regular account should be reported as a
current asset, and the overdraft should be reported as a current liability
b. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported
as a current liability
c. The segregated account should be reported as a noncurrent asset and the regular account should be reported
as a current asset net of overdraft
d. The segregated and regular accounts should be reported as current assets net of overdraft

2. Deposits held as compensating balances

a. if legally restricted and held against long-term credit may be included among current assets.
b. if legally restricted and held against short-term credit may be included as cash.
c. if legally restricted and held against short-term credit should not be included in the cash balance but is reported
among current assets.
d. usually do not earn interest.

3. In Moneygold Company’s December 31, 2021 statement of financial position which of the following items should
be included in the amount reported as cash?
I. A check payable to Moneygold, dated January 2, 2022, in payment of a sale made in December 31, 2021.
II. A check drawn on Moneygold’s account, payable to a vendor, dated and recorded in the company’s books on
December 31, 2021 but not mailed until January 10, 2022.

a. I only c. Both I and II

b. II only d. Neither I nor II

4. Which is false concerning measurement of cash and cash equivalents?

a. If a bank or financial institution holding the funds of the company is in bankruptcy or financial difficulty, cash
should be written down to estimated realizable value
b. Cash equivalents should be measured at maturity value, meaning face value plus interest
c. Cash is measured at face value
d. Cash in foreign currency is measured at the current exchange rate

5. Which is not considered as a cash equivalent?

a. A three-year treasury bill maturing on May 30 of the current year purchased by the entity on April 15 of the
current year
b. A ninety-day T-bill
c. A three-year treasury note maturing on May 30 of the current year purchased by the entity on January 15 of the
current year
d. A three-day money market placement

6. Which of the following should not be considered cash for financial reporting purposes?
a. Stale check issue by the company c. Postdated check issued by the customer
b. Postdated check issued by the company d. Manager’s check issued by the customer

7. The petty cash account under the imprest system is debited

a. When the fund is created and when the size of the fund is increased
b. When the fund is created and when the size of the fund is decreased
c. When the fund is created and every time it is replenished
d. Only when the fund is created

8. What is the major purpose of an imprest petty cash fund?

a. To effectively control cash disbursements

FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 1

 b. To effectively plan cash inflows and outflows
c. To ease the payment of cash to vendors
d. To determine the honesty of the petty cash custodian

9. Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which
ends with the adjusted cash balance?
a. DAIF check c. Erroneous bank debit
b. Bank service charge d. Erroneous book credit

10. If the balance shown on a company’s bank statement is less than the correct cash balance and neither the company
nor the bank has made any errors, there must be
a. Outstanding check
b. Deposit in transit
c. Reduction of loan to the account of the depositor
d. Note collected by the bank

11. Which will not require an adjusting entry on the depositor’s books?
a. Check in payment of accounts payable amounting P50,000 is recorded by the depositor as P5,000
b. Note collected by the bank in favor of the depositor
c. NSF check from customer
d. Deposit of another company credited to the account of the depositor

MULTIPLE CHOICE PROBLEMS:

1. The statement of financial position of SPIRAL COMPANY shows cash of P237,390. The following items were found
to comprise this amount:

Cash in Metrobank, per bank statement (outstanding checks as of year-end total P5,200) – P99,320; Savings account
at Far East Bank – P30,800; Petty cash fund (including expense receipts of P250) – P1,500; Cash on hand (undeposited
sales receipts) – P4,200; Sinking fund cash – P20,000; Cash in foreign bank (in equivalent pesos) – P62,000;
Customer’s checks on hand: Traveler’s checks – P4,450 and certified check – P3,120; 90-day BSP treasury bills –
P12,000.

What is the correct amount of cash and cash equivalents in SPIRAL COMPANY’s statement of financial position?
a. P231,940 c. P199,820
b. P211,940 d. P196,820

2. RENDEZVOUS Company’s checkbook balance at December 31, 2023 was P123,450. In addition, RENDEZVOUS held
the following items in its safe on that date:

Check payable to RENDEZVOUS, deposited December 15 and included in December 31

checkbook balance, but returned by the bank on December 30 stamped “NSF”. The
check was redeposited on January 2, 2024 and cleared on January 9, 2024 12,500

Check payable to RENDEZVOUS dated January 2, 2024 in payment of a sale made in

December 2021, not included in December 31 checkbook balance. 15,000

Check drawn on RENDEZVOUS’s account, payable to a vendor, dated and recorded in

RENDEZVOUS books on December 31, but not mailed until January 10, 2024. 8,275

What is the amount of cash in RENDEZVOUS’s December 31, 2023 statement of financial position?
a. P127,675 c. P119,225
b. P123,450 d. P104,225

3. You were provided with the December 31, 2023 balance of the cash and cash equivalents account for GULLIBLE
Company and your review revealed the following compositions:

Change fund 30,000

Petty cash fund (P3,000 expense vouchers, P2,000 employee IOU) 20,000
Cash in Bank 8,000,000

FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 2

 Cash on hand (included a check amounting to P150,000 payable to GULLIBLE dated
January 1, 2024 and two checks amounting to P100,000 and P100,000 payable to
GULLIBLE dated November 30, 2023 and April 30, 2024, respectively) 550,000
Treasury bills 500,000
Pension fund 2,500,000
Time deposit – 60 days 800,000
Money market placement due on April 30, 2024 500,000

The cash in bank is composed of the following:

 Savings account – P2,000,000
 Current account – P1,500,000
 Sinking Fund –P3,500,000 (for settlement of preference shares due on March 31, 2024)
 Savings account – P1,000,000 (restricted account for plant expansion and expected to be disbursed in 2024)

Check of P70,000 representing payment to a supplier was dated and recorded on December 31, 2023 but mailed to
creditors on February 14, 2024. Collection amounting to P85,000 was collected on January 15, 2024 and included
as part of cash on hand.

On December 31, 2023, what total amount should be reported as cash and cash equivalents?
a. P5,030,000 c. P5,230,000
b. P5,130,000 d. P5,630,000

4. A surprise count of the petty cash fund of LULLABY Trading on July 4, 2023 showed the following:

Currencies 5,600
Coins 450
Paid vouchers for:
Officer supplies (dated July 2, 2023) 1,750
Newspaper subscription for two weeks (dated June 29, 2023) 300
Loans to employees 3,000
Company check representing replenishment of the petty cash fund 3,850
The company’s fiscal year ends of June 30. The petty cash fund was established for an amount of P15,000.

What is the correct amount of petty cash fund at June 30, 2023?
a. P6,050 c. P11,650
b. P9,900 d. P15,000

How much is the shortage or overage in the petty cash at June 30, 2023?
a. P50 shortage c. P1,800 shortage
b. P50 overage d. P1,800 overage

5. The trial balance of MARKSMAN Company at December 31, 2023 includes the following accounts: Petty cash fund
– P15,000; Cash on hand – P190,700; Metrobank current account – P310,200; Allied Bank current account #1 –
P320,000; Allied Bank current account #2 – P40,000 credit; Security Bank savings account – P150,000.

Additional information:

I. The petty cash fund consisted of the following items as of December 31, 2023:
 Currency and coins, P8,500.
 Employees’ advances, P1,800.
 Currency in an envelope marked “collections for charity” with employees’ names attached, P2,000.
 Unreplenished petty cash vouchers, P2,240.
 Replenishment check drawn by MARKSMAN Company payable to the petty cashier, P2,320.

II. Cash on hand includes the following items:

 Customer’s check for P30,000 returned by bank on December 26, 2023 due to insufficient funds, but
subsequently redeposited and cleared by the bank on January 10, 2024.
 Postal money orders received from customers P18,000.
 Customer’s check for P15,000 dated January 10, 2024 received on December 23, 2023.

FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 3

 III. Included among the checks drawn by MARKSMAN Company against the Metrobank current account and
recorded in December 2023 are the following:
 Check No. 1214 written and dated December 22, 2023 and delivered to payee on January 3, 2024,
P25,000.
 Check No. 1219 written December 26, 2023 dated January 30, 2024, and delivered to payee on December
28, 2023, P43,000.

IV. The credit balance in Allied Bank current account #2 represents checks drawn in excess of the deposit balance
that are still outstanding at December 31, 2023. A right of offset exists in the agreement between Allied Bank
and its deposits.

V. The savings account deposit in Security Bank was set aside by the Board of Directors for the acquisition of new
equipment. This amount is expected to be distributed in the next three months from December 31, 2023.

What is the correct petty cash balance reported in December 31, 2023 statement of financial position?
a. P8,500 c. P12,820
b. P10,820 d. P15,000

What is the total amount reported in MARKSMAN’s December 31, 2023 statement of financial position as cash on
hand and in banks?
a. P817,400 c. P868,220
b. P814,720 d. P978,220

6. The following information is available for LANDLORD Company on March 31, 2023:
Bank statement balance, March 31 146,570
Note collected by bank, including interest of P2,500, not yet taken up on the books 62,500
NSF check returned with the bank statement 21,260
Outstanding checks as of March 31 68,470
Bank service charges for March 1,285
Credit memo for interest credited by bank for the month of March 105

What is the correct cash balance at March 31?

a. P38,145 c. P78,205
b. P78,100 d. P76,815

7. LASERBEAM Company provided the following data for the purpose of reconciling the cash balance per books:
Balance per books 170,000
Outstanding checks (including a certified check of P20,000) 100,000
Deposit in transit 40,000
December NSF checks (P10,000 had been redeposited and cleared on 12/27) 30,000
Erroneous credit to LASERBEAM’s account, representing proceeds of loan granted to
another company 60,000
Proceeds of note collected by bank for LASERBEAM, net of service charge of P4,000 150,000

What is the cash balance as reflected in the bank statement at December 31?
a. P280,000 c. P360,000
b. P300,000 d. P400,000

8. The accountant of MEGAMIND Company gathered the following data in his attempt to reconcile its records with
the data from the bank statements sent by SHEESHWEST BANK for the months of March and April.

March April
Cash in SHEESHWEST BANK per ledger 2,038,300 3,019,500
Balance per bank statement 2,203,500 3,097,250
Credits to cash in SHEESHWEST BANK account 4,619,800
Deposits and credit memos per bank statement 5,251,500
Outstanding checks 275,000 580,000
Deposit in Transit 125,000 670,000
Erroneous bank credit 20,000
Note collected by bank 17,000
Bank service charge 1,800 2,450

FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 4

 MEGAMIND Company discounted its own note for P200,000 with the bank in April at the discount rate of 12%. The
note is due in six months. The net proceeds was credited by the bank in April but has not yet been recorded in the
books.

Book receipts for April is understated by P4,500 while book disbursements for April is overstated by P2,700.

Loan Amortization for April amounting to P45,000 was covered by a check payment but a debit memo for the same
amount was issued by the bank in April.

How much is the adjusted amount of cash receipts during the month of April?
a. P5,251,500 c. P5,601,000
b. P5,215,500 d. P5,776,500

How much is the adjusted amount of cash disbursements during April?

a. P4,357,750 c. P4,617,570
b. P4,617,750 d. P4,619,800

Using the same information on item 30, how much is the adjusted cash balance at April 30?
a. P3,212,250 c. P3,019,500
b. P3,097,250 d. P4,707,750

-END OF HANDOUTS-

FINANCIAL ACCOUNTING AND REPORTING REVIEW /RGP, CPA. 5