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Post Test Audit Problems Cash and Cash Equivalents

1. Cash includes money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. 2. To be reported as cash and cash equivalents, the cash must be unrestricted in use for current operations. 3. Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with a remaining maturity of three months or less.

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102 views3 pages

Post Test Audit Problems Cash and Cash Equivalents

1. Cash includes money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit. 2. To be reported as cash and cash equivalents, the cash must be unrestricted in use for current operations. 3. Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with a remaining maturity of three months or less.

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Alma Vargas Dayondon
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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POST TEST AUDIT PROBLEMS

Cash and Cash Equivalents

1. As contemplated in accounting, cash includes


a. Money only
b. Money and any negotiable instrument
c. Any negotiable instrument
d. Money and any negotiable instrument that is payable in money and acceptable by the bank
for deposit and immediate credit

2. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be
a. Unrestricted in use for current operations
b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in the bank

3. Cash equivalents are


a. Short-term and highly liquid investments that are readily convertible into cash
b. Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three months
c. Short-term and highly liquid investments that are readily convertible into cash and acquired
three months before maturity
d. Short-term and highly liquid marketable equity securities

4. 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

5. Which is false 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 company is in bankruptcy
or financial difficulty, cash should be written down to estimated realizable value
d. Cash equivalents should be measured at maturity value, meaning face value plus
interest.

6. If material, deposits in foreign bank which are subject to foreign exchange restriction should
be classified
a. Separately as current asset, with appropriate disclosure
b. Separately as a non-current asset with appropriate disclosure
c. Be written off as an extraordinary loss
d. As part of cash and cash equivalents

7. Bank overdraft
a. Is a debit balance in a cash in bank account
b. Is offset against demand deposit account in another bank
c. Which cannot be offset is classified as a current liability
d. Which cannot be offset is classified as non-current liability

8. A compensating balance
a. Must be included in cash and cash equivalent
b. Which is legally restricted and related to a long-term loan is classified as a current asset
c. Which is legally restricted and related to a short-term loan is classified separately as a current
asset
d. Which is not legally restricted as to withdrawal is classified separately as current
asset

9. Unreleased checks (checks drawn before the end of reporting period but held for later
delivery to creditors)
a. Shall be treated as outstanding checks
b. Shall be restored to the cash balance
c. Shall be treated as outstanding checks if the date is shortly after the end of
reporting period.
d. Shall be treated as outstanding checks if they are ultimately encashed.

10. Which of the following shall not be 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 IOUs

PROBLEMS

Problem 1
In connection with your audit of MUGRADUATE MI CORP. for the year ended December 31,
2006, you gathered the following:

Current account at Metrobank P2,000,000


Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in
equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s post dated check 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a
purchase return 20,000
Traveler’s check 50,000
Not-sufficient-funds check 15,000
Money order 30,000
Petty cash fund (P4,000 in currency
and expense receipts for P6,000) 10,000
Treasury bills, due 3/31/07 (purchased
12/31/06) 200,000
Treasury bills, due 1/31/07 (purchased
1/1/06) 300,000

Question:
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.

Problem 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?

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