AP - Audit of Cash

Auditing Problems: Audit of Cash and Cash Equivalents
In connection with your audit of Caloocan Corporation for the year ended December 31, 2010,
you gathered the following:
Current account at Metrobank
Current account at BPI
Payroll account
Foreign bank account restricted (in equivalent pesos)
Postage stamps
Employees post dated check
IOU from controllers sister
Credit memo from a vendor for a purchase return
Travelers check
Not-sufficient-funds check
Money Order
Petty cash fund (P4,000 in currency and expense
receipts for P6,000)
Treasury bills, due 3/30/11 (purchased 12/29/10)
Treasury bills, due 1/31/11 (purchased 2/1/10)
P2,000,000
(100,000)
500,000
1,000,000
1,000
4,000
10,000
20,000
50,000
15,000
30,000
10,000
200,000
300,000
1. Based on the above information and the result of your audit, compute for the cash and cash
equivalents that will be reported on the December 31, 2010 statement of financial position.
a. P2,784,000
c. P2,790,000
b. P3,084,000
d. P2,704,000
The information below was taken form the bank transfer schedule prepared during the audit of
Khaye Ting Companys financial statements for the year ended December 31, 2010. Assume all
checks are dated and issued on December 30, 2010.
No.
101
102
103
104
From
Pbcom
UCPB
HSBC
MBank
To
HSBC
Mbank
PSBank
PNB
Disbursements
Per
Per
Books Bank
12/30
1/4
1/3
1/2
12/31
1/3
1/2
1/2
Reciepts
Per
Per
Books
Bank
12/30
1/3
12/30
12/31
1/2
1/2
1/2
12/31
2. Which of the following checks might indicate kiting?

a. Checks Nos. 101 and 103
b. Checks Nos. 102 and 104
c. Checks Nos. 101 and 104
d. Checks Nos. 102 and 103
3. Which of the following checks illustrate deposits/transfer in transit at December 31, 2010?
a. Checks Nos. 101 and 102
b. Checks Nos. 101 and 103
c. Checks Nos. 102 and 104
d. Checks Nos. 103 and 104
4. Two months before year-end, the bookkeeper erroneously recorded the receipt of a long-term
bank loan by a debit to cash and a credit to sales. Which of the following is the most effective
procedure for detecting this type of error?
a. Analyze bank confirmation information
b. Analyze the notes payable journal.
c. Prepare year-end bank reconciliation.
d. Prepare a year-end bank transfer schedule.
5. Postdated checks received by mail in settlement of customers accounts should be
a. Returned to customer.
b. Stamped with restrictive endorsement.
c. Deposited immediately by the cashier.
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JTT061588
d. Deposited the day after together with cash receipts.

6. The cashier of Weakness Company covered a shortage in the cash working fund with cash
obtain at December 31 from a bank by cashing but not recording a check drawn on the
company out of town bank. How would you as an auditor discover the manipulation?
a. By confirming all December 31 bank balances.
b. By counting the cash working fund at the close of business on December 31.
c. By investigating items returned with the bank cut-off statements of the succeeding
month.
d. By preparing independent bank reconciliations as of December 31.
7. An essential phase of the audit of the cash balance at the end of the year is the auditors review
of cutoff bank statement. This specific procedure is not useful in determining if
a. Kiting has occurred.
b. Lapping has occurred.
c. The cash receipts journal was held open.
d. Compare the daily cash receipts totals with the bank deposit
8. Which of the following sets of information does an auditor usually confirm on one form?
a. Cash in bank and collateral for loans.
b. Accounts payable and purchase commitments.
c. Accounts receivable and accrued interest receivable.
d. Inventory on consignment and contingent liabilities.
9. The primary purpose of sending a standard confirmation request to financial institutions with
which the client has done business during the year is to.
a. Corroborate information regarding deposit and loan balances.
b. Provide the data necessary to prepare a proof of cash.
c. Detect kiting activities that may otherwise not be discovered.
d. Request information about contingent liabilities and secured transactions.
10. An auditor ordinarily sends a standard confirmation request to all banks with which the
client has done business during the year under audit, regardless of the year-end balance. A
purpose of this procedure is to
a. Request a cutoff bank statement and related checks be sent to the auditor.
b. Detect kiting activities that may otherwise not be discovered.
c. Seek information about contingent liabilities and security agreements.
d. Provide the data necessary to prepare a proof of cash.
11. As one of the year-end audit procedures, the auditor instructed the clients personnel to
prepare a standard bank confirmation request for a bank account that had been closed during
the year. After the clients treasurer had signed the request, it was mailed by the assistant
treasurer. What is the major flaw in this audit procedure?
a. The CPA did not sign the confirmation request before it was mailed.
b. Sending the request was meaningless because the account was closed before year-end.
c. The confirmation request was signed by the treasurer.
d. The request was mailed by the assistant treasurer.
Cash in bank balance of Novaliches Co. on January 1, 2010 was P1,400,000 representing 35%
paid-up capital of its authorized share capital of P4,000,000. During the year you ascertained the
following postings to some accounts, as follows:
Petty cash fund

Accounts receivable trade
Subscription receivable
Delivery equipment
Accounts payable trade
Bank loan
Accrued expenses
Subscribed share capital
Unissued share capital
Debit
P 40,000
9,000,000
1,200,000
1,000,000
5,600,000
700,000
Credit
P5,800,000
1,000,000
8,600,000
1,600,000
30,000
1,200,000
2,600,000
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JTT061588
Authorized share capital

Sales
Purchases
Expenses (including depreciation of
P100,000 and accrued expenses of
P30,000)
4,000,000
9,000,000
8,600,000
1,800,000
12. The cash in bank balance at December 31, 2010 is

a. P830,000
c. P690,000
b. P660,000
d. P790,000
Quezon Metals Company

Condensed Comparative Income Statements
For the Years Ended December 31, 2010 and 2009
2010
P14,244,000
11,156,000
3,088,000
2,084,000
P 1,004,000
Net Sales
Cost of Goods Sold
Gross Profit
Expenses
Net Income
2009
P13,016,000
10,272,000
2,744,000
1,944,000
P 800,000
Additional information for Quezon:

(a)
All accounts receivable and accounts payable relate to trade merchandise.
(b)
The proceeds from the notes payable were used to finance plant expansion.
(c)
Share capital was sold to provide additional working capital.
Based on the above and the result of your audit, compute the following for 2010:
13. Cash collected from accounts receivable, assuming all sales are on account.
a. P14,012,000
c. P14,476,000
b. P 796,000
d. P16,508,000
14. Cash payments made on accounts payable to suppliers, assuming that all purchases of
inventory are on account.
a. P11,368,000
c. P10,944,000
b. P11,212,000
d. P11,256,000
15. Cash Payments for dividends.
a. P 828,000
c. P 668,000
b. P1,020,000
d. P1,180,000
16. Cash receipts that were not provided by operations.
a. P192,000
c. P700,000
b. P500,000
d. P
0
17. Cash payments for assets that were not reflected in operations.
a. P1,412,000
c. P 508,000
b. P 744,000
d. P1,176,000
Shown below is the bank reconciliation for Marikina Company for November 2010:
Balance per bank , Nov. 30, 2010
Add: Deposits in transit
Total
Less: Outstanding checks
Bank credit recorded in error
Cash balance per books, Nov. 30, 2010
P150,000
24,000
174,000
P28,000
10,000
38,000
P136,000
The bank statement for December 2010 contains the following data:
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JTT061588
Total deposits
Total charges, including an NSF check of P8,000
and a service charge of P400
P110,000
96,000
All outstanding checks on November 30, 2010, including the bank credit, were cleared in the
bank in December 2010.
There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31,
2010.
Based on the above and the result of your audit, answer the following:
18. How much is the cash balance per bank on December 31, 2010?
a. P154,000
c. P164,000
b. P150,000
d. P172,400
19. How much is the December receipts per books?
a. P124,000
c. P110,000
c. P 96,000
d. P148,000
20. How much is the December disbursements per books?
a. P96,000
c. P89,600
b. P79,600
d. P98,000
21. How much is the cash balance per books on December 31, 2010?
a. P150,000
c. P180,400
b. P170,400
d. P162,000
22. The adjusted cash in bank balance as of December 31, 2010
a. P141,600
c. P172,000
b. P162,000
d. P196,000
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JTT061588

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Auditing Problems: Audit of Cash and Cash Equivalents

2. Which of the following checks might indicate kiting?

Auditing Problems: Audit of Cash and Cash Equivalents

d. Deposited the day after together with cash receipts.

Petty cash fund

Auditing Problems: Audit of Cash and Cash Equivalents

Authorized share capital

12. The cash in bank balance at December 31, 2010 is

Quezon Metals Company

Additional information for Quezon:

Auditing Problems: Audit of Cash and Cash Equivalents

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