PROBLEM NO.
11
You were able to obtain the following information in connection with your audit of the Cash account of
the Pasay Company as of December 31, 2006:
November 30 December 31
a. Balances per bank P480,000 P420,000
b. Balances per books 504,000 539,000
c. Undeposited collections 244,000 300,000
d. Outstanding checks 150,000 120,000
e. The bank statement for the month of December showed total credits of P240,000 while the
debits per books totaled P735,000.
f. NSF checks are recorded as a reduction of cash receipts. NSF checks which are later redeposited
are then recorded as regular receipts. Data regarding NSF checks are as follows:
1. Returned by the bank in Nov. and recorded by the company in Dec., P10,000. 2.
Returned by the bank in Dec. and recorded by the company in Dec., P25,000.
3. Returned by the bank in Dec. and recorded by the company in Jan., P29,000.
g. Check of Pasaway Company amounting to P90,000 was charged to the company’s account by the
bank in error on December 31.
h. A bank memo stated that the company’s account was credited for the net proceeds of Anito’s
note for P106,000.
i. The company has hypothecated its accounts receivable with the bank under an agreement
whereby the bank lends the company 80% of the hypothecated accounts receivable. The
company performs accounting and collection of the accounts. Adjustments of the loan are made
from daily sales reports and deposits.
j. The bank credits the company account and increases the amount of the loan for 80% of the
reported sales. The loan agreement states specifically that the sales report must be accepted by
the bank before the company is credited. Sales reports are forwarded by the company to the
bank on the first day following the date of sale. The bank allocates each deposit 80% to the
payment of the loan, and 20% to the company account. Thus, only 80% of each day’s sales and
20% of each collection deposits are entered on the bank statement. The company accountant
records the hypothecation of new accounts receivable (80% of sales) as a debit to Cash and a
credit to the bank loan as of the date of sales. One hundred percent of the collection on accounts
receivable is recorded as a cash receipt; 80% of the collection is recorded in the cash
disbursements books as a payment on the loan. In connection with the hypothecation, the
following facts were determined:
• Included in the undeposited collections is cash from the hypothecation of accounts receivable.
Sales were P180,000 on November 30, and P200,000 at December 31. The balance was made
up from collections which were entered on the books in the manner indicated above.
• Collections on accounts receivable deposited in December, other than deposits in transit, totaled
P725,000.
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k. Interest on the bank loan for the month of December charged by the bank but not recorded in the
books, amounted to P38,000.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the adjusted cash balance as of November 30, 2006?
a. P574,000 c. P430,000
b. P394,000 d. P350,000
2. How much is the adjusted book receipts for December, 2006?
a. P860,000 c. P876,000
b. P280,000 d. P296,000
3. How much is the adjusted book disbursements for December, 2006?
a. P180,000 c. P180,000
b. P905,000 d. P760,000
4. How much is the adjusted cash balance as of December 31, 2006?
a. P690,000 c. P440,000
b. P530,000 d. P490,000
5. How much is the cash shortage as of December 31, 2006?
a. P32,000 c. P8,000
b. P90,000 d. P0
Suggested Solution:
Pasay Company
Proof of Cash
For the month ended December 31, 2006
Beginning Ending
Nov. 30 Receipts Disb. Dec. 31
Balance per bank statement P480,000 P240,000
P300,000a P420,000
Deposits in transit:
November 30 100,000c (100,000) December 31
140,000d 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank
debit-December (90,000) 90,000
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Deposits with loan payment
(P725,000 x 80%) 580,000 580,000
Adjusted bank balance P430,000 P860,000
P760,000 P530,000
Balance per books P504,000 P735,000 P700,000b P539,000
NSF checks:
Returned in Nov.,
recorded in Dec. (10,000) 10,000
Returned and
recorded in Dec. 25,000 25,000
Returned in Dec.,
recorded in Jan. 29,000 (29,000)
Customer's note collected by bank -
December 106,000 106,000
Anticipated loan
proceeds from AR hypothecation:
Nov. 30 sales
(P180,000 x 80%) (144,000) 144,000
Dec. 31 sales
(160,000)
(P200,000 x 80%) (160,000)
Anticipated loan payment
from undeposited
collections:
Nov. 30
(P100,000 x 80%) 80,000 80,000
Dec. 31
(P140,000 x 80%) (112,000) 112,00
0
Interest charge for
bank loan in Dec. 38,000
(38,000)
Adjusted book balance
P430,000 P860,000 P760,000 P530,00
0
a
(P480,000 + P240,000 – P420,000) b
(P504,000 + 735,000 – P539,000) c
[
P244,000 – (P180,000 x 80%)]
d[
P300,000 – (P200,000 x 80%)]
Answers: 1) C; 2) A; 3) D; 4) B; 5) D
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