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Chapter 2
Cash and Cash Equivalents

PROBLEM 1: TRUE OR FALSE

1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. TRUE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. C
2. A - The segregated account to be contributed to the sinking
fund is presented as part of the sinking fund.

3. B
4. D
5. D
6. D
7. B
8. C

9. A – The receipts for petty cash disbursements that are already

replenished are filed in the accounting department and not by
the petty cash custodian. If the receipts are returned to the
custodian, she would present them again (and again and
again…and many, many more) for replenishment!

10. D
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PROBLEM 3: EXERCISES
1. Solution:
Cash on hand 320,000
Cash in Bank – current account (1.12M + 192K PDC) 1,312,000
Cash in Bank – peso savings deposit 6,400,000
Adjusted cash balance 8,032,000

2. Solution:
Oct. 1, Petty cash fund 40,000
20x1
Cash in bank 40,000
Oct. 1 to No journal entry
31, 20x1

⮚ Cash count:
Currencies and coins 2,390
Vouchers:
Office supplies 6,880
Transportation expense 12,346
Freight-out 17,627
Telecommunications expense 2,502
Total per count 41,745
Ledger balance 40,000
Cash overage 1,745

Oct. 31, Office supplies expense 6,880

20x1
Transportation expense 12,346
Freight-out 17,627
Telecommunications expense 2,502
Cash shortage or overage 1,745
Cash in bank 37,610

3. Answer: ₱2,390 – equal to the currencies and coins.

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4. Solutions:
Requirement (a): Petty cash fund included in cash
Currencies and coins 1,020
Check drawn to the order of the petty cash custodian 1,200
Petty cash fund included as part of cash 2,220

Requirement (b): Adjusting journal entry

Dec. Various expenses 26,820
31,
20x1
Receivable from PCF custodian 960
Petty cash fund (30K – 2,220) 27,780

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
Solution:
Unadjusted balance 8,200,000
Post-dated customer check (82,000)
Post-dated check drawn 40,000
Bank draft (53K x (51.4 - 52.5) (58,300)
Bonds 200,000
Compensating balance (900,000)
Cash and Cash Equivalents – Dec. 31, 20x1 7,399,700

2. A
Solution:
Petty cash fund (15,000 - 9,763) 5,237
Cash on hand 45,000
Cash in bank 7,809,424
Investment in 90-day commercial paper, due 1/26/x2 150,000
Tax fund 56,000
Payroll fund 235,000

Total Cash and Cash equivalents 8,300,661

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3. C
Solution:
Petty cash fund 6,000
Cash on hand 65,000
2,890,00
Cash in bank (per ledger)
0
Customer’s check #392 – dated Jan. 8, 20x2 (20,000)
Athena Co.’s check #567 – dated Dec. 29, 20x1 54,000
NSF check (40,000) 2,884,000
2,955,00
Cash - Dec. 31, 20x1
0

● Customer’s check #109 was properly included in cash in bank;

thus, no adjustment is necessary.
● Customer’s check #392 is postdated. This should be excluded
from Cash and reverted back to Accounts receivable.
● Athena Co.’s check #567 is ‘unreleased check’. This should be
included in cash and reverted back to Accounts payable.
● The NSF check should be excluded from cash and reverted
back to Accounts receivable.

4. D
Solution:
Office supplies expense 8,025
Miscellaneous selling expense 11,533
Miscellaneous administrative expense 7,805
Cash short or over 197
Cash in bank (40K – 12,834) 27,166

5. A (see solution above)

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PROBLEM 5: CLASSROOM ACTIVITIES

ACTIVITY #1: CASH BALANCE

Solution:
Exhibit No. Amount
Cash on hand 1 5,882.00
Cash in bank - Savings 3 522,277.54
Cash in bank - Current 4 645,353.03
Total cash 1,173,512.57

Notes:
⮚ Exhibit 2.1 is a post-dated customer check.

⮚ Exhibit 2.2 is an unreleased company check. Although this

check will increase the “Cash in bank” account per records, it
should not be included in the solution above because the
amount of “Cash in bank” in the solution is derived from the
bank statement and not from the Ledger.
⮚ The unused credit in Exhibit 5 may be disclosed but it should
not be included in cash.
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ACTIVITY #2: PETTY CASH FUND

Solutions:

Requirement (a):
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Requirement (b):
JOURNAL
Ref
DATE ACCOUNTS . Debit Credit
12.3.20X1 Petty cash fund 5,000.00
Cash in bank 5,000.00

12.21.20X1 Office supplies 356.00

Transportation expense 97.00
Advances to employees 600.00
Receivable from
custodian 2,810.00
Cash in bank 3,863.00

ACTIVITY #3: PETTY CASH FUND – SHORTAGE

Solution:
The students check their own work, grade themselves and submit
their grades to the teacher for recording.
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PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
Checks drawn but not yet issued to payees 120,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to
16,000
payee
Cash on hand 130,000
Employees’ checks representing unclaimed salaries,
14,000
held by the treasurer
Petty cash fund (fully replenished) 20,000
Total 340,000

2. Solution:
Treasury bill acquired on Nov. 1, 20x1 300,000
Investment in redeemable preference shares 1,600,000
Three-month time deposit with UCPB - unrestricted 950,000
Total 2,850,000

3. Solution:
Cash on hand (peso) 1,800,000
Cash on hand (2.9M ÷ 50) x 52 3,016,000
Revolving fund 200,000
Cash in bank – BPI 6,000,000
Cash and Cash Equivalents - Dec. 31, 20x1 11,016,000

⮚ The contingency fund is a noncurrent asset.

⮚ The restricted deposit in foreign bank (i.e., Swiss Savings

Account) is excluded from cash and, preferably presented as
receivable or as “other asset,” depending on the nature of the
restriction. For example, if the restriction is imposed by the
Philippine Government, such as when it results from a
pending litigation, the more appropriate classification would
be “Other assets,” with appropriate disclosure in the notes. If
the restriction is bank-imposed, the more appropriate
classification would be “Receivable.” Rarely, that a savings
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account (foreign or local) qualifies as an investment, unless the

deposit earns interest above the normal rate for regular
savings accounts.

4. Solution:
Piggy Bank savings account 480,000
Piggy Bank checking account (20,000)
Oink Bank checking account (360K - 100K compensating bal.) 260,000
Cash in bank 720,000

☞ The ₱40,000 compensating balance on the Piggy Bank savings

account is properly included because it is not restricted.
☞ The ₱40,000 overdraft on the Piggy Bank checking account can
be offset from the Piggy Bank savings account.
☞ The ₱100,000 compensating balance on the Oink Bank
checking account is excluded because it is restricted.
☞ Porky Bank savings account #5100342120, which is legally
restricted, is excluded from cash and presented under other
line item (e.g., ‘Other assets’).
☞ The overdraft in the Porky Bank checking account is presented
as current liability.

5. Solution:
Oct. 1, Petty cash fund 30,000
20x1
Cash in bank 30,000
Oct. 1 to
31, 20x1
No journal entry
Oct. 31, Various expenses 24,260
20x1
Cash shortage or overage 115
Cash in bank (30,000 – 5,625) 24,375
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6. Solution:
Oct. 31, Various expenses 24,260
20x1
Receivable from PCF custodian 115
Petty cash fund (30,000 – 5,625) 24,375

⮚ Amount reported in financial statements = 5,625 (equal to the

coins and currencies contained in the PCF box) or (30,000
imprest balance - 24,375 AJE = 5,625 adjusted balance).