Balance as adjusted P9,500 7-14. Genius Company a. Post-dated check – report as accounts receivable because it is not negotiable until the date on the check. b. Report as an account receivable because it is not a negotiable instrument at this time. Debit Accounts Receivable, and credit Cash. If ultimately not collectible, write off as a bad debt. c. Report as Note Receivable or as a short-term investment. It is inappropriate to report (or record) this as cash. d. Include the P200 balance in petty cash in the balance reported as cash. Immediately replenish the fund for P168 and record it on December 31 as a debit to expenses (including the P1 cash short) and a credit to Cash. Alternatively, an adjustment may be made debiting expenses for P168 and crediting petty cash fund on December 31, 2005. e. Report the P30 of postage stamps as prepaid postage expense – stamps are not cash. f. Include the cashier’s check in the balance because it will be accepted by banks for immediate deposit. g. These checks should not be recorded as 2005 payments because the company still has full control of them. h. The note and interest should not be included in the cash balance it has not been collected. The P20,000 should be reported as a note receivable and interest of P450 (i.e., P20,000 x 9% x 3/12) should be accrued by a debit to interest receivable and a credit to interest revenue for P450. However, if the bank reports that the note has been collected on or before December 31 and a credit to the company’s account has been made, this item may be included in the cash balance.
7- 12 Solutions Manual to Accompany Applied Auditing, 2006 Edition 7-15. Balance Sheet Classification Cash Cash Equivale nt ST Investme nts Other Checking account X Savings account X Rare coins kept for long-term speculation X Postdated checks received X Money orders received X Petty cash fund X Treasury bills purchased when two months remain in term X Compensating balance for a short-term loan X* * shown separately Balance Sheet Classification Cash Cash Equivale nt ST Investme nts Other Sinking fund to retire a bond in five years X Certificate of deposit (six- month term) X Short-term investment in marketable equity securities X 7-16. Cordial Company Bank Reconciliation, 12.31.06 Bank Books Unadjusted balance P350,000 P293,500 Add (Deduct) Adjustments Deposit in transit (P175,250 - P50,000) 125,250 (1) Post dated customer’s check recorded on 12.31.06 ( 50,000) Note collected by bank 15,000 Outstanding checks (P246,750 - P14,750 - P37,210) (194,790) (2) Check payable to a supplier released on Jan. 5, 2007 14,750 (6) Check dated Jan. 4, 2007 recorded and
Substantive Tests of Cash 7- 13 released in Dec., 2006 37,210 (6) Erroneous bank credit corrected on Jan. 2, 2007 (30,000 ) As corrected 250,460 310,460 Unlocated difference (shortage) (60,000 ) (4) Balance as adjusted P250,460 P250,460 (3) Suggested answer to the multiple choice questions: 1. b 2. d 3. b 4. c 5. a 6. d 7-17. Pablo Corporation PABLO CORPORATION Proof of Cash July 31, 2006 Reconciliation 6-30-06 July Receipts July Disbursements Reconciliation 7-31-06 Bank cash balance Deposit in transit: July June Undeposited cash Outstanding checks: July: #1345 #1353 #1354 June: #1082 #1086 #1087 Adjusted balance Book cash balance NSF check P13,031.78 146.73 (372.15) (552.40) (196.80 ) P12,057.16 P12,057.16 P10,051.17 1,098.51 (146.73) 472.50
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