WESTMEAD INTERNATIONAL SCHOOL

Batangas City

Practical Accounting I and Theory of Accounts

PROBLEMS

1. Selected records from the accounting records of Malakas Company are as follows:
Net accounts receivable at Dec. 31, 2005 1,900,000
Net accounts receivable at Dec. 31, 2006 1,000,000
Account receivable turnover 5:1
Inventory at Dec. 31, 2005 1,100,000
Inventory at Dec.31, 2006 1,200,000
Inventory turnover 4:1
What is the amount of gross margin?
a. 5,000,000 c.5,200,000
b. 5,150,000 d.5,300,000

2. The following information for 2006 is provided by Guam Company:

Sales 50,000,000
Cost of Sales 30,000,000
Selling Expenses 5,000,000
General and Administrative Expenses 4,000,000
Interest Expense 2,000,000
Gain on early extinguishment of long term debt 500,000
Correction of Inventory error, net of income tax-credit 1,000,000
Investment Income-equity method 3,000,000
Gain on expropriation 2,000,000
Income tax expense 5,000,000
Dividends declared 2,500,000
What is the amount of finance cost?
a. 1,200,000 c. 1,500,000
b. 2,000,000 d. 1,800,000

3. Tarzana Company reported total purchases of P3,200,000 in its accrual basis financial statement on
December 31,2006. Additional information revealed the following:

Accounts Payable, December 31,2005 P 900,000

Accounts Payable, December 31,2006 1,250,000

What is the amount of purchases under the cash basis on December 31,2006?

a. 2,850,000 c. 4,100,000
b. 3,550,000 d. 4,450,000

4. On March 31, 2005 Mr. Right Enterprise traded in an old machine having a carrying amount of
P1,600,000 and paid cash difference of P600,000 for a new machine having a total cash price of
P2,000,000.

On March 31,2005, what amount of loss should Mr. Right recognize on this exchange?

a. P 0 c. P400,000
b. P200,000 d. P600,000

5. Felicia Co. owns 20% royalty interest in an oil well. Felicia receives royalty payments on January 31
for the oil sold between June 1 and November 30, and July 30 for oil sold between December 1 and
May 31 Production report shows the following sales:
June 1, 2006-November 30, 2006 4,050,000
December1, 2006-December 31, 2006 675,000
 December 1, 2006-may 31, 2007 5,400,000
June 1, 2007-November 30, 2007 4,387,500
December 1, 2007-December31, 2007 945,000
What amount should Felicia report as royalty revenue for 2007?
a.1, 890,000 c.2, 011,500
b.1, 944,000 d.2, 146,000

6. Meninqiuz Company provided the following information for the 2008:

Total Assets at December 31 4,500,000
Share Capital at December 31 2,000,000
Share Premium at December 31 200,000
Treasury Stock (at cost) 300,000
The debt-to-equity ratio is 25% at December 3, 2008. What is the retained earnings unappropriated on
December 31, 2008?
a.1, 400,000 c.2, 300,000
b.1, 100,000 d.1, 700,000

7. Reese Corp.'s trial balance reflected the following account balances at December 31, 2007:
Accounts receivable (net) P24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Reese's December 31, 2007 balance sheet, the current assets total is
a. 90,000.
b. 82,000.
c. 77,000.
d. 73,000.

The following trial balance of Scott Corp. at December 31, 2007 has been properly adjusted except for
the income tax expense adjustment.
Scott Corp.
Trial Balance
December 31, 2007
Dr. Cr.
Cash 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Property, plant, and equipment (net) 7,366,000
Accounts payable and accrued liabilities 1,701,000
Income taxes payable 654,000
Deferred income tax liability 85,000
Common stock 2,350,000
Additional paid-in capital 3,680,000
Retained earnings, 1/1/04 3,450,000
Net sales and other revenues 13,360,000
Costs and expenses 11,180,000
Income tax expenses 1,179,000
25,280,000 25,280,000

Other financial data for the year ended December 31, 2007:
Included in accounts receivable is 1,200,000 due from a customer and payable in quarterly
installments of 150,000. The last payment is due December 29, 2009.
 The balance in the Deferred Income Tax Liability account pertains to a temporary difference that
arose in a prior year, of which 20,000 is classified as a current liability.
During the year, estimated tax payments of 525,000 were charged to income tax expense. The
current and future tax rate on all types of income is 30%.

In Scott's December 31, 2007 balance sheet,

8. The current assets total is

a. 6,080,000.
b. 5,555,000.
c. 5,405,000.
d. 4,955,000.

9. The current liabilities total is

a. 1,850,000.
b. 1,915,000.
c. 2,375,000.
d. 2,440,000.

10. The final retained earnings balance is

a. 4,451,000.
b. 4,536,000.
c. 4,976,000.
d. 4,905,000.

11. In connection with your audit of CSI Corp. for the year ended December 31,2010, you gathered the
following:
Current account at Metro bank First Account 2,000,000
Current account at Metro bank Second Account (100,000)
Current account at BPI 3,000,000
Payroll Fund 500,000
VAT Fund 200,000
Sinking Fund for Bonds maturing October 4,2011 1,000,000
Sinking Fund for Bonds maturing October 4,2012 2,000,000
Travel Fund 100,000
Dividend Fund 100,000
Interest Fund 200,000
Fund set aside for Land acquisition to be made on January 5,2011 1,000,000
Treasury bills, due 2/31/2011 (purchased 12/31/2010) 100,000
Treasury bills, due 1/31/2011 (purchased 1/1/2010) 200,000
Money Order 100,000
Foreign bank account restricted (in equivalent pesos) 2,000,000
Postage stamps 2,000
IOU from controllers sister 5,000
Coins and currency on hand 2,000,000
Customers postdated check on hand 200,000
Credit memo from a vendor for a purchase return 20,000
Not-sufficient funds check on hand from a customer 20,000
Undelivered check issued to supplier and deducted in the BPI
Current account 20,000
Post-dated check issued to employee and deducted in the Metrobank
Current account First account 30,000
Compensating balance in the BPI account legally restricted as a
security for a long-term bonds payable in the bank 40,000
Compensating balance in the Metrobank account first account
legally restricted for a short-term borrowing 50,000
Petty cash fund (5,000 in currency and 5,000 for expense receipts) 10,000
Cash in a bank closed by BSP (NRV is 20,000) 30,000
What is the amount of cash and cash equivalents to be presented in the Statement of Financial Position?
a. 9,275,000
b. 9,200,000
c. 9,300,000
d. 9,425,000

12. Account at the petty cash fund of FBI Inc. showed its composition as follows:
Coins and currency 3,300
Paid Vouchers:
Transportation 600
Gasoline 400
Office Supplies 500
Postage Stamps 300
Due from employees 1,200 3,000
Managers check returned by bank marked NSF 1,000
Check drawn by company to the order of petty cash custodian 2,700
A sheet of paper with names of several employees together with contribution for
a birthday gift of a co-employee. Attached to the sheer of paper is a currency of 5,000

What is the amount of petty cash fund for Statement of Financial Position?
a. 3,300 c. 5,700
b. 2,700 d. 6,000

13. AIM Companys newly hired assistant prepared the following bank reconciliation on December
31,2010:
Book Balance 2,810,000
Add: December 31, Deposit in transit 1,500,000
Collection of note by bank 5,000,000
Interest on note collected 300,000 6,800,000
Total 9,610,000
Less: AINs Company Deposit to our account 2,200,000
Bank service charge 90,000 2,290,000
Adjusted book balance 7,320,000

Bank Balance 11,260,000

Add: Error on check No. 193 9,000
Total 11,269,000
Less: Preauthorized payments for water bills 248,000
NSF Check 440,000
Outstanding Check 3,219,000 3,907,000
Adjusted bank balance 7,362,000

Note: Check No. 193 was made for the proper amount 489,000 in payment of account. However it
was entered in the cash payments journal as 498,000. AIM authorized the bank to automatically pay
its water bill as submitted directly to the bank.
What is the adjusted cash in bank balance as of December 31,2010?
a. 7,320,000
b. 7,362,000
c. 7,341,000
d. 7,143,000

14. The accountant of Naruto Inc. provided the following data in reconciling the April 30 cash in bank
balance:
Balance per bank, April 30 P130,350
Balance per books, April 85,000
Bank Service Charge for April 2,000
Deposits in transit 49,000
Outstanding checks 17,650
 Note collected by bank including P11,200 interest
(Naruto Inc. not yet informed) 136,000
Check drawn by XYZ Co. erroneously charged by
bank to Narutos account 54,600

A transposition error was made in recording a sale and deposit in the sales journal and cash receipts
journal in April.
Correct amount P13,658
Recorded as 16,358
What is the adjusted cash balance on April 30?
a. 219,000
b. 221,700
c. 216,300
d. 161,700

The Accounts Receivable Account of ICE Company consists of the following items:
Accounts known to be worthless 20,000
Accounts Receivable with credit balance arising from sales return (30,000)
Advances to a subsidiary company 500,000
Advances to an associate company payable in 6 months 600,000
Interest receivable on bonds 800,000
Other trade accounts receivable unassigned 750,000
Subscription receivable due in 8 months 800,000
Subscription receivable due in 15 months 1,000,000
Trade accounts receivable assigned (ICE Companys equity in the
assigned account is 200,000) 1,000,000
Trade installment receivable due 1 18 months including unearned
finance charges of 50,000 350,000
Trade receivable from company officers due currently 500,000
Advances to employees 500,000
Advances to companys president due in 2 years 600,000
Trade accounts on which post-dated checks are held 100,000
Pledged Trade Accounts Receivable 1,000,000
Factored Accounts Receivable 2,000,000
Dishonored Trade Notes Receivable 500,000

Note: The company provides 5% of Trade Accounts Receivable as Doubtful at the end of the year. The
beginning balance of the Allowance for bad doubtful is 10,000 (credit). There is a recovery of previously
written of trade receivables in the amount of P10,000 which is also collected already and not included to
the amount above.

15. What is the total trade accounts receivable before allowance for bad debts as of the end of the
year?
a. 6,200,000 c. 4,000,000
b. 5,700,000 d. 4,200,000

16. What is the balance of the allowance for bad debts as of the end of the year?
a. 210,000 c. 170,000
b. 180,000 d. 180,000

17 What is the bad debts expense for the year?

a. 190,000 c. 200,000
b. 210,000 d. 180,000

The account and balances shown below were taken from Basic Companys trial balance on December
31, 2013. All adjusting entries have been made.
Wages Payable, P250,000; Cash, P175,000; Bonds Payable, P600,000; Dividends Payable, P140,000;
Prepaid rent, P136,000; Inventory, P820,000; Sinking fund asset, P525,000; Trading Securities, P153,000;
Premium on Bonds Payable, P48,000; Investment in subsidiary , P1,020,000; Taxes payable, P228,000;
Accounts payable, P248,000; Accounts Receivable P366,000; PPE, P1,200,000; Patents-net, P150,000;
Acc. Dep.-PPE, P400,000; Land held for future business site, P900,000.

18. How much should be reported in basic Dec. 31, 2013 balance sheet as current and non-current
assets, respectively?
a. P1,650,000 and P2,375,000
b. P1,650,000 and P3,395,000
c. P1,800,000 and P2,225,000
d. P1,800,000 and P3,795,000

Halo, Inc. reported the following items in its Dec. 31, 2013 trial balance.
Accounts Payable P1,089 ,000
Advances to employees 45,000
Unearned rent rev. 288,000
Estimated Liabilities Under warranties 258,000
Cash surrender value of Off. Life Insurance 75,000
Bonds payable 5,000,000
Disc. On Bonds Payable 225,000
Trademark 390,000

19. How much should Halo report as total liabilities in its Dec. 31, 2013 balance sheet?
a. P6,410 ,000
b. P6,800,000
c. P6,845,000
d. P7,410,000

Jungle Company accounts balances during 2008 showed the following changes, all increases:

Assets P3,560,000
Liabilities P1,080,000
Ordinary share capital P2,400,000
Share premium P240,000
There were no changes in accumulated profits for 2008 other than a P520,000 dividend payment and
years earnings.

20. How much was the net profit earn for the year?
a. P160,000
b. P360,000
c. P520,000
d. P680,000

Trunk Corp. reports operating expenses in two categories: (1) selling; and (2) general and administrative.
The adjusted trial balance at Dec. 31, 2013 included the following expenses and loss accounts:

Accounting and legal fees P240,000

Advertising P300,000
Freight out P160,000
Interest P140,000
Loss on sale of long term investment P60,000
Officers salaries P450,000
Rent for office space P440,000
Sales salaries and commissions P280,000

One half of the rented premises is occupied by the sales department.

21. How much is Trunks total distribution costs for 2013?
a. P720,000
b. P740,000
c. P800,000
d. P960,000

Mustang Company changed from straight line dep. To double declining balance method at the beginning
of 2006. The plant asset originally cost P1,500,000 in 2001 using straight line dep. Periodic dep. Using
straight line is P60,000.

22. What amount of dep. Mustang Company should recognize for the year 2006?
a. P75,000
b. P96,000
c. P120,000
d. P150,000

During 2008 Tricky Company decided to change from FIFO method of inventory to the weighted
average method. Inventory balances under each method were as follows:

FIFO Weighted-Ave. Method

Jan. 1 P1,420,000 P1,540,000
Dec. 31 P1,580,000 P1,660,000

23. Ignoring income tax in its year 2006 statement of retained earnings, what amount should Tricky
report as the effect of this accounting change?
a. None
b. P80,000
c. P120,000
d. P200,000

Shown below is the bank reconciliation of YOUR Co. for May 2008;
Balance per bank, May 31, 2008 P75,000
Add: Deposit in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank Credit recorded in error 5,000 19,000
Cash balance per book, May 31, 2008 P68,000
The bank statement for June 2008 contains the following data:
Total deposits P55,000
Total charges, including an NSF check of
P4,000 and a service charge of P200 48,000
All outstanding checks on May 31, 2008, including the bank credit, were cleared in bank in June 2008.
There were outstanding checks of P15,000 and deposits I transit of P19,000 on June 30, 2008.

24. What is the cash balance per bank on June 30,2008?

a. P75 ,000
b. P82,000
c. P86,000
d. P86,200

Blink Co. factored P750 K of A/R to Sparkle Co. December 1,2013. Sparkle accepted the receivables,
assessed a fee of 2% and retains a holdback equal to 4% of the A/R. In addition, Sparkle charged 12% in
the interest on the amount advanced.

25. What amount of finance cost should Blink Co. report in its December 2013 income statement related
to the factoring of its A/R?
a. None
b. P7,200
c. P15,000
d. P22,200

Bruno received from a customer a one year, P375 K note bearing annual interest of 8%. After holding
the note for 6 months, Bruno discounted the note at Super Bank at an effective interest rate of 10%

26. How much did Bruno receive from the bank?

a. P371,428.50
b. P384, 750.00
c. P392,857.50
d. P405,000.00

On December 30,2013, POPE Co. sold a machine to SAINT Co. in exchange for a noninterest bearing note
requiring ten annual payments of P50 K. SAINT made the first payment on December 30,2013. The
market interest rate for similar notes at date of issuance was 8%. Information on present value factors is
as follows:

Period Present Value Present Value of Ordinary

Of P1 at 8% Annuity of P1 at 8%
9 0.50 6.25
10 0.46 6.71

27. In December 31,2013 balance sheet, what amount should POPE report the notes receivable?
a. P225,000
b. P230,000
c. P312,500
d. P335,500

Tape Co. reported the following balances at December 31,2008 and 2007:
December 31,2008 December 31,2007
Inventory P2,600,000 P2,900,000
A/P P750,000 P500,000

The company paid its suppliers P4,900,000 during the year ended December 31,2008.

28. How much should Tape report as cost of goods sold in its December 31,2008 income statement?
a. P4,350,000
b. P4,850,000
c. P4,950,000
d. P5,450,000

The Killjoy Co. sells product A. During the year, the company moved to a new location, the inventory
records for product A were misplaced. The bookkeeper has been able to gather some information from
the sales records and gives you data shown below:

July Sales: 57,200 units at P100

July Purchases:
Date Quantity Unit Cost
July 5 10,000 P65.00
9 12,500 62.50
12 15,000 60.00
23 14,000 62.00

On July 31, 16,000 units were on hand with a total value of P988,000. Killjoy has always used a periodic
FIFO inventory costing system. Gross profit on sales for July was P2,058,750.

29. What is the total cost and unit cost, respectively, of the beginning inventory?
a. P1,345,400 and P62.00
b. P1,353,538 and P62.38
c. P1,367,100 and P63.00
d. P1,450,000 and P66.82

30. Sandy, Inc. had the following bank reconciliation at March 31, 2007:
Balance per bank statement, 3/31/07 37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/07 34,900
Data per bank for the month of April 2007 follow:
Deposits 46,700
Disbursements 49,700
All reconciling items at March 31, 2007 cleared the bank in April. Outstanding checks at April 30,
2007 totaled 6,000. There were no deposits in transit at April 30, 2007. What is the cash balance
per books at April 30, 2007?
a. 28,200
b. 31,900
c. 34,200
d. 38,500

A trial balance before adjustments included the following:

Debit Credit
Sales 425,000
Sales returns and allowance 14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760

31. If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment
is
a. 6,700.
b. 8,220.
c. 8,500.
d. 9,740.

32. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of
the adjustment is
a. 3,540.
b. 4,300.
c. 4,224.
d. 5,060.

33.Selected records from the accounting records of Malakas Company are as follows:

Net accounts receivable at Dec. 31, 2005 1,900,000

Net accounts receivable at Dec. 31, 2006 1,000,000
Account receivable turnover 5:1
Inventory at Dec. 31, 2005 1,100,000
Inventory at Dec.31, 2006 1,200,000
Inventory turnover 4:1
What is the amount of gross margin?
a. 5,000,000 c.5,200,000
b. 5,150,000 d.5,300,000

34. The following information for 2006 is provided by Guam Company:

Sales 50,000,000
 Cost of Sales 30,000,000
Selling Expenses 5,000,000
General and Administrative Expenses 4,000,000
Interest Expense 2,000,000
Gain on early extinguishment of long term debt 500,000
Correction of Inventory error, net of income tax-credit 1,000,000
Investment Income-equity method 3,000,000
Gain on expropriation 2,000,000
Income tax expense 5,000,000
Dividends declared 2,500,000
What is the amount of finance cost?
a. 1,200,000 c. 1,500,000
b. 2,000,000 d. 1,800,000

35. Tarzana Company reported total purchases of P3,200,000 in its accrual basis financial statement
on December 31,2006. Additional information revealed the following:

Accounts Payable, December 31,2005 P 900,000

Accounts Payable, December 31,2006 1,250,000

What is the amount of purchases under the cash basis on December 31,2006?

a. 2,850,000 c. 4,100,000
b. 3,550,000 d. 4,450,000

THEORIES

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1. Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation

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2. Which of the following balance sheet classifications would normally require the greatest amount
of supplementary disclosure?
a. Current assets
b. Current liabilities
c. Plant assets
d. Long-term liabilities

3. Which of the following is not a method of disclosing pertinent information?

a. Supporting schedules
b. Parenthetical explanations
c. Cross reference and contra items
d. All of these are methods of disclosing pertinent information.

4. Significant accounting policies may not be

a. selected on the basis of judgment.
b. selected from existing acceptable alternatives.
c. unusual or innovative in application.
d. omitted from financial-statement disclosure.

5. A general description of the depreciation methods applicable to major classes of depreci-able

assets
a. is not a current practice in financial reporting.
b. is not essential to a fair presentation of financial position.
c. is needed in financial reporting when company policy differs from income tax policy.
d. should be included in corporate financial statements or notes thereto.
 6. It is mandatory that the essential provisions of which of the following be clearly stated in the
notes to the financial statements?
a. Stock option plans
b. Pension obligations
c. Lease contracts
d. All of these

7. A generally accepted account title is

a. Prepaid Revenue.
b. Appropriation for Contingencies.
c Earned Surplus.
d. Reserve for Doubtful Accounts.

8. The financial statement which summarizes operating, investing, and financing activities of an
entity for a period of time is the
a. retained earnings statement.
b. income statement.
c. statement of cash flows.
d. statement of financial position.

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9. The statement of cash flows provides answers to all of the following questions except
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. What is the impact of inflation on the cash balance at the end of the year?
d. What was the change in the cash balance during the period?

10. Making and collecting loans and disposing of property, plant, and equipment are
a. operating activities.
b. investing activities.
c. financing activities.
d. liquidity activities.

11. In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost
would be classified as a(n)
a. operating activity.
b. financing activity.
c. extraordinary activity.
d. investing activity.

12. In preparing a statement of cash flows, cash flows from operating activities
a. are always equal to accrual accounting income.
b. are calculated as the difference between revenues and expenses.
c. can be calculated by appropriately adding to or deducting from net income those items in
the income statement that do not affect cash.
d. can be calculated by appropriately adding to or deducting from net income those items in
the income statement that do affect cash.

13. In preparing a statement of cash flows, which of the following transactions would be considered
an investing activity?
a. Sale of equipment at book value
b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount

14. Preparing the statement of cash flows involves all of the following except determining the
a. cash provided by operations.
b. cash provided by or used in investing and financing activities.
 c. change in cash during the period.
d. cash collections from customers during the period.

15. The cash debt coverage ratio is computed by dividing net cash provided by operating activities
by
a. average long-term liabilities.
b. average total liabilities.
c. ending long-term liabilities.
d. ending total liabilities.

16. The current cash debt coverage ratio is often used to assess
a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.
17. A measure of a companys financial flexibility is the
a. cash debt coverage ratio.
b. current cash debt coverage ratio.
c. free cash flow.
d. cash debt coverage ratio and free cash flow.

18. Free cash flow is calculated as net cash provided by operating activities less
a. capital expenditures.
b. dividends.
c. capital expenditures and dividends.
d. capital expenditures and depreciation.

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19. One of the benefits of the statement of cash flows is that it helps users evaluate financial
flexibility. Which of the following explanations is a description of financial flexibility?
a. The nearness to cash of assets and liabilities.
b. The firm's ability to respond and adapt to financial adversity and unexpected needs and
opportunities.
c. The firm's ability to pay its debts as they mature.
d. The firm's ability to invest in a number of projects with different objectives and costs.

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20. Net cash provided by operating activities divided by average total liabilities equals the
a. current cash debt coverage ratio.
b. cash debt coverage ratio.
c. free cash flow.
d. current ratio.

Walang madaling exam sa Accounting

-CONSERVATISM

Prepared by

Robert John R. Perez, CPA

Instructor, Acctg
 WESTMEAD INTERNATIONAL SCHOOL
Batangas City

Review of the Accounting Process

1. A business received cash of P300,000 in advance for service that will be provided later.
The cash receipt entry debited Cash and credited Unearned Revenue for P300,000. At
the end the period, P110,000 is still unearned.

The adjusting entry for this situation will

a. Debit Unearned revenue and Credit Revenue for P190,000
b. Debit Unearned revenue and Credit Revenue for P110,000
c. Debit Revenue and Credit Unearned Revenue for P190,000
d. Debit Revenue and Credit Unearned Revenue for P110,000

2. Prepaid Insurance has an ending balance of P23,000. During the period, insurance in
the amount of P12,000 expired. The adjusting entry would contain a debit to
a. Prepaid insurance for P12,000 c. Prepaid insurance for P11,000
b. Insurance expense for P12,000 d. Insurance expense for P11,000

3. On December 31, Printshop Property management made an adjusting entry to record

P30,000 management fees earned but not yet billed to a client. This entry was reversed
on January 1. On January 15, the client paid P120,000, of which P90,000 was
applicable to the period January 1 through January 15.

The journal entry made by Printshop to record receipt of the P120,000 on January 15
includes
a. A credit to Management Fees Earned of P120,000
b. A credit to Accounts Receivable of P30,000
c. A debit to Management Fees Earned of P30,000
d. A credit to Management Fees Earned of P90,000

4. On December 31, Lotus made an adjusting entry to record P11,000 accrued interest
payable on its note. This entry was reversed on January 1. On January 15, the note was
paid. The payment included interest of P25,000. The entry to record the payment of
January 15 should
a. Debit Interest Expense of P25,000
b. Debit Accrued Interest Payable of P25,000
c. Debit Interest Expense of P14,000 and accrued Interest Payable of P11,000
d. Debit Interest Expense of P14,000 and credit accrued Interest Payable of
P11,000.

5. Windows Company sublet a portion of its office space for ten years at an annual rental
of P360,000, beginning on May 1. The tenant is required to pay one years rent in
advance, which Windows recorded as a credit to Rental Income. Windows reports on a
calendar-year basis. The adjustment on December 31 of the first year should be
a. Rental Income 120,000
Unearned Rental Income 120,000
b. Rental Income 240,000
Unearned Rental Income 240,000
c. Unearned Rental Income 120,000
Rental Income 120,000
d. Unearned Rental Income 240,000
Rental Income 240,000

6. Dbase Company paid P170,400 on June 1, 2002, for a two-year insurance policy and
 recorded the entire amount as Insurance Expense. The December 31, 2002, adjusting
entry is
a. debit Prepaid Insurance and credit Insurance Expense, P49,700
b. debit Insurance Expense and credit Prepaid Insurance, P49,700
c. debit Insurance Expense and credit Prepaid Insurance, P120,700
d. debit Prepaid Insurance and credit Insurance Expense, P120,700

7. The Supplies on Hand account balance at the beginning of the period was P66,000.
Supplies totaling P128,250 were purchased during the period and debited to Supplies
on Hand. A physical count shows P38,250 of Supplies on Hand at the end of the
period. The proper journal entry at the end of the period.
a. debits supplies on Hand and credits Supplies Expense for P90,000.
b. debits supplies Expense and credits Supplies on Hand for P128,250.
c. debits Supplies on Hand and credits Supplies Expense for P156,000.
d. debits Supplies Expense and credits Supplies on Hand for P156,000.

8. Moon Company purchased equipment on November 1, 2001, by giving their supplier a

12-month, 9 percent note with a face value of P480,000. The December 31, 2001,
adjusting entry is
a. debit Interest Expense and credit Cash, P7,200.
b. debit Interest Expense and credit Interest Payable, P7,200.
c. debit Interest Expense and credit Interest Payable, P10,800.
d. debit Interest Expense and credit Interest Payable, P43,200.

9. On December 31 of the current year, Holmgren Companys bookkeeper made an entry

debiting Supplies Expense and crediting Supplies on Hand for P126,000. The Supplies
on Hand account had a P153,000 debit balance on January 1. The December 31,
balance sheet showed Supplies on Hand of P114,000. Only one purchase of supplies
was made during the month, on account. The entry for that purchase was
a. debit Supplies on Hand, P87,000 and credit Cash, P87,000.
b. debit Supplies Expense, P87,000 and credit Accounts Payable, P87,000.
c. debit Supplies on Hand, P87,000 and credit Accounts Payable, P87,000.
d. debit Supplies on Hand, P165,000 and credit Accounts Payable, P165,000.

10. The balance in the capital account of Wordstar Co. at the beginning of the year was
P650,000. During the year, the company earned revenue of P4,300,000, incurred
expenses of P3,600,000, the owner withdrew P500,000 in assets, and the balance in the
cash account increased by P100,000. At year-end, the companys net income and the
year-end balance in the capital account were, respectively:
a. P200,000 and P950,000 c. P600,000 and P750,000
b. P700,000 and P950,000 d. P700,000 and P850,000

11. A law firm began November with office supplies of P16,000. During the month, the
firm purchased supplies of P29,000. At November 30 supplies on hand total P21,000.
The adjusting entry at November 30 will result in supplies expense of
a. P21,000 b. P24,000 c. P29,000 d. P45,000

12. At the end of the first month of operations, Word Co.s bookkeeper prepared financial
statements which showed assets of P4,000,000 liabilities of P1,500,000 and net income
of P500,000. In preparing the statements, the bookkeeper overlooked the accrued
wages at month-end of P30,000.
The correct owners equity at month-end is
a. P2,970,000 b. P2,530,000 c. P2,470,000 d. P1,970,000

13. Before any year-end adjustments were made, the net income of Power Point Co. was
P4,000,000. However, the following adjustments were necessary: office supplies
used, P60,000; services performed for clients but not yet collected, P130,000; interest
 accrued on note payable, P30,000. After recording these adjustments, the net income
would be:
a. P3,780,000 b. P3,840,000 c. P4,040,000 d. P4,100,000

14. At December 31, 2002, the unadjusted trial balance shows office supplies of P60,000
and Office Supplies Expense of P101,000. The December 31, adjusting entry recorded
office supplies expense of P17,000. After the December adjusting entries have been
posted, what is the proper balance in the Office Supplies account on December 31,
2002?
a. P118,000 b. P84,000 c. P77,000 d. P43,000

15. Winword Co. recorded accrued salaries of P25,000 at December 31, 2001. During
2002, Winword paid salaries of P872,000. Unpaid salaries at December 31, 2002
amounted to P34,000. Winword prepares adjustments only at December 31, and also
reversing entries on January 1. The balance of the salaries expense account that would
appear in the post-closing trial balance at December 31, 2002 is
a. P0 b. P881,000 c. P872,000 d. P847,000

16. Before the month-end adjustments are made, the January 31, trial balance of Acad
Express contains revenues of P580,000 and expenses of P178,000. Adjustments are
necessary for the following items: (a) Depreciation for January, P48,000; (b) Portion
of fees collected in advance earned in January, P110,000; (c) Fees earned in January,
not yet billed to customers, P65,000; (d) Portion of prepaid rent applicable to January,
P90,000.
Net income of Acad Express in January is
a. P569,000 b. P439,000 c. P352,000 d. P259,000

17. Paintbrush Co. paid P72,000 to renew its only insurance policy for 3 years on March 1,
2002, the effective date of the policy. At March 31, 2002, Paintbrush unadjusted trial
balance showed a balance of P3,000 for prepaid insurance and P72,000 for insurance
expense. What amounts should be reported for prepaid insurance and insurance
expense in Paintbrushs financial statements for the three months ended March 31,
2002?
Prepaid Insurance Prepaid Insurance Insurance
Insurance Expense Expense
a. P72,000 P3,000 c. P72,000 P3,000
b. P70,000 P5,000 d. P73,000 P2,000

18. On September 1, 2001, Clipper Corporation issued a note payable to Federal Bank in
the amount of P450,000. The note had an interest rate of 12 percent and called for
three equal annual principal payments of P150,000. The first payment for interest and
principal was made on September 1, 2002. At December 31, 2002, Clipper should
record accrued interest payable of`
a. P11,000 b. P12,000 c. P16,500 d. P18,000

19. In November and December 2002, Bee Company, a newly organized newspaper
publisher, received P720,000 for 1,000 three-year subscriptions at P240 per year,
starting with the January 2, 2003, issue of the newspaper. How much should Bee
report in its 2002 income statement for subscription revenue?
a. P0 b. P120,000 c. P240,000 d. P720,000

20. The following errors were made in preparing a trial balance: the P135,000 balance of
Inventory was omitted; the P45,000 balance of Prepaid Insurance was listed as a credit;
and the P30,000 balance of Salaries Expense was listed as Utilities Expense. The debit
 and credit totals of the trial balance would differ by
a. P135,000 b. P180,000 c. P210,000 d. P225,000

21. The trial balance prepared at December 31, did not balance. Debit total was
P1,592,500 and credit total was P1,532,000. In determining the cause of the
difference, you discovered the following errors: a credit to Cash of P6,500 was not
posted; a P20,000 credit to be made to Sales account was credited to the Accounts
Receivable account instead; the wages payable account balance of P93,000 was listed
in the trial balance as P39,000. What is the correct trial balance total?
a. P1,592,500 b. P1,606,000 c. P1,612,500 d. P1,586,000

22. You are given the following closing entries of PASS NOW, INC.:
Entry 1 Interest Revenue 4,700
Accounts Payable 1,900
Capital Stock 10,000
Sales 45,000
Income Summary 61,600
Entry 2 Income Summary 48,700
Gain on Sale of Land 3,000
Cost of Goods Sold 32,000
Accounts Receivable 12,000
Operating Expense 4,200
Other Assets 3,500
Entry 3 Income Summary 12,900
Retained Earnings 12,900
The properly computed net income is -
a. P11,800 b. P8,800 c. _P12,900 d. P16,500

23. Columbus Co.s advertising expense account had a balance of P146,000 at December 31,
2003, before preparing the year-end adjusting entries relating to the following:
Included in the P146,000 is the P15,000 cost of printing catalogs for a sales
promotional campaign in January 2004.
Radio advertisements broadcast during December 2003 were billed to Columbus on
January 2, 2004. Columbus paid the P9,000 invoice on January 11, 2004.
After posting the adjusting entries at December 31, 2003, Columbus adjusted advertising
expense for year 2003 should be
a. P155,000 b. P140,000 c. P131,000 d. P122,000

24. The account balances for Villash Corp. as of December 31, 2003 follow:

Accounts payable - P100,000; Accounts receivable - P120,000; Building - P400,000;

Capital stock - P760,000; Cash - P60,000; Equipment - P160,000; Land - P50,000;
Notes payable - P280,000; Retained earnings - P100,000

In a trial balance prepared on December 31, 2003, the sum of the debit column is:
a. P860,000 b. P1,440,000 c. P790,000 d. P1,240,000

25. On November 1, 2003, Georgetown Co. paid P360,000 to renew its insurance policy
for three years. At December 31, 2003, Georgetowns adjusted trial balance showed
a balance of P9,000 for prepaid insurance and P441,000 for insurance expense.
What amounts should be reported for prepaid insurance and insurance expense in
Georgetowns December 31, 2003 financial statements?
a. P349,000 and P101,000 c. P330,000 and P120,000
b. P340,000 and P120,000 d. P340,000 and P110,000