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BASIC ACCOUNTING, PART 1

PRELIM DEPARTMENTAL EXAM REVIEWER

THEORIES

For numbers 1 to 5, identify each of the following accounts as either:

A. Asset account D. Revenue account


B. Liability account E. Expense account
C. Owner’s Equity account

_____1. Unearned Rent


_____2. Prepaid Insurance
_____3. Fees Earned
_____4. Prepaid Rent Expense
_____5. Drawings

For numbers 6 to 10, use the following choices:


A. Both statements are true
B. Both statements are false
C. Only statement I is true
D. Only statement II is true

_____6. I – Posting a transaction twice will cause the trial balance totals to be equal
II – Journalizing a transaction with transposition error for both the debit and credit of P69 instead
of P96 will cause the trial balance to be out of balance

_____7. I – When an owner invests assets in the business, the capital account increases due to revenue
being earned
II – Debits will increase Unearned Revenues and Revenues

_____8. I - The general journal is also called the book of original entry
II - The special journal is also called the book of final entry

_____9. I - Accrual basis recognizes income when it is earned regardless of collection


II - Cash basis recognizes expense upon payment regardless of when it is incurred

_____10. I - Financing activities include borrowings from a bank for the business
II - Investing activities include personal investment by the owner of a business
_____11. Which of the following group of accounts increase with a credit
a. Assets, capital, revenue c. Capital, revenue, expenses
b. Liabilities, capital, revenue d. None of these

_____12. Acquisition of furniture and fixtures in cash would


a. Have zero effect on total assets c. Increase one asset and decrease
b. Have no effect in the equity side another asset
d. All are correct

_____13. The financial condition of the business as of a certain date is called


a. Income Statement d. Statement of Changes in Owner’s
b. Balance Sheet Equity
c. Cash Flow Statement

_____14. Payment of P100,000 current liability will


a. Increase asset and increase liability c. Increase asset and increase expense
b. Decrease asset and decrease liability d. Decrease asset and decrease expense

_____15. Depositing the cash collection in bank will


a. Increase net asset c. Decrease net asset
b. Decrease income d. Have no effect

_____16. Which of the following statements about users of accounting information is incorrect?
a. Management is an internal user.
b. Taxing authorities are external users.
c. Present creditors are external users.
d. Regulatory authorities are internal users.

_____17. The three types of business entities are:


a. proprietorships, small businesses, and partnerships
b. proprietorships, partnerships, and corporations
c. proprietorships, partnerships, and large businesses
d. financial, manufacturing, and service companies

_____18. Performing services on account will have the following effects on the components of the basic accounting
equation:
a. increase assets and decrease owner’s equity.
b. increase assets and increase owner’s equity.
c. increase assets and increase liabilities.
d. increase liabilities and increase owner’s equity
_____19. Which of the following events is not recorded in the accounting records?
a. Equipment is purchased on account.
b. An employee is terminated.
c. A cash investment is made into the business.
d. The owner withdraws cash for personal use.

_____20. The income statement reports


a. Financial resources as of a specific date
b. Financial resources for a specific period
c. Results of operations as of a specific date
d. Results of operations for a specific period

_____21. Profit is the difference between


a. Assets and liabilities
b. The incoming cash and the outgoing cash
c. The assets purchased with cash contributed by the owner and the cash spent to operate the business
d. The amounts received from customers for goods or services and the amounts paid for the inputs used to
provide the goods or services

_____22. A branch of accounting that is concerned primarily with providing information to internal users
a. Tax Accounting c. Financial Accounting
b. Management Accounting d. None of these

_____23. Which of the following best describes accounting?


a. Records economic data but does not communicate the data to users according to any specific rules
b. Is an information system that provides reports to users regarding economic activities and conditioN of a
business
c. Is of no use by individuals outside the business
d. Is used only for filling out tax returns and for financial statements for various types of governmental
reporting requirements

_____24. All of the following are general-purpose financial statements except:


a. Balance sheet c. Statement of owner’s equity
b. Income statement d. Cash budget

_____25. Cash investments made by the owner to the business are reported on the statement of cash flows in the:
a. Financing activities section c. Operating activities section
b. Investing activities section d. Supplemental statement
_____26. Accounts
a. Do not reflect money amounts
b. Are not used by entities that manufacture products
c. Are records of increases and decreases in individual financial statement items
d. Are only used by large entities with many transactions

_____27. Revenue should be recognized when


a. Cash is received c. The customer places an order
b. The service is performed d. The customer charges an order

_____28. How does the purchase of equipment by signing a note affect the accounting equation?
a. Assets increase; assets decrease
b. Assets increase; liabilities decrease
c. Assets increase; liabilities increase
d. Assets increase; owner’s equity increases

_____29. Financial information that is presented after a decision is made is considered of no value
a. Timeliness c. Neutrality
b. Verifiability d. None of these

_____30. Philippine Accounting Standards 1 (PAS 1) is


a. Statement of Financial Position c. Presentation of Financial Statements
b. Accounting for Sole Proprietorship d. None of these

PROBLEMS
_____1. The assets and liabilities of the company are P175,000 and P40,000. Owner’s equity should be:
a. P215,000 c. P175,000
b. P135,000 d. P40,000

_____2. If total liabilities decreased by P55,000 during a period of time and owner’s equity increased by P60,000
during the same period, the amount and direction (increase or decrease) of the period’s change in total assets s:
a. P115,000 increase c. P5,000 decrease
b. P5,000 increase d. P115,000 decrease
_____3. A summary of selected ledger accounts appear below for Alberto’s Plumbing Services for the current
calendar year end.
ALBERTO, CAPITAL ALBERTO, DRAWING INCOME SUMMARY

12/31 8,500 1/1 6,500 12/31 3,500 12/31 8,500 12/31 15,000 12/31 33,500

12/31 18,500 1/1 5,000 12/31 18,500

Net income for the period is


a. 16,500 c. 18,500
b. 33,500 d. 15,000

_____4. After all the account balances have been extended to the Income Statement columns of the worksheet,
the totals of the debit and credit columns are P77,500 and P85,300, respectively. What is the amount of the net
income or net loss for the period?
a. P7,800 Net Income c. P85,300 Net Income
b. P7,800 Net Loss d. P77,500 Net Loss

_____5. Aging of a company’s accounts receivable indicates the estimate of uncollectible receivables totals
P2,000. If allowance for Doubtful Accounts has a P200 credit balance, the adjustment to record the bad debts
expense for the period will require a
a. Debit to bad debts expense for P2,200
b. Debit to bad debts expense for P2,000
c. Debit to bad debts expense for P1,800
d. Credit to allowance for doubtful accounts for P3,000

_____6. On June 8, Alton Co. issued an P80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal
year of Seller Co. ends June 30. Using the 360-day year in your calculations, what is the amount of interest
revenue recognized by Seller in the following year?
a. P1,200.00 c. P1,306.67
b. P1,208.89 d. P1,600.00

_____7. The current period statement of cash flows includes the following:
Cash balance at the beginning of the period P310,000
Cash provided by operating activities P185,000
Cash used in investing activities P43,000
Cash used in financing activities P97,000
The cash balance at the end of the period is
a. P45,000 c. P355,000
b. P635,000 d. P125,000
_____8. The accounting records of Compunet Inc. shows the following:

How much is the Owner’s Equity?


a. P50,000 c. P45,000
b. P55,000 d. P60,000

_____9. At the beginning of the year, the assets of Solis Services were P360,000 and its owner’s equity was
P200,000. During the year, the assets increased by P120,000 and liabilities increased by P20,000. What was the
Owner’s Equity at the end of the year?
a. P320,000 c. P300,000
b. P160,000 d. P200,000

_____10. Total Liabilities is P825,000, which is 66% of total assets. How much is the equity?
a. P425,000 c. P280,500
b. P1,250,000 d. P544,50

Given the following: Beginning capital P 70,000


Ending capital 48,000
Owner’s withdrawals 21,000

_____11. Calculate net income (net loss)


a. P2,000 c. P1,000
b. (P2,000) d. (P1,000)

_____12. Krammer has liabilities equal to one fourth of the total assets. Krammer’s owner equity is P30,000. Using
the accounting equation, what is the amount of liabilities for Krammer?
a. P10,000 c. P20,000
b. P15,000 d. P25,000

_____13. Rose Soriano Company received cash of P13,500 on September 1, 2018 for one year’s rent in advance
and recorded the transaction with a credit to Unearned Rent. The December 31, 2013 adjusting entry is
a. Debit Rent Revenue and credit Unearned Revenue P4,500
b. Debit Rent Revenue and credit Unearned Rent P9,000
c. Debit Unearned Rent and credit Rent Revenue P4,500
d. Debit Cash and credit Unearned Rent P9,000
_____14. Pedro Company purchased equipment on November 1, 2018 and gave a 3 month, 9% notes with face
value of P20,000. The December 31, 2018 adjusting entry is:
a. Debit interest expense and credit interest payable P1,800
b. Debit interest expense and credit interest payable P450
c. Debit interest expense and credit cash P300
d. Debit interest expense and credit interest payable P300

_____15. Before any year-end adjustments, the profit of Heart Co. was P1,870,000. However the following
adjustment are necessary: office supplies use, P30,000; services performed for clients but not yet collected,
P65,000; interest accrued on notes payable, P15,000. After recording these adjustment, the profit would be
a. P 1,890,000 c. P 2,020,000
b. P 1,920,000 d. P 2,050,000

Bases on this trial balance, answer questions no. 16-20.

The trial balance of Gerbo Company appears as follows:

GERBO COMPANY

Trial Balance

December 31, 2018

DEBIT (PHP) CREDIT (PHP)

Cash 20,000

Accounts Receivable 50,000

Prepaid Insurance 20,000

Supplies 15,000

Office Equipment 40,000

Accumulated Depreciation 10,000

Accounts Payable 30,000

Gerbo, Capital 85,000

Service Revenue Earned 60,000


Salaries Expense 20,000

Rent Expense 20,000

TOTAL 185,000 185,000

_____16. If on December 31, 2018 supplies on hand were P1,000, the adjusting entry would contain a
a. Debit to supplies expense for P1,000
b. Credit to supplies expense for P1,000
c. Debit to supplies expense for P14,000
d. Credit to supplies expense for P14,000

_____17. If on December 31, 2018 the trial balance showed insurance still unexpired amounting to P8,000, the
adjusting entry would contain
a. Debit to prepaid insurance for P12,000
b. Credit to prepaid insurance for P12,000
c. Debit to prepaid insurance for P8,000
d. Credit to prepaid insurance for P8,000

_____18. If the estimated depreciation for office equipment were P10,000, the adjusting entry would contain
a. Credit to accumulated depreciation for P10,000
b. Credit to depreciation expense for P10,000
c. Debit to accumulated depreciation for P10,000
d. Credit to office equipment for P10,000

_____19. If as of December 31, the rent of P5,500 for December had not been recorded or paid the adjusting entry
would include
a. Credit to accumulated rent for P5,500
b. Debit to rent payable for P5,500
c. Debit to rent expense for 5,500
d. Credit to cash for P5,500

_____20. If services totaling P10,000 had been performed but not billed, the adjusting entry to record this would
include
a. Debit to service revenue earned for P10,000
b. Credit to unearned service revenue for P10,000
c. Credit to service revenue earned for P70,000
d. Credit to service revenue earned for P10,000
Suggested Answers:

Theories
1. B
2. A
3. D
4. A
5. C
6. C
7. B
8. C
9. A
10. C
11. B
12. D
13. B
14. B
15. D
16. D
17. B
18. B
19. B
20. D
21. D
22. B
23. B
24. D
25. A
26. C
27. B
28. C
29. A
30. C
Problems
1. B
2. B
3. C
4. A
5. C
6. C
7. C
8. A
9. C
10. A
11. D
12. A
13. C
Unearned Rent P4,500
Rent Revenue P4,500

Total Unearned Rent for 1 year P13,500


Time lapsed: (September to December) 4/12
Total earned rent for 4 months P 4,500

14. D
Interest Expense P 300
Interest Payable P 300

Total interest expense (P20,000 x 9%) P1,800


Time lapsed: (November to December) 2/12
Total accrued interest expense P 300

15. A
Adjustments:
Supplies Expense 30,000
Supplies 30,000

Accounts Receivable 65,000


Service Revenue 65,000

Interest Expense 15,000


Interest Payable 15,000
Unadjusted profit: P 1, 870,000
Adjustments:
Service Revenue 65,000
Supplies expense (30,000)
Interest expense (15,000)
Adjusted profit P 1, 890,000

16. C
Supplies expense 14,000
Office supplies 14,000

Unadjusted office supplies P 15,000


Supplies on hand, end (1,000)
Supplies used for the period P 14,000

17. B
Insurance expense 12,000
Prepaid insurance 12,000

Unadjusted prepaid insurance P 20,000


Unexpired insurance (8,000)
Expired insurance P 12,000

18. A
Depreciation expense 10,000
Accumulated depreciation 10,000

19. C
Rent expense 5,500
Rent payable 5,500
20. D
Accounts receivable 10,000
Service revenue earned 10,000