MULTIPLE CHOICE QUESTIONS.

1. Pau Company showed Net Income of P2,500,000 for the year ended December 31, 2017.
On your year-end verification of the transactions of the company, you discovered the
following errors:
 P1,000,000 worth of merchandise was purchased in 2017 and included in the ending
inventory. However, the purchase was recorded only in 2018.
 A merchandise shipment valued at P1,500,000 was properly recorded as purchases at
year end. The merchandise was inadvertently omitted from the physical count, since it
has not arrived by December 31, 2017.
 Value added tax for the fourth quarter of 2017, amounting to P500,000 was included in
the sales account.
 Rental of P300,000 on an equipment, applicable for six months, was received on
November 1, 2017. The entire amount was reported as revenue upon receipt.
 Rent paid on building covering the period from July 1, 2017 to July 1, 2018 amounting to
P1,200,000, was paid and recorded as expense on July 1, 2017. The company did not
make any adjustment at the end of the year.
The correct net profit for 2017 should be ____________.
a. P2,400,000
b. P2,900,000
c. P3,000,000
d. P3,400,000

2. Pau Company showed Net Income of P2,500,000 for the year ended December 31, 2017.
On your year-end verification of the transactions of the company, you discovered the
following errors:
 P1,000,000 worth of merchandise was purchased in 2017 and included in the ending
inventory. However, the purchase was recorded only in 2018.
 A merchandise shipment valued at P1,500,000 was properly recorded as purchases at
year end. The merchandise was inadvertently omitted from the physical count, since it
has not arrived by December 31, 2017.
 Value added tax for the fourth quarter of 2017, amounting to P500,000 was included in
the sales account.
 Rental of P300,000 on an equipment, applicable for six months, was received on
November 1, 2017. The entire amount was reported as revenue upon receipt.
 Rent paid on building covering the period from July 1, 2017 to July 1, 2018 amounting to
P1,200,000, was paid and recorded as expense on July 1, 2017. The company did not
make any adjustment at the end of the year.
What is the net effect of the foregoing errors on the total assets at December 31, 2017?
a. P600,000 understated
b. P1,100,000 understated
c. P1,500,000 understated
d. P2,100,000 understated
3. Pau Company showed Net Income of P2,500,000 for the year ended December 31, 2017.
On your year-end verification of the transactions of the company, you discovered the
following errors:
 P1,000,000 worth of merchandise was purchased in 2017 and included in the ending
inventory. However, the purchase was recorded only in 2018.
 A merchandise shipment valued at P1,500,000 was properly recorded as purchases at
year end. The merchandise was inadvertently omitted from the physical count, since it
has not arrived by December 31, 2017.
  Value added tax for the fourth quarter of 2017, amounting to P500,000 was included in
the sales account.
 Rental of P300,000 on an equipment, applicable for six months, was received on
November 1, 2017. The entire amount was reported as revenue upon receipt.
 Rent paid on building covering the period from July 1, 2017 to July 1, 2018 amounting to
P1,200,000, was paid and recorded as expense on July 1, 2017. The company did not
make any adjustment at the end of the year.
What is the total understatement of the total liabilities at December 31, 2017?
a. P3,200,000
b. P1,700,000
c. P1,500,000
d. P1,200,000

4. On January 1, 2016, Pau Corporation acquired a machine at a cost of P200,000. It was to

be depreciated on the straight-line method over a five-year period with no residual value.
Because of a bookkeeping error, no depreciation was recorded in Pau’s 2016 financial
report. The oversight was discovered during the preparation of Pau Corporation’s 2017
financial statements. Depreciation expenses on this machine in 2017 should be _______.
a. P0.00
b. P40,000
c. P50,000
d. P80,000

5. Upon inspection of the records of Camil Company, the following facts discovered for the
year ended December 31, 2017:
 A fire insurance premium of P40,000 was paid and charged as insurance expenses in
2017. The fire insurance policy covers one year from April 1, 2017.
 Inventory on January 1, 2017 was understated by P80,000.
 Inventory on December 31, 2017 was understated by P120,000.
 Expenses of P55,000 incurred during December were recorded when paid in January
2018.
 On December 5, 2017, Camil Company credited to sales a cash advance of P100,000
received from a customer for goods delivered in January 2018. The company’s gross
profit on sales is 40%.
 The profit of Camil Company for the year ended December 31, 2017, before any
adjustment for the above information, is P1,550,000.
What is Camil Company’s corrected profit for the year ended December 31, 2017?
a. P1,365,000
b. P1,425,000
c. P1,445,000
d. P1,505,000

6. Mari Company has correctly determined the following information related to operations for
2017:
Revenue from sales P 7,000,000
Expenses 4,000,000
 --------------------------
Income before Income Taxes P 3,000,000
==============
In reviewing the records, you discovered the following items:
 During 2017, the company discovered an error in depreciation in 2016, The correction of
this error, which has not been recorded, will result in an increase in depreciation for 2016
of P200,000.
 During 2017, the company sustained a loss of P400,000 because of flood, which
destroyed its inventory. The company charged retained earnings and credited inventory
for P400,000.
How much is the correct profit for the year 2017?
a. P2,400,000
b. P2,600,000
c. P3,000,000
d. P3,400,000

7. Accrued salaries payable of P70,000 were not recorded at December 31, 2016. Prepaid
insurance of P30,000 at December 31, 2017 were erroneously treated as expense. Neither
of theses errors was discovered nor corrected. The effect of these two errors would cause
____________.
a. 2017 profit to be understated P100,000 and December 31, 2017 retained earnings
to be understated P30,000.
b. 2016 profit and December 31, 2016 retained earnings to be understated P70,000 each.
c. 2016 profit to be overstated P40,000 and 2017 profit to be understated P30,000.
d. 2017 profit and December 31, 2017 retained earnings to be understated P30,000 each.

8. Samsung Company purchased pressing machinery that cost P54,000 on January 4, 2015.
The entire cost was recorded as an expense. The machinery has a nine-year life and a
P50,000 depreciable cost. The error was discovered on December 20, 2017.
Samsung Company’s statement of comprehensive income for the year ended December 31,
2017 should show depreciation expenses in the amount of __________.
a. P48,400
b. P32,700
c. P16,800
d. P5,600

9. Samsung Company purchased pressing machinery that cost P54,000 on January 4, 2015.
The entire cost was recorded as an expense. The machinery has a nine-year life and a
P50,000 depreciable cost. The error was discovered on December 20, 2017.Before the
correction was made, the January 1, 2017, retained earnings was understated by _____.
a. P54,000
b. P48,400
c. P42,800
 d. P37,200

10. A company using periodic inventory system neglected to record a purchase of merchandise
on account at year-end. This merchandise was omitted from the year end physical count.
How will these errors affect assets, liabilities, and shareholders’ equity at year end and net
earnings for the year/
a. No effect; understate; overstate; overstated
b. No effect; overstated; understated; understate
c. Understate; understate; no effect; no effect
d. Understate; no effect; understate; understate.

11. Ayong Company is a calendar year corporation. Its financial statements for the years 2017
and 2016 contained errors as follows:
2017 2016
Ending inventory P300,000 overstated P400,000 understated
Depreciation expense 500,000 understated 200,000 overstated
Rent income ? 350,000 overstated
Unearned rent income 350,000 understated
Assume that no correcting entries were made at December 31, 2016. By how much will
2017 profit be overstated because of the foregoing errors?
a. P850,000
b. P800,000
c. P750,000
d. P250,000

12. Ayong Company is a calendar year corporation. Its financial statements for the years 2017
and 2016 contained errors as follows:
2017 2016
Ending inventory P300,000 overstated P400,000 understated
Depreciation expense 500,000 understated 200,000 overstated
Rent income ? 350,000 overstated
Unearned rent income 350,000 understated
Assume that no correcting entries were made in both 2016 and 2017. For how much was the
retained earnings understated or overstated as of December 31, 2017?
a. P600,000 overstated
b. P800,000 overstated
c. P1,050,000 overstated
d. P200,000 understated.
13. On December 31, 2017, the Five Six Financing Company assesses whether there is any
objective evidence that its maturing loans receivables are impaired as of that date.
From Nalugi Company : Principal P4,000,000 and accrued interest receivable of P480,000,
based on annual interest rate of 12%, original due date December 31, 2017. It has come to
your attention that Nalugi Company, as of December 31, is undergoing bankruptcy
proceedings and has negotiated for restructuring of its loan with Five Six Financing
Company as follows: P1,120,000 annual payment with first payment due on December 31,
2018. No further interest will be collected during the extended four year term. What is the
impairment loss to be recognized on December 31, 2017 on the receivable of Nalugi
Company is __________.
a. Zero
b. P598,224
c. P962,700
d. P1,078,224

14. Presented below are unaudited balances of selected accounts of Zeus Rich Company as of
December 31, 2016:
Unadjusted Balances 12/31/16
Selected Accounts Debit Credit
Cash P500,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 8,000
Net sales 6,750,000
Additional information are as follows:
 Goods amounting to P50,000 were invoiced for the accounts of Barriotic Store
recorded on January 2, 2017 with terms of net, 60 days, FOB shipping point. The
goods were shipped to Barriotic on December 30, 2016.
 The bank returned on December 29, 2016, a customer’s check for P15,000 marked
“No Sufficient Funds”, but no entry was made.
 Zeus Rich estimates that Allowance for uncollectible accounts should be one and
one-half percent (1&1/2%) of the accounts receivable balance as of year end. No
uncollectible accounts expense has yet been provided for 2016.
What is the adjusted balance of Accounts Receivable on December 31, 2016?
a. P1,365,000
b. P1,350,000
c. P1,335,000
d. P1,315,000

15. Presented below are unaudited balances of selected accounts of Zeus Rich Company as of
December 31, 2016:
Unadjusted Balances 12/31/16
Selected Accounts Debit Credit
Cash P500,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 8,000
Net sales 6,750,000
Additional information are as follows:
  Goods amounting to P50,000 were invoiced for the accounts of Barriotic Store
recorded on January 2, 2017 with terms of net, 60 days, FOB shipping point. The
goods were shipped to Barriotic on December 30, 2016.
 The bank returned on December 29, 2016, a customer’s check for P15,000 marked
“No Sufficient Funds”, but no entry was made.
 Zeus Rich estimates that Allowance for uncollectible accounts should be one and
one-half percent (1&1/2%) of the accounts receivable balance as of year end. No
uncollectible accounts expense has yet been provided for 2016.
What is the adjusted balance of Allowance for Uncollectible accounts on December 31, 2016?
a. P20,475
b. P20,250
c. P20,025
d. P19,725

16. Presented below are unaudited balances of selected accounts of Zeus Rich Company as of
December 31, 2016:
Unadjusted Balances 12/31/16
Selected Accounts Debit Credit
Cash P500,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 8,000
Net sales 6,750,000
Additional information are as follows:
 Goods amounting to P50,000 were invoiced for the accounts of Barriotic Store
recorded on January 2, 2017 with terms of net, 60 days, FOB shipping point. The
goods were shipped to Barriotic on December 30, 2016.
 The bank returned on December 29, 2016, a customer’s check for P15,000 marked
“No Sufficient Funds”, but no entry was made.
 Zeus Rich estimates that Allowance for uncollectible accounts should be one and
one-half percent (1&1/2%) of the accounts receivable balance as of year end. No
uncollectible accounts expense has yet been provided for 2016.
What is the adjusted amount of 2016 Uncollectible Accounts Expense?
a. P12,475
b. P28,025
c. P28,250
d. P28,475

17. You were able to gather the following from the December 31, 2017 trial balance of Mari
Corporation in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security bank current account No. 1 1,080,000
Security bank current account No. 2 ( 80,000)
PNB savings account 1,200,000
PNB Time deposit 500,000

Cash on hand includes the following items:

  Customer’s check for P10,000 returned by bank on December 26, 2017 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8,
2018.
 Customer’s check for P20,000 dated January 2, 2018, received on December 29, 2017.
 Postal money orders received from customers, P30,000.
The petty cash fund consisted of the following items as of December 31, 2017.
Currency and coins P 2,000
Employees’ vale 1,600
Currency in an envelope marked “collections
for charity” with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mari Corporation, payable
to the petty cashier 4,100

Included among the checks drawn by Mari Corporation against BPI current account and
recorded in December 2017 are the following:
 Checks written and dated December 29, 2017 and delivered to payee on January
2, 2018, P80,000.
 Check written on December 27, 2017, dated January 2, 2018, delivered to payee
on December 29 , 2017, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance. These checks were still outstanding at December 31, 2017.

The savings account deposit in PNB has been set aside by the board of directors for acquisition
of new equipment. The account is expected to be distributed in the next 3 months after the end
of the reporting period.
Determine the adjusted balance of Cash on hand.
a. P410,000
b. P470,000
c. P440,000
d. P530,000

Unadjusted cash on hand P 500,000

NSF check ( 40,000)
Post dated check received ( 20,000)
--------------------
Adjusted Cash on hand P 440,000
============

18. You were able to gather the following from the December 31, 2017 trial balance of Mari
Corporation in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security bank current account No. 1 1,080,000
Security bank current account No. 2 ( 80,000)
PNB savings account 1,200,000
PNB Time deposit 500,000
 Cash on hand includes the following items:
 Customer’s check for P10,000 returned by bank on December 26, 2017 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 8,
2018.
 Customer’s check for P20,000 dated January 2, 2018, received on December 29, 2017.
 Postal money orders received from customers, P30,000.
The petty cash fund consisted of the following items as of December 31, 2017.
Currency and coins P 2,000
Employees’ vale 1,600
Currency in an envelope marked “collections
for charity” with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mari Corporation, payable
to the petty cashier 4,000

Included among the checks drawn by Mari Corporation against BPI current account and
recorded in December 2017 are the following:
 Checks written and dated December 29, 2017 and delivered to payee on January
2, 2018, P80,000.
 Check written on December 27, 2017, dated January 2, 2018, delivered to payee
on December 29 , 2017, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in
excess of the deposit balance. These checks were still outstanding at December 31, 2017.

The savings account deposit in PNB has been set aside by the board of directors for acquisition
of new equipment. The account is expected to be distributed in the next 3 months after the end
of the reporting period. Compute the adjusted balance of Petty cash fund that should be shown
in the statement of financial position as of December 31, 2017.
a. P6,000
b. P4,900
c. P2,000
d. P7,200
Currency and coins P 2,000
Check drawn by Mari Corporation,
payable to the petty cashier 4,000
-----------------
P 6,000
===========
19. You were able to gather the following from the December 31, 2017 trial balance of Mari
Corporation in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BPI current account 1,000,000
Security bank current account No. 1 1,080,000
Security bank current account No. 2 ( 80,000)
PNB savings account 1,200,000
PNB Time deposit 500,000

Cash on hand includes the following items:

 Customer’s check for P10,000 returned by bank on December 26, 2017 due to insufficient
fund but subsequently redeposited and cleared by the bank on January 8, 2018.
 Customer’s check for P20,000 dated January 2, 2018, received on December 29, 2017.
 Postal money orders received from customers, P30,000.
The petty cash fund consisted of the following items as of December 31, 2017.
Currency and coins P 2,000
Employees’ vale 1,600
Currency in an envelope marked “collections
for charity” with names attached 1,200
Unreplenished petty cash vouchers 1,300
Check drawn by Mari Corporation, payable
to the petty cashier 4,000

Included among the checks drawn by Mari Corporation against BPI current account and recorded
in December 2017 are the following:
 Checks written and dated December 29, 2017 and delivered to payee on January
2, 2018, P80,000.
 Check written on December 27, 2017, dated January 2, 2018, delivered to payee
on December 29 , 2017, P40,000.

The credit balance in the Security Bank current account No. 2 represents checks drawn in excess
of the deposit balance. These checks were still outstanding at December 31, 2017.

The savings account deposit in PNB has been set aside by the board of directors for acquisition
of new equipment. The account is expected to be distributed in the next 3 months after the end
of the reporting period. Compute the adjusted balance of BPI Current Account at December 31,
2017.
a. P1,120,000
b. P1,080,000
c. P1,040,000
d. P1,000,000

BPI current account (P1,080,000-P80,000) P 1,000,000

Unreleased check 80,000
Post dated check delivered 40,000
------------------------
Adjusted BPI current account P 1,120,000
==============
20. The Accountant for Pau Company assembled the following:
June 30 July 31
Cash account balance P158,220 P397,450
Bank statement balance 1,070,820 1,378,170
Deposits in transit 82,010 128,800
Outstanding checks 277,180 301,120
Bank service charge 720 600
Customer’s check deposited July 10 returned by
bank July 16 marked NSF, and redeposited
immediately; no entry made on books for return
and deposit 82,500
Collection by bank of company’s notes
receivable 718,150 809,000
The bank statements and the company’s cash records show these totals:
Disbursements in July bank statement P 2,183,730
Cash receipts in July per Pau Company’s books 2,364,520
How much is the adjusted cash balance as of June 30?
a. P875,650
b. P1,070,820
c. P158,220
d. (P36,950)

21. The Accountant for Pau Company assembled the following:

June 30 July 31
Cash account balance P158,220 P397,450
Bank statement balance 1,070,820 1,378,170
Deposits in transit 82,010 128,800
Outstanding checks 277,180 301,120
Bank service charge 720 600
Customer’s check deposited July 10 returned
by bank July 16 marked NSF, and redeposited
immediately; no entry made on books for return
and deposit 82,500
 Collection by bank of company’s notes
receivable 718,150 809,000
The bank statements and the company’s cash records show these totals:
Disbursements in July bank statement P 2,183,730
Cash receipts in July per Pau Company’s books 2,364,520
How much is the adjusted bank receipts for July?
a. P2,537,870
b. P2,328,810
c. P2,148,020
d. P2,455,370

22. The Accountant for Pau Company assembled the following:

June 30 July 31
Cash account balance P158,220 P397,450
Bank statement balance 1,070,820 1,378,170
Deposits in transit 82,010 128,800
Outstanding checks 277,180 301,120
Bank service charge 720 600
Customer’s check deposited July 10 returned
by bank July 16 marked NSF, and redeposited
immediately; no entry made on books for return
and deposit 82,500
Collection by bank of company’s notes
receivable 718,150 809,000
The bank statements and the company’s cash records show these totals:
Disbursements in July bank statement P 2,183,730
Cash receipts in July per Pau Company’s books 2,364,520
How much is the adjusted book disbursements for July?
a. P2,066,730
b. P1,817,820
c. P2,125,170
d. P2,207,670