BASIC ACCOUNTING (QUESTIONNAIRE)

EASY ROUND
1. During year 1, Brad Co. issued 5,000 shares of P100 par convertible preferred stock for P110 per share.
One share of preferred stock can be converted into three shares of Brad’s P25 par common stock at
the option of the preferred shareholder. On December 31, year 3, when the market value of the
common stock was P40 per share, all of the preferred stock was converted. What amount should Brad
credit to Common Stock and to Additional Paid-in Capital—Common Stock as a result of the
conversion?

Common stock ______________

Additional paid-in capital ______________
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2. Which capital maintenance concept is applied to currently reported net income, and which is applied
to comprehensive income?
Currently reported net income Comprehensive income
a. Financial capital Physical capital
b. Physical capital Physical capital
c. Financial capital Financial capital
d. Physical capital Financial capital
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3. A company declared a cash dividend on its common stock on December 15, year 1, payable on
January 12, year 2. How would this dividend affect stockholders’ equity on the following dates?

December 15, Year 1 December 31, Year 1 January 12, Year 2

a. Decrease No effect Decrease
b. Decrease No effect No effect
c. No effect Decrease No effect
d. No effect No effect Decrease

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4. On April 30, year 1, Algee, Belger, and Ceda formed a partnership by combining their separate business
proprietorships. Algee contributed cash of P50,000. Belger contributed property with a P36,000 carrying
amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the
P35,000 mortgage attached to the property. Ceda contributed equipment with a P30,000 carrying
amount, a P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that profits
and losses are to be shared equally but is silent regarding capital contributions. Which
Partner or partners has the largest April 30, year 1 capital account balance? _____________
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5. Partnership capital and drawing accounts are similar to the corporate
a. Paid-in capital, retained earnings, and dividend accounts.
b. Retained earnings account.
c. Paid-in capital and retained earnings accounts.
d. Preferred and common stock accounts.
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AVERAGE ROUND

1. Ute Co. had the following capital structure during year 1 and year 2:
Preferred stock, P10 par, 4% cumulative, 25,000 shares issued and outstanding P 250,000
Common stock, P5 par, 200,000 shares issued and outstanding 1,000,000

Ute reported net income of P500,000 for the year ended December 31, year 2. Ute paid no preferred
dividends during year 1 and paid P16,000 in preferred dividends during year 2. In its December 31, year 2
income statement, what amount should Ute report as basic earnings per share? ___________
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2. Fox, Greg, and Howe are partners with average capital balances during year 1 of P120,000, P60,000,
and P40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of P30,000 to Fox and P20,000 to Howe, the residual profit or loss is divided equally. In year 1 the
partnership sustained a P33,000 loss before interest and salaries to partners. By what amount should
Fox’s capital account change? State the amount and whether it is increase or decrease. ___________
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3. On December 1, year 1, shares of authorized common stock were issued on a subscription basis at a
price in excess of par value. A total of 20% of the subscription price of each share was collected as a down
payment on December 1, year 1, with the remaining 80% of the subscription price of each share due in
year 2. Collectability was reasonably assured. At December 31, year 1, the stockholders’ equity section of
the balance sheet would report additional paid-in capital for the excess of the subscription price over the
par value of the shares of common stock subscribed and

a. Common stock issued for 20% of the par value of the shares of common stock subscribed.
b. Common stock issued for the par value of the shares of common stock subscribed.
c. Common stock subscribed for 80% of the par value of the shares of common stock subscribed.
d. Common stock subscribed for the par value of the shares of common stock subscribed.
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4. Jay & Kay partnership’s balance sheet at December 31, year 1, reported the following:
Total assets P100,000
Total liabilities 20,000
Jay, capital 40,000
Kay, capital 40,000
On January 2, year 2, Jay and Kay dissolved their partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the fair value of the net assets was P12,000 more
than the carrying amount on the partnership’s books, of which P7,000 was assigned to tangible assets and
P5,000 was assigned to goodwill. Jay and Kay were each issued 5,000 shares of the corporation’s P1 par
value common stock. Immediately following incorporation, additional paid-in capital in excess of par
should be credited for ____________
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5. How should a first-time adopter of IFRS recognize the adjustments required to present its opening IFRS
statement of financial position?
a. All of the adjustments should be recognized in profit or loss.
b. Adjustments that are capital in nature should be recognized in retained earnings and adjustments that
are revenue in nature should be recognized in profit or loss.
c. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be
recognized in retained earnings.
d. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in another
category of equity.
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DIFFICULT:
1. In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1,
respectively. The bonus method was used to record Colter’s admittance as a new partner. What ratio
would be used to allocate, to Adel and Brick, the excess of Colter’s contribution over the amount credited
to Colter’s capital account?
a. Adel and Brick’s new relative capital ratio.
b. Adel and Brick’s new relative profit and loss ratio.
c. Adel and Brick’s old capital ratio.
d. Adel and Brick’s old profit and loss ratio.
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2. Statement 1 The trial balance is a list of all accounts with their respective debit or credit
balances. The trial balance is also a control device that helps maximize accounting errors.
Statement 2 Withdrawals are reductions of owner’s equity but are not expenses of the
business entity. A withdrawal is a personal transaction of the owner that is exactly the same of an
investment.
Statement 3 The report format of the balance sheet presentation lists the assets on the left
and the liabilities and owner’s equity on the right
Statement 4 Posting means transferring the amounts from the appropriate accounts in the
ledger to the journal
Statement 5 If the accounting period ends on a date that does not coincide with the scheduled
cash payment date, an adjusting entry is needed to reflect the expense incurred since the first
payment.
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3. Under IFRS, changes in accounting policies are

a. Permitted if the change will result in a more reliable and more relevant presentation of the financial
statements.
b. Permitted if the entity encounters new transactions, events, or conditions that are substantively
different from existing or previous transactions.
c. Required for material transactions, if the entity had previously accounted for similar, though
immaterial, transactions under an unacceptable accounting method.
d. Required if an alternate accounting policy gives rise to a material change in assets, liabilities, or the
current year net income
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4. Which of the following is/are asset/s?
1. Cash
2. Unearned Service Revenue
3. Accrued Expense
4. Advances to Suppliers
5. Advances from Employees
6. Deferred Income
7. Due to Partners
8. Due from Employees
9. Accrued Interest Income
10. Customer’s Deposit

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5. The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits
before the bonus. Remaining profits and losses are divided between Flat and Iron in the ratio
of 2:3, respectively. Which partner has a greater advantage when the partnership has a profit or
when it has a loss?
Profit Loss
a. Flat Iron
b. Flat Flat
c. Iron Flat
d. Iron Iron
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CLINCHER:
1. Compared to the accrual basis of accounting, the cash basis of accounting understates income by the
net decrease during the accounting period of
Accounts receivable Accrued expenses
a. Yes Yes
b. Yes No
c. No No
d. No Yes
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2. Under IFRS, which of the following is the first step within the hierarchy of guidance to which
management refers, and whose applicability it considers, when selecting accounting policies?
a. Consider the most recent pronouncements of other standard-setting bodies to the extent they do not
conflict with the IFRS or the IASB Framework.
b. Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition.
c. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the IASB
Framework.
d. Apply the requirements in IFRS dealing with similar and related issues.

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3. Which of the following is not one of the criteria for revenue recognition for sales of goods under IFRS?
a. The significant risks and rewards of ownership of goods are transferred.
b. Payment has been received.
c. The entity does not retain either a continuing managerial involvement or control over the goods.
d. The costs incurred can be measured reliably

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4. Which of the following statements regarding interest methods of allocations is not true?
a. The term “interest methods of allocation” refers both to the convention for periodic reporting and
to the several approaches to dealing with changes in estimated future cash flows.
b. Interest methods of allocation are reporting conventions that use present value techniques in the
absence of a fresh-start measurement to compute changes in the carrying amount of an asset or
liability from one period to the next.
c. Interest methods of allocation are grounded in the notion of current cost.
d. Holding gains and losses are generally excluded from allocation systems

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5. Jersey, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Jersey
sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale.
Collections received for service contracts should be recorded as an increase in a
a. Deferred revenue account.
b. Sales contracts receivable valuation account.
c. Stockholders’ valuation account.
d. Service revenue account.