BSA 1101- FUNDAMENTALS OF ACCOUNTING 1 AND 2

PRELIM DEPARTMENTAL EXAM REVIEWER

MULTIPLE CHOICE:

THEORIES:

_____1. Real accounts records

a. Dealings with creditors or debtors
b. Dealings in commodities
c. Gains and losses
d. All of the above

_____2. In journal, the business transaction is recorded

a. Same day
b. Next day
c. Once in a week
d. Once a month

_____3. This business transaction document serves as a proof of services rendered by companies to
their clients.
a. Sales Invoice
b. Official Receipt
c. Statement of Account
d. None of the above

_____4. These are the people willing to accept the opportunities and take the risks of starting and
running a business
a. Managers
b. Entrepreneurs
c. Stakeholders
d. None of the above

_____5. The following statements are the importance of business, except:

a. Provides taxes for government
b. Provides needs and wants of customers
c. Provides employment for employees
d. None of the above, all are considered importance

_____6. Cash vouchers are generally used when:

a. The company pays employees or suppliers in cash
b. The company make deposit / payment through bank
c. The company withdraws money from bank
d. All of the above
_____7. These users are interested about the profitability of the Company, its over-all performance in
which it will help them to make internal and operational decisions.
a. Customers
b. Employees
c. Government
d. None of the above

_____8. The Statement of Financial Position contains all the following information, except one:
a. Total Revenue generated by the Company
b. Total liabilities of the Company
c. Total assets of the Company
d. Total owner’s equity of the Company

_____9. These are the obligations of an entity to transfer assets or provide services to other
entities in the future as a result of past transactions or events.
a. Equity
b. Liabilities
c. Assets
d. None

_____10. Under the accrual basis accounting

a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company's financial statements are recognized in the period they
occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before
financial statements are prepared under generally accepted accounting principles.

_____11.Which is not an application of revenue recognition?

a. Recording revenue as an adjusting entry on the last day of the accounting period.
b. Accepting cash from an established customer for services to be performed over the next
three months.
c. Billing customers on June 30 for services completed during June.
d. Receiving cash for services performed.

_____12. Which statement is correct?

a. As long as a company consistently uses the cash basis of accounting, generally accepted
accounting principles allow its use.
b. The use of the cash basis of accounting violates both the revenue recognition and
matching principles.
c. The cash basis of accounting is objective because no one can be certain of the amount of
revenue until the cash is received.
d. As long as management is ethical, there are no problems with using the cash basis of
accounting.
_____13.The preparation of adjusting entries is
a. straight forward because the accounts that need adjustment will be out of balance.
b. often an involved process requiring the skills of a professional.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.

_____14. If a resource has been consumed but a bill has not been received at the end of the
accounting period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.

_____15.Which of the following reflect the balances of prepayment accounts prior to adjustment?
a. Balance sheet accounts are understated and income statement accounts are
understated.
b. Balance sheet accounts are overstated and income statement accounts are overstated.
c. Balance sheet accounts are overstated and income statement accounts are understated.
d. Balance sheet accounts are understated and income statement accounts are overstated.

_____16. The difference between the cost of a depreciable asset and its related accumulated
depreciation is referred to as the
a. market value of the asset.
b. blue book value of the asset.
c. book value of the asset.
d. depreciated difference of the asset.

_____17. If a business has several types of long-term assets such as equipment, buildings, and
trucks,
a. there should be only one accumulated depreciation account.
b. there should be separate accumulated depreciation accounts for each type of asset.
c. all the long-term asset accounts will be recorded in one general ledger account.
d. there won't be a need for an accumulated depreciation account.

_____18. In general, the shorter the time period, the difficulty of making the proper adjustments to
accounts
a. is increased.
b. is decreased.
c. is unaffected.
d. depends on if there is a profit or loss.

_____19.Which of the following are in accordance with generally accepted accounting principles?
a. Accrual basis accounting
b. Cash basis accounting
c. Both accrual basis and cash basis accounting
d. Neither accrual basis nor cash basis accounting
_____20. Depreciation is the process of
a. valuing an asset at its fair market value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic
manner.
d. writing down an asset to its real value each accounting period.

_____21. Which of the following situations involved a deferral?

a. Recording accrued interest
b. Recording unrecorded salaries
c. Recording advance collection of rent
d. Recording advance payment of rent

_____22. All of the following are criteria of property and equipment except:
a. It must not be intended for sale
b. It must be more or less permanent in nature
c. It may or may not be used in business operations
d. It must have physical existence

_____23. Prior to adjusting process, accrued expense have

a. been incurred, not paid and not recorded
b. been incurred, not paid, but have been recorded
c. been paid but have not been incurred
d. not yet been incurred, paid or recorded

_____24. Which of the following is considered to be unearned revenue?

a. Concert tickets sold for tonight’s performance
b. Concert tickets sold for next month’s performance
c. Concert tickets that were not sold for the current performance
d. Concert tickets sold yesterday on credit.

_____25.The natural business year

a. is a fiscal year that ends when business activities are at its lowest point
b. is a calendar year that ends when business activities are its lowest point
c. is a fiscal year that ends when business activities are its highest point
d. is a calendar year that ends when business activities are its highest point
For Nos. 26-28
a. Prepaid Expenses
b. Unearned Revenues
c. Accrued Revenues
d. Accrued Expense

_____26. Office supplies on hand that will be used in the next period.
_____27. Interest revenue collected; not yet earned.
_____28. Rent not yet collected; already earned.

For Nos. 29-30

a. Asset method
b. Expense Method
c. Income Method
d. Liability Method

_____29. During the end of the year, adjusting entry was made by recognizing an interest expense.
_____30. Year-end adjusting entry shows a debit to Commission Income and a credit to Deferred
Commission Income

For Nos. 31-35

a. Both statements are true
b. Both statements are false
c. Only statement I is true
d. Only statement II is true

_____31. 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

_____32. 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

_____33. I – When doubtful accounts is estimated as a percentage of accounts receivable, we have

to consider the beginning balance of the allowance for doubtful accounts to arrive at
the doubtful accounts expense
II – When doubtful accounts is estimated as a percentage of sales, we have to consider
the beginning balance of the allowance for doubtful accounts to arrive at the doubtful
accounts expense

_____34. I – The unexpired portion of a prepaid expense is reported in the income statement.
II - The unexpired portion of a prepaid expense is reported in the balance sheet.

_____35. I - Financing activities include borrowings from a bank for the business
II - Investing activities include personal investment by the owner of a business
PROBLEMS:

_____36. On June 8, Meza Co. issued an P80,000, 6%, 120-day note payable to Seller Co.
Assume that the fiscal year of Pina 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
b. P1,208.89
c. P1,306.67
d. P1,600.00

_____37. Isko Company purchased a computer system for P3,600 on January 1, 2019. The
company expects to use the computer system for 3 years. It has no salvage value. Monthly
depreciation expense on the asset is
a. P0.
b. P100.
c. P1,200.
d. P3,600.

_____38. Maple Tree Inc. purchased a 12-month insurance policy on March 1, 2019 for P900. At
March 31, 2019, the adjusting journal entry to record expiration of this asset will include a
a. debit to Prepaid Insurance and a credit to Cash for P900.
b. debit to Prepaid Insurance and a credit to Insurance Expense for P100.
c. debit to Insurance Expense and a credit to Prepaid Insurance for P75
d. debit to Insurance Expense and a credit to Cash for P75.

_____39. Ogletree Enterprises purchased an 18-month insurance policy on May 31, 2019 for
P3,600. The December 31, 2010 balance sheet would report Prepaid Insurance of
a. P0 because Prepaid Insurance is reported on the Income Statement.
b. P1,400.
c. P2,200.
d. P3,600.

_____40. On January 1, 2019, M. Johnson Company purchased equipment for P30,000. The
company is depreciating the equipment at the rate of P700 per month. The book value of the
equipment at December 31, 2019 is
a. P0.
b. P8,400.
c. P21,600.
d. P30,000.
_____41. On January 1, 2007, P.T. Oracle Company purchased a computer system for P3,240.
The company expects to use the system for 3 years. The asset has no salvage value. The book
value of the system at December 31, 2019 is
a. P0.
b. P1,080.
c. P2,160.
d. P3,240

_____42. Employees at B Corporation are paid P5,000 cash every Friday for working Monday
through Friday. The calendar year accounting period ends on Wednesday, December 31. How
much salary expense should be recorded two days later on January 2?
a. P5,000
b. P3,000
c. None, matching requires the weekly salary to be accrued on December 31.
d. P2,000

_____43. Waterfalls Corporation purchased a one-year insurance policy in January 2018 for
P66,000. The insurance policy is in effect from March 2018 through February 2019. If the company
neglects to make the proper year-end adjustment for the expired insurance
a. Net income and assets will be understated by P55,000.
b. Net income and assets will be overstated by P55,000.
c. Net income and assets will be understated by P11,000.
d. Net income and assets will be overstated by P11,000.

_____44. 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
b. P160,000
c. P300,000
d. P200,000

_____45. Total Liabilities is P825,000, which is 66% of total assets. How much is the equity?
a. P425,000
b. P1,250,000
c. P280,500
d. P544,500
_____46. The following were taken from the adjusted trial balance
Accumulated Depreciation P 2,300
Fees Earned 14,700
Depreciation Expense 1,300
Insurance Expense 200
Prepaid Insurance 4,800
Supplies 900
Supplies Expense 3,800
Net income for the period is?
a. P 1,400
b. P 9,400
c. P 14,700
d. P 7,100

_____47. The income statement columns in the worksheet show that debits are equal to Php
55,800 and credits are Php 62,705. What does this information mean to the accountant?
a. Net income of Php 6,905
b. Net loss of Php 6,905
c. Accounts are out of balance, indicating an error has been made
d. The accounts have not been updated

_____48. SoFa Designs purchased a one-year liability insurance policy on March 1, 2019 for
P5,400 and recorded it as a prepaid expense. Which of the following amounts would be recorded
for insurance expense during the adjusting process at the end of SoFa Designs’ first month of
operations on March 31st?
a. P5,400
b. P540
c. P450
d. P500

_____49. 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
b. P15,000
c. P20,000
d. P25,000

_____50. 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
Based on this trial balance, answer questions no. 11-15.
The trial balance of Gerbo Company appears as follows:

GERBO COMPANY
Trial Balance
December 31, 2019
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

_____51. If on December 31, 2019 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

_____52. If on December 31, 2019 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

_____53. 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

_____54. 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
_____55. 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

CNC Company provided the following information as of December 31, 2018

 The company’s supplies account showed a beginning debit balance of P2,000 and supplies
purchased of P8,000; P3,000 worth of supplies were on hand at year end.
 Depreciation on building is P50,000
 A one-year insurance policy was purchased for P20,000 on October 1, 2017
 Accrued interest on a note on hand amounted to P1,000
 The company received a P36,000 advance payment during the year on services still to be
performed. By the end of the year, only 75% of the services was not yet performed.

_____56.The adjusting entry for supplies would include a

a. Debit to supplies expense for P5,000
b. Debit to supplies expense for P7,000
c. Credit to supplies for P5,000
d. Credit to Supplies expense for P7,000

_____57. The adjusting entry for the depreciation of the building would include a
a. Credit to Depreciation expense for P50,000
b. Debit to accumulated Depreciation for P50,000
c. Debit to Depreciation expense for P50,000
d. Credit to buildings for P50,000

_____58. The adjusting entry for the insurance policy would include a
a. Debit to Insurance expense for P15,000
b. Credit to Insurance expense for P15,000
c. Debit to Prepaid insurance for P5,000
d. Credit to Prepaid insurance for P5,000

_____59. The adjusting entry to record the accrued interest on the note would include a
a. Debit to interest expense for P1,000
b. Credit to interest receivable for P1,000
c. Credit to interest income for P1,000
d. Debit to interest payable for P1,000
_____60. The adjusting entry to record the amount of services revenues earned during the period
would include a
a. Credit to unearned service revenue for P27,000
b. Debit to unearned service revenue for P9,000
c. Debit to unearned service revenue for P27,000
d. Credit to unearned service revenue for P9,000

_____61. Of the balance of the unearned interest revenue account of P10,200, P9,200 is earned.
What is the interest income as of December 31?
a.P10,200
b. P9,200
c. P1,000
d. P19,400

_____62 Bad debts is estimated at 2.5% of net sales of P5,000,000. How much is the bad debts
expense as of December 31 if there is a beginning balance of P15,000 in the allowance for bad
debts?
a. P125,000
b. P110,000
c. P140,000
d. P15,000

_____63. Furniture costing P2,600 was acquired on April 1, 2018. It has an estimated useful life of
5 years and a scarp value of P200. How much is the depreciation expense as of December 31,
2019?
a. P520
b. P480
c. P360
d. P320

_____64. Office equipment costing P4,750 was acquired on January 1 of the current year. It has an
estimated useful life of 7 years and a scrap value of 550. Assuming the asset was sold on
December 31 for P4,000, how much is the gain or loss on sale?
a. 150 gain
b. 150 loss
c. 400 gain
d. 400 loss

_____65. Bad debts is estimated at 1.5% of the sales balance of P130,000. Beginning balance of
the allowance for bad debts is P1,000. How much is the bad debts expense as of December 31?
a. P1,950
b. P950
c. P2,950
d. P1,000
 _____66. 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
b. 33,500
c.18,500
d. 15,000

_____67. After all the account balances have been extended to the Income Statement columns of
the work sheet, 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
b. P7,800 Net Loss
c. P85,300 Net Income
d. P77,500 Net Loss

BB enterprise started its operations on January 1, 2018. The company provided the following
information:
2018 2019
Sales 1,500,000 1,600,000
Accounts Receivable 750,000 800,000
BB estimates bad debts at 1% of sales

_____68. Bad debts expense for 2019 is

a. P16,000
b. P1,000
c. P31,000
d. P17,000

_____69. Allowance for bad debt for 2019 is

a. P16,000
b. P1,000
c. P31,000
d. P17,000

_____70. Net realizable value of the accounts receivable for 2019 is

a. P784,000
b. P783,000
c. P769,000
d. P799,000
ANSWER KEY:
1. B 36. C
2. A 37. B
3. C 38. C
4. D 39. C
5. A 40. B
6. B 41. B
7. D 42. D
8. A 43. B
9. B 44. C
10. C 45. A
11. B 46. B
12. B 47. A
13. B 48. C
14. C 49. A
15. C 50. C
16. C 51. C
17. B 52. B
18. A 53. A
19. D 54. C
20. C 55. D
21. C 56. B
22. C 57. C
23. A 58. D
24. B 59. C
25. A 60. B
26. A 61. B
27. B 62. A
28. C 63. B
29. A 64. B
30. C 65. A
31. C 66. C
32. B 67. A
33. C 68. A
34. D 69. A
35. C 70. C