THEORIES

1. The sum of either trial balance column represents

a. total assets c. total liabilities
b. total liabilities and equity d. no meaningful amount

2. Which of the following is not a possible combination of a journal entry?

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

3. Reversing entries are not normally made for

I. Adjusting entries related to depreciation, doubtful accounts and ending inventory.
II. Adjusting entries related to prepayment of costs initially recorded as assets or receipts in advance
initially recorded as liabilities.
a. I only c. Both I and II
b. II only d. Neither I nor II

4. Accruals occur when cash flows

a. Occur before expense recognition c. Occur after revenue or expense recognition
b. Are uncertain d. May be substituted for goods or services

5. Adjusting entries are needed

a. whenever revenue is not received in cash
b. whenever expenses are paid in cash
c. primarily to correct errors in the initial recording of business transactions
d. whenever transactions affect the revenue or expenses of more than one accounting period

6. Which of the following elements of financial statements is not a component of comprehensive income?
a. Revenues c. Losses
b. Expenses d. Distributions to Owners

7. Which of the following is not a purpose of the conceptual framework of accounting?

a. To provide definitions of key terms and fundamental concepts.
b. To provide specific guidelines for resolving situations not covered by existing accounting standards.
c. To assist accountants and others in selecting among alternative accounting and reporting methods.
d. To assist the accounting body in the standard-setting process.

8. The debit and credit analysis of a transaction normally takes place when the
a. entry is posted to a subsidiary ledger c. trial balance is prepared
b. entry is recorded in a journal d. financial statements are prepared

9. Adjusting entries affect

a. two nominal accounts c. at least one nominal account and one real account
b. two real accounts d. no particular combination of nominal and real account

10. According to the conceptual framework, the process of reporting an item in the financial statements of an
entity is called
a. realization c. matching
b. recognition d. allocation

11. The balance sheet category, receivables, represents claims to cash. Accounts receivable typically constitutes
the largest dollar value of receivables. An estimated allowance for doubtful accounts should be deducted
from the gross amount of accounts receivable to arrive at the estimated amount collectible. On the other

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 hand, plant assets are reported on the balance sheet at their historical cost less any accumulated
depreciation. The allowance for doubtful accounts and accumulated depreciation are both termed contra-
asset accounts. Which of the following statements regarding these two contra-asset accounts is true?
a. Both result in the valuation of their related asset account at net realizable value.
b. Accumulated depreciation deducted from the related asset account shows the unallocated portion of
the historical cost of the related asset.
c. Accumulated depreciation deducted from the related asset account shows the net realizable value of
the related asset.
d. Accumulated depreciation deducted from the related asset account shows the current replacement
cost of the related asset.

12. The responsibility to review the work of the accountants and issue opinions as to the fairness of the
financial statements rests with
a. the external auditor c. the internal auditors
b. the board of directors d. management

13. What is the underlying concept that supports the recognition of impairment in value of non-monetary assets
held by the enterprise?
a. neutrality c. consistency
b. prudence d. substance over form

14. Which of the following is not an objective of financial statements?

a. To provide information about the financial position of an enterprise.
b. To provide information about the performance of an enterprise.
c. To provide information about the economic decisions of the enterprise.
d. To provide information about the changes in financial position of an enterprise.

15. Which of the following best describes a general journal?

a. The general journal directly provides data for a trial balance.
b. The general journal eliminates the need for control accounts in the ledger.
c. The general journal provides a continuing balance of the amount to date in each of the accounts.
d. The general journal provides a chronological listing of transactions in a debit-credit form.

16. Which of the following are enhancing qualitative characteristics?

Understandability Neutrality Verifiability Timeliness Comparability
a. No Yes Yes No Yes
b. Yes No Yes Yes Yes
c. No Yes No No No
d. Yes No Yes Yes No

17. Conservatism is best described as selecting an accounting alternative that

a. understates assets and/or net income
b. has the least favorable impact on owners' equity
c. overstates, as opposed to understates, liabilities
d. is least likely to mislead users of financial information

18. Under the cash basis, expenses are recognized when

a. The cost expires or the assets are used.
b. They are paid by the entity.
c. The revenues are recognized that the expenses help to produce.
d. Cash is received from revenues that the expenses help to produce.

19. After the accounts have been closed,

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 a. all the accounts have zero balances
b. the asset, liability and equity accounts have zero balances
c. the revenue, expense, income summary and retained earning accounts have zero balances
d. the revenue, expense and income summary accounts have zero balances

20. Which of the following is not a valid statement relating to the accrual basis of accounting?
a. Accrual basis emphasizes the timing of cash receipts and cash disbursements in the recognition of
income and expenses.
b. Accrual basis results to more complete financial information compared to the cash basis.
c. Expenses are recorded in the period that they are incurred rather than in the period in which cash is
paid.
d. Revenues are recorded in the period that they are earned rather than in the period in which cash is
collected.

21. Under the Conceptual Framework, what are the two fundamental qualitative characteristics of accounting
information?
a. Relevance and prudence c. Reliability and understandability
b. Relevance and reliability d. Relevance and faithful representation

22. Which of the following would not be a correct form for an adjusting entry?
a. A debit to revenue and a credit to a liability
b. A debit to expense and a credit to a liability
c. A debit to a liability and a credit to revenue
d. A debit to an asset and a credit to a liability

23. Failure to record depreciation expense at the end of an accounting period results in
a. understated income c. overstated expenses
b. understated assets d. overstated assets

24. Which of the following is not part of the summarizing phase of financial accounting process?
a. Adjusting entries are journalized and posted to the ledger.
b. Adjusted trial balance is prepared.
c. Journal entries are posted to the ledger.
d. Financial statements are prepared.

25. Owner’s equity was understated and liabilities were overstated. Which of the following errors could have
been the cause?
a. Making the adjustment entry twice.
b. Failure to record accrued interest on notes payable.
c. Failure to make an adjusting entry to record revenue earned but not yet billed to customers.
d. Failure to record the earned portion of rent received in advance.

26. The primary responsibility for the financial statements of an enterprise rests with its
a. management c. president
b. shareholders d. external auditors

27. Historical cost has been the valuation basis most commonly used in accounting because of its
a. timeliness c. reliability
b. conservatism d. accuracy

28. Which of the following is an accrued liability?

a. Cash dividends payable.
b. Wages payable.

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 c. Rent revenue collected one month in advance.
d. Portion of long-term debt payable in current year.

29. Given the dual effects of accountable events, an increase in a liability cannot possibly be accompanied by a
(an)
a. decrease in another liability c. increase in owner’s equity
b. increase in an asset d. decrease in revenue

30. The premium on a three-year insurance policy expiring on December 31, 2014 was paid in total on January
1, 2012. The original payment was initially debited to an asset account. The appropriate journal entry has
been recorded on December 31, 2012. The balance in the prepaid asset account on December 31, 2012
should be
a. Higher than if the original payment had been debited to an expense account
b. The same as the original payment
c. The same as it would have been if the original payment had been debited initially to an expense
account
d. Zero

PROBLEMS
31. A business received cash of P 30,000.00 in advance for services that will be provided later. This transaction
was recorded by the company using the liability method. At the end of the period, P 11,000.00 is still
unearned. The adjusting entry for this situation is
a. Debit Unearned Revenue and credit Revenue for P19,000.00
b. Debit Unearned Revenue and credit Revenue for P11,000.00
c. Debit Revenue and credit Unearned Revenue for P19,000.00
d. Debit Revenue and credit Unearned Revenue for P11,000.00

32. At December 31, 2015, the unadjusted trial balance of Vegas Skies Company showed Office Supplies of P
60,000.00 and Office Supplies Expense of P 101,000.00. The December 31, adjusting entry debited Office
Supplies Expense of P 15,000.00. After the December adjusting entries have been posted, what is the
correct balance in the Office Supplies account on December 31, 2015?
a. P 118,000.00 c. P 45,000.00
b. P 84,000.00 d. P 43,000.00

33. The trial balance of Without You Company at June 30, 2016, the end of its accounting period, is P
212,000.00. Year-end adjustments were made as follows:
 Depreciation of office equipment, P 4,000.00
 Accrued salaries of employees, P 2,500.00
 Accrued interest on notes receivable, P 2,800.00
 Expired insurance, P 2,100.00

What is the adjusted trial balance total?

a. P 212,000.00 c. P 221,300.00
b. P 223,400.00 d. P 223,100.00

34. A law firm began operations in July with office supplies of P 86,000.00. During the month, the firm
purchased supplies of P 116,000.00. At July 31, supplies on hand total P 96,000.00.

The adjusting entry at July 31 will result in supplies expense of

a. P 180,000.00 c. P 96,000.00
b. P 106,000.00 d. P 84,000.00

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35. Annabelle Company recorded accrued interest of P 25,000.00 at December 31, 2014. During 2015, the
company paid interest of P 872,000.00. Unpaid interest at December 31, 2015 amounted to P 34,000.00.
The company prepares adjustments only at December 31, and also reversing entries on January 1, The
balance of the Interest Expense account that would appear in the post-closing trial balance at December 31,
2015 is
a. P 881,000.00 c. P 847,000.00
b. P 872,000.00 d. P – 0 –

36. The trial balance prepared at December 31 did not balance. Debit total was P 159,250.00 and credit total
was P 153,200.00. In determining the cause of the difference, you discovered the following errors: a credit
to Cash of P 650.00 was not posted; a P 3,000.00 credit to be made to Sales account was credited to the
Accounts Receivable account instead; the Wages Payable account balance of P 9,300.00 was listed in the trial
balance as P 3,900.00.

What is the correct trial balance total?

a. P 160,600.00 c. P 158,600.00
b. P 161,600.00 d. P 156,800.00

37. Silence Company had a 12% note receivable dated June 30, 2015 in the original amount of P 3,000,000.00.
Payments of P 1,000,000.00 in principal plus accrued interest are due annually on July 1, 2016, 2017 and
2018. In its June 30, 2016 balance sheet, what amount should Silence report as accrued interest on notes
receivable?
a. P 120,000.00 c. P 240,000.00
b. P 180,000.00 d. P 360,000.00

38. Don’t Wish Company sublet a portion of its office space for ten years at an annual rental of P 36,000.00
beginning on May 1. The tenant is required to pay one year’s rent in advance, which Don’t Wish recorded as
a credit to Rental Income. Don’t Wish reports on a calendar year basis. The adjustment on December 31 of
the first year should be
a. Rental Income 12,000.00
Unearned Rental Income 12,000.00
b. Rental Income 24,000.00
Unearned Rental Income 24,000.00
c. Unearned Rental Income 12,000.00
Rental Income 12,000.00
d. Unearned Rental Income 24,000.00
Rental Income 24,000.00

39. A machine with a depreciable cost of P 300,000.00 and salvage value of P 100,000.00 was purchased on July
1, 2015. This machine is expected to have an economic life of ten years, depreciated in a straight-line basis.
What is the depreciation expense for the year 2015?
a. P 10,000.00 c. P 20,000.00
b. P 15,000.00 d. P 30,000.00

40. On August 1, a company received cash of P 9,324.00 for one year’s rent in advance and recorded the
transaction on that day as a credit to rent revenue. The December 31 adjusting entry would include
a. a debit to Rent Revenue for P 3,885.00
b. a credit to Unearned Rent Revenue for P 5,439.00
c. a debit to Unearned Rent Revenue for P 3,885.00
d. a credit to Rent Revenue for P 9,324.00

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41. On December 1, 2015, a client advanced P 40,000.00 for audit services to be rendered in the second quarter
of 2016. The liability method was used to record the receipt of P 40,000.00. What amount is recognized as
revenue in the first quarter of 2016?
a. P 10,000.00 c. P 30,000.00
b. P 40,000.00 d. P – 0 –

42. An office equipment costing P 600,000.00 was purchased on October 31, 2015. It is estimated that the
equipment will have a salvage value of P 60,000.00 after its six-year economic life. What is the book value of
the equipment at December 31, 2016?
a. P 495,000.00 c. P 577,500.00
b. P 510,000.00 d. P 585,000.00

43. At the beginning of the year, a company had Accounts Receivable of P 220,000.00 with allowance for bad
debts of P 2,500.00. At the end of the year, accounts receivable has a balance of P 300,000.00. It is the
company’s policy to provide allowance for bad debts equal to 5% of accounts receivable. What is the bad
debts expense for the period?
a. P 2,500.00 c. P 15,000.00
b. P 12,500.00 d. P 17,500.00

44. Based on the information presented in No. 43, what is the allowance for bad debts as of the end of the
period?
a. P 2,500.00 c. P 15,000.00
b. P 12,500.00 d. P 17,500.00

45. Only two adjustments appear in the adjustments column of a worksheet for Force Company: one to record
P 12,000.00 depreciation of office equipment, and the other to record the use of P 15,000.00 office supplies.
If the trial balance column totals are P 729,000.00, what is the total of the adjusted trial balance column?
a. P 744,000.00 c. P 756,000.00
b. P 741,000.00 d. P 732,000.00

46. Shown below are selected accounts and their balances for the Harvest Company as of December 31, 2017:

Accounts payable – P 980,000.00; Accounts receivable – P 2,160,000.00; Allowance for bad debts – P
250,000.00; Cash – P 224,000.00; Wages payable – P 108,000.00; Land and land improvements – P
450,000.00; Long-term advances to officers – P 1,500,000.00; Inventory – P 830,000.00; Income taxes
payable – P 720,000.00; Notes receivable (short-term) – P 970,000.00; Bond redemption fund – P
1,800,000.00; Bonds payable (long-term) – P 5,000,000.00; Treasury shares – P 576,000.00.

How much were the total current assets at December 31, 2017?
a. P 3,934,000.00 c. P 5,434,000.00
b. P 3,943,000.00 d. P 4,510,000.00

47. Using the same information given in No. 46, how much were the total non-current assets at December 31,
2017?
a. P 1,950,000.00 c. P 2,920,000.00
b. P 2,200,000.00 d. P 3,750,000.00

48. Using the same information given in No. 46, how much were the total current liabilities at December 31,
2017?
a. P 980,000.00 c. P 1,808,000.00
b. P 1,088,000.00 d. P 6,808,000.00

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49. Using the same information given in No. 46, how much were the total non-current liabilities at December
31, 2017?
a. P 5,000,000.00 c. P 7,076,000.00
b. P 5,800,000.00 d. P 7,876,000.00

50. On August 1 of the current year, Baby Blue Eyes Company borrowed P 278,000.00 from the local bank.
The loan was for twelve months at nine percent interest payable at the maturity date. The adjusting entry at
the end of the fiscal year relating to this obligation would include a
a. debit to interest expense of P 25,020.00
b. debit to interest expense of P 10,425.00
c. credit to note payable of P 10,425.00
d. debit to interest receivable of P 10,425.00

51. At the beginning of the year, the balance of Superheroes, Capital is P 150,000.00. During the year,
Superheroes invested P 50,000.00 but made a withdrawal of P 30,000.00 at the last quarter of the year. After
closing the nominal accounts, Income Summary showed a debit balance of P 36,000.00. The net
increase/decrease in the capital account is:
a. Increase of P 16,000.00 c. Decrease of P 16,000.00
b. Increase of P 56,000.00 d. Decrease of P 56,000.00

52. Accounts appearing in the trial balance of Between You and I Company at July 31 are listed below:
Cash 290,000.00 Accumulated Depreciation 810,000.00
Equipment 1,620,000.00 Accounts Receivable 310,000.00
L. Gaga, Capital 1,100,000.00 Advertising Expense 15,000.00
L. Gaga, Drawing 210,000.00 Service Revenue 480,000.00
Other Expenses 190,000.00 Accounts Payable 250,000.00

No adjusting entry has yet been made to record depreciation expense of P 27,000.00 for the month of July.
What is the total of the credit column in a post-closing trial balance prepared on July 31?
a. P 2,220,000.00 c. P 2,225,000.00
b. P 2,247,000.00 d. P 2,160,000.00

53. The trial balance of Summer, Inc. as shown below does not balance.
Summer, Inc.
Trial Balance
July 31, 2017
Debit Credit
Cash 274,000.00
Accounts Receivable 232,100.00
Supplies Inventory 80,000.00
Equipment 471,000.00
Accounts Payable 272,000.00
Unearned Service Revenue 120,000.00
Ordinary Share 600,000.00
Retained Earnings 300,000.00
Service Revenue 238,000.00
Wages Expense 340,000.00
Office Expense 94,000.00
TOTAL 1,337,100.00 1,684,000.00

Each of the listed accounts has a normal balance per general ledger. An examination of the ledger and
journal reveals the following errors.

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 (a) Cash collected from a customer on account was debited for P 57,000.00 and Accounts Receivable
was credited for the same amount. The actual collection, however, was for P 75,000.00.
(b) The purchase of an equipment on account for P 50,000.00 was recorded as a debit to Supplies
Inventory for P 50,000.00 and a credit to Accounts Payable for P 50,000.00.
(c) Services were performed on account for a client, P 89,000.00. Accounts Receivable was debited for
P 89,000.00 and Service Revenue was credited for P 8,900.00.
(d) When the Unearned Service Revenue account was reviewed, it was found that P 32,500.00 of the
balance was earned prior to July 31.
(e) A debit posting to Wages Expense for P 67,000.00 was omitted.
(f) A debit posting to Accounts Payable for P 52,000.00 was omitted.

The correct trial balance total is

a. P 1,558,100.00 c. P 1,628,100.00
b. P 1,610,000.00 d. P 1,626,100.00

54. Using the same information given in No. 53, what was Summer, Inc.’s profit (loss) before tax?
a. P (196,000.00) c. P (150,400.00)
b. P (174,000.00) d. P (141,500.00)

55. Using the same information given in No. 53, the balance of the Retained Earnings account in the post-
closing trial balance would be
a. P 158,500.00
b. P 149,600.00
c. P 300,000.00
d. P – 0 –

56. On March 31, 2015, the Prepaid Insurance account of Vanilla Salt Corporation show unadjusted balance of
P 26,700.00. The company has the following policies in force:
Policy Date Term Cost Coverage
A 01/01/15 2 years 7,200.00 Equipment
B 12/01/14 6 months 3,600.00 Fixtures
C 07/01/14 3 years 24,000.00 Buildings

By how much should the Prepaid Insurance account be increased (decreased) at March 31, 2015?
a. P (1,200.00) c. P 3,000.00
b. P (2,700.00) d. P (6,300.00)

57. On November 1, 2014, Alone Corporation paid P 36,000.00 to renew its insurance policy for three years.

At December 31, 2014, the company’s unadjusted trial balance showed a balance of P 900.00 for Prepaid
Insurance and P 44,100.00 for Insurance Expense. What amount should be reported for Prepaid Insurance
and Insurance Expense respectively in the company’s 2014 financial statements?
a. P 33,000.00 and P 12,000.00 c. P 34,000.00 and P 11,000.00
b. P 34,000.00 and P 12,000.00 d. P 34,900.00 and P 10,100.00

58. The following information relates to Ikanaide Contractors on June 30, 2017. The company prepares
financial statements annually on a fiscal-year basis ending June 30.
(a) Ikanaide Contractors’ weekly payroll is P 28,000.00, paid every Friday for a five-day work week. June
30, 2017 is a Friday.
(b) On May 31, 2017, the company borrowed P 450,000.00 from a local bank with a term of 90 days at
18% annual interest. Assume a 360-day year.
(c) During June, the company advertised in the local newspaper at a cost of P 60,000.00. The amount is
still unpaid and unrecorded.

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 (d) Equipment that cost P 100,000.00, and has no salvage value, was purchased on January 1, 2016. It
has a five-year estimated useful life.
(e) At the beginning of the year, Office Supplies amounted to P 21,000.00. During the year, P 65,000.00
of supplies were purchased and charged to the asset account. At year-end, there were P 28,000.00 of
supplies on hand.
(f) On April 1, 2017, Ikanaide Contractors contracted to install plumbing for a new housing project.
The contract was for P 144,000.00 to install plumbing in twenty-four houses. The P 144,000.00
payment was received on April 1, 2017 and was credited to Unearned Plumbing Revenue. As of
June 30, 2017, eighteen houses have been completed.
(g) On March 1, 2017, a one-year insurance policy was purchased for P 60,000.00 and the premium paid
was debited to Prepaid Insurance.

The amount of Salaries Payable to appear in the company’s June 30 statement of financial position would be
a. P 28,000.00 c. P 22,400.00
b. P 5,600.00 d. P – 0 –

59. Using the same information given in No. 58, the entry to record the adjustment in transaction (f) would
likely include
a. a debit to Unearned Plumbing Revenue; P 36,000.00
b. a credit to Unearned Plumbing Revenue; P 36,000.00
c. a debit to Unearned Plumbing Revenue; P 108,000.00
d. a credit to Unearned Plumbing Revenue; P 108,000.00

60. If the debit and credit totals of a trial balance were P 1,200,000.00 and an additional entry was recorded and
posted for the purchase of P 60,000.00 of office supplies for cash, what would be the new debit and credit
totals for the trial balance after this entry is made?
a. P 1,140,000.00 c. P 1,260,000.00
b. P 1,200,000.00 d. Undeterminable

61. At December 31, 2017, the Nandemonaiya Company had a P 990,000.00 balance in its Advertising Expense
account before any year-end adjustments relating to the following:
 Radio advertising spots broadcast during December 2017 were billed to Nandemonaiya on January
4, 2018. The invoice cost of P 50,000.00 was paid on January 15, 2018.
 Included in the P 990,000.00 is P 60,000.00 for newspaper advertising for a January 2018 sales
promotional campaign.

Nandemonaiya Company’s advertising expense for the year ended December 31, 2017 should be
a. P 1,040,000.00 c. P 980,000.00
b. P 1,000,000.00 d. P 930,000.00

62. A company with a five-day work week (Monday to Friday) pays its casual employees every Friday. Weekly
payroll for its employees total P 24,000.00. The company uses a fiscal year ending June 30.

How much is the accrued salaries payable on June 30 if the most recent payroll payment was June 25?
a. P 4,800.00 c. P 14,400.00
b. P 9,600.00 d. P 24,000.00

63. On August 31, 2015, Everywhere Everything Company borrowed on a P 1,200,000.00 note payable from
ABC Bank. The note bears interest at 12% and is payable in three equal annual payments of P 400,000.00.

The first annual payment for interest and principal was made on August 31, 2016.

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 At December 31, 2016, what amount should Everywhere Everything Company report as accrued interest
payable?
a. P 32,000.00 c. P 48,000.00
b. P 40,000.00 d. P 64,000.00

64. Grenade Company paid P 1,704.00 on June 1, 2013, for a two-year insurance policy and recorded the entire
amount as Insurance Expense. The December 31, 2013, adjusting entry is
a. debit Prepaid Insurance and credit Insurance Expense, P 497.00
b. debit Insurance Expense and credit Prepaid Insurance, P 497.00
c. debit Insurance Expense and credit Prepaid Insurance, P 1,207.00
d. debit Prepaid Insurance and credit Insurance Expense, P 1,207.00

65. Sa kantang Leron Leron Sinta, ano ang pinaka-masakit? (/C. Lim)
a. Nabali ang sanga. c. Kapos kapalaran.
b. Nahulog sa puno. d. Humanap ng iba.

*** END OF EXAMINATION ***

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