UNIVERSITY OF PERPETUAL HELP SYSTEM LAGUNA – ISABELA CAMPUS

Minante 1, Cauayan City, Isabela

70 copies
College of Business and Accountancy
BTM223 – Basic Accounting
2nd Semester, A.Y. 2016 - 2017

Prelim Examination

Name: ________________________________________ Date: ___________

Course Year & Section: _____________________ Score: __________
Instruction: Answer the following questions. Strictly NO ERASURES are
allowed.

I. TRUE OR FALSE. Underline True if the statement is correct and False if wrong. (30 points)

1. Understanding of financial information is very important in the making of economic decisions.

True False

2. Accounting is the medium of communication through which financial information is furnished to

different parties for decision making.
True False

3. Economic decision making is the main reason why accounting records and reports are prepared.
True False

4. The American Institute of CPAs described accounting as an art.

True False

5. Bookkeeping is synonymous to accounting.

True False

6. Auditing is performed before financial accounting starts.

True False

7. When a CPA offers his professional services to clients for a fee, he is said to be in private
accounting.
True False

8. Financial accounting is primarily concerned with the preparation and issuance of general purpose
financial statements.
True False

9. Management accounting provides reports for internal users. These financial reports observe
generally accepted accounting principles.
True False

10. Public accountancy is restricted only to those who passed the CPA exam.
True False

11. The accounting records of the sole proprietorship include the proprietor’s personal financial
records.
True False

12. Nonprofit organizations need similar financial information as businesses.

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 True False

13. Classification of financial data is achieved through the preparation of financial statements.
True False

14. A sole proprietorship can have more than one owner.

True False

15. Government agencies require financial information from enterprises as part of their regulatory
function.
True False

16. An accounting principle has relevance to the extent that it can be implemented without undue
complexity or cost.
True False

17. The elements directly related to the measurement of financial position in the balance sheet are
assets, liabilities and equity.
True False

18. Trading companies purchase goods that are ready for sale and then sell these customers.
True False

19. If each company made up its accounting rules, there could be no basis for comparing the earnings
and financial position of different firms.
True False

20. The periodicity concept involves dividing the life of the business entity into accounting periods of
equal length thus enabling the financial users to periodically evaluate the results of business
operations.
True False

21. The basic summary device of accounting is the accounting equation.

True False

22. Owner’s equity is the excess of an entity’s capital over its liabilities.
True False

23. Accounts that appear of the left side of the accounting equation have credit balances.
True False

24. Another word for expense is debt.

True False

25. Asset is a resource controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow to the enterprise.
True False

26. Owner’s withdrawals are classified as expense.

True False

27. Expenses cause decreases in owner’s equity and are recorded by debits.
True False

28. Payment of liability will not affect total assets but will cause total liabilities to decrease.
True False

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 29. Expenses represent the cash paid for goods or services rendered in the process of generating
revenue.
True False

30. A debit entry always decreases the balance of an account.

True False

II. MULTIPLE CHOICE. Choose the best answer. Encircle the letter of your choice. (30 points)

1. Statement 1: The primary function of accounting is to prepare the financial reports and provide them
to the economic decision makers.
Statement 2 : The purpose of accounting is to help financial users see the true picture of the business
in social terms.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are not correct.

2. These external users of financial reports primarily use accounting information to assess their return
on investment in the business.
a. Investors.
b. Creditors.
c. Management.
d. Government and its agencies.

3. This agency of the Philippine government requires financial reports to ensure compliance of
national taxes.
a. SEC c. LGU
b. BSP d. BIR

4. This profession is highly marketable because all businesses, whether profit or nonprofit, need
financial reports.
a. Legal. c. Engineering.
b. Medicine. d. Accountancy.

5. It refers to the professional value and ethics that a CPA should not offer services which he is not
competent to perform.
a. Due Care.
b. Objectivity.
c. Reputation.
d. Competence.

6. Which of the following is considered an unlawful act of a CPA?

a. Fraud if the acquisition of CPA certificate.
b. Addiction to alcoholic beverages or prohibited drugs.
c. Insanity.
d. All of the above.

7. It refers to the impartial expression of the CPA’s opinion regarding the financial statements under
examination.
a. Integrity.
b. Due Care.
c. Objectivity.
d. Competence.

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8. Which of the following accounting processes comes ahead of the others?
a. Identifying.
b. Measuring.
c. Interpreting.
d. Communicating.

9. The national organization of CPAs in the Philippines is called

a. PAMA.
b. PIMA.
c. PICPA.
d. JPIA.

10. The following are fields of private accounting, except

a. external audit.
b. tax accounting.
c. cost accounting.
d. budget accounting.

11. The purchase of an asset on account will

a. increase total liabilities and decrease total assets.
b. have no effect on total assets or total liabilities.
c. increase total assets and increase total liabilities.
d. increase total assets and increase owner’s equity.
e. increase total assets and decrease owner’s equity.

12. Amounts owed by a business are referred to as

a. assets
b. equities
c. liabilities
d. capital
e. expenses

13. Which of the following equations is the fundamental accounting equation?

a. Assets - Liabilities = Owner’s Equity
b. Assets = Liabilities + Owner’s Equity
c. Assets + Liabilities = Owner’s Equity
d. Assets - Owner’s Equity = Liabilities
e. Assets + Owner’s Equity = Liabilities

14. When an owner deposits cash in an account in the name of the business, it is an increase to
a. Cash and Accounts Receivable
b. Cash and Withdrawals
c. Cash and Capital
d. Cash and Accounts Payable
e. Cash and Rent Expense

15. Which of the following is not considered an account?

a. Equipment
b. Revenues
c. Accounts Payable
d. Cash
e. Accounts Receivable

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16. If the owner invests her computer in the business, there is an increase to
a. Cash and Capital
b. Computer Equipment and Withdrawals
c. Cash and Withdrawals
d. Computer Equipment and Capital
e. Computer Equipment and Cash

17. The owner of a business invested P50,000 in the business. What are the effects on the fundamental
accounting equation?
a. Assets increase P50,000; liabilities, no effect; owner’s equity increases P50,000.
b. Assets increase P50,000; liabilities, decrease P50,000; owner’s equity increase P50,000.
c. Assets increase P50,000; liabilities, no effect; owner’s equity increase P50,000.
d. Assets increase P50,000; liabilities, no effect; owner’s equity decreases P50,000.
e. Assets decrease P50,000; liabilities, no effect; owner’s equity increases P50,000.

18. The purchase of an asset for cash will

a. increase total assets and decrease total liabilities
b. have no effect on total assets and total liabilities
c. increase total assets and increase total liabilities
d. increase total assets and increase total owner’s equity
e. increase total assets and decrease total owner’s equity

19. Over a period of time, if total assets increase by P270,000 and total liabilities increase by P70,000,
then owner’s equity will be increased by
a. P70,000
b. P340,000
c. P270,000
d. P200,000

20. When the rent for the business is paid with a check,
a. Cash is decreased and Rent Expense is decreased.
b. Cash is decreased and Rent Income is increased.
c. Cash is decreased and Rent Expense is increased.
d. Cash is decrease and Accounts Payable is decreased.
e. Cash is increased and Rent Expense is decreased.

21. Which of the following is a liability of a firm?

a. cash in the firm’s safe.
b. A building owned by the firm.
c. Money owed to the firm by its debtors.
d. Money which the firm has borrowed and has not yet repaid.

22. When an entity pays employees for their services, the effect in a increase in
a. Assets.
b. Income.
c. Expenses.
d. Liabilities.

23. The expectation of future payment from a customer for goods sold is
a. A prepaid expense.
b. A notes receivable.
c. An accounts receivable.
d. All of the above.

24. The acquisition of an asset for cash

a. Leaves total assets unchanged.
b. Increases assets and liabilities.
c. Increases assets and owner’s equity.
d. Decreases assets and increases liabilities.
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25. When a business entity receives payment before delivering goods, the Unearned Revenue account
is?
a. Debited.
b. Credited.
c. Not affected.
d. Debited and credited.

26. The payment of liability

a. Decreases assets and liabilities.
b. Decreases assets and owner’s equity.
c. Increases assets and decreases liabilities.
d. Decreases assets and increases liabilities.

27. The purchase of a service vehicle on account will

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

28. Inventories are assets which are

a. In the forms of materials or supplies to be consumed in the production process or in the
rendering of services.
b. Held for sale in the ordinary course of business.
c. In the process of production for such sale.
d. All of the above.

29. Revenues should be recorded when

a. Earned.
b. A contract is signed.
c. Work has begun on job.
d. Cash is received from the customer.

30. Which is false concerning the rules of debit and credit

a. The normal balance of any account appears on the side for recording increases.
b. The word “debit” means to increase and the word “credit” means to decrease.
c. The left side of an account is always the debit side and the right side is always the credit side.
d. Increases in assets and expenses are debit entries, and increase in liabilities, equity and revenue
are credit entries.

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III. Transaction Effects on the Basic Accounting Model. (40 points)
During the month of July, AAA Company had the following transactions:
A L OE/C

Example: AAA invested P1,500,000 to start the business. __+__ __o__ __+__

a. Cash received for delivery services, P92,700 _____ _____ _____

b. Paid creditors on account, P20,000. _____ _____ _____

c. Received cash from owners as additional investment,

P600,000. _____ _____ _____

d. Paid advertising expense, P5,000. _____ _____ _____

e. Billed customers for delivery services on account, P55,200. _____ _____ _____

f. Paid salaries for July, P54,000. _____ _____ _____

g. Acquired equipment on credit, P90,000. _____ _____ _____

h. Purchased supplies in cash, P3,000. _____ _____ _____

i. Paid rent for July, P20,000. _____ _____ _____

j. Received cash from customers on account, P25,440. _____ _____ _____

k. Made partial payment on equipment acquired oncredit,

P30,000. _____ _____ _____

l. Withdrew cash for personal use, P45,000. _____ _____ _____

m. Received payment from customers already billed, P9,000. _____ _____ _____

n. Received bills for utilities to paid next month, P2,100. _____ _____ _____

o. Paid utilities expense for last June, P1,500. _____ _____ _____

Required:
For each transaction, indicated whether the assets (A), liabilities (L) or owner’s equity (OE) increased
(+), decreased (-), or did not change (o) by placing the appropriate sign in the appropriate column.

Prepared by Approved by:

Acct. SAMUEL UY ITCHON, Jr. Acct. JONATHAN B. DE VEYRA, MBA

Instructor Dean – CBA

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 UNIVERSITY OF THE EAST – CALOOCAN

COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION

2ND SEMESTER SY 2010-2011

AC 1&2 – FUNDAMENTALS OF ACCOUNTING PART 1

FINAL DEPARTMENTAL EXAMINATION

PART 1 – THEORIES (1 point each)

1. Profit is the difference between:

a. assets and liabilities

b. assets and equities

c. the assets purchased with cash contributed by the owner and the cash spent to
operate the business

d. the assets received for goods and services and the amounts used to
provide the goods and services

2. 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. can be thought of as the "language of business"

c. is of no use by individuals outside of the business

d. is used only for filling out tax returns and for financial statements for various type
of governmental reporting requirements

3. Which of the following is not a business transaction?

a. make a sales offer

b. sell goods for cash

c. receive cash for services to be rendered later

d. pay for supplies

4. The asset created by a business when it makes a sale on account is termed:

a. accounts receivable

b. prepaid expense

c. unearned revenue

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 d. accounts payable

5. How does the purchase of supplies on account affect the accounting equation?
a. assets increase; owner's equity decreases

b. assets increase; liabilities increase

c. assets increase; liabilities decrease

d. liabilities increase; owner's equity decreases

6. The balance of the owner's capital account appears in:

a. both the statement of owner's equity and the income statement

b. only the statement of owner's equity

c. both the statement of owner's equity and the balance sheet

d. both the statement of owner's equity and the statement of cash flows

7. A chart of accounts is:

a. the same as a balance sheet

b. usually a listing of accounts in alphabetical order

c. usually a listing of accounts in financial statement order

d. used in place of a ledger

8. An account is said to have a debit balance if:

a. the amount of the debits exceeds the amount of the credits

b. there are more entries on the debit side than on the credit side

c. its normal balance is debit without regard to the amounts or number of entries on
the debit side

d. the first entry of the accounting period was posted on the debit side

9. Which of the following applications of the rules of debit and credit is true?
a. decrease Prepaid Insurance with a credit and the normal balance is a credit

b. increase Accounts Payable with a credit and the normal balance is a debit

c. increase Supplies Expense with a debit and the normal balance is a debit

d. decrease Cash with a debit and the normal balance is a credit

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10. Office supplies were sold by J's Appliance Repair at cost to another repair shop, with cash received.
Which of the following entries for J's Appliance Repair records this transaction?
a. Office Supplies, debit; Cash, credit

b. Office Supplies, debit; Accounts Payable, credit

c. Cash, debit; Office Supplies, credit

d. Accounts Payable, debit; Office Supplies, credit

11. The verification that the total peso amount of the debits equals the total peso amount of the credits in
the ledger is called a:
a. ledger

b. trial balance

c. account

d. balance sheet

12. If the two totals of a trial balance are not equal, it could be due to the following type of error:
a. failure to record a transaction

b. recording the same erroneous amount for both the debit and the credit parts of a
transaction

c. error in determining the account balances, such as a balance being

incorrectly computed

d. recording the same transaction more than once

13. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense
account, which of the following describes the effect of the credit portion of the entry?
a. decreases the balance of an owner's equity account

b. increases the balance of an liability account

c. increases the balance of an asset account

d. decreases the balance of an expense account

14. The primary difference between deferred and accrued expenses is that deferred expenses have:
a. been incurred and accrued expenses have not

b. not been incurred and accrued expenses have been incurred

c. been recorded and accrued expenses have not been incurred

d. not been recorded and accrued expenses have been incurred

15. At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired
insurance was omitted. Which of the following statements is true?
a. Total assets at the end of the year will be understated.

b. Owner's equity at the end of the year will be understated.

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 c. Net income for the year will be overstated.

d. Insurance Expense will be overstated.

16. Closing entries are dated in the journal as of:

a. the date they are actually journalized, although they are generally prepared after
the end of the accounting period

b. the last day of the accounting period, although they are actually journalized
after the end of the accounting period

c. the first day of the accounting period, although they are actually journalized after
the end of the accounting period

d. the first day of the subsequent accounting period

17. In which journal would an adjustment for an overcharge by a creditor be recorded?

a. general journal

b. purchases journal

c. cash payments journal

d. cash receipts journal

18. Subsidiary ledgers:

a. are used only for Accounts Payable and Accounts Receivable

b. may be used for various ledger accounts

c. may be used for only those accounts specified by the PFRSC

d. are never used for more than four accounts

19. The primary difference between a periodic and perpetual inventory system is that a:
a. periodic system determines the inventory on hand only at the end of the
accounting period

b. periodic system keeps a record showing the inventory on hand at all times

c. periodic system provides an easy means to determine inventory shrinkage

d. periodic system records the cost of the sale on the date the sale is made

20. An adjusting entry will not take the format of which one of the following entries?
a. A debit to an expense account and a credit to an asset account.

b. A debit to an expense account and a credit to a revenue account.

c. A debit to an asset account and a credit to a revenue account.

d. A debit to a liability account and a credit to a revenue account.

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21. If a company uses a subsidiary ledger for accounts receivable, a credit sale must be recorded in the
subsidiary ledger and in the
a. general ledger.

b. sales journal.

c. cash receipts journal.

d. check register.

22. On March 1, 2006, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which
both the principal and interest are payable on February 28, 2009. At December 31, 2007, the liability
for accrued interest should be
a. 10 months' interest.

b. 22 months' interest.

c. 34 months' interest.

d. 36 months' interest.

23. The last step in the accounting cycle is to

a. prepare a post-closing trial balance.

b. journalize and post closing entries

c. prepare financial statements.

d. journalize and post adjusting entries.

24. The premium on a two-year insurance policy expiring on June 30, 2009, was paid in total on July 1,
2007. The original payment was debited to the insurance expense account. The appropriate journal
entry has been recorded on December 31, 2007. The balance in the prepaid asset account on
December 31, 2007, should be
a. the same as the original payment.

b. higher than if the original payment had been initially debited to an asset account.

c. lower than if the original payment had been initially debited to an asset account.

d. the same as it would have been if the original payment had been initially debited to an
asset account.

25. Which of the following errors will be detected when a trial balance is properly prepared?
a. An amount that was entered in the wrong account

b. A transaction that was entered twice

c. A transaction that had been omitted

d. None of the above

26. A routine collection on a customer's account was recorded and posted as a debit to Cash and a
credit to Sales Revenue. The journal entry to correct this error would be
a. a debit to Sales Revenue and a credit to Accounts Receivable.

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 b. a debit to Sales Revenue and a credit to Unearned Revenue.

c. a debit to Cash and a credit to Accounts Receivable.

d. a debit to Accounts Receivable and a credit to Sales Revenue.

27. Which of the following is not among the first five steps in the accounting cycle?
a. Record transactions in journals.

b. Record closing entries.

c. Adjust the general ledger accounts.

d. Post entries to general ledger accounts.

28. In an accrual accounting system

a. all accounts have normal debit balances.

b. a debit entry is recorded on the left-hand side of an account.

c. liabilities, owner's capital, and dividends all have normal credit balances.

d. revenues are recorded only when cash is received.

29. Prudence 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.

30. When a large number of individuals, using the same measurement method, demonstrate that a high
degree of consensus can be secured among independent measurers, then the result exhibits the
characteristic of
a. verifiability.

b. neutrality.

c. relevance.

d. reliability.

PART 2 – PROBLEMS (2 points each)

31. After all of the account balances have been extended to the Income Statement columns of the work
sheet, the totals of the debit and credit columns are P92,300 and P67,600, respectively. What is the
amount of the net income or net loss for the period?
a. P24,700 net income

b. P24,700 net loss

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 c. P92,300 net income

d. P92,300 net loss

32. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet:

Accumulated Depreciation P 3,000

Fees Earned 20,000

Depreciation Expense 3,500

Insurance Expense 1,000

Prepaid Rent 4,000

Supplies 500

Net income for the period is:

a. P15,500

b. P 8,000

c. P15,000

d. P11,000

33. A summary of selected ledger accounts appear below for A. Joe's Appliance Services for the 2009
calendar year end.

Joe Smith, Capital

12/31 2,000 1/1 8,000

12/31 4,000

Joe Smith, Drawing

6/30 1,000 12/31 2,000

11/30 1,000

Income Summary

12/31 5,000 12/31 9,000

12/31 4,000

Net income for the period is:

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 a. P2,000

b. P5,000

c. P-0-

d. P4,000

34. If total liabilities decreased by P22,000 during a period of time and owner's equity increased by
P6,000 during the same period, then the amount and direction (increase or decrease) of the period's
change in total assets is:
a. P16,000 increase

b. P16,000 decrease

c. P6,000 decrease

d. P6,000 increase

35. If total assets decreased by P47,000 during a period of time and owner's equity increased by
P24,000 during the same period, then the amount and direction (increase or decrease) of the
period's change in total liabilities is:
a. P23,000 increase

b. P47,000 decrease

c. P71,000 decrease

d. P71,000 increase

36. The Medved Company sold vacant land for P60,000 in cash. The land was originally purchased for
P40,000, and at the time of the sale, P15,000 was still owed to First National Bank on that purchase.
After the sale, The Medved Company paid off the loan to First National Bank. What is the effect of
the sale and the payoff of the loan on the accounting equation?
a. assets increase P20,000; liabilities decrease P15,000; owner's equity increases
P5,000

b. assets increase P5,000; liabilities decrease P15,000; owner's equity

increases P20,000

c. assets increase P60,000; liabilities decrease P15,000; owner's equity increases

P20,000

d. assets increase P20,000; liabilities decrease P15,000; owner's equity increases

P35,000

37. On November 1 of the current year, the assets and liabilities of Jim Maza, M.D., are as follows:
Cash, P10,000; Accounts Receivable, P8,200; Supplies, P1,050; Land, P25,000; Accounts Payable,
P6,530. What is the amount of owner's equity (Jim Maza's capital) as of November 1 of the current
year?
a. P37,720

b. P44,430

c. P21,500

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 d. P48,780

38. The total assets and the total liabilities of a business at the beginning and at the end of the year
appear below. During the year, the owner had withdrawn P24,000 for personal use and had made
an additional investment of P15,000 in the business.

Assets Liabilities

Beginning of year P395,000 P190,000

End of year 555,000 320,000

The amount of net income or net loss for the year was:

a. net income of P30,000

b. net income of P39,000

c. net income of P54,000

d. net loss of P15,000

39. Hal Sharp is the sole owner and operator of SawTooth Company. As of the end of its accounting
period, December 31, 20X1, SawTooth Company has assets of P925,000 and liabilities of P285,000.
During 20X2, Hal Sharp invested an additional P50,000 and withdrew P30,000 from the business.
What is the amount of net income during 20X2, assuming that as of December 31, 20X2, assets
were P980,000, and liabilities were P255,000?
a. P 95,000

b. P 65,000

c. P165,000

d. P725,000

40. The net income reported on the income statement is P90,000. However, adjusting entries have not
been made at the end of the period for supplies expense of P2,700 and accrued salaries of P1,300.
Net income, as corrected, is:
a. P87,300

b. P90,000

c. P88,700

d. P86,000

41. The supplies account has a balance of P500 at the beginning of the year and was debited during the
year for P2,900, representing the total of supplies purchased during the year. If P750 of supplies are
on hand at the end of the year, the supplies expense to be reported on the income statement for the
year would be:
a. P1,650

b. P2,150

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 c. P2,400

d. P2,650

42. Beginning and ending Accounts Receivable balances were P28,000 and P24,000, respectively. If
collections from clients during the period were P80,000, then total services rendered on account
were apparently
a. P76,000.

b. P84,000.

c. P104,000.

d. P108,000.

43. On December 31 of the current year, Holmgren Company's bookkeeper made an entry debiting
Supplies Expense and crediting Supplies on Hand for P12,600. The Supplies on Hand account had
a P15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand
of P11,400. Only one purchase of supplies was made during the month, on account. The entry for
that purchase was
a. debit Supplies on Hand, P8,700 and credit Cash, P8,700.

b. debit Supplies Expense, P8,700 and credit Accounts Payable, P8,700.

c. debit Supplies on Hand, P8,700 and credit Accounts Payable, P8,700.

d. debit Supplies on Hand, P16,500 and credit Accounts Payable, P16,500.

44. The following errors were made in preparing a trial balance: the P1,350 balance of Inventory was
omitted; the P450 balance of Prepaid Insurance was listed as a credit; and the P300 balance of
Salaries Expense was listed as Utilities Expense. The debit and credit totals of the trial balance
would differ by
a. P1,350.

b. P1,800.

c. P2,100.

d. P2,250.

45. L. Lane received P12,000 from a tenant on December 1 for four months' rent of an office. This rent
was for December, January, February, and March. If Lane debited Cash and credited Unearned
Rental Income for P12,000 on December 1, what necessary adjustment would be made on
December 31?
a. Unearned Rental Income ............. 3,000

Rental Income .................... 3,000

b. Rental Income ...................... 3,000

Unearned Rental Income ........... 3,000

c. Unearned Rental Income ............. 9,000

Rental Income .................... 9,000

d. Rental Income ...................... 9,000

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 Unearned Rental Income ........... 9,000

46. Kite Company paid P24,900 in insurance premiums during 2009. Kite showed P3,600 in prepaid
insurance on its December 31, 2009, balance sheet and P4,500 on December 31, 2008. The
insurance expense on the income statement for 2009 was
a. P16,800.

b. P24,000.

c. P25,800.

d. P33,000.

47. The following balances have been excerpted from Edwards' balance sheets:

December 31, 2009 December 31, 2008

Prepaid Insurance P 6,000 P 7,500

Interest Receivable 3,700 14,500

Salaries Payable 61,500 53,000

Edwards Company paid or collected during 2009 the following items:

Insurance premiums paid P 41,500

Interest collected 123,500

Salaries paid 481,000

The insurance expense on the income statement for 2009 was

a. P28,000.

b. P40,000.

c. P43,000.

d. P55,000.

48. The following balances have been excerpted from Edwards' balance sheets:

December 31, 2009 December 31, 2008

Prepaid Insurance ............ P 6,000 P 7,500

Interest Receivable .......... 3,700 14,500

Salaries Payable ............. 61,500 53,000

Page 18 of 24
 Edwards Company paid or collected during 2009 the following items:

Insurance premiums paid ...... P 41,500

Interest collected ........... 123,500

Salaries paid ................ 481,000

The interest revenue on the income statement for 2009 was

a. P90,500.

b. P112,700.

c. P117,500.

d. P156,500.

49. Chips-n-Bits Company sells service contracts for personal computers. The service contracts are for a
one-year, two-year, or three-year period. All sales are for cash and all receipts are credited to
Unearned Service Contract Revenues. This account had a balance of P144,000 at December 31,
2009, before year-end adjustment. Service contract costs are charged as incurred to the Service
Contract Expense account, which had a balance of P36,000 at December 31, 2009. Service
contracts still outstanding at December 31, 2009, expire as follows:

During 2010 .................... P30,000

During 2011 .................... 45,000

During 2012.................... 20,000

What amount should be reported as unearned service contract revenues in Chips-n-Bits December 31,
2009, balance sheet?

a. P49,000

b. P59,000

c. P95,000

d. P108,000

50. The following balances have been excerpted from Edwards' balance sheets:
December 31, 2010 December 31, 2009

Prepaid Insurance ............ P 6,000 P 7,500

Interest Receivable .......... 3,700 14,500

Salaries Payable ............. 61,500 53,000

Edwards Company paid or collected during 2010 the following items:

Page 19 of 24
 Insurance premiums paid ...... P 41,500

Interest collected ........... 123,500

Salaries paid ................ 481,000

The salary expense on the income statement for 2010 was

a. P366,500.

b. P472,500.

c. P489,500.

d. P595,500.

51. First Company sold merchandise on credit to Second Company for P1,000 on July 1, with terms of
2/10, net /30. On July 6, Second returned P200 worth of merchandise claiming the materials were
defective. On July 8, First received a payment from Second and credited Accounts Receivable for
P450. On July 24, Second Company paid the remaining balance on its account. How much was the
total Sales Discounts given to Second during July?
a. P0

b. P9

c. P441

d. P2,441

52. First Company sold merchandise on credit to Second Company for P1,000 on July 1, with terms of
2/10, net /30. On July 6, Second returned P200 worth of merchandise claiming the materials were
defective. On July 8, First received a payment from Second and credited Accounts Receivable for
P450. On July 24, Second Company paid the remaining balance on its account. What was the total
cash received from Second during July?
a. P441

b. P450

c. P791

d. P800

53. Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at
a cost of P27,000 on credit. The entry to record the receipt of the cattle would be
a. Purchases ........................... 27,000

Accounts Payable .................. 27,000

b. Inventory ........................... 27,000

Accounts Payable .................. 27,000

c. Purchases ........................... 27,000

Cash .............................. 27,000

d. Inventory ........................... 27,000

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 Cash .............................. 27,000

54. Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle from Big D Ranch at
a cost of P19,500, payable at time of delivery. The entry to record the delivery would be
a. Purchases ........................... 19,500

Accounts Payable .................. 19,500

b. Inventory ........................... 19,500

Accounts Payable .................. 19,500

c. Purchases ........................... 19,500

Cash .............................. 19,500

d. Inventory ........................... 19,500

Cash .............................. 19,500

55. Beginning and ending Accounts Receivable balances were P28,000 and P24,000, respectively. If
collections from clients during the period were P80,000, then total services rendered on account
were apparently
a. P76,000.

b. P84,000.

c. P104,000.

d. P108,000.

56. Moon Company purchased equipment on November 1, 2009, by giving its supplier a 12-month, 9
percent note with a face value of P48,000. The December 31, 2009, adjusting entry is
a. debit Interest Expense and credit Cash, P720.

b. debit Interest Expense and credit Interest Payable, P720.

c. debit Interest Expense and credit Interest Payable, P1,080.

d. debit Interest Expense and credit Interest Payable, P4,320.

57. In November and December 2009, Bee Company, a newly organized newspaper publisher, received
P72,000 for 1,000 three-year subscriptions at P24 per year, starting with the January 2, 2010, issue
of the newspaper. How much should Bee report in its 2009 income statement for subscription
revenue?
a. P0

b. P12,000

c. P24,000

d. P72,000

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58. The following errors were made in preparing a trial balance: the P1,350 balance of Inventory was
omitted; the P450 balance of Prepaid Insurance was listed as a credit; and the P300 balance of
Salaries Expense was listed as Utilities Expense. The debit and credit totals of the trial balance
would differ by
a. P1,350.

b. P1,800.

c. P2,100.

d. P2,250.

59. Sky Company's salaries expense for 2009 was P136,000. Accrued salaries payable on December
31, 2009, was P17,800 and P8,400 on December 31, 2008. The cash paid for salaries during 2009
was
a. P126,600.

b. P127,600.

c. P145,400.

d. P153,800.

60. Winston Company sells magazine subscriptions for one- to three-year subscription periods. Cash
receipts from subscribers are credited to Magazine Subscriptions Collected in Advance, and this
account had a balance of P9,600,000 at December 31, 2009, before year-end adjustment.
Outstanding subscriptions at December 31, 2009, expire as follows:

During 2010 .................. P2,600,000

During 2011 .................. 3,200,000

During 2012 .................. 1,800,000

In its December 31, 2009, balance sheet, what amount should Winston report as the balance for
magazine subscriptions collected in advance?

a. P2,000,000

b. P3,800,000

c. P7,600,000

d. P9,600,000

61. Ingle Company paid P12,960 for a four-year insurance policy on September 1 and recorded the
P12,960 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Ingle
make on December 31, the end of the accounting period?
a. Prepaid Insurance .................. 810

Insurance Expense ................ 810

b. Insurance Expense .................. 1,080

Prepaid Insurance ................ 1,080

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 c. Insurance Expense .................. 3,240

Prepaid Insurance ................ 3,240

d. Prepaid Insurance .................. 11,880

Insurance Expense ................ 11,880

62. Bannister Inc.'s fiscal year ended on November 30, 2009. The balance in the prepaid insurance
account as of November 30, 2009, was P35,200 (before adjustment) and consisted of the following
policies:

Policy Date of Date of Balance in

Number Purchase Expiration Account

279248 7/1/2009 6/30/2010 P14,400

694421 12/1/2007 11/30/2009 9,600

800616 4/1/2008 3/31/2009 11,200

P35,200

The adjusting entry required on November 30, 2009, would be

a. Insurance Expense ................... 24,000

Prepaid Insurance ................. 24,000

b. Insurance Expense ................... 9,600

Prepaid Insurance ................. 9,600

c. Insurance Expense ................... 11,200

Prepaid Insurance ................. 11,200

d. Insurance Expense ................... 16,400

Prepaid Insurance ................. 16,400

63. Thompson Company sublet a portion of its office space for ten years at an annual rental of P36,000,
beginning on May 1. The tenant is required to pay one year's rent in advance, which Thompson
recorded as a credit to Rental Income. Thompson reports on a calendar-year basis. The adjustment
on December 31 of the first year should be
a. Rental Income ....................... 12,000

Unearned Rental Income ............ 12,000

b. Rental Income ....................... 24,000

Unearned Rental Income ............ 24,000

c. Unearned Rental Income .............. 12,000

Rental Income .................... 12,000

Page 23 of 24
 d. Unearned Rental Income .............. 24,000

Rental Income .................... 24,000

64. Sky Company collected P12,350 in interest during 2009. Sky showed P1,850 in interest receivable
on its December 31, 2009, balance sheet and P5,300 on December 31, 2008. The interest revenue
on the income statement for 2009 was
a. P3,450.

b. P8,900.

c. P12,350.

d. P14,200.

65. The work sheet of PSI Company shows Income Tax Expense of P9,000 and Income Tax Payable of
P9,000 in the Adjustments columns. What will be the ultimate disposition of these items on the work
sheet?
a. Income Tax Expense will appear as a debit of P9,000 and Income Tax Payable as
credit in the Balance Sheet columns.

b. Income Tax Expense will appear as a debit of P9,000 and Income Tax Payable as
credit in the Income Statement columns.

c. Income Tax Expense will appear as a debit of P9,000 in the Balance Sheet
columns and Income Tax Payable as credit in the Income Statement columns.

d. Income Tax Expense will appear as a debit of P9,000 in the Income

Statement columns and Income Tax Payable as credit in the Balance Sheet
columns.

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