MULTIPLE CHOICE

1. All the statements below pertain to periodic inventory system except:

A. Inventory account is only updated when physical count is performed
B. Cost of goods sold is always recorded every time there is a sale transaction
C. Cost of goods sold is determined only periodically
D. It is normally used for inexpensive items

2. Which of the following is most likely not considered an adjusting entry?

A. The accrual of an electricity bill for electricity used but not yet paid
B. The recognition of depreciation expense for the period
C. The recognition of the used and unused portion of a prepaid rent
D. The entry to record collection of interest receivable

3. Which of the following results to the amount of cost of goods sold?

A. Inventory, beg. + Inventory, end - Net purchases
B. Net purchases - Inventory, end
C. Inventory, beg + Net purchases - Inventory, end
D. Sale price x Number of units sold

4. A business rents an office space. The business failed to pay the monthly rentals for November and
December by the end 2019. The business settled the unpaid rent in 2020. The unpaid rentals should
be recognized as expense in:
A. 2019
B. 2020
C. Partly 2019 and partly 2020
D. Not recognized as expense

5. An item not found in the statement of financial position is:

A. Unearned Revenue
B. Allowance for Doubtful Accounts
C. Depreciation Expense
D. None of the above

6. The report prepared to determine whether the totals of debits and credits in the accounts are equal is
the:
A. Journal
B. Ledger
C. Trial balance
D. Income Statement

7. Which of the following is not a purpose of closing entries?

A. To close nominal accounts so the profit or loss in the current period will not be mixed
with the profit or loss in the next accounting period
B. To apply the concept of time period
C. To zero-out the balances of all nominal accounts
 D. To update the balances of certain accounts to take up unrecognized income
and expenses

8. Which of the following does not represent a sale?

A. Merchandise placed aside for a customer who plans to come next week and
pay with cash
B. Purchase of merchandise by a customer who pays cash
C. Sale of merchandise to a customer who uses a credit card
D. Purchase of merchandise by a customer who uses a debit card

9. The account credited by the debtor when a promissory note is issued

A. Notes Receivable
B. Notes Payable
C. Interest Payable
D. Interest Income

TRUE OR FALSE
1. External business forms are used only within the company. False
2. Under the sale term 1/10, net 30, the discount is valid until the 10th day from the date of
purchase. True
3. From the standpoint of the maker of the note, interest is an expense. True
4. Unearned Revenue is a liability account. True
5. Accrued Expense is a contra-asset account. False
6. Recording an expense that is already incurred but not yet paid is referred to as posting. False
7. The correct sequence of the steps in the accounting cycle: Identifying and Analyzing,
Journalizing, Posting, Trial Balance. True
8. Adjustment entries refer to entries prepared prior to the preparation of financial statements to
update certain accounts so that they reflect the correct balances as of the designated time. True
9. Both sales on cash and on credit are recorded as revenues. False
10. A customer may be granted a cash discount or a trade discount, but not both simultaneously.
False

PROBLEM-SOLVING
1. Returned damaged goods worth Php2,000 to the supplier would have a credit entry of
A. Sales Returns 2,000
B. Purchase Returns 2,000
C. Purchases 2,000
D. Inventory 2,000

2. If Personal Taste Co. sold goods costing Php82,000 for Php123,000 on account, a debit to which
account should be recorded for the sale?
A. Accounts Receivable 82,000
B. Accounts Receivable 123,000
C. Cost of Goods Sold 123,000
D. Cash 123,000
 3. Alpha Motors, an automobile dealer, sold three vans to Mango Rent-a-Car on April 1, for the total
price of Php1,500,000. Under the terms of the sale, Alpha Motors received Php500,000 cash and
a promissory note due in full 24 months later. April 1 journal entry for Alpha Motors should
include a debit to
A. Automobile 1,500,000
B. Automobile 500,000
C. Automobile 2,000,000
D. Notes Receivable 1,000,000

4. Entity A had a beginning inventory of Php10. During the period, Entity A’s net purchase totaled
Php100. Entity A’s total goods available for sale during the period was
A. Php 90
B. Php 110
C. Php 1,000
D. Answer not given

5. On January 1, 2020. Entity A acquires a computer equipment for Php 120,000. The computer is
expected to be used over the next five years. How much is the depreciation expense per year?
A. 120,000
B. 24,000
C. 12,000
D. 0

6. Assume that rent of Php14,400 was paid on September 1, 2019 to cover a one-year period from
that date. Prepaid Rent was debited. If financial statements are prepared only on December 31
of each year, what adjusting entry is necessary on December 31, 2019 to bring the accounts
involved to their correct balances?
A. [Dr] Rent Expense = 1,200 [Cr] Cash = 1,200
B. [Dr] Rent Expense = 1,200 [Cr] Prepaid Rent = 1,200
C. [Dr] Rent Expense = 4,800 [Cr] Prepaid Rent = 4,800
D. [Dr] Prepaid Rent = 4,800 [Cr] Rent Expense = 4,800

7. Building was acquired on January 1, 2018 at Php200,000. The usefulness of the building is 25
years and the estimated salvage value is Php40,000. How much is the Accumulated Depreciation
to be recorded as of December 31, 2019 in the Statement of Financial Position?
A. 6,400
B. 12,800
C. 160,000
D. 40,000

Answer questions 8-12 from the information below:

Sales Php10,000,000
Sales Discount 80,000
Sales Returns and Allowances 60,000
Operating Expenses 1,700,000
Merchandise Inventory, Dec. 31 210,000
Merchandise Inventory, Jan. 1 240,000
Purchases 5,400,000
Freight In 200,000
Purchase Discount 120,000
Purchase Returns & Allowances 160,000

8. How much is the cost of goods sold?

A. 5,000,000
B. 5,350,000
C. 5,110,000
D. 5,560,000

9. How much is net sales?

A. 9,860,000
B. 8,160,000
C. 10,000,000
D. 7,960,000

10. How much is net purchases?

A. 5,400,000
B. 5,880,000
C. 5,320,000
D. 5,560,000

11. How much is gross profit?

A. 4,510,000
B. 2,810,000
C. 8,160,000
D. 7,950,000

12. How much is net income?

A. 7,950,000
B. 2,810,000
C. 4,510,000
D. 8,160,000

NUMERICAL ANSWER
1. Art Co. on November 1 borrowed Php50,000 from a local bank, and agreed to repay that amount
plus 12% interest at the end of the year. Compute for interest incurred by Art Co. as of
December 31.
50,000 x 12% x 2/12 = 1,000

2. Sampaguita Company purchased machinery for Php50,000 on July 1, 2018. It is estimated that it
will have a useful life of 10 years and scrap value of Php2,000. Compute the depreciation for
2018 and 2019 using the straight-line method.
 For 2018 = 2,400
For 2019 = 4,800

3. Based on the given data, compute for the cost of goods sold and net income:
Sales………………………………………….....Php85,000
Merchandise Inventory, 1/1……………..20,000
Merchandise Inventory, 12/31………….26,000
Purchases……………………………………...55,000
Purchase Discounts………………………...1,000
Purchase Returns & Allowances……….2,000
Freight In……………………………………...3,000
Selling Expenses…………………………….4,500
Administrative Expenses………………….3,800

Cost of Goods Sold = 49,000

Net Income = 27,700