TRUE OF FALSE

1. The terms of bookkeeping and accounting are synonymous.

2. Increases in asset and decreases in revenue accounts should be entered on the left side of a T
account
3. The bottom line of the trial balance indicates the profitability of the business.
4. Receiving payments on an account receivable increase both equity and assets
5. Recording the expiration of a prepaid asset results in the reduction of the asset account and
an increase in the related expense account.
6. The firm should use different accounting method from period to period to achieve
comparability over time within a single enterprise.
7. Accounting is a service activity whose function is to provide quantitative information about
economic entities.
8. The accounting process consists of the recording phase and the summarizing phase.
9. Double entry bookkeeping means that the accountant should reflect the dual effects of a
business transaction.
10. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the
invoice date to take advantage of the cash discount.
11. Cash purchase is both a purchase transaction and a cash payment transaction. Thus, requires
two separate entries.
12. The term freight prepaid or freight collect will dictate who will pay the transportation costs.
13. All adjusting entries involve one entry to an income statement account and another entry to a
balance sheet account
14. Accumulated depreciation and bad debts expense are examples of contra assets.
15. Closing entries result in the transfer of profit or loss into the owner’s capital account.

MULTIPLE CHOICE

16. Nina Ricci Company has just completed its first year of operation. Which of the company’s
financial statements cannot be prepared directly from the adjusted trial balance?
a. Statement of Capital
b. Statement of Financial Position
c. Statement of Comprehensive Income
d. All of the above can be prepared directly from the adjusted trial balance

17. Which of the following complete description of a transaction is not possible?

a. increase asset, decrease equity
b. increase asset, increase liability
c. decrease asset, decrease liability
d. increase liability, decrease equity

18. Adjusting entries are recorded because an entity

a. has expenses
b. uses the accrual basis of accounting
c. uses the cash basis of accounting rather than the accrual basis
d. has earned revenue during the period by rendering services to customers
19. The bookkeeper of Benetton Company recorded the payment of a credit customer as a debit
to cash and credit to accounts payable. The erroneous recording of transaction would result
to:
a. understatement of accounts receivable and accounts payable
b. overstatement of accounts receivable and understatement of accounts payable
c. understatement of accounts receivable and overstatement of accounts payable
d. Overstatement of accounts receivable and accounts payable

20. A trial balance is

a. prepared before the posting process is completed
b. a list of income statement accounts with their balances
c. a list of balance sheet accounts with their balances
d. a list of all accounts with their balances

21. Which of the following is not considered in computing net cost of purchases?
a. transportation cost paid on purchased goods
b. transportation cost paid on goods shipped to customers
c. purchase returns and allowance
d. purchases

22. If revenues are greater than expenses, the income summary account will be closed by
a. crediting income summary and debiting capital account
b. debiting income summary and crediting capital account
c. debiting cash and crediting income summary
d. debiting income summary and crediting cash

23. Posting involves

a. The transferring of amounts from the journal to the appropriate accounts in the ledger
b. Preparation of source documents
c. The transferring of amounts from the source document to the journal
d. Preparation of the trial balance

24. Credit term expression 3/20; n/30 means

a. the invoice must be paid in 3 to 20 days, otherwise, interest for 30 days will be charged
b. a 3% discount is given if the invoice is paid in 20 to 30 days; otherwise, the total invoice is
due
c. a 3% discount is given if the invoice is paid within 20 days, otherwise, the total invoice is
due in 30 days
d. A 3% discount is given if the invoice is paid within 30 day
 25. If a company collected its outstanding trade accounts receivable within the discount period,
the entry upon collection will include
a. debit sales discount
b. credit trade discount
c. debit purchase discount
d. credit sales discount
26. Operating Income will result if gross profit exceeds
a. operating expense
b. purchases
c. cost of goods sold
d. net sales
27. A device used to facilitate the preparation of the adjusting entries and the financial
statements is the
a. Journal
b. Worksheet
c. Trial balance
d. Ledger
28. 28. The following are closed to income summary except:
a. Sales
b. Drawing
c. Expenses
d. Purchases
29. Net Sales less Cost of Goods Sold will equal
a. Net Income
b. Operating Income
c. Gross margin
d. Merchandise Inventory, end
30. The inventory of a merchandising entity consists of goods bought for resale. Which is not part
of the inventory of a grocery store?
a. canned goods
b. meat and vegetables
c. computer equipment
d. dried goods

MULTIPLE CHOICE

1. On December 1, 2017, a client advanced P 80,000 for services to be rendered first quarter of
2018. The liability method was used to record the collection of the said amount. What amount
is recognized as revenue for the year 2017?

2. The following data is available from the records of Spurs Merchandising Company: Cost of
Goods Available for Sale - P 3, 100,000; Gross Profit -P900,000; Net Sales - P 3,000,000; Net
Purchases - P 2,600,000; Operating expenses - P 1,040,000; What is the company's ending
inventory?
3. The company’s net income (loss) given the data in number 32 is: Put a parenthesis if your
answer is a net loss).

4. Given: Sales P 600,000; Purchases P 228,000; Ending Inventory P 56,000; Operating expenses
P 168,000; Net Income P 44,000. How much is the cost of sales?

5. A buyer received an invoice for P 60,000, inclusive of 12% VAT dated November 2. If the terms
are 2/10, n/30 and the buyer paid the invoice within the discount period, what amount will
the seller receive?

6. Celtics Company has P 40,000 in revenues, P 88,000 in expenses, P 24,000 in owner

investment, P 6,000 in owner’s withdrawals, and P 30,000 in liabilities paid off. Owner’s equity
changes by: (Put a parenthesis if the change is a decrease)

7. Lanvin Company obtained a loan from PN Bank amounting to P750,000 on November 21,
2019. On the same date, the company issued a 60 day, 12% promissory note to the bank.
Upon closing of the company's books on December 31, 2019, adjustment for accrued interest
expense must be prepared in the amount of:

8. The accounts in the ledger of Pacers Company are as follows: . All accounts have normal
balances. Accounts payable 300; Owner’s equity 2,800; Accounts receivable 400; Prepaid Rent
400; Accrued utilities 100; Rent expense 150; Cash 1,500; Unearned fees 200; Drawings 200;
Utilities expense 50; Fees earned 1,900; Wages expense 350; Insurance expense 250; Land
2,000. In preparing the trial balance, the total credit is

9. Using data in number 38, Pacer Company's net income is

10. On June 1, 2019, Pitt Company sold merchandise with a list price of P 50,000 to Bull Company
on credit. Pitt allowed trade discounts of 20% and 10%. Credit terms were2/15, n/40 and the
sale was made FOB destination (freight is assumed by the seller). Bull paid P2,000 freight
costs. On June 12, 2019, how much did Pitt collected from Bull as full payment?

11. On June 1, 2019, Parker Company purchased a delivery equipment for P 250,000 with an
estimated life of 25 years and a salvage value of P 10,000. Parker Co. decided to use the
straight line method of depreciation. How much will be the depreciation expense on
December 31, 2019?

12. Using data in number 41, how much will be the accumulated depreciation on December 31,
2026?
13. At the end of March 2017, the first quarter of operations, the following selected data were
taken from the financial records of Lacoste Company: First Quarter profit P 39,750 ; Total
Assets as of March 31, 2017 P 189,700 ; Total liabilities as of March 31, 2017 P 20,200. In
preparing the financial statements, the following adjustments were overlooked: a) Supplies
used during the first quarter, P 1,750; b) Unbilled fees earned at March 31, 2017, P 2,900; c)
Depreciation of equipment for the quarter, P 2,500; d) Accrued salaries at March 31, 2017, P
1,500 . How much is the adjusted amount of profit for the first quarter ending March 31,
2017?

14. As of May 31, 2019, Mr. Davis has a capital balance of P 235,000. During the month of June,
he withdrew P 15,000 to be used for his annual check-up. His company's income statement
revealed various expenses totalling P 89,000, thereby a Net Loss of P 7,150. During the same
period, he was unable to pay a note amounting to P 10,000. How much would be the capital
balance of Mr. Davis at the end of June 2019.

15. The balance sheet of Tala Company shows owner's equity of P 340,000 which is equal to 2/3
the amount of total assets. What is the amount of total assets?

16. Using data in number 45, what is the amount of liabilities?

17. Isabel Company had assets of P 145,000 and liabilities of P 94,000 at the beginning of the
year. during the year, assets decreased by P 32,000 and total liabilities decreased to P 72,000.
Total expenses were P 40,000. There were no additional investments nor withdrawals during
the year. What is the amount of revenues for the period?

18. The following information was taken from the bools of Annakel Trading Company: Purchases
P 127,500; Sales P 423,500; Purchase discount P 3,785; Sales discount P 5,765; Beginning
Inventory P 29,000; Ending Inventory P 17,400; Selling expenses P 78,575; Administrative
expenses P 68,475. How much is the gross profit of Annakel Trading Company?

19. . Using the data in number 48, how much is the net income?

20. The unadjusted trial balance of Butler Company on December 31, 2019 showed the Accounts
Receivable with a debit balance of P 75,000 and a credit balance of P 1,500 for the Allowance
for Bad debts. The management estimated that bad debts will 5% of the outstanding accounts
receiveble. How much is the bad debts expense for 2019?
ANSWER KEY:

1. F
2. T
3. F
4. F
5. T
6. F
7. T
8. T
9. T
10. F
11. F
12. T
13. T
14. F
15. T
16. D
17. A
18. B
19. D
20. D
21. B
22. B
23. A
24. C
25. A
26. A
27. B
28. B
29. C
30. C

PROBLEM SOLVING

1. 0
2. 1,000,000
3. (140,000)
4. 388,000
5. 58,800
6. (30,000)
7. 10,000
8. 5,300
9. 1,100
10. 33,280
11. 5,600
12. 72,800
13. 36,900
14. 212,850
15. 510,000
16. 170,000
17. 30,000
18. 282,420
19. 135,370
20. 2,250