FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance

ACT1101 - Financial Accounting and Reporting

Part I

Completion of the Accounting Cycle (Service Industry)

1.) All of the following statements are correct except:

a.) the worksheet cannot be used as a basis for posting to ledger accounts
b.) financial statements can be prepared directly from the worksheet before journalizing and posting
adjusting journal entries.
c.) the worksheet is distributed to management and other interested parties
d.) worksheet is essentially a working tool of the accountant

2.) In what columns of the worksheet does net income appear?

a.) Statement of Comprehensive Income (Dr) and Financial Position (Cr)

b.) Statement of Comprehensive Income (Dr) and Financial Position (Dr)
c.) Statement of Comprehensive Income (Cr) and Financial Position (Cr)
d.) Statement of Comprehensive Income (Cr) and Financial Position (Dr)

3.) After recording and posting the closing entries, which of t he following accounts will have zero
balance?

a.) Professional fees

b.) Advertising supplies
c.) Prepaid rent
d.) Allowance for doubtful accounts

4.) When a net loss has occurred, Income Summary is:

a.) credited and owner's drawing is debited

b.) debited and owner's drawing is credited
c.) credited and owner's capital is debited
d.) debited and owner's capital is credited
5.) The closing process involves separate entries to close (1) expenses, (2) drawings, (3) revenues and
(4) income summary. The correct sequencing of the entries is:

a.) (4), (3), (2), (1)

b.) (1), (2), (3), (4)
c.) (3), (1), (4), (2)
d.) (3), (2), (1), (4)

6.) The post-closing trial balance includes which of the following accounts?

a.) Permanent (real) accounts

b.) Temporary (nominal) accounts
c.) Accounts shown in the income statement
d.) None of the above

7.) Which of the following is not required step in accounting cycle?

a.) Financial statement preparation

b.) Worksheet preparation
c.) Recording and posting closing entries
d.) Journalizing the transactions

8.) Cash of P10,000 received at the time the service was rendered was journalized and posted as a
debit to Cash P10,000 and credit to Accounts Receivable P10,000. The correcting entry is:

a.) debit service revenue 10,000 and credit accounts receivable 10,000
b.) debit accounts receivable 10,000 and credit service revenue 10,000
c.) debit cash 10,000 and credit service revenue 10,000
d.) debit accounts receivable 10,000 and credit cash 10,000

9.) Current assets are arranged according to:

a.) liquidity c.) longevity

b.) importance d.) alphabetical

10.) The debit column total is greater than the credit-column total under the income statement
portion of the worksheet would mean:

a.) The Income Summary account will have a credit balance

b.) Mistakes were made in the preparation of the adjusted TB
c.) The Company had a profitable year
d.) The Company had a loss this year.
11.) Why does accountant find a worksheet useful?

a.) It helps the accountant organize data and compute net income or loss for the period
b.) It helps the accountant prepare for end-of-period financial statements
c.) It helps the accountant prepare adjusting entries and closing entries
d.) All of these are benefits using a worksheet

12.) Which of the following should be closed to Income Summary

a.) Accumulated depreciation

b.) Withdrawals
c.) Salaries Expense
d.) All of these

13.) The post-closing trial balance of Santos Bakery includes the account balances below. Which one(s)
indicate a possible error?

a.) Santos, Drawing P9,870 debit balance

b.) Income Summary, P1,620 debit balance
c.) Interest revenue, P3,000 credit balance
d.) All of these indicates error

14.) Which situation indicates net loss on the income statement?

a.) Total debits exceeds total credits

b.) Total debits equal total credits
c.) Total credits exceeds total debits
d.) none of these

15.) Supplies has a balance that is P960 less in the worksheet's balance sheet column than in the
worksheet's unadjusted trial balance debit column. This would be a result of:

a.) A P1,920 entry to Supplies Expense in the worksheet's adjustments debit column
b.) A P960 entry to Supplies Expense in the worksheet's adjustment credit column
c.) A P960 entry to Supplies in the worksheet adjustment credit column
d.) A P960 entry to Supplies in the worksheet adjustments debit column
16.) The accountant left two journal entries off the adjustment column of the worksheet:

- P800 of service revenue was not accrued

- P1,200 of unearned revenue had been earned, but no journal entry was made.

What should be the amount of net income if the unadjusted net income was P46,000?

a.) P48,000
b.) P45,600
c.) P46,400
d.) P44,000

17.) Salaries Expense on the worksheet's Trial Balance debit column has P90,000 balance and a
P112,500 balance on the worksheet's income statement debit column. The difference is due to:

a.) An entry in worksheet's adjustment column for P90,000 to Salaries Expense

b.) An entry in the worksheet's adjustment credit column for P22,500 to Salaries Expense
c.) An entry in the worksheet's adjusment credit column for P22,500 to Salaries Payable
d.) None of these

18.) On December 31, the Company correctly made an adjusting entry to recognize P4,000 of accrued
salaries payable. On January 8 of the next year, total salaries of P6,800 were paid. Assuming the
correct reversing entry was made on January 1, the entry on January 8 will result in a credit to Cash
P6,800 and the following debits:

a.) Salaries Payable P2,800 and Salaries Expense P4,000

b.) Salaries Payable P4,000 and Salaries Expense P2,800
c.) Salaries Expense P6,800
d.) Salaries Payable P6,800

19.) Liabilities and owner's equity exceed total assets on the balance sheet by P6,000. This could be a
result of:

a.) failure to close the withdrawals account of P6,000 to the capital account
b.) failure to close income summary account's credit balance of P6,000 to capital account
c.) failure to close salary expense of P3,000 to the income summary account
d.) failure to post either side of a P1,500 cash purchase of office furniture
II. Merchandising Business

1.) Under periodic inventory system the accounts debited to record the cost of merchandise
purchased is:

a.) Merchandise Inventory c.) Purchase return and allowances

b.) Purchases d.) Purchase discount

2.) The inventory system that requires the maintenance of stockcard is :

a.) Perpetual system c.) FOB destination

b.) Periodic system d.) FOB shipping point

3.) The seller bears the transportation cost of merchandise sold if the terms of shipment is:

a.) FOB Shipping point c.) Freight prepaid

b.) FOB Destination d.) Freight collect

4.) The terms of shipment wherein title of the ownership to goods is transferred from the seller to the
buyer only upon the buyer's receipt of merchandise.

a.) FOB Shipping point c.) Freight prepaid

b.) FOB Destination d.) Freight collect

5.) The following are contra accounts, except

a.) Sales discount c.) Purchase returns and allowances

b.) Allowance for bad debts d.) Transportation-in

6.) An account that is deducted from its related account

a.) Adjunct Account c.) Purchase returns and allowances

b.) Contra Account d.) Purchases

7.) Which is classified as adjunct account?

a.) Sales discount c.) Merchandise inventory

b.) Allowance for bad debts d.) Transportation-in

8.) Which is not reflected in the accounting books.

a.) Trade discount c.) Sales discount

b.) Sales return d.) Purchase discount
9.) An account that is added to its related account

a.) Purchases c.) Adjunct account

b.) Cost of goods sold d.) Contra account

10.) A discount offered to encourage the early payment of account

a.) Trade discount c.) Cash discount

b.) Sales discount d.) Uncollectible accounts expense

11.) The major expense of a merchandising business is:

a.) Rent expense c.) Depreciation

b.) Cost of goods sold d.) Uncollectible accounts expense

12.) A purchase discount results from

a.) Returning goods to the seller

b.) Buying large quantity of merchandise
c.) Receiving a purchase allowance
d.) Paying within a discount period

13.) Noy Company purchased merchandise, the invoice for P84,500 includes P4,500 freight and terms
3/15, n/30. Merchandise in the amount of P12,000 was returned and the balance of the invoice was
paid within the discount period. How much cash was disbured by Noy in full settlement of the
account?

a.) P84,500 c.) P72,500

b.) P70,325 d.) P65,960

14.) If merchandise purchased on account is returned, the buyer may inform the seller by issuing:

a.) debit memorandum c.) sales invoice

b.) credit memorandum d.) official receipt

15.) The document issued by the seller to the buyer upon sale of merchandise is:

a.) debit memorandum c.) sales invoice

b.) credit memorandum d.) official receipt
16.) The document issued by the seller to the buyer upon payment of the buyer.

a.) debit memorandum c.) sales invoice

b.) credit memorandum d.) official receipt

17.) If merchandise sold on account to a customer for P10,000, terms FOB shipping point, 1/10, n/30
and the seller prepays the transportation costs of P500, the amount of the discount for early payment
would be:

a.) P0 c.) P100

b.) P50 d.) P105

18.) Company S and Company B are both VAT registered entities. On September 7, B Company bought
merchandise from S Company with an invoice price of P62,720, with the terms 2/10, n/30. On
September 9,B Company returned merchandise with an invoice price of P6,720. On September 13, B
Company paid full the remaining balances.

On September 7, how much input VAT should be recorded by Company S?

a.) P7,530 c.) P6,000

b.) P6,720 d.) 0

19.) On September 7, how much sales should be recorded by Company S?

a.) P62,720 c.) P55,190

b.) P56,000 d.) 0

20.) On September 9, how much should be debited by Company S as Sales Returns and Allowances?

a.) P6,720 c.) P7,550

b.) P6,000 d.) 0

21.) On September 13, how much should be the final settlement of B Company?

a.) P49,000 c.) P55,729

b.) P55,000 d.) P0
III. Special Journals and Subsidiary Ledgers

1.) When special journals are used

a.) All cash receipts except from cash sales of merchandise are recorded in the Cash Receipts Journal
b.) All cash payments by check are recorded in the Cash Disbursement Journal
c.) All purchase transactions are recorded in the Purchase Journal
d.) All sales transactions are recorded in the Sales Journal
e.) General Journal is not used

2.) If an accounting system includes an Accounts Receivable controlling account and an Accounts
Receivable Ledger

a.) Two accounts are credited when posting cash receipts from credit customers.
b.) The rule that debits must equal credits is not maintained.
c.) Two accounts are debited when posting credit sales
d.) Two accounts are debited when posting cash sales
e.) Both (a) and ( c ) are correct.

3.) When a customer returns merchandise for a cash refund, the sellers enter transaction in the:

a.) Sales returns and allowances c.) Cash disbursement journal

b.) General Journal d.) Sales Journal

4.) Accounts Payable is a credit column in

a.) Cash disbursement journal c.) Purchase Journal

b.) Cash receipts journal d.) Sales Journal

5.) Superstar Company purchased inventory from Megastar Company and received the credit memo
from Megastar Company. Megastar had charged Superstar P27.50 rather than P25.70 for each of the
1,000 items ordered. What correcting entry should Superstar make?

a.) Sales Returns and Allowances 1,800

Accounts Receivable - Megastar 1,800

b.) Accounts Payable - Megastar 1,800

Purchase Returns and Allowances 1,800

c.) Purchase Returns and Allowances 1,800

Accounts Payable 1,800

d.) No journal entry

6.) On March 30, Ace Hardware received a check from a customer for payment of an invoice. The
P6,000 invoice was dated March 22, and included credit terms of 1/10, n/45. On March 25, the
customer returnd P600 of the merchandise because it was defective. How would this transactions be
recorded in Ace's cash receipts journal?

a.) Cash P5,400; Sales Returns and Allowances, P600 ; Accounts Receivable, P6,000.
b.) Cash P5,940; Sales Discounts, P60; Accounts Receivable, P6,000
c.) Cash P5,346; Sales Discounts, P54; Accounts Receivable, P5,400
d.) Cash P6,000; Accounts Receivable P6,000

7.) The end-of- the month balance of Mario's cash receipts journal "Sundry Accounts, Amount" is
P19,870. How will this column be posted and what posting reference will be entered?

a.) The total will be posted to cash as a debit, and the cash general ledger account number is in the
posting reference.
b.) The individual items are posted rather than the total, and a check is entered in the posting
reference.
c.) The total will not be posted and there will be no posting reference.
d.) None of these

8.) Recording in the Cash Receipts Journal is more efficient in the general journal because:

a.) dates are estimated in the cash receipts journal

b.) specialized columns reduces recording time
c.) the recording space is limited
d.) additional explanations are required in cash receipts journal

9.) The use of special journal is contingent upon

a.) the repetitive nature of some type of transactions

b.) the type of product sold by the company
c.) the peso amount of cash transactions
d.) the type of company involved

10.) Which of the following column is not found in the cash disbursement journal.

a.) a column for the account debited

b.) a column for accounts receivable
c.) a column for cash
d.) a column for the date the check was made
Special Journals II

Assume the Company is using a system with 5 special journals. Incate in which journal should the
following be recorded.

A Sales Journal
B Purchase Journal
C Cash Receipts Journal
D Cash Disbursement Journal
E General Journal

1 Purchase of equipment for cash

2 Payment of rent expense
3 Sale of merchandise for cash
4 Advance payment of insurance premiums for 1 year
5 Borrowed cash from the bank on account
6 Investment of additional cash by the owner
7 Issuance of credit memorandum to a customer
8 Payment to creditors on account
9 Recording of depreciation of equipment
10 Closing of the owner's drawing account for the year
11 Sales of merchandise with terms 2/10, n/30
12 Purchase of merchandise on account using perpetual inventory system
13 Purchased equipment on account issuing promissory note
14 Recording of unearned revenue adjusting entry using revenue method
15 Recording of uncollectible accounts on accounts receivable
True or False

1.) Like adjusting journal entries, reversing journal entries are entered during the last day of the
accounting period.
2.) Upon posting closing journal entries the balance of accumulated depreciation will be zero
3.) Current liabilities are debts, usually due within one year the payment normally includes current
assets.
4.) Interim financial statements are financial statements prepared in the middle of the year.
5.) If the total debits of the Income Statement column of the worksheet exceeds total credit, this
means that the Company is profitable during the year.
6.) If the total debits of the Balance sheet column exceeds the total credit, this means that the
Company is Profitable during the year.
7.) Adjusting journal entries that increases assets or liabilities are reversed.
8.) Purchases is an asset account
9.) Purchase Returns and Allowances are contra accounts
10.) An entity is a merchandising entity if it is engaged in buying and selling of products.
11.) The seller should credit sales returns and allowances, whenever the buyer return merchandise
sold.
12.) It is a requirement for an entity using periodic inventory system to conduct inventory count.
13.) Entity using perpetual inventory system can conduct inventory count
14.) If the terms of shipment is FOB shipping point, the seller should record freight - in
15.) A buyer should never record freight-out into its accounting books.
16.) Recording of unpaid salaries should be recorded on general journal
17.) Special journals are also the book of original accounts
18.) Input VAT / Input Tax are presented as current assets in the balance sheet
19.) Entity using a perpetual inventory system should not use sales returns allowances and sales
discount account.
20.) Merchandise returned by the buyer for merchandised bought on account should be recorded by
the seller on the General Journal
Answer Key

Part 1 (Completion of the Accounting Cycle)

1 C
2 A
3 A
4 C
5 C
6 A
7 B
8 B
9 A
10 D
11 D
12 C
13 D
14 A
15 C
16 A
17 C
18 C
19 A

Part 2 Merchandising

1 B
2 A
3 B
4 B
5 D
6 B
7 D
8 A
9 C
10 B
11 B
12 D
13 D
14 A
15 C
16 D
17 C
18 D
19 B
20 B
21 B
Part 3 Special Journals

1 B
2 E
3 C
4 C
5 D
6 C
7 B
8 B
9 A
10 B

Special Journals II

1 D
2 D
3 C
4 D
5 C
6 C
7 E
8 D
9 E
10 E
11 A
12 B
13 B
14 E
15 E
True or False

1 FALSE
2 FALSE
3 TRUE
4 TRUE
5 FALSE
6 TRUE
7 TRUE
8 FALSE
9 TRUE
10 TRUE
11 FALSE
12 TRUE
13 TRUE
14 FALSE
15 TRUE
16 TRUE
17 TRUE
18 TRUE
19 FALSE
20 TRUE