Diagnostic Assessment

1. Auditing is the independent examination of the financial statements of a company

and expressing as to the accuracy of the calculations of the bookkeeper.
2. The expense recognition principle which requires that costs and expenses incurred
in generating the revenue should be properly matched against the related revenue
to come up with the net income or loss is known as the matching principle.
3. Depreciation causes the decline of various assets including Land, Building and
Equipment due to passage of time, deterioration and obsolescence.
4. Assets for a period shall remain the same if the liabilities increased by P10,000
while capital decreased by P10,000.
5. A credit to the unearned professional fees accounts denotes an increase in the
liability account.
6. Transactions such as the receipt of a utility bill is not recorded on the books of a
company on the basis that payment has not been made yet.
7. Double entry bookkeeping is the recording of journal entries with two or more
debits or credits.
8. The difference in the totals of the debits and credits of a trial balance after
committing the slide error will always be divisible by 9.
9. An entry was erroneously recorded twice, therefore the trial balance will not have
equal amounts.
10. Worksheets are optional working papers to simplify the preparation of financial
statements.
11. The accrual basis of accounting recognizes revenues when sales are made or
services are performed, regardless of when cash is received and recognizes
expenses at the time it was incurred, paid or not.
12. The book value of depreciable asset is the difference after the accumulated
depreciation is deducted from its asset acquisition purchase price.
13. Failure to record an adjusting entry would affect the company’s financial
statements.
14. Closing entries are made at the end of an accounting period to bring the balances of
nominal accounts to zero in preparation for the next accounting period.
15. Adjusting entries for accrued expenses and accrued revenue are accounts that are
to be reversed at the option of the company accountant and/or management.
16. The income summary account is a temporary account used to close the Revenue,
Expense and Drawing account of a company.
17. The overstatement of merchandise inventory at the end will overstate the net
income for the same period.
18. A credit memorandum is issued by the seller as evidence for the returns made by
the buyer of merchandise.
19. FOB Shipping point refer to the delivery agreement where the buyer is obliged to
pay for the shipment and shall report the cost as his expense.
20. Cost of goods sold refers to the total available merchandise that can be sold less the
unsold inventory.
21. When using special journals, adjustments involving selling expenses will be
recorded in the general journal.
22. The return of merchandise previously purchased on account will be reflected in the
Purchases Journal.
23. Deposits in transit are collections already recorded in the depositor’s books but not
yet credited by the bank.
24. To replenish a petty cash fund, debit Petty Cash Fund and credit Cash in Bank.
25. Income Summary is a clearing account used at the end of the accounting period to
summary the revenues and expenses for the period.
26. On December 1, 2018, a client advanced P80,000 for services to be rendered first
quarter of 2019. The liability method was used to record the collection of the said
amount. What amount is recognized as revenue for the year 2018?
A. P80, 000 B. P0 C. P20,000 D. P60,000
 Data for item nos. 27 to 29
At the end of March 2018, the first quarter of operations, the following selected data
were taken from the financial records of Lacoste Company:
First Quarter Profit P39,750
Total Assets as of March 31, 2018 189,700
Total Liabilities as of March 31, 2018 20,200
In preparing the financial statements, the following adjustments were overlooked:
 Supplies used during the first quarter, P1,750
 Unbilled fees earned at March 31, 2018, P2,900
 Depreciation of equipment for the quarter, P2,500
 Accrued salaries at March 31, 2018, P1,500

27. How much is the adjusted amount of profit for the first quarter ending March 31,
2018?
A. P38,400 B. P38,650 C. P36,900 D. P34,000

28. How much is the adjusted amount of assets?

A. P190, 850 B. P188,350 C. P185,450 D. P186,650

29. How much is the adjusted balance of the capital account?

A. P166, 650 B. P169,500 C. P206,400 D. P209,250

30.Elizabeth Arden, owner of an apartment building, had a tenant who only paid
P25,000 for three months rent on September 1, 2018. As of December 31, 2018, the
tenant is still using the apartment. The entry to record the adjustment as of
December 31, 2018 includes
A. A debit to Prepaid Rent of P8,500 C. A credit to Unearned Rent of P8,500
B. A debit to Rent Income of P8,500 D. A credit to Rent Income of P8,500

31.Lavin Company obtained a loan from PN Bank amounting to P750,000 on November

21, 2018. On the same date, the company issued a 60-day, 12% promissory note to
the bank. Upon closing of the company’s book on December 31, 2018, adjustment
for accrued interest expense must be prepared in the amount of (assume a 360-day
a year)
A. P12,000 B. P60,000 C. P10,000 D. P15,000

32.Insurance expense account has a balance of P108,000 before adjustment. This

amount represents insurance premium for three months beginning November 1,
201. Based on these data, the Prepaid Insurance that should be reported in the
December 31, 2018 statement of financial position is
A. P0 B. P36,000 C. P72,000 D. P108,000

33. Rent Income account has a credit balance of P240,000 composed of the following:
 Rental for three months ending March 31, 2018, P45,000
 A credit of P195,000 representing advance rental payment for one year
beginning April 1, 2018
The December 31, 2018 adjusting entry will require a debit to Rent Income and a
credit to Unearned Rent of
A. P45,000 B. P48,750 C. P191,250 D. P195,000

34. The following information pertains to Polo Company’s accounts receivable at

December 31, 2018.
Days Outstanding Amount %Uncollectible

0-60 P1,200,000 1%
61-120 900,000 2%
Over 120 1,000,000 6%
Polo Company’s Allowance for Bad Debts has a P10,000 debit balance before
adjustment on December 31, 2018. How much is the Bad Debts Expense for 2018?
A. P30,000 B. P100,000 C. P80,000 D. P90,000
 35. Using data in number 34, how much is the Allowance for Bad Debts to be shown in
the Statement of Financial Position as of December 31, 2018?
A. P100,000 B. P90,000 C. P120,000 D. P170,000

36. Before the year-end adjustments were made, Victoria Company has a net income
amount of P319,470. Adjustments are necessary for the following items:
 Of the P1,200 Insurance expense account, P450 is still unexpired
 Fees earned but not yet billed as of year-end, P27,840
 Of the P9,850 Unearned Income account, P2,600 has already been earned
 Depreciation amounting to P8,440
After the necessary adjustments had been made, how much is the adjusted net
income?
A. P340,720 B. P342,220 C. P336,720 D. P341,920

37.In preparing its 2018 adjusting journal entry, the bookkeeper omitted to adjust
prepaid insurance for the amount of insurance expired for the period. As a result
A. Net income is understated, capital is understated and asset is understated
B. Net income is overstated, capital is overstated and asset is correct
C. Net income is overstated, capital is overstated and asset is overstated
D. Net income is understated, capital is understated and asset is overstated

38.Dior Co. subleased a portion of its office space to a tenant beginning May 1, 2018.
The tenant is required to pay a one year’s rent in advance of P600,000. Dior reports
on a calendar year basis. How much is the unearned rent revenue as of December
31, 2018?
A. P400,000 B. P200,000 C. P600,000 D. P50,000

39. Zara Company’s three employees earned a total of P3,000 per day. They are paid
each Friday for a five-day workweek that begins on Monday. The next payment for
five days’ work will be January 2, 2019. The employees worked five days until
January 2, 2019 (payday). The accrued wages as of December 31, 2018 is
A. P15,000 B. P3,000 C. P9,000 D. P6,000

40. Salaries expense of P25,00 was erroneously credited while Prepaid rent was
understated by P3,300. The total debits in the trial balance was P340,000. After
correcting the trial balance, the total debits in the trial balance will be
A. P368,300 B. P393,300 C. P343,300 D. P340,000

Data for item nos. 41 to 44

At December 31, 2018, Mr. Andres Cruz, a sole proprietor engaged in service
business has the following account balances:
Cash 400,000
Accounts Receivables 280,000
Supplies 100,000
Prepaid Insurance 60,000
Equipment 100,000
Accounts Payable 450,000
Notes Payable 200,000
Cruz, Drawing 120,000
Cruz, Capital 390,000
Service Revenue 200,000
Salary Expense 80,000
Utilities Expense 55,000
Miscellaneous Expense 45,000
Additional data:
 The equipment was purchased on June 30, 2018 with an estimated useful
life of 5 years.
 The insurance premium covering one-year period was paid on May 1,
2018.
 Accrued salaries at December 31, 2018, P2,500.
41. How much is the net income or net loss on December 31, 2018?
A. P20,000 B. P22,500 C. (P22,500) D. (P32,500)

42. How much is the total debits of the adjusted trial balance at December 31, 2018?
A. P1,240,000 B. P1,242,500 C. P1,252,500 D. P1,262,500

43. How much is the total credits in the Balance Sheet column on the worksheet at
December 31, 2018?
A. P1,052,500 B. P1,050,500 C. P1,020,500 D. P1,062,500

44.How much is the Cruz, Capital at December 31, 2018?

A. P237,500 B. P242,500 C. P250,000 D. P252,500

45. Supplies has a P60,000 unadjusted balance on your trial balance. At year-end,
unused supplies amounted to P20,000. What adjustment will appear on your
worksheet?
A. Supplies 40,000
Supplies Expense 40,000
B. Supplies Expense 20,000
Supplies 20,000
C. Supplies Expense 40,000
Supplies 40,000
D. No adjustment is needed because the Supplies account already has a
correct balance.

46.Beam Company has a P180,000, 10%, 120-day note receivable outstanding on

December 31. The note is dated December 1, 2017. What is the reversing entry on
January 1, 2018?

A. Debit Interest Revenue and credit Interest Receivable, P1,500

B. Debit Interest Receivable and credit Interest Revenue, P1,500
C. Debit Interest Revenue and credit Interest Receivable, P4,500
D. Debit Interest Receivable and credit Interest Revenue, P4,500

47.What is the final closing entry for a proprietorship?

A. Owner, Drawing xxx
Owner, Capital xxx

B. Service Revenue xxx

Income Summary xxx

C. Owner, Capital xxx

Owner, Drawing xxx

D. Income Summary xxx

Expenses xxx

48.What is the closing entry for Salary Expense with a balance of P24,000?
A. Salaries Expense 24,000
Income Summary 24,000

B. Salaries Expense 24,000

Salaries Payable 24,000

C. Income Summary 24,000

Salaries Expense 24,000

D. Salaries Payable 24,000

Salaries Expense 24,000
 49.The profit is P250,000 for the current year. The owner withdrew P30,000 per
month for personal living expenses. The owner’s capital account will show a net
A. Decrease of P110,000 C. Decrease of P360,000
B. Increase of P610,000 D. Increase of P220,000

50.The balance sheet of ABC Company shows owner’s equity of P680,000, which is
equal to 2/3 of the amount of total assets?
A. P453,333 B. P1,133,333 C. P1,000,000 D. P1,020,000

51.On October 1, Adobo Company purchased P6,000 worth of goods on terms of 2/15,
n/30. Freight of P500 was prepaid by the seller under the term of FOB shipping
point. Goods worth P1,000 were returned on October 2 and the account was paid on
October 3. The discount received from the seller was
A. P100 B. P110 C. P90 D. P120

52.Using the information of Adobo Company, how much is the net cost of purchases?
A. P4,900 B. P5,400 C. P5,900 D. P4,880

53.Sinigang Appliance Store purchased appliance worth P200,000 and got a trade
discount of P4,000. The accountant should
A. Debit to Purchase discount for P4,000 and debit to Purchases for
P196,000
B. Debit to Purchase discount for P4,000 and debit to Accounts payable for
P196,000
C. Debit to Purchases for P200,000
D. Debit to Purchases for P196,000

54.Mechado Company, the buyer, received an invoice for P60,000, 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?
A. P58,656 B. P53,571 C. P52,500 D. P58,800

55.Sisig Store purchased goods worth P150,000. Half of which were sold at a mark-up
of 40% on cost.
A. P60,000 B. P30,000 C. P75,000 D. P45,000

Data for item nos. 56 and 57

Beef Steak Company
Adjusted Trial Balance
For the Period Ended December 31, 2018

Account Title Debit Credit

Sales P1,652,000
Sales returns and allowances P35,000
Sales discount 13,000
Purchases 1,120,500
Purchase returns and allowances 70,000
Purchase discount 18,000
Freight in 36,000
Selling expense 55,000
General and administrative expense 40,000
Total P2,322,000 P2,322,000

56.Beginning and ending balance of Merchandise Inventory amounted to P56,500 and

P65,500 respectively. How much is the net sales?
A. P1,604,000 B. P1,617,000 C. P1,652,000 D. P1,700,000

57.How much is the net income?

A. P449,500 B. P361,500 C. P485,500 D. P384,000
 58.The balances of the following accounts were closed to the Income Summary
account: Salary Expense, P50,000; Cost of Goods Sold, P180,000; Utilities Expense,
P25,000; Sales, P200,000; Interest Expense, P10,000. The amount of the entry to
close Income Summary to the capital account would be
A. P65,000 cr to the Income Summary account
B. P55,000 dr to the Income Summary account
C. P155,000 dr to the Income Summary account
D. P210,000 cr to the Income Summary account

Given data for questions no. 59 and no. 60

Item Caldereta Item Tocino
Invoice Date July 2, 2018 October 12, 2018
Catalog Price per item P120,000 P230,000
Quantity Ordered 8 5
Trade Discount 1 5% 10%
Trade Discount 2 10% 15%
Trade Discount 3 15%
Credit Term 2/10, n/30 3/15, n/30
Date Paid July 31, 2018 October 26, 2018

59.How much is the invoice price of item Caldereta?

A. P87,210 B. P120,000 C. P697,680 D. P960,000

60. How much is the total cash to be paid for item Tocino?
A. P1,115,500 B. P853,358 C. P879,750 D. P1,150,000

61. Siomai Company purchased goods worth P7,500. Term: n/30, FOB Shipping point,
freight prepaid. The entry of Siomai if freight amounted to P500 is
A. Debit Purchases P7,500 and credit Accounts Payable P7,500
B. Debit Purchases P7,500, debit Freight-in P500 and credit Accounts
Payable P8,000
C. Debit Purchases P7,000, debit Freight-in P500 and credit Accounts
Payable P7,500
D. Debit Purchases P7,500, debit Freight-in P500 and credit Cash P500 and
credit Accounts Payable 7,500

62.Net sales earned for the period amounted to P50,000. If 75% represents its cost and
the operating expenses is 10% of sales, the net income will be
A. P5,000 B. P7,500 C. P12,500 D. P17,500

63.On March 30, Shanghai Hardware received a check from a customer for the payment
of an invoice dated March 22 amounting to P6,000. The credit term given was 1/10,
n/45. On March 25, the customer returned P600 of the merchandise because it was
defective. How would this transaction be recorded in Shanghai’s cash receipt
journals?
A. Cash P5,400; Sales Returns 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.

64.The Cash Receipts Journal of the Meatballs Company shows the following accounts
and account balances:
 Sales P125,000
 Accounts Receivable 65,000
 Sundry Accounts (credit) 1,802,650
 Sales Discount ?
If sales discount is 4% of sales balance, how much is the cash balance per cash receipts
journal?
A. P1,737,650 B. P1,987,650 C. P1,992,650 D. P1,857,650
65.The end-of-the month balance in Igado’s cash disbursement journal “Sundry
Account” column is P19,870. How will the column be posted and what is the posting
reference will be entered?
A. The total will be posted to cash as a credit, and the cash general ledger
account number is the posting reference.
B. The individual item is posted rather than total amount and an account
number is entered as a posting reference.
C. The total will not be posted and there will be no posting reference for all.
D. None of these.