SQE - Basic Accounting

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
Junior Philippine Institute of Accountants Manila

E500, 5/F Main Bldg., A. Mabini Campus, Anonas St., Sta. Mesa, Manila
Special Qualifying Examination

Reviewer
Examination: Basic Accounting

Subject Covered: ACCO 20033: Financial Accounting and Reporting Part 1
ACCO 20043: Financial Accounting and Reporting Part 2
1. Which of the following is not optional?

a) Preparation of work sheet
b) Use of an income summary account
c) Preparation of reversing entries
d) Making adjusting entries
2. If ending inventory is understated in the current year, what is the effect?

a) Current year's beginning inventory will be overstated
b) Current year’s net income will be overstated
c) Next year’s beginning inventory will be understated
d) Next year’s net income will be understated
3. If accountant Y failed to record depreciation expense, it would

a) overstate assets
b) understate liabilities
c) overstate expenses
d) understated income
4. The entry to record the payment of unpaid rent has been erroneously debited
to the expense account and credited to cash. What is the correcting entry?
a) Dr. Cash; Cr. Prepaid Rent
b) Dr. Rent Payable; Cr. Prepaid Rent
c) Dr. Cash, Cr. Rent Expense
d) Dr. Rent Payable; Cr. Rent Expense
5. If Income Summary has a debit balance after revenues and expenses have
been closed into it, the closing entry for Income Summary will include a
a) debit to Owner's Capital.
b) debit to Income Summary.
c) credit to Owner's Drawing.
d) credit to Revenue.
6. Which of the following is NOT a possible combination of a journal entry?

a) Decrease in asset and increase in expense
b) Increase in liability and decrease in asset
c) Increase in asset and increase in revenue
d) Decrease in liability and increase in equity
7. What type of account is accrued salaries?

a) Asset
b) Liability
c) Income
d) Expense
8. Which of the following will be excluded in the Merchandise Inventory of YOUR

Company at the end of the accounting period?
a) Merchandise purchased still in transit shipped FOB shipping point
b) Merchandise sold still in transit shipped FOB destination
c) Merchandise purchased still in transit shipped FOB destination
d) Goods sent out on consignment
9. Merchandise was purchased on account and following this transaction, the

buyer issued a debit memorandum for the return of the goods. To record the
return of the merchandise, the seller should:
a) debit Cash and credit Accounts Payable
b) debit Sales and credit Accounts Receivable
c) debit Accounts Payable and credit Purchase Returns and Allowances
d) debit Sales Returns and Allowances and credit Accounts Receivable
10. The Articles of Co-Partnership is a written agreement between and among

partners contains the following information, except:
a) Contribution of individual partners and agreed capital values
b) Causes for dissolution of the partnership
c) Specific amounts the partners will receive upon liquidation
d) Manner of dividing net income or loss among the partners
11. Which characteristic of a partnership states that the personal assets of any
partner may be used to satisfy the partner creditor’s claims upon liquidation
if the partnership assets are insufficient to settle liabilities to outsiders?
a) Mutual agency
b) Mutual participation in profits
c) Unlimited liability
d) Co-ownership of contributed assets
12. The class of partner as to liability referring to the one whose liability to third
persons is limited to the extent of their capital contribution is:
a) Nominal partner
b) Limited partner
c) Silent partner
d) General partner
13. Which of the following class of partners is not matched with their respective
contributions to the partnership?
a) Capitalist partner – Cash or Money
b) Industrial partner – Talent

c) Capitalist partner – Labor
d) Industrial partner – Skill or Service
14. If all the necessary information is available, which of the following ratios or
agreements should be prioritized over the others?
a) Arbitrary ratio
b) Equally
c) Ratio of Average Capital Balances
d) Ratio of Original Capital Balances
15. Which is not an existing exemption during distribution of profit and loss?
a) If within the agreement, bonus to partner/s will always be provided, EXCEPT when
there is insufficient profit or during net loss.
b) All partners will be subjected to both profit and loss, EXCEPT the industrial partner
that has a share in profit but not in loss as stated by the Civil Code.
c) The amount of profit to be distributed among partners is always subjected to
income tax, EXCEPT when it is a net loss that cannot be taxed.
d) Business expenses can be used as basis for a method in distribution of profit and
loss, EXCEPT when partner’s salaries, interests and bonuses are made.
16. Which of the following is not used as a basis for profit and loss ratio?
a) Original Capital (capital balances upon formation)
b) Average Capital Balances
c) Beginning Capital
d) Personal Assets of the partners
17. Statement 1: The retirement of one of the partners automatically liquidates

the partnership
Statement 2: A partner cannot withdraw his interest less than book value
a) True; True
b) False; False
c) True; False
d) False; True
18. Statement 1: Gains and losses on the realization of non-cash assets in

liquidation is divided according to capital balances of partners.
Statement 2: A deficient but solvent partner has to share on the deficiency of
an insolvent partner in cash of final liquidation.
a) True; True
b) False; False
c) True; False
d) False; True
19. Installment liquidation has the following restricted interests, except:

a) Cash withheld
b) Remaining unsold assets

c) Unpaid liabilities
d) Debit balances in capital
20. This is prepared prior to liquidation to determine in advance as to whom cash

distribution shall be made when cash becomes available:
a) Cash Statement
b) Cash Priority Program
c) Statement of Liquidation
d) Schedule to Accompany Statement of Liquidation
21. The admission of a new partner requires the consent of ___ of the partners.
a) Majority
b) Minority
c) All
d) Only one
22. When a new partner purchases an interest directly from a present partner,
the assets of the partnership will
a) Change regardless of the amount.
b) Increase.
c) Decrease.
d) Not change.
23. Statement I: Admission of a new partner by investment will change total

assets but not total capital.
Statement II: Admission of a new partner through purchase or investment
does not dissolve the old partnership.
Which of the abovementioned statements is false?
a) I and II
b) I only
c) II only
d) None of the above
24. A corporation’s residual equity is its

a) Ordinary shares
b) Preference shares
c) Both A and B
d) Stock split
25. Which of the following dates will not require a journal entry?
I. Date of Record
II. Date of Settlement
III. Date of Declaration
a) I, II, and III
b) II and III
c) I only
26. When share is sold on subscription basis and the entire subscription price has
not been fully collected, the issuance of the share certificate is recorded by
a) A debit to subscription receivable and credit to subscribed share capital
b) A debit to subscribed share capital and credit to share capital
c) A credit to share capital and credit to subscription receivable
27. If a corporation pays its dividends in arrears and is silent in participation, its
preference shares are
a) Cumulative and nonparticipating
b) Noncumulative and participating
c) Cumulative and participating
d) Noncumulative and nonparticipating
28. Which of the following is not a disadvantage of a corporation?

a) Double taxation
b) Government regulations
c) Legal requirements
d) Continuous existence
29. How does a reverse share split affect the legal capital and shareholders’
equity, respectively?
a) Decrease, decrease
b) No effect, no effect
c) Decrease, increase
d) Increase, decrease
30. Ranpo’s company has decided to recapitalize their ordinary share par value of
P10 into a P10 stated value. What is its effect on the accounting equation?
a) Increase in shareholders’ equity
b) Decrease in shareholders’ equity
c) No effect
d) Increase in assets
31. On January 1, 2022, Forda Company's Allowance for Bad debts had a credit
balance of P 220,000. During the year, the company wrote off P 404,000 of
uncollectible Accounts Receivable, and unexpectedly recovered P 24,000 of
bad debts written off in the prior year. Also at the end of this year, the
company charged P 360,000 to bad debts expense. How much is the adjusted
balance of Allowance for Bad Debts on Dec. 31, 2022?
a) 150,000
b) 200,000
c) 250,000
d) 300,000
32. The entry to record the receipt of payment within the discount period on a
sale of P 2,000 with terms of 1/10, n/30 will include a debit to
a) Sales Discounts for P 20.
b) Sales Discounts for P 40.
c) Accounts Receivable for P 1,980.
d) Accounts Receivable for P 1,960.
33. The purchase of an inventory costing P280,000 has 2%, 3% discount. Said
discount will be reported as a credit to purchase discount amounting to
a) P 168
b) P 266,168
c) there will be no entry to purchase discount
d) there is not enough data to compute
34. F2F Company maintains a mark-up of 60% based on sales. The company's
total expenses average 30% of sales. Net sales were P 1,440,000. How much
should the company record as its profit for the year?
a) P 108,000
b) P 144,000
c) P 432,000
d) P 576,000
35. The statement of financial position sheet columns of Belle Company's

worksheet reflects a total debit of P 482,000 and total credit of P 556,000.
What is the net income (or loss) for the period?
a) P 14,000 income
b) P 14,000 loss
c) P 74,000 income
d) P 74,000 loss
36. On August 28, 2022, PAV Company sold goods on account to TFQ Company for
P 56,000, VAT inclusive, with terms 2/10, n/30. FOB shipping point, prepaid.
Paid freight on shipment to TFQ Company, P2,240. The entry on this date
includes a debit to Accounts Receivable and a credit to Output VAT for what
amounts respectively?
a) P 56,000; P 6,451
b) P 56,000; P 7,000
c) P 58,240; P 6,000
d) P 58,240; P 6,989
37. SQE Company's trial balance totals is P2,466,900. However, they discovered
the following erroneous entries
• Rendering of service in which cash received is P13,500 was posted

twice.
• Purchase of office supplies on account worth P8,000 was omitted.
• Purchase of equipment paying cash of P60,000 was erroneously
debited to the furniture account but was correctly credited to the cash
account.
How much is SQE Company's correct trial balance debit and credit totals?
a) P 2,401,400
b) P 2,461,400
c) P 2,466,900
d) P 2,488,400
38. On August 31, 2022, IA Company received a P 2,500,000, 12%, 5-year note
receivable from CFAS Corporation, in 5 equal annual installments, and interest
are collectible every September 1. IA Company records receipts of income
using nominal accounts. On December 31, 2022, IA Company appropriately
accrued P 100,000 interest. If no reversing entries are made, the adjusting
entry on December 31, 2023 to take up accrued interest will include a
a) debit to interest receivable for P 40,000
b) debit to interest receivable for P 60,000
c) credit to interest income for P 80,000
d) credit to interest income for P 100,000
39. ISCP Corporation has assets of P2,868,790 and liabilities of P1,882,820.

During the year, assets increased by P488,740 and liabilities decreased to
P1,247,470. Revenues during the year is P288,670 and expenses were
P87,600. Withdrawals made by the owner is P23,210. How much is the
additional cash investment made by the owner during the year?
a) 946,210
b) 956,210
c) 946,230
d) 956,230
40. Ferson Corporation provided the following data for the year 2022: Cash
balance, beginning of the year, P 9,000,000; Payment for extinguishment of
bonds payable P 7,500,000; Payment of cash dividend P 620,000; Carrying
amount of convertible preference shares converted into ordinary shares P
1,200,000; Proceeds from sale of treasury shares P 950,000. What amount
should be reported as net cash used in financing activities?
a) P 7,170,000
b) P 5,970,000
c) P 1,830,000
d) P 630,000
41. Ryze and Taric entered into a partnership agreement in which Ryze gets have
a 70% interest in capital and profits while Taric gets 30%. Ryze contributed
the following:
Building: Cost of P25,000, Fair Market Value (FMV) P40,000;

Equipment: Cost of P200,000, FMV P120,000;
Land: Cost of P40,000; FMV P30,000.
Taric contributes P100,000 cash to the partnership. How much is the capital
interest of Ryze in the new partnership?
a) 203,000
b) 190,000
c) 174,333
d) 208,700
42. Using information in no. 41, how much is the implied bonus?
a) 16,000
b) 13,000
c) 14,733
d) 19,466
For items 43-45

On June 3, 2022, Faye, Gayle and Hank formed a partnership combining their
businesses. Faye contributed cash of P200,000. Gayle contributed property
with a carrying amount of P230,000, original cost of P340,000, and a fair value
of P400,000. The P60,000 mortgage attached to the property became the
partnership’s responsibility. Hank contributed equipment with the carrying
amount of P120,000, original cost of P230,000, and fair market value of
P300,000. The partners agreed to share profits and losses equally.
43. How much is the investment of Gayle?

a) 230,000
b) 320,000
c) 260,000
d) 340,000
44. How much is the total assets of the partnership?

a) 900,000
b) 840,000
c) 780,000
d) 760,000
45. How much is the implied bonus to Faye if the profit and loss ratio were to also
apply to the partner’s capital interest?
a) 140,000
b) 280,000
c) 840,000
d) 80,000
For items 46-47

Peralta, Boyle and Santiago are partners who had the following capital
balances on January 1, 2022: Peralta – P60,000; Boyle – P30,000; Santiago –
P50,000. During the year, withdrawals are made by the partners in the
amount of P10,000 on October 13. The partners made additional investments
on June 26 of P20,000, P40,000 and P15,000, respectively. The partnership
incurred a net income after tax of P120,000. They agreed to divide the profit
and loss according to their average capital balances.
46. What is the average capital balance of Peralta?

a) 115,000
b) 47,500
c) 195,000
d) 67,500
47. Using the average capital balances, how much is the share of Boyle in the
partnership income? (Rounded off to the nearest peso)
a) 33,529
b) 38,824
c) 47,647
d) 32,353
For items 48-49 (Rounded off to the nearest peso)

Queen, Ryan and Sett are partners. The initial investment of the partners is
P60,000, P50,000, and P40,000, respectively. They withdraw cash every June
30 and December 31 of P15,000 each. They also make additional investments
of P40,000 every March 25 and October 15. The profit and loss agreement are
as follows:
1. By allowing P2,000 monthly salary to the managing partner, Sett;

2. By allowing 5% interest on their original capital investment;
3. By allowing a bonus of P7,500 to the managing partner;
4. The remainder is divided equally.
48. If net loss for the year is P10,000 after tax, how much is Sett’s share?
a) 13,833
b) 12,167
c) (12,750)
d) (13,875)
49. If the profit for the year is P140,000 after tax, how much is Ryan’s share?
a) 36,167
b) 26,000
c) 33,500
d) 27,833
50. Lily, Michael and Nilah are partners that had capital balances of P100,000,
P200,000, and P300,000 at the start of the year. The partnership agreement
provides the following division of profits and losses:
a. Annual salaries to all partners amounting to P30,000, P40,000, and
P50,000 respectively;
b. 2% interest to all partners on their beginning capital balances;
c. Lily receives a bonus of 20% of profit after deducting salaries, interest and
bonus;
d. Any remainder is divided 2:3:1.
Assuming the profit after deducting salaries is P200,000, how much is Lily’s
share in the profit?
a) 35,667
b) 115,555
c) 34,733
d) 32,444
51. On July 31, capital balances are Earth P90,000, Sun P75,000 and Moon
P75,000. The profit and loss ratios are 20%, 20% and 60%, respectively.
Earth decides to retire from the partnership. The partnership pays Earth
P105,000 cash for her partnership interest. After Earth's retirement, what is
the balance of Sun's capital account?
a) P 71,250
b) P 72,000
c) P 75,000
d) P 97,500
52. On July 31, capital balances are Earth P90,000, Sun P75,000 and Moon
P75,000. The profit and loss ratios are 20%, 20% and 60%, respectively.
Earth decides to retire from the partnership. In order for Sun and Moon to
have equal capital interests after the retirement of Earth, how much
partnership cash would have to be paid to Earth for her partnership interest?
a) P 0
b) P 80,000
c) P 90,000
d) Any amount paid to Earth will cause Sun and Moon to still have equal capital.
53. SQE Partnership had the following balances before the liquidation on
September 2, 2022: Cash P24,000; Non-cash assets, P84,000; Liabilities,
P12,000; S, Loans, P2,400; S, Capital (30%), P9,600; Q, Capital (50%),
P48,000, E, Capital (20%), P36,000. Liquidation expenses paid amounted to
P1,000. S is solvent, while Q and E are insolvent. Compute for the total
payment for each partner (including loans) if non-cash assets were realized
at P36,000.
a) P 0; P 23,500, P 26,200
b) P 4,800; P 24,000; P 26,400
c) P 5,100; P 23,500; P 26,200
d) P 14,400; P 4,000; P 9,600
54. Alpha, Beta and Gamma are partners, sharing earnings in the ratio of 2:3:5.
The balance of their capital accounts on December 31, 2022 are as follows:
Alpha, P25,000; Beta, P38,000; and Gamma, P19,000. The partners decided
to liquidate, and they accordingly converted the non-cash assets into P34,500
of cash. After paying the liabilities amounting to P8,000, they have P32,600
to divide. Assume that a debit balance in any of the partner's capital is
uncollectible. What is the book value of the non-cash assets?
a) P1,900
b) P12,900
c) P83,900
d) P104,900
For items 55-57

On January 1, 2022, partners Chandler, David and Emma decided to liquidate
their partnership. Prior to this, the partners had cash of P12,000, liabilities
amounting to P50,000, including a P14,000 loan to Emma, and their capital
balances were Chandler – P36,000; David – P54,000; and Emma – P18,000.
The profit and loss ratio was 3:3:4.
During January, P38,000 of non-cash assets were realized at a loss of P8,000,

excluding the P3,600 liquidation expenses. During February, P35,000 assets
were realized at P44,000, and the liquidation expenses amounted to P8,400.
The remaining assets were sold for P36,000. Cash was distributed at the end
of each month.
55. How much did David receive from Allocation 1 for the month of February?
a) 15,600
b) 18,000
c) 14,800
d) 16,700
56. What is Emma’s maximum loss absorption capacity?

a) 32,000
b) 80,000
c) 18,000
d) 14,000
57. In the final cash distribution of 32,000, how much did Chandler receive as
payment to partners?
a) 11,600
b) 9,600
c) 0
d) 2,600
58. Tooru, Kyou, and Yuki have capital balances of P120,000, P90,000 and
P60,000, respectively. Akito is a new partner admitted with a one-fourth
interest upon her investment of P110,000, and the old partners share profits
and losses in the ratio of 6:1:3. Using the bonus method, how much capital
credit should Akito have?
a) P110,000
b) P95,000
c) P67,500
d) P100,000
59. Using the bonus method in item 58, how much would be Kyou’s capital if Akito
was admitted with a one-eighth interest?
a) P91,500
b) P95,000
c) P96,250
d) P83,750
60. Using the asset revaluation method in item 58, the total assets of the
partnership increased or (decreased) by
a) P15,000
b) (P45,000)
c) P60,000
d) (P60,000)
61. In 2019, Persona Corporation issued 70,000 shares of P90 par value for P70
per share. In 2021, the entity reacquired 5,000 shares at P120 per share and
immediately sold these 5,000 shares. To record the sale of treasury shares,
one of the debited accounts and its amount is:
a) Retained Earnings, P600,000
b) Additional Paid-in Capital from Sale of Treasury Shares, P600,000
c) Retained Earnings, P300,000 and Additional Paid-in Capital from Sale of Treasury
Shares, P300,000
62. Dimitrov Corporation has a total shareholder’s equity of P2,550,000 as of Dec.

31, 2022. It has the following outstanding share capital: 7,000 shares of 10%
preference share capital, P100 par value, and 25,000 of ordinary share capital,
P10 par value. No dividends were paid for the previous five years. If the
liquidation value is P120 per share, what is the book value per ordinary share?
a) P102
b) P68.40
c) P65.32
d) P105
63. Dreamcatcher Corporation started with an authorized capital of P20 par value
of 200,000 ordinary shares. During its first year, its shareholders’ equity was
affected by the following transactions: January 7, issued 20,000 shares at P
20 per share; March 25, issued 1,000 shares for legal services when the fair
value was P 21 per share; October 31, issued 5,000 shares for an equipment
when the value was P 22 per share. As of June 1, the ordinary share premium
account amounts to?
a) P1,000
b) P0
c) P11,000
d) P10,000
64. At the end of the year, Hero Himmel’s Corporation has two classes of share
capital outstanding: ordinary share capital, P15 par value, 15,000 shares and
7% preference share capital, P90 par value, nonparticipating, 9,000 shares.
No dividends were paid on preference shares for the last two years. On
December 31, 2021, a total cash dividend of P175,000 was declared. How
much dividend per share of the ordinary shares and preference shares,
respectively?
a) P6.30; P7.89
b) P15.22; P2.54
c) P7.89; P6.30
d) P2.54; P15.22
65. The 2022 shareholders’ equity of Bubble Corporation is as follows:

Share capital, 500,000 shares P10,000,000
Subscribed share capital, 100,000 shares 2,000,000
Subscription Receivable 1,400,000
Retained Earnings 3,000,000
The subscriptions receivable was considered delinquent and was transferred
to the treasury shares. After the delinquency, the legal capital amounts to
a) P12,000,000
b) P15,000,000
c) P10,600,000
d) P13,600,000
66. The following accounts are shown on the financial position of NCT
Corporation:
Ordinary Share capital, P100 par value 56,000
Share premium - ordinary 2,000

Retained earnings 43,000
Treasury shares, 200 shares at cost 14,000
All the 200 treasury shares were sold for 10,000
The company declared P10,000 cash dividends in the same year. What will be
the retained earnings amount by the end of the year?
a) P29,000
b) P39,000
c) P33,000
d) P57,000
67. On December 1, 2022, SK8 Corporation declared equipment as a property

dividend payable on January 23, 2023. The carrying amount of the equipment
is P2,900,000, which approximates its fair value. The fair values of the
equipment on December 31, 2022, and January 15, 2023 are P3,225,000 and
P2,950,000, respectively. On the date of declaration, what is the amount of
the property dividends payable account?
a) P2,950,000
b) Insufficient given
c) P3,225,000
d) P2,900,000
68. NewJeans Corporation has issued 20,000 ordinary shares of P10 par value
and reacquires 5,000 shares at P15 as treasury shares but not retired. On a
later date, it reacquired 10,000 more shares at P11 but not retired as well.
Months later, the corporation had a 2-1 share split. What is the balance in the
Ordinary Share Capital account after the purchases of treasury shares and the
stock split?
a) P200,000
b) P150,000
c) P50,000
d) P100,000
69. Paradise Manor Corporation earned P750,000 in their whole year of

operation. The company owned 30,000, P10 par value ordinary shares
outstanding and 10,000, P50 par value 10% preference shares outstanding
throughout the year. Dividends were declared for the current year, and there
were two years’ worth of dividends in arrears. How much is the earnings per
share?
a) P23.33
b) P25.56
c) P20
d) P30
70. Hua Cheng, a subscriber of Xie Lian’s Corporation, subscribed 100,000

ordinary shares of P5 par value. Xie Lian was able to collect P200,000 until
Hua Cheng defaulted. The expenses incurred chargeable against the highest
bidder totaled to P20,000. The bidders were as follows: Jun, 25,000 shares;
Lang, 21,000 shares; Shin, 31,000 shares; and Wuxian, 30,000 shares. The
highest bidder received the delinquent shares. Who is the highest bidder and
how much stocks were issued upon payment of the receivable?
a) Lang; P500,000
b) Lang; P300,000
c) Shin; P500,000
d) Shin; P300,000
Summary of Answers
1. D 36. C
2. C 37. B
3. A 38. C
4. D 39. C
5. A 40. A
6. B 41. A
7. B 42. B
8. C 43. D
9. D 44. A
10. C 45. D
11. C 46. D
12. B 47. A
13. C 48. B
14. A 49. A
15. D 50. B
16. D 51. A
17. B 52. C
18. D 53. A
19. C 54. C
20. B 55. A
21. C 56. B
22. D 57. B
23. A 58. B
24. A 59. C
25. C 60. C
26. D 61. D
27. A 62. B
28. D 63. A
29. B 64. A
30. C 65. A
31. B 66. A
32. A 67. D
33. C 68. A
34. C 69. A
35. D 70. A
Summary of Answers – Explained
1. (D) Adjusting entries are required at the end of each fiscal period to align the
revenues and expenses to the “right” period. The rest of the choices are optional.
2. (C) Ending inventory in the current year is the beginning inventory next year. Thus, if the
ending inventory is understated in the current year, next year’s beginning
inventory will be understated.
3. (A) Recording depreciation expense means debiting depreciation expense and crediting
accumulated depreciation, a contra-asset. Thus, if the accountant failed to record
depreciation, it would overstate assets because the accumulated depreciation that
reduces assets is not recorded.
4. (D) Entry to record the payment of unpaid rent should be debited to Rent Payable and
credited to Cash. If it has been erroneously debited to the Expense account and credited
to Cash, Rent Expense should be credited to remove it and replace it with the correct
debit to Rent Payable.
5. (A) If Income Summary has a debit balance, which indicates net loss, it is credited to close
it, and Owner's Capital is debited for the net loss.
6. (B) Increase in liability and decrease in asset is not a possible combination of a

journal entry because it will make the accounting equation unbalanced. Asset = Liability
+ Equity. If there is an increase in liability (increase on the right side), asset should also
be increased (increase on the left side) to keep the equality.
7. (B) Accrued salaries is an accrued expense, and since accrued expenses are expenses
incurred before they are paid, they become a company’s liabilities for cash payments in
the future. Thus, accrued expenses are also known as accrued liabilities.
8. (C) FOB Destination means that the ownership of the goods will transfer when it is
received by the purchaser (at the destination). Thus, merchandise purchased still in
transit shipped FOB destination is excluded in the Merchandise Inventory because it
is not yet received by YOUR Company, which is the purchaser. The rest of the choices are
included.
9. (D) A debit memorandum issued by the buyer denotes a return or refund for the
merchandise, a cancellation in the purchase, or another circumstance. To record the
memorandum from the seller’s perspective, the journal entry has a debit to sales
returns and allowances, and credit to cash or accounts receivable. The scenario
states the merchandise was bought on account, thus the account to be credited by the
seller is accounts receivable.
10. (C) The Articles of Co-Partnership contains information including the contribution and
agreed values of the partners upon formation, the manner of dividing net income or loss
among partners during operation, and the causes for dissolution. The amount to be
received upon liquidation are not stated in the agreement because the values will
depend on the partnership’s values at the point of liquidation.
11. (C) Mutual agency means any partner may act as agent of the partnership in conducting
its affairs. Mutual participation in profits states that all partners have a right to their share
in the partnership profits. Co-ownership of contributed assets means property
contributions to the partnership are owned by the partnership as a separate legal
personality. It is Unlimited Liability that refers to the use of any partner’s net personal
assets if partnership assets are not enough to settle liabilities to outsiders.
12. (B) The two classes of partners as to liability are the General partner and the Limited
partner. The General partner is one whose liability to third person extends to their personal
assets and private property. The Limited partner is one whose liability to outside creditors
extends only to their capital contribution to the partnership.
13. (C) The Capitalist partner contributes capital in cash (money) or property, not labor.
Industrial partner contributes industry in the form of labor, skill, talent or service. The
Capitalist-industrial partner contributes cash, property and industry.
14. (A) If an arbitrary ratio is available, it takes precedence over other ratios. Even if an
arbitrary ratio is not available, profit and loss will be divided in the ratio of the capital
balances – whether original, beginning, ending or average – before equally is the option
used.
15. (D) There is no exemption regarding the use of business expenses as basis for profit and
loss distribution because this is not a viable, existing nor accepted method.
Nonetheless, bonus is not given during net loss or when there is insufficient profit for
bonuses and net loss is not subjected to income tax. And referring to Second
Paragraph of Article 1797 in the Civil Code, profit and loss will be distributed
according to stipulation or to their balances during the absence of stipulation, but the
industrial partner shall not be liable for losses.
16. (D) Profit and loss can be divided in the ratio of partner’s capital account balances; these
could be the original capital, average capital, beginning or ending capital. The partner’s
personal assets are not used as basis for profit and loss distribution.
17. (B) Statement 1 is false; the retirement of one of the partners automatically dissolves
the partnership, not liquidate. Statement 2 is false; partner may withdraw his interest
at an amount equal to book value, more than book value, or less than book value.
18. (D) Statement 1 is false; capital balances are used in the final cash distribution, while
the profit and loss ratio is used in gains and losses on the realization of non-cash assets.
Statement 2 is true; deficient but solvent partners can still make additional cash
investments.
19. (C) Unpaid liabilities is not considered a restricted interest. One difference
between the lump sum and installment liquidation procedures is the restricted interests
found in the Accompanying Schedule to Determine Amounts to be Paid to
Partners during installment liquidation. These restricted interests consist of the
remaining unsold assets, cash withheld for possible expenses and the debit balances in
capital.
20. (B) A cash priority program is a program prepared prior to liquidation so that partners
may determine in advance as to whom cash shall be paid when it becomes
available. This is done through determining the total partners’ interests and their loss
absorption capacities.
21. (C) A new partner must be admitted with the consent of all partners (Baysa and Lupisan,
page 138 and 139). Admission of a new partner dissolves the old partnership and results
in a new Articles of Co-partnership, which also requires the consent of all the partners.
Thus, a majority, minority, or one vote cannot admit a new partner to the business.
22. (D) A mere transfer of capital does not affect the total asset of the partnership (Baysa
and Lupisan, page 139). The only accounts involved in this transaction is the capital of
the selling partner and the buying partner, which are both equity accounts. Gains and
losses are personal and do not require a journal entry in the partnership.
23. (A) Statement I is false because the admission of a new partner by investment usually
involves an asset and the new partner’s capital account, increasing the total of both
balances (Baysa and Lupisan, page 143). Statement II is also false because an admission
of a new partner, regardless of by means of purchase or investment, dissolves the old
partnership (Baysa and Lupisan, page 138).
24. (A) When allocating the total shareholders’ equity for computing the book value per share,
preference shares have priority over ordinary shares. The residual equity concept is
evident in dividend allocation, in which the preference shareholders receive their dividends
first, and the ordinary shareholders receive the remaining dividends declared. For a
detailed discussion, refer to Sir Karim Abitago’s lecture on Book Value per Share (7:52-
9:50)
25. (C) The date of record only records a list of registered shareholders and does not affect
any of the corporation’s accounts (Baysa and Lupisan, page 352).
26. (D) When the subscription has been fully paid, the corporation is obligated to issue share
capital to its subscribers (Baysa and Lupisan, page 293). However, the problem states
that it has not been fully collected. Thus, no stock certificates will be issued due to partial
payment.
27. (A) If the problem remains silent about the corporation’s preference shares, the
assumption is that these are noncumulative and nonparticipating. However, because the
corporation has paid its dividends in arrears, it implies that the preference shareholders
are entitled to past dividends and are therefore cumulative (Baysa and Lupisan, page
359).
28. (D) Unlike a partnership, which dissolves upon the withdrawal of a partner, a corporation
enjoys a continuous existence due to the power of succession (Baysa and Lupisan, page
280). The first three choices are disadvantages of a corporation.
29. (B) A stock split, whether up or down, only affects the number of shares outstanding and
the par or stated value. It cannot change the amount of any account in the shareholders’
equity (Baysa and Lupisan, page 405).
30. (C) The mere change of par to no-par share capital does not affect any amount in the
shareholders’ equity. The journal entry for this type of recapitalization only shows a
transfer between shareholders’ equity accounts (Baysa and Lupisan, page 406).
21. (B)
Beg. ABD 220,000

Write-off (404,000)
Recovery 24,000
Bad debt expense 360,000
Ending ABD 200,000
22. (A)
Cash 1,980
Sales Discount 20
Accounts Receivable 2,000
23. (C) Trade discounts are not journalized.
24. (C)
Net Sales 1,440,000

COGS (1,440,000 × 40%) (576,000)
Expenses (1,440,000 × 30%) (432,000)
Profit 432,000
25. (D) P 556,000 - P 482,000 = P 74,000. And if the total of the credits exceeds the total
of the debits in the statement of financial position columns, it is a net loss.
26. (C) Thus, the amount debited to A/R is P 58,240, and to Output VAT is P 6,000.

Output VAT 6,000
Sales 50,000
(to record sales, VAT inclusive)

Cash 2,240
(to record prepaid freight, FOB shipping point)
27. (B)
Dr. Cr.
Erroneous totals 2,466,900 2,466,900
Reducing cash and revenue (13,500) (13,500)
Omitted purchase on account 8,000 8,000
Equipment erroneously debited to furniture (no
effect bec. they are on the same side of the trial — —
balance)
Correct totals 2,461,400 2,461,400
28. (C)
2022 Dr. Cr.

Aug. 31 Note Receivable 2,500,000
Cash 2,500,000
Dec. 31 Interest Receivable 100,000
Interest Income 100,000
2023
Sept. 1 Cash 500,000
Note Receivable 500,000
Cash 300,000
Interest Receivable 100,000
Dec. 31 Interest Receivable 80,000
(2,000,000 × 12% × 4/12 = 80,000)
39. (C)
Beginning
Assets = Liabilities + Equity
2,868,790 1,882,820 985,970
+488,740
Ending
Assets = Liabilities + Equity
3,357,530 1,247,470 2,110,060
Equity
Beginning Capital 985,970
+ Additional Investments 946,230
+ Revenue 288,670
- Expenses (87,600)
- Withdrawals (23,210)
Ending Capital 2,110,060
40. (A)
Payment for extinguishment of bonds payable 7,500,000

Payment of cash dividend 620,000
Proceeds from sale of treasury shares (950,000)
Net cash used in financing activities 7,170,000
• Cash balance, beginning of the year is ignored because it is asking about net cash used
in financing activities.
• Payment for extinguishment of bonds payable and proceeds from sale of treasury shares
are included because it is derived from the borrowings and equity capital of the entity, as
in the definition of financing activities.
• Payment of cash dividend is included because PAS 7, paragraph 34, provides that
dividend paid shall be classified as financing cash flow.
• Carrying amount of convertible preference shares converted into ordinary shares is
ignored because it is a noncash transaction.
31. (A)
Building P40,000
Equipment 120,000
Land 30,000
Cash 100,000
Total Assets 290,000
Ratio in Capital Interest x 70%
Ryze’s Capital P203,000
32. (B)
Ryze’s Agreed Capital Interest P203,000

Less: Ryze’s Total Contribution (190,000)
Implied Bonus to Ryze from Taric P13,000
OR
Total Assets P290,000

Ratio in Capital Interest x 30%
Taric’s Agreed Capital Interest 87,000
Less: Taric’s Total Contribution (100,000)
Implied Bonus from Taric to Ryze P13,000
33. (D)
Properties or non-cash contributions invested in the partnership are recorded at fair

market value. Thus, Gayle’s property investment is recorded as P400,000. For Gayle’s
capital contribution, the mortgage payable attached to the property will be deducted
because asset is liability plus capital.
Gayle’s Property Investment P400,000

Less: Mortgage attached to property (60,000)
Gayle’s Capital Interest P340,000
44. (A)
Total assets would not include the deduction of the mortgage payable.
Cash P200,000
Property 400,000
Equipment 300,000
Total Assets of the Partnership P900,000
45. (D)
Total capital contribution will be divided, not the total assets of the partnership.
Total Assets of the Partnership P900,000

Less: Mortgage Payable (60,000)
Total Capital of the Partnership 840,000
Divided equally (by 3 partners) /3
Capital Interest per Partner P280,000
Less: Faye’s Capital Contribution (200,000)
Implied Bonus to Faye P80,000
46. (D)
Peralta, Capital
Capital Number of Months Peso Average
Date
Balance Unchanged Months Capital
Jan. 1, 2022 60,000.00 6 360,000.00
June 26, 2022 80,000.00 3 240,000.00
Oct. 13, 2022 70,000.00 3 210,000.00
12 810,000.00 67,500.00
Boyle, Capital
Date
Jan. 1, 2022 30,000.00 6 180,000.00
June 26, 2022 70,000.00 3 210,000.00
Oct. 13, 2022 60,000.00 3 180,000.00
12 570,000.00 47,500.00
Santiago, Capital
Date
Jan. 1, 2022 50,000.00 6 300,000.00
June 26, 2022 65,000.00 3 195,000.00
Oct. 13, 2022 55,000.00 3 165,000.00
12 660,000.00 55,000.00
47. (A)
Total Average Capital = 67,500 + 47,500 + 55,000 = 170,000

Distribution of 120,000 profit

Peralta share in profit: 67,500/170,000 x 120,000 = 47,647
Boyle share in profit: 47,500/170,000 x 120,000 = 33,529
Santiago share in profit: 55,000/170,000 x 120,000 = 38,824
48. (B)
Queen Ryan Sett Total
Salary Allowance 24,000.00 24,000.00
5% Interest Allowance 3,000.00 2,500.00 2,000.00 7,500.00
Bonus – NONE (Net Loss) - -
Remainder – divided equally (13,833.34) (13,833.33) (13,833.33) (41,500.00)
TOTAL (10,833.34) (11,333.33) 12,166.67 (10,000.00)
49. (A)
Queen Ryan Sett Total
Salary Allowance 24,000.00 24,000.00
Bonus 7,500.00 7,500.00
Remainder – divided equally 33,666.67 33,666.67 33,666.66 101,000.00
TOTAL 36,666.67 36,166.67 67,166.66 140,000.00
50. (B)
Lily Michael Nilah Total
Salary Allowance 30,000.00 40,000.00 50,000.00 120,000.00
Bonus –(188,000x20/120) 31,333 31,333
Remainder – 2:3:1 52,222 78,334 26,111 156,667
TOTAL 115,555 122,334 82,111 320,000.00
41. (A) Bonus = 105,000 – 90,000 = 15,000

Sun’s Capital = 75,000 – 3,750 = 71,250
Earth’s Capital 90,000

Sun’s Capital (2/8 × 15,000) 3,750
Moon’s Capital (6/8 × 15,000) 11,250
Cash 105,000
52. (C) Since Sun’s and Moon’s Capitals are already equal, there should be no bonus, which
changes capital balances. To have no bonus, Earth should just be paid equal to the book
value of her partnership interest, which is P 90,000.
53. (A)
Description Cash Other assets Liabilities S, Loan S, Capital Q, Capital E, Capital

Profit and loss ratio 30% 50% 20%
Balances before
24,000 84,000 12,000 2,400 9,600 48,000 36,000
liquidation
Realization and
36,000 (84,000) (14,400) (24,000) (9,600)
distri. of gain/loss
Balances 60,000 — 12,000 2,400 (4,800) 24,000 26,400
Payment of
(1,000) (300) (500) (200)
liquidation exp.
Balances 59,000 12,000 2,400 (5,100) 23,500 26,200
Payment of liability (12,000) (12,000)
Balances 47,000 — 2,400 (5,100) 23,500 26,200
Off set loan (2,400) 2,400
Balances 47,000 — (2,700) 23,500 26,200
Invest cash 2,700 2,700
Balances 49,700 — 23,500 26,200
54. (C)
Cash Non-cash Liab. Alpha (2) Beta (3) Gamma (5)

Beginning balance 6,100 83,900 8,000 25,000 38,000 19,000
Realization 34,500
Payment of Liab. (8,000) (8,000)
Balance 32,600
Alpha, Capital 25,000

Beta, Capital 38,000
Gamma, Capital 19,000
Total Capital 82,000
Liabilities 8,000
Total Assets 90,000
Less: Cash beginning balance
Cash to be distributed to partners 32,600
Cash paid for liabilities 8,000
Cash from realization of non-cash (34,500) 6,100
Book value of non-cash assets 83,900
55. (A)
56. (B)
57. (B)
Statement of Liquidation
30% 30% 40%

Emma, Chandler, David, Emma,
Cash Non-Cash Liabilities
Loan Capital Capital Capital
Beginning
12,000 146,000 36,000 14,000 36,000 54,000 18,000
Balances
Realization of
30,000 (38,000) (2,400) (2,400) (3,200)
Assets
Payment of
Liquidation (3,600) (1,080) (1,080) (1,440)
Expenses
Payment of
(36,000) (36,000)
Liabilities
Balance for
2,400 108,000 - 14,000 32,520 50,520 13,360
Distribution
Allocation 1: (2,400) (2,400)
Balance,
- 108,000 - 14,000 32,520 48,120 13,360
January
Realization of
44,000 (35,000) 2,700 2,700 3,600
Assets
Payment of
Liquidation (8,400) (2,520) (2,520) (3,360)
Expenses
Balance for
35,600 73,000 - 14,000 32,700 48,300 13,600
Distribution
Allocation 1: (15,600) (15,600)
Allocation 2: (20,000) (10,000) (10,000)
Balance,
- 73,000 - 14,000 22,700 22,700 13,600
February
Realization of
36,000 (73,000) (11,100) (11,100) (14,800)
Assets
Balance for
36,000 - - 14,000 11,600 11,600 (1,200)
Distribution
Right of
(1,200) 1,200
Offset
Allocation 2: (4,000) (2,000) (2,000)
Balance 32,000 - - 12,800 9,600 9,600 -
Payment to
(32,000) - - (12,800) (9,600) (9,600) -
Partners
Cash Priority Program
Payments to
Chandler David Emma Chandler David Emma
Capital Balances
36,000 54,000 18,000
before Liquidation
Add: Loans 14,000
Total Partner's
36,000 54,000 32,000
Interest
Divided by Profit
30% 30% 40%
and Loss ratio
Loss Absorption
120,000 180,000 80,000
Capacity
Allocation 1: (60,000) 18,000
120,000 120,000 80,000
Allocation 2: (40,000) (40,000) 12,000 12,000
80,000 80,000 80,000 12,000 30,000 -
Allocation 3:
Further cash distributions are to be made in the profit and loss ratio.
58. (B)
New Partnership Old Partnership Bonus

P285,000 (P380,000 – P95,000) P270,000 15,000
95,000(P380,000 * 1/4) 110,000 (15,000)
P380,000 P380,000
59. (C)
New Partnership Old Partnership Bonus

P332,500 (P380,000 – P95,000) P270,000 62,500 (P332,500 – P270,000)
47,500 (P380,000 * 1/8) 110,000 (62,500) (P47,500 – P110,000)
P380,000 P380,000
Kyou, Capital before admission P90,000

Add: Bonus to old partners (P62,500 *1/10) 6,250
Kyou, Capital after admission P96,250
60. (C)
New Partnership Old Positive Asset Revaluation

Partnership
P330,000 (P440,000 – P110,000) P270,000 60,000 (P330,000 – P270,000)
110,000 110,000
P440,000 (P380,000 / 1/4) P380,000 60,000 (P440,000 – P380,000)
61. (D) The problem is silent with how much the treasury shares were sold. In this case, assume
that the treasury shares were sold at the same cost when they were reacquired.
Cash (P5,000 * P120) 600,000

Treasury Shares (P5,000 * P120) 600,000
Based on the journal entry, there is no indicated loss from the sale of treasury shares, making
the last choice the correct answer.
62. (B)
Total shareholders’ equity P2,550,000

Less: Equity identified with preference shares 840,000
Liquidation value (7,000 shares * P120)
Equity identified with ordinary shares P1,710,000
Equity identified with ordinary shares P1,710,000

Divided by: Number of ordinary shares outstanding 25,000
Equity identified with ordinary shares P68.40
63. (A) The equipment transaction will happen in October. Because the question asks for the
amount prior that date, the excess should not be added.
January 7: (20,000 * (P20 - P20)) P0

March 25: (1,000 * (P21 - P20)) 1,000
Total ordinary share premium on June 1 P1,000
64. (A)
Preference Ordinary Total

Regular dividends: P56,700 P15,750 P72,450
Preference – (9,000 * P90 * 7%)
Ordinary – (15,000 * P15 * 7%)
Remaining balance – P102,550 102,550 102,550
Total P56,700 P118,300 P175,000
Divided by: Outstanding shares 9,000 15,000
Dividends per share P6.30 P7.89
Preference – (P56,700/9,000)
Ordinary – (P118,300/15,000)
65. (A) Legal capital, also known as share capital, contains the share capital and subscribed share
capital. Retained earnings is not included in the section. With regards to the subscription
receivable, it is only deducted to the legal capital if it is not currently collectible or silent in the
problem. In this case, because the subscription receivable became delinquent, the following
journal entry occurred:
Treasury Shares 1,400,000

Subscription Receivable 1,400,000
The subscription receivable account becomes zero. Thus, nothing will be deducted to the share
capital, making A. (P10,000,000 + P2,000,000) the correct answer.
66. (A)
Retained earnings, beginning P43,000
Less: Indicated loss from sales of treasury shares 4,000
Less: Cash dividends declared 10,000
Retained earnings, ending P29,000
67. (D) The amount of the equipment on the date of declaration, December 1, is P2,900,000. The
future amounts have no role in the problem.
68. (A)
Issued ordinary shares 20,000

Multiply by: Par value P10
Ordinary share capital P200,000
Reacquisition through purchase does not affect the ordinary share capital account, while stock
split only increases the number of outstanding shares and decreases the par value.
69. (A)
Retained earnings P750,000

Less: Preferred dividend (10,000 × P50 × 10%) 50,000
Total 700,000
Divided by: Ordinary shares outstanding 30,000
Earnings per share P23.33
70. (A) The highest bidder is the one who is willing to receive the smallest number of shares,
making Lang the correct highest bidder. Stocks issued upon the full payment of receivable was
P500,000 because it is the par value of the subscribed share.

SQE - Basic Accounting

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SQE - Basic Accounting

Uploaded by

Copyright:

Available Formats

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Junior Philippine Institute of Accountants Manila

Special Qualifying Examination

Examination: Basic Accounting

1. Which of the following is not optional?

2. If ending inventory is understated in the current year, what is the effect?

3. If accountant Y failed to record depreciation expense, it would

6. Which of the following is NOT a possible combination of a journal entry?

7. What type of account is accrued salaries?

8. Which of the following will be excluded in the Merchandise Inventory of YOUR

9. Merchandise was purchased on account and following this transaction, the

10. The Articles of Co-Partnership is a written agreement between and among

b) Industrial partner – Talent

17. Statement 1: The retirement of one of the partners automatically liquidates

18. Statement 1: Gains and losses on the realization of non-cash assets in

19. Installment liquidation has the following restricted interests, except:

b) Remaining unsold assets

20. This is prepared prior to liquidation to determine in advance as to whom cash

23. Statement I: Admission of a new partner by investment will change total

24. A corporation’s residual equity is its

28. Which of the following is not a disadvantage of a corporation?

35. The statement of financial position sheet columns of Belle Company's

• Rendering of service in which cash received is P13,500 was posted

39. ISCP Corporation has assets of P2,868,790 and liabilities of P1,882,820.

Building: Cost of P25,000, Fair Market Value (FMV) P40,000;

For items 43-45

43. How much is the investment of Gayle?

44. How much is the total assets of the partnership?

For items 46-47

46. What is the average capital balance of Peralta?

For items 48-49 (Rounded off to the nearest peso)

1. By allowing P2,000 monthly salary to the managing partner, Sett;

For items 55-57

During January, P38,000 of non-cash assets were realized at a loss of P8,000,

56. What is Emma’s maximum loss absorption capacity?

62. Dimitrov Corporation has a total shareholder’s equity of P2,550,000 as of Dec.

65. The 2022 shareholders’ equity of Bubble Corporation is as follows:

Share premium - ordinary 2,000

67. On December 1, 2022, SK8 Corporation declared equipment as a property

69. Paradise Manor Corporation earned P750,000 in their whole year of

70. Hua Cheng, a subscriber of Xie Lian’s Corporation, subscribed 100,000

Summary of Answers – Explained

6. (B) Increase in liability and decrease in asset is not a possible combination of a

Beg. ABD 220,000

23. (C) Trade discounts are not journalized.

Net Sales 1,440,000

Accounts Receivable 56,000

Accounts Receivable 2,240

2022 Dr. Cr.

Payment for extinguishment of bonds payable 7,500,000

Ryze’s Agreed Capital Interest P203,000

Total Assets P290,000

Properties or non-cash contributions invested in the partnership are recorded at fair

Gayle’s Property Investment P400,000

Total Assets of the Partnership P900,000

Total Average Capital = 67,500 + 47,500 + 55,000 = 170,000

Distribution of 120,000 profit

41. (A) Bonus = 105,000 – 90,000 = 15,000

Earth’s Capital 90,000

Description Cash Other assets Liabilities S, Loan S, Capital Q, Capital E, Capital

Cash Non-cash Liab. Alpha (2) Beta (3) Gamma (5)

Alpha, Capital 25,000