The first step in the accounting cycle is to

a. Record transactions in a journal

b. Analyze transactions from source documents

c. Post journal entries to general ledger accounts

d. Adjust the general ledger accounts

Which is an optional step in the accounting cycle

a. Adjusting entries

b. Closing entries

c. Financial statements

d. Reversing entries

Which one of the following is not a difference between a retail business and a service
business?

a. in what is sold

b. the inclusion of gross profit in the income statement

c. accounting equation
 d. merchandise inventory included in the balance sheet

The credit term 2/10 n/30 means

A. That after 10 days 2% interest is charged.

B. That there is a 10% discount if payment is received within 30 days.

C. That there is a 2% discount if payment is received within 10 days.

D. There is a 10% discount if paid immediately and 2% if paid within 30 days.

Which of the following would result to a net income for the period?

A. Debit balance in the income summary account after closing income and expense account

B. Credit balance exceeded debit balance in the balance sheet column of worksheet

C. The difference between the debit and credit in the income statement column is extended to
debit balance of balance sheet column of worksheet

D. The difference between the debit and credit in the income statement column is extended to
credit balance of balance sheet column of worksheet

Which of the following statements is not a reason for preparing end of period adjusting
entries?

A. Some transactions extend beyond one accounting period.

 B. They help to properly measure the period’s net income or net loss

C. Mixed accounts should be split into their real and nominal elements

D. Errors discovered at the end of the period should be corrected in order to generate more
reliable financial reports.

Reversing entries apply to all of the following, except

A. Unearned revenue

B. Accrued wages

C. Prepaid insurance

D. Depreciation

When an entity sold some of its office machineries on account, the entity enters the
transaction in the

A. Sales journal

B. General journal

C. Cash receipts journal

D. Cash payments journal

The accounting equation must remain in balance

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 A. Throughout each step of the accounting cycle

B. Only when journal entries are recorded

C. Only at the time the trial balance is prepared

D. Only when formal financial statement'; are prepared

Reversing entries are

1. normally prepared for prepaid, accrued, and estimated items.

2. necessary to achieve a proper matching of revenue and expense.

3. desirable to exercise consistency and establish standardized procedures.

A. 1

B. 2

C. 3

D. 1 and 2

An unearned revenue can best be described as an amount

A. collected and currently matched with expenses.

B. collected but not currently matched with expenses.

C. not collected but currently matched with expenses.

 D. not collected and not currently matched with expenses.

Which of the following is a real (permanent) account?

A. Inventory

B. Sales

C. Accounts Receivable

D. Both Inventory and Accounts Receivable

If an entity uses the expense method of initial recording of expenses, the year-end
adjusting entry involves

A. debiting a prepaid asset account for the expired portion of the advance payment made

B. debiting an expense account for the expired portion of the advance payment made

C. crediting an expense account for the unexpired portion of the advance payment made

D. crediting a prepaid asset account for the unexpired portion of the advance payment made

Which of the following statements is true regarding debits and credits?

A. Before adjustments, debits will not equal credits in the trial balance.

B. The rules for debit and credit and the normal balance of share capital are the same as for
liabilities.
 C. In the income statement, revenue is increased by a debit whereas in the statement of
financial position, retained earnings account is increased by a credit.

D. On the income statement, debits are used to increase account balances, whereas on the
statement of financial position, credits are used to increase account balances.

Which of the following is an example of an accrued expense?

A. Depreciation expense

B. Property tax incurred during the year to be paid next year

C. Rent earned during the current year to be received at the end of next year

D. Equipment purchased at the beginning of the year and debited to an expense account

This assumption was formerly considered as an underlying assumption on the previous

Conceptual Framework?

a. Going-Concern Assumption

b. Accrual Assumption

c. Cost Assumption

d. Entity Assumption

The amortization of intangible assets over their useful lives is justified by the

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 a. Going concern assumption

b. Economic entity assumption

c. Monetary unit assumption

d. Historical cost assumption

This accounting objective emphasizes the importance of the Income Statement as it is

geared toward proper income or performance determination of the enterprise.

a. Fund theory

b. Proprietary theory

c. Residual equity theory

d. Entity theory

Which of the following can qualify as an asset of an entity?

a. Freely circulating air in the school campus university

b. Good order by Nolasco Trading from XYZ Corp.

c. An oxygen tank donated to Makati Medical Center

d. The position of a public highway fronting Jollibee in Dagupan City

The concept of matching is best demonstrated by

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 a. not recognizing any expense unless some revenue is realized

b. recognizing prepaid rent received as revenue

c. associating effort with accomplishment

d. establishing an allowance for possible market decline in inventory account.

Accounting changes are often made and the monetary impact is reflected in the
financial statements of company even though, in theory, this may be a violation of the
accounting concept of

a. materiality

b. objectivity

c. conservatism

d. consistency

The measurement phase of accounting is accomplished by

a. storing data

b. reporting to decision makers

c. recording data

d. processing data

What is the quality of information that gives assurance that it is reasonably free from
error and bias?
*

a. Relevance

b. Faithful representation

c. Verifiability

d. Neutrality

What are the ingredients of relevance?

a. Predictive value and timeliness

b. Confirmatory value and comparability

c. Predictive value, confirmatory value and materiality

d. Predictive value and confirmatory value

The “fundamental” qualitative characteristics are

a. Reliability and comparability

b. Materiality and timeliness

c. Comparability and consistency

d. Relevance and faithful representation

Financial statements must be prepared at least

*

a. Annually

b. Quarterly

c. Semiannually

d. Every two years

Basic steps in the recording process include all of the following, except

a. Transfer the journal information to the appropriate account in the statement of financial
position.

b. Analyze each transaction for its effect on the accounts.

c. Enter the transaction information in a journal.

d. All of the above

Which of the following statements best describes the term “going concern”?

a. When current liabilities exceed current assets.

b. The financial statements are normally prepared on the assumption that an entity will
continue in operation for the foreseeable future.

c. The potential to contribute to the flow cash and cash equivalents to the entity.

d. The expenses exceed income.

Which of the following is not normally an objective of financial reporting?

a. To provide information about assets, claims against those assets and changes in them.

b. To provide information that is useful in assessing cash flow prospects.

c. To provide information that is useful in lending and investing decisions.

d. To provide information about an entity’s liquidation value.

Which of the following is an essential characteristic of an asset?

a. The claims to an asset’s benefits are legally enforceable

b. An asset is tangible

c. An asset is obtained at a cost

d. An asset provides future benefits

The objectives of financial reporting are based on

a. Generally accepted accounting principles

b. Reporting for regulations

c. The need for conservatism

d. The needs of the users of the information

An accrued expense can best be described as an amount

a. Paid and currently matched with earnings

b. Paid and not currently matched with earnings

c. Not paid and not currently matched with earnings

d. Not paid and currently matched with earnings

Which of the following is not a possible combination of a journal entry?

a. Increase in asset and increase in liability

b. Decrease in equity and increase in liability

c. Decrease in liability and decrease in asset

d. Increase in asset and decrease in equity

The following can be found in an income statement except:

a. income

b. assets

c. expenses

d. profit or loss
In recording transactions

a. The word "debit” means increase and the word credit means decrease

b. Assets, expenses, and drawing accounts are debited for increase

c. Liabilities, revenue, and drawing accounts are debited for increases

d. Assets, expenses, and capital accounts are debited for increase

Adjusting entries that should be reversed include those for prepaid or unearned items
that

a. Create an asset or a liability account.

b. Were originally entered in a revenue or expense account.

c. Were originally entered in an asset or liability account.

d. Create an asset or a liability account and were originally entered in a revenue or expense
account.

An entity initially records prepayments in nominal accounts. Which of the following

year-end adjusting entries should be reversed?

a. The adjusting entry to record inventory at year-end

b. The adjusting entry to record the portion of rental received in advance that is unearned at
year-énd
 c. The adjusting entry to record doubtful accounts

d. The adjusting entry to record amortization of patent

Reversing entries

a. Impact the income statement only.

b. Impact the statement of financial position and the income statement

c. Are not allowed under Philippine Financial Reporting Standards.

d. Change amounts reported in the financial statements of the preceding period.

The postclosing trial balance

A. Consists of statement of financial position accounts only.

B. Shows that the accounting equation is in balance at the end of the accounting period.

C. Will balance if a transaction is not journalized and posted, or if a transaction is journalized

and posted twice.

D. All of the choices are correct regarding the post-closing trial balance.

Which of the following is a real account?

A. Freight-in

B. Freight-out
 C. Accumulated depreciation

D. Interest expense

Part II - Problems [30 items]

Aztec Company is selling a piece of land adjacent to their business. An appraisal
reported the market value of the land to be P100,000. The Majestic Company initially
offered to buy the land for P87,000. The companies settled on a purchase price of
P95,000. On the same day, another piece of land on the same block sold for P102,000.
Under the cost concept, what is the amount that will be used to record this transaction in
the accounting records?

a. P100,000

b. P87,000

c. P102,000

d. P95,000

The assets and liabilities of the company are P155,000 and P60,000 respectfully. Equity
should equal

a. P215,000

b. P155,000

c. P60,000

d. P95,000
If total liabilities decreased by P25,000 during a period of time and Capital increased by
P30,000 during the same period, the amount and direction (increase or decrease) of the
period's change in total assets is

a. P65,000 increase

b. P5,000 decrease

c. P5,000 increase

d. P65,000 decrease

If owner's equity is P30,000 and liabilities are P73,000, then assets equal:

A) P 30,000.

B) P 40,000.

C) P 60,000.

D) P 73,000.

E) P 103,000.

The FastForward Company balance sheet shows cash P5,000, accounts receivable
P7,000, office equipment P3,000, and accounts payable P4,000. What is the amount of
owner's equity?

A) P 1,000.
 B) P11,000.

C) P12,000.

D) P15,000.

E) P19,000.

If the assets of a business increased P15,000 during a period of time and its liabilities
increased P6,000 during the same period, owner's equity in the business must have:

A) Increased P 9,000.

B) Decreased P 9,000.

C) Increased P21,000.

D) Decreased P21,000.

E) Decreased P 6,000.

A P15 credit to Revenue was posted as a P150 credit. By what amount is Revenue out
of balance?

A) P150 understated.

B) P135 overstated.

C) P150 overstated.

D) P15 understated.
 E) P135 understated.

If, on a trial balance, the total of the debits is P7,500 and the total of the credits is
P7,419, the difference could have been caused by:

A) An error in copying an account balance from the ledger to the trial balance.

B) A transposition error.

C) A sliding error.

D) Posting only one side of an entry.

E) All of these answers are correct.

In which of the following situations would the trial balance not balance?

A) A P1,000 collection of an account receivable was incorrectly posted as a debit to Accounts

Receivable and a credit to Cash.

B) The purchase of office supplies on account for P3,250 was incorrectly recorded in the
journal as P2,350.

C) P50 cash receipt for the performance of a service was not recorded.

D) The purchase of office equipment for P1,200 was posted as a debit to Office Supplies.

E) The payment of a P750 account payable was posted as a debit to Accounts Payable and a
debit to Cash for P750.
The purchase on credit of a delivery truck for P9,600 was posted to Delivery Trucks as a
P9,600 debit and to Rent Expense as a P9,600 debit. What effect would this error have
on the trial balance?

A) The total of the Debit column of the trial balance will exceed the total of the Credit column
by P9,600.

B) The total of the Credit column of the trial balance will exceed the total of the Debit column
by P9,600.

C) The total of the Debit column of the trial balance will exceed the total of the Credit column
by P19,200.

D) The total of the Credit column of the trial balance will exceed the total of the Debit column
by P19,200.

E) The total of the Debit column of the trial balance will equal the total of the Credit column.

If all of the accounts have normal balances, what are the totals for the trial balance?

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 A) P 86,000.

B) P119,600.

C) P127,600.

D) P186,600.

E) P255,500.

Of the following errors, which one by itself will cause the trial balance to be out of
balance?

A) A P200 salary payment posted as a P200 debit to Cash and a P200 credit to Salaries
Expense.

B) A P100 receipt from a customer in payment of his account posted as a P100 debit to Cash
and a P10 credit to Accounts Receivable.
 C) A P75 receipt from a customer in payment of his account posted as a P75 debit to Cash
and a P75 credit to Cash.

D) A P50 cash purchase of office supplies posted as a P50 debit to Office Equipment and a
P50 credit to Cash.

E) All of these errors will cause the trial balance to be out of balance.

A P130 credit to Office Equipment was credited to Sales by mistake. By what amounts
are the accounts under- or overstated as a result of this error?

A) Office Equipment, understated P130; Sales, overstated P130.

B) Office Equipment, understated P260; Sales, overstated P130.

C) Office Equipment, overstated P130; Sales, overstated P130.

D) Office Equipment, overstated P130; Sales, understated P130.

E) Office Equipment, overstated P260; Sales, understated P130.

Prior to recording adjusting entries, the Office Supplies account had a P359 debit
balance while a physical count of the supplies showed P105 of unused supplies on
hand. Thus, the required adjusting entry is:

A) Debit Office Supplies P105 and credit Office Supplies Expense P105.

B) Debit Office Supplies Expense P105 and credit Office Supplies P105.

C) Debit Office Supplies Expense P254 and credit Office Supplies P254.

D) Debit Office Supplies P254 and credit Office Supplies Expense P254.
 E) Some other entry.

If throughout an accounting period the fees for legal services paid in advance by clients
are recorded in an account called Unearned Legal Fees, the end-of-period adjusting
entry to record the portion of these fees that has been earned is:

A) Debit Cash and credit Legal Fees Earned.

B) Debit Cash and credit Unearned Legal Fees.

C) Debit Unearned Legal Fees and credit Legal Fees Earned.

D) Debit Legal Fees Earned and credit Unearned Legal Fees.

E) Some other entry.

A company paid the P1,350 premium on a three-year insurance policy on April 1, 2011.
The policy gave protection beginning on that date. How many dollars of the premium will
appear as an expense on the calendar year 2011 income statement assuming the
accrual basis of accounting? Assuming the cash basis of accounting?

A) P1,350 accrual basis; P337.50 cash basis.

B) P450 accrual basis; P450 cash basis.

C) P1,012.50 accrual basis; P1,350 cash basis.

D) P337.50 accrual basis; P1,350 cash basis.

E) P1,350 accrual basis; P1,350 cash basis.

Yang Company had no office supplies on hand at the beginning of the year. During the
year, the company purchased P250 worth of office supplies. At the end of the year, P75
worth of office supplies were on hand. How much should Yang Company report as
office supplies expense for the year?

A) P 75.

B) P125.

C) P175.

D) P250.

E) P325.

On January 1, 2011, Banana Company purchased a five-year insurance policy for

P1,800. If the cost was debited to Prepaid Insurance, the adjusting entry at the end of
2011 is:

A) Debit Prepaid Insurance, P1,800; credit Cash, P1,800.

B) Debit Prepaid Insurance, P1,440; credit Insurance Expense, P1,440.

C) Debit Prepaid Insurance, P360; credit Insurance Expense, P360.

D) Debit Insurance Expense, P360; credit Prepaid Insurance, P360.

E) Debit Insurance Expense, P1,800, credit Prepaid Insurance P1,800.

The premium on a three-year insurance policy purchased on April 30, 2011, was
P18,000. What is the amount of insurance expense that should be presented on the
company's income statement for the year ended December 31, 2011?

A) P 2,000.

B) P 4,000.

C) P 6,000.

D) P12,000.

E) P14,000.

On May 1, 2011. Wasp Advertising Company received P1,500 from Julie Bee for
advertising services to be completed by April 30, 2012. Assume the receipt was
recorded as unearned fees and that at December 31, 2011, P500 of the fees had been
earned. The adjusting entry prepared by Wasp on December 31, 2011, should include:

A) A debit to Unearned Fees for P500.

B) A credit to Unearned Fees for P500.

C) A credit to Earned Fees for P1,000.

D) A debit to Earned Fees for P1,000.

E) A debit to Earned Fees for P500.

The Crimson Cartage Company purchased a new truck at a cost of P42,000 on July 1,
2011. The truck is estimated to have a useful life of six years and a residual value of
P6,000. How much depreciation expense will be recorded for the truck during the year
ended December 31, 2011?

A) P3,000.

B) P3,500.

C) P4,000.

D) P6,000.

E) P7,000.

The Office Supplies account shows a beginning balance of P600 and an ending balance
of P400. If office supplies expense for the year is P3,100, what amount of office
supplies was purchased during the year?

A) P2,700.

B) P2,900.

C) P3,300.

D) P3,500.

E) P3,700.

HCF, a finance company, lends Able Business P2,400 at 5% for three months on
December 1, 2011. HCF's adjusting entry on December 31, 2011, should include:

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 A) A debit to Interest Earned for P10.

B) A credit to Interest Receivable for P10.

C) A credit to Interest Earned for P10.

D) A debit to Cash for P10.

E) A debit to Interest Expense for P10.

In January, Denton Mabrey College received P120,000 in Unearned Tuition Revenue

from its students for the spring semester, which lasts four months. On January 31, the
college should recognize which amount for tuition revenue?

A) P 30,000.

B) P 60,000.

C) P 80,000.

D) P 90,000.

E) P120,000.

After all appropriate closing entries to the following accounts have been made, what will
be the balance in the Jay Travis, Capital account?

Service fees revenue - P125,000

Various expenses - 60,000

Jay Travis, capital - 80,000

Jay Travis, withdrawals - 15,000

A) P 65,000.

B) P 80,000.

C) P130,000.

D) P145,000.

E) P280,000.

The J. Godfrey, Capital account has a debit balance of P1,200 before closing entries
are made. If total revenues for the year are P55,200, total expenses P39,800, and
withdrawals are P9,000, what is the ending balance in the J. Godfrey, Capital account
after all closing entries have been made?

A) P 5,200.

B) P 7,600.

C) P14,200.

D) P16,600.

E) P23,200.

The following items appeared on a December 31 work sheet. Based on the following
information, what is net income for the year?

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 A) P1,855.

B) P1,905.

C) P2,060.

D) P4,125

E) P4,670.

The Unadjusted Trial Balance columns of a work sheet total P84,000. The Adjustments
columns contain entries for the following:

(1) Office supplies used during the period, P1,200.

(2) Expiration of prepaid rent, P700.

(3) Accrued salaries expense, P500.

(4) Amortization expense, P800.

(5) Accrued repair service fees receivable, P400.

The Adjusted Trial Balance columns total[ total debits = total credits]:

A) P80,400.

B) P84,000.

C) P85,700.

D) P85,900.

E) P87,600.

Given the following accounts and their adjusted balances before closing entries are
posted, what amount will be posted to Joe Cool, Capital in the process of closing the
Income Summary account? Assume all accounts have normal balances.

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 A) P 7,180 credit.

B) P16,780 debit.

C) P16,780 credit.

D) P18,280 credit.

E) P23,780 credit.

The J. Godfrey, Capital account has a debit balance of P1,200 before closing entries
are made. If total revenues for the year are P55,200, total expenses P39,800, and
withdrawals are P9,000, what is the ending balance in the J. Godfrey, Capital account
after all closing entries have been made?

A) P 5,200.

B) P 7,600.

C) P14,200.

D) P16,600.

E) P23,200.