BASIC ACCOUNTING – BM1705

Name : __________________________________________ Section: _______________ Date: ________________

General Instructions:
 Read and understand each statement carefully.
 Avoid unnecessary erasures. If you want to change your answer, enclose it in parentheses and write your final
answer on the space provided before each number.
 Use black or blue pen only.
 If you have questions, raise your hand and the exam proctor will attend to you.

I. MULTIPLE CHOICE (15 items x 2 point)

ENCIRCLE the letter of the correct answer among the given choices

1. A merchandising company earns income by buying and selling goods.

a. merchandise inventory c. periodic inventory system
b. perpetual inventory system d. freight costs

2. Continuous records are kept of the quantity and, usually, the cost of individual items as they are bought and
sold.
a. merchandise inventory c. periodic inventory system
b. perpetual inventory system d. freight costs

3. The inventory not yet sold is counted periodically.

a. merchandise inventory c. periodic inventory system
b. perpetual inventory system d. freight costs

4. The sales agreement should indicate who—the seller or the buyer—is to pay for transporting the goods to
the buyer’s place of business.
a. merchandise inventory c. periodic inventory system
b. perpetual inventory system d. freight costs

5. The seller places the goods free on board to the buyer’s place of business, and the seller pays the freight.
a. FOB shipping point c. Freight Costs Incurred by the Buyer
b. FOB destination d. Freight Costs Incurred by the Seller

6. When the buyer incurs the transportation costs, these costs are considered part of the cost of purchasing
inventory.
a. FOB shipping point c. Freight Costs Incurred by the Buyer
b. FOB destination d. Freight Costs Incurred by the Seller

7. An outgoing merchandise are an operating expense to the seller.

a. FOB shipping point c. Freight Costs Incurred by the Buyer
b. FOB destination d. Freight Costs Incurred by the Seller

8. The seller places the goods free on board the carrier, and the buyer pays the freight costs.
a. FOB shipping point c. Freight Costs Incurred by the Buyer
b. FOB destination d. Freight Costs Incurred by the Seller

9. A purchaser may be dissatisfied with the merchandise received because the goods are damaged or defective, of
inferior quality, or do not meet the purchaser’s specifications.
a. Sales Returns and Allowances c. Purchase Returns and Allowances
b. Sales Discounts d. Purchase Discounts

10. The credit terms of a purchase on account may permit the buyer to claim a cash discount for prompt payment.
a. Sales Returns and Allowances c. Purchase Returns and Allowances
b. Sales Discounts d. Purchase Discounts

11. These are transactions where the seller either accepts goods back from the buyer (a return) or grants a
reduction in the purchase price (an allowance) so the buyer will keep the goods.
a. Sales Returns and Allowances c. Purchase Returns and Allowances
b. Sales Discounts d. Purchase Discounts

2nd Term, SY 2023 – Midterm Examination *Property of STI

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 BASIC ACCOUNTING – BM1705

Name : __________________________________________ Section: _______________ Date: ________________

12. The seller may offer the customer a cash discount called by the seller a sales discount.
a. Sales Returns and Allowances c. Purchase Returns and Allowances
b. Sales Discounts d. Purchase Discounts

13. A merchandising company generally has the same types of ___________ as a service company.
a. Closing entries c. Purchase Returns and Allowances
b. Gross Profit d. Adjusting entries

14. A merchandising company, like a service company, closes to Income Summary all accounts that affect net
income.
a. Closing entries c. Purchase Returns and Allowances
b. Gross Profit d. Adjusting entries

15. This is sometimes referred to as gross margin.

a. Closing entries c. Purchase Returns and Allowances
b. Gross Profit d. Adjusting entries

II. IDENTIFICATION (10 items x 3 point)

Write A if the answer is under Periodic Inventory System and B if the answer is under Perpetual Inventory System.

1. There are continual updates to either the general ledger or inventory journal as inventory-related transactions
occur.

2. There is no cost of goods sold account entry at all in an accounting period until such time as there is a physical
count, which is then used to derive the cost of goods sold.

3. This system of inventory advices to use computer systems instead of manual recording.

4. This system of inventory allows for the use of manual record keeping for very small inventories.

5. The cost of goods sold is calculated in a lump sum at the end of the reporting period, by adding total
purchases to the beginning inventory and subtracting ending inventory.

6. There are continual updates to the cost of goods sold account as each sale is made.

7. It is impossible to use cycle counting since there is no way to obtain accurate inventory counts in real time.

8. Inventory purchases are recorded in either the raw materials inventory account or merchandise account.

9. All purchases are recorded into a purchases asset account, and there are no individual inventory records to
which any unit-count information could be added.

10. It is nearly impossible to track through the accounting records to determine why an inventory-related error
of any kind occurred, since the information is aggregated at a very high level.

2nd Term, SY 2023 – Midterm Examination *Property of STI

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 BASIC ACCOUNTING – BM1705

Name : __________________________________________ Section: _______________ Date: ________________

III. FINANCIAL STATEMENT CLASSIFICATION (40 points)

2nd Term, SY 2023 – Midterm Examination *Property of STI

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