Accounting 111

Name ______________________ Course & yr. __________ Schedule _____________ Score _______

Test I. Multiple choice. Encircle the letter of the best answer in each of the given question/s.

1. Failure to record the expired amount of prepaid rent expense would not
A. Understate expense
B. Overstate net income
C. Overstate owners equity
D. Understate liabilities
2. The balance in a deferred revenue account represents an amount that is
A. Earned, Collected
B. Earned, Not Collected
C. Not Earned, Collected
D. Not Earned, Not Collected
3. The premium on a two year insurance policy expiring on June 30, 2013, was paid in total on July 1,
2011. The original payment was debited to the insurance expense account. The appropriate journal entry
has been recorded on December 31, 2011. The balance in the prepaid asset account on December 31,
2011 should be
A. the same as the original payment.
B. higher than if the original payment had been initially debited to an asset account.
C. lower than if the original payment had been initially debited to an asset account.
D. the same as it would have been if the original payment had been initially debited to an asset account.
4. The theory of accounting which best describes the accounting equation expressed assets equals
liabilities plus owners equity is the
A. Entity theory
B. Fund theory
C. Proprietary theory
D. Residual equity theory
5. The ability through consensus among measures to ensure that information represents what it purports to
represent is an example of the concept of
A. Relevance
B. Verifiability
C. Comparability
D. Feedback value
6. An income is recognized when
A. It is probable that future economic benefit will flow to the entity and the economic benefit can be
measured reliably.
B. It is possible that future economic benefit will flow to the entity and the economic benefit can be
measured reliably.
C. The entity obtains control of the future economic benefit.
D. The future economic benefit can be measured reliably.
7. On June 30, a company paid P3,600 for insurance premiums for the current year and debited the
amount to prepaid insurance. At December 31, the bookkeeper forgot to record the amount expired. The
omission has the following effect on the financial statements prepared December 31.
A. Overstates owners equity
B. Overstate assets
C. Understates net income
D. Overstates both owners equity and assets
8. Which of the following is not among the first five steps in the accounting cycle?
A. Record transactions in journal
B. Record closing entries
C. Adjust the general ledger accounts
D. Post entries to general ledger accounts
9. Which of the following errors will be detected when a trial balance is properly prepared?
A. An amount that was entered in the wrong account.
B. A transaction that was entered twice.
C. A transaction that has been omitted.
D. None of these.
10. If an expense has been incurred but not yet recorded, then the end of period adjusting entry would
involve
A. A liability account and an asset account
B. A liability account and a revenue account
C. An asset and an expense account
D. Neither of the statements is true
11. Recording a single transaction in the double entry accounting records may
A. Increase the balance on an asset account by a given amount and decrease the balance on a liability
account by the same amount.
B. Increase the balance on one asset account by a given amount and increase the balance on another asset
account by the same amount.
C. Decrease the balance on a liability account by a given amount and decrease the balance on an asset
account by the same amount.
D. Decrease the balance on an asset account by a given amount and increase the balance on a liability
account by the same amount.
12. The future economic benefits embodied in an asset may flow to the enterprise in a number of ways.
Which is the exception?
A. An asset may be exchanged for other assets.
B. An asset may be used to convert an obligation to equity.
C. An asset may be distributed to the owners of the enterprise.
D. An asset may be used singly or in a combination with other assets in the production of goods or
services to be sold by the enterprise.
13. Accounting changes are often made and the monetary impact is reflected in the financial of a
company even though, in theory, this may be a violation of the accounting concept of
A. Materiality
B. Objectivity
C. Conservatism
D. Consistency
14. Which of the following statement is FALSE?
A. Classification reduces the effects of numerous transactions into useful groups or categories.
B. A business transaction is the occurrence of an event or of a condition that must be recorded.
C. Government accounting deals solely with the identification of the sources of resources consistent with
laws.
D. The entity concept states that the transactions of different entities should not be accounted for together.
15. It is the exercise of care and caution in dealing with uncertainties in measurement so as not to
overstate assets and income and not understate liabilities and expenses.
A. Prudence
B. Neutrality
C. Completeness
D. Faithful representation
16. Which of the following statement is TRUE?
A. Amounts entered on the left side of an account, regardless of the account title, are called credits or
charges to the account.
B. For a T account, the account balance is the difference in total pesos between total debit footings and
total credit footings.
C. When the columns of the trial balance are equal, no errors have occurred in recording and posting the
transactions.
D. Liabilities are established with debits and eliminated with credits.
17. On May 1, year 1, a company borrowed P3,000 cash and signed a 13 percent note payable due April
30, year 3. Interest is paid each April 30. The accounting period ends December 31. The adjusting entry at
December 31, year 1 would include
A. debit notes payable, P390.
B. credit interest payable, P260.
C. debit interest expense, P390.
D. credit prepaid interest, P130.
18. On March 1, a company received P3,000 cash from a client as an advance for 12 months worth of
delivery services. The company initially recorded this receipt as a debit to cash and a credit to delivery
service revenue. The adjusting entry made at December 31 would include a
A. credit to unearned delivery service revenue, P500.
B. debit to delivery service revenue, P2,000.
C. debit to delivery service expense, P2,500.
D. credit to delivery service revenue, P500.
19. Materiality
A. is only relevant when preparing annual financial statements.
B. is applicable only for low-cost items that cost less than, say, P500.
C. is the only defense for gross negligence by a Certified Public Accountant.
D. does not necessarily imply that an immaterial amount can be ignored for accounting purposes.
20. The accounting cycle is
A. the sequence of procedures used by a business to process economic information and to produce
financial statements.
B. a process that begins with adjusting entries and ends with the preparation of the financial statements.
C. the length of time it takes to complete a set of financial statement after the books are closed.
D. applicable only to manual systems, not to computerized systems.

Test II. Problem Solving. Give the requirements accordingly with supporting computation/s.

A. Sugdan Na Natu and Problema Company’s accounting records provided the following information:

ACCOUNT BALANCES
12/31/2010 12/31/2011
Current Assets P240,000 P?
Property, Plant, and Equipment 1,600,000 1,700,000
Current Liabilities ? 130,000
Non-current Liabilities 580,000 ?

All assets and liabilities of the firm are reported in the schedule above. Working capital of P92,000
remained unchanged from 2010 to 2011. Net income in 2011 was P64,000. No dividends were
declared during 2011 and there were no other changes in owners’ equity.
Required:
1. Total current assets at the end of 2011 would be ________________
2. Total non-current liabilities at the end of 2011 would be ________________
B. Donah Bieber Company sells magazine subscription to one-to-three year subscription periods. Cash
receipts from subscribers are credited to Magazine Subscriptions Collected in Advance, and this
account had a balance of P9,600,000 at December 31, 2011 before year-end adjustment. Outstanding
subscriptions at December 31, 2011, expire as follows:
During 2012 P2,600,000
During 2013 3,200,000
During 2014 1,800,000
In its December 31, 2011, income statement, what amount should Donah Bieber report as
subscription revenue? ________________

C. GameCity Company failed to recognize accruals and prepayments since the inception of its business
three years ago. The accruals and prepayments at the end of 2014 are given below:
Prepaid insurance P60,000
Accrued wages 75,000
Rent revenue collected in advance 96,000
Interest receivable 81,000

What is the net effect(OVERSTATED OR UNDERSTATED - specify in “CAPITAL” and provide

only 1 space after the amount) of the above errors in the 2014 net income? _______________

D. The December 31, 2014 and 2013 comparative financial statements of Mineski Corporation showed
equipment with an original cost P379,000 and P344,000 with accumulated depreciation of P153,000
and P128,000, respectively. During 2014, the company purchased equipment costing P50,000 and
sold equipment with a carrying value of P9,000. What amount should the company report as
depreciation expense for the year ended December 31, 2014? ________________

E. On September 1, 2014, Borrelaos began a service proprietorship with an initial investment of

P400,000. Borrelaos provided P800,000 of services during September. Collections were made except
for P200,000 which were paid the following month. Expenses were incurred in the amount of
P400,000, including P100,000 which are to be paid next month. Borrelaos withdrew P60,000 against
the capital account.
Required: In September 30, 2014 financial statement, what amount of capital should be reported?
_______________

F. OneD Inc., has the following information related to its accounts receivables:

December 31, 2013 December 31, 2014

Accounts Receivable P415,000 P?
Allowance for doubtful accounts 25,000 ?

During the year 2014, OneD Inc., has rendered services in the amount of P900,000 and only 5% of it
is cash. OneD Inc., has collected cash from its accounts receivables in the amount of P755,000.
Required:
1. The balance of accounts receivable at December 31, 2014 would be ____________
2. If the allowance for doubtful accounts is increased to 9% of the ending balance of accounts
receivable, the doubtful account expense for the year 2014 would be ___________
3. The net realizable value of accounts receivable would be _________________

G. On January 1, 2013 Rhadzell Company bought a machinery under a contract that required a down
payment of P100,000, plus 24 monthly payments of P50,000 each, for a total cash payments of
 P1,300,000. The cash price of the machinery was P1,100,000. The machinery has a useful life of 10
years and residual value of P50,000. The entity used straight line depreciation.

Required: What amount should be reported as depreciation for 2013? _______________

H. At December 31, 2014 the advertising expense account of JessNeil Company had a balance of
P146,000 before any year-end adjustment relating to the following:
 Brochures and leaflets for a sales promotional campaign in January 2015 amounting to
P15,000 was included in the P146,000 balance.
 Airtime for the radio advertisements during December 2014 for P9,000 was billed to JessNeil
on January 2, 2015. JessNeil paid the full amount on January 9, 2015.

Required: What amount should JessNeil report as advertising expense for the year 2014? __________

I. The following were found on the Modess Company’s unadjusted Financial Statement for the year-end
December 31, 2013:

Total Current Assets P4,500,000

Total Noncurrent Assets 3,000,000
Total Current Liabilities 500,000
Total Noncurrent Liabilities 2,000,000
Total Owners’ Equity 5,000,000
Total Income 4,000,000
Total Expense 3,750,000

Additional information:
A. Accounts Receivable has an estimated collectible amount of P485,000 provided that 3% of the
accounts receivable were said to be doubtful. Furthermore, Modess Company didn’t recognize
the allowance for doubtful accounts in the current period.
B. On October 1, Modess Company loaned a 3-year note payable of P696,000 with an interest rate
of 7% per annum.
C. On September 1, Modess Company signed a contract effective immediately with Wings
Company to render a 6-month service for a fixed charge of P198,000. Wings Company paid in
advance. The advance payment was recorded as Service Income during the transaction date.
D. Water and electric bills were received on December 31. Water bills amounted to P6,500 and
electric bills, P5,500.
E. Salaries are paid every two Fridays. As of the month of December, salary payments were made
on December 13 and 27. The two-week payroll is P450,000. Assume that December 31 falls on
Tuesday and Modess Company has a 6-day work week.
F. On August 1, Modess Company paid P180,000 for a 4-year fire insurance policy. The amount
was debited to Insurance Expense during the transaction date.
G. On February 1, Modess Company bought supplies on account for P100,000. The amount was
debited to Supplies Expense on February 1. On December 31, Modess Company’s supplies
amounted to P35,000 on hand.
H. On April 1, Modess Company acquired a building worth P1,250,000. It has an estimated useful
life of 25 years with a residual value of P175,000. On July 1, Modess Company acquired an
equipment for P450,000. The equipment was expected to have an estimated useful life of 10 years
with a residual value of P50,000. Depreciation is computed in a straight-line basis. Both accounts
were being recorded to Repair and Maintenance account at the date of acquisition.
Required:
1. Adjusted Net Income / (Loss) ____________
 2. Adjusted Working Capital _______________
3. Net effect on Total Assets (specify - understated / overstated) _______________
4. Net effect on Total Liabilities (specify - understated / overstated) ______________

J. On October 1, 2013, Gerardo Fritz Company purchased a machine for P1,260,000 that was placed in
service on November 30, 2013. The entity incurred additional costs for this machine: shipping,
P30,000; installation, P40,000; and testing P50,000. The machine has a 10-year useful life and
P100,000 residual value.

Required:
1. What amount should be reported as Depreciation Expense for 2013? _____________
2. What is the net book value of the machine for 2013? _____________

K. Following data are selected information from Mayta Makapasar Proprietorship for the current year
2013:
Cash balance, January 1 P130,000
Accounts Receivable, January 1 190,000
Collection from customers 2,100,000
Mayta Makapasar, Capital, January 1 380,000
Total assets, January 1 750,000
Total assets, December 31 880,000
Cash balance, December 31 160,000
Accounts Receivable, December 31 360,000
Total Liabilities, December 31 390,000

Required: The net income for the current year is _______________

L. Agent P started operating a service proprietorship on January 1, 2013 with an initial investment of
P5,000,000 and borrowed funds worth P1,500,000. During the first year, the service income totalled
P2,500,000 and expenses of P500,000. On December 31, the liabilities increased to P1,800,000. On
December 31, 2013, what amount should be reported as total assets? ________________

M. Sayun Ra ni Company had total assets of P4,000,000 and an equity of P2,080,000 at the beginning of
the year. During the year, assets increased by P520,000 and liabilities decreased to P820,000. Sayun
Ra Ni Company’s equity at the year-end totalled ____________

Key:
Test I
 1. D
2. C
3. D
4. A
5. B
6. A
7. D
8. B
9. D
10. C
11. C
12. B
13. D
14. C
15. A
16. B
17. B
18. A
19. D
20. A
Test II
A. 1. 222,000
2. 616,000
B. 2,000,000
C. 30,000 OVERSTATED
D. 31,000
E. 740,000
F. 1. 515,000
2. 21,350
3. 468,650
G. 105,000
H. 140,000
I. 1. 1,876,320
2. 3,978,570
3. 1,829,000 UNDERSTATED
4. 202,680 UNDERSTATED
J. 1. 32,000
2. 1,348,000
K. 110,000
L. 8,800,000
M.3,700,000