Tony has
just completed a transaction that caused a P12,000
1. Which of the following equations is not true? increase in total assets and a P12,000 increase in
(a) Assets + Liabilities = Owners Equity liabilities. This transaction could have been:
(a) the investment in his business of P12,000 in
(b) Assets = Liabilities + Owners Equity cash
(b) the purchase of store equipment, paying P9,000
(c) Assets Owners Equity = Liabilities in cash and issuing a P12,000 note payable for
the balance owed
(d) Assets Liabilities = Owners Equity (c) the purchase of bags for his inventory, paying
P4,000 in cash and issuing an P8,000 note
payable for the balance owed
(d) none of the above transactions would cause
2. Dave started his own cheese factory on March 16, total assets and total liabilities to increase by
2003. Which of the following transactions would not P12,000
be admissible in Daves accounting system for the
month of March?
(a) On March 18, Dave purchased a cow on account 7. Dean has completed the posting process for the
for P3,000. month of June and has prepared a trial balance in
(b) On March 20, Dave sold his cow to a fast food which the debits total P11,000 and the credits total
restaurant for P5,000. P11,100. Which of the following errors would be the
(c) On March 21, Dave contracted with a local radio most likely candidate in causing the trial balance not
station to run several one-minute advertising to balance by P100?
spots during the month of April. (a) a P100 debit was posted as a P100 credit
(d) All of the above transactions would be (b) a P100 debit was posted as a P100 credit and a
admissible for Daves accounting system in the P100 credit was posted as a P100 debit
month of March. (c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never
posted to the general ledger
3. Jeff purchased a new register system for his grocery
store, paying P1,000 in cash and issuing a P6,000 8. Increase in net assets may result from:
note payable for the balance owed. As a result of (a) revenues
this transaction, Jeffs balance sheet would reflect: (b) expenses
(a) an increase in assets and an increase in (c) withdrawals
liabilities (d) all of the above are correct
(b) a decrease in assets and an increase in liabilities
(c) an increase in assets and a decrease in liabilities
(d) an increase in assets and an increase in owners
equity 9. Which of the following statements is false?
(a) Increases to owners capital are recorded with
4. The double-entry system of accounting means that credits.
every transaction: (b) Sales are recorded as debits.
(a) is recorded initially on both the journal and the (c) Expenses reduce owners capital.
general ledger (d) Expenses and dividends are both recorded as
(b) increases one general ledger account while debits.
decreasing another
(c) affects at least two general ledger accounts and 10. Zinc Company recorded office supplies as an asset
is recorded by an equal amount of debits and account when the supplies were purchased. Failure
credits to make an adjusting entry reflecting the use of
(d) results in changes in accounts on both sides of these supplies will result in:
the balance sheet (a) an understatement of assets
(b) an overstatement of owners equity
5. Which of the following statements is not correct? (c) an understatement of liabilities
(a) debits may increase assets (d) an understatement of owners equity
(b) credits may increase liabilities
(c) debits may increase liabilities
(d) credits may increase owners equity
11. Compared to its 2001 cash basis net income, Pry III. Deducted from Deducted from
Companys 2001 accrual basis net income increased IV. Deducted from Added to
when it:
I. declared a cash dividend in 2000 that it paid in
2001. 16. The premium on a three-year insurance policy
II. wrote off more accounts receivable balances
expiring on December 31, 2003 was paid in total on
that it reported as uncollectible accounts January 2, 2001. If the company has six-month
expense in 2001. operating cycle, then on December 31, 2001, the
III. had lower accrued expenses on December 31,
prepaid insurance reported as current asset would
2001 than on January 1, 2001. be for:
IV. sold used equipment for cash at a gain in 2001.
(a) 6 months
(c) 18 months
(b) 12 months
12. Before 2001, Druid Company used the cash basis of (d) 24 months
accounting. As of December 31, 2001, Druid
changed to the accrual basis. Druid cannot 17. The premium on a three-year insurance policy
determine the beginning balance of supplies expiring on December 31, 2003 was paid in total on
inventory. What is the effect of Druids inability to January 1, 2001. The original payment was initially
determine beginning supplies inventory on its debited to a prepaid asset account. The appropriate
accrual basis net income and December 31, 2001 journal entry had been recorded on December 31,
accrual basis owners equity? 2001. The balance in the prepaid asset account on
December 31, 2001 should be:
12/31/2001 I. zero.
2001 net income owners equity II. the same as it would have been if the original
I. No effect No effect
II. No effect Overstated
payment had been debited initially to an
III. Overstated No effect expense account.
IV. Overstated Overstated III. the same as the original payment.
C
IV. higher than if the original payment had been
13. Wide Company wants to convert its 2001 financial debited initially to an expense account.
statements from the accrual basis of accounting to
the cash basis. Both supplies inventory and office 18. The premium on a three-year insurance policy
salaries payable increased between January 1 and expiring on December 31, 2003 was paid in total on
December 31. To obtain 2001 cash basis net January 1, 2001. Assuming the original payment
income, how should these increases be added to or was recorded as a prepaid, how would the total
deducted from the accrual basis net income? assets and stockholders equity be affected during
Supplies inventory Office salaries payable 2001?
I. Deducted Deducted I. Total assets would decrease and stockholders
II. Deducted Added equity would increase.
III. Added Deducted
IV. Added Added II. Both total assets and stockholders equity would
decrease.
III. Both total assets and stockholders equity would
increase.
14. Compared to the accrual basis of accounting, the
IV. Neither total assets nor stockholders equity
cash basis of accounting understates income by the
would change.
net decrease during the accounting period of:
Accounts receivable Accrued expense
I. Yes Yes
II. Yes No 19. The premium on a four-year insurance policy
III. No No expiring on December 31, 2004 was paid in total on
IV. No Yes January 1, 2001. Assuming that the original
payment was recorded as a prepaid asset, the
balance in the prepaid asset account on December
15. Dees inventory and accounts payable balances at 31, 2002 would be:
December 21, 2001 increased over their December I. lower than the balance on December 31, 2001.
31, 2000 balances. Should these increases be II. lower than the balance on December 31, 2003.
added to or deducted from cash payments to III. the same as the balance on December 31, 2004.
supplier to arrive at 2001 cost of goods sold? IV. the same as the original payment.
Increase in inventory Increase in accounts
payable
I. Added to Deducted from
II. Added to Added to
20. On January 1, 2001, Style Company signed a 5-year (b) coins and currency
contract enabling it to use a patented manufacturing (d) a customer check dated November 28
process beginning in 2001. A royalty is payable for
each product produced, subject to a minimum 26. If a financial institution has cash funds in a
annual fee. Any royalties in excess of the minimum company, which is in bankruptcy, and the amount
will be paid annually. On the contract date, Style recoverable is estimated to be lower than the face
prepaid a sum equal to two years minimum annual amount, cash should be:
fees. In 2001, only minimum fees were incurred. (a) eliminated from the balance sheet.
The royalty prepayment should be reported in (b) written down to its discounted or present value.
Styles December 31, 2001 financial statement as: (c) written down to estimated realizable value.
I. as expense only. (d) stated at face amount.
II. (c) a current asset and noncurrent asset.
III. a current asset and an expense.
27. If the deposit is legally restricted as to withdrawal,
IV. (d) a noncurrent asset.
the compensating balance related to a long-term
long is shown as:
21. Cash or Cash on Hand and In Banks on the balance (a) cash
sheet may include the following items: (c) long-term investment
(1) Currency or cash items on hand (b) other asset
(2) Deposits in foreign countries which are (d) current liability
subject to foreign exchange restrictions
(3) Short-term placements of excess cash which 28. Each of the following measures strengthens internal
can be preterminated control over cash receipts except:
(4) Postdated checks
(a) the use of a voucher system.
(5) Cash set aside for the acquisition or
construction of noncurrent assets
(b) preparation of a daily listing of all checks
(a) 1, 2 and 3 only (c) 1 and 3 only received through the mail.
(b) 2, 3 and 5 only (d) not given (c) the deposit of cash receipts intact in the bank on
a daily basis.
(d) the use of cash registers.
22. Balances representing cash, accounts receivable,
and payable denominated in other than the local
currency should be translated for consolidation at
the: 29. Which of the following is not a basic characteristic of
(a) historical rate a system of cash control?
(c) forward rate (a) use of a voucher system
(b) spot rate (b) combined responsibility for handling and
(d) current rate recording cash
(c) daily deposit of all cash received
23. The cash balance reported in the balance sheet (d) internal audits at irregular intervals
normally will not include:
(a) small amounts of cash (petty cash) kept on
hand in the office.
(b) checks received from customers and deposited 30. The following statements relate to the petty cash
in the bank. fund. Which statement is true?
(c) money orders. (a) The amount of coins and currency in the petty
(d) temporary investments due in one year. cash fund is the same before the fund is
reimbursed as it is afterwards.
24. Which of the following is not considered cash for (b) Entries to record the replenishment of the
financial reporting purposes? imprest petty cash fund result in debit to various
(a) petty cash funds and change funds expense accounts and a credit to the petty cash
(c) coin, currency and available funds funds.
(b) money order and certified checks
(c) At any time, the sum of the cash in the petty
(d) postdated checks and IOUs
cash fund and the total petty cash vouchers
should equal the amount for which the imprest
petty cash fund was established.
25. Which of the following items in a cash drawer at
November 30 is not cash? (d) Under the imprest petty cash system, it is not
(a) money orders necessary to adjust unreplenished petty cash
(c) a customer check dated December 1 expenses at end of the year.
III. Dividend payments
(a) I, II and III
(c) I only
31. An enterprise should prepare a cash flow statement (b) II and III
and should present it as: (d) I and III
(a) supplementary financial statement.
(b) note to financial statement. 38. In a cash flow statement, if used equipment is sold
(c) supporting schedule for amount appearing as at a gain, the amount shown as a cash flow from
cash and cash equivalent. investing activities equals the carrying amount of the
(d) integral part of the enterprises basic financial equipment:
statements. (a) plus the gain.
(b) plus the gain and less the amount of tax
attributable to the gain.
32. Cash flows in the cash flow statement are: (c) plus both the gain and the amount of tax
(a) inflows of cash and cash equivalents. attributable to the gain.
(b) outflows of cash and cash equivalents. (d) with no addition or subtraction.
(c) inflows and outflows of cash.
(d) inflows and outflows of cash and cash
equivalents. 39. In a cash flow statement, which of the following
would increase reported cash flows from operating
activities using the direct method?
33. Cash receipts from issuing shares and other equity (a) dividends received from investments
instruments are:
(a) cash inflows from investing activities. (b) gain on sale of equipment
(c) cash inflows from financing activities. (c) gain on early retirement of bonds
(b) cash outflows for investing activities. (d) change from straight-line to accelerated
(d) cash outflows for financing activities. depreciation
44. The overall principles of statement presentation 51. The purpose of accounting is:
include (choose the incorrect one): (a) to provide comprehensive financial information
(a) The financial statements should present fairly about a business or other economic entity.
the financial position, performance and cash (b) to provide comprehensive reports on the debits
flows of the enterprise. and credits.
(b) Management should select and apply accounting (c) to interpret the results of operations of a
policies that are in conformity with ASC business entity.
standards. (d) to classify the business transactions of a
(c) An enterprise should prepare its financial business entity.
statements in accordance with the cash basis of
accounting.
(d) Financial statements should be prepared on a 52. The principles, which constitute the ground rules for
going concern basis. financial reporting, are termed as generally accepted
accounting principles. To qualify as generally
45. Interim financial statements are usually made for a accepted, an accounting principle:
period of: (a) must guide corporate managers in the
(a) one month preparation of financial statements which should
(c) six months be understood by widely scattered stockholders.
(b) three months (b) must guide corporate managers in the
(d) twelve months preparation of financial statements which will be
used in making collective bargaining agreements
with trade unions.
(c) must guide entrepreneurs in the choice of accounting for legal forms of business (such as
investments. partnership)?
(d) must receive substantial authoritative support (a) The entity theory relates primarily to the other
from the public and the members of the forms of business organization.
profession. (b) The corporation draws a sharper distinction in
accounting for sources of capital.
(c) In a corporation, retained earnings may be
53. The opinions and pronouncements of the ASC of reduced only by the declaration of dividends.
the PICPA provide the highest authoritative (d) Generally accepted accounting principles apply
pronouncements on accounting principles. The to corporations but have relatively little
authority of these opinions rests upon their: applicability to other forms of business
(a) rules and regulations of the SEC organizations.
(c) integrity of the board
(b) management and their internal accounting staff.
(d) opinions of authors. 59. The accounting period convention regards the life of
the entity as consisting of:
54. The basic assumptions or fundamental propositions (a) a chain of one-year segments
concerning the economic, political and sociological (c) the remaining corporate life of the business
environment in which accounting must operate are (b) the entire life of the venture
called: (d) the nature life of the owner(s)
(a) accounting postulates
(c) accounting theories
(b) accounting principles 60. This is an assumption by accountants that a
(d) accounting opinions business will continue to operate indefinitely unless
specific evidences to the contrary exist, as for
55. In accounting, those standards and practices that example, an impending bankruptcy.
have won acceptance because of their logic and (a) matching principle (c) cost principle
proven usefulness are referred to as: (b) going concern principle (d) objectivity principle
(a) accounting dogmas
(c) accounting procedures
(b) accounting principles 61. In analyzing a companys financial statements,
(d) accounting theories which financial statement would a potential investor
primarily use to assess the companys profitability?
56. An accounting entity is created whenever there is a (a) balance sheet (c) statement of retained
need to understand the economic and financial earnings
activities of: (b) income statement (d) cash flow statement
(a) an economic unit
(c) a partnership
(b) a financial unit 62. As a minimum, information to be presented on the
(d) a single proprietorship face of the income statement are as follows, except:
(a) extraordinary items (c) net income or loss
for the period
(b) provisions (d) finance costs
57. Strict adherence to the entity concept would not
allow:
(a) the use of the account form of the balance 63. This capital concept considers the all price changes
sheet. affecting assets and liabilities in the measurement of
(b) the use of replacement cost as a basis of net income. Accordingly, capital is equal to the net
valuation on the financial statements of assets of the enterprise valued at current cost,
branches. rather than historical cost.
(c) the capitalization of certain construction costs (a) physical capital (c) capital maintenance
subsidiary companies. approach
(d) a parent company to take up in its books its (b) financial capital (d) net assets approach
proportionate share in its subsidiarys profits and
losses.
64. This method is simple to apply in many smaller
58. Which of the following is the primary elements that enterprises. Expenses are aggregated in the income
distinguishes accounting for corporations from statement such as depreciation, purchases of
materials, transportation costs, wages and salaries, 70. The net income or loss for the period comprises the
and advertising costs. following components, each of which should be
(a) functional analysis disclosed on the face of the income statement:
(c) cost of sales method I. Income or loss from ordinary activities
(b) nature of expense analysis II. Extraordinary items
(d) matching principles method IV. Fundamental errors
65. These are income or expenses that arise from (a) I and II
events or transactions that are clearly distinct from (b) I and III
the ordinary activities of the enterprise and (c) II and III
therefore are not expected to recur frequently or (d) I, II and III
regularly.
(a) extraordinary items 71. A consideration in determining the useful life of an
(c) changes in accounting estimates intangible asset is not the:
(b) ordinary items (a) legal, regulatory or contractual provision
(d) changes in accounting policies (b) initial acquisition
(c) expected action of competitors
66. A transaction that is material in amount, unusual in (d) effect of obsolescence, demand, competition and
nature, but not infrequent in occurrence, should be other economic factor
presented separately as:
(a) component of income from continuing
operations, but not net of applicable income tax.
(b) component of income from continuing
operations, net of applicable income tax.
(c) extraordinary item, net of applicable income tax.
(d) prior period adjustment, but not net of 72. Indicate which one of these statements is true.
applicable income tax. (a) Since intangible assets lack physical substance,
they need to be disclosed only in the notes to
67. The amounts of revenues, expenses and net income the financial statements.
or loss from ordinary activities attributable to a (b) Goodwill should be reported as a contra account
discontinuing operation and the related income tax in the stockholders equity section.
expense are shown: (c) Totals of major classes of assets can be shown
(a) as extraordinary items. in the balance sheet, with asset details disclosed
(b) as part of the continuing operation. in the notes to the financial statements.
(c) separately in juxtaposition with the continuing (d) Intangible assets are typically combined with
operation. plant assets and natural resources and then
(d) as gain or loss from discontinuing operation. shown in property, plant and equipment section.