Fundamentals of Accounting I MIDTERM COMPREHENSIVE HW

NAME:______________________

Write the Capital Letter of your answer in the answersheet.

PART I. THEORIES. 1pt each

1. WATS Company prepares reversing entries at the beginning of the accounting period. Which of the following
adjusting entries prepared by WATS Company should be reversed?
a. The entry to take up the earned portion of rent collected in advance
b. The entry to take up the expired portion of the insurance premium paid in advance
c. The entry to take up the unused supplies at the end of accounting period
d. The entry to record depreciation of a fixed asset

2. Upon reviewing the worksheet of Mae Company, you found out that the total debit column of the Income
Statement is P515,000 and the total credit column is P551,000. Which of the following statements is correct?
a. There is a transposition error that should be corrected
b. The company’s operation resulted to a net income
c. The company’s operation resulted to a net loss
d. The difference represents a net income which is extended to the debit column of the balance sheet

3. Failure to recognize the consumption of prepaid expenses will

a. Overstates net income and asset
b. Overstates capital and understates liability
c. Understates net income and overstates asset
d. Not affect liability but overstates expenses

4. Assigning revenues to the accounting period in which the services are performed and expenses to the accounting
period in which they were used is known as the
a. Continuity Concept
b. Matching Principle
c. Accounting Period
d. Time Period Concept

5. Which of the following errors would cause the trial balance to be unequal?
a. A transaction was posted twice
b. A cash sales transaction was recorded correct, but posted as debit to cash and credit to accounts
payable
c. A cash purchase transaction was recorded correctly, but posted as debit to utilities expense and credit to
accounts payable
d. A payment of P500 to a creditor was posted as debit of P500 to accounts payable and a debit of P500 to
accounts receivable

6. After posting the closing entries:

a. Income summary, revenue accounts and equity accounts have zero balances
b. Expense accounts, revenue accounts and equity accounts have zero balances
c. Revenue accounts, expense accounts and income summary account have zero balances
d. The balance of all accounts will become zero

7. Which of the following economic or business transactions will affect only the left side of basic accounting
equation?
a. Purchased of office supplies on account
b. Additional investment of cash by the owner
c. Receipt of cash from a customer for settlement of outstanding liability
d. Rendering consulting service for cash

8. Which of the following are real accounts?

a. Rent expense, Capital, Prepaid Insurance
b. Notes payable, Notes receivable, Fees earned, Cash
c. Accounts Receivable, Salaries expense, Commissions Income
d. Prepaid advertising, Accumulated depreciation, Unearned revenue

9. Posting can be best describe as

a. The process of recording transactions in a general journal
b. The process of checking the equality of debit and credit of all the recorded transaction
c. The process of transferring transactions to the book of final entry
d. The process of correcting erroneous journal entries

10. Adjusting entries are necessary in order to

a. Detect and correct an erroneously recorded transaction
b. Prove that the debit and credit totals of the trial balance is equal
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c. Facilitate the preparation of Financial Statements
d. Correctly state the balances of accounts

11. Under the accrual basis of accounting, the effects of transactions and other events are:
a. Recorded in the book when cash is received or paid but reported in the financial statements when they
occur
b. Recorded in the book and reported in the financial statements when they occur
c. Recorded in the book when they occur but reported in the financial statements when cash is received or
paid
d. Recorded in the book and reported in the financial statements when cash is received or paid

12. According to the rules of debit and credit, which of the following is correct?
a. If one liability account has been debited another liability account maybe credited for the same transaction
b. Increase in revenue and expenses are recorded by debit and credit respectively
c. Revenue earned on account is recorded by debit to accounts payable and credit to a revenue account
d. An asset acquired by issuing a note requires a debit to drawing account and credit to notes payable
account

13. Which of the following accounts will not appear in the post closing trial balance?
a. Prepaid insurance expense c. Unearned rental income
b. Accumulated depreciation d. Doubtful account expense

14. The objectives of financial accounting for business enterprises are based on
a. The needs of the users of the information
b. Reporting on management’s stewardship
c. The need for conservatism
d. Generally accepted accounting principles

15. The statement which presents the financial picture of a firm as of specific date is called
a. Statement of Changes in Owner’s Equity
b. Statement of Financial Position
c. Statement of Comprehensive Income
d. Statement of Cash Flows

16. It is the basic summary device of accounting that is used to store the recorded monetary information from the
entity’s transactions and events
a. Journal
b. Account
c. Source document
d. Ledger

17. Upon purchase of Insurance Policy for 2-year period, the company recorded the transaction by charging the
whole amount of policy purchased to appropriate asset account. At year-end, the adjusting entry for the said
transaction will include:
a. A debit to expense account for expired portion
b. A credit to asset account for unexpired portion
c. A credit to expense account for expired portion
d. A debit to asset account for expired portion

18. During the year, the company received an advance payment from one of its tenants. The said rent is applicable
for 18 months which will commence on the beginning of the next accounting period. The appropriate presentation
of this advance payment in the company’s financial statement at the end of its current accounting period is
a. Asset - under Prepaid Rent
b. Liability – under Unearned Rent
c. Revenue – under Rent Revenue
d. Expense – under Rent Expense

19. Failure to journalize an adjusting entry related to depreciation of a fixed asset will
a. Not affect the liability
b. Understate the net income
c. Overstate the liability
d. Understate the asset

20. Upon receipt of full payment from a customer of their 3 years prepayments of advertisement, the company
recorded the transaction by debiting cash and crediting unearned advertising revenue. At year-end, the adjusting
entry for the said transaction will include:
a. A debit to unearned advertising fee for unearned portion
b. A credit to advertising revenue for the whole amount received
c. A credit to unearned advertising fee for earned portion
d. A debit to unearned advertising fee for earned portion

21. The normal balance of an account is on the

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a. Debit side of the account
b. Credit side of the account
c. Side represented by increase in the account balance
d. Side represented by decrease in the account balance

22. Which of the following statements pertains to Journalizing?

a. Recording of transactions in a general journal
b. A chronological record of all the transactions of the company
c. The process of summarizing all the transactions of the firm
d. Updating the balances of various accounts

23. Which of the following is a correct adjusting entry for Prepayments under Asset Method?
a. Debit – Prepaid Insurance ; Credit – Insurance Expense
b. Debit – Unearned Rent ; Credit – Rent Revenue
c. Debit – Interest Receivable ; Credit – Interest income
d. Debit – Rent Expense ; Credit – Prepaid Rent

24. A prepaid expense can be best describe as an amount

a. Paid and currently matched with earnings
b. Paid and not currently matched with earnings
c. Not paid and currently matched with earnings
d. Not paid and not currently matched with earnings

25. Which of the following is NOT TRUE of a worksheet?

a. It helps facilitate the preparation of financial statement
b. It is included as part of the published financial statements
c. It provides a place where adjusting entries can be made informally before they are journalize and posted
d. It provides balancing mechanism that helps to uncover accounting errors

PART II: PROBLEMS (2 POINTS EACH) Show all supporting computations in a yellow paper.

26. The following are selected transactions from the book of WAR Company:
I. The company purchased a photocopying machine worth P50,000; P20,000 was paid in cash and the balance by
issuing a 60-day, 10% note.
II. Purchased office supplies, P2,500 on account of which P500 were unused at the end of the year.
III. Received P60,000 from a customer for service rendered.

What will be the effect of the above transactions to Company’s Statement of Financial Position?

Assets Liabilities Capital

a. Inc. by P90,500 Inc. by P32,500 Inc. by P58,000
b. Inc. by P92,500 Inc. by P32,500 Inc. by P60,000
c. Inc. by P110,500 Inc. by P52,500 Inc. by P58,000
d. Inc. by P112,500 Inc. by P52,500 Inc. by P60,000

27. On January 1, 2011, the capital account of TREACHERY Consultancy Services showed a balance of P140,000.
During the year, the owner invested additional P39,500 but made withdrawal of P15,000. At the end of the year, the
worksheet prepared by the accountant showed that the debit totals of Income Statement column is P286,250 and credit
totals showed P202,750.
What is the balance of capital account at December 31, 2011?
a. P 81,000 c. 164,500
b. P248,000 d. 199,000

28. At December 31, 2010, the record of HATRED Company shows an accrued salaries of P2,500. During 2011, the
company paid salaries of P87,200. Unpaid salaries at December 31,2011 amounted to P3,400. It is company’s practice to
prepare adjustments only at December 31, and also reversing entries on January 1. The balance of salaries expense
account that would appear in the post closing trial balance at December 31, 2011 is
a. P -0- c. P86,300
b. P84,700 d. P88,100

29. If the debit and credit totals of a trial balance were P95,000 and an additional entry for the purchase of office supplies
for cash worth P4,000 was recorded and posted, what would be the new debit and credit totals of the trial balance after
this entry is made?
a. P91,000 c. P87,000
b. P99,000 d. P95,000

30. The Statement of Financial Position of Hogwarts Company shows a capital balance of P360,000 which is equal to 1/3
of its total assets. How much is the total liabilities?
a. P720,000 c. P480,000
b. P120,000 d. P1,080,000
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For questions 31 to 33; refer to the following table:

Harry Co. Ron Co. Hermione Co.

December 31, 2010
Assets 222,000 565,780 ?
liabilities 145,750 238,420 250,000

December 31, 2011

Assets 256,300 677,880 420,000
liabilities ? 450,750 235,000

During 2011
Net Income 66,000 121,500 40,000
Owner's Investment 56,000 ? 0
Owner's Withdrawal 45,250 288,000 62,000

The three companies above are independent (not related) to each other.

31. How much is the liabilities of Harry Company as of December 31, 2011?
a. P153,000 c. P103,300
b. P180,050 d. P179,550

32. How much is the amount of owner’s investment of Ron Company during 2011?
a. P66,270 c. P160,860
b. P60,360 d. P166,500

33. How much is the assets of Hermione Company as of December 31, 2010?
a. P413,000 c. P435,000
b. P207,000 d. P457,000

34. Marcelito, owner of PGT Company, rendered professional service to a client at a total fee of P75,000. He received
cash of P25,000 and a 45-day promissory note for the balance. What would be the effect of this transaction in the owner’s
capital and liability account?
a. Increase capital by P75,000; increase liability by P50,000
b. Increase capital by P25,000; increase liability by P50,000
c. Increase capital by P25,000; no effect in liability
d. Increase capital by P75,000; no effect in liability

35. An accounting firm began on February 14, 2011 with office supplies of P16,000. During the month, the firm purchase
supplies worth P29,000. On February 28, supplies on hand totaled to P21,000. Supplies expense for the period is
a. P21,000 c. P45,000
b. P29,000 d. P24,000
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NAME:________________________________ SECTION:___________ SCORE:_________

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