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FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance


FUNDAMENTALS OF ACCOUNTING 1
REVIEWER FOR FINALS

1. Which of the following accounts will not appear in the post-closing trial balance?
a. Prepaid insurance expense
b. Accumulated depreciation
c. Unearned rental income
d. Doubtful account expense
2. Tim Point Company prepares reversing entries at the beginning of the accounting period. Which of the following adjusting
entries prepared by Tim Point 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

3. After posting the closing entries:


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

4. 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, Commission income
d. Prepaid advertising, Accumulated depreciation, Unearned revenue

5. 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
6. If a company uses the periodic inventory method, which of the following is subtracted from cost of goods available for sale to
arrive at cost of goods sold?
a. Ending inventory
b. Net purchases
c. Beginning inventory
d. Purchase discounts and purchase returns and allowances

7. J Company should include the following items in its merchandise inventory:


a. Goods purchased FOB destination still en route.
b. Goods held on consignment from the R Company to J Company
c. Goods sold by J Company FOB shipping point still en route
d. Goods purchased FOB shipping point still en route

8. As a general rule, which of the following is not subject to reversal?


a. Accrued expenses
b. Accrued revenues
c. Prepaid expenses recorded as assets upon payment
d. Deferred revenues recorded as revenue upon receipt.
9. An adjusting entry should never include
a. A debit to an expense account and a credit to a liability account
b. A debit to a liability account and a credit to revenue account
c. A debit to a revenue account and a credit to a liability account.
d. All of these are acceptable
10. Which of the following properly describes a deferral?
a. Cash is received after revenue is earned.
b. Cash is received before revenue is earned.
c. Cash is paid after expense is incurred.
d. Cash is paid in the same time period that an expense is incurred.

11. The advanced receipt of rental fee is recorded by debiting cash and crediting rent income, this approach of recording is
known as
a. Asset method
b. Expense method
c. Liability method
d. Income method

12. If the advanced payment of an expense was initially recorded in an asset account, then the adjusting entry will involve
a. A debit to expense and a credit to an asset account in the amount of the unexpired cost.
b. A debit to expense and a credit to an asset account in the amount of the expired cost.
c. A debit to an asset account and a credit to expense in the amount of the expired cost.
d. A debit to an asset account and a credit to expense in the amount of the unexpired cost.

13. If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, the end-of-
period adjusting entry would involve
a. A liability account and an asset account.
b. As asset or contra-asset accounts and an expense account.
c. A liability account and an expense account.
d. A receivable account and a revenue account.
14. Asset cost less its related accumulated depreciation equals:
a. Net realizable value
b. Depreciable cost
c. Residual value
d. Book value

15. The adjusting entry to record the depreciation of equipment for the fiscal period is
a. Debit Depreciation Expense; credit Equipment
b. Debit Depreciation Expense; credit Accumulated Depreciation
c. Debit Accumulated Depreciation; credit Depreciation Expense
d. Debit Equipment; credit Depreciation Expense
16. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following
statements is true?
a. Total assets will be understated at the end of the current year.
b. The balance sheet and income statement will be misstated but the statement of owner’s equity will be correct for
the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.

17. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following
describes the effect of the debit portion of the entry?
a. Increases the balance of a contra asset account
b. Increases the balance of an asset account
c. Decreases the balance of an owner’s equity account
d. Increases the balance of an expense account.

18. What is the type of account and normal balance of Allowance for Doubtful Accounts?
a. Contra asset, credit
b. Asset, debit
c. Asset, credit
d. Contra asset, debit

19. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability
account Unearned Legal Fees. If the legal services have been performed at the end of the accounting period and no adjusting
entry is made, this would cause
a. expenses to be overstated.
b.profit to be overstated.
c.liabilities to be understated.
d.revenue to be understated.

20. Which economic event would not be recorded in the cash receipts journal?
a. Cash sale of inventory
b. Collection of an accounts receivable
c. Cash purchase of inventory
d. None of the above, i.e., all would be recorded in the cash receipts journal.
21. Which if the following best presents the effect of performing services on credit?
a. Increase in assets and decrease in owner’s equity.
b. Increase in assets and increase in owner’s equity.
c. Increase in assets and increase in liabilities.
d. Increase in liabilities and increase in owner’s equity.
22. Debit postings in an accounts receivable subsidiary ledger generally come from the
a. Sales journal.
b. Cash receipts journal.
c. Purchases journal.
d. Cash payments journal.

23. Which of the following discount has no account of its own and requires no special accounting entry?
a. Cash discount
b. Trade discount
c. Purchase discount
d. Sales discount

24. If a customer returns goods to a merchandiser, what effect, will the return have on the books of the merchandiser?
a. A decrease in sales account.
b. A decrease in the accounts payable and allowance accounts.
c. An increase in the purchase return and allowance account.
d. An increase in the sales return and allowance account.

25. A purchase discount results from


a. Returning goods to the seller.
b. Receiving a purchase allowance from the seller.
c. Buying a large enough quantity of merchandise to get the discount
d. Paying within the discount period

26. In a merchandising operation, the Sales account should include


a. Only credit sales of merchandise
b. Only cash sales of merchandise
c. Both cash and credit sales of merchandise
d. Sales of both merchandise and other assets of the business

27. Sales return and allowances is commonly referred to as:


a. An expense account
b. A contra revenue account
c. A revenue account
d. A cost of goods sold account

28. Revenue is normally entered in the accounting records when:


a. A customer orders goods
b. A customer pays for the goods
c. Goods are received
d. Goods are sold

29. The adjusted trial balance


a. Is used to prepare the financial statements
b. Is where adjusting entries are journalized
c. Is identical to the trial balance
d. Is prepared to check the income statement debit and credit equally

30. Financial statements are generally prepared directly from the


a. Journal
b. Source documents
c. General ledger
d. Adjusted trial balance
31. A balance sheet is prepared to
a. Find the total shared outstanding
b. Calculated the amount of total reserves
c. Report total assets and liabilities
d. Calculate the amount of profit earned
32. The components of a complete set of financial statements does not include
a. Manufacturing schedule
b. Income statement
c. Cash flow statement
d. Statement of financial position

33. The essential characteristics of an asset are


a. It is a result of past event or transaction.
b. It provides future economic benefit.
c. It has a cost or value that can be measured reliably.
d. All of these

34. In the statement of cash flows, receipts from sale of property, plant, and equipment would be classified as cash
inflows from.
a. Liquidating activity
b. Operating activity
c. Investing activity
d. Financing activity
35. The balance in a deferred revenue account represents an amount that is
a. Earned and collected
b. Earned but not yet collected
c. Collected but not yet earned
d. Not yet earned and not yet collected
36. The general journal, sales journal, purchases journal, cash receipts journal and cash disbursements journal are
collectively known as
a. Books of final entry
b. Books of original entry
c. Books of accounts
d. Business documents

37. Which is not an example of an operating activity?


a. Cash receipts from sale of goods or the rendering of services.
b. Additional investment of cash by owners.
c. Cash payments to suppliers.
d. Cash payments to employees.
38. 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
c. Facilitate the preparation of Financial Statements
d. Correctly state the balances of accounts

39. If owner’s equity of P270,000 were two-thirds of total assets, how much would total liabilities be?
a. P270,000
b. P405,000
c. P110,000
d. P135,000

40. If capital is 4 times as much as total liabilities which in turn 20% of assets totaling P520,000, how much is capital?
a. P416,000
b. P420,000
c. P140,000
d. P520,000
41. If total liabilities increased by P30,000 during a period of time and owner’s equity increased by P5,000 during the same
period, the amount and direction (increase or decrease) of the period’s change in total assets is:
a. P35,000 increase
b. P20,000 decrease
c. P25,000 increase
d. P25,000 decrease
42. Merchandise with a sales price of P500 is sold on account with term 2/10 n/30. The journal entry to record the sale
would include a
a. Debit to cash for P500
b. Debit to Sales Discount for P10
c. Credit to Sales for P500
d. Debit to Accounts Receivable for P490
43. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for P15,000. The
seller paid transportation cost of P1,000 and issued a credit memorandum for P5,000 prior to payment. What is the
amount of the cash discount allowable?
a. P160
b. P150
c. P140
d. P100

44. Merchandise with an invoice price of P4,000 is purchased on June 2 subject to terms of 2/10, n30, FOB destination.
Transportation costs paid by the seller totaled P150. What is the cost of the merchandise if paid on June 12. Assuming
the discount is taken?
a. P4,150
b. P4,070
c. P4,067
d. P3,920
45. Merchandise with an invoice price of P5,000 is purchased subject to terms of 2/10, n/30, FOB shipping point.
Transportation cost paid by the seller totaled P150. What is the cost of the merchandise purchased?
a. P5,150
b. P4,900
c. P5,025
d. P5,050
46. These are the attributes that make the information provided in the financial statements useful to users.
a. Qualitative characteristics
b. Quantitative characteristics
c. Qualitative and quantitative characteristics
d. Underlying assumptions

47. Neutrality means that financial accounting information should:


a. Not influence or affect the decision of the users
b. Not be biased or prejudiced
c. Not have undesirable or negative consequences
d. All of the above
48. A business has cash of P6,000, notes payable of P5,000, accounts payable of P8,600, service revenue of P14,000 and
salaries expense of P3,600. Based on these data, how much are its total liabilities?
a. P11,000
b. P27,600
c. P13,600
d. P19,600

49. Sophia Company sold merchandise to Britney Company on October 6, 2013 at a list price of P150,000, trade
discounts of 5% and 8%, FOB shipping point. Cash discount terms: 2/eom, n/60. Because defective merchandise
amounting to P10,000 was erroneously delivered, Sophia Company issued a credit memorandum to the buyer on
October 11, 2013. Britney Company paid in full the balance due on October 25, 2013. The invoice price of goods
purchased on October 6, 2013 is:

a. P131,100
b. P130,500
c. P150,000
d. P122,360

50. 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.
51. The accountant of Rence Company made the following adjusting entry on December 31, 2013:
Prepaid rent 1,800
Rent expense 1.800

If annual rent is paid in advance every October 1, the original transaction entry made was:
e. Debit Prepaid rent and Credit Cash, P1,800
f. Debit Rent expense and Credit Cash, P1,800
g. Debit Rent expense and Credit Cash, P2,400
h. Debit Rent expense and Credit Cash, P7,200

52. The accountant of Babes Company made the following adjusting entry on December 31, 2013:
Rent income 900
Unearned rent income 900
If annual rent is received in advanced every March 1, the original transaction entry made was:
a. Debit Cash and Credit Unearned Rent income, P900
b. Debit Cash and Credit Rent income, P1,080
c. Debit Cash and Credit Rent income, P5,400
d. Debit Rent income and Credit Cash, P5,400
53. An equal trial balance means that
a. Total debits equal total credits
b. All transactions are recorded in the correct accounts
c. Correct amounts are recorded
54. One of the accounting concepts upon which deferrals and accruals are based is
a. Matching
b. Cost
c. Price-level adjustment
d. Conservatism
55. What accounting concept justifies the usage of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption

Part II.
Indicate in which column of the worksheet each account would be extended. (20 points)

A. Income Statement, credit


B. Income Statement, debit
C. Balance Sheet, credit
D. Balance Sheet, debit

__________1. Cash __________11. Accounts receivable


__________2. Service fees income __________12. Withdrawals
__________3. Salaries expense __________13. Interest revenue
__________4. Bonds payable __________14. Unearned income
__________5. Prepaid rent __________15. Salaries payable
__________6. Insurance expense __________16. Buildings
__________7. Utilities expense __________17. Interest payable
__________8. Land __________18. Office supplies
__________9. Finance cost __________19. Equipment
__________10. Accumulated Depreciation-Bldg. __________20. Accounts payable

Part III.
Solve for the missing items in the partial income statement given below (30 points)
2007 2008 2009 2010 2011
Sales P100,000 P120,000 P150,000 P160,000 (13)
Gross Profit (1) (4) 44,000 39,000 18,000
Beginning Inventory 80,000 70,000 (7) 85,000 75,000
Net Purchases 90,000 80,000 120,000 (10) 165,000
Cost of Goods Sold 70,000 (5) (8) (11) 135,000
Sales ret & allow 6,000 (6) (9) (12) 18,000
Ending Inventory (2) 65,000 85,000 100,000 (14)
Net Sales (3) 117,000 144,000 150,000 (15)
Part IV.
Determine if the adjustment on the individual transactions can be reversible or not. (10 points)
A. Reversible
B. Not reversible

__________1. 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.
__________2. 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
__________3. Dave Company purchased a one-year insurance policy for P18,000. On that date, the bookkeeper debited the prepaid
insurance account for P18,000.
__________4. An adjusting entry was made for one year prepayments of rental paid. Entry made was: Debit – Rent expense;
Credit – Prepaid rent
__________5. Depreciation of an equipment.
__________6. The accountant of Rence Company made the following adjusting entry on December 31, 2013:
Prepaid rent 1,800
Rent expense 1.800
__________7. The accountant of Babes Company made the following adjusting entry on December 31, 2013:
Rent income 900
Unearned rent income 900
__________8. Unpaid salaries worth P60,000.
__________9. Kay Company has prepaid insurance account balance before adjustment, P15,500, and unexpired amounts per
analysis of policies, P4,500?

__________10. Service rendered but cash not yet received worth P100,000.

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