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Fundamentals of Accounting , Part 2

Multiple Choice:

1. Which of the following comes first in the accounting process?

a. Preparation of an unadjusted trial balance
b. Worksheet preparation
c. Journalizing external transactions from source documents
d. Preparation of an adjusted trial balance

2. The closing entry for Rent Expense, with a balance of P180,000 is

a. Rent Expense P180,000
Income Summary P180,000
b. Rent Expense P180,000
Rent Payable P180,000
c. Income Summary P180,000
Rent Expense P180,000
d. Rent Payable P180,000
Rent Expense P180,000

3. A form of partnership wherein all the partners are personally liable for the partnership debts is:

a. Limited Partnership
b. Unlimited Partnership
c. General Partnership
d. Partnership at will

4. The partnership agreement is contained in the articles of partnership, an express contract among the partners. Such an
agreement ordinarily does not include

a. The allocation of income between the partners
b. The rights and duties of the partners
c. The rights and duties of the partners in the event of partnership dissolution
d. A limitation on a partners liability to creditors.

5. Partner X invested into a partnership a building with a book value of P500,000 and a fair market value of P650,000. The
property was mortgaged in a bank for P200,000 which the partnership assumed. Partner X capital in the partnership as a
result of this investment is:

a. P300,000
b. P650,000
c. P500,000
d. P450,000

6. Refer to assumptions in question # 5, the journal entries in the books of the partnership to record the investment of Partner X

a. Building P650,000
Mortgage Payable P200,000
X, Capital 450,000

b. Building P500,000
Mortgage Payable P200,000
X, Capital 300,000

c. Building P450,000

X. Capital P450,000

d. Building P650,000
X. Capital P650,000

7. Partners may invest cash and non-cash assets in the partnership. In the absence of any agreement, the contributions of non-
cash assets are valued at:

a. original cost
b. carrying value
c. fair market value
d. book value
8. Mark and Jess decided to form a partnership by investing the following assets in July 1, 2010:

Mark Jess
Cash 75,000 200,000
Equipment 100,000 80,000
Building 300,000

The partnership agreed to assume the mortgage on the building amounting to P250,000. What are
the capital balances of Mark and Jess on July 1, 2010?

a. P475,000 for Mark and P280,000 for Jess
b. P400,000 for Mark and P80,000 for Jess
c. P75,000 for Mark and P200,000 for Jess
d. P225,000 for Mark and P280,000 for Jess

9. The profits and losses shall be distributed to partners in conformity with agreement. Which of the following is not a
component of the formula to distribute profit and losses:

a. Interest on capital investments
b. Salary to partners managing the business
c. Bonus to partners for achieving the target profit
d. Interest on loans to partners.

10. The partnership must exist for the common benefit or interest of the partners. In the event the partnership incurs losses,
these losses shall be:

a. divided according to partners agreement prepared prior distribution of losses.
b. distributed to partners according to profit and loss sharing ratio.
c. shared even by purely industrial partners
d. divided to all partners except capitalist partners

11. Eli, Karl and Paul are partners in real estate business. Net profit for the year 2010 was P88,000. Paul is an industrial
partner while Eli and Karl are capitalist partners with an average capital of P30,000 and P20,000 respectively. The partners
agreed to share profits and losses as follows:

1. Interest of 10% on average capital balances.
2. Salaries of P2,000 to Eli, P1,000 to Karl and P3,000 to Paul.
3. Bonus of 10% of net income after bonus to Paul, the managing partner
4. Balance is to be divided equally.

Paul being a purely industrial partner:

a. is entitled to salaries only despite partnership agreement.
b. will receive salaries, bonus of 10% of net income after bonus and will share in the balance in accordance with agreement.

c. will need to share in the loss in the event there is a loss, as he is allowed to share in the profit when there is profit.
d. will share in profit equally with other partners regardless of partnership agreement.

12. Referring to problem # 11, the partnership profit of P88,000 is divided as follows:

a. Eli, P28,000; Karl, P20,000; and Paul, P30,000
b. Eli, P28,000; Karl, P26,000; and Paul, P34,000
c. Eli, P25,000; Karl, P23,000; and Paul, P40,000
d. Eli, P30,000, Karl, P30,000; and Paul, P28,000

13. Which of the following is not the purpose of financial statements:

a. To show the results of managements stewardship of the resources entrusted to it.
b. To provide information about an entitys assets, liabilities and equity and changes in financial position.
c. To provide investors about results of operations covering a period.
d. To report the business ability to use its resources regardless of the outcome and without consideration to the effects on
owners capital.

14. Dong and Kong entered into a partnership as at July 1, 2010 by investing P125,000 and P75,000, respectively. They agreed
to share in the profits and losses in the ratio 40:60. On December 31, 2010, normal balances were as follows:

Cash P70,000 Accounts Payable P60,000
Accounts Receivable 67,000 Dong, Capital 125,000
Equipment 45,000 Kong, Capital 75,000
Sales Returns 5,000 Dong, Drawing 20,000
Purchases 196,000 Kong, Drawing 30,000
Operating Expenses 60,000 Sales 233,000

Inventories on December 31, 2010 were as follows: Supplies, P2,500; merchandise, P30,000.
Prepaid insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per
year. The partners capital balances on December 31, 2010, after closing the profit and drawing
accounts, were:

a. Dong, P120,000 and Kong, P70,000
b. Dong, P104,760 and Kong, P44,640
c. Dong, P100,760 and Kong, P40,640
d. Dong, P140,760 and Kong, P98,600

15. The partnership financial statement that serves as a basis for evaluating the partnership ability to generate cash to be utilized
in operating, investing and financing activities of the business is:

a. Statement of Cash Flows
b. Statement of Comprehensive Income
c. Statement of Financial Position
d. Statement of Changes in Partners Equity

16. Assume that in 2009, the reported net income for Lora and Nora was 500,000 and the partners shared in the profits and
losses equally. During the year, the following errors in computing the net income were discovered:

1. Depreciation was understated by 50,000
2. Prepaid expense of 30,000 was omitted
3. Accrued expense of 10,000 was omitted

What should have been the corrected net income of the partnership Lora and Nora?

a. P410,000
b. P470,000

c. P490,000
d. P450,000

17. Financial statements are prepared using the accrual basis of accounting except:

a. Balance Sheet
b. Income Statement
c. Cash Flow Statement
d. Statement of Changes in Partners Equity

18. The statement of comprehensive income shall include the following line items except:

a. Revenue
b. Finance Costs
c. Partners Capital and Drawing accounts
d. Operating Expenses

19. As a minimum, the face of the statement of financial position shall include the following line items except:

a. Inventories
b. Provisions
c. Financial Liabilities
d. Profit or Loss

20. Which of the following is an example of cash flows from investing activities:

a. Receipt from investments by owners
b. Receipt from sale of property and equipment
c. Payment to owners in the form of withdrawals
d. Receipt from sale of goods and performance of services

21. The adjusted trial balance of Simon and Richard on December 31, 2010 follows:

Debits Credits
Cash P 37,000
Accounts Receivable 80,000
Merchandise Inventory 800,000
Accrued Income 75,000
Prepaid Rent 20,000
Accounts Payable P 50,000
Notes Payable 250,000
Accrued Expense 12,000
Unearned Revenue 25,000
Simon, Capital 125,000
Richard, Capital 200.000
Sales 2,500,000
Cost of Sales 1,450,000
Salaries Expense 450,000
Rent Expense 200,000
Insurance Expense 30,000
Utilities Expense 20,000
Totals P3,162,000 P3,162,000

If you prepare a statement of comprehensive income for Simon and Richard for 2010, what is the
net profit as of December 31?

a. P1,050,000
b. P 300,000
c. P 350,000
d. P1,062,000

22. If partners Simon and Richard share profits in the ratio of 30:70, what is the share of Simon in the profit of the business for

a. P105,000
b. P245,000
c. P 90,000
d. P 210,000

23. The partnership total assets and total liabilities at December 31, 2010 are as follow:

a. Total assets, P937,000 and total Liabilities, P300,000
b. Total assets, P1,012,000 and Total Liabilities, P337,000
c. Total assets, P930,000 and Total Liabilities, P300,000
d. Total Assets, P1,010,000 and total Liabilities, P330,000

24. Assume partners Simon and Richard share in the profit at the rate of 30:70 and each one withdrew P50,000 during the year,
what are the partners capital balances as at December 31, 2010?

a. Simon, P180,000 and Richard, P395,000
b. Simon, P230,000 and Richard, P445,000
c. Simon, P170,000 and Richard, P380.000
d. Simon, P 225,000 and Richard, P440,000

25. The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business of
the partnership is called dissolution. Which of the following situation will result to the dissolution of the partnership?

a. The distribution of the loss to the existing partners.
b. The withdrawal of a partner from a partnership.
c. The winding up of the partnership affairs and distribution of assets to remaining partners.
d. The investment of additional assets to the partnership by existing partner.

26. Joann Simpas plans to invest P500,000 for a 20% interest in a partnership that has capital of P2,000,000 after admitting
Joan as a new partner. Which of the following is correct?

a. Joann Simpas will receive a bonus of P100,000.
b. Joann Simpas capital in the partnership is P500,000.
c. The old partners will receive a bonus of P100,000.
d. The old partners capital in the business was P1,600,000 before admitting Joann Simpas.

27. The effect of the withdrawal of the partner taking assets more than his capital balance in the partnership is:

a. The withdrawing partner will receive a bonus.
b. The remaining partner/s will receive a bonus.
c. The partnership assets will remain the same after withdrawal.
d. No bonus will be given either to the withdrawing or remaining partner/s.

28. The death of a partner is one of the causes of dissolution of the partnership. Which of the following statement is correct if
this situation happens:

a. The death of the partner automatically results to liquidation of the assets of the partnership.
b. The deceased partner is considered to have retired from the partnership and his heirs or estate can expect to receive the
amount of his interest in the business.
c. The accounting procedure to be followed is absolutely different from the case of the withdrawing partner.
d. If payment to the estate cannot be made immediately, the balance in the capital account of the deceased partner will be
transferred to the revenue account of the partnership.

29. Pedro Santos owns 25% interest in a partnership that has total assets of P1,000,000 and liabilities of P200,000 during his
death. His estate demands release of his interest as nobody from his heirs would want to be associated in the partnership.
How much would his estate get if the partnership liquidates the assets of the business?

a. P200,000
b. P250,000
c. P200,000 plus bonus
d. P250,000 less bonus to other partner/s.

30. Incorporation of a partnership is another cause of dissolution of the partnership. What is not true about the incorporation of
the partnership?

a. One reason for incorporation is to secure the advantages found in a corporate form of organization including the
accumulation of greater amount of capital.
b. If there are less than five partners, the partners will invite other persons to become co-incorporators for there has to be
five but not more than ten (10) required incorporators in a corporation.
c. When a charter is granted recognizing a corporation, the assets and liabilities of the partnership shall be transferred to the
corporation in exchange for the stocks of the corporation.
d. It is important that the books of the partnership be closed to determine the net income or loss to be allocated to partners
before the transfer of assets to the corporation.

31. Assume A, B, C, D and E are partners sharing profits and losses equally. On January 1, 2011, they
decided to incorporate the partnership. The books have already been closed on this date. Below
is the balance sheet of ABCDE Merchandising as of December 31, 2010:

Total Assets P130,000
Total Liabilities P 30,000
Partners Equity
A, Capital P20,000
B, Capital 20,000
C, Capital 20,000
D, Capital 20,000
E. Capital 20,000 100,000
---------- -------------
Total Liabilities & Partners Equity P130,000
The ABCDE Corporation has been authorized to issue 10,000 ordinary shares with a par value of P100 each. The partners
are issued a total of 1,000 shares for the net assets. The entry to incorporate the partnership is:

a. Liabilities P30,000
Receivable from ABCDE Corporation 100,000
Assets P130,000

b. Assets P130,000

Liabilities P 30,000
Ordinary Shares 100,000

c. Assets P130,000
ABCDE Corporation P130,000

d. Receivable from ABCDE Corporation P130,000
Assets P130,000

32. The process of winding up a business which normally consists of conversion of non-cash assets into cash, payment of
liabilities and distribution of remaining cash to partners is:

a. Partnership Dissolution
b. Termination and Realization
c. Incorporation
d. Partnership Liquidation

33. Partnership laws provide that in the distribution of cash to creditors and partners, the first priority in the payment is:

a. Partners in respect of capital
b. Partners in respect of loans
c. Outside creditors
d. Inside creditors

34. Stanley and Mike are partners sharing profits and losses in the ratio of 60:40. Recently they made substantial losses in the
business and as a result they decided to liquidate. Assets were sold and only P324,000 was realized to pay for liabilities that
amounted to P594,000. Their capital balance before liquidation are P414,000 for Stanley and P243,000 for Mike

Stanley is personally insolvent after investing cash to pay the unpaid creditors but Mike is solvent and willing to make
additional investments to cover his deficiency. In settlement to partners, how much cash should Stanley receive?

a. P127,800
b. P 19,800
c. P30,600
d. P126,000

35. In lump-sum liquidation method, all non-cash assets are realized and all liabilities are settled before a single final distribution
is made to partners. Which is not included in the procedures in lump-sum liquidation?

a. Realization of non-cash assets and distribution of gain or loss on realization to partners based on their profit and loss
b. Payment of liabilities
c. Elimination of partners capital deficiencies
d. None of the above.

36. At December 31, 2010, the capital balances of the partners Sera, Hera and Jora are P80,000, P50,000 and P10,000
respectively, sharing profits and losses in the ratio of 3:2:1. The partners decided to liquidate, and sold all non-cash assets for
P74,000 cash. After paying all the liabilities amounting to P24,000, they still have P50,000 cash left for distribution. The
share of the partners in the final settlement, assuming Jora will invest additional amount to cover his deficiency, are as

a. Sera, P42,000; Hera, P28,000; Jora, P14,000
b. Sera, P38,000; Hera, P22,000; Jora, P 0
c. Sera, P 35,000; Hera, P20,000; Jora, P 0
d. None of the above

37. Under the installment method of liquidation, realization of non-cash assets is accomplished over an extended period of time.
Which is included in the procedures followed in the installment liquidation:

a. Realization of non-cash assets and distribution of gain or loss on realization based on partners profit and loss ratio.
b. Payment of liquidation expenses and adjustment of unrecorded liabilities
c. Payment of liabilities to outsiders
d. All of the above

38. The assets and equities of Mona, Teresa and Lina Partnership at the end of year ended December 31, 2010 are as follows:

Assets: Equities:
Cash P 15,000 Liabilities P 50,000
Non-cash assets 130,000 Loan from Lina 10,000
Loans to Teresa 5,000 Mona, Capital 30% 45,000
Teresa, Capital 50% 30,000
Lina, Capital 20% 15,000
----------- -----------
P150,000 P150,000
======= =======

The partner most vulnerable to partnership losses in the event of liquidation is:
a. Mona
b. Teresa
c. Lina
d. Mona and Lina equally

39. Which of the following is not an attribute of a corporation as a form of business organization:

a. It is an artificial being with personality separate and distinct from its individual shareholders or members.
b. It is created by mere agreement of its shareholders and therefore it has limited existence.
c. It is created by operation of the law.
d. It has the powers, attributes and properties expressly authorized by law or incident to its existence.

40. A corporation as a business organization has advantages and disadvantages. Which of the following is an advantage of a

a. Share of stocks can be transferred with consent of the other shareholders.
b. There is greater degree of government control and supervision in its operations.
c. It requires a relatively high cost of formation and operation.
d. Shareholders have limited liability.

41. Section 3 of the Corporation Code classified private corporation into stock and non-stock corporation. Other classifications

a. Domestic and Foreign Corporation
b. Corporation Aggregate and Corporation Sole
c. Public and Private Corporation
d. All of the above

42. Section 14 of the Corporation Code provides that all corporations organized under this Code shall file with the Securities and
Exchange Commission articles of incorporation duly signed and acknowledged by all incorporators, containing substantially

the following matters except as otherwise prescribed by this Code or by special law, except the following:

a. The name of the corporation
b. The specific purpose or purposes for which the corporation is formed.
c. The manner by which profits and losses are shared among shareholders.
d. The principal place of business and the term of existence.

43. Shares that entitle the holder to certain advantages or benefits over the holders of ordinary shares:

a. Ordinary shares
b. Promotion shares
c. Preference shares
d. Treasury shares

44. Simple Corporation was organized on January 1, 2011 with authorized capital of P2,000,000 divided into 200,000 shares of
P10 par common stock . How many share much be subscribed and how much is the minimum amount to be paid?

a. 50,000 shares, P500,000
b. 20,000 shares, P200,000
c. 200,000 shares, P2,000,000
d. 60,000 shares, P600,000

45. Five partners decided to incorporate their partnership. Which of the following situation illustrates best the minimum
requirement of the law to capital formation?

Authorized Capital Subscribed Capital Paid-in Capital

a. P100,000 P20,000 P5,000
b. P100,000 P25,000 P6,250
c. P 50,000 P 12,500 P2,125
d. P 60,000 P 15,000 P5,000

46. In the basic corporate organization structure, which of the following is the proper officer entrusted with the authority to
receive and keep the money of the corporation and to disburse them as he may be authorized.

a. The President of the Corporation
b. The Corporate Secretary
c. The Chairman of the Board
d. The Corporate Treasurer

47. Every private corporation, stock or non-stock , is required to keep books and records at its principal office. Which record
contains the minutes of the corporate meetings of the board of directors and stockholders:

a. Minute Book
b. Subscription Book
c. Stock Certificate Book
d. Stock and transfer book

48. It is that portion of share capital or paid-in capital representing amounts paid by shareholders in excess of par. It may result
from transactions involving treasury stocks, retirement of shares, donated capital, share dividends and any other gain on the

corporations own stock transactions.

a. Legal capital
b. Share premium or additional paid-in capital
c. Retained Earnings
d. Authorized capital

49. Share capital includes all types of ownership shares in a corporation. When only one class of share issued, it must be:

a. Treasury Share
b. Ordinary Share
c. Promotion Share
d. Preference Share

50. Bright Star Corporation was incorporated on January 1, 2011 with 100,000 preference shares with par value of P20 and
200,000 ordinary shares with par value of 25.00. What is the entry to record the issuance for cash of 30% of ordinary shares
at par and 35% of preference shares at par?

Debit Credit
a. Cash P2,200,000.
Ordinary shares P 1,500,000
Preference shares 700,000

b. Ordinary shares P1,500,000
Preference shares 700,000
Accounts Payable P2,200,000

c. Ordinary shares P1,500,000
Preference shares 700,000
Cash P2,200,000

d. Accounts Receivable P2,100,000
Ordinary shares P1,500,000
Preference shares 600,000

51. Please refer to data item # 50, suppose, 50,000 shares of preference shares were issued at P22 per share, what is the entry to
record the issuance of the preference shares on January 2, 2011?

a. Cash P1,100,000
Preference shares P1,000,000
Share Premium 100,000

b. Cash P1,100,000
Preference shares P1,100,000

c. Preference shares P1,100,000
Accounts Payable P1,100,000

d. Preference shares P1,000,000
Share Premium 100,000
Cash P1,100,000

52. Which of the following is not a consideration for the issuance of shares:

a. Actual cash paid to the corporation.

b. Previously incurred indebtedness by the corporation
c. Tangible or intangible properties with titles retained by the shareholders
d. Labor or services performed or actually rendered to the corporation.

53. There are two methods of accounting for share capital authorization and issuance, namely: the journal entry method and the
memorandum method. The difference between the two methods lies:

a. In the computation of the share premium when the shares are sold at a price higher than the par value.
b. In the entries pertaining to the authorization and issuance of share capital.
c. In the computation of a share discount when the shares are sold at a price lower that the par value.
d. None of the above.

54. Assume Blue Water Corporation was authorized to issue 4,000 shares of ordinary shares with a par value of P100 per share
for a total price of P400,000. In the journal entry method of accounting for share capital, the entry to record the authorization
for the issuance of share capital is:

a. Unissued Ordinary Shares P400,000
Authorized Ordinary Shares P400,000

b. Subscription Receivable P400,000
Subscribed Ordinary Shares P400,000

c. Cash P400,000
Subscription Receivable P400,000

d. Subscribed Ordinary Shares P400,000f
Unissued Ordinary Shares P400,000

55. Treasury stocks are shares of stocks which have been issued and fully paid for, but subsequently reacquired by the issuing
corporation for the following reasons. Which is not the reason for the treasury stock transactions:

a. To support the employee stock compensation plans
b. To improve the stock market price by decreasing the supply of shares
c. To increase the par value of the shares covered by the Treasury stock
d. To avoid takeover by an outside party

56. Treasury stock should be shown on the statement of financial position as:

a. A current asset
b. A current liability
c. An investment asset
d. A reduction of the corporations shareholders equity

57. The Income Summary account of a partnership is closed to partners drawing account or partners capital account, while for a
corporation, Income Summary account is closed to

a. Capital stock
b. Additional Paid-In capital
c. Retained Earnings
d. Treasury Stock

58. Treasury Stocks are shares of stocks which have been issued and fully paid but subsequently reacquired by the issuing
corporation either by purchase, redemption, donation or through other lawful means. Which is not the reason for the
purchase of treasury stocks:

a. To support employee stock compensation plans.
b. To increase the par value of the ordinary shares as well as the preference shares.
c. To avoid takeover by an outside party.
d. To improve the stock market price by decreasing the supply of shares.

59. A corporation may issue shares in exchange for legal, accounting or other services s related to the formation of the
corporation. Which of these cost is not related to the formation of the corporation?

a. Incorporation fees and share issuance fees
b. Legal fees for the preparation of the articles of incorporation
c. Underwriting fees and commissions and cost of underwriting the issue
d. Professional fees of accountant to handle books of accounts when the corporation is already operational.

60. Jetson Company issued 50,000 shares of P20 par value ordinary shares at P24 per share. A year after, Jetson Company
reacquired 10,000 shares of its own stock at P30 per share in order to avoid possible corporate takeover by outsiders. Using
cost method of accounting for treasury stock, the entry to record the acquisition is

a. Cash P300,000
Treasury Stock P300,000

b. Treasury Stock P300,000
Cash P300,000

c. Treasury Stock P200,000
Share Premium Treasury 100,000
Cash P300,000

d. Treasury Stock P300,000
Share Premium - Treasury P100,000
Cash 200,000

61. Contributions from shareholders are recorded at the fair market value of the items received. If the donation is in the form of
the shares of the corporation, what particular account is credited once the shares are reissued?

a. Ordinary share account
b. Treasury stock account
c. Donated capital or share premium account
d. Preference share account

62. The donated shares are essentially treasury stock which can be issued at any price. The sale of these donated shares
increases assets and shareholders equity. Assume that the 1,000 donated shares with par value of P100 were reissued at P80
per share, the entry to record the reissuance of the shares is:

a. Cash P80,000
Donated Capital P80,000

b. Cash P100,000
Donated Capital P100,000

c. Cash P 80,000
Treasury Stock P80,000

d. Treasury Stock P 100,000
Donated Capital P100,000

63. The donated asset increases the total assets and shareholders equity of the company by the fair market value of the asset
received. If the donated asset is in the form the companys own shares of stock, the receipt of the donated 500 ordinary
shares, P100 par value, is recorded by:

a. A journal entry debiting asset account and crediting the shareholders equity account.
b. A journal entry debiting ordinary share account of P50,000 and crediting donated capital, P50,000.
c. A journal entry debiting treasury stock account and crediting donated capital account.
d. A memorandum entry Received 500 ordinary shares as donation.

64. Retained earnings represent the component of the shareholders equity arising from retention of assets generated from the
profit-directed activities of the corporation. The distribution of earnings to shareholders from the unrestricted retained
earnings are called dividends which can be in the form of:

a. Cash
b. Properties
c. Shares of stock
d. All of the above

65. A distribution of income to shareholders that is payable in the form of non-cash assets is called property dividends. Property
dividends are charged to retained earnings at:

a. Fair market value of the assets declared as property dividends.
b. Cost or book value of non-cash assets distributed.
c. All of the above.
d. None of the above.

66. Corporation reduces the par or stated value of its share capital and issue additional shares to its shareholders through the
practice referred to as share split. The par or stated value per share will decrease with the corresponding increase in the
number of authorized, issued and outstanding shares. Which is not the reason behind share split:

a. To adjust the market price of the companys shares to a level where more individuals can afford to invest in the
b. To earn the patronage of shareholders by increasing the number of shares held without necessarily increasing the
value of the stocks.
c. To spread the shareholder base by increasing the number of outstanding shares.
d. To benefit existing shareholders by allowing them to take advantage of an imperfect adjustment following the split.

67. A corporation may issue both preference and ordinary shares. Preference shares enjoy preference as to dividends which
means that when the board of directors declares cash dividends, preference shares are entitled to dividends before ordinary
shares receive any distribution. Which feature of the preference shares entitles the holders only to the payment of current
dividends only, if and when dividends are declared, to the extent of the preference rate, before the ordinary shareholders are

a. Cumulative and non-participating
b. Cumulative and participating
c. Non-cumulative and participating
d. Non-cumulative and non-participating

68. UI, a premier educational institution in Iloilo City, has the following selected accounts in its shareholders equity:

10% Preference Shares, P500 par, authorized 5,000 shares,
3,000 shares issued and outstanding P1,500,000
Ordinary shares, P1,000 par, authorized 10,000 shares,

5,000 shares issued and outstanding 5,000,000
Retained Earnings 1,000,000

The board failed to declare dividends during the first two years of operations and the current
years performance gave reason to the board to declare dividends of P500,000. What should be
the dividends per share if preference shares are non-cumulative and non-participating?

a. P83for Preference Shares; P50 for Ordinary Shares
b. P50 for Preference Shares; P83 for Ordinary Shares
c. P50 for Preference Shares; P70 for Ordinary Shares
d. P70 for Preference Shares; P50 for Ordinary Shares

69. A corporation may be required by law to set aside a portion of the retained earnings for specified purposes or the Board of
Directors may voluntarily designate a portion of retained earnings for future contingencies or other purposes. This portion of
the retained earnings set aside for future contingencies and not available for dividend declaration is recorded by :

a. Debit to Appropriated Retained Earnings and Credit to Retained Earnings
b. Debit Retained Earnings and Credit to Appropriated Retained Earnings
c. Debit Retained Earnings and Credit Unappropriated Retained Earnings
d. Debit Unappropriated Retained Earnings and Credit Appropriated Retained Earnings

70. A retained earnings statement is normally divided into two sections: the Appropriated section and Unappropriated section.
Which of the following items is not included in the appropriated section of the Statement of the Retained Earnings:

a. Beginning balance
b. Any additions or deductions during the period
c. Correction of prior period error
d. Ending balance

71. Retained earnings balance of ABC Corporation at the beginning of the year is P5,000,000. During the year, ABD earned
revenues of P10,000,000 and incurred operating expenses of P6,500,000. Also during the year, a dividends of P1,000,000
were declared and paid, leaving the cash balance of P800,000 for the following years operations. What is the year-end
balance in retained earnings after payment of dividends?

a. P800,000
b. P7,500,000
c. P6,700,000
d. P5,000,000

72. A statement that shows the significant changes in shareholders equity and should be reported in the period in which they

a. Statement of Comprehensive Income
b. Statement of Financial Position
c. Statement of Changes in Shareholders Equity
d. Statement of Changes in Partners Equity

73. Perfect Love Corporation had 500,000 ordinary shares issued and outstanding on January 1, 2010. During the year, Perfect
Love took the following actions:

June 30 Declared a 3-for-1 share split, when their fair market
Value of the share was P50 per share

November 30 Declared a P1 per share cash dividend

If Perfect Love prepares statement of changes in shareholders equity for 2010, what amount
should Perfect Love report as dividends?

a. P500,000
b. P1,500,000
c. P300,000
d. P450,000

74. Book value per share is the amount that would be paid on each share if the corporation is liquidated. Which of the following
statements is not true about the book value per share?

a. When only a single class of share is outstanding, the book value is computed by dividing the total shareholders
equity by the number of share outstanding.
b. When both preference and ordinary shares are outstanding, ordinary shares have the first priority in the distribution
of assets upon corporate liquidation than preference shares.
c. The preference share have the right to receive assets equal to the par value or a larger stated liquidation value per
d. The book value per share of the preference share is the sum of its liquidation value, if applicable, plus any current
and dividends in arrears divided by the number of ordinary share outstanding.

75. The shareholders equity section of the Holy Family Corporations statement of financial position shows the following:

10% Cumulative Non-participating Preference shares, P100 par,
20,000 shares authorized, 10,000 shares outstanding P1,000,000
Ordinary shares, P1,000 par, 10,000 shares authorized,
5,000 shares outstanding 5,000,000
Share Premium Preference 50,000
Share Premium Ordinary 200,000
Retained Earnings 600,000
Total Shareholders Equity P6,850,000

Assume that preference share has a liquidation value of P120 and dividends are in arrears for two years. The Preference book
value per share is:

a. P150
b. P1,500
c. P100
d. P1,000

76. Using the same information in #75, the ordinary book value per share is:

a. P1,000
b. P2,000
c. P1,070
d. P170

77. Merchandising and manufacturing companies earns revenues by selling goods. Merchandising business buys a product that
is ready for resale while manufacturing business buys raw materials and process them into finished goods and sells to
customers. The main difference between the two is:

a. The way inventory is acquired for resale.
b. The manner goods are delivered to customers in the market.

c. The method of pricing the merchandise.
d. None of the above.

78. One of the essential elements of manufacturing costs is the manufacturing overhead. This includes all manufacturing costs
that cannot be classified as direct materials or direct labor. Which of the following is not a major classifications of this cost:

a. Indirect materials and supplies.
b. Indirect labor costs.
c. Other indirect manufacturing costs.
d. None of above.

79. This manufacturing inventory account gives the cost of goods that are in the manufacturing process but are not yet complete
at the end of the accounting period. It consists of partly finished products at the end of accounting period.

a. Raw materials inventory
b. Factory Supplies inventory
c. Finished goods inventory
d. Work in Process inventory

80. The direct labor account is debited

a. When related labor costs are transferred into the Work in Process Inventory account.
b. At the end of the payroll period when employees are paid.
c. When a new factory employee begins work.
d. When the goods manufactured are completed.

81. Innovation Manufacturing has work in process inventory of 50,000 units at the end of its accounting period. Direct material
cost related to the 50,000 units is P465,000 while direct labor cost is P38,900. It also has 20,000 units of finished goods
inventory. Direct material applied to the 20,000 units is P247,900 while direct labor cost is P22,850.

Total manufacturing costs incurred during the year is:

Direct Materials P2,540,000
Direct Labor 228,600
Manufacturing overhead 685,800

Assume manufacturing overhead is applied to the inventories based on percentage of direct material costs, how much is the
total cost of work in process and finished goods inventory?

a. P617,900 for work in process inventory and P339,300 for finished goods inventory
b. P465,000 for work in process inventory and P247,900 for finished goods inventory
c. P629,450 for work in process inventory and P337,683 for finished goods inventory
d. P125,550 for work in process inventory and P66,933 for finished goods inventory
82. Using the same data as above and assume manufacturing overhead is applied to the inventories based on percentage of direct
labor costs, how much is the cost of work in process and finished goods inventory?

Work in Process Inventory Finished Goods Inventory
a. P629,450 P337,683
b. P620,600 P339,300
c. P630,000 P340,000
d. P120,000 P70,000

83. This is one of most important financial statements in manufacturing concern which shows total manufacturing costs related to
the products completed during the period. This statement is also called the manufacturing statement.

a. Statement of Comprehensive Income

b. Statement of Cost of Goods Sold
c. Statement Changes in Financial Position
d. Statement of Cost of Goods Manufactured

84. In addition to the year-end statement of financial position and statement of comprehensive income, the management of Jaro
Iloilo Corporation required the accountant to prepare the statement of cost of goods manufactured. In 2010, P361,920 of raw
materials were purchased. Operating cost data and inventory account balances for 2010 follow:

Direct Labor (10,430 hours at P9.50 per hour P 99,085
Plant Supervision 42,500
Indirect Labor (20,280 hours at P6.25 per hour 126,750
Factory Insurance 8,100
Factory Utilities 29,220
Depreciation Factory Building and Equipment 109,000
Manufacturing supplies 9,460
Repairs and Maintenance - Factory 14,980
Selling and Administrative Expenses 76,480
Raw Materials Inventory, Jan. 2010 26,490
Work in Process Inventory, Jan. 1, 2010 101,640
Finished Goods Inventory, Jan. 1, 2010 148,290
Raw Materials Inventory, Dec. 31, 2010 24,910
Work in Process Inventory, Dec. 31, 2010 100,400
Finished Goods Inventory, Dec. 31, 2010 141,100

How much is the total cost of direct materials used during the year?

a. P360,000
b. P340,000
c. P388,400
d. P363,500

85. How much is total manufacturing cost for the year 2010?
a. P802,595
b. P800,000
c. P904,235
d. P803,835

86. How much is the cost of goods manufactured during the year?

a. P803,300
b. P803,835
c. P811,025
d. P810,000

87. How much is the total cost of goods sold?

a. P800,000
b. P805,000
c. P811,025
d. P810,000

88. The worksheet for manufacturing company is basically the same as that for a merchandising company except :

a. Beginning finished goods inventory being a component of cost of goods sold is extended to the debit side of the
income statement columns while the ending finished goods inventory to the credit column.
b. That the worksheet for manufacturing company includes a pair of columns for cost of goods manufactured.
c. All nominal accounts are extended to the income statement columns of the worksheet.

d. All real accounts are extended to the balance sheet columns of the worksheet.

89. One of the most significant items in the balance sheet is cash. To measure liquidity of the business, there is a need to
compare the amount of cash with other financial statement data.
This type of analysis compares an item or financial relationship within a company in the current year with the same item or
relationship in one or more prior years:

a. Industry averages
b. Intercompany basis
c. Intracompany basis
d. None of the above

90. Various tools are used to evaluate the significance of financial statement data. Which technique evaluates financial statement
data that expresses each item in a financial statement in terms of a percent of the base amount?

a. Horizontal analysis
b. Ratio analysis
c. Vertical analysis
d. None of the above

91. This type of ratio analysis measures the companys ability to collect from credit sales. It indicates the number of times that
the average balance of accounts receivable is collected during the period.

a. Average age of receivable
b. Account Receivable Turnover
c. Quick ratio
d. Acid test ratio

92. This tool measures the relationship between profit and ordinary shareholders investment in the company. This rate may be
higher or lower than the return on total assets, depending on how judiciously management has combined debt and preference
share with ordinary share in financing the companys resources.

a. Price-Earnings Ratio
b. Return on total assets
c. Return on Ordinary Equity
d. Debt to Total Assets Ratio

93. The following information was taken from the books of Crest Merchandising for the year ending December 31, 2010:

Cash P130,000
Marketable Securities 60,000
Accounts Receivable:
January 1 156,000
December 31 214,000
Merchandise Inventory:
January 1 252,000
December 31 186,000
Current Liabilities 240,000
Cost of Goods Sold 3,000,000
Credit Sales 5,000,000

The firms creditors are constantly monitoring the liquidity position of the business to ensure that

obligations are paid as they mature. Using the above information, what is the firms working
capital that is necessary to finance the firms cash conversion cycle?

a. P250,000
b. P358,000
c. P360,000
d. P350,000

94. Another important tool that tells whether the firm could pay all its current obligations even if none of the inventories is sold is
the quick ratio. Using above information, what is the firms quick ratio in 2010?

a. 70%
b. 1.68
c. 0.60:1
d. None of the above

95. This is a measure of the number of times the firm holds it average level of inventory during the period and a high rate of
turnover indicates relative ease in selling inventory. Using the above information in problem # 93, what is the Inventory
turnover for the year 2010?

a. 13.70 times
b. 10 times
c. 14.2 times
d. 10.5 times

96. Another tool that provides a rough approximation of the average times it takes the firm to collect receivables is the average
age of receivables. Still using the same information as above, how long does it take for the firm to collect it receivables?

a. Approximately 10 days
b. Average of 16 days
c. Average of 13 to 14 days
d. Not less than 20 days

97. Juan dela Cruz, the accountant, is analyzing the earnings performance of the Megan Transport Corporation. He has gathered
the following data from Megan financial statements and from a report of the closing market prices of shares:

Profit for 2010 P743,000
Preference dividends declared in 2010 60,000
Ordinary dividends declared December 31, 2010 620,000
Number of Megan ordinary shares outstanding:
January 1, 2010 1,100,000 shares
December 31, 2010 1,300,000 shares
Market price per ordinary share on December 31, 2010 P15

Because of the reported profit in 2010, the Ordinary shareholders believed they should be well compensated for their
investment in the transport business, thus, prompting the Accountant to compute for the basic earnings per ordinary share.
Considering the data gathered above, what should be the BEPS as demanded by the ordinary shareholders?

a. P0.46
b. P0.57
c. P1.00

d. P0

98. Another investor wants to measure how valuable his investment in the transport business. He believes that maintaining his
investment in the transport firm would eventually provide him better yield in the future thus he is even willing to pay high
price for a given corporate earnings. What is the Price-Earnings Ratio in December 31, 2010 in case an investor would ask
for it?

a. P25.00
b. P20.00
c. P26.31
d. P28.32

99. Dividend yield is the ratio of dividends per share to the shares market price. This ratio measures the percentage of a market
value that is returned annually as dividends. This indication of the cash payout rate on an investment allows a shareholders
and potential shareholders to compare interest rates on certificates of deposit, corporate bonds, and other securities with this
measure of return on ordinary share. Using above information, what is the dividend yield on Megan Transport for 2010?

a. 3.18%
b. 3.00%
c. 2.50%
d. 3.50%

100. Another ratio of profitability measures the percentage of the firms assets financed by shareholders. The higher this ratio,
the smaller the risk that the company will be unable to meet its obligations when due. This ratio is known as:

a. Price-earnings ratio
b. Equity Ratio
c. Debt to total assets ratio
d. Return on total assets


1. C 26. C 51. A 76. C
2. C 27. A 52. C 77. A
3. C 28. B 53. D 78. D
4. C 29. A 54. A 79. D
5. D 30. B 55. C 80. A
6. A 31. B 56. D 81. C
7. C 32. D 57. C 82. B
8. D 33. C 58. B 83. D
9. D 34. B 59. D 84. D
10. B 35. D 60. B 85. A
11. B 36. C 61. C 86. B
12. B 37 D 62. A 87. C
13. D 38. B 63. D 88. B
14. B 39. B 64. D 89. C
15. A 40. D 65. B 90. C
16. B 41. D 66. B 91. A
17. C 42. C 67. D 92. C
18. C 43. C 68. C 93. D
19. D 44. A 69. B 94. B
20. B 45. B 70. C 95. A
21. C 46. D 71. B 96. C
22. A 47. A 72. C 97. B
23. B 48. B 73. B 98. C
24. A 49. B 74. B 99. A
25. B 50. D 75. A 100. B