REVIEW MATERIALS

Basic Accounting

I. Theory
1. Which accounting concept which, in times of rising prices, tends to understate asset values and
overstate profits?
a. The going concern concept b. The prudence concept
c. The realisation concept d. The historical cost convention

2. Which of the following statements is correct?

a. An entity is not a going concern if the management has the needs to liquidate the entity.
b. An entity is not a going concern if the management intends to curtail significantly the scale of the
entity’s operations.
c. Both A and B are correct
d. Neither A nor B is correct.

3. Which of the following statement is correct according to the conceptual framework?

a. The purpose of financial statements is to provide information about the financial position,
performance and changes in the financial position of an entity that is useful to a wide range of users in
making economic decisions.
b. Free from error means being perfectly accurate in all aspects.
c. Cost is pervasive constraint on the information that can be provided by the financial reporting.
d. None of the above statements is correct.

4. Statement 1: Under accrual accounting, the enterprise profit is the difference of cash receipts and
cash disbursements.
Statement 2: Under accrual accounting, the enterprise’s income will include income earned from
uncollected sales.
a. Only statement 1 is correct. b. Only statement 2 is correct.
c. Both statements are correct. d. Both statements are not correct.

5. An accounting concept applied when the cash drawn by the owner from the business is recorded as
“owner’s personal drawings.”
a. Accounting entity b. Going Concern c. Monetary Unit d. Accounting periods

6. To report the export sales denominated in foreign currency in the financial statements of a domestic
entity at Philippine peso value is an application of
a. going concern b. accounting entity c. accounting period d. monetary unit

7. Recognition is the process of recording the economic activity in the accounting books. Which of the
following warrants recognition?
a. Future economic benefit is probable and the value of economic benefit could be measured reliably.
b. Future economic benefit is probable.
c. Future economic benefit could be measured reliably
d. Future economic benefit is possible and the value of economic benefit could be measured reliably.

8. The value received is P 5,000 cash and the credit is notes payable. This transaction could be best
described as
a. Payment of the P 5,000 notes payable outstanding.
b. Issuance of a P 5,000 promissory note for equal amount of cash received.
c. Acceptance of P 5,000 credit note from supplier.
d. Acceptance of P 5,000 debit note from supplier.

9. The business rendered services to its customers, collectible next month. Which of the following could
be best describe the effect of the transaction?
a. Increase in asset and increase in revenue
b. Increase in revenue and increase in liability
c. Increase in revenue and decrease in liability.
d. Decrease in asset and increase revenue.

10. The business deposited to the bank its collection from outstanding account receivable from
customer. Which of the following could best describe the effect of the transaction?
a. Increase in asset, decrease in payable
b. Increase in asset, increase in liabilities
c. Increase in asset, decrease in liabilities
d. Increase in asset, decrease in other asset.

11. Which of the following is true? A collection of accounts receivable

a. has no effect on total assets.
b. will increase the total assets.
c. will decrease the total assets.
d. will increase capital account.

12. If a trial balance were to be prepared on the first day of the new year, and the account salaries
expense had a credit balance, you would know that
a. the trial balance is a post-closing trial balance.
b. the adjusting entries have been recorded.
c. a reversing entry has been made.
d. the trial balance is an adjusted trial balance

13. Worksheets are prepared because they

a. are required by generally accepted accounting principles.
b. aid in the preparation of the financial statements, adjusting entries, and closing entries.
c. constitute a permanent record of all adjusting entries made for the period.
d. are necessary for the preparation of financial statements.

II. Problems
1. Assume that the machine has a salvage value of P 10,000 with an estimated useful life of 10 years
and to be depreciated at 10% per year. If after 7 years, B sold the machine for P 25,000, how much is the
gain or loss on sale?
a. P2,000 loss b. P5,000 gain c. P15,000 loss d. P25,000 gain

2. B Trading purchased a machine on account from S. The list price of the machine is P 100,000. S allows
a discount of 5% if paid within 30 days. B Trading issued a 12% promissory note P 100,000 payable
within 90 days.
The amount of machine to be recorded in B Trading’s books of account should be
a. P 95,000 b. P 100,000 c. P 103,000 d. P 120,000

At the start of the period, the accounts payable balance was P75,000 and the unused supplies have a
balance of P 5,000. Total purchases on account amounted to P180,000 during the period including the
P15,000 supplies. At the end of the year, the unused supplies balance is P4,500, and the accounts
payable balance is P45,000.

3. The supplies expense for the period is

a. P 4,500 b. P 15,000 c. P15,500 d. P20,000

4. The payment of accounts payable during the period is

a. P 75,000 b. P 180,000 c. P 210,000 d. P215,000

5. The total sales were P 1,000,000. The sales on cash basis amounted to P400,000. The policy of the
business is to provide 1% of credit sales as bad debt expense. The bad debts expense is
a. P 10,000 b. P 6,000 c. P 4,000 d. P None

6. The beginning balance of accounts receivable was P 499,950 net of 1% allowance, for doubtful
accounts. The accounts receivable as of year-end is P 550,000 before allowance for doubtful accounts.
The allowance for doubtful accounts estimated at 1% of the accounts receivable. The doubtful accounts
expense is
a. P 550 b. P 5,050 c. P 5,500 d. P 450

7. The net book value of the plant asset at the start of the year is P 480,000. The depreciation rate is 2%
per year. The net book value at the end of the year is P470,000. If there are no additions and disposals
of assets, the depreciation expense for the year would be
a. P 9,600 b. P 9,400 c. P 10,000 d. P 1,000

8. Accounts payable of P 32,000 was paid and erroneously recorded as debit to accounts payable and
credit to cash for 23,000. The working capital
a. Has no effect b. is overstated by P 9,000
c. is understated by P 9,000 d. is understated by P 23,000

9. The beginning accumulated depreciation per record was P 100,000. During the year, the firm sold one
of its machines, recorded as follows:
Cash 270,000
Accumulated depreciation-machine 30,000
Machine 300,000

If the actual cash proceeds is P 300,000, the correcting entry would be:
a. Cash 300,000
Machine 300,000
b. Cash 30,000
Gain on sale of machine 30,000
c. Accumulated depreciation-machine 30,000
Gain on sale of machine 30,000
d. Cash 300,000
Machine 270,000
Gain on sale of machine 30,000

10. The total liability of Makmak is P 150,000 of which P80,000 was paid in cash and P10,000 was issued
with a promissory note. The new balance of Makmak’s liability is
a. P 60,000 b. P 70,000 c. P 80,000 d. P 150,000

11. Herald Corporation had the following information relating to its accounts receivable:
Accounts receivables, December 31, 2015 P 1,950,000
Credit sales for 2016 8,100,000
Collections from customers for 2016 7,125,000
Account written off, August 30, 2016 187,500
Estimated uncollectible receivables per aging of
Receivables, December 31, 2016 287,500

In the December 21, 2016 statement of financial position, what is the amortized cost of the receivable?
a. P 2,450,000 b. P 2,737,500 c. P 2,775,000 d. P 2,925,000

12. The cost of sale is P250,000. Total purchases amounted to P 300,000 which increased the total goods
available for sale to P 310,000. The ending inventory is
a. P 10,000 b. P 70,000 c. P 50,000 d. P 60,000

13. The beginning inventory is 100 units at P 1,000 per unit. Purchases for the period were as follows:
First batch, 900 units at P 1,100 per unit P 99,000
Second batch, 500 units at P 1,200 per unit 600,000
Physical count at the end of the period was 50 units. Under FIFO costing, the value of ending inventory
would be
a. P 60,000 b. P 55,000 c. P 50,000 d. P 45,000

14. The total cost put into process for the period is P600,000. Total conversion cost is P300,000. The
factory overhead is 1/3 of conversion cost. How much is the amount of direct material?
a. P 100,000 b. P 200,000 c. P 300,000 d. P 500,000

15. The total manufacturing cost is P 160,000, and the cost of goods manufactured is P125,000. If ending
inventory is P50,000 more than the beginning inventory, what is the amount of the cost of sales?
a. P 175,000 b. P 110,000 c. P 85,000 d. P 75,000