2nd Flr, GF Partners Bldg, 139 H.V.

dela Costa, Salcedo Village, Makati City

Practical Accounting 1 Prof. R. M. Valdez

Review of the Accounting Process

1. A business received cash of P300,000 in advance for service that will be provided later. The cash
receipt entry debited Cash and credited Unearned Revenue for P300,000. At the end the period,
P110,000 is still unearned.

The adjusting entry for this situation will

a. Debit Unearned revenue and Credit Revenue for P190,000
b. Debit Unearned revenue and Credit Revenue for P110,000
c. Debit Revenue and Credit Unearned Revenue for P190,000
d. Debit Revenue and Credit Unearned Revenue for P110,000

2. Prepaid Insurance has an ending balance of P23,000. During the period, insurance in the amount
of P12,000 expired. The adjusting entry would contain a debit to
a. Prepaid insurance for P12,000 c. Prepaid insurance for P11,000
b. Insurance expense for P12,000 d. Insurance expense for P11,000

3. On December 31, Printshop Property management made an adjusting entry to record P30,000
management fees earned but not yet billed to a client. This entry was reversed on January 1. On
January 15, the client paid P120,000, of which P90,000 was applicable to the period January 1
through January 15.

The journal entry made by Printshop to record receipt of the P120,000 on January 15 includes
a. A credit to Management Fees Earned of P120,000
b. A credit to Accounts Receivable of P30,000
c. A debit to Management Fees Earned of P30,000
d. A credit to Management Fees Earned of P90,000

4. On December 31, Lotus made an adjusting entry to record P11,000 accrued interest payable on
its note. This entry was reversed on January 1. On January 15, the note was paid. The payment
included interest of P25,000. The entry to record the payment of January 15 should
a. Debit Interest Expense of P25,000
b. Debit Accrued Interest Payable of P25,000
c. Debit Interest Expense of P14,000 and accrued Interest Payable of P11,000
d. Debit Interest Expense of P14,000 and credit accrued Interest Payable of P11,000.

5. Windows Company sublet a portion of its office space for ten years at an annual rental of
P360,000, beginning on May 1. The tenant is required to pay one year’s rent in advance, which
Windows recorded as a credit to Rental Income. Windows reports on a calendar-year basis. The
adjustment on December 31 of the first year should be
a. Rental Income 120,000
Unearned Rental Income 120,000
b. Rental Income 240,000
Unearned Rental Income 240,000
c. Unearned Rental Income 120,000
Rental Income 120,000
d. Unearned Rental Income 240,000
Rental Income 240,000

6. Dbase Company paid P170,400 on June 1, 2002, for a two-year insurance policy and recorded
the entire amount as Insurance Expense. The December 31, 2002, adjusting entry is
a. debit Prepaid Insurance and credit Insurance Expense, P49,700
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b. debit Insurance Expense and credit Prepaid Insurance, P49,700
c. debit Insurance Expense and credit Prepaid Insurance, P120,700
d. debit Prepaid Insurance and credit Insurance Expense, P120,700

7. The Supplies on Hand account balance at the beginning of the period was P66,000. Supplies
totaling P128,250 were purchased during the period and debited to Supplies on Hand. A
physical count shows P38,250 of Supplies on Hand at the end of the period. The proper journal
entry at the end of the period.
a. debits supplies on Hand and credits Supplies Expense for P90,000.
b. debits supplies Expense and credits Supplies on Hand for P128,250.
c. debits Supplies on Hand and credits Supplies Expense for P156,000.
d. debits Supplies Expense and credits Supplies on Hand for P156,000.

8. Moon Company purchased equipment on November 1, 2001, by giving their supplier a 12-
month, 9 percent note with a face value of P480,000. The December 31, 2001, adjusting entry
is
a. debit Interest Expense and credit Cash, P7,200.
b. debit Interest Expense and credit Interest Payable, P7,200.
c. debit Interest Expense and credit Interest Payable, P10,800.
d. debit Interest Expense and credit Interest Payable, P43,200.

9. On December 31 of the current year, Holmgren Company’s bookkeeper made an entry debiting
Supplies Expense and crediting Supplies on Hand for P126,000. The Supplies on Hand account
had a P153,000 debit balance on January 1. The December 31, balance sheet showed Supplies
on Hand of P114,000. Only one purchase of supplies was made during the month, on account.
The entry for that purchase was
a. debit Supplies on Hand, P87,000 and credit Cash, P87,000.
b. debit Supplies Expense, P87,000 and credit Accounts Payable, P87,000.
c. debit Supplies on Hand, P87,000 and credit Accounts Payable, P87,000.
d. debit Supplies on Hand, P165,000 and credit Accounts Payable, P165,000.

10. The balance in the capital account of Wordstar Co. at the beginning of the year was P650,000.
During the year, the company earned revenue of P4,300,000, incurred expenses of P3,600,000,
the owner withdrew P500,000 in assets, and the balance in the cash account increased by
P100,000. At year-end, the company’s net income and the year-end balance in the capital
account were, respectively:
a. P200,000 and P950,000 c. P600,000 and P750,000
b. P700,000 and P950,000 d. P700,000 and P850,000

11. A law firm began November with office supplies of P16,000. During the month, the firm
purchased supplies of P29,000. At November 30 supplies on hand total P21,000. The adjusting
entry at November 30 will result in supplies expense of
a. P21,000 b. P24,000 c. P29,000 d. P45,000

12. At the end of the first month of operations, Word Co.’s bookkeeper prepared financial statements
which showed assets of P4,000,000 liabilities of P1,500,000 and net income of P500,000. In
preparing the statements, the bookkeeper overlooked the accrued wages at month-end of
P30,000.
The correct owner’s equity at month-end is
a. P2,970,000 b. P2,530,000 c. P2,470,000 d. P1,970,000

13. Before any year-end adjustments were made, the net income of Power Point Co. was
P4,000,000. However, the following adjustments were necessary: office supplies used,
P60,000; services performed for clients but not yet collected, P130,000; interest accrued on note
payable, P30,000. After recording these adjustments, the net income would be:
a. P3,780,000 b. P3,840,000 c. P4,040,000 d. P4,100,000

14. At December 31, 2002, the unadjusted trial balance shows office supplies of P60,000 and Office
Supplies Expense of P101,000. The December 31, adjusting entry recorded office supplies
expense of P17,000. After the December adjusting entries have been posted, what is the proper
balance in the Office Supplies account on December 31, 2002?
a. P118,000 b. P84,000 c. P77,000 d. P43,000
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15. Winword Co. recorded accrued salaries of P25,000 at December 31, 2001. During 2002,
Winword paid salaries of P872,000. Unpaid salaries at December 31, 2002 amounted to
P34,000. Winword prepares adjustments only at December 31, and also reversing entries on
January 1. The balance of the salaries expense account that would appear in the post-closing
trial balance at December 31, 2002 is
a. P0 b. P881,000 c. P872,000 d. P847,000

16. Before the month-end adjustments are made, the January 31, trial balance of Acad Express
contains revenues of P580,000 and expenses of P178,000. Adjustments are necessary for the
following items: (a) Depreciation for January, P48,000; (b) Portion of fees collected in
advance earned in January, P110,000; (c) Fees earned in January, not yet billed to customers,
P65,000; (d) Portion of prepaid rent applicable to January, P90,000.
Net income of Acad Express in January is
a. P569,000 b. P439,000 c. P352,000 d. P259,000

17. Paintbrush Co. paid P72,000 to renew its only insurance policy for 3 years on March 1, 2002,
the effective date of the policy. At March 31, 2002, Paintbrush unadjusted trial balance showed
a balance of P3,000 for prepaid insurance and P72,000 for insurance expense. What amounts
should be reported for prepaid insurance and insurance expense in Paintbrush’s financial
statements for the three months ended March 31, 2002?
Prepaid Insurance Insurance Expense Prepaid Insurance Insurance
Expense
a. P72,000 P3,000 c. P72,000 P3,000
b. P70,000 P5,000 d. P73,000 P2,000

18. On September 1, 2001, Clipper Corporation issued a note payable to Federal Bank in the
amount of P450,000. The note had an interest rate of 12 percent and called for three equal
annual principal payments of P150,000. The first payment for interest and principal was made
on September 1, 2002. At December 31, 2002, Clipper should record accrued interest payable
of`
a. P11,000 b. P12,000 c. P16,500 d. P18,000

19. In November and December 2002, Bee Company, a newly organized newspaper publisher,
received P720,000 for 1,000 three-year subscriptions at P240 per year, starting with the January
2, 2003, issue of the newspaper. How much should Bee report in its 2002 income statement for
subscription revenue?
a. P0 b. P120,000 c. P240,000 d. P720,000

20. The following errors were made in preparing a trial balance: the P135,000 balance of Inventory
was omitted; the P45,000 balance of Prepaid Insurance was listed as a credit; and the P30,000
balance of Salaries Expense was listed as Utilities Expense. The debit and credit totals of the
trial balance would differ by
a. P135,000 b. P180,000 c. P210,000 d. P225,000

21. The trial balance prepared at December 31, did not balance. Debit total was P1,592,500 and
credit total was P1,532,000. In determining the cause of the difference, you discovered the
following errors: a credit to Cash of P6,500 was not posted; a P20,000 credit to be made to
Sales account was credited to the Accounts Receivable account instead; the wages payable
account balance of P93,000 was listed in the trial balance as P39,000. What is the correct trial
balance total?
a. P1,592,500 b. P1,606,000 c. P1,612,500 d. P1,586,000

22. You are given the following closing entries of PASS NOW, INC.:
Entry 1 Interest Revenue 4,700
Accounts Payable 1,900
Capital Stock 10,000
Sales 45,000

Income Summary 61,600

Entry 2 Income Summary 48,700
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Gain on Sale of Land 3,000
Cost of Goods Sold 32,000
Accounts Receivable 12,000
Operating Expense 4,200
Other Assets 3,500

Entry 3 Income Summary 12,900

Retained Earnings 12,900
The properly computed net income is -
a. P11,800 b. P8,800 c. _P12,900 d. P16,500

23. Columbus Co.’s advertising expense account had a balance of P146,000 at December 31, 2003,
before preparing the year-end adjusting entries relating to the following:
 Included in the P146,000 is the P15,000 cost of printing catalogs for a sales promotional
campaign in January 2004.
 Radio advertisements broadcast during December 2003 were billed to Columbus on January 2,
2004. Columbus paid the P9,000 invoice on January 11, 2004.
After posting the adjusting entries at December 31, 2003, Columbus adjusted advertising expense
for year 2003 should be
a. P155,000 b. P140,000 c. P131,000 d. P122,000

24. The account balances for Villash Corp. as of December 31, 2003 follow:

Accounts payable - P100,000; Accounts receivable - P120,000; Building - P400,000;

Capital stock - P760,000; Cash - P60,000; Equipment - P160,000; Land - P50,000; Notes
payable - P280,000; Retained earnings - P100,000

In a trial balance prepared on December 31, 2003, the sum of the debit column is:
a. P860,000 b. P1,440,000 c. P790,000 d. P1,240,000

25. On November 1, 2003, Georgetown Co. paid P360,000 to renew its insurance policy for three
years. At December 31, 2003, Georgetown’s adjusted trial balance showed a balance of
P9,000 for prepaid insurance and P441,000 for insurance expense.
What amounts should be reported for prepaid insurance and insurance expense in
Georgetown’s December 31, 2003 financial statements?
a. P349,000 and P101,000 c. P330,000 and P120,000
b. P340,000 and P120,000 d. P340,000 and P110,000