POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Junior Philippine Institute of Accountants

Pre-Qualifying Examination for Incoming Second Year Students

NAME: DATE:

Theories

1. What is the major difference between a periodic and perpetual system?

a. All are correct
b. Under the periodic inventory system, all adjustments such as purchases returns and
allowances and discounts are reconciled at the end of the month.
c. Under the periodic inventory system, no journal entry is recorded at the time of the sale of
inventory.
d. Under the periodic inventory system, the purchase of inventory will be debited to the
Purchases account.

2. Earnings per share of common stock is computed by:

a. Dividing net income by the average number of common and preferred shares outstanding
b. Dividing net income minus preferred dividends by average number of common shares
outstanding
c. Dividing net income by the average number of common shares outstanding
d. Dividing net income minus preferred dividends by the average number of common and
preferred shares outstanding

3. The premium on a two-year insurance policy expiring on June 30, 2019 was paid in total on
July 1, 2017. The original payment was debited to the prepaid insurance account. The
appropriate journal entry had been recorded on December 31, 2017. The balance in the
insurance expense account on Decemeber 31, 2017 should be
a. The same as the original payment
b. Higher than if the original payment had been debited to an expense account.
c. Lower than if the original payment had been debited to an expense account.
d. The same as it would have been if the original payment had been initially debited to an
expense account.

4. D purchases 1/5 interest of the equity from all the partners of ABC Partnership. Which of the
following is true after D’s admission?
a. Assets of partnership is increased
b. A, B and C’s capital is reduced by 1/5
c. Total partnership equity is increased by 1/5
d. Cash account is debited on partnership books

5. In liquidation, if a partner has a debit balance in his capital account and is personally
insolvent
a. Other partners absorb the deficiency
b. The deficiency is recorded as receivable from the partner
c. Sue the insolvent partner
d. None of the above

6. Partners Liza and Mina share income in a 2:1 ratio, respectively. Each partner receives an
annual salary allowance of P12,000. If the salaries are recorded in the accounts as an expense
rather than treated as an allocation of income, the total amount collected to each partner for
salaries and net income would be:
a. Less for both Liza and Mina
b. Unchanged for both Liza and Mina
c. More for both Liza and Mina
c. Less for Liza and more for Mina

7. Reversing entries are required for the following except

a. Accrued revenue
b. Accrued expense
c. Prepaid expenses (asset method)
d. Unearned Revenue (revenue method)

8. Which of the following transactions would cause a change in equity?

a. Repayment of a bank loan
b. Sale of a land on credit for a price above cost
c. Purchase of a delivery truck on credit
d. Borrowing money from a bank

9. Which is false concerning the rules on debits and credits?

a. The left side of an account is always debit side and the right side is always the credit side.
b. Increases in assets and expenses are debit entries, and increases in liabilities, equity and
revenue are credit entries
c. The word “debit” means to increase and the word “credit” means to decrease.
d. The normal balance of any account appears on the side for recording increases.

10. If there is a provision for division of profits but not of losses in the partnership agreement, it
is concluded that
a. Losses should not be divided to the capital accounts, but matched against future earnings
b. Losses should be divided using the same approach as division of profits
c. Losses should be divided equally
d. Losses should be allocated according to the ratio of capital account balances

11. What is the effect in total assets of a business when an account receivable has been
collected?
a. Increase in total assets
b. Decrease the total assets
c. No change in the total assets
d. None of these

12. The entity assumption holds that an organization must be viewed as a unit that is
a. Part of its owner
b. Separate from its owner
c. Owned partially by creditors and partially by owners
d. Owned exclusively by one owner

13. The conversion of non-cash into cash refers to

a. Dissolution
b. Liquidation
c. Realization
d. Division of loss on sales of non-cash assets

14. The corporation issued what is called a “20% share capital dividend” on its share capital. At
what amount per share should retained earnings be reduced for this transaction?
a. Zero because no entry is made
b. Par value
c. Fair value at the date of issuance
d. Fair value at the declaration date

15. If shares are issued for non-cash considerations, the proceeds shall be measured by the
a. Fair value of shares issued
b. Par value of the shares issued
c. Fair value of the non-cash consideration received
d. Cost of the non-cash consideration received

16. Which of the following items would not be included in the journal entry for a transaction?
a. the names of the source documents used to record the accounting transaction
b. the titles of the accounts that will be used as debits and credits in the transaction
c. the date the accounting transaction was entered into the accounting system
d. the peso amounts used to record the debits and credits in the transaction

17. The par value of a share capital

a. is usually different from its market value
b. is often higher for preference share than for ordinary share
c. is an arbitrary amount assigned to a share of stock
d. all of these

18. The cost of organizing a corporation should be

a. expensed in the year of organization
b. reported as an intangible asset
c. reported as tangible asset
d. deducted for share capital
19. The entry to record the issuance of ordinary share capital for fully paid stock subscription is
a. memorandum entry
b. debit ordinary share capital subscribed and credit ordinary share capital
c. debit ordinary share capital subscribed and credit additional paid-in capital
d. debit ordinary share capital subscribed and credit subscription receivable

20. When there is no bidder for delinquent subscription, the subscribed shares
a. will be issued to the delinquent subscriber
b. will be issued in the name of the corporation
c. will be reversed back to unsubscribed shares
d. none of these

21. An entry debiting Cost of Sales and crediting Merchandise Inventory would be made when
a. Merchandise is sold and the perpetual inventory method is used
b. Merchandise is purchased and the perpetual inventory method is used
c. Merchandise is returned and the perpetual inventory method is used
d. Merchandise is sold and the periodic inventory method is used

22. A merchandising company should include the following in its ending inventory
a. Goods held on consignment
b. Goods purchased FOB shipping point, still in transit
c. Goods purchased FOB destination, still in transit
d. Goods sold FOB shipping point, still in transit

23. Which of the following items LEAST resembles a typical adjusting entry?
a. Debit an asset and credit liability
b. Debit revenue and credit liability
c. Debit an expense and credit liability
d. Debit an asset and credit revenue

24. Which of the following best describes the nature of allowances for salaries and interest in a
partnership profit and loss sharing agreement?
a. The amount upon which each partner will have to pay personal income tax
b. Expenses of the business that should be deducted from revenue in determining profit
c. A means of distributing profit in relation to services rendered and capital invested by partners
d. A means of determining reasonable monthly withdrawals by each partner

25. C is admitted in the partnership of A and B. C invest P15,000 for an interest equal to
P17,000. This transaction would result to
a. Recognition of goodwill by the partnership
b. An increase in the capital balances of A and B
c. A decrease of P3,000 in the total partnership assets
d. A decrease in the capital balances of A and B

26. An association of two or more persons who bind themselves to contribute to a common fund
money, skills and property and agreed to distribute the profit among themselves
a. cooperative
b. corporation
c. partnership
d. association

27. A partner may withdraw his interest at an amount equal to all the following except
a. less than book value
b. more than book value
c. book value
d. future expected value

28. In the final liquidation transaction, the remaining cash is distributed to the partner. The
partners share in cash according to their
a. capital balances
b. profit sharing ratios
c. cash balance
d. withdrawals

29. In partnership liquidation, a gain from the sale of assets is

a. allocated to partnership liabilities
b. allocated to the partner with the lowest capital balance
c. allocated to the partners based on the profit/loss sharing ratio
d. allocated to the partners based on their capital balances

30. The purchase of treasury shares

a. decreases authorized ordinary share capital
b. decreases issued ordinary shares
c. decreases outstanding ordinary shares
d. has no effect on ordinary shares outstanding

31. The following will cause total retained earnings to decrease except
a. purchase of treasury shares
b. appropriation of retained earnings for plant expansion
c. declaration of share dividend or bonus issue
d. a and b only

32. Which of the following is a correct statement about share dividends?

a. They decrease assets when declared
b. They decrease assets when distributed
c. They decrease liability when declared
d. They cause the capitalization of retained earnings

33. All of the following are true about Retained Earnings except
a. it is increased by net income
b. it is decreased by dividends
c. it is increased by a gain on sale of treasury share
d. it is decreased by net losses

34. They are the persons who originally formed the corporation and whose names appear in the
Articles of Incorporation
a. corporators
b. shareholders
c. promoters
d. incorporators

35. If the capital credit of the new partner is less than his contribution with no adjustment in
asset values, then the admission resulted in a
a. bonus to the old partner
b. bonus to the new partner
c. no bonus
d. both A and B

Problems

36. The shareholder’s equity of Positive Company revealed the following on June 30, 2018
Preference Share, P100 par value P230,000
Share Premium-Preference 80,500
Ordinary Share, P15 par value 525,000
Share Premium-Ordinary 275,000
Subscribed Ordinary Share 5,000
Retained Earnings 190,000
Notes Payable 400,000
Subscription Receivable-Ordinary 40,000

How much is the legal capital of the company?

a. P755,000
b. P760,000
c. P1,111,0000
d. P1,300,000

37. Hanna and Sophia are to form a partnership where profits are to be allocated by means of
salaries and bonuses. Bonuses will be 10% of net income after salaries and bonuses. Hanna
will receive a salary of P60,000 and a bonus while Sophia has the option of receiving a salary of
P80,000 and a bonus or simply receiving salary of P104,000. The bonuses that each partner will
receive are of the same amount.
How much net income should the partnership earn so that Sophia would receive the same
amount under two options?
a. P644,000
b. P404,000
c. P356,000
d. P668,000

38. Fullbuster Company’s Shareholder’s equity at December 31, 2018 was as follows:
6% Non-cumulative Preference Share Capital, P100 par,
Liquidation value of P105 per share P1,000,000
Ordinary Share Capital, P100 par 3,000,000
Retained Earnings 950,000
Preference dividends have been paid up to December 31, 2018. At December 31, 2018,
Fullbuster’s book value per ordinary share was?
a. P131.70
b. P130.00
c. P129.70
d. P128.00

39. The Hong Company purchased for P240,000 cash on July 1, 2018. A machine with
estimated useful life of 10 years and an estimated residual value of P12,000. Depreciation was
recorded on a monthly basis using the straight-line method. The machine was sold for P130,000
on September 30, 2018. For Hong Company, the sale resulted in a gain(loss) of?
a. P9,700 gain
b. P9,700 loss
c. P21,700 gain
d. P21,700 loss

40. Scarlet Company had 10,000 shares issued and outstanding at January 1, 2018. During
2018, Scarlet took the following transactions:
March 1 Declared a 2-for-a-share split, when the fair value of the share was P80
per share
December 1 Declared a P5 per share cash dividend
In Scarlet’s statement of changes in equity for 2018, what amount should Scarlet report as
dividends
a. P50,000
b. P850,000
c. P950,000
d. P100,000

41. If Supplies account has a debit balance of P36,000 as of December 31, 2018 with a debit
posting of P74,000 and a credit posting of P86,200, what is its beginning balance?
a. P23,800
b. P48,200
c. P12,200
d. P42,000

42. The following data are given:

December 31, 2017 December 31, 2018
Assets P520,000 P670,000
Liabilities ? 300,000

During 2018: Net Loss, P20,000; Additonal Investment, P35,000; Drawings, P60,000
What is the beginning balance of liabilities?
a. P150,000
b. P105,000
c. P100,000
d. P151,000

43. Sine Company had outstanding 20,000 shares of P100 par value 8% cumulative preference
share capital abd 30,000 shares of P50 par value ordinary share capital on December 31, 2018.
At December 31, 2017, dividends in arrears on preference shares were P80,000. Cash
dividends declared 2018 totaled P300,000. Respectively, the amounts paid to preference
shareholders and ordinary shareholders are?
a. P80,000 and P220,000
b. P60,000 and P240,000
c. P220,000 and P80,000
d. P240,000 and P60,000
44. A batch of computers was acquired as of August 1, 2018 at a total cost of P840,000. These
computers have estimated useful life of 4 years with residual value of P120,000. The amount of
the adjusting entry necessary to record the depreciation expense of these computers on
December 31, 2018 would be?
a. P180,000
b. P75,000
c. P297,500
d. P255,000

45. Video-C is operated on a 5-night work week from Monday to Friday by four people with
salaries of P328/day each. If salaries are paid every Friday and July 31 falls on a Wednesday,
how much is the accrued salaries expense as of July 31?
a. P1,312
b. P2,624
c. P3,936
d. P5,248

46. At December 31, 2018 and 2017, Gee Company had P100,000 ordinary shares and 10,000
cumulative presence shares of 5%, P100 par value. No dividends were declared on either the
preference or ordinary share in 2018 and 2017. Net income for 2018 was P900,000. The basic
earnings per share amounted to?
a. P8.50
b. P9.50
c. P9.00
d. P5.00

47. Celia, an active partner in the CV partnership, receives an annual bonus of 25% of the
partnership income after deducting bonus. For the year ended, December 31, 2018, the
partnership income before the bonus amounted to P240,000. The bonus of Celia for the year
2018 is?
a. P45,000
b. P48,000
c. P80,000
d. P60,000

48. On June 30, 2018, Gray Company declared and issued 10% ordinary share dividend. Prior
to this dividend Gray had 40,000 shares of P10 par value ordinary share issued and
outstanding. The market value or Gray’s ordinary share on June 30, 2018 was P24 per share.
As a result of this share dividend, by what amount should Gray’s total shareholder’s equity
increase(decrease)?
a. P(48,000)
b. P28,000
c. P20,000
d. 0

49. The following information was abstracted from the accpount of the Pink Rose Corporation at
year-end:
Total income since incorporation P1,680,000
Total cash dividends declared and paid 400,000
Proceeds from sale of donated stock 180,000
Total value of share dividends distributed 120,000
Excess of proceeds over cost of treasury shares sold 280,000
What should be the current balance of retained earnings?
a. P1,340,000
b. P1,220,000
c. P1,160,000
d. P1,040,000

50. A sales invoice included the following information: Merchandise price, P5,000;
Transportation, P300; terms 1/10, n/eom, FOB shipping point: Assuming that a credit for
merchandise returned of P600 is granted prior to payment, that the transportation is prepaid by
the seller, and that the invoice is paid within the discount period, what is the amount of cash
received by the seller?
a. P4,950
b. P4,400
c. P4,656
d. P4,356
51. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a
customer for P18,000. The seller paid transportation cost of P1,000 and issued a credit
memorandum for P5,000 prior to payment. What is the amount of cash discount allowable?
a. P130
b. P170
c. P180
d. P190

52. JK Co., at the end of its second year of operations revealed the following data:
Operating expenses incurred on account P150,000
Operating expenses incurred for cash 175,000
Cash paid to account creditors 200,000
Cash paid for next period expenses 100,000
Cash withdrawal by the owner 40,000
Determine the total expenses for the second year of operation.
a. P325,000
b. P625,000
c. P425,000
d. P665,000

53. Go and Duterte are partners who share profits equally and losses in a 2:1 ratio. If they have
beginning capital balances of P120,000 and P118,000, respectively, made no additional
investments now withdrawals, and suffered an unprofitable year with of loss of P48,000, there
capital balances will be
Go Duterte
a. P40,000 P80,000
b. 120,000 118,000
c. 88,000 102,000
d. 152,000 134,000

54. Pepe and Pilar formed a partnership and have capital balances of P100,000 and P200,000,
respectively. If they agree to admit Charr into the partnership, how much will he have to invest
to have a ¼ interest
a. P75,000
b. P50,000
c. P200,000
d. P100,000

55. The Paningning Company had 100,000 of P15 par value ordinary shares on January 1,
2018.
During 2018, the following transactions pertaining to its ordinary shares occurred:
January 5 Purchased 5,000 shares as treasury at P30 each
August 3 A 3 for 1 share split was effected
December 2 Reissued 3,000 treasury shares at P14 each
What is the total cost of the remaining treasury shares at the end of 2018?
a. P360,000
b. P120,000
c. P60,000
d. P56,000

56. Calibo and Camos are partners with capital balances of P60,000 and P80,000 and sharing
profits and losses 40% and 60% respectively. If Cueva is admitted as partner paying P50,000 in
exchange for 50% of Calibo’s equity, the entry in the partnership books should be as follows
a. Calibo, Capital 50,000
Cueva, Capital 50,000
b. Calibo, Capital 30,000
Cueva, Capital 30,000
c. Cash 45,000
Other Assets 5,000
Cueva, Capital 50,000
d. Cash 50,000
Calibo, Capital 15,000
Cueva, Capital 45,000
57. On May 1, 2018, the business accounts of Cassy and Marga appear below:
Cassy Marga
Assets
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000 -
Buildings - 428,267
Furniture and Fixtures 50,345 34,789
Other Assets 2,000 3,600
1,020,960 1,317,002
Equities
Accounts Payable 178,940 243,650
Notes Payable 200,000 345,000
Cassy, Capital 641,976 -
Marga, Capital - 728,352
1,020,960 1,317,002
Cassy and Marga agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20,000 in Cassy’s books and P35,000 in Marga’s are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in Cassy’s and Marga’s respective books
c. Other Assets of P2,000 and P3,600 in Cassy’s and Marga’s respective books are to be
written-off

The capital accounts of the partners after the adjustments will be

Cassy Marga
a. P 614,476 P 683,052
b. 615,942 717,894
c. 640,876 712,345
d. 613,576 683,350

58. Using the information in no. 57, How much assets does the partnership have?
a. P2,237,918
b. P2,265,118
c. P2,337,918
d. P2,365,218

59. Using the information in no. 57, and assuming Tupe offered to join for a 20% interest in the
firm, how much cash should he contribute?
a. P324,382
b. P330,870
c. P337,487
d. P344,237

60. Using the information in no. 57 and assuming after Tupe’s admission, the profit and loss
sharing ratio was agreed to be 40:40:20 based on capital credits, how much should the cash
settlement between Cassy and Marga
a. P32,272
b. P32,930
c. P36,602
d. P34,288

61. As of December 31, 2018, the books of 3E Partnership showed capital balances of E1-
P40,000; E2-P25,000; E3-P5,000. The partners profits and loss ratio was 3:2:1 respectively.
The partners decided to dissolve and liquidate. They sold all the non-cash assets for P37,000
cash. After settlement of all liabilities amounting to P12,000, they still have P28,000 cash left for
distribution. The loss on realization of the non-cash assets was:
a. P28,000
b. P40,000
c. P19,000
d. P40,000

62. Using the information in no. 61, and assuming any debit balance of partners’ capital is
collectible, the share of E1 on P28,000 cash for distribution was
a. P17,800
b. P18,000
c. P19,000
d. P40,000
63.The assets and equities of the FFF Partnership at the end of its fiscal year on October 31,
2018 are as follows:
Assets Liabilities and Capital
Cash 75,000 Liabilities 250,000
Receivables-net 100,000 Loan from Fajardo 50,000
Inventory 200,000 Felix, Capital 225,000
Plant Assets-net 350,000 Fojas, Capital 150,000
Loan to Fojas 25,000 Fajardo, Capital 75,000
750,000 750,000

The Partner decided to liquidate the partnership. They estimate that non-cash assets other than
the loan to Fojas can be converted into P500,000 cash over the 2-month period ending
December 31, 2018. Cash is to be distributed to the appropriate parties as it becomes available
during the liquidation process. The partner most vulnerable to partnership losses on liquidation
is
a. Felix
b. Fojas
c. Felix and Fojas equally
d. Fajardo

64. Using the information in no. 63, and assuming that P525,000 is available for the first
distribution, it should be paid to
Priority creditors Felix Fojas Fajardo
a. P 300,000 25,000 0 0
b. 300,000 7,500 12,500 5,000
c. 250,000 25,050 0 50,000
d. 250,000 60,000 0 15,000

65. On April 8, 2019, Monte Corp. Declared and issued a 25% ordinary share capital dividend.
Prior to this date, Monte Corp. Had 20,000 shares of P2 par value ordinary share that were both
issued and outstanding. The carrying value of each share of stock is P20 at the time of
declaration of the dividend.

As a result of the share capital dividend, how much will be debited to Retained Earnings
a. P10,000
b. P40,000
c. P75,000
d. P100,000

--End of Examination--