MIDTERM EXAM

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. In recording transactions
a. The word “debit” means increase and the word “credit” means
decrease
b. Assets, expenses, and drawing accounts are debited for increase
c. Liabilities, revenue, and drawing accounts are debited for
increase
d. Assets, expenses, and capital accounts are debited for increases
2. Posting refers to the process of transferring information from
a. Journals to general ledger accounts
b. General ledger accounts to journals
c. Source documents to journals
d. Journals to source documents
3. A chart of accounts is
a. A flowchart of all transactions c. A journal
b. An accounting procedure d. A list of names of all account
manual titles
4. After vouchers are recorded, they are filed in an “unpaid vouchers file”
a. Numerically c. Chronologically
b. In the order of payment d. No regular order
5. Which of the following best defines an accrual?
a. Adjusting entries where cash flow precedes revenue or expense
recognition
b. Adjusting entries where revenue or expense recognition
precedes cash flow
c. Adjusting entries where cash flow and revenue or expense
recognition are simultaneous
d. Adjusting entries where revenue or expenses are recognized in
the absence of cash flow evidence
6. If revenues are greater than expenses, the income summary account will be
closed by
a. Crediting income summary and debiting retained earnings
b. Debiting income summary and crediting retained earnings
c. Debiting cash and crediting income summary
d. Debiting income summary and crediting cash
7. Which is false concerning measurement cash and cash equivalents?
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 a. Cash is measured at face value.
b. Cash in foreign currency is measured at the current exchange rate.
c. If a bank or financial institution holding the funds of the company is in
bankruptcy or financial difficulty, cash should be written down to
estimated realizable value.
d. Cash equivalents should be measured at maturity value, meaning face
value plus interest.
8. The assumed continuation of a business entity in the absence of evidence to
the contrary is an example of the accounting concept of
a. accrual. c. comparability.
b. consistency. d. going concern.
9. When financial reports from two different companies have been prepared
and presented in a similar manner, the information exhibits the
characteristic of
a. relevance. c. comparability.
b. reliability. d. consistency.
10. The accrual basis of accounting is based primarily on
a. conservatism and revenue realization.
b. conservatism and matching.
c. consistency and matching.
d. revenue realization and matching.
11. On June 30, a company paid P3,600 for insurance premiums for the current
year and debited the amount to Prepaid Insurance. At December 31, the
bookkeeper forgot to record the amount expired. The omission has the
following effect on the financial statements prepared December 31:
a. overstates owners' equity.
b. overstates assets.
c. understates net income.
d. both (a) and (b).
12. In November and December 2016, Bee Company, a newly organized
newspaper publisher, received P72,000 for 1,000 three-year subscriptions at
P24 per year, starting with the January 2, 2017, issue of the newspaper.
How much should Bee report in its 2016 income statement for subscription
revenue?
a. P0 c. P24,000
b. P12,000 d. P72,000
13. Total net income over the life of an enterprise is
a. higher under the cash basis than under the accrual basis.
b. lower under the cash basis than under the accrual basis.
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 c. the same under the cash basis as under the accrual basis.
d. not susceptible to measurement.
14. Montague Company reported the following balances:
Beginning of Year End of Year
Inventory P65,000 P72,500
Accounts payable 18,750 12,500

Montague paid suppliers P122,500 during the year. What is Montague’s cost
of goods sold for the year?
a. P136,250
b. P123,750
c. P121,250
d. P108,750
15. It is the accounting standard setting body created by PRC upon
recommendations of the Board of Accountancy to assist the Board of
Accountancy in carrying out its powers and functions under R.A. No. 9298
a. Accounting Standards Council
b. Auditing and Assurance Standard Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standard Council
16. Financial accounting is the area of accounting that emphasizes reporting to
a. Management c. Internal auditors
b. Regulatory bodies d. Creditors and investors
17. Historical cost is a measurement base commonly used in financial
accounting. Which of the following measurement bases is also currently
used in financial accounting?
Current Discontinued Replacement
selling price cash flow cost
a. Yes No Yes
b. Yes Yes Yes
c. Yes No No
d. No Yes Yes
18. As regards the relationship between PFRS and the Framework for the
preparation and presentation of financial statements, are the following
statements are true or false?
Statement I The framework is a reporting standard.
Statement 2 In case of conflict, the requirements of the Framework prevail
over those of the relevant PFRS.

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 Statement 1 Statement 2
a. False False
b. False True
c. True False
d. True True
19. The theory of accounting which best describes the accounting equation
expressed “asset = liabilities + equity” is the
a. Entity theory c. Proprietary theory
b. Fund theory d. Residual equity theory
20. Classifying preference dividends as expense is an application of what
concept?
a. Entity c. Residual equity
b. Proprietary d. Fund
21. The primary accounting objective is fair representation of the financial
performance of the entity.
a. Entity c. Residual equity
b. Proprietary d. Fund
22. Fiduciary accounting is an application of
a. Entity theory c. Residual equity theory
b. Proprietary theory d. Fund theory
23. It is the capacity of information to make a difference in decision by helping
users form predictions about outcome of past, present and future events or
confirm and correct prior expectations.
a. Relevance c. Comparability
b. Understandability d. Reliability
24. Verifiability of financial accounting information is synonymous with
a. Faithful representation c. Prudence
b. Substance over form d. Completeness
25. Application of the full disclosure principle
a. Is theoretically desirable but not practical because the cost of complete
disclosure exceeds the benefit.
b. Is violated when important financial information is buried in the notes
to the financial statements.
c. Is demonstrated by the use of supplementary information presenting
the effects of changing prices.
d. Requires that the financial statements be consistent and comparable.
26. An entity produces expensive equipment for sale on installment contracts.
When there is doubt about eventual collectibility, the income recognition
method least likely to overstate income is
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 a. At the time the equipment is completed
b. The installment method
c. The cost recovery method
d. At the time of delivery
27. The allowance for doubtful accounts which appears as a deduction from
accounts receivable is an application of the
a. Going concern assumption c. Matching principle
b. Revenue recognition principle d. Materiality constraint
28. Bad debts are recognized according to which of the following expense
recognition principle?
a. Direct matching
b. Immediate recognition
c. Systematic and rational allocation
d. Critical event recognition
29. Which of the following is not within the scope of the conceptual framework?
a. Definitions of accounting c. Recognition principles
b. Objectives of reporting d. Measurement basis
30. Which of the following is consistent with going concern principle?
a. Recognition of accrual c. Recognition of deferral
b. Recording of depreciation d. All of these
Problem
31. In preparing its bank reconciliation at December 31, 2018, Case Company
has made available the following data:

Balance per bank statement 3,800,000

Deposit in transit 520,000
Amounts erroneously credited by bank to 40,000
Case’s account
Bank service charge for December 5,000
Outstanding checks 675,000
The adjusted cash in bank balance on December 31, 2018 is
a. 3,685,000 b. 3,645,000 c. 3,600,000 d. 3,605,000

32. The following data pertain to the cash transactions and bank account of
Mcbride Company for May of the current year:

Cash balance per accounting record 1,719,000

Cash balance per bank statement 3,195,000
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 Bank service charge 10,000
Debit memo for the cost of printed checks delivered by
the bank; the charge has not been recorded in the
accounting record 12,000
Outstanding checks 685,000
Deposit of May 30 not recorded by bank until June 1 500,000
Proceeds of a bank loan on May 30, not recorded in the
accounting record, net of interest of P30,000 570,000
Proceeds from a customer’s promissory note, principal
amount of P800,000 collected by the bank not taken up
in the accounting record with interest 810,000
Check No. 1086 issued to a supplier entered in the
accounting record as P210,000 but deducted in the
bank statement at an erroneous amount of 120,000
Stolen check lacking an authorized signature deducted
from Mcbride’s account by the bank in error 80,000
Customer’s check returned by the bank marked NSF,
indicating that the customer’s balance was not
adequate to cover the check; no entry has been made 77,000
in the accounting record to record the returned check

The adjusted cash in bank is

a. 3,000,000 b. 2,910,000 c. 3,080,000 d. 2,990,000

33. The following data pertain to Thor Company on December 31, 2017:
Check book balance 4,000,000
Bank statement balance 5,000,000
Check drawn on Thor’s accounts, payable to supplier,
dated and recorded on December 31, 2017, but not 500,000
mailed until January 15, 2018
Cash in bond sinking fund 2,000,000
On December 31, 2017, how much should be reported as “cash”?
a. 4,500,000 b. 5,500,000 c. 3,500,000 d. 6,500,000
34. On December 31, 2018, Ulysses Company had the following cash balances:
Cash in bank 5,000,000
Petty cash fund 50,000
Time deposit, one year, due March 31, 2019 3,000,000
Savings deposit 1,500,000

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 A check of P100,000 dated January 15, 2019 in payment of accounts
payable was recorded and mailed on December 31, 2018. In the current
assets section of the December 31, 2018 Statement of Financial Position,
what amount should be reported as “cash and cash equivalents”?
a. 6,650,000 b. 6,550,000 c. 9,650,000 d. 6,500,000
35. On December 31, 2017, West Company had the following cash balances:
Cash in bank 1,800,000
Petty cash fund (all funds were reimbursed on 50,000
12/31/2017
Time deposit (due February 1, 2018) 250,000
Cash in bank includes P600,000 of compensating balance against short-term
borrowing arrangement at December 31, 2017. The compensating balance
is legally restricted as to withdrawal by West. In the current assets section
of West’s December 31, 2017 Statement of Financial Position what total
amount should be reported as cash and cash equivalents?
a. 1,850,000 b. 1,250,000 c. 2,100,000 d. 1,500,000
36. The checkbook balance of Dove Company on December 31, 2014 was
P4,000,000. Information about certain cash items follows:
v A customer check amounting to P200,000 dated January 2, 2015 was
included in the December 31, 2014 checkbook balance.
v Another customer check for P500,000 deposited on December 22,
2014 was included in its checkbook balance but returned by the bank
for insufficiency of fund. This check was redeposited on December
26, 2014 and cleared two days later.
v A P400,000 check payable to supplier dated and recorded on
December 30, 2014 was mailed on January 16, 2015.
v A petty cash fund of P50,000 with the following summary on
December 31, 2014:
Coin and currencies 5,000
Petty cash vouchers 43,000
Return value of 20 cases of soft drinks 2,000
Total 50,000
v A check of P43,000 was drawn on December 31, 2014, payable to
Petty Cash.
What is the “cash” balance on December 31, 2014?
a. 4,248,000 b. 4,200,000 c. 4,205,000 d. 3,748,000
37. Burr Company had the following account balance at December 31, 2017:

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 Cash in bank 2,250,000
Cash on hand 125,000
Cash legally restricted for additions to plant
(expected to be disbursed in 2018) 1,600,000

Cash in bank includes P600,000 of compensating balance against short-term

borrowing arrangement. The compensating balance is not legally restricted
as to withdrawal by Burr. In the current assets section of Burr’s December
31, 2017 Statement of Financial Position, total cash should be reported at
a. 1,775,000 b. 2,250,000 c. 2,375,000 d. 3,975,000
38. The cash account in the current assets section of the Statement of Financial
Position of Tawiran Company consists of:
Bond sinking fund cash 1,500,000
Checking account in FEBTC ( A P320,000 check is still
outstanding per bank statement) 3,155,000
Currency and coins awaiting deposit 1,135,000
Petty cash fund ( of which P10,000 in is the form of paid
vouchers) 50,000
Receivables from officers and employees 175,000
6,515,000
The correct cash balance for the Statement of Financial Position is
a. 4,440,000 b. 4,330,000 c. 4,830,000 d. 5,830,000
39. Account of the petty cash fund of XYZ Company showed its composition as
follows:
Coins and currency 3,300
Paid vouchers:
Transportation 600
Gasoline 400
Office supplies 500
Postage stamps 300
Due from employees 1,200 3,000
Manager’s check returned by bank marked 1,000
NSF
Check drawn by company to the order of petty
cash custodian 2,700
What is the amount of the petty cash fund for Statement of Financial
Position purposes?
a. 10,000 b. 7,000 c. 6,000 d. 9,000

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 40. Ral Company’s checkbook balance on December 31, 2014 was P5,000,000.
In addition, Ral held the following items in its safe on that date:
Check payable to Ral, dated January 2, 2015 in
payment of a sale made in December 2014, not
included in December 31 checkbook balance 2,000,000
Check payable to Ral, deposited December 15 and
included in December 31 checkbook balance, but
returned by bank on December stamped “NSF” The
check was redopisted on January 2, 2015 and
cleared on January 9, 2015 500,000
Check drawn on Ral’s account payable to vendor,
dated and recorded in Ral’s books on December
31, but not mailed until January 10, 2015 300,000
The proper amount to be shown as “cash” on Ral’s Statement of Financial
Position at December 31, 2014 is
a. 4,800,000 b. 5,300,000 c. 6,500,000 d. 6,800,000
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ANSWER SHEET
NAME: _____________________________ SCORE: _______
TOPIC/S: ___________________________ RATING: _______
ANSWERS

01. 11. 21. 31.

02. 12. 22. 32.
03. 13. 23. 33.
04. 14. 24. 34.
05. 15. 25. 35.
06. 16. 26. 36.
07. 17. 27. 37.
08. 18. 28. 38.
09. 19. 29. 39.
10. 20. 30. 40.

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 ANSWER SHEET

NAME: _____________________________ SCORE: _______

TOPIC/S: ___________________________ RATING: _______
ANSWERS

01. 11. 21. 31.

02. 12. 22. 32.
03. 13. 23. 33.
04. 14. 24. 34.
05. 15. 25. 35.
06. 16. 26. 36.
07. 17. 27. 37.
08. 18. 28. 38.
09. 19. 29. 39.
10. 20. 30. 40.

----------------------------------------------------------------------------------------------------------------------------------------------

ANSWER SHEET
NAME: _____________________________ SCORE: _______
TOPIC/S: ___________________________ RATING: _______
ANSWERS

01. 11. 21. 31.

02. 12. 22. 32.
03. 13. 23. 33.
04. 14. 24. 34.
05. 15. 25. 35.
06. 16. 26. 36.
07. 17. 27. 37.
08. 18. 28. 38.
09. 19. 29. 39.
10. 20. 30. 40.
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Answer Section-MIDTERM EXAMINATION IN INTERMEDIATE ACCTG.

MULTIPLE CHOICE

1. B
2. A
3. D
4. B
5. B
6. B
7. D
8. D
9. C
10. D
11. D
12. A
13. C
14. D
15. D
16. D
17. B
18. A
19. A
20. C
21. A
22. D
23. A
24. A
25. C
26. C
27. C
28. A
29. A
30. D

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PROBLEM

31. D

Per bank statement 3,800,000

Deposit in transit 520,000
Outstanding checks ( 675,000)
Bank error ( 40,000)
Adjusted bank balance 3,605,000
32. A

Balance per book 1,719,000

Service charge ( 10,000)
Debit memo for printed checks ( 12,000)
Proceeds of bank loan 570,000
Proceeds of customer’s note 810,000
NSF checks ( 77,000)
Adjusted book balance 3,000,000

Balance per bank 3,195,000

Outstanding checks ( 685,000)
Deposit in transit 500,000
Bank error in recording check ( 90,000)
Stolen check deducted by bank in error 80,000
Adjusted bank balance 3,000,000
33. A

Checkbook balance 4,000,000

Add: Check drawn on Thor’s account 500,000
Adjusted cash balance 4,500,000
34. A

Cash in bank (5,000,000 + 100,000) 5,100,000

Petty cash fund 50,000
Saving deposit 1,500,000
Total cash 6,650,000
35. D

Cash in bank (1,800,000 – 600,000) 1,200,000

Petty cash fund 50,000
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 Time deposit 250,000
Total cash 1,500,000
36. A

Checkbook balance 4,000,000

Postdated customer check ( 200,000)
Undelivered check payable to supplier 400,000
Adjusted cash in bank 4,200,000
Petty cash:
Coins and currencies 5,000
Replenishment check 43,000 48,000
Total 4,248,000
37. C

Cash in bank 2,250,000

Cash on hand 125,000
Total cash 2,375,000
38. B

FEBTC 3,155,000
Currency and coins 1,135,000
Petty cash fund (50,000 – 10,000) 40,000
Total 4,330,000
39. C

Coins and currency 3,300

Check drawn by the company to the order
of the petty cash custodian 2,700
6,000
40. A

Checkbook balance 5,000,000

NSF customer check ( 500,000)
Undelivered company check 300,000
Adjusted cash balance 4,800,000U

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