Junior Philippine Institute of Accountants

University of St. La Salle

Bacolod City

MIDTERM MOCK- EXAMINATION

Part 1. True or False. Write “True” if the statement is correct and write “False” if the statement is incorrect. (1pt.)

1. The post-closing trial balance will contain only real or permanent accounts.
2. The term FOB shipping point and FOB destination indicates who paid the transaction cost.
3. On a worksheet, if the total credit column of the balance sheet is greater than the total debit column it
signifies net profit for the period.
4. After all adjusting and closing entries are recorded and posted, the general ledger accounts that appear on
both balance sheet and income statement have no balances.
5. The balance of the capital account on the worksheet will equal to the amount presented in the balance
sheet.
6. Trade discount of 15%, 20% signifies that the invoice price of the item is 68% of its list price.
7. When the freight term is “F.O.B. shipping point, freight collect” means that the seller shoulders the freight
cost but the buyer pays it.
8. Omitting or failure to record a transaction will not affect totals of a trial balance.
9. Failure to record adjustment for accrued wages results in the current year’s profit being understated.
10. Sales returns and allowances is an expense account.
11. In a perpetual inventory system, purchases on account are recorded by debiting “Purchases” and crediting
“Accounts Payable”.
12. If the credit terms of a business states “n/10 eom” it means that it is due within 10 days after the sale.
13. The statement of changes in equity discloses the withdrawals during the period.
14. In the statement of cash flows, increase in accounts payable indicates a decrease in cash flow.
15. Depreciation expenses are deducted from net income in computing for the cash flows from operating
activities.
16. Allowance for Bad Debts is a contra- asset account.
17. In recording the adjusting entries for depreciation, both accounts involved are increased.
18. By adding the beginning inventory and cost of sales will give the cost of goods available for sale.
19. One of the advantages of a corporation is that it has limited liability.
20. In a corporation, there should be a minimum of 3 and a maximum of 15 incorporators.
21. Plant, property and equipment are presented at carrying amount in the financial statements regardless if the
business is going concern or not.
22. A bill of lading is a document issued by a vendor containing the terms of delivery.
23. The beginning balance of inventories of the current year represents the ending inventory of the prior year.
24. A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its
percentage of credit sales.
25. The periodic inventory system records the cost of each sale as it occurs.
26. The difference between Sales and Cost of Sales is Operating Income.
27. Trade discounts are not presented in the journal entry.
28. F.O.B shipping point means that the seller incurs or shoulders the shipping cost.
29. Liquidity refers to the availability of cash to satisfy short-term liabilities while solvency is for satisfaction of
long-term liabilities.
30. Distribution costs include depreciation of store property and equipment.
Part II. Multiple Choice. Write the CAPITAL LETTER of the best answer.

1. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets and owner’s equity?
a. Net income is overstated, assets are overstated, owner’s equity is understated
b. Net income is overstated, assets are overstated, owner’s equity is overstated
c. Net income is understated, assets are understated, owner’s equity is understated
d. Net income is understated, assets are understated, owner’s equity is overstated

2. Accrual basis of accounting

a. Omits adjusting entries at the end of the period
b. Is not acceptable under GAAP
c. Results in higher income than cash basis accounting
d. Leads to the reporting of more complete information than does cash basis accounting

3. It refers to the availability of cash over the longer term to meet financial commitments as they fall due
a. Solvency
b. Liquidity
c. Financial Flexibility
d. Cash Forecast

4. In credit terms of 2/15, n/30, the “2” represents the:

a. Number of days in the discount period
b. Full amount of the invoice
c. Number of days when the entire amount is due
d. Percent of the cash discount

5. These users are interested in information about the continuance of an entity, especially when they have a
long term involvement or are dependent with the entity.
a. Customers
b. Employees
c. Public
d. Suppliers

6. The primary difference between a periodic and perpetual inventory system is that a:
a. Periodic system determines the inventory on hand only at the end of the accounting period
b. Periodic system keeps a record showing the inventory on hand at all times
c. Periodic system provides an easy means to determine inventory shrinkage
d. Periodic system records the cost of the sale on the date the sale is made

7. This is a formal notice to the debtor detailing the accounts already due
a. Bill of Lading
b. Sales invoice
c. Statement of Account
d. Credit Memorandum

8. A reversing entry would never involve which of the following accounts?

a. Salaries Payable
b. Cash
c. Interest Expense
d. Interest income
9. The income statement reveals
a. Resources and equities of a firm at a point in time
b. Resources and equities of a firm for a period of time
c. Net earnings of a firm at a point in time
d. Net earnings of a firm for a period of time

10. All are liabilities, except:

a. Mortgage payable
b. Deferred Income
c. Accrued Expense
d. Due from Employee

11. When using a periodic inventory system, which of the following accounts would not be credited at the point
of sale?
a. Sales
b. Inventory
c. Cash
d. Note Receivable

12. The objectives of financial reporting are based on:

a. Need for conservatism
b. Reporting on management stewardship
c. Generally accepted accounting principles
d. The needs of the users of the information

13. It is the process of incorporating in the statement of financial position or statement of comprehensive income
an item that meets the definition of an element of financial statements
a. Recognition
b. Measurement
c. Realization
d. Allocation

14. Numerous errors may exist even though the trial balance columns agree, which if not one of these errors?
a. A transaction is not journalized
b. Transposition error
c. A journal entry is posted twice
d. A transaction is recorded and posted at an incorrect amount

15. Adjusting entries involve:

a. Only real accounts
b. Only nominal accounts
c. Only capital accounts
d. One real and one nominal

16. Closing entries:

a. Are an optional step in the accounting cycle
b. Affect only real accounts
c. Permit entity to analyze routine and repetitive transactions the same way all the time
d. Remove the balances of temporary accounts
17. Reversing entries apply to:
a. All adjusting entries
b. All deferrals
c. All accruals
d. All closing entries (C]

18. The primary responsibility for the preparation and presentation of the financial statements of an entity is
reposed in the
a. Management of the entity
b. Internal Auditor
c. External Auditor
d. Controller

19. It is the presentation and classification of financial statement items on a uniform basis from one accounting
period to the next
a. Comparable information
b. Consistency of preparation
c. Aggregation
d. Accrual Basis

20. What is not a component of financial statements

a. Statement of financial position
b. Statement of changes in equity
c. Board of Directors’ report
d. Notes to financial statement (

21. Which accounts measure economic flows over a period of time?

a. Real accounts
b. Nominal accounts
c. Mixed accounts
d. Contra accounts

22. What function do ledgers serve in the accounting process?

a. Reporting
b. Summarizing
c. Classifying
d. Recording

23. A subsidiary ledger is

a. A listing of components of account balances
b. A backup system to protect against record destruction
c. A listing of accounts before closing entries
d. A listing of accounts of a subsidiary

24. An entry debiting Inventory and crediting Cost of Goods Sold would be made when
a. Merchandise is sold and the periodic inventory method is used
b. Merchandise is sold and the perpetual inventory method is used
c. Merchandise is returned and the perpetual inventory method is used
d. Merchandise is returned and the periodic inventory is used
 25. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as:
a. Trade discount
b. Quantity discount
c. Size discount
d. Cash discount

26. In a periodic system, the beginning inventory is:

a. Net purchases minus cost of goods sold
b. Net purchases minus ending inventory
c. Total goods available for sale minus net purchases
d. Total goods available for sale minus cost of goods sold

27. Which of the following should be included in Inventory at the end of the reporting period?
a. Goods in transit which were purchased F.O.B. shipping point
b. Goods in transit which were purchased F.O.B. destination
c. Goods received from another entity on consignment
d. Goods in transit to a customer which were sold F.O.B shipping point to the customer

28. The periodic inventory system is used most commonly by companies that sell:
a. High-priced, high-volume merchandise
b. High-priced, low-volume merchandise
c. Low-priced, high-volume merchandise
d. Low-priced, low-volume merchandise

29. A sale on July 19 with terms n/10eom is due to be collected by

a. July 31
b. August 1
c. July 29
d. August 10

30. Why is inventory included in the computation of net income?

a. To determine cost of sales
b. To determine sales revenue
c. To determine merchandise returns
d. Inventory is not included in the computation of net income

Part III. Problem Solving

1. Reynelle Company reflected the following account balances at December 31, 2017
Accounts Receivable, net P24, 000
Trading Securities 6,000
Acc. Depreciation – Equipment 15,000
Cash 16,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid Expenses 2,000
Land 18,000

In in the company’s balance sheet, current assets amounted to:

a. 95,000
 b. 87,000
c. 82,000
d. 78,000

Items 2 to 5 are based on the following data:

The following values were computed before preparing the adjusting entries of Allen Taxi Services:

Total Assets ……………………………………… P321, 000

Total Liabilities …………………………………… P210, 000
Allen, Capital …………………………………..P111, 000

Profit for the period is P 38,000

The following adjustments are to be taken into consideration:

Accrued Income …………………………………. P3, 000
Accrued Expense ………………………………...P7, 000

2. How much is the computed amount of the net profit for the year after adjustments?
a. 28,000
b. 34,000
c. 42,000
d. 48,000

3. How much is the revised amount of total assets?

a. 314,000
b. 317,000
c. 318,000
d. 324,000

4. How much is the revised amount of total liabilities?

a. 213,000
b. 215,000
c. 217,000
d. 221,000

5. How much is the revised amount of Allen, Capital?

a. 107,000
b. 115,000
c. 118,000
d. 121,000

Items 6 to 7 are based on the following:

The following information was taken from the 2015 financial statements of Brando Company
Inventory, 1/1/17 P 90,000
Inventory 12/31/17 120,000
Accounts Payable, 12/31/16 75,000
Accounts Payable, 12/31/17 120,000
Sales 600,000
Cost of Sales 420,000
6. How much was Brando Company’s purchases?
a. 400,000
b. 450,000
c. 350,000
d. 425,000

7. What amount should Brando report as cash payments to suppliers?

a. 405,000
b. 435,000
c. 465,000
d. 495,000

8. Wensley Flower Shop pays its weekly salaries of P50, 400 for a six day work-week ending on Saturday. The
company follows the calendar year ending on December 31. Assuming that December 31 falls on a
Tuesday, how much is the accrued salaries to be reported on the December 31 Statement of Financial
Position?
a. 0
b. 8,400
c. 16,800
d. 33,600

9. Espeleta Co. had the following account balances:

Sales Revenue P 180,000
Cost of Goods Sold 90,000
Salaries and wages expense 15,000
Depreciation Expense 30,000
Dividend Revenue 6,000
Utilities Expense 12,000
Rent Revenue 30,000
Interest Expense 18,000
Sales returns and allowances 16,500
Advertising Expense 19,500

What would Espeleta Co. report as total revenues in singe-step income statement?
a. 199,500
b. 15,000
c. 216,000
d. 180,000

10. DIOSO Trading brought an office equipment costing P 60,000. It was, however, charged to repairs and
maintenance. Data about the office equipment follows:
Date of purchase: June 30, 2015
Estimated life: 5 years
Salvage Value: none
The error was discovered and corrected on December 31, 2015 during the closing of the books of accounts.

How much is the understatement or overstatement of Net Income for the year ended December 31, 2015
because of the error?
a. 6,000 overstatement
b. 12,000 overstatement
c. 54,000 understatement
 d. 54,000 overstatement

11. Lordwell Inc. took a physical inventory at the end of the year and determined that P 475,000 of goods were
on hand. In addition, the following items were not included in the physical count: Bell Inc. determined that
purchases amounting to P60, 000 of goods were in transit that were shipped F.O.B destination which the
company received on January 1, 2018. The company sold P 25,000 worth of inventory F.O.B destination on
which was shipped on Dec 29, 2017 and received by the customer on January 5, 2018. What is the correct
Inventory balance?
a. 475,000
b. 535,000
c. 500,000
d. 560,000

12. Sean Rhyan Abelay Enterprise had a profit of P 600,000 during 2017. Accounts Receivable decreased by P
80,000 and accounts payable increased by P 90,000. During the year, depreciation expense was P 60,000.
It started its operation in 2017. What is the net cash flow from operating activities using the indirect method?
a. 670,000
b. 490,000
c. 650,000
d. 830,000

Items 13 to 15 is based on the following:

Darlene Hardware, a VAT registered business, shows the following selected account balances in its first month of
operations:

Equipment acquired P 500,000

Defective equipment returned 50,000
Sales 1,500,000
Sales discounts 40,000
Sales returns and allowances 30,000
Purchases 1,200,000
Purchase returns and allowances 80,000

13. How much is the Input VAT for the month?

a. 204,000
b. 198,000
c. 194,000
d. 188,400

14. How much is the Output VAT for the month?

a. 180,000
b. 176,400
c. 175,200
d. 171,600

15. How much is the VAT Payable for the month?

a. 0
b. 16,800
c. 19,200
d. 51,480
 16. An adjusting entry to record depreciation expense for P 30,000 was made at the end of the year. Assuming
the depreciation is good for 2017 from an equipment depreciated at 10% with a salvage value of P 50,000,
how much is the cost of the equipment?
a. 250,000
b. 350,000
c. 30,000
d. 300,000

The next four items will be based on the following:

Observing the physical inventory count of ELCA Company, only merchandise shipped by the company to customers
up to and including December 28, 2018 have been eliminated from the inventory. No perpetual inventory records are
maintained. All sales are made on a F.O.B shipping point basis. Assume that purchases have been correctly
recorded.

The company’s trial balance revealed the following information:

Accounts receivable 225,000
Inventory, per physical count 127,500
Sales 2,543,000
Purchases 1,125,600

The following list of sales invoice are entered in the sales books for the months of December 2018 and January
2019:

Sales Invoice Sales

December 2018 Amount Invoice Date Cost of Sales Date shipped
₱ 3,000 Dec. 21 ₱ 2,000 December 31, 2018
7,000 Dec. 28 6,100 December 28, 2018
2,000 Dec. 31 800 January 3, 2019
6,900 Dec. 26 7,000 January 4, 2019
1,000 Dec. 29 600 December 30, 2018
4,500 Nov. 7 8,200 December 1, 2018
4,000 Dec. 31 2,400 January 3, 2019
10,000 Dec. 30 5,600 December 28, 2018 (shipped to consignee)

Sales Invoice Sales

January 2019 Amount Invoice Date Cost of Sales Date shipped
6,000 Dec. 31 4,000 December 30, 2018
3,300 Dec. 28 4,400 January 1, 2019
4,000 Jan. 2 2,300 January 2, 2019
8,000 Jan.3 5,500 December 31, 2018

17. What is the correct Sales account balance on December 31, 2018?
a. 2,590,700
b. 2,586,200
c. 2,534,100
 d. 2,559,700

18. What is the correct Accounts Receivable balance on December 31, 2018?
a. 272,100
b. 216,100
c. 217,700
d. 226,100

19. What is the correct Inventory balance on December 31, 2018?

a. 122,200
b. 119,500
c. 126,600
d. 121,000

20. The correct Cost of Sales balance on December 31, 2018?

a. 1,004,600
b. 1,006,100
c. 1,003,400
d. 999,000
TRUE OR FALSE EXPLANATIONS:

2. It indicates who should shoulder the shipping or transaction cost.

3. If credit column is greater than the debit column, it indicates a net loss.

4. Only income statement (temporary) accounts have no balances.

5. The capital account presented in the worksheet does not yet include the net profit or loss for the
period, while the capital account in the balance sheet reflects the net profit or loss.

7. “FOB shipping point, freight collect” means that the seller is responsible for shouldering shipping costs
but the buyer was the one who paid.

9. Profit will be overstated since expenses were understated.

10. It is a contra-revenue account

11. Purchase account is not used in perpetual inventory method

12. It means that payment is on the 10 th day after the end of the month.

14. Increase in current liabilities indicate an increase in cash flow

15. Depreciation expense is added back to net income since it is a non-cash expense.

18. Ending inventory + Cost of Sales = Goods Available for Sale

20. Incorporators should be at least 5 and maximum of 15.

21. It is presented at net realizable value if entity is not going concern

22. A bill of lading is issued by a carrier.

25. Perpetual inventory system records cost of each sale as it occurs

26. Difference between Sales and Cost of Sales is Gross Profit

28. In F.O.B shipping point, it is the buyer who shoulders shipping cost.
SOLUTIONS TO PROBLEMS

1. Accounts
Receivable 24,000
Trading Securities 6,000
Cash 16,000
Inventory 30,000
Prepaid Expenses 2,000
78,000
2.
Profit 38,000
Accrual
Adj.
Income 3,000
Expense (7,000)
34,000

3.
Total Assets 321,000
Receivable (acc.
Income) 3,000
4.
Total Liabilities 324,000 210,000
Payable (acc.
Expense) 7,000
217,000

5. Allen,
Capital 111,000
Income 3,000
Expense (7,000)
107,000
6.
Inventory, beg. 90,000
Purchases
(SQUEEZE) 450,000
Inventory, end. (120,000)
Cost of Sales 420,000

7.
Accounts Pay, beg. 75,000
Purchases 450,000
Payments
(SQUEEZE) (405,000)
Accounts Pay, end. 120,000
8.
Weekly Salary 50,400
Divide: 6
Daily Salary 8,400
Unpaid days 2
Accrued Salaries 16,800

9. Sales Revenue 180,000

Sales returns and
allow. (16,500)
Dividend Revenue 6,000
Rent Revenue 30,000
Total Revenue 199,500

Should be expense:
10.
Office Equipment 60,000
Salvage Value -
Depreciable amount 60,000
Useful life 5
Depreciation 12,000
Acquired on June 30 1/2
Depreciation expense 6,000

Expense recorded in R&M 60,000

Depreciation expense 6,000
Overstatement in expense 54,000
Understatement in
income 54,000

11.
Inventory, per count 475,000
Sold FOB destination 25,000
Balance 500,000

12.
Profit 600,000
Decrease in A/R 80,000
Increase in A/P 90,000
Depreciation expense 60,000
Cash flow from Op. 830,000
 Equipment acquired 500,000
13. Equipment returned (50,000)
Purchases 1,200,000
Purchase ret. & allow. (80,000)
Total 1,570,000
VAT (12%) 0.12
Input VAT 188,400

14. Sales 1,500,000

Sales discount (40,000)
Sales ret. & allow. (30,000)
Total 1,430,000
VAT (12%) 0.12
Output VAT 171,600

Output VAT 171,600

15. Input VAT 188,400
VAT Payable (16,800)
* there is no VAT payable since Input VAT exceeded Output VAT
*There is a tax credit or refund

Total Depreciation 100%

Annual Depreciation 10%
Useful life 10 years

Depreciation expense 30,000

Useful life 10
Depreciable amount 300,000
Salvage Value 50,000
Cost of Equipment 350,000
16.
 No. 17 to 20

Sales Accounts Receivable Inventory

Balance 2,543,000 225,000 127,500
(2,000)
(2,000) (2,000)
(6,900) (6,900)
(600)
(4,000) (4,000)
(10,000) (10,000) 5,600
6,000 6,000 (4,000)
8,000 8,000 (5,500)
Correct Balance 2,534,100 216,100 121,000

*Inventory, beg. -
Purchases 1,125,600
TGAS 1,125,600
Inventory, end (121,000)
Cost of Sales 1,004,600
*Since it’s the company's first year of operations, there is no Inventory, beg. balance