ACCTNG.

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PRELIMINARY EXAMINATION

MULTIPLE CHOICE: Write the letter of the best answer.

1. Accounting is a service entity. Its function is to provide

a. qualitative information
b. quantitative information
c. quantitative & qualitative information
d. none of the above.
2. Which of the following best describes the attributes of a partnership?
a. Limited liability to raise capital; limited personal liability of owners.
b. Ability to raise large capital; unlimited personal liability of owners.
c. Limited ability to raise capital; unlimited personal liability of owners.
d. Ability to raise large amounts of capital; limited personal liability of
owners.
3. Which of the following is true?
a. Stockholders are personally liable for the liabilities of the corporation if
the company is unable to pay.
b. Normally, stockholders can only sell their ownership interest when the
corporation terminates.
c. Partners can normally transfer their partnership interests with ease.
d. Partners are personally liable for the liabilities of the partnership if the
partnership is unable to pay.
4. The periodicity concept
a. requires that all companies prepare monthly, quarterly and annual
financial statements.
b. Results from the Bureau of Internal Revenue requirement that taxable
income be reported on an annual basis
c. Requires all companies to use a fiscal year ending December 31.
d. Involves dividing the life of a business entity into accounting periods of
equal length thus enabling the financial users to periodically evaluate the
results of business operations.
5. Accountants employed by a particular business firm or not-for-profit
organization, perhaps as chief accountants, controller or financial vice-
president, are said to be engaged in
a. general accounting c. private accounting
b. public accounting d. independent accounting
6. The accounting equation
a. is used to determine the amount of liabilities owed.
b. Is used to determine the amount of income earned during the period.
c. Shows the claims on the owner’s equity by the creditors.
d. Shows the claim on the entity’s assets by both the creditors and owner.
7. Another way of stating the accounting equation is
a. Assets + Liabilities = Owner’s equity
b. Assets – Liabilities = Owner’s Equity
c. Assets = Owner’s Equity – Liabilities
d. Owner’s equity + Assets = Liabilities
8. The components of the Balance Sheet equation are
a. Assets, income and owner’s equity
b. Income, expense and net income
c. Investments, withdrawals and net income
d. Assets, liabilities and owner’s equity
9. The following can be found in an income statement, except
a. Income c. expense
b. Assets d. net income or net loss.

10. Settlement of a present obligation may occur in a number of ways, for

example, by:
a. Payment of cash.
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 b. Transfer of other assets.
c. Provision for services
d. All of the above
11. A current asset which includes coins, currencies and bank deposits is called
a. cash equivalents c. notes receivable
b. cash d. all of the above.
12. The expectation of a future payment from a customer for goods sold is
a. a prepaid expense c. an accounts receivable
b. a notes receivable d. all of the above.
13. Inventories are assets which are
a. held for sale in the ordinary course of business
b. in the process of production for such sale.
c. In the form of materials or supplies to be consumed in the production
process or in the rendering of services.
d. All of the above.
14. Which of the following is not subject to depreciation?
a. building c. equipment
b. land d. machinery
15. Which of the following is not an intangible asset?
a. trademarks c. copyrights
b. patents d. none of the above.
16. Obligations which are expected to be liquidated through the use of existing
current assets or the creation of other current liabilities are called
a. current assets c. current liabilities
c. long-term liabilities d. unearned revenue
17. This account records long-term debt of the business entity for which it has
pledged certain assets as security.
a. mortgage payable c. bonds payable
b. notes payable d. accounts payable
18. Expenses can be defined as
a. increases in owner’s equity.
b. Decreases in owner’s equity.
c. Inflows of assets from delivering or producing goods or rendering
services.
d. Decreases in economic benefits during the accounting period in the from
of outflows or depletions of assets or incurrence of liabilities that result in
decreases in equity.
19. When an entity acquires computer equipment for cash,
a. assets and owner’s equity are increased.
b. One asset is increased while another is decreased.
c. An asset is increased and a liability is decreased.
d. One asset is increased and another is also increased.
20. When an entity receives cash for services performed,
a. an asset is decreased.
b. The owner’s equity is decreased.
c. The owner’s equity is increased.
d. None of the above.
21. When an entity pays employees for their services, the effect is an increase in
a. expenses. c. assets.
b. income. d. liabilities.
22. A credit entry decreases the balance of
a. owner’s equity. c. income.
b. liabilities. d. assets.
23. Decrease in asset may
a. decrease another asset. c. increase capital.
b. decrease liabilities. d. increase liabilities.
24. All of the following affect the owner’s equity account except
a. original investment. c. additional investment.
b. withdrawal by the owner. d. payment of a liability.
25. Withdrawals by the proprietor has all of the following effects except
a. reduction of total assets.
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 b. Reduction of owner’s equity
c. Reduction of cash balance.
d. Reduction of net income for the period.
26. What represents the claims of the creditor over the assets of the business?
a. Capital c. asset
b. Liabilities d. equity
27. The “Unit of Measure” assumption in accounting states that accounting for
business concern is accounting for peso and that peso –
a. will fluctuate c. has a stable value
b. is of lesser value than dollar d. none of the above.
28. The financial statements relay information or data that are based on past
events and transactions of the business, hence, financial statements are –
a. historical in nature c. financial in character
b. systematic in approach d. none of the above.
29. An account has two sides called the
a. debit and credit c. asset and liability
b. income and expense d. journal and ledger
30. Entries recorded on the right side of any account are called
a. increases. c. credits.
b. decreases. d. debits.
31. Credits are used to record
a. decreases in liabilities. c. decreases in owner’s equity
b. increases in expense. d. increases in income.
32. Payment of insurance premium in advance gives rise to
a. unearned income c. prepaid expense
b. accrued income d. accrued expense.
33. Credit to cash results in
a. an increase in income c. an increase in owner’s equity
b. a decrease in asset d. an increase in liabilities.
34. All of the following are assets except
a. unearned revenue c. cash
b. equipment d. inventory.
35. Asset is a resource controlled by the enterprise as a result of past events and
from which future benefits are expected to flow to the enterprise.

Owner’s equity is the excess of an entity’s capital over its liabilities.

a. true, true c. true, false

b. false, false d. false, true
36. Income is increase in economic benefits during the accounting period that
increases equity that may have resulted from the sale of goods or rendering
of services by the business.

The basic summary device of accounting is the accounting equation.

a. true, true c. true, false

b. false, false d. false, true
37. According to the balance sheet equation, the assets of a business entity must
always equal the liabilities and owner’s equity.

Accounts that appear on the left side of the accounting equation usually have
credit balances.

a. true, true c. true, false

b. false, false d. false, true
38. Income increases owner’s equity and is recorded by a debit.

Expenses cause decreases in owner’s equity and are recorded by credits.

a. true, true c. true, false

b. false, false d. false, true
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 39. A debit entry always decreases the balance of a account.

Payment of a liability will not affect total assets but will cause total liabilities
to decrease.

a. true, true c. true, false

b. false, false d. false, true
40. A cash acquisition of a laptop computer vehicle will cause total assets to
increase.

A separate legal entity organized in accordance with codes and laws and in
which ownership is divided into shares of stock is referred to as a
corporation.

a. true, true c. true, false

b. false, false d. false, true

Questions 41-43: Use the accounting equation to answer each of the questions below.
41. At the beginning of the year, the assets of Pintados Services were P360,000
and its owner’s equity was P200,000. During the year, assets increased by
P120,000 and liabilities increased by P20,000. What was the owner’s equity at
the end of the year?
42. At the beginning of the year, Merry Makers Station had liabilities of P100,000
and owner’s equity of P96,000. If assets increased by P40,000 and liabilities
decreased by P30,000, what was the owner’s equity at the end of the year?
43. The liabilities of Kasadyaan Company equal one-third of the total assets, ad
the owner’s equity is P240,000. What is the amount of the liabilities?

Transaction Analysis

Transactions:

a. Received P260,000 cash from the clients for services rendered.

b. Paid P480,000 of salaries to employees.
c. Collected P 120,000 from clients on account.
d. The owner, L. Skywalker, withdrew P 80,000 cash for personal use.
e. Purchased P 140,000 of supplies on account.
f. Billed clients P 180,000 for services rendered.
g. Paid P100,000 to suppliers on account.
h. Paid rent for the month, P 30,000.
i. Received cash from clients for services performed, P 120,000.
j. L. Skywalker withdrew cash for personal use, P 5,000.

For each of the transactions for Star Wars Company, a sole proprietorship, fill in the
spaces to answer the following questions:

1. What are the two accounts affected by the transaction?

2. What type of account is affected – asset, liabilities, owner’s
equity, owner’s withdrawal, income or expense account?
3. Should the account be increased or decreased?
4. Should the account be debited or credited?

Accounts Type of Increase or Debit or

Trans. Affected Account Decrease Credit

a. 1        

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 2        
b. 1        
2        
c. 1        
2        
d. 1        
2        
e. 1        
2        
f. 1        
2        
g. 1        
2        
h. 1        
2        
I. 1        
2        
j. 1        
2        

“ A good name is rather to be chosen than great riches, and

loving favor rather than silver and gold.”

CP Jaucian