SANTA ISABEL COLLEGE MANILA

210 TAFT AVENUE, MANILA, PHILIPPINES

TEL.NO.:525-94-16 to 19
FAX NO.: 524-7340

FINANCIAL ACCOUNTING AND REPORTING

MIDTERM EXAM
1 SEMESTER AY 2020-2021
ST

Name: __________________ Permit No.: ____________________

Instructions: Write the capital letter of your answer.

I. Multiple Choices – Theory (40%)

1. What is the primary purpose of accounting?
a. To count money.
b. To provide accounts.
c. To provide information that is intended to be useful in making economic decisions.
d. To produce accountants.

2. The branch of accounting that deals with providing financial information to external decision makers
is
a. Public accounting.
b. Government accounting.
c. Financial accounting.
d. Managerial accounting.

3. Financial accounting applies to which of the following:

a. Businesses
b. Non-profit organizations
c. Governments
d. All of the above

4. External users of general-purpose financial statements include all of the following except
a. Creditors
b. Investors
c. Owners who are directly involved in managing the business
d. Lenders

5. You want to put up a business – a pizza parlor. However, you have this dilemma – you do not want
to put up the business alone but you also do not want to enter into business deals with people you
do not trust. At the most, you are only willing to accept one other individual to help you put up your
pizza business. You have in mind your best friend who is more than willing to contribute resources in
 putting up the business. She is very excited about your business proposal and even changed her
Facebook status to “self-employed.” She just texted you that she is willing to quit her day job in
order to help you put up the pizza business. What type of business organization best suits your
need?
a. Sole proprietorship
b. Partnership
c. Corporation
d. Cooperative

6. When uncertainty exists, the convention of conservatism or prudence uses estimates of a

conservative nature in an attempt to ensure which of the following?
a. Assets, income, liabilities, and expenses are not overstated
b. Assets, income, liabilities, and expenses are not understated
c. Assets and income are not understated; liabilities and expenses are not overstated
d. Assets and income are not overstated; liabilities and expenses are not understated

7. Which of the following does not form part of the accounting standards used in the Philippines?
a. Philippine Financial Reporting Standards (PFRSs)
b. Philippine Accounting Standards (PASs)
c. Interpretations
d. Philippine Auditing Practice Statements

8. Under this concept, the life of the business is divided into series of reporting periods. Thus,
businesses normally prepare financial statements at least annually.
a. Time period
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption

9. Under this concept, the cost of processing and communicating information should not exceed the
benefits to be derived from it.
a. Time period
b. Conservatism
c. Materiality
d. Cost-benefit

10. While making a delivery, the driver of Fastrac Courier collided with another vehicle causing both
property damage and personal injury. The party sued Fastrac for damages which could exceed
Fastrac's insurance coverage. Existence of the lawsuit was reported in the notes to Fastrac's financial
statements. What accounting principle, assumption or constraint is being applied in this situation?
a. Full-disclosure principle
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption
11. It is an economic resource controlled by the entity that has resulted from past events and has a
potential to produce economic benefits.
a. Asset
b. Equity
c. Liability
d. Income

12. This financial statement element is defined in terms of increases or decreases in assets or liabilities
during the period resulting in changes in equity, but excluding contributions from, or distributions
to, the business owner.
a. Income
b. Expense
c. Profit
d. a and b

13. If income exceeds expenses,

a. a loss is incurred.
b. total equity is decreased.
c. total equity is not affected.
d. profit is earned.

14. In accounting, an amount enclosed in parentheses means that the amount is

a. a monetary amount.
b. not material.
c. a negative amount.
d. owned by the accountant.

15. The term ‘control’ as used in the definition of an asset means

a. you have the exclusive right to enjoy the economic benefits that an economic resource may
produce.
b. you can prevent others from enjoying the benefits that an economic resource may produce.
c. a and b
d. the inflows of economic benefits that an economic resource is expected to produce.
16. Which of the following statements is correct?
a. Freight-out is an expense account.
b. Building is a liability account.
c. Unearned income is an income account.
d. In accounting parlance, depreciation means the decline in the value of an asset.

17. It refers to money held and bank deposits that are available for unrestricted use by the business.
a. Cash
b. Accounts receivable
c. Income
d. Inventory
18. An increase to an account is recorded
a. in the debit side of that account.
b. in the credit side of that account.
c. in the side of that account that represents its normal balance.
d. beside the account.

19. The beginning balance of “Cash” is placed on which side of the T-account?
a. Left side
b. Right side
c. Bottom side
d. Every side

20. When a customer buys goods from your business and promises orally to pay for the sale price next
week, you will
a. debit accounts receivable.
b. credit accounts receivable.
c. not give him the goods.
d. ignore the customer.

II. Multiple Choice – Computations (60%)

1. At the start of the period, a business has total assets of ₱500,000 and total liabilities of ₱300,000.
During the period, the business earned total income of ₱1,000,000 and incurred total expenses of
₱640,000. No additional investments or withdrawals were made by the owner. How much is the total
equity at the end of the period?
a. 480,000
b. 520,000
c. 560,000
d. 640,000

2. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner and an
additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000
d. ₱250,000
3. Entity A had total assets, liabilities, and equity of ₱120M, ₱75M and ₱45M, respectively, at the
beginning of the period. During the period, Entity A’s total liabilities decreased by ₱20M, while its profit
was ₱25M. There were no other transactions or events that affected equity during the period. How
much is Entity A’s ending total assets?
a. ₱70M
b. ₱85M
c. ₱95M
d. ₱125M
4. Entity A had total assets, liabilities, and equity of ₱140M, ₱90M and ₱50M, respectively, at the
beginning of the period. During the period, Entity A’s total liabilities decreased to ₱40M, while its profit
was ₱25M. There were no other transactions or events that affected equity during the period. How
much is Entity A’s ending total assets?
a. ₱75M
b. ₱95M
c. ₱115M
d. ₱125M

5. Entity A had total assets of ₱100M and total liabilities of ₱60M at the beginning of the period. If at the
end of the period, total assets increased by ₱30M, while total liabilities remained the same, Entity A’s
total equity at the end of the period would be
a. ₱70M
b. ₱60M
c. ₱90M
d. ₱80M

6. Entity A had total assets and total liabilities of ₱120M and ₱75M, respectively, at the beginning of the
period. During the period, Entity A earned total income of ₱60 and incurred total expenses of ₱45. How
much is Entity A’s ending total equity?
a. ₱60M
b. ₱80M
c. ₱90M
d. ₱120M

7. Entity A had total assets and total liabilities of ₱120M and ₱70M, respectively, at the beginning of the
period. During the period, Entity A earned total income of ₱60 and incurred total expenses of ₱40. Entity
A’s total assets increased to ₱130M by year-end. There were no additional contributions by, or
distributions to, the owner during the period. How much is Entity A’s ending total liabilities?
a. ₱60M
b. ₱70M
c. ₱80M
d. ₱90M

8. Entity A has ending total assets of ₱60M and ending total liabilities of ₱45M. Entity A had a beginning
equity of ₱10M. If Entity A earned total income of ₱25M during the year, how much were the total
expenses?
a. ₱0
b. ₱15M
c. ₱20M
d. ₱25M
9. Entity A has ending total assets of ₱160M and ending total liabilities of ₱90M. Entity A had a
beginning equity of ₱30M. If Entity A incurred total expenses of ₱50M during the year, how much was
the total income?
a. ₱70M
b. ₱80M
c. ₱90M
d. ₱120M

10. At year-end, Entity A’s total assets and total liabilities are ₱180M and ₱70M, respectively. If Entity A
had a beginning equity of ₱75M and there were no contributions from, or distributions to, the owner
during the period, how much profit (loss) did Entity A earn (incur) during the year?
a. ₱35M
b. (₱35M)
c. ₱25M
d. (₱25M)

Instruction for next ten (10) questions: Choose the letter corresponding to the correct account titles
used in recording each of the transactions described.

11. During the year, you started a sole proprietorship business. You invested ₱10M cash to the business.

a. Accounts receivable Owner’s drawings

b. Cash Owner’s capital
c. Cash Investment expense
d. Owner’s capital Owner’s drawings

12. The business acquires equipment for ₱6M cash.

a. Equipment Owner’s capital
b. Equipment Accounts receivable
c. Owner’s capital Equipment
d. Equipment Cash

13. The business recognizes depreciation of ₱250,000 on the equipment.

a. Prepaid supplies Equipment
b. Depreciation expense Accumulated depreciation
c. Depreciation expense Equipment
d. Equipment Accumulated depreciation

14. The business purchases inventories for ₱2M cash.

a. Inventory Owner’s capital
b. Inventory Sales
c. Inventory Cash
d. Cost of sales Freight out
15. The business makes a ₱3M sale to a customer who orally promises to pay for the purchase price
after 30 days.
a. Accounts receivable Sales
b. Accounts receivable Owner’s capital
c. Cash Sales
d. Cost of sales Accounts receivable

16. The business pays ₱1M rent in advance.

a. Rent expense Rent payable
b. Prepaid rent Accounts payable
c. Prepaid rent Cash
d. Rent expense Owner’s drawings

17. The business spends ₱1M in marketing and promoting the products.
a. Advertising expense Owner’s capital
b. Advertising expense Cash
c. Accounts receivable Equipment
d. Accounts payable Cash

18. The business collects ₱3M accounts receivable from a customer.

a. Cash Accounts receivable
b. Cash Accounts payable
c. Accounts receivable Sales
d. Cash Sales

19. The business purchases inventory costing ₱900K on account or on credit.

a. Cash Accounts payable
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Owner’s capital

20. The business pays accounts payable of ₱900K.

a. Cash Sales
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Cash

21. Which of the following represents an abnormal balance?

a. Accounts receivable, end. ₱10 (Dr.)
b. Inventory, end. ₱10 (Dr.)
c. Accounts payable, end. ₱10 (Dr.)
d. All of these look normal to me.

22. Entity A has the following information:

 1) Accounts receivable, ₱100,000
2) Accounts receivable – Mr. George U. Tang, ₱20,000

Where will you find the accounts described above?

a. Both in the General ledger

b. First one, in the General ledger; second one, in the Subsidiary ledger
c. First one, in the General ledger; second one, nowhere
d. Both on the forehead of the accountant

23. In which of the following cases would you have a present obligation?
a. You intend to enrol in a school but you don’t have money for tuition fee.
b. Your Mama gave you money for tuition fee but you have not yet enrolled.
c. You enrolled in school and were assessed tuition fee. However, because you qualified for a
100% scholarship, your school cancelled your tuition fee, including miscellaneous fees. Your
school even committed on giving you monthly allowance.
d. You enrolled in school and paid in full your tuition fee.

24. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

25. Entity A had a cash balance of ₱310,000 at the beginning of the period. During the period Entity A
had the following transactions:
 Rendered services worth ₱420,000, on account.
 Obtained a ₱500,000 loan.
 Collected ₱270,000 accounts receivable.
 Paid total expenses of ₱680,000.
 Paid half of the loan.

How much is the ending balance of cash?

a. 150,000
b. 90,000
c. 160,000
d. 140,000

26. You recorded a ₱21,000 amount as ₱2,100. You committed an accounting error called
a. Transplacement error.
b. Transposition error.
c. Transformation error.
d. Transgender error.

27. Which of the following would result to income of ₱320,000?

e. Total expenses of ₱280,000 and loss of ₱40,000
 f. Total expenses of ₱360,000 and profit of ₱40,000
g. Total expenses of ₱220,000 and loss of ₱100,000
h. Total expenses of ₱360,000 and loss of ₱40,000

28. Entity A has the following information:

3) Accounts receivable, ₱100,000
4) Accounts receivable – Mr. George U. Tang, ₱20,000

Where will you find the accounts described above?

e. Both in the General ledger

f. First one, in the General ledger; second one, in the Subsidiary ledger
g. First one, in the General ledger; second one, nowhere
h. Both on the forehead of the accountant

29. Aling Nena’s Sari-sari Store’s total sales during the period were ₱100M. Of that amount, ₱60M was
on credit. If the total business expenses were ₱70M, how much is the profit (loss)?
a. 30M c. 10M
b. (30M) d. (10M)
30. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1. Entity A uses a
calendar year period. The principal and interest on the note are due on October 1, 20x2. The adjusting
entry to take up accrued interest income on December 31, 20x1 includes a
a. debit to interest income for ₱6,000.
b. credit to interest income for ₱12,000.
c. credit to interest receivable for ₱12,000.
d. debit to interest receivable for ₱6,000.