BCSV

ACCOUNTING 1
The Basic Accounting Equation [Theoretical and Computation]
Accounting Process
 All steps [Theoretical]
 Steps 1 to 4 [Computation]
Correcting errors in the trial balance[Theoretical and Computation]

I. THEORIES.
Choose the letter of the best answer.

1. The basic objective of accounting is

A. To provide the information that the managers of an economic entity need to control its
operations.
B. To provide information that the creditors of an economic entity can use in deciding
whether to make additional loans to the entity.
C. To measure the periodic income of the economic entity.
D. To provide quantitative financial information about an entity that is useful in making
rational economic decisions.

2. What is the law regulating the practice of accountancy in the Philippines?

A. R.A. 9298
B. R.A. 9829
C. R.A. 9928
D. R.A. 9892

3. Financial accounting is concerned with

A. General purpose reports on financial position and financial performance.
B. Specialized reports for inventory management and control.
C. Specialized reports for income tax computation and recognition.
D. General purpose reports on changes in share prices and future estimates of market
position.

4. Financial accounting can be broadly defined as the area of accounting that prepares
A. General purpose financial statements to be used by parties internal to the entity only.
B. Financial statements to be used by investors only.
C. General purpose financial statements to be used by parties both internal and external to
the entity.
D. Financial statements to be used primarily by management.

5. Managerial accounting is the area of accounting that emphasizes

A. Reporting financial information to external users
B. Reporting to the SEC
C. Combining accounting knowledge with an expertise in data processing
D. Developing accounting information for use within an entity

6. General purpose financial statements are the product of

A. Financial accounting

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B. Managerial accounting
C. Both financial and managerial accounting
D. Neither financial nor managerial accounting

7. The communicating process of accounting include all of the following except

A. Recording
B. Classifying
C. Summarizing
D. Interpreting

8. Which of the following statements best describes the term going concern?
A. When current liabilities of an entity exceed current assets
B. The ability of the entity to continue in operation for the foreseeable future
C. The potential to contribute to the flow of cash and cash equivalents to the entity
D. The expenses of an entity exceed its income

9. The financial statements that are prepared for the business are separate and distinct from
the owners according to the
A. Going concern assumption
B. Matching principle
C. Economic entity assumption
D. Accounting period assumption

10. Which underlying assumption serves as the basis for preparing financial statements at
regular artificial points in time?
A. Accounting entity
B. Going concern
C. Accounting period
D. Stable monetary unit

11. The primary users of financial information include

I. Existing and potential investors
II. Existing and potential lenders and other creditors
III. User group such as employees, customers, governments and their agencies, and the
public

A. I only
B. I and II only
C. I and III only
D. I, II, and III

12. The fundamental qualitative characteristics are

A. Relevance and faithful representation
B. Relevance, faithful representation and materiality
C. Relevance and reliability
D. Faithful representation and materiality

13. The elements directly related to the measurement of financial performance are
A. Income and expenses
B. Assets, liabilities, and equity

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C. Assets and liabilities

D. Income, expenses and equity

14. It is the residual interest in the assets of the entity after deducting all of its liabilities
A. Income
B. Expense
C. Profit
D. Equity

15. It is an increase in economic benefit during the accounting period related to an increase in
asset or a decrease in liability that results in increase in equity other than contribution from
owners
A. Asset
B. Liability
C. Income
D. Expense

16. It is the amount of cash or cash equivalent that would have to be paid if the same or an
equivalent asset was acquired currently.
A. Historical cost
B. Current cost
C. Realizable value
D. Present value

17. Which of the following terms best describes the amount of cash or cash equivalents that
could currently be obtained by selling an asset in an orderly disposal?
A. Fair value
B. Realizable value
C. Residual value
D. Value in use

18. If total assets increased P20,000 during a period and total liabilities increased P12,000
during the same period, the amount and direction (increase or decrease) of the change in
owner’s equity for that period is:
A. A P32,000 increase
B. A P32,000 decrease
C. An P8,000 increase
D. An P8,000 decrease

19. A listing of a business entity’s assets, liabilities and owner’s equity as of a specific date is:
A. Statement of financial position
B. Statement of comprehensive income
C. Statement of cash flows
D. Statement of changes in equity

20. If revenue was P45,000, expenses were P37,500, and owner’s drawings were P10,000, the
amount of net income (loss) would be:
A. P45,000 net income
B. P7,500 net income
C. P37,500 net loss

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D. P2,500 net loss

II. Problem Solving.

Supply the answer.

PROBLEM A:
The liabilities of Broodmother Company amounted to P126,000 and the net worth is 60%.

Q1: What is the net worth of Broodmother?

PROBLEM B:
Selected information for Storm Spirit Company for the year 2013 follows:
December 31, 2013 December 31, 2012
Cash 11,200 P51,250
Accounts Receivable –trade P302,450 287,600
Collections from customers
on credit P595,500

Q2: How much was the cash payments during 2013?

Q3: How much revenue on credit was earned during 2013?

PROBLEM C:
Selected information for Necrolyte Company for the year 2013 follows:
December 31, 2012 December 31, 2013
Cash P45,550 P32,400
Cash payments during the year P234,700

Q4: How much was collected from customers during 2013?

PROBLEM D:
Some information that was taken from the books of Earth Spirit Corporation are as follows:

Beginning End
Cash P131,250 204,340
Accounts receivable 93,000 234,500
Service income for the year (all are on credit) P312,000
Kaolin, Capital ? 312,500
Liabilities 42,520 ?

Assuming there were no additional investments nor withdrawal during the year.
Q5: How much was collected from customers during the year?
Q6: What is the total amount of cash disbursements during the year?
Q7: Assuming total assets, beginning and end is P451,200 and P502,300 respectively, How
much is the net income (loss) during the year?
Q8: based on Q7, How much is the net increase / decrease in liabilities during the year?

PROBLEM E:
Below is a trial balance of Butcher Inc as of December 31. it was full of errors:

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Butcher Inc.
Trial Balance
December 31, 2013

Cash 75,350
Accounts Receivables 23,600
Prepaid insurance 3,300
Equipment 86,000
Accounts payable 9,450
Unearned rent 2,570
Pudge, capital 91,615
Pudge, drawing 10,000
Service revenue 64,940
Salaries expense 33,400
Advertising expense 5,200
Miscellaneous expense 1,380
291,765 115,040

When the ledger and other records are reviewed, you discover the following: (a) the debits and
credits in the cash account total P75,350 and P53,975, respectively. (b) a billing of P1,000 to a
customer on account was not posted to the accounts receivable account. (c) a payment of P1,500
made to a creditor on account was not posted to the accounts payable account. (d) the balance of
the unearned rent account is P2,750. (e) the correct balance of the equipment account is P68,000.
(f) some accounts were placed in the wrong side of the trial balance.

Q9: How much is adjusted total assets as of December 31, 2013?

Q10: How much is the net income (loss) for the year ended December 31, 2013?
Q11: What is the adjusted trial balance footing total?

PROBLEM F:
Given is a trial balance of Mortred Corporation as of October 31, 2013:

Mortred Corporation
Trial balance
October 31, 2013
Cash 8,010
Accounts receivable 16,400
Prepaid insurance 2,400
Equipment 52,000
Accounts payable 1,850
Salaries payable 750
Mortred, capital 39,600
Drawing 5,000
Service revenue 78,700
Salaries expense 28,400
Advertising expense 7,200
Miscellaneous expense 1,490
94,150 94,150

Q12: What is the adjusted trial balance total?

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PROBLEM G:
On April 5, Bag Ong Bookas established an interior decorating business, Bag Ong Deko Rasyon.
During the remainder of the month, Bag Ong completed the following transactions related to the
business:

Apr. 5 Bag Ong transferred cash from a personal bank account to an account to be used for the
business, P18,000

6 Paid rent for the period of April 6 to end of month, P2,000 (an expense account was
debited)

7 Purchased office equipment on account, P10,500

8 Purchased a used truck for P18,000, paying P10,000 cash and the balance is on credit.

10 Purchased supplies for cash, P1,315 (an asset account was debited)

12 Received cash for job completed, P7,300

20 Paid annual premiums on property insurance, P1,200 (an asset account was debited)

23 Recorded jobs completed on account and sent invoices to customers, P4,950

24 Received an invoice for truck expenses, to be paid next month, P450

29 Paid utilities expense, P750

Paid miscellaneous expenses, P210

30 Received cash from customers who owe, P2,200

Paid salaries of employees, P3,000

Paid creditor a portion of the amount owed for equipment purchased on April 7, P1,800.

Withdrew cash for personal use, P3,500

Q13: How much is the total assets as of Apr. 30, 2013?

Q14: How much is the profit (loss) for the month ended Apr. 30, 2013?
Q15: How much is the business’ net worth as of Apr. 30, 2013?
Q16: What is the trial balance footing total?

PROBLEM H:
Enigma Co. has the following trial balance as of March 31:

Cash 7,315
Accounts Receivable 5,545

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Supplies 1,010
Prepaid insurance 250
Equipment 25,000
Bank loan 20,000
Accounts payable 4,960
Capital 18,800
Drawing 5,500
Fees earned 54,790
Salaries expense 31,100
Rent expense 7,455
Advertising expense 320
Miscellaneous expense 1,505
85,000 98,550
The debit and credit totals are not equal as a result of the following errors:
a. The balance of cash was understated by P900
b. A cash receipt of P1,750 was posted as a debit to cash of P7,150
c. A debit of P2,500 for a withdrawal by the owner was posted as a credit to capital
d. The balance of P3,200 in advertising expense was entered as P320 in the trial balance
e. A debit of P580 to accounts receivable was not posted.
f. A return of P125 of defective supplies was erroneously posted as a P215 credit to supplies
g. The balance of bank loan was overstated by P5,000
h. An insurance policy acquired at a cost of P150 was posted as a credit to prepaid insurance.
i. Utilities expense, with a balance of P3,150. Was omitted from the trial balance
j. A debit of P1,050 in accounts payable was overlooked when determining the balance of the
account.

Q17: How much is the correct owner’s equity as of March 31?

Q18: How much is the adjusted prepaid insurance account?
Q19: What is the correct trial balance footing total?

PROBLEM I:
The trial balance of Armada Corporation as of November 30 is presented below:

Cash 19,500
Accounts receivable 28,600
Prepaid insurance ?
Office supplies 625
Accounts payable 3,250
Sarah, capital 12,625
Sarah, drawing ?
Fees earned 158,725
Salaries expense 83,075
Rent expense 16,000
Advertising expense 10,500
Miscellaneous expense 4,550

Prepaid insurance is equal to 17.5% of the drawing account balance.

The following business transactions were completed by Armada during December:

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Dec. 1 Purchased office supplies on credit, P1,100

2 Paid rent on office for the month, P1,600 (Expense method is used)

3 Received cash from clients on credit, P24,200

8 Paid annual insurance premiums, P1,925

14 Paid advertising expense, P2,150

23 Paid creditors, 1,650

29 Paid miscellaneous expense, P1,065

31 Paid salaries for the month, P10,850

Recorded revenue earned and billed to clients during the month, P26,200

Purchased land for a future building site for P50,000, paying P10,000 in cash and the
balance is payable on January.

Withdrew cash for personal use, P2,500

Q20: What is the balance of the prepaid insurance as of Nov. 30?

Q21: How much is the total assets as of December 31?
Q22: How much is the net increase / decrease in total liabilities?
Q23: What is the December 31 trial balance total?

PROBLEM J:
Icarus Co. had total assets of P4,000,000 and owner’s equity, which is 67% at the beginning of the
year. During the year, assets decrease to P3,520,000 and liabilities increased by P230,000.

Q24: How much is Icarus’ equity at yearend?

PROBLEM K:
Selected information for Queen of Pain Company for the year follows:
Cash, Jan. 1 P130,000
Accounts Receivable, Jan. 1 190,000
Collections from customers 2,100,000*
Owner’s Equity, Jan. 1 380,000
Total Assets, Jan. 1 750,000
Cash, Dec. 31 160,000
Total Assets, Dec. 31 880,000
Accounts Receivable, Dec.31 360,000
Total Liabilities, Dec. 31 390,000

*included in the 2,100,000 is a P340,000 cash income from customers.

There were no additional investments or withdrawal by the owner during the year.
Q25: What is the Net profit for the current year?

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Q26: What is the amount of expenses incurred for the current year?

PROBLEM L:
*Various Account*
14,000 300
8,560 1,560

20,700

Given above is a ledger balance of an account of Aqua Vera Corporation. Upon the examination of
the auditor, he observed that the cost of P300 should be a debit to that account, the amount of
P1,560 should be recorded at a correct amount of P1,650, and the debit of P85,600 was erroneously
recorded as a debit in the amount of P8,560.

Q27: How much is the net adjustment to the account? (state if debit or credit)
Q28: What is the correct balance of the account?

~o0o~

“Trust yourself. You know more than you think you do.”

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*Suggested Key*

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I. THEORIES II. PROBLEM SOLVING

1. D 1. P189,000
2. A 2. P635,550
3. A 3. P610,350
4. C 4. P221,550
5. D 5. P170,500
6. A 6. P97,410
7. D 7. (P96,180)
8. B 8. P147,280 increase
9. C 9. P117,275
10. C 10. P24,960
11. B 11. P167,255
12. A 12. P120,900
13. A 13. P37,490
14. D 14. P5,840
15. C 15. P20,340
16. B 16. 47,400
17. B 17. P16,680
18. C 18. P550
19. A 19. P90,000
20. B 20. P1,750
21. P97,960
22. P39,450
23. P240,250
24. P1,970,000
25. P110,000
26. P2,160,000
27. P77,550 debit
28. P98,250

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