Name: Charity B.

Velez, BSA1-A

TERM PAPER FOR BASIC ACCOUNTING AND PARTNERSHIP AND CORPORATION ACCOUNTING
(Please refer to the qualifying examination for your reference)

Q: On a worksheet, the income statement debit column equal ₱90,800, and the income statement
credit column equals ₱105,600. From this data, it can be determined that the company had a
a) Net loss of ₱14,800 added to the income statement debit column
b) Net income of ₱14,800 added to the income statement debit column
c) Net loss of ₱14,800 added to the balance sheet credit column
d) Net income of ₱14,800 added to the balance sheet credit column
Answer: Net income of ₱14,800 added to the balance sheet credit column

Explanation: The reason why it is place on the credited side, not on the debit column of the balance
sheet, is because the company resulted to an income. The debit column on the balance sheet shows all
assets and personal withdrawals of owners, whereas on the credit column shows the liabilities and
capital of the business. Therefore, the amount of the debit column should be higher than that of the
credit, otherwise, be concluded as a loss. As for the income statement on a worksheet, the difference on
the debit column to the credit column,which represent as income, should be put on the debit column of
the income statement in order to balance it to the credit side. What is shown on the debit side of the
income statements were all expenses incurred and the credit side is the revenue earned. Therefore,
expenses must not in excess of the revenue to get profit. In contrast, if the company resulted to a loss at
the end of period, the difference is now be place on the debit column of the balance sheet.

Q: If the effect of the credit portion of an adjusting entry is to increase the balance of a liability
account, which of the following describes the effect of the debit portion of the entry? *
a) Increases the balance of a contra asset account
b) Increases the balance of an asset account
c) Decreases the balance of a capital account
d) Increases the balance of an expense account
Answer: Increases the balance of an expense account

Explanation: If we try to analyze the statement, we apply the basic rules of debit and credit in
identifying what accounting values are affected on the transactions. We have the basic adjusting entries
usually made at the end of the period. If an adjusting entry is to increase the liability account, the
accounting value affected was the expense account which is to be debited to increase its amount. Such
case happens because of the expenses already incurred or consumed by the company that still unpaid
because is not yet due. Example of this is utilities expense. Looking at the given alternatives, it can't be
possible that we debit the balance of a contra asset account to increase since, it has its normal credit
balance, thus, it should be credited. And if we go to the other choices, we only debit the capital account
if there is a personal use of the assets made by the owner, and the liability account is not appropriate to
close in such matter. So do with the last option, when we increase the balance of an asset account, the
appropriate account title to be close is the Income Account, thereby, the effect of that in an accrued
revenue increases both the asset and the revenue accounts.

Q: It means that the ownership of the goods purchased is vested in the buyer upon receipt thereof *
a) Freight collect
b) Freight prepaid
c) FOB shipping point
d) FOB destination
Answer: FOB destination

Explanation: It is still a receipt, thus, the parcel is not yet shipped to the destination. Meaning, there is
no shipment of goods happen between the buyer and the seller and the ownership remains at the
supplier. So the goods are still in the possession of the seller of the items, thereby, he/she who bear the
shipment fee.. The buyer is still not the owner of his purchases untill it reaches to his location. Unlike
FOB shipping point where, ownership is transfered to the buyer once the good leaves the supplier's
cargo.

Q: The debit side of an account *

a) Depends on whether the account is an asset, liability or owner’s equity.
b) Can be either side of the account depending on how the accountant set up the system.
c) Is the right side of the account.
d) Is the left side of the account
Answer: Depends on whether the account is an asset, liability or owner’s equity.

Explanation: It depends what accounting elements are affected. It can't be either in the right side and
left side of an account, as it is the judgement of an accountants on how they will set up the system. It
should follow the rules of debit and credit as to what elements that have a normal debit and credit
balance, appropriate to be debited to increase or credited to decrease, vise versa.

Q: Statement 1. Under accrual accounting, the enterprise profit is the difference of cash receipts and
cash disbursements. Statement 2. Under accrual accounting, the enterprise’s income will include
income earned from uncollectible sales. *
a)Only statement 1 is correct
b)Only statement 2 is correct
c)Both statements are correct
d)Both statements are not correct
Answer: Both statements are not correct

Explanation: Uncollectible sales are not part of the accruals. It belong to uncollectible accounts
classification of adjusting entries. Under accrual accounting, only those transactions related to the
normal course of business either classify as revenue that is not yet collected but was already earned and
recording expenses incurred but were not yet paid in cash. Whenever there are collection from
uncollectible sales, the amount is adjusted base on the allowances set up in conformity with the
prudence convention that the business should anticipate losses in order not to overstate assets reported
in the balance sheet. Talking about cash receipts and disbursement, it is the treatment use in the
preparation for Cash Flows and does not necessary connote the determination of enterprise profit
because it only shows the movement of money in which, it is group according to its classes of activities
throughout the period. Profit is computed by computing the total revenue minus the expenses.

Q: The owner’s capital is ₱100,000. The creditors have a 60% claim on the total assets. The correct
amount of assets would be *
a)₱166,667
b)₱160,000
c)₱60,000
d)₱250,000
Answer: 250,000

Explanation: On the statement provided, the only given amount was the Owner's capital amounted to
P100,000. We are asked for the total amount of assets on the problem.If 60 percent was the claim of the
outside creditors, 40% of which must be the percentage of the assets came from the capital of 100,000.
Basic computation to find for total assets, is to divide the 100,000 capital by 40%. We get 250,000 total
assets. To check for correctness of our answer, we multiply 250,000 by 60%, since it was stated there
that, 60% of the assets is the claim of creditors, we get 150,000. Then, using the basic equation, A=L+E,
we got the same amount of capital that was given on the statement, 100,000 (150,000 — 250,000).

Q: The term “person” in the definition of the partnership provide in Article 1767 of the New Civil Code
refers to: *
a)Juridical person only
b)Natural person only
c)Both juridical and natural persons
d)Neither juridical nor natural person
Answer: Both juridical and natural persons

Explanation: Partnership is treated as juridical person because it exist under the operation of Law.
Meaning, the partnership can legally transact its partnership business and act like a natural person
separate and distinct from those who composing it, only from the date of approval by the Commission
authority and has complied with all requirements necessary to conduct business. As it define as natural
person, because whatever personal acts made by partners, it does not make the partnership bind such
acts. Further, Partnership is vested with legal rights to sue using its name and be sued by its creditors to
settle in case there are unpaid debts.

Q: How much percentage of paid up authorized share capital is required by law to approve the
incorporation of business organization? *
a)6.25% of total authorized share capital
b)25% of total authorized share capital
c)25% of total subscriptions receivable
d)50% of total subscribed share capital
Answer: 6.25% of total authorized share capital

Explanation: As provided by the law, it must be 25% of the required authorized capital stock is
subscribed. If an investors subscribed a 25% of the authorized share capital, then 6.25% (.25×.25) of
which should have been paid as required by the law.

Q: Peppa Pig issued 1,000 of its ordinary shares with ₱10 par for an equipment with book value of
₱11,000 and market value of ₱12,000. Peppa Pig’s common stock was selling at ₱15/share at the date
of issuance. The amount to be credited to share premium should be *
a)₱1,000
b)₱2,000
c)₱5,000
d)₱ 0
Answer: ₱1,000

Explanation: The total issued share capital was P11,00 for an equipment and the authorized capital stock
was 10,000. An excess of 1,000 from the stock issued by Peppa Pig must be credited as share premium.
Computation in getting authorized capital stock is, we multiply the given ordinary share, which is P1,000
and multiplied it to par value of 10, so we have an amount of 10,000 capital stock.

Q: X and Y agreed to form a partnership. X is to contribute cash of P135,0000 and Y is to contribute his
equipment with book value of P200,000. It was agreed that the contribution of Y shall be recorded at
an amount equal to 55% claim in the partnership. The total assets of the partnership upon formation
is *
a)₱335,000
b)₱300,000
c)₱245,000
d)₱135,000
Answer: ₱300,000

Explanation: Let us get to know first the value of equipment contributed by Y to compute for the total
assets of partnership. It was stated there, that Y's contribution would be 55 percent of his claim in the
partnership. The cash contributed by X was P135,000, we multiplied it by 55%, we get the total
capitalization of 74,250. If 55% of which is the claim of Y, then the 45% might be for X's claim in
partnership. So we divide the 74,250 by 45%, we get 165,00 agreed value of equipment contributed by
Y. To compute for total asset, just simply add the contribution of X and Y (P135,000 + 165,000 =
300,000), respectively.

Q: What is the accounting treatment for the excess of issue price over par value of shares issued? *
a)Debited to share premium
b)Credited to accumulated profits
c)Credited to extraordinary gain
d)Credited to share premium
Answer: Credited to share premium
Explanation: In case there is an excess of payment of par value issued by the investors over the stated
par value per share of the authorized shares of stock, is to be credited to the 'share premium' account.
The reason behind is, the capital stock account should credited only to the extent of the par value
amount even when the stocks subscribed to are below par or above par. That is why, when subscribers
of stocks issued share more than par, it is closed to share premium.

Q: Statement 1: When the total contributed capital of the partnership is ₱3,000 or more, the
agreement of the partners must be put in writing. Statement 2: Failure to register the partnership
contract with the SEC when the total contributed capital is ₱3,000 or more voids the formation of the
partnership.
a) Only the first statement is correct.
b) Only the second statement is correct.
c) Both statements are correct
d) Neither statement is correct
A: Only the first statement is correct.

Explanation: On the first statement, it is true that, when what is contributed to a common fund is P3,00
or more, it must be put into writing or in form of public instrument for validity of contract of partnership
to affect 3rd persons. However, in general, there is no required form in order that the contract of
partnership becomes valid. An exception to that, is when it is amounted to P3,000 or more contribution
was made. Provided also that, failure to register it to the Commission does not prevent the formation of
the partnership neither affect the liability of partners to 3rd persons. Thus, the former don't have legal
rights to file an action against the latter through in its partnership name.