Analyzing Business Transactions

Question 1 Question 7
It is the process of keeping a record of all business The owner of an entity invests cash on the business.
transactions. What would be the effects of this transaction on the
Response: Journalizing components of the basic accounting equation?

Feedback: Correct! It is the process of keeping a Response: Increase assets and increase owner’s
record of all business transactions, tracking them equity
in chronological order, and generally includes the Feedback: Correct! When services are performed on
date, the account, and a brief description of the account, assets are increased and owner’s equity is
transactions that occurred. increased.
Question 2 Question 8
Performing services for cash will have the following Which of the following is NOT a step in the
effects on the components of the basic accounting accounting process?
equation:
Response: Revision
Response: Increase assets and decrease owner’s
equity Feedback: Correct! It is not one of the steps in the
accounting process.
Feedback: Incorrect: Owner’s equity is increased,
not decreased. Question 9
Question 3 It refers to the earnings for work done or goods
delivered to the company, regardless of when cash
In 2020, BK Company’s assets decreased by is received.
P30,000, and its liabilities decreased by P30,000.
Its owner’s equity therefore is: Response: Drawing
Response: Unchanged Feedback: Incorrect: This represents the
distribution to the owners as return of its
Feedback: Correct! Owner’s equity does not change investments or distribution of share in earnings.
because only assets and liabilities decreased by
P50,000. Question 10
Question 4 Which account increases equity?
Which account is considered temporary? Response: Revenues
Response: Withdrawal Feedback: Correct! Equity is increased by credits
from revenues.
Feedback: Correct! It is a temporary account that is
closed or reduced to zero at the end of the
accounting period.

Question 5
What type of accounts are interest receivable and
fees receivable?
Response: Asset
Feedback: Correct! Receivables are asset accounts.
Assets appear on the left side of the accounting
equation and normally have debit balances.

Question 6
This includes money such as bank balance, paper
currency, coins, and checks.
Response: Cash
Feedback: Correct! Cash includes money such as
bank balance, paper currency, coins, and checks.
 The Adjusting Process/ Completion of the Accounting
Process
Question 1
What are the effects of an adjustment for prepaid
expenses?
Response: Decrease assets and increase expenses
Feedback: Correct! Adjustments for prepaid
expenses decrease assets and increase expenses.
Question 2
The trial balance shows Supplies P1,350 and
Supplies Expense P0. If P600 of supplies is on hand
at the end of the period, the adjusting entry is:
Response: Dr. Supplies Expense P750; Cr. Supplies
P750
Feedback: Correct! Debiting Supplies Expense for
P750 and crediting Supplies for P750 (P1,350 –
P600) will decrease Supplies and increase Supplies
Expense.
Question 3
It is a document accompanying the numerical data
listed in the financial statements.
Response: Notes to the financial statements
Feedback: Correct! This is a document
accompanying the numerical data listed in the
financial statements. It helps the auditor to clarify
accounting procedures and explains irregularities
and inconsistencies seen in the records.
Question 4
The following are the major types (or categories) of
adjusting entries, EXCEPT:
Response: Recognized revenues
Feedback: Correct! Unearned revenues, not
recognized revenues, is one of the major categories
of adjusting entries.
Question 5
What are the effects of an adjustment for unearned
revenues?
Response: Decrease liabilities and increase
revenues
Feedback: Correct! Adjustments for unearned
revenues will consist of a debit (decrease) to
unearned revenues (liability) and a credit (increase)
to a revenue account.
Question 6
The trial balance shows Supplies P0 and Supplies
Expense P150. If P80 of supplies is on hand at the
end of the period, the adjusting entry is:
Response: Dr. Supplies Expense P80; Supplies P80
Feedback: Incorrect: This will cause the Supplies
account to have a credit balance (assets have a
normal debit balance) and the Supplies expense
account to be stated at P230, which is too high.
Question 7
It reports the results of the business operations and
shows the revenues and expenses of a particular
period.
Response: Income statement
Feedback: Correct! This reports the results of the
business operations and shows the revenues and
expenses of a particular period. It contains sections
for revenue and expenses, which include net sales,
gross profit, cost of goods sold, selling expenses,
general and administrative expenses, and net profit.
Question 8
Fabu Company shows the following assets in its
statement of financial position: Prepaid Rent -
P5,000; Unearned Revenue - P350,000; Inventory -
P200,000; Building - P2,000,000; Cash Equivalents
- P112,000. What is the total current asset of the
company?
Response: P317,000
Feedback: Correct! Current assets = Prepaid rent
P5,000 + Inventory P200,000 + Cash Equivalents
P112,000 = P317,000
Question 9
The trial balance shows a debit balance on Supplies
and Supplies Expense accounts of P0 and P15,000,
respectively. If P8,000 of supplies are on hand at
the end of the period, what is the adjusting entry?
Response: Dr. Supplies P7,000; Cr. Supplies
Expense P7,000
Feedback: Incorrect: This will result in a P7,000
balance in the Supplies account (P1,000 too low)
and an P8,000 balance in the Supplies Expense
account (P1,000 too high).
Question 10
What are the adjustments for accrued revenues?
Response: These have an assets-and-revenues-
account relationship.
Feedback: Correct! Adjustments for accrued
revenues will have an assets-and-revenues-account
relationship.
 Accounting for Merchandising Business
Question 1
If net sales are P400,000, cost of goods sold is
P310,000, and operating expenses are P60,000, the
gross profit is:
Feedback: Correct! Gross profit = Net sales
(P400,000) – Cost of goods sold (P310,000) =
P90,000
Correct answer: P90,000
Question 2
Gross profit will result if:
Feedback: Correct! Gross profit will result if net
sales are greater than cost of goods sold.
Correct answer: Net sales are greater than cost of
goods sold
Question 3
The sales accounts that normally have a debit
balance are:
Feedback: Correct! Both Sales Discounts and Sales
Returns and Allowances normally have a debit
balance.
Correct answer: Both a and b
Question 4
Under a perpetual inventory system, when goods
are purchased for resale by a company:
Feedback: Correct! Under a perpetual inventory
system, when a company purchases goods for
resale, purchases on account are debited to the
Inventory account.
Correct answer: Purchases on account are debited
to Inventory
Question 5
When is a physical inventory usually taken?
Feedback: Correct! Physical inventory is usually
taken when a limited number of goods is being sold
or received, and at the end of the company’s fiscal
year.
Correct answer: Both b and c
Question 6
If beginning inventory is P60,000, cost of goods
purchased is P380,000, and ending inventory is
P50,000, cost of goods sold is:
Feedback: Correct! Beginning inventory (P60,000) +
Cost of goods purchased (P380,000) – Ending
inventory (P50,000) = Cost of goods sold (P390,000)
Correct answer: P390,000
Question 7
Cost of goods available for sale consists of two (2)
elements: beginning inventory and:
Feedback: Correct! Cost of goods available for sale
consists of beginning inventory and cost of goods
purchased.
Correct answer: Cost of goods purchased
Question 8
In determining the cost of goods sold in a periodic
system:
Feedback: Correct! In determining cost of goods
sold in a periodic system, freight-in is added to net
purchases.
Correct answer: Freight-in is added to net
purchases.
Question 9
Which of the following should NOT be included in
the physical inventory of a company?
Feedback: Incorrect: Goods held on consignment
from another company should not be included in
the ending inventory.
Correct answer: Goods held on consignment from
another company
Question 10
Which of the following accounts will normally
appear in the ledger of a merchandising company
that uses a perpetual inventory system?
Feedback: Incorrect: This account normally appears
on a periodic inventory system.
Correct answer: Cost of Goods Sold
 Partnership
Question 1
Capital balances in the MURF partnership are
Molly, Capital P50,000; Ursula, Capital P40,000;
Ray, Capital P30,000; and Fred, Capital P20,000,
and income ratios are 4:3:2:1, respectively. Fred
withdraws from the firm following a payment of
P29,000 in cash from the partnership. Ursula’s
capital balance after recording Fred’s withdrawal is:
Response: P37,000
Feedback: Correct! The total bonus to Fred from the
partnership is P9,000 (P29,000 − P20,000).
Because Fred has withdrawn, the income ratio
must be restated as 4:3:2. Ursula’s share of the
bonus paid to Fred is P3,000 {P9,000 × [3/(4 + 3 +
2)]}. Because the bonus is being paid to Fred,
Ursula’s capital account must be reduced by her
share of the bonus. After Fred’s withdrawal,
Ursula’s capital account will have a balance of
P37,000 (P40,000 − P3,000).
Question 2
NBC Company reported net income of P60,000. If
partners N, B, and C have an income ratio of 50%,
30%, and 20%, respectively, C’s share of the net
income is:
Response: P12,000
Feedback: Correct! C’s income is computed by
multiplying the partnership income (P60,000) by
partner C’s income ratio (20%) = P12,000.
Question 3
Upon the formation of a partnership, each
partner’s initial investment of assets should be
recorded at their:
Response: Fair values
Feedback: Correct! Each partner’s initial
investment of assets should be recorded at their fair
values. Fair values are a reference to the estimated
worth of a company's assets and liabilities that are
listed on a company's financial statement.
Question 4
Which of the following statements about
partnership financial statements is CORRECT?
Response: The owners’ equity statement is called
the partners’ capital statement.
Feedback: Correct! The owners’ equity statement of
a partnership is called the partners’ capital
statement.
Question 5
In the liquidation of a partnership, it is necessary to
(1) distribute cash to the partners, (2) sell noncash
assets, (3) allocate any gain or loss on realization to
the partners, and (4) pay liabilities. These steps
should be performed in the following order:
Response: 2, 3, 1, 4
Feedback: Incorrect: This is not the correct order.
Question 6
Capital balances in the MEM partnership are Mary,
Capital P60,000; Ellen, Capital P50,000; and Mills,
Capital P40,000, and income ratios are 5:3:2,
respectively. A partnership, MEMO, was formed by
admitting Oleg to the firm with a cash investment of
P60,000 for a 25% capital interest. The bonus to be
credited to Mills, Capital in admitting Oleg is:
Response: P1,500
Feedback: Correct! Total partnership capital after
the investment by Oleg is P210,000 (P60,000 +
P50,000 + P40,000 + P60,000). Oleg’s share of
partnership capital is P52,500 (P210,000 × 25%).
The total bonus to the old partners related to Oleg’s
admission is P7,500 [P60,000 (Oleg’s investment) −
P52,500 (Oleg’s share of partnership capital)]. Mills’
share of the total bonus is equal to the total bonus
(P7,500) times Mills’ income ratio (20%) or P1,500.
Question 7
It is a company whereby the owners are not
personally liable for the company’s debt or liabilities.
Response: Limited liability company
Feedback: Correct! It is a company whereby the
owners are not personally liable for the company’s
debt or liabilities.
Question 8
Which of the following is NOT a characteristic of a
partnership?
Response: Taxable entity
Feedback: Correct! A partnership is not a taxable
entity; the partnership income is taxed on the
individual tax returns of the partners.
Question 9
It is an agreement signed by two (2) or more
partners in a partnership.
Response: Articles of co-partnership
Feedback: Correct: Articles of co-partnership is an
agreement signed by two (2) or more partners in a
partnership.
Question 10
Ben and Sam formed a partnership. Ben
contributed P80,000 and used a truck that
originally cost P350,000 and had accumulated
depreciation of P150,000. The truck’s fair value was
P160,000. Sam, a builder, contributed a new
storage garage. His cost of construction was
P400,000. The garage has a fair value of P550,000.
What is the combined total capital that would be
recorded on the partnership books of the partners?
Response: P790,000
Feedback: Correct! When a partnership is formed,
assets invested by the partners are recorded at
their fair values. Thus, the combined total capital is
P80,000 (cash) + P160,000 (fair value of truck) +
P550,000 (fair value of the new storage garage) =
P790,000.
 Corporation
Question 1
These represent the portion that is free and can be
declared as dividends to shareholders.
Response: Unappropriated retained earnings
Feedback: Correct! These represent the portion that
is free and can be declared as dividends to
shareholders.
Question 2
Lucroy Corporation issued 100 shares of P10 par
value preferred stock at P12 per share. In recording
the transaction, credits are made to:
Response: Preferred Stock P1,000 and Paid-in
Capital in Excess of Par—Preferred Stock P200
Feedback: Correct! Preferred Stock should be
credited for P1,000 and Paid-In Capital in Excess of
Par—Preferred Stock should be credited for P200.
Question 3
Nonstock dividends shall be recognized as liabilities
on the:
Response: Date of declaration
Feedback: Correct! Nonstock dividends shall be
recognized as liabilities on the date of declaration.
Question 4
It is the issuance of shares by an entity to the
shareholders without consideration and under
conditions indicating that such action is prompted
mainly by a desire to increase the number of shares
outstanding to effect a reduction in unit market
price.
Response: Share split
Feedback: Correct! Under share split, the company
divides its existing shares into multiple shares to
boost the liquidity of the shares.
Question 5
These can either be a certain amount of pesos per
share or a certain percent of par or stated
value paid to stockholders.
Response: Cash dividends
Feedback: Correct! These are funds or money paid
to stockholders generally as part of the
corporation's current earnings or accumulated
profits.
Question 6
The total cost of treasury shares shall be reported
as:
Response: Deduction from shareholders’ equity
Feedback: Correct! The total cost of treasury shares
shall be reported as a deduction from shareholders’
equity.
Question 7
The Retained Earnings account is:
Response: A subdivision of paid-in capital
Feedback: Incorrect: It is earned capital, not paid-in
capital.
Question 8
A-Team Corporation issued 1,000 shares of P5 par
value stock for land. The stock is actively traded at
P9 per share. The land was advertised for sale at
P10,500. The land should be recorded at:
Response: P9,000
Feedback: Correct! Cost is either the fair value of
the consideration given up or the fair value of the
consideration received, whichever is more clearly
determinable. The most clearly determinable value
in this noncash transaction is the fair value of the
consideration given up of P9,000 (P9 per share x
1,000).
Question 9
Total stockholders’ equity (in the absence of
treasury stock) equals:
Response: Capital stock + Additional paid-in capital
− Retained earnings
Feedback: Incorrect: Retained earnings are
generally not subtracted in arriving at total
stockholders’ equity.
Question 10
In the stockholders’ equity section, the cost of
treasury stock is deducted from:
Response: Total paid-in capital and retained
earnings
Feedback: Correct! The cost of treasury stock is
deducted from total paid-in capital and retained
earnings.