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Interworld Colleges Foundation Inc.

Burgos St, Paniqui,Tarlac

COLLEGE OF BUSINESS AND ACCOUNTANCY

NAME: Date:
Professor: Section: Score:

Financial Accounting & Reporting

MIDTERM EXAMINATION

1. This branch of accounting involves teaching accounting, taxation, and other business-related
subjects.
a. Accounting education
b. Government Accounting
c. Accounting research
d. Tax accounting

2. The main purpose of accounting is

a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the industry’s econ

3. This branch of accounting focuses on catering to the information needs of external users.
a. Management accounting
b. Financial accounting
c. Auditing
d. External accounting

4. Recording assets at their acquisition cost (entry value), rather than at their net selling price (exit
value), is in line with the concept of
a. Single entity concept.
b. Historical cost concept.
c. Going concern concept.
d. Matching principle.

5. A business sells goods in Year 1 but collects the sale price only in Year 2. According to the accrual
basis and time period concepts, the business should include the sale in its income statement in
a. Year 1.
b. Year 2.
c. Year 3.
d. Every year

6. The generally accepted accounting principles (GAAP) in the Philippines are represented by the
PFRSs which are issued by the
a. Pinoy Accounting Standards.
b. Kapisanan ng mga Kontador sa Pilipinas.
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c. Financial Reporting Standards Council.

d. Philippine Accounting Standards Board.

7. Under this concept, the business is treated separately from its owners.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

8. A business has total assets, liabilities, and equity of ₱10,000, ₱7,000 and ₱3,000, respectively, at the
beginning of the period. During the period, total liabilities decreased to ₱4,000 while profit was
₱5,000. How much is the ending total assets?
a. 12,000
b. 11,000
c. 9,000
d. 7,000

Use the following information for the next three questions:

Entity A started operations on November 1, 20x1. The following were the transactions during the
month:

Nov. 1, 20x1 The business owner provides ₱2,000,000 cash as investment to the business.
Nov. 5, 20x1 Entity A obtains a ₱500,000 loan and issues a promissory note.
Nov. 8, 20x1 Entity A acquires land costing ₱1,000,000 on cash basis.
Nov. 16, 20x1 Entity A renders services worth ₱1,200,000 on account.
Nov. 30, 20x1 Entity A pays salaries expense of ₱280,000.

9. How much is the total assets at the end of the period? (Hint: use the basic accounting equation)
a. 4,320,000
b. 3,840,000
c. 3,420,000
d. 2,980,000

10. How much is the total liabilities at the end of the period?
a. 500,000
b. 520,000
c. 580,000
d. 680,000

11. How much is the equity at the end of the period after taking into account income and expenses?
a. 2,920,000
b. 2,980,000
c. 3,120,000
d. 3,280,000

12. The beginning equity is ₱5,000. If total income for the period is ₱8,000 while total expenses are
₱6,000, how much is the ending balance of equity?
a. 7,000
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b. 5,000
c. 3,000
d. 1,000

13. The ending equity is ₱9,000. If total income for the period is ₱5,000 while total expenses are ₱8,000,
how much is the beginning balance of equity?
a. 12,000
b. 9,000
c. 6,000
d. 0

14. 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 total expenses of ₱640,000.
No additional investments or withdrawals were made by the owner. Total assets at the end of the
period were ₱830,000. How much is the total liabilities at the end of the period?
a. 280,000
b. 270,000
c. 260,000
d. 240,000

15. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses

16. In accounting parlance, an account that has no balance is called a

a. closed account.
b. dead account.
c. ghost account.
d. blocked account.

17. It is an account used temporarily to store discrepancies in the accounts pending their analysis and
permanent classification.
a. Suspense account
b. Horror account
c. Thriller account
d. Romantic comedy account

18. This account is used to record payments received from customers prior to the delivery of goods or
rendering of services.
a. Accrued income
b. Unearned income
c. Prepaid asset
d. Accounts receivable

19. A chart of accounts is

a. a listing of all accounts and their balances.
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b. a subsidiary ledger.
c. a special journal.
d. a listing of all account titles.

20. The term “posting” as used in accounting means

a. recording an accountable event in debit-credit format.
b. transferring the debits and credits of journal entries from the journal to the affected accounts in
the ledger.
c. checking the equality of the monetary totals of debits and credits of accounts in the ledger.
d. uploading photographs to the internet.

21. Credit is on which side of an account?

a. Right
b. Left
c. Top
d. Bottom

22. A debit may signify an increase in

a. liability account.
b. asset account.
c. revenue account.
d. liability and revenue account.

23. Debit and debit result to

a. addition.
b. deduction.
c. multiplication.
d. two debits.

24. At the beginning of the period, Addy had a cash balance of ₱20,000 and a notes payable of ₱15,000.
During the period, Addy collected ₱11,000 accounts receivable, paid ₱8,000 notes payable, and
issued additional notes payable of ₱5,000 in exchange for cash. How much are the ending balances
of cash and notes payable, respectively?
Cash Notes payable
a. 17,000 20,000
b. 20,000 12,000
c. 28,000 12,000
d. 36,000 20,000

25. At the beginning of the period, Entity A’s notes payable had a balance of ₱1,200. During the period,
Entity A obtained an additional loan of ₱800 and made total payments of ₱500. How much is the
ending balance of Entity A’s notes payable?
a. 1,800
b. 1,500
c. 1,200
d. 900
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26. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning of the period.
The business earns income of ₱220,000 during the period and reports profit of ₱80,000. There were
no transactions with the owner during the period. Total liabilities increased by ₱40,000 by the end
of the period. How much is the total assets at the end of the period?
a. 560,000
b. 440,000
c. 860,000
d. 760,000

Instruction for the next twelve (12) questions: Choose the letter corresponding to the correct journal
entry for each of the transactions described.

27. Owner’s cash investment to the business.

Debit Credit
a. Cash Owner’s capital
b. Cash Owner’s drawings
c. Owner’s capital Cash
d. Cash Sales

28. Acquisition of equipment on cash basis.

Debit Credit
a. Cash Equipment
b. Expense Cash
c. Equipment Cash
d. Equipment Owner’s capital

29. Acquisition of inventory on cash basis

Debit Credit
a. Inventory Accounts payable
b. Expense Cash
c. Inventory Cash
d. Cost of sales Cash

30. Acquisition of inventory on credit.

Debit Credit
a. Inventory Accounts payable
b. Accounts payable Inventory
c. Accounts payable Cash
d. Cost of sales Accounts payable

31. Payment (settlement) of accounts payable

Debit Credit
a. Inventory Accounts payable
b. Cash Accounts payable
c. Accounts payable Cash
d. Cost of sales Inventory

32. Sale of inventory on cash basis

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Debit Credit
a. Inventory Sales
b. Cash Accounts receivable
c. Cash Sales
d. Cost of sales Cash

33. Sale of inventory on credit

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

34. Collection of accounts receivable

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

35. Payment of advertising expense

Debit Credit
a. Advertising expense Cash
b. Cash Advertising expense
c. Cash Advertisement payable
d. Advertising expense Accounts payable

36. Owner’s drawings (owner’s withdrawal of cash from the business)

Debit Credit
a. Drawings expense Cash
b. Cash Owner’s drawings
c. Owner’s drawings Cash
d. Cash Owner’s capital

37. Recognition of depreciation

Debit Credit
a. Depreciation expense Cash
b. Depreciation expense Equipment
c. Depreciation expense Accumulated depreciation
d. Accumulated depreciation Depreciation expense

38. Recognition of bad debts

Debit Credit
a. Bad debts expense Cash
b. Bad debts expense Accounts receivable
c. Bad debts expense Allowance for bad debts
d. Allowance for bad debts Bad debts expense
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39. The amounts shown on this trial balance represent the beginning balances of accounts in the next
accounting period.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Carry-over trial balance

40. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

41. This trial balance contains only real accounts.

a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Permanent trial balance

42. If the ending balance of accounts payable is ₱100,000 and the total debits and credits to that account
during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000

43. In accounting parlance, to “accrue” means to

a. accumulate.
b. postpone.
c. reduce.
d. sneeze.

44. On January 1, 20x1, Johnny Company acquires a building for ₱10M. The building is estimated to
have a useful life of 20 years. How much expense is recognized in 20x1 in relation to the building?
a. 10,000,000
b. 1,000,000
c. 500,000
d. 0

45. In a worksheet, which of the following is prepared after the unadjusted trial balance?
a. Adjusted trial balance columns
b. Income statement columns
c. Adjusting entries columns
d. Balance sheet columns

46. If total debits exceed total credits in the balance sheet columns of a worksheet, there is
a. profit.
b. loss.
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c. owner’s drawings.
d. an error.

47. Adding amounts horizontally in a worksheet is called

a. footing.
b. cross-footing.
c. cross-legging.
d. horizontaling.

48. It is a journal entry that is the exact opposite of a previous adjusting entry.
a. inside-out entry
b. closing entry
c. gnitsujda entry
d. reversing entry

49. The first step in the accounting cycle is

a. posting to the ledger.
b. journalizing.
c. preparing the adjusting entries.
d. analyzing events.

50. How is profit or loss calculated?

a. It is the difference between net assets at the beginning and end of the accounting period
irrespective of transactions with owners.
b. It is the difference between net liabilities at the beginning and end of the accounting period.
c. It is the difference between assets and liabilities.
d. It is the difference between income and expenses.

51. Which of the following statements regarding owner’s capital is not valid?
a. It is increased by investments to the business by the owner.
b. It is increased by income earned by the business.
c. It is increased by distributions to the owners (drawings by owners).
d. It is decreased by expenses incurred by the business.

52. Which of the following is a purpose of preparing an unadjusted trial balance?

a. to facilitate the preparation of the financial statements
b. to provide reasonable assurance that all accountable events are recorded
c. to facilitate the preparation of adjusting entries
d. to provide reasonable assurance that all nominal accounts are zeroed-out

53. Which of the following accounts is increased by a credit?

a. Cash
b. Accounts receivable
c. Accounts payable
d. Owner’s drawings

54. Which of the following accounts is increased by debiting it?

a. Accounts payable
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b. Equipment
c. Sales
d. Accumulated depreciation

55. Entity A has accounts receivable of ₱500,000 and a related allowance for bad debts of ₱120,000.
How much is the carrying amount of the accounts receivable?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

56. The financial statement that shows information on assets, liabilities and equity is the
a. balance statement.
b. income sheet.
c. balance sheet.
d. income statement.

57. This represents the unused portion of rentals that have been paid in advance.
a. Prepaid rent
b. Travel expense
c. Rent expense
d. Cost of sales

58. The balance of accumulated depreciation in Entity A’s unadjusted trial balance is ₱100,000. If the
adjustments columns in the worksheet show a debit adjustment of ₱20,000, how much is the
balance of accumulated depreciation that is extended to the adjusted trial balance columns of the
worksheet?
a. 80,000
b. 100,000
c. 120,000
d. 0

59. When preparing closing entries, which of the following accounts is debited when closing to the
“Income summary” account?
a. Depreciation expense
b. Owner’s drawings
c. Sales
d. Salaries payable

60. If the “Income summary” account has a credit balance after all income and expense accounts are
closed, there is
a. profit.
b. loss.
c. owner’s drawings.
d. an error.

61. Which of the following adjustments can be reversed in the next accounting period?
a. Adjusting entry to take up depreciation expense
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b. Adjusting entry to record bad debts expense

c. Adjusting entry to record accrued interest income
d. All of these

62. Which of the following is not an adjusting entry?

a. An entry to take up bad debts expense at the end of the period.
b. An entry to take up depreciation expense for the period.
c. An entry to recognize interest expense for the period.
d. An entry to record the cash acquisition of equipment.

63. 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. How much
is the interest income to be accrued on December 31, 20x1?
a. 24,000
b. 12,000
c. 6,000
d. 0

64. At the beginning of the period, a business has a cash balance of ₱20,000. During the period, total
cash collections and total cash payments amounted to ₱100,000 and ₱70,000, respectively. How
much is the ending balance of cash?
a. 10,000
b. 30,000
c. 50,000
d. 70,000

65. At the beginning of the period, a business has accounts payable of ₱200,000. During the period, the
total debits and credits to the accounts payable account were ₱100,000 and ₱70,000, respectively.
How much is the ending balance of accounts payable?
a. 230,000
b. 170,000
c. 370,000
d. 30,000

66. At the beginning of the period, the owner’s capital account of a business has a balance of ₱220,000.
During the period, the total debits and credits to that account were ₱60,000 and ₱70,000,
respectively. How much is the ending balance of the owner’s capital account?
a. 230,000
b. 210,000
c. 350,000
d. 90,000

67. If the ending balance of accounts receivable is ₱100,000 and the total debits and credits to that
account during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000
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68. The equipment of ABC Co. has a historical cost of ₱500,000 and an accumulated depreciation of
₱120,000. How much is the carrying amount of the equipment?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

69. The business acquires equipment. The business allocates the equipment’s cost over the equipment’s
useful life, instead of expensing it right away. The portion of the equipment’s cost that is expensed
during the period is recorded as
a. Bad debts expense.
b. Equipment.
c. Allowance for bad debts.
d. Depreciation expense.

70. Revenues earned from rendering services are recorded in this account.
a. Sales
b. Service fees
c. Interest income
d. Gains

71. 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

72. Which of the following would result to total expenses of ₱480,000?

a. Total income of ₱360,000 and profit ₱120,000
b. Total income of ₱580,000 and loss of ₱100,000
c. Total income of ₱630,000 and profit of ₱150,000
d. Total income of ₱630,000 and loss of ₱150,000

73. Which of the following statements is correct?

a. The “Sales” account is used by both service and merchandising businesses in recording
revenues from primary business activities.
b. “Accounts receivable” is used only by service businesses but not by merchandising businesses.
c. The “Inventory” account is most likely to be found in the financial statements of a
merchandising or manufacturing business but not of those of a service business.
d. A manufacturing business cannot be organized as a sole proprietorship.

74. What is the normal balance of the purchase returns account?

a. debit
b. credit
c. zero
d. none of these
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75. Which of the following is equal to total goods available for sale?
a. Net purchases – Inventory, beg.
b. Cost of sales – Inventory, end.
c. Inventory, end. + Cost of sales
d. Net purchases + Inventory, end.

“I press on toward the goal to win the prize for which God has called me heavenward
in Christ Jesus.” (Philippians 3:14)

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