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Fundamentals of Accountancy, Business & Management 1

THIRD GRADING EXAMINATION

1. Expenditures for items that are expected to be used by the business for more than one year are
also called (1 pt)
a. capital expenditures.
b. period costs.
c. accrued expenses.
d. capital.

2. The first step in the accounting cycle is (1 pt)

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

3. Credit is on which side of an account? (1 pt)

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

4. A debit may signify an increase in (1 pt)

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

5. Which of the following accounts is increased by a credit? (1 pt)

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

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

6. During the year, you started a sole proprietorship business. You invested ₱10M cash to the
business. (2 pts)
a. Accounts receivable Owner’s drawings
b. Cash Owner’s capital
c. Cash Investment expense

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 d. Owner’s capital Owner’s drawings

7. The business acquires equipment for ₱6M cash. (2 pts)

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

8. The business recognizes depreciation of ₱250,000 on the equipment. (2 pts)

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

9. The business purchases inventories for ₱2M cash. (2 pts)

a. Inventory Owner’s capital
b. Inventory Sales
c. Inventory Cash
d. Cost of sales Freight out

10. The business makes a ₱3M sale to a customer who orally promises to pay for the purchase price
after 30 days. (2 pts)
a. Accounts receivable Sales
b. Accounts receivable Owner’s capital
c. Cash Sales
d. Cost of sales Accounts receivable

11. The business pays ₱1M rent in advance. (2 pts)

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

12. The business spends ₱1M in marketing and promoting the products. (2 pts)
a. Advertising expense Owner’s capital
b. Advertising expense Cash
c. Accounts receivable Equipment
d. Accounts payable Cash

13. The business collects ₱3M accounts receivable from a customer. (2 pts)
a. Cash Accounts receivable
b. Cash Accounts payable
c. Accounts receivable Sales
d. Cash Sales

14. The business purchases inventory costing ₱900K on account or on credit. (3 pts)
a. Cash Accounts payable
b. Inventory Cash

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 c. Inventory Accounts payable
d. Accounts payable Owner’s capital

15. The business pays accounts payable of ₱900K. (3 pts)

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

16. Obtaining a loan results to (3 pts)

a. an increase in asset but a decrease in liability.
b. a decrease in asset but an increase in liability.
c. increase in both asset and liability.
d. decrease in both asset and liability.

17. Liabilities, owners' equity, and income are (3 pts)

a. decreased by credits and increased by debits.
b. decreased by debits and increased by credits.
c. decreased by both debits and credits
d. it depends on the situation

18. The general ledger account that summarizes the detailed information in a subsidiary ledger is
known as a (3 pts)
a. summary account.
b. controlling account.
c. balance sheet.
d. any of these

19. If total assets is ₱100 while total liabilities is ₱80, owner’s equity must be (3 pts)
a. ₱180
b. ₱120
c. ₱20
d. 0

20. 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 (3 pts)
a. Year 1.
b. Year 2.
c. Year 3.
d. Every year

21. Debit and debit result to (3 pts)

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

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22. Which of the following accounts is increased by debiting it? (3 pts)
a. Accounts payable
b. Equipment
c. Sales
d. Accumulated depreciation

23. 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? (3 pts)
a. 1,800
b. 1,500
c. 1,200
d. 900

24. Which of the following is not a special journal? (3 pts)

a. General Journal
b. Sales Journal
c. Purchase Journal
d. Cash Receipts Journal

25. A business sells goods on cash basis. This transaction is most likely recorded in which of the
following special journals? (3 pts)
a. Sales journal
b. Purchases journal
c. Cash receipts journal
d. Diary journal

26. Which of the following special journal is used when a business purchases inventory on cash
basis? (3 pts)
a. Cash disbursements journal
b. Purchases journal
c. Inventory journal
d. Cash receipts journal

27. The beginning balance of “Cash” is placed on which side of the T-account? (3 pts)
a. Left side
b. Right side
c. Bottom side
d. Every side

28. Imagine you are a business manager. Your company has an opportunity to venture out into a
new market with a new product. However, your current resources are limited. In order to take
the opportunity, you need to discontinue the production of one of your existing products. Your
company’s accountant provided you with the following information to help you decide which
product to discontinue.

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 Product A Product B Product C
Net sales (income) 5,000,000 3,500,000 2,100,000
Attributable costs (expenses) (4,800,000) (2,275,000) (630,000)

Which product will you most likely consider to stop producing? (5 points)
a. Product A
b. Product B
c. Product C
d. All of them

29. 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 (5
points)
a. 0
b. 20,000
c. 80,000
d. 120,000

30. 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? (5 points)
a. 560,000
b. 440,000
c. 860,000
d. 760,000

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.

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

32. How much is the total liabilities at the end of the period? (5 points)
a. 500,000
b. 520,000

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 c. 580,000
d. 680,000
33. How much is the equity at the end of the period after taking into account income and expenses?
(5 points)
a. 2,920,000
b. 2,980,000
c. 3,120,000
d. 3,280,000

34. 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? (5 points)
a. 10,000,000
b. 1,000,000
c. 500,000
d. 0

35. Who invented the calculator? (2 points)

a. Jose Rizal
b. Justin Bieber
c. Taylor Swift
d. Blaise Pascal

“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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