Exercise no.

True/False
Indicate whether the statement is true or false.

_F___ 1. Prepaid expenses are an example of an expense.

_T___ 2. Unearned Revenues account is an example of a liability.

_T___ 3. The Drawings account is an example of an expense.

_F___ 4. Prepaid expenses are considered as current liabilities

_T___ 5. Owner’s drawing decreases the owner’s equity.

_T___ 6. Cash is an asset account

_F___ 7. If the asset is increased by P1,000, without any increase in owner’s capital, then the liability of the business
will correspondingly decrease by P1,000

_F___ 8. A P10,000 furniture bought by the business on cash basis will have a net increase in asset of the business by
P10,000

_F___ 9. Collection of P5,000 accounts receivable will decrease the owner’s capital by P5,000

Multiple Choice
Identify the choice that best completes the statement or answers the question.

_C___ 10. At the beginning of the year, the assets of Solis Services were P360,000 and its owner’s equity was
P200,000. During the year, the assets increased by P120,000 and liabilities increased by P20,000. What was
the owner’s equity at the end of the year?

a. P200,000 b. P320,000 c. P300,000 d. P160,000

_B___ 11. The liabilities of Pagal Company is equal to one-third of the total assets, the owner’s equity is P240,000. What
is the amount of the liabilities?

a. P480,000 b. P120,000 c. P80,000 d. P720,000

_C___ 12. The following information was taken from an income statement: Service income, P28,000; Rent expense,
P4,000; Salaries expense, P10,000 and miscellaneous expense, P2,000. If the owner withdrew P4,000, what
will be the increase or decrease in capital?

a. P12,000 increase b. P4,000 decrease c. P8,000 increase d. P16,000 decrease

_C___ 13. Total assets increased by P20,000 during a period of time and total liabilities increased by P12,000 during the
same period. The amount and direction (increase or decrease) of the period’s change in owner’s equity is

a. P32,000 increase b. P32,000 decrease c. P8,000 increase d. P8,000 decrease

_C__ 14. The following data related to Bingo Enterprises:

Mr. Bingo, Capital, Jan. 1 95,000
 Mr. Bingo, Drawing 30,000
Additional Investments 60,000
Total revenues during the year 270,000
Total expenses during the year 125,000
How much is the owner’s equity at the end of the year?

a. 125,000 b. 395,000 c. 270,000 d. 185,000

_A___ 15.
Capital, End 196,000
Capital, Beg 280,000
Withdrawal 35,000
Additional Investment 192,500
The Net Income or (Loss) is:
a. (241,500) b. 241,500 c. 73,500 d. (73,500)

_A___ 16. The following are taken from the books of MTR Services for the month of August, 2001.
Cash 625,000
Truck 1,000,000
Furniture and Equipment 375,000
Accounts Receivable 200,000
Accounts Payable 270,000
Notes Payable 300,000
MTR Capital 1,500,000
MTR Withdrawal 50,000
Net Income 180,000

The Total Assets is:

a. 2,200,000 b. 625,000 c. 825,000 d. 1,825,000

_A___ 17. The following are taken from the books of MTR Services for the month of August, 2001.
Cash 625,000
Truck 1,000,000
Furniture and Equipment 375,000
Accounts Receivable 200,000
Accounts Payable 270,000
Notes Payable 300,000
MTR Capital 1,500,000
MTR Withdrawal 50,000
Net Income 180,000
The Total Liabilities is:
a. 570,000 b. 270,000 c. 300,000 d. 770,000

_C___ 18. The following information were given to you by Cyan Co.
Assets, Dec 31, 2003 450,000
Liabilities, December 31, 2003 235,000

Assets, December 31, 2004 480,000

Liabilities, December 31, 2004 ?

During 2004;
Additional investments 50,000
 Net income 75,000
Withdrawals 25,000
What is the liabilities as at December 31, 2004?
a. 315,000 b. 215,000 c. 165,000 d. 100,000

_B___ 19. Total liabilities is P825,000, which is 66% of total assets. How much is the equity?
a. 1,250,000 b. 425,000 c. 544,500 d. 280,500

__D_ 20. The liabilities of X Company is one-third of the total assets. The owner’s equity is P240,000. How much is the
liabilities?
a. 720,000 b. 480,000 c. 360,000 d. 120,000

__B__ 21. At the beginning of the year, Sunshine Stations had liabilities of P200,000 and owner’s equity of P192,000. if
assets increased by P80,000 and liabilities decreased by P60,000, what was the owner’s equity at the end of
the year?
a. P212,000 b. P332,000 c. P392,000 d. P272,000

__A__ 22. The company’s assets are P9,000,000 of which 2/3 represents owner’s equity. How much is the total
liabilities?
a. P3,000,000 b. P2,700,000 c. P6,000,000 d. P1,500,000

_A___ 23. The assets of the business at the start of the month is P1,000,000 and the owner’s equity is P800,000.
Equipment worth P500,000 were purchased during the month of which only P150,000 were paid for. At the
end of the month, liabilities will become
a. P550,000 b. P1,150,000 c. P800,000 d. P1,000,000

__D__ 24. On January 1, the assets were P500,000 and the liabilities were P200,000. During the year the assets
increased by P100,000 and the liabilities decreased by P50,000. Owner’s equity on December 31 was:
a. P300,000 b. P350,000 c. P250,000 d. P450,000

_B___ 25. If the business has liabilities of P20,000 and owner’s equity of P50,000 total assets must be:
a. P20,000 b. P70,000 c.  P50,000 d. P30,000

_B___ 26. The initial investment made was P100,000. Net income for the period is P50,000 and the ending balance of
the capital account is P125,000. How much withdrawal was made during the period?
a. P150,000 b. P25,000 c. P125,000 d. P50,000

__A__ 27. A new business has the following transactions: (1) the owner invested cash of P36,000; (2) P26,000 of
supplies were purchased for cash; (3)23,000 was received for payment for services rendered by the business;
(4) a salary of P10,000 was paid to an employee and (5) P30,000 was borrowed from the bank. What is the
correct amount of total assets?
a. P79,000 b. P30,000 c. P49,000 d. P53,000

_A___ 28. The total liability of A at the beginning of the year is P150,000. An equipment was purchased for P90,000, of
which, P80,000 was paid in cash and P10,000 was issued with a promissory note. How much is the new
balance of A’s liability?
a. P160,000 b. P70,000 c. P80,000 d. P150,000

__B__ 29. The total assets of Best Service is P500,000. 20% represents claim of the owner. Its liability therefore is:
a. P100,000 b. P400,000 c. P2,500,000 d. P625,000

__A_ 30. The owner’s capital is P50,000. The creditors have a 60% claim on the total assets. the correct amount of
assets would be:
 a. P83,333 b. P80,000 c. P30,000 d. P125,000

__B__ 31. The owner’s equity of Green Trading is P200,000 which is 25% of total assets. How much is the total
liabilities?
a. 800,000 b. 600,000 c. 50,000 d. 150,000

__D__ 32. A business has cash of P210,000; receivable of P420,000; accounts payable of P290,000 and equipment for
P740,000. How much is the owner’s equity?
a. 1,660,000 b. 630,000 c. 340,000 d. 1,080,000

__D__ 33. At the beginning of the year, the liabilities of Dumbledore Consulting services amounted to P120,000. During
the year, assets increased by P160,000 and at the end of the year, assets amounted to P360,000. Liabilities
decreased by P20,000 during the year.

How much is the owner’s equity at the beginning of the year?

a. 100,000 b. 200,000 c. 180,000 d. 80,000

__A__ 34. On January 1, 2003, Hermione Granger started a service business. The assets at the start of the period is
P1,000,000 and the liabilities is P200,000. Equipment worth P250,000 were purchased during the period of
which only P150,000 were paid for.

How much is the capital of Ms. Granger at the end of the period?
a. 800,000 b. 1,050,000 c. 350,000 d. 900,000

__B__ 35. The following data are related to Gringgots Enterprise: Gringgots Capital Jan. 1 P95,000; Gringgots Drawing
P30,000; Additional InvestmentsP60,000. Total revenues amounted to P162,000. Total revenues exceeds
total expenses by 57,000.

How much is the owner’s equity at the end of the year?

a. 287,000 b. 182,000 c. 68,000 d. 200,000

Problem

36.
a The owner invested cash of P200,000
b Bought equipment for P60,000. Paid a 50% down payment and issued a note for the balance
c Bought office supplies for P15,000 on account
d The owner withdrew cash for P1,500
e Paid one half of the supplies bought in (c )
f The owner invested land worth P60,000 and cash for P20,000

g Bought supplies for P2,000 cash

h Paid the note for the equipment purchased in ( b )
i Rendered professional services for P50,000. Collected P32,000 and the balance is on account

j Paid Rent for P8,000 and Utilities for P3,500.

k Salaries of P12,000 were paid

l Rendered services for P35,000 cash.

 cash accounts supplies land equipment accounts notes Capital changes
rec payable payable in capital
a 200,000 200,000

b (30,000) 60,000 (30,000)

c 15,000 (15,000)

d (1,500)

e (7,500) 7,500

f 20,000 60,000 80,000

g (2,000) 2,000

h (30,000) 30,000

i 32,000 18,000 50,000

j (8,000) (11,500)
(3,500)
k (12,000) (12,00)

l 35,000 35,000

192,500 18,000 17,000 60,000 60,000 7,500 0 280,000 85,000

Owner’s drawing= 1,500

Rent and utilities expense= 11,500
Salary expense= 12,000

Assets= 372,500 Liabilities + Owner’s Equity= 372,500