EXERCISE 1-2

Multiple Choice

1. This is the primary goal of business:

a) Profit
b) Increase in the selling price of its products or services.
c) Make a name in the community
d) None of these.

2. This is the simplest form of business and it involves the provision of

services to clients or customers in exchange for a fee.
a) Sole proprietorship
b) Service business
c) Merchandising concern
d) Manufacturing business

3. The following are examples of companies engaged primarily in the

merchandising business, except:
a) Inigo General Merchandising
b) Magic Book Retailers, Inc.
c) Magic Book Retailers, Inc.
d) Triple I Watch Repair

4. As a minimum, how many individuals are required to form a corporation? a

partnership?
a) Corporation = Five; Partnership = Five
b) Corporation = Two; Partnership = Two
c) Corporation = One; Partnership = Two
d) Corporation = Two; Partnership = Five

5. The purpose of accounting is to provide primarily:

a) Quantitative and qualitative information
b) Quantitative information only
c) Qualitative information only
d) No choice applicable
6. Presented below are the advantages of a partnership over a sole
proprietorship. Select the exception:
a) Better decision-making
b) Personal involvement in the business
c) Larger capacity to raise capital
d) None of these

7. This is the most dominant legal form of business organization in the

Philippines today:
a) Service business
b) Sole proprietorship
c) Partnership
d) Corporation

8. Statement 1: A sole proprietorship may have several employees.

Statement 2: A manufacturing business can be organized by a sole proprietor.
Which statement is correct?
a) Only Statement 1 is correct
b) Only Statement 2 is correct
c) Statements 1 and 2 are correct
d) Statements 1 and 2 are not correct

9. This means that the shareholders are liable only up to the extent of their
investment in the business:
a) Personal involvement
b) Limited liability
c) Continuance of operations
d) Limited powers.

10. The following are similarities between a corporation and a partnership.

Select the exception:
a) A juridical personality separate and distinct from the owners.
b) Can be organized only where there is a law sanctioning its formation.
c) Requires registration with the SEC.
d) Governed primarily by the Civil Code of the Philippines
11. On a periodic basis, the accountant is required by owners to prepare reports
containing financial information on the status and performance of the
business. Information is obtained from the accounting records and the
reports, known as
a) Annual reports
b) Financial information
c) Financial statements
d) Financial plans.

12. Who is primarily responsible for the financial statements?

a) The accountant
b) The company’s auditor
c) The Philippine SEC
d) Company’s management

13. This is the branch of accounting that is concerned primarily with the
preparation of general-purpose financial statements:
a) Financial accounting
b) Managerial accounting
c) Government accounting
d) Tax accounting

14. This is the branch of accounting that is concerned primarily with the
provision of information for internal users:
a) Financial accounting
b) Managerial accounting
c) Government accounting
d) Tax accounting

15. This is the traditional service rendered by CPAs in public practice:

a) Audits
b) Reviews
c) Agreed-upon procedures
d) Compilation
16. Tax services include:
a) Tax planning
b) Tax compliance
c) Letter a only
d) Both a and b

17. This involves providing services to clients on matters of accounting, finance,

business policies, organization procedures, budgeting, product costing and
the conduct of operations.
a) Assurance services
b) Management consulting
c) Audit services
d) Tax services

18. The following statements relate to the scope of practice of accountancy.

Which one constitutes practice in commerce and industry?
a) A person who holds, or is appointed to a position in an accounting
professional group in government or in a government-owned and/or
controlled corporation, where decision-making requires professional
knowledge in the science of accounting
b) A person involved in decision-making requiring professional knowledge
in the science of accounting, as well as the accounting aspects of
finance and taxation, or is employed in a position that requires a CPA
c) A person who is in an educational institution which involves teaching of
accounting, auditing, management advisory services, accounting aspect
of finance, business law, taxation, and other technically-related subjects.
d) A person who holds out himself or herself as one skilled in the
knowledge, science and practice of accounting, and as someone
qualified to render professional services as a CPA
19. This is the body authorized by law to promulgate rules and regulations
affecting the practice of accountancy in the Philippines.
a) Professional Regulations Commission (PRC)
b) Securities and Exchange Commission (SEC)
c) Board Of Accountancy (BOA)
d) Association of CPAs in Public Practice

20. Bookkeeping is:

a) Less broad in scope than accounting
b) Broader in scope than accounting
c) The same as accounting
d) Not related to accounting

21. This refers to those persons who hold a valid certificate issued by the Board
of Accountancy (i.e., Certified Public Accountants), whether they be in
public practice, (including a sole proprietorship or partnership), industry,
commerce, the public sector, or education.
a) Professional accountant
b) Professional accountant in public practice
c) Senior accounting practitioner
d) Audit associate

22. An entity for which there are users who rely on the financial statements as
their major source of financial information about the entity.
a) Sole proprietorship
b) Corporation
c) Reporting entity
d) Partnership[

23. The reports that portray the financial effects of transactions and other
events by grouping them into broad classes according to their economic
characteristics
a) Statement of financial position
b) Statement of comprehensive income
c) Financial statements
d) Financial budgets

24. The framework is concerned with the special purpose financial statements
a) This statement is true.
 b) This statement is false.
c) This statement is sometimes true but most of the time false.
d) This statement is sometimes false but most of the time true.

25. The financial statement with a structure that is similar to the accounting
equation
a) Statement of comprehensive income
b) Statement of financial position
c) Statement of cash flows
d) Statement of changes in owner’s equity

26. The personal assets of the owner of a company will not appear on the
company’s statement of financial position because of which principle?
a) Cost
b) Entity
c) Monetary unit
d) Conservatism

27. Which concept requires a company’s statement of financial position to

report its land at the amount the company paid to acquire the land, even if
the land could be sold today at a significantly higher amount?
a) Entity
b) Monetary unit
c) Cost
d) Matching

28. Under this basis, the effects of transactions and other events are
recognized when they occur (and not as cash or its equivalent is received or
paid) and they are recorded in the accounting records and reported in the
financial statements of the periods to which they relate.
a) Going concern
b) Accrual basis
c) Both a and b
d) Neither a and b

29. Archie, proprietor, maintains two bank accounts: one in his personal name,
and the other in the name of his business, the Archie Laundry Shop. Which
of the following concepts would be violated if JM includes both accounts as
part of the assets of the company?
 a) Accrual
b) Entity
c) Going concern
d) No violation

30. An enterprise is assumed to be a going concern and will continue in

operation for the foreseeable future. For accounting purposes, the life on
the enterprise is divided into shorter periods of equal length. How long is the
traditional accounting period?
a) 30 days
b) 60 days
c) 180 days
d) 12 months

31. This accounting organization aims to promulgate and improve accounting

standards that will constitute GAAP in the Philippines.
a) Philippine Institute of Certified Public Accountants (PICPA)
b) Board of Accountancy (BOA)
c) Professional Regulations Commission (PRC)
d) Financial Reporting Standards Council (FRSC)

32. These encompass the conventions, rules, and procedures necessary to

define what is accepted accounting practice as of a particular time.
a) Underlying assumptions
b) Qualitative characteristics
c) Constraints on relevant and reliable information
d) Generally Accepted Accounting Principles (GAAP)

33. Which of the following is not an asset?

a) Accounts receivable
b) Salaries payable
c) Prepaid insurance
d) Office supplies

34. This refers to the capacity of information to make a difference in the

decisions of users by helping them to make a difference in the decisions of
users by helping them to form predictions about the outcome of the past,
present, and future events or confirm and correct their past expectations.
a) Relevance
 b) Faithful representation
c) Understandability
d) Comparability

35. The ingredients of relevance include the following, except:

a) Predictive value
b) Confirmatory value
c) Understandability
d) All of the above

36. Constraints to relevant and faithfully represented information include the

concept that the usefulness of providing information in financial statements
should:
a) Exceed the cost of providing the information.
b) Equal the cost of providing the information.
c) Be less than the cost of providing information.
d) None of the above.