EXERCISES

I -True or False

1. A partnership is a business owned and operated by two or more persons who bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.T
2. A partnership is always owned by two individuals. F
3. Partners in general have limited liability, that is, their personal properties may be used
in the settlement of the liabilities of the partnership.F
4. A partnership is a contract between partners; thus, an existing partnership is dissolved
whenever there is a change in its composition (i.e., death of one of the partners,
incapacity of a partner, withdrawal or retirement of a partner).T
5. The owners of a corporation are called shareholders. T
6. When a partnership has five or more partners, it automatically converts into a
corporation. F
7. One characteristic of a corporation is that shareholders are personally liable for any
losses incurred in the business. F
8. Business is primarily concerned with income or profit, though other purposes may
have prompted its creation. T
9. A merchandising business is one which buys goods from suppliers and sells them for
a price not higher than cost. F
10. A service business is the most basic legal form of business organization. F
11. Manufacturing entities always earn more than merchandising entities. F
12. One of the major disadvantages of a sole proprietorship over a partnership is the
lesser amount of capital that it can accumulate during the formation stage. T
13. From the accounting viewpoint, the sole proprietorship is distinct from its proprietor. T
14. A separate legal entity organized in accordance with codes and laws and in which
ownership is divided into shares of stock is referred to as a corporation. T
15. The limited liability of stockholders is one of the reasons why the corporate form of
organization is dominant in the business world today. T

II True or False

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1. Cost accounting records guide managers in setting prices for their products and
services to achieve greater profits. T
2. An audit is the independent examination (by a CPA) of an entity’s financial statements
for the purpose of expressing an opinion on the fairness of these statements. T
3. Presidential Decree 1081 governs the practice of accountancy in the Philippines. F
4. To be a CPA, one must finish a degree in Bachelor of Science in Accountancy and
pass a rigorous licensure examination given by the Board of Accountancy. T
5. A CPA candidate must have an average of at least 75% with no grade lower than
60% in order to pass the CPA Board Examinations. F
6. Candidates who fail three times shall be barred from taking another CPA. F
7. Government accounting deals with the proper custody, disposition and accounting for
private funds. F
8. One of the marks of a profession is adherence by its members to a common code of
values and conduct established by its administrating body, including maintaining an
outlook which is essentially subjective. F
9. There are four sectors of the accountancy profession today: public practice,
commerce and industry, education, and government. T
10. CPAs employed in a business enterprise as accounting staff, chief accountant,
internal auditor or controller, are practicing in the public sector. F
11. A CPA may practice in two sectors at the same time, for example, holding a public
accounting practice at the same time teaching accounting in a university. T
12. One of the disadvantages of a corporation is that it is subject to greater scrutiny
and regulation by the government. T
13. Accounting is often characterized as the “language of business.” T
14. Bookkeeping is the procedural portion of the accounting process. T
15. Double-entry bookkeeping was invented by Friar Luca Pacioli. T
16. Accounting identifies measures and communicates information about economic
entities for use in making economic decisions. T
17. Management accounting is concerned primarily with external reporting. F
18. Cost accounting measures a business’s costs to help management in controlling
expenses.T

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19. The Professional Regulation Commission is the specific body authorized by law to
promulgate rules and regulations that affect the practice of accountancy in the
Philippines. F
20. The members of the Professional Regulatory Board of Accountancy are appointed by
the Professional Regulation Commission (PRC). F

III Matching Type

Choices
A. Business enterprises G. Corporation
B. Incorporators H. Managerial accounting
C. Single proprietorship I. Bookkeeping
D. Financial accounting J. Public accounting
E. Partnership K. Comptroller
F. Service business L. Merchandising business

1. A business organization owned by one person. C

2. The area of accounting that provides audit & tax services. J
3. Chief accounting officer of a large business organization K
4. The aspect of accounting that is related to the recording of transactions up to the
preparation of financial statements. I
5. Field of accounting that deals with providing information needs of the internal decision
makers. H
6. Group of persons that initially organized a corporation. B
7. Organizations that are formed for the purpose of making profit. B
8. Branch of accounting that is concerned primarily with the preparation of general purpose
financial statements. D
9. A trading business L
10. Two or more individuals, joining their resources together to form a business. E

IV Multiple Choices

1. This is the primary goal of business:

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 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. C Merchandising concern.
.
B. Service business. 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 Winner Hardware Store.
.
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 = FIVE 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.

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 D. None of these.

7. This is the most dominant legal form of business organization in the Philippines today:
A. Service business. C Partnership.
.
B. Sole proprietorship. D Corporation.
.

8. S1: A proprietorship may have several employees.

S2: A manufacturing business can be organized by a sole proprietor.
Which statement is correct?
A. S1. C Both S1 and S2.
.
B. S2. D Neither S1 nor S2.
.

9. This means that the shareholders are liable only up to the extent of their investment in
the business:
A. Personal involvement. C Continuance of operations.
.
B. Limited liability. 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 organizing its organization.
C. Composed of an aggregate of individuals.
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 ______________ are
prepared.
A. Annual reports. C Financial statements.
.
B. Financial information. D Financial plans.
.

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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. C Government accounting.
.
B. Managerial accounting. D Tax accounting.
.

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

A. Audits. C Agreed-upon procedures.
.
B. Reviews. D Compilation.
.

16. Tax services include:

A. Tax planning, C Letter a only.
.
B. Tax compliance. 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. C. Audit services.
B. Management consulting. D. Tax services.

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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.

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 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. The following statements pertain to the CPA Board Examinations. Which statement is
incorrect?
A. A candidate successfully passes the Board Exams if he/she obtains a
general average of seventy-five percent (75%), with no grades lower than
sixty-five percent (65%) in any given subject.
B. In the event a candidate obtains the rating of seventy-five percent (75%) and
above in at least a majority of subjects as provided for in RA9298, he/she
shall receive a conditional credit for the subjects failed.
C. A conditioned candidate shall take an examination in the remaining subjects
within two years from the preceding examination.
D. If the conditioned candidate fails to obtain at least a general average of
seventy-five percent (75%) and a rating of at least sixty-five percent (65%) in
each of the subjects reexamined during the removal examinations, he/she
shall be considered as failed in the entire examination.

20. The following candidates have received the results of their CPA Board Examinations
taken October 2012:

Candidate General Average Remarks

A. no previous 94.57% Perfect scores in six subjects,
exam taken. and one subject has a rating of 62%
B. no previous 75.00% No subjects below 65%
exam taken.

C.only previous 79.67% This is C’s removal examination for three (3)
try was in subjects. These subjects were rated as
May 2012 75%, 100% and 64%, respectively.

What are the rating conclusions on the above candidates?

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 A B C
A. Conditional Passed Failed
B. Failed Passed Conditional
C. Conditional Passed Conditional
D. Failed Passed Failed

21. This is the body authorized by law to promulgate rules and regulations affecting the
practice of accountancy in the Philippines.
A. PRC. C. BOA.
B. SEC. D. ACPAPP.

22. 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.

23. A profession is distinguished by certain characteristics including

I. Mastery of a particular intellectual skill, acquired by training and education.
II. Adherence by its members to a common code of values and conduct established by
its administrating body, including maintaining an outlook which is essentially
objective.
III. Acceptance of a duty to society as a whole (usually in return for restrictions in use
of a title or in the granting of a qualification).
A. I, II and III. C. III only.
B. I and II only. D. II and III only.

24. 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.

25. The Board of Accountancy shall consist of a total of:

A. Seven (7) persons – one Chairman, six members, all of whom are appointed

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 by the President of the Philippines; the vice-chairman is elected from among
the members.
B. Eight (8) persons – one chairman, one vice-chairman, six members, all of
whom are appointed by the President of the Philippines.
C. Seven (7) persons – one Chairman, six members, all of whom are appointed
by the Commissioner of the Professional Regulation Commission, from a list
of recommendees.
D. Six (6) persons – all of whom are appointed by the President of the
Philippines. The chairman and the vice-chairman are elected from among
the members of the Board.

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