A prepaid expense can best be described as an amount

Paid and not currently matched with earnings

Assuming that net purchases was P900,000 during the year and that ending merchandise inventory was
P20,000 less than the beginning merchandise inventory of P250,000, how much was cost of goods sold?

P920,000

The cost principle requires that when assets are acquired, they be recorded at

cost.

A business organized as a corporation

is owned by its stockholders.

The accounting process involves all of the following except

recording nonquantifiable economic events.

The periodic inventory system is used most commonly by companies that sell

low priced, high volume merchandise

Which of the following is not part of the accounting process?

financial decision making

Misra Company compiled the following financial information as of December 31,

2018:

Revenues P170,000

Owner’s Capital (1/1/18) 70,000

Equipment 40,000

Expenses 125,000

Cash 45,000

Owner’s Drawings 10,000

Supplies 5,000

Accounts payable 20,000

Accounts receivable 35,000

Misra’s assets on December 31, 2018 are

c. P245,000

d. P125,000
When economic benefits are expected to arise over several accounting periods and the association with
income can only be broadly or indirectly determined, expenses are recognized on the basis of

Systematic and rational allocation

Given the following statements:

Statement 1 - The chart of accounts for a merchandising entity differs from that of a service entity.

Statement 2 – If the seller is to shoulder the cost of delivery the term is stated as F.O.B. destination.

Statement 3 – The periodic inventory system relies on a physical count of merchandise for its balance
sheet amount.

Statement 4 – Discounts offered to the buyer to encourage early payment are trade discounts.

Only statement 4 is false

Bright Eyes Downtown Diner received a bill of P600 from the Jronand Wine Advertising Agency. The
owner, A. A. Bondy, is postponing payment of the bill until a later date. The effect on specific items in
the basic accounting equation is

an increase in Payable and a decrease in Owner’s Capital

Which of the following would not be a correct form for an adjusting entry?

A debit to an asset and a credit to a liability

A supplier offers the following discounts:

Trade discounts 10% of the list price

Cash discounts 5% paid in full before due date

List price P16,000

How much should the customer pays before the due date? P13,680

Which of the following is an example of an “expense”? A loss on the disposal of a noncurrent asset

Operating income will result when gross margin exceeds operating expenses

Pappy Corporation received cash of P18,000 on September 1, 2012 for one year’s rent in advance and
recorded the transaction with a credit to Unearned Rent Revenue. The December 31, 2012 adjusting
entry is

debit Unearned Rent Revenue and credit Rent Revenue, P6,000

When an owner withdraws cash or other assets from a business for personal use, these withdrawals are
termed drawings.

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000

Sales returns 25,000

Sales discounts 15,000

Purchases 190,000

Freight-in 2,000

Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,000

Inventory, end. 25,000

How much is the cost of goods sold? P151,000

Given the following statements:

Statement 1 – The difference between sales and cost of sales is operating income.

Statement 2 – The bill of lading is a document prepared by the seller detailing the terms of delivery.

Statement 3 – Purchases returns and allowances is a deduction from purchases.

Statement 4 – The term freight prepaid or freight collect will dictate who shoulders the transportation
cost.

Statements 3 and 4 are true

A business that enjoys limited liability is a corporation.

Users are assumed to have a reasonable knowledge of business and economic activities and accounting
and a willingness to study the information with reasonable diligence. understandability

Without the use of trial balance inequality of debit and credit balances cannot be easily found

A balance sheet shows assets, liabilities, and owner's equity.

Beginning inventory plus Net purchases minus Ending inventory equals cost of goods sold

Which statement is correct?

Income encompasses both revenue and gain

The accounting process is correctly sequenced as identification, recording, communication.

Accrued Utilities Expense is a liability and has a debit balance

Triple Company has five plants nationwide that cost a total of P100 million. The current fair value of the
plants is P500 million. The plants will be recorded and reported as assets at P100,000
A trade discount is not shown anywhere

Centro-matic Company began the year with owner’s equity of P15,000. During the year, Centro-matic
received additional owner investments of P21,000, recorded expenses of P60,000, and had owner
drawings of P4,000. If Centro-matic’s ending owner’s equity was P56,000, what was the company’s
revenue for the year? P84,000

A small neighborhood barber shop that is operated by its owner would likely be organized as a

proprietorship.

An asset is recognized in the statement of financial position when

I. It is probable that future economic benefits will flow to the entity.

II. The asset has a cost or value that can be measured reliably.

both I and II

A net loss will result during a time period when expenses exceed revenues.

Brown Company's account balances on December 31, 2012 for Accounts Receivable and the related
Allowance for Doubtful Accounts are P920,000 debit and P1,400 credit, respectively. From an aging of
accounts receivable, it is estimated that P25,000 of the is the required allowance at the end of the
period?

a. P25,000

b. P20,000

Tate Company purchased equipment on November 1, 2012 and gave a 3-month, 9% note with a face
value of P 40,000. The December 31, 2012 adjusting entry is debit Interest Expense and credit Interest
Payable, P600

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000

Sales returns 25,000

Sales discounts 15,000

Purchases 190,000

Freight-in 2,000

Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,000

Inventory, end. 25,000

How much is the net profit(loss)?

c. P54,000

d. P57,000

The accrual basis means that 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.

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000

Sales returns 25,000

Sales discounts 15,000

Purchases 190,000

Freight-in 2,000

Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,000

Inventory, end. 25,000

How much is the net purchases? P166,000

The prepaid insurance account has a debit balance of ₱3,600 at the end of the year. If unexpired
insurance at the end of the year is ₱2,800, the amount of insurance expense that should be reported on
the income statement is P800

Owner's equity is best depicted by the following: Assets – Liabilities.

Financial accounting provides economic and financial information for all of the following except

managers

A trial balance (choose the incorrect one)

a. Provides information that is helpful when making adjusting entries

c. Is a test of the equality of the debits and credits in the general ledger

d. Proves that no errors of any kind have been made in the accounts during the accounting period.

If total liabilities increased by P15,000 and owner’s equity increased by P10,000 during a period of time,
then total assets must change by what amount and direction during that same period? P25,000 increase
After all the account balances have been extended to the Balance Sheet columns of the work sheet, the
totals of the Debit and Credit columns are ₱280,000 and ₱240,000, respectively. The difference of
₱40,000 is the profit or net income

Which of the following equations correctly shows the meaning of net sales?

Net Sales = Gross Sales – Sales Returns

Net income results when Revenues > Expenses

The basic accounting equation may be expressed as Assets = Liabilities + Owner's Equity.

The body of theory underlying accounting is not based on physical laws of nature.

To compute interest expense for an adjusting entry, the formula is (principal X annual rate X a fraction).
The numerator and denominator of the fraction are:

Length of time note has been outstanding/numerator; 12 months/denominator

An unearned income can best be described as an amount

a. Not collected and currently matched with expenses

b. Collected and not currently matched with expenses

d. Not collected and not currently matched with expenses

Which of the following would not be considered an internal user of accounting data?

President of the employees' labor union.

The entry to record a sale of P7,500 with terms of 2/10, n/30 would include a credit to Sales for P7,500

The economic entity assumption requires that the activities of an entity be kept separate from the
activities of its owner.

Balances of selected accounts at the end of the year, before adjustments, are as follows: Sales,
P900,000; Sales Returns and Allowances, P50,000; Sales Discounts, P10,000; Cost of Merchandise Sold,
P600,000; Selling Expenses, P80,000; Administrative Expenses, P25,500; Interest Revenue, P5,000;
Interest Expense, P2,000. The gross profit is P240,000

Sufjan Stevens Ito began the Sufjan Company by investing P25,000 of cash in the business. The company
recorded revenues of P185,000, expenses of P140,000, and had owner drawings of P10,000. What was
Sufjan’s net income for the year? P45,000

Financial information that is capable of making a difference in a decision is relevant.

Which of the following is not an advantage of the corporate form of business organization?

Unlimited personal liability for stockholders

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000
Sales returns 25,000

Sales discounts 15,000

Purchases 190,000

Freight-in 2,000

Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,000

Inventory, end. 25,000

69. How much is the net sales? P300,000

All of the financial statements are for a period of time except the balance sheet.

The profit reported on the income statement is ₱90,000. However, adjusting entries have not been
made at the end of the period for insurance expense of ₱550 and accrued salaries of ₱750. The correct
profit should have been P88,700

In preparing a ten-column worksheet for a merchandising business that uses the periodic inventory
system

a. the beginning inventory is extended as a credit in the income statement columns

b. the ending inventory is shown as a credit in the income statement columns and as a debit in the
balance sheet columns

c. the beginning inventory is extended as a credit in the balance sheet columns

d. the ending inventory is shown as a debit in the income statement columns and as a credit in the
balance sheet columns

A basic assumption of accounting assumes that the peso is the common unit of measure for all business
transactions.

Revenues are gross increases in owner's equity resulting from business activities.

If total liabilities increased by P8,000, then

assets must have increased by P8,000, or owner's equity must have decreased by P8,000.

After all the account balances have been extended to the Income Statement columns of the work sheet,
the totals of the Debit and Credit columns are ₱120,000 and ₱115,000, respectively. The difference of
₱5,000 is profit or net income

Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When recording the financial
transactions of Ted's, Ted does not record an entry for a car he purchased for personal use. Ted took out
a personal loan to pay for the car. What accounting concept guides Ted's behavior in this situation?
Economic entity assumption

At the end of the accounting period, the equation, Assets=Liabilitites+Equity does not necessarily
balance. Which of the following action balances the equation? Add the difference between revenues
and expenses to owner’s equity

Which statement is incorrect concerning materiality?

Materiality provides a threshold or cutoff point for useful information and therefore a primary
qualitative characteristic.

Chen Company's account balances on December 31, 2012 for Accounts Receivable and the Allowance
for Doubtful Accounts are P480,000 debit and P900 credit. Sales during 2012 were P1,350,000. It is
estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the
allowance account for P13,500

Financial information exhibits the characteristic of consistency when

Accounting entities give accountable events the same accounting treatment from period to period.

Liabilities of a company would not include cash.

During the year 2018, Dilego Company earned revenues of P45,000, had expenses of P28,000,
purchased assets with a cost of P5,000 and had owner drawings of P3,000. Net income for the year is

P17,000

The common characteristic possessed by all assets is future economic benefit.

The omission of the adjusting entry to record depreciation expense will result in an:

overstatement of assets and an overstatement of owners' equity

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000

Sales returns 25,000

Sales discounts 15,000

Purchases 190,000

Freight-in 2,000

Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,000

Inventory, end. 25,000

How much is the gross profit? P149,000

If the owner's equity account increases from the beginning of the year to the end of the year, then

net income is greater than owner drawings.

Communication of economic events is the part of the accounting process that involves

preparing accounting reports

Goods totaling P50,000 were purchased February 2 with terms of 2/10, n/30. Returns of P10,000 were
made on February 10. What discounts, if any, can be availed of if the invoice price was paid on February
12?

a. P1,000

b. P200

c. P800

The account that appears in the chart of accounts for merchandising business but not for a service
business is: sales returns and allowances

Revenues would not result from initial investment of cash by owner.

Which of the following activities is not a component of the operating cycle? ordering of merchandise

Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the
accounting process? recording

Which statement is incorrect concerning constraints on relevant and reliable information?

a. To provide information on a timely basis, it may often be necessary to report before all aspects of a
transaction or event are known, thus impairing reliability

b. The cost of providing information should exceed the benefits derived from the information.

c. In achieving a balance between relevance and reliability, the overriding consideration is how best to
satisfy the economic decision-making needs of users.

If the balance of the prepaid supplies account on January 1 was ₱500, supplies purchased during the
year were ₱1,750 (initially recorded as asset), and the supplies on hand at December 31 (per physical
count) were ₱300, the amount for the appropriate adjusting entry at December 31 is P1,950

Uncle Roy’s Saturday Sale Co.’s records show the following:

Sales ₱340,000

Sales returns 25,000

Sales discounts 15,00

Purchases 190,000

Freight-in 2,000
Purchase returns 7,000

Purchase discounts 19,000

Other operating expenses 92,000

Inventory, beg. 10,00

Inventory, end. 25,000

How much is the total goods available for sales? P176,000

Owner's capital at the end of the period is equal to

owner's capital at the beginning of the period plus net income minus drawings.

Mofro’s Computer Repair Shop started the year with total assets of P270,000 and total liabilities of
P180,000. During the year, the business recorded P450,000 in computer repair revenues, P270,000 in
expenses, and Mofro withdrew P45,000. Mofro's Owner’s Capital balance at the end of the year was

P225,000

Which of the following situations will cause the total debit balance to be greater than the total credit
balance?

a. The sales of goods to a debtor, Mr. Lee, are recorded in the account of another debtor, Mr. Li.

c. The sales of goods are regarded as a purchase of goods.

d. The amount extracted from a debtor’s account is posted to the wrong side of the trial balance.

Conservatism is best described as selecting an accounting alternative that Has the least favorable
impact on owner’s equity

The assumption that the unit of the measure remains sufficiently constant over time is part of the

monetary unit assumption.

The origins of accounting are generally attributed to the work of Luca Pacioli.

Rose Company compiled the following financial information as of December 31,

2018:

Revenues P170,000

Owner’s Capital (1/1/18) 70,000

Equipment 40,000

Expenses 125,000

Cash 45,000

Owner’s Drawings 10,000

Supplies 5,000

Accounts payable 20,000

Accounts receivable 35,000

Rose’s owner’s equity on December 31, 2018 is

P105,000

Which of the following events cannot be quantified into pesos and recorded as an accounting
transaction? The appointment of a new CPA firm to perform an audit

Accountants refer to an economic event as a transaction

When a seller of merchandise allowed a customer a reduction from the original price for defective
goods, the seller will issue to the customer a credit memorandum

Which of the following types of accounts measure economic flows over a period of time?

nominal accounts

The accounting equation for Quattro Enterprises is as follows:

Assets Liabilities Owner’s Equity

P120,000 = P60,000 + P60,000

If Quattro purchases office equipment on account for $15,000, the accounting equation will change to
Assets Liabilties Owner’s Equity

P135,000 = P75,000 + P60,000

Which of the following items can lead to a difference between values of profit and gross profit?

a. freight out

b. sales returns

c. freight in

d. purchase returns

Collection of a P1,000 Accounts Receivable increases an asset P1,000; decreases an asset P1,000.

Financial statements portray the financial effects of transactions and other events by grouping them into
broad classes according to their economic characteristics. These broad classes are termed as the

Elements of financial statements

CHAPTER 8 AND 9

Applying accrual accounting results in a more accurate measurement of profit for the period than does
the cash basis of accounting. True
Failure to record the adjusting entry for accrued salaries result in the current year’s profit being
overstated. True

The adjustment to record depreciation of property and equipment consists of a debit to depreciation
expense and a credit to property and equipment. False

When the reduction in prepaid expense is not properly recorded, this causes the asset accounts and
expense accounts to be understated. False

Book value is the original cost of a building less depreciation for the year. False

Total assets, total liabilities, and owner’s equity on the balance sheet are the same as the totals of the
Balance Sheet columns in the worksheet. False

On a worksheet, the balance of the owner’s capital account is its ending amount for the period. False

The Adjusted Trial Balance columns of the worksheet are prepared by combining the Unadjusted Trial
Balance and the Adjustments columns of the worksheet. True

The account Wages Payable will appear in the income statement. False

The amount placed for the Owner’s Capital account in the balance sheet column of the worksheet is the
amount to be reflected for the Owner’s Capital on the balance sheet. False

The Post Closing Trial Balance contains only real accounts. True

An expense account is closed with a debit to expense account and a credit to income and expense
summary. False

Nominal accounts are reduced to zero by closing entries. True

The balance of the owner’s capital account represents the cumulative net results of income, expense,
and withdrawal transactions. True

A reversing entry will include either a debit to revenue account and a credit to an False

Balance sheet accounts are permanent accounts

Under the revenue recognition principle, revenue is recorded after it has been earned, but not before

If a P 2,500 adjustment for depreciation is omitted, which of the following financial statement error will
occur?

a. expense will be overstated

b. owner’s equity will be overstated

d. net income will be understated

An adjusted trial balance is prepared to both test that the ledger is still in balance after the accounts
have been adjusted and facilitate preparation of the financial statements.

Which of the following accounts will appear on the post-closing trial balance? building
In which Financial Statement does Income Summary appear?

b. It does not appear in any financial statement.

c. Income Statement

d. Statement of Changes in Owner's Equity

On the completed worksheet, which set of columns usually should be out of balance after the initial
footing? Both Income Statement and Balance sheet columns

When a company has suffered a loss, the loss amount is entered on the worksheet on the

a. debit side of both the Income Statement and the Balance Sheet columns

b. credit side of the Income Statement columns and the debit side of the Balance Sheet columns

d. credit side of both the Income Statement and the Balance Sheet columns

Which of the following pairs of accounts would not appear in the same adjusting entry?

a. Rent Expense and Rent Payable

b. Service Revenues and Unearned Revenues

c. Interest Revenues and Interest Payable

If an adjusting entry were not made at the end of a period to remove the earned revenue from the
Unearned Revenues account,

a. liabilities would be understated

b. assets would be understated

d. liabilities would be overstated

Which of the following accounts could appear in an adjusting entry, closing entry and reversing entry?
salaries payable

Which of the following accounts is not closed during the closing process? owners' capital

The profit figure appears in all the following statements except the balance sheet

In the adjusted trial balance, the owner’s equity account reflects the beginning-of-the-period balance

In which columns of a worksheet would the adjusted balance of Accumulated Depreciation appear?

b. Adjusted Trial Balance Credit, Income Statement Credit

c. Adjusted Trial Balance Credit, Balance Sheet Debit

d. Trial Balance Credit, Adjustments Credit, Adjusted Trial Balance Credit, and Balance Sheet Credit
CHAPTER 1,2 AND 3

Which of the following is an advantage of a service business? You don’t need to worry about inventory
costs, warehousing and distribution costs

The output of an accounting system is (are) accounting reports

Enhancing qualitative characteristic applied if Information/reports are available whenever a user needs
to decide on a course of action. Timeliness

The accounting standards in the Philippines are called Philippine Financial Reporting Standards (PFRSs)

An event is considered an accountable event if it has an effect on the assets, liabilities, equity, income
or expenses of the entity.

A businessman owns a butcher shop, a restaurant, and a catering business. Separate financial
statements are prepared for each business independent of the other businesses. What accounting
principle or assumption is being applied in this situation? Separate entity assumption

The ending equity is ₱9,000. If total income for the period is ₱5,000 while total expenses are ₱8,000, the
beginning balance of equity is 12,000

If total liabilities decreased by ₱55,000 during a period of time and owner's equity increased by ₱60,000
during the same period, the amount and direction (increase or decrease) of the period's change in total
assets is 5,000 increase

How is profit or loss calculated? It is the difference between income and expenses

Which of the following best describes the basic purpose of accounting?

To provide information about a reporting entity that is useful in making economic decisions

If the beginning equity is ₱50,000 while the ending equity is ₱70,000, the ___ profit (loss) is

20,000 profit

Which accounting principle charges low-cost capital items such as waste baskets directly to an expense?

The materiality principle

In which of the following instances is the going concern assumption valid?

The business has a history of profitable operations and does not expect to end its operations in the
foreseeable future.

The following are decisions made by internal users except to impose taxes

E Store has the following items: total assets, liabilities and equity were ₱10,000, ₱7,000 and ₱3,000,
respectively, at the beginning of the period. During the period, total liabilities decreased by ₱4,000 while

11,000

This refers to information that is expressed in words or descriptive form Qualitative information
Which of the following does not form part of the accounting standards used in the Philippines?
Philippine Auditing Practice Statements

Branch of accounting that deals with providing financial information to external decision makers is

Financial accounting, Financial accounting

The official accounting standard setting body in the Philippines is the

Financial Reporting Standards Council (FRSC).

Which of the following statements is most likely to be incorrect? General purpose financial statements,
the subject matter of financial accounting, are those that cater to all the needs of both external and
internal users

A business exported goods and collected the sale price in U.S. dollars. When financial statements are
prepared, the business translates the dollars into pesos. The business is applying which of the following
accounting principles? Stable monetary unit

This type of business organization has the tendency to become monopolistic. It can hamper a country’s
development by restricting the entrance of other smaller businesses but with much better products to
the market; thereby, leaving members of the society with no other choice but to buy the inferior
products of those monopolistic businesses. corporation

Accounting is a body of knowledge which has been systematically gathered, classified and organized

Accounting as a social science

The output of an accounting system is (are) accounting reports

Which of the following is a disadvantage of a manufacturing business? You need a high start-up capital

The process of identifying, measuring, analyzing, and communicating financial information needed by
management to plan, evaluate, and control an organization’s operations is called management
accounting

Enhancing qualitative characteristic applied if two different users could reach a general agreement as to
what the information intends to represent. Verifiability

A Company has liabilities equal to one fourth of the total assets; its’ owner’s equity is ₱30,000. The
amount of liabilities is ___. 5,000

Which of the following is one of the fundamental qualitative characteristics? Relevance

The most common form of business organization is sole proprietorship

A business acquires inventory and records it as an asset. When the inventory is sold, the business
recognizes the cost as an expense. This is an application of which of the following accounting principles?

matching

Accounting is often called the "language of business" because

it is fundamental to the communication of financial information

An advantage of a sole proprietorship business is you are the boss and you keep all the profits

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. The total liabilities at the end of the period are __.270,000

At the beginning of the year, B Company had assets of ₱75,000 and owner’s equity of ₱38,000. During
the year, assets increased by ₱18,000 and liabilities increased by ₱4,000. The owner’s equity at the end
of the year is ___. 52,000

It refers to information that is expressed in numbers, quantities, or units.

Quantitative information

Which of the following is not one of the enhancing qualitative characteristics?

Faithful representation

What is the primary purpose of accounting?

To provide information that is intended to be useful in making economic decisions

Match Set A with Set B

Concept applied when the business is assumed to continue to exist for an indefinite period of time

going concern

Concept applied when the life of the business is divided into series of reporting periods.

reporting period

Concept applied when some degree of caution is made during judgments under conditions of
uncertainty, so that assets or income are not overstated and liabilities or expenses are not understated.

prudence

Concept applied when similar transactions are accounted for in a like manner from period to period.

consistency

Concept applied when some costs are initially recognized as assets and charged as expenses only when
the related revenue is recognized. matching

Concept applied when income is recorded in the period earned, and expense is recorded in the period
incurred regardless of the time of cash receipt or cash payment.

accrual basis of accounting

Concept applied when an item is considered material if its omission or misstatement could influence

materiality
Concept applied when the costs of processing and communicating information should not exceed the
benefits to be derived from the information’s use cost benefit

Concept applied when Information communicated to users reflect a balance between detail and
conciseness, keeping in mind the cost-benefit principle

full disclosure

Concept applied when financial statements are stated in peso, and its purchasing power is regarded as
stable. stable monetery unit

The communicating process of accounting includes all of the following except

Controlling

Accounting has been given various definitions, which of the following is not one of those definitions

Accounting is a systematic process of objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the degree of correspondence between
these assertions and established criteria and communicating the results to interested users

Financial accounting applies to which of the following

(Businesses , Non-profit organizations, Government) All of the above

Juan is an accountant in the Philippines while John is an accountant in a foreign country that uses the
International Financial Reporting Standards. Which of the following statements is correct?

Juan and John use essentially the same accounting standards

Entity A purchased inventories for ₱100,000. Entity A expects to sell the inventories for ₱120,000 and
therefore records the inventories at ₱120,000 rather than at ₱100,000. Which of the following
accounting principles is violated? historical cost

This branch of accounting focuses on catering to the information needs of internal users.

management accounting

Enhancing qualitative characteristic applied if Information/reports can help a user in identifying

similarities and differences between different sets of information

Comparability

This government regulatory body is tasked with regulating corporations, including partnerships. It
requires corporations and partnerships to file audited financial statements.

Securities and Exchange Commission

The process of providing financial information to external decision makers is referred to as:

financial accounting
QUIZES

The accounting profession can be divided into three major categories; specifically, the practice of public
accounting, private accounting, and governmental accounting. A somewhat unique and important
service of public accountants is: auditing

Accounting information is quantitative and qualitative in nature. 'True'.

It refers to the books of original entry. journal

The external user of accounting information is the: customer

The corporation is the simplest form of business organization. 'False'.

This process refers to the reporting of the information processed in the accounting system to interested
users. communicating

It is the language of business. accounting

Although accounting information is used by a wide variety of external parties, financial reporting is
primarily directed toward the information needs of: Investors and creditors..

A business that buys raw materials and forms them into finished products for sale. manufacturing

Which of the following is not an advantage of a sole proprietorship? the assumes all the risks

The usefulness of information is assessed in terms of its qualitative characteristics

Which of the following statements is incorrect?

Accounting education is the branch of accounting that deals with the teaching of accounting and
related subjects in order to produce competent and responsible business professionals.

Under this concept, some costs are initially recognized as assets and recognized only as expenses when
the related revenue is recognized. matching principle

The accounting standards that are currently used in the Philippines are referred to as the

Philippine Financial Reporting Standards (PFRS).

Which of the following relates to the concept of consistency?

Using the same accounting treatment for similar items from period to period.

All transactions and events are recorded in the books. False'.

Recording assets at their acquisition cost (entry value), rather than at their net selling price (exit value),
is in line with the concept of Historical cost concept.

Are decreases in economic benefits during the period in the form of decreases in assets, or increases in
liabilities, that result in decreases in equity. expenses

When the quality of information affects an economic decision. The information is sad to Answer

Accountable Events ? relevant

The usefulness of information are assess in terms of Qualitative Characteristics

The difference between revenue and expenses. Net income

If total assets increased by ₱80,000 and liabilities decreased by ₱10,000 during the period, the change in

P 90,000 increase

The liabilities are ₱55,000 and owner’s equity is ₱85,000, the amount of the assets is P 140,000

“Assets = Liabilities + Owner’s Equity” is referred to in accounting as the basic accounting equation.

These are the resources of the business assets

In accrual accounting, an expense is recognized when it is:

incurred

The entry to record expired insurance is omitted. This error causes

assets to be overstated

An adjusting entry will not take the format of which one of the following entries?

A debit to an expense account and a credit to a revenue account

The adjusting entry for an unearned revenue always includes a debit to an asset account and a credit to

'False'.

Western Company had P500 of store supplies available at the beginning of the current year. During the
year Western Company purchased P2,750 worth of store supplies. On December 31 of this year P375
worth of store supplies remained.

Dec. 31 Prepaid Supplies 500

Cash 500

Supplies Expense 2,750

Cash 2,750

Prepaid Supplies 375

Cash 375

Accrual-basis accounting involves recording revenues when earned and recording expenses with their
related revenues. 'False'.

An accrued expense can be described as an amount

not paid and matched with earnings for the current period

Depreciation is systematic allocation of the cost of a fixed asset over its estimated life
According to the revenue recognition principle, if a company provides services to a customer in the
current year but does not collect cash until the following year, the company should report the revenue
in the current year. 'True'.

In an accrual accounting system a debit entry is recorded on the left-hand side of an account.

The matching principle states that we recognize expenses in the same period as the revenues they help
to generate.'True'.

Adjusting entries:

b. always involve a balance sheet account and an income statement account c. never involve cash

both b and c

The company purchased a building on January 1, 2008. It cost P785,000 and is expected to have P35,000
salvage value at the end of its predicted 25-year life. Prepare adjusting entries for depreciation.

Dec.31 Depreciation Expense 30,000

2008 Accumulated Depreciation 30,000

Adjusting entries are

a. never include a cash account

b. are made when there have been prepayments during the year

c. may be necessary when revenue has been earned in one period but received in another

all of the above

The Prepaid Insurance account has a P2,400 debit balance before adjustment. An examination of
insurance policies shows P600 of unexpired insurance.

Insurance Expense P 1,800

Prepaid Insurance P1,800

Prepaid Insurance P 600

Insurance Expense P 600

Which one of the following assets accounts listed below will not have a related contra asset account?

land

An example of an adjusting entry involving a deferred revenue is

Unearned Rental Revenue ............ xxx

Rental Revenue ................... xxx

Barnes Company has 20 employees who are each paid P80 per day for a 5-day workweek. The
employees are paid each Friday. This year the accounting period ends on Tuesday. Prepare the
December 31 year-end adjusting journal entry Barnes Company should make to accrue wages.

Dec. 31 salaries expense 3,200

salaries payable3,200

salaries payable 3,200

cash 3,200

Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time
we pay cash. 'True'.

Failure to record the expired amount of prepaid rent expense would not understate liabilities

On March 1, 2013, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which
both the principal and interest are payable on February 28, 2016. At December 31, 2014, the liability for

22 months' interest

The revenue recognition principle states that we record revenue in the period in which we collect cash.

'False'.

Interest Receivable and Interest Payable are: balance sheet accounts

The premium on a two-year insurance policy expiring on June 30, 2016, was paid in total on July 1, 2014.
The original payment was debited to the insurance expense account. The appropriate journal entry has
been recorded on December 31, 2014. The balance in the prepaid asset account on December 31, 2014,
should be

the same as it would have been if the original payment had been initially debited to an asset account.

Show the December 31 adjusting entry to record P750 of earned but unpaid salaries of employees at the
end of the current accounting period.

Dec.31 Salaries Expense P750

Salaries Payable P750

If there is a balance in the unearned subscription account after adjusting entries are made, it represents

deferral

Sales 3,600,000

Accounts Receivable 1,500,000

Allowance for Doubtful Accounts 80,000

Preparing the adjusting entry when the doubtful accounts are estimated to 10% of Accounts Receivable.

Sales 7,000,000
Accounts Receivable 3,000,000

Allowance for Doubtful Accounts 80,000

The allowance for Doubtful Accounts should be 5% of the Accounts Receivable. What is the adjusting
entry to recognize doubtful accounts?

In cash basis accounting, an expense is recognized when it is: paid

The company has three office employees who each earn P100 per day for a five-day workweek that ends
on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday,
Tuesday, and Wednesday, December 29, 30, and 31.

Dec. 31 Salaries expense 900

Office Salaries Payable 900

If a company receives a December electric bill for $1,000 and decides to pay it in January:

the company must record a journal entry that debits Utilities Expense and credits Utilities Expense
Payable

An example of a nominal account

cost of goods sold

Unearned revenues occur when cash is received after the revenue is earned.

'False'.

Jones Corporation provides services to a customer on June 17, but the customer does not pay for the
services until August 12. According to the revenue recognition principle, Jones Corporation should
record the revenue on August 12.

'False'.

A company collects payment in advance, debiting Cash and crediting Revenue. At year end, an adjusting
entry: may need to debit Unearned Revenue

According to the matching principle, if costs associated with producing revenue in the current year are
not paid in cash until the following year, the costs should be expensed in the current year. 'True'.

To recognize a depreciation for equipment, the entry will involve a credit to the equipment account.

'False'.

Accrued Revenue is

revenue earned but not received

The financial position of A’s and B’s partnership before liquidation is as follows:
 
Assets = Liabilities A, Capital (60%) B, Capital (40%)
₱60,000   ₱10,000 ₱35,000 ₱15,000
 
All the assets are converted into ₱40,000 cash. After settling the liabilities, how much is
the share of A in the remaining cash?

Answer: P23,000

Norton invested ₱30,000 in the partnership of Maxwell and Slade. The capital balance of
Maxwell and Slade were ₱30,000 and ₱60,000, respectively. Norton was to receive a 25%
interest in the new partnership. The journal entry to record this transaction would NOT
include:

Answer: a credit to Slade's capital account for ₱7,500

Norton invested ₱40,000 in the partnership of Maxwell and Slade. The capital balance of
Maxwell and Slade were ₱40,000 and ₱60,000, respectively. Income and loss is shared
according to the ratio of equity balances. Norton was to receive 25% interest in the new
partnership. The journal entry to record this transaction would NOT include:

Answer: a credit to Norton's capital account for ₱30,000

If an existing partnership admits a new partner for a 1/5 interest in the partnership’s
total agreed capital of P40,000 for an investment of P10,000, the admission of the new
partner will result in the recognition of:

Answer: Bonus to the old partners if the total net assets contributed amounted to
P40,000

Norton invested ₱20,000 in the partnership of Maxwell and Slade. The capital balance of
Maxwell and Slade were ₱40,000 and ₱60,000, respectively. Income and loss is shared
according to the ratio of equity balances. Norton was to receive 25% interest in the new
partnership. The journal entry to record this transaction would include:

Answer: a credit to Norton's capital account for ₱30,000

The following are the ledger balances of HIJ partnership as of December 31, 20x0: 
                                                                           Debit               Credit              P/L Ratio
            Cash                                                           5,000
            Noncash assets                                    235,000
            Accounts payable                                                            140,000
           Loan payable to H                                                               5,000
          H, capital                                                                          20,000             20%
            I, capital                                                                          35,000             40%
           J, capital                                                                          40000             40%
          Total                                                      240,000            240,000
 
            The partners decided to liquidate the partnership and agreed to distribute
immediately the cash available after payment to outside creditors.
 
            The noncash assets of the partnership were realized as follows:
            January 15, 20x1:
·         Noncash assets with book value of 150,000 were realized for 140,000
·         Additional liability of P1,000 is estimated to be incurred
·         Expected liquidation expenses of P2,000 will likely to be incurred. 
February 20, 20x1:
·         The remaining noncash assets were sold for 77,000
·         Paid actual liquidation expense of 1,000
The final payments made to partners on February 20x1 are as follows:
Answer: H – 19,200; I – 27,400; J – 32,400

The partner who has priority to first receive cash distribution under an advance cash
distribution plan is the partner who

Answer: Can absorb the largest liquidation loss

Upon partnership liquidation, payments should be made in this order of priority

Answer: Outside creditors, loan payable to partners, partner’s capital credit balance
Upon dissolution, the partners may agree to adjust the partnership assets and liabilities. 
The net effect of such restatement of partnership assets and liabilities must be adjusted
to the respective partners’ capital balances based on their

Answer: Old profit and loss ratio

If the new partner is admitted by purchase of interest of an old partner at an amount

higher than its book value, this will result in

Answer: No change in partnership’s net assets

The partners’ capital accounts in AB Partnership before the admission of a new partner
are as follows:
Capital accounts                     P/L ra
 A, Capital  200,000
 B, Capital  120,000
                                                   320,000
 
C acquires 25% interest in the partnership by investing ₱120,000 to the business. Under
the bonus method, how much is the capital balance of A after the admission of C?

Answer: P206,000

When advance cash distribution plan is prepared, a partner’s loan payable to

partnership is

Answer: Subtracted from the credit balance in the partner’s capital account

Maxwell, Slade, and Norton are business partners sharing in profits and losses equally.
The partnership’s financial condition immediately before the start of liquidation is as
follows:

        Capital Balances
Cash Other Assets = Liabilities Maxwell Slade Norton
₱10,000 ₱71,000   ₱20,000 ₱30,000 ₱26,000 ₱5,000

The other assets were sold for ₱50,000 and the liabilities were paid. Any deficient
partner will be unable to pay for the deficiency. Which of the following is NOT true?
Answer: Slade's share of the ending cash balance was ₱19,000

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
If the 1st noncash assets with a book value of P300,000 were sold for P250,000, what is
the amount of cash that should be distributed to the partners?
Answer: P180,000

The following are the ledger balances of HIJ partnership as of December 31, 20x0: 
 
                                                                           Debit               Credit              P/L Ratio
            Cash                                                           5,000
            Noncash assets                                    235,000
            Accounts payable                                                            140,000
           Loan payable to H                                                               5,000
          H, capital                                                                           20,000             20%
            I, capital                                                                          35,000             40%
           J, capital                                                                           40,000             40%
          Total                                                      240,000            240,000
 
            The partners decided to liquidate the partnership and agreed to distribute
immediately the cash available after payment to outside creditors.
 
            The noncash assets of the partnership were realized as follows:
            January 15, 20x1:
·         Noncash assets with book value of 150,000 were realized for 140,000
·         Additional liability of P1,000 is estimated to be incurred
·         Expected liquidation expenses of P2,000 will likely to be incurred. 
February 20, 20x1:
·         The remaining noncash assets were sold for 77,000
·         Paid actual liquidation expense of 1,000
In January, 20x1, the cash available is safely distributed to partners as follows:
Answer: H – 2,000; I – 0; J – 0

if ever bonus is agreed to be recognized in the admission of new partner by direct

investment in the partnership,

Answer: Bonus to new partner will make the capital credit to admitted partner more
than his capital contribution

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
If the first non-cash assets with a book value of P250,000 were sold for P225,000, how
much is the amount of cash to be received by the partners with first cash priority?
Answer: P45,833

Before the effectivity of dissolution, assets, and liabilities should be restated at their

Answer: Fair market values

Statement 1:  The admission of new partner through purchase of interest of existing
partner will increase the partnership capital.
Statement 2:  Admission of new partner through his direct investment in the partnership
will increase the partnership capital even under the bonus method.

Answer: Only statement 2 is true

In preparing the cash priority program for the installment method of liquidation, the
maximum loss absorption amount is computed by

Answer: Dividing the total claims of the partner in the partnership by his profit and loss
percentage

The following transactions will affect the balance of the total partnership capital except

Answer: Admission by purchase without implied goodwill, but with bonus

Quinta and Roly are partners who have a capital of P90,000 each and share profits and
losses equally.  They offer to admit Tonyo for a 1/3 interest in the firm upon his
investment of P60,000.  Under the bonus method, what is the total agreed capital of the
partnership?

Answer: P240,000

Which is the least likely valid reason for partnership dissolution?

Answer: Losses sustained by the partnership for the year

The following instances dissolve a partnership except

Answer: Revaluation of partnership assets

The following are the ledger balances of HIJ partnership as of December 31, 20x0: 
 
                                                                           Debit               Credit              P/L Ratio
            Cash                                                           5,000
            Noncash assets                                    235,000
            Accounts payable                                                            140,000
           Loan payable to H                                                               5,000
          H, capital                                                                          20,000             20%
            I, capital                                                                         35,000             40%
           J, capital                                                                           40,000             40%
          Total                                                      240,000            240,000
 
            The partners decided to liquidate the partnership and agreed to distribute
immediately the cash available after payment to outside creditors.
 
            The noncash assets of the partnership were realized as follows:
            January 15, 20x1:
·         Noncash assets with book value of 150,000 were realized for 140,000
·         Additional liability of P1,000 is estimated to be incurred
·         Expected liquidation expenses of P2,000 will likely to be incurred. 
February 20, 20x1:
·         The remaining noncash assets were sold for 77,000
·         Paid actual liquidation expense of 1,000
The actual gain(loss) on realization on February 20,20x1 is
Answer: (P9,000)

Which of the following is not a cause of partnership dissolution?

Answer: Change in the civil status of a partner

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
 If Z received P25,000 in the 1st cash distribution, how much cash did X received?
Answer: P38,333

The following are the ledger balances of HIJ partnership as of December 31, 20x0: 
 
                                                                           Debit               Credit              P/L Ratio
            Cash                                                           5,000
            Noncash assets                                    235,000
            Accounts payable                                                            140,000
           Loan payable to H                                                               5,000
          H, capital                                                                           20,000             20%
            I, capital                                                                           35,000             40%
           J, capital                                                                           40,000             40%
          Total                                                      240,000            240,000
 
            The partners decided to liquidate the partnership and agreed to distribute
immediately the cash available after payment to outside creditors.
 
            The noncash assets of the partnership were realized as follows:
            January 15, 20x1:
·         Noncash assets with book value of 150,000 were realized for 140,000
·         Additional liability of P1,000 is estimated to be incurred
·         Expected liquidation expenses of P2,000 will likely to be incurred. 
February 20, 20x1:
·         The remaining noncash assets were sold for 77,000
·         Paid actual liquidation expense of 1,000
 
     The cash available for distribution after the sale on January 15, 20x1 is:
Answer: P5,000

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
 
Under the installment method of liquidation, the partner with least cash priority is

Answer: Z

When Do retired from the partnership Do, Re and Mi, the final settlement of Do’s
partnership interest exceeded his capital balance.  Under the bonus method, the excess.

Answer: Reduced the capital balances of Re and Mi

A new partner can be entered into the partnership with the consent of:

Answer: all the existing partners.

Statement 1:  The cash priority program allows the priority of cash distribution to the
partner who has the least absorption capacity.
Statement 2:  There is always loss on realization when noncash assets are converted into
cash during liquidation process.
Answer: Both statements are incorrect

In a partnership, revaluation of assets is done due to:

Answer: all of the above

When a new partner is admitted by his direct investment in the partnership and if his
agreed capital credit is more than his agreed total contributed capital, there is a

Answer: Bonus to new partner

Norton was paid ₱40,000 from the partnership cash account for his withdrawal from the
partnership of Maxwell, Slade, and Norton. Their capital balances were ₱40,000, ₱60,000,
and ₱35,000, respectively. The journal entry to record the withdrawal of Norton would
include:

Answer: a debit to Norton's capital account for ₱35,000

Uly and Ses are partners who share profits and losses equally.  Each has a capital
balance of P40,000 and P50,000, respectively.  They agreed to admit Dam as a new
partner upon investment of land costing P50,000, which is appraised at P60,000.  Profits
and losses are to be shared equally after the admission of Dam.  What is the percentage
of Dam’s interest in the firm?

Answer: 40%

Maxwell, Slade and Norton are business partners sharing in profits and losses equally.
The partnership’s financial condition immediately before the start of liquidation is as
follows:
 
        Capital Balances
Cash Other Assets = Liabilities Maxwell Slade Norton
₱20,000 ₱81,000   ₱20,000 ₱30,000 ₱40,000 ₱11,000
 
The other assets were sold for ₱60,000 and the liabilities were paid. Which of the
following is NOT true?
Answer: Norton's share of the ending cash balance was ₱7,000

In partnership liquidation, which of the following accounts is settled first?

Answer: accounts payable

The following are the ledger balances of HIJ partnership as of December 31, 20x0: 
 
                                                                           Debit               Credit              P/L Ratio
            Cash                                                           5,000
            Noncash assets                                    235,000
            Accounts payable                                                            140,000
           Loan payable to H                                                               5,000
          H, capital                                                                           20,000             20%
            I, capital                                                                            35,000             40%
           J, capital                                                                           40,000             40%
          Total                                                      240,000             240,000
 
            The partners decided to liquidate the partnership and agreed to distribute
immediately the cash available after payment to outside creditors.
 
            The noncash assets of the partnership were realized as follows:
            January 15, 20x1:
·         Noncash assets with book value of 150,000 were realized for 140,000
·         Additional liability of P1,000 is estimated to be incurred
·         Expected liquidation expenses of P2,000 will likely to be incurred. 
February 20, 20x1:
·         The remaining noncash assets were sold for 77,000
·         Paid actual liquidation expense of 1,000
What amount of possible maximum loss may be deducted in determining the 1st safe
payment to parties?
Answer: P88,000
Norton was paid ₱25,000 from the partnership cash account for his withdrawal from the
partnership of Maxwell, Slade, and Norton. Their capital balances were ₱40,000, ₱60,000,
and ₱35,000, respectively. Income and loss is shared according to the ratio of equity
balances. The journal entry to record the withdrawal of Norton would NOT include

Answer: a debit to Maxwell's capital account for ₱2,000

The retirement or death of a partner

Answer: dissolves the partnership agreement.

The process of terminating the business, selling the assets, paying the liabilities and
disbursing the remaining cash to the partners is called

Answer: Liquidation

The admission of a new partner by direct investment in the partnership will result in the
increase

Answer: In the partnership’s assets and total capital

The following condensed statement of financial position is presented for the partnership
James and Yap, who share profits and losses in the ratio of 60:40 respectively: 
Other assets                             450,000             Accounts payable        120,000
Receivable – James                  20,000             James, capital              195,000
                                                                                  Yap, capital                  155,000
                                                                                                                  
                                                       470,000                                                 470,000
 
The partners have decided to liquidate the partnership.  If the other assets are sold for
385,000, the available cash distributed to James amounts to
Answer: P136,000
X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000

  
        If Y received 20,000 in the 1st cash distribution, how much cash did X receive?
Answer: P25,000

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
If X receives sp18,000 in the 1st cash distribution, how much cash did Y received?
Answer: P6,000
X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
If the 1st noncash asset with a book value of P250m000was sold for P230,000, how
much is the payment available to outside creditors?
Answer: P120,000

In terms of entity definition, a partnership is insolvent only when

Answer: Its recorded assets are insufficient to pay existing partnership liabilities

An adjustment of the assets and liabilities of the partnership to their fair market values
before dissolution is called

Answer: Asset revaluation

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 
Cash                                          50,000                Accounts payable        120,000
Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                             X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000

   The cash priority of X over Y is

Answer: P15,000

The cash available for distribution to partners in an installment liquidation is equal to

the

Answer: Cash available after payment to creditors are made and after reserve for future
liquidation is set aside

X, Y & Z are partners dividing profit and losses of the partnership in the agreed ratio of
1:2:3.  The following are the ledger balances at the start of liquidation: 

Cash                                          50,000                Accounts payable        120,000

Noncash assets                     670,000              Loans payable – Y          10,000
Loans receivable – X             30,000              Loans payable – Z          20,000
                                                                              X, capital                         150,000
                                                                                Y, capital                      200,000
                                                                               Z, capital                       250,000
                                               750,000                                                       750,000
If Z received P 30,000 in the 1st cash distribution, what is the total cash available for
distribution to partners?
Answer: P120,000

A share dividend will cause an increase in the total number of shares issued and
outstanding.

Answer: True

SUCCESS INC., declared ₱1,200,000 cash dividends to its preference and ordinary

shareholders out of its profits in 20x3. No dividends have been declared since 20x1.
SUCCESS INC.’s shareholders’ equity immediately before the dividend declaration is as
follows:
 
10% Preference share capital, ₱200 par 3,000,000
Ordinary share capital, ₱100 par 7,000,000
Retained earnings 2,000,000
Total shareholders’ equity 12,000,000
How much are the respective shares of the preference and ordinary shareholders on the
dividends declared if the preference shares are noncumulative and participating?

Answer: Preference shareholders ₱360,000 and ₱840,000 to Ordinary shareholders

To amend the articles of incorporation, a majority vote of the board plus a vote by
shareholders representing at least one-third (1/3) of the outstanding share capital is
needed.

Answer: False

A company has 800,000 ordinary shares outstanding.  Recently, the company bought
100,000 shares of its own stock.  At the end of the year, the company has P 320,000
available to distribute to ordinary shareholders.  How much is the dividend paid per
share?

Answer: P0.46

Treasury shares plus outstanding shares equal

Answer: issued shares

The income summary account of a proprietorship is closed to owner’s capital account;

for a corporation, the income summary account is closed to

Answer: retained earnings

Preference shares have preference over ordinary shares relative to?

Answer: dividends and assets at liquidation

Which of the following would result in an increase in the Retained Earnings account?

Answer: Positive prior period adjustments

Property dividends are charged to retained earnings at cost of the non-cash assets
distributed.

Answer: False

The issuance of preference share to shareholders

Answer: Increases preference share outstanding

JARD Corporation issued 10,000 shares of P20 par value preferred shares at P50 per
share.  The amount that would be credited to Share Premium-Preferred is?

Answer: P300,000

On January 1, 2010, the statement of financial position of Jolly Foods Corp. shows the
following information:
Share capital, ₱100 par 1,000,000
Share premium 200,000
Share premium – treasury shares 20,000
Retained earnings 500,000
Total shareholders’ equity 1,720,000
 
Jolly Foods Corp. reacquires 1,000 shares at P 85 per share on July 1, 2010 and retires
them on September 1, 2010.  Upon retirement, how much is the Share Premium –
retirement?

Answer: p35,000

A share dividend does not affect the total amount of shareholders’ equity.

Answer: True
The CARO Corporation has 200,000 shares of P10 par value ordinary shares outstanding
on December 31, 2016.  On January 2, 2017, they declare a 5% share dividends when the
fair value is P18.  On the date of record, February 3, 2017, the fair value per share is P15.
The shares are issued on March 1, 2017, when the fair value of the shares is P25. Upon
declaration of the 5% share dividend, CARO Corp. will credit an amount to Share
Premium-Ordinary of?

Answer: P80,000

At least 25% of the entity’s authorized capitalization should be subscribed and at least
25% of the total subscription must be paid upon subscription. In no case shall the paid-
up capital be less than three thousand pesos (₱3,000).

Answer: False

Ordinary shares carry all the following rights except the right to

Answer: receive dividends ahead of others shares

A corporation is formed by at least 5 but not exceeding 15 natural or juridical persons,

all of legal age and a majority of whom are residents of the Philippines.

Answer: False

Match the following definitions or descriptions to its correct terms

A document that evidence ownership of a share

Answer: Share certificate

A correction to retained earnings for an error of an earlier period.

Answer: Prior period adjustment

The negative balance of the total shareholders’ equity.

Answer: Capital deficiency

Are shares that give the holders thereof certain preferences over other shareholders.

Answer: Preference shares

The date when the list of shareholders entitled to the declared dividends is prepared.

Answer: Date of record

A share dividend of 20% or more of the corporation’s outstanding shares

Answer: Large share dividends

The shares hat a corporation issues and later reacquires but not retired.

Answer: Treasury shares

These shares entitle the holder to payment not only of the current dividends declared
but also of dividends in arrears

Answer: Cumulative preference shares

These shares entitle the holders only to the payment of current dividends.

Answer: Non-cumulative preference shares

An increase in the number of outstanding shares of stock coupled with a proportionate

reduction in the par value of the stock.

Answer: Share split

A distribution to shareholders that is payable in non-cash assets

Answer: Property dividends

These shares entitle the holders to participate with the holders of ordinary shares pro-
rata in the remainder after the ordinary shareholders have received their initial share
based on the preference rate.

Answer: Participating preference shares

The portion of contributed capital that cannot be distributed to the owners during the
lifetime of the corporation unless the corporation is dissolved and all of its liabilities are
settled first

Answer: Legal Capital

The date when the board issues a resolution declaring dividends.

Answer: Date of declaration

Represent the residual corporate interest that bears the ultimate risks of loss and
receives the benefits of success.

Answer: Ordinary shares

Cumulative profits that are retained in the business and not yet distributed to the
shareholders.

Answer: Retained earnings

The negative balance of the retained earnings.

Answer: Deficit

These shares entitle the holders only to the extent of the stipulated preference dividend.

Answer: Non-participating preference shares

A corporation may distribute to shareholders as dividend additional shares of the

entity’s own share.

Answer: Share dividends

The accounting procedure used when treasury shares are declared as dividends.

Answer: Cost method

Distributions to shareholders

Answer: Dividends

The more commonly used method in practice for the accounting for share capital.

Answer: Memorandum method

The stock dividends payable account is not a liability account but an addition to equity.

Answer: Adjunct equity account

A share dividend of less than 20% of the corporation’s outstanding shares

Answer: Small share dividends

Is not a distribution of earnings but rather returns of capital to the investing

shareholders during dissolution

Answer: Liquidating dividends

Dividends usually cannot be paid on ordinary shares unless the regular dividend has
been paid to preference shareholders.

Answer: True
A retained earnings appropriation reduces the total shareholders’ equity shown on the
statement of financial position.

Answer: False

ZACK Corporation issued 1,000 ordinary shares, P15 par value share for P20 per share. It
subsequently repurchased 500 of these shares at P25 as treasury stock and reissued the
300 treasury stock at P30. The reissuance of 300 treasury stock would result to a credit
of

Answer: Share premium-treasury P1,500

PT REHAB CENTER INC., declared ₱1,800,000 cash dividends to its preference and

ordinary shareholders out of its profits in 20x3. No dividends have been declared since
20x2. PT REHAB’s shareholders’ equity immediately before the dividend declaration is as
follows:

8% Preference share capital, ₱200 par 4,000,000

Ordinary share capital, ₱100 par 6,000,000
Retained earnings 5,000,000
Total shareholders’ equity 15,000,000
 
How much are the respective shares of the preference and ordinary shareholders on the
dividends declared if the preference shares are cumulative and participating?

Answer: Preference shareholders ₱912,000 and ₱888,000 to Ordinary shareholders

A 2 for 1 share split will have the same effect on the number of shares outstanding as a
200% share dividend.

Answer: True

Donation from the government  is recognized in profit or loss when the conditions
attached to the donation are fulfilled or reasonably expected to be fulfilled.

Answer: False
ZACK Corporation issued 1,000 ordinary shares, P15 par value share for P20 per share. It
subsequently repurchased 500 of these shares at P25 as treasury stock and reissued the
300 treasury stock at P30.  The repurchase of 500 ordinary shares would result to a debit
of

Answer: Treasury stock P12,500

Retained earnings represent cash generated from profitable operations that have been
retained in the business.

Answer: False

The issuance of preference share to shareholders

Answer: Increases preference share outstanding

Share premium arises from various sources which include the following, except:

Answer: Distribution of large stock dividends

Indicate the effects of each of the following transactions on assets, liabilities or

shareholder’s equity (increase, decrease, or no effect).

Answer: No effect and decrease

What are the effects on assets and shareholders’ equity during share split of 2 for 1?

Answer: No effect to both

What are the effects on assets and shareholders’ equity upon payment of cash
dividends?

Answer: Decrease and no effect

What are the effects on shareholders’ equity and liabilities upon declaration of property
dividends?

Answer: Decrease and increase

What are the effects on liabilities and shareholders’ equity upon declaration of share
dividends?

Answer: No effect to both

What are the effects on assets and shareholders’ equity upon issuance of share capital
above par value?

Answer: Increase to both

What are the effects on assets and shareholders’ equity upon purchase of treasury
shares?

Answer: Decrease to both

What are the effects on assets and shareholders’ equity upon issuance of share
dividends?

Answer: No effect to both

What are the effects to liabilities and shareholders’ equity upon declaration of cash
dividends?

Answer: Increase and decrease

What are the effects on assets and shareholders’ equity upon the sale of treasury shares
above cost?

Answer: Increase to both

Represents the maximum number of shares fixed in the entity’s authorized articles of
incorporation that can be subscribed and issued to shareholders.

Answer: Authorized share capital

The transaction costs of an equity transaction are accounted for as an addition to equity
to the extent they are incremental costs directly attributable to the equity transaction
that otherwise would have been avoided.

Answer: False

On April 1, 20x1, the board of directors of PEARL HARBOR CORP. declared ₱40

dividends per share to shareholders of record as of April 15, 20x1 for distribution on
May 1, 20x1. The shareholders’ equity of PEARL as of April 1, 20x1 is as follows:
 
Share capital, authorized capital 20,000 1,600,000
shares, ₱100 par
Subscribed share capital 440,000
Share premium 200,000
Retained earnings 908,000
Treasury shares (at cost of ₱120 per share) (288,000)
Other components of equity 140,000
Total shareholders’ equity 3,000,000
 

The total outstanding shares and the total cash dividends declared are:

Answer: 18,000 outstanding shares and P 720,000 total dividends declared

Cumulative preference shares entitle the holder to receive all current and previously
postponed dividends after the ordinary share dividends are distributed.

Answer: False

On December 31, 2019, High Corp. declares P1,000,000 cash dividends, 80% of which
are out of capital rather from retained earnings.  How much should be charged to
retained earnings?

Answer: P200,000

If a company reissued at P 200 per share 100 shares of treasury stock that it had
previously acquired for P 280 per share and there wasn’t any Share Premium-Treasury, it
would debit

Answer: Retained Earnings for P 8,000

The entity’s articles of incorporation must be authorized by the Department of Trade

and Industry

Answer: False