Page |1

NAME: Date:
Professor: Section: Score:

Financial Accounting & Reporting

SECOND GRADING EXAMINATION
1. This branch of accounting involves teaching accounting, taxation, and other
business-related subjects.
a. Accounting education
b. Government Accounting
c. Accounting research
d. Tax accounting

2. The main purpose of accounting is

a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the industry’s econ

3. This branch of accounting focuses on catering to the information needs of external

users.
a. Management accounting
b. Financial accounting
c. Auditing
d. External accounting

4. Recording assets at their acquisition cost (entry value), rather than at their net selling
price (exit value), is in line with the concept of
a. Single entity concept.
b. Historical cost concept.
c. Going concern concept.
d. Matching principle.

5. A business sells goods in Year 1 but collects the sale price only in Year 2. According to
the accrual basis and time period concepts, the business should include the sale in its
income statement in
a. Year 1.
b. Year 2.
c. Year 3.
d. Every year

6. The generally accepted accounting principles (GAAP) in the Philippines are

represented by the PFRSs which are issued by the
a. Pinoy Accounting Standards.
b. Kapisanan ng mga Kontador sa Pilipinas.
c. Financial Reporting Standards Council.
d. Philippine Accounting Standards Board.

7. Under this concept, the business is treated separately from its owners.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle
 Page |2

8. A business has total assets, liabilities, and equity of ₱10,000, ₱7,000 and ₱3,000,
respectively, at the beginning of the period. During the period, total liabilities
decreased to ₱4,000 while profit was ₱5,000. How much is the ending total assets?
a. 12,000
b. 11,000
c. 9,000
d. 7,000

Use the following information for the next three questions:

Entity A started operations on November 1, 20x1. The following were the transactions
during the month:

The business owner provides ₱2,000,000 cash as investment to the

Nov. 1, 20x1 business.
Nov. 5, 20x1 Entity A obtains a ₱500,000 loan and issues a promissory note.
Nov. 8, 20x1 Entity A acquires land costing ₱1,000,000 on cash basis.
Nov. 16, 20x1 Entity A renders services worth ₱1,200,000 on account.
Nov. 30, 20x1 Entity A pays salaries expense of ₱280,000.

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

10. How much is the total liabilities at the end of the period?
a. 500,000
b. 520,000
c. 580,000
d. 680,000

11. How much is the equity at the end of the period after taking into account income and
expenses?
a. 2,920,000
b. 2,980,000
c. 3,120,000
d. 3,280,000

12. The beginning equity is ₱5,000. If total income for the period is ₱8,000 while total
expenses are ₱6,000, how much is the ending balance of equity?
a. 7,000
b. 5,000
c. 3,000
d. 1,000

13. The ending equity is ₱9,000. If total income for the period is ₱5,000 while total
expenses are ₱8,000, how much is the beginning balance of equity?
a. 12,000
b. 9,000
c. 6,000
d. 0

14. 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
 Page |3

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. How much is the total
liabilities at the end of the period?
a. 280,000
b. 270,000
c. 260,000
d. 240,000

15. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses

16. In accounting parlance, an account that has no balance is called a

a. closed account.
b. dead account.
c. ghost account.
d. blocked account.

17. It is an account used temporarily to store discrepancies in the accounts pending their
analysis and permanent classification.
a. Suspense account
b. Horror account
c. Thriller account
d. Romantic comedy account

18. This account is used to record payments received from customers prior to the delivery
of goods or rendering of services.
a. Accrued income
b. Unearned income
c. Prepaid asset
d. Accounts receivable

19. A chart of accounts is

a. a listing of all accounts and their balances.
b. a subsidiary ledger.
c. a special journal.
d. a listing of all account titles.

20. The term “posting” as used in accounting means

a. recording an accountable event in debit-credit format.
b. transferring the debits and credits of journal entries from the journal to the
affected accounts in the ledger.
c. checking the equality of the monetary totals of debits and credits of accounts in
the ledger.
d. uploading photographs to the internet.

21. Credit is on which side of an account?

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

22. A debit may signify an increase in

a. liability account.
 Page |4

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

23. Debit and debit result to

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

24. At the beginning of the period, Addy had a cash balance of ₱20,000 and a notes
payable of ₱15,000. During the period, Addy collected ₱11,000 accounts receivable,
paid ₱8,000 notes payable, and issued additional notes payable of ₱5,000 in exchange
for cash. How much are the ending balances of cash and notes payable, respectively?
Cash Notes payable
a. 17,000 20,000
b. 20,000 12,000
c. 28,000 12,000
d. 36,000 20,000

25. At the beginning of the period, Entity A’s notes payable had a balance of ₱1,200.
During the period, Entity A obtained an additional loan of ₱800 and made total
payments of ₱500. How much is the ending balance of Entity A’s notes payable?
a. 1,800
b. 1,500
c. 1,200
d. 900

26. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning
of the period. The business earns income of ₱220,000 during the period and reports
profit of ₱80,000. There were no transactions with the owner during the period. Total
liabilities increased by ₱40,000 by the end of the period. How much is the total assets
at the end of the period?
a. 560,000
b. 440,000
c. 860,000
d. 760,000

Instruction for the next twelve (12) questions: Choose the letter corresponding
to the correct journal entry for each of the transactions described.

27. Owner’s cash investment to the business.

Debit Credit
a. Cash Owner’s capital
b. Cash Owner’s drawings
c. Owner’s capital Cash
d. Cash Sales

28. Acquisition of equipment on cash basis.

Debit Credit
a. Cash Equipment
b. Expense Cash
c. Equipment Cash
d. Equipment Owner’s capital

29. Acquisition of inventory on cash basis

 Page |5

Debit Credit
a. Inventory Accounts payable
b. Expense Cash
c. Inventory Cash
d. Cost of sales Cash

30. Acquisition of inventory on credit.

Debit Credit
a. Inventory Accounts payable
b. Accounts payable Inventory
c. Accounts payable Cash
d. Cost of sales Accounts payable

31. Payment (settlement) of accounts payable

Debit Credit
a. Inventory Accounts payable
b. Cash Accounts payable
c. Accounts payable Cash
d. Cost of sales Inventory

32. Sale of inventory on cash basis

Debit Credit
a. Inventory Sales
b. Cash Accounts receivable
c. Cash Sales
d. Cost of sales Cash

33. Sale of inventory on credit

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivableSales

34. Collection of accounts receivable

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivableSales

35. Payment of advertising expense

Debit Credit
a. Advertising expense Cash
b. Cash Advertising expense
c. Cash Advertisement payable
d. Advertising expense Accounts payable

36. Owner’s drawings (owner’s withdrawal of cash from the business)

Debit Credit
a. Drawings expense Cash
b. Cash Owner’s drawings
c. Owner’s drawings Cash
d. Cash Owner’s capital

37. Recognition of depreciation

 Page |6

Debit Credit
a. Depreciation expense Cash
b. Depreciation expense Equipment
c. Depreciation expense Accumulated depreciation
d. Accumulated depreciation Depreciation expense

38. Recognition of bad debts

Debit Credit
a. Bad debts expense Cash
b. Bad debts expense Accounts receivable
c. Bad debts expense Allowance for bad debts
d. Allowance for bad debts Bad debts expense

39. The amounts shown on this trial balance represent the beginning balances of accounts
in the next accounting period.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Carry-over trial balance

40. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

41. This trial balance contains only real accounts.

a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Permanent trial balance

42. If the ending balance of accounts payable is ₱100,000 and the total debits and credits
to that account during period were ₱60,000 and ₱40,000, respectively, the beginning
balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000

43. In accounting parlance, to “accrue” means to

a. accumulate.
b. postpone.
c. reduce.
d. sneeze.

44. On January 1, 20x1, Johnny Company acquires a building for ₱10M. The building is
estimated to have a useful life of 20 years. How much expense is recognized in 20x1 in
relation to the building?
a. 10,000,000
b. 1,000,000
c. 500,000
d. 0

45. In a worksheet, which of the following is prepared after the unadjusted trial balance?
a. Adjusted trial balance columns
 Page |7

b. Income statement columns

c. Adjusting entries columns
d. Balance sheet columns

46. If total debits exceed total credits in the balance sheet columns of a worksheet, there
is
a. profit.
b. loss.
c. owner’s drawings.
d. an error.

47. Adding amounts horizontally in a worksheet is called

a. footing.
b. cross-footing.
c. cross-legging.
d. horizontaling.

48. It is a journal entry that is the exact opposite of a previous adjusting entry.
a. inside-out entry
b. closing entry
c. gnitsujda entry
d. reversing entry

49. The first step in the accounting cycle is

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

50. How is profit or loss calculated?

a. It is the difference between net assets at the beginning and end of the accounting
period irrespective of transactions with owners.
b. It is the difference between net liabilities at the beginning and end of the
accounting period.
c. It is the difference between assets and liabilities.
d. It is the difference between income and expenses.

51. Which of the following statements regarding owner’s capital is not valid?
a. It is increased by investments to the business by the owner.
b. It is increased by income earned by the business.
c. It is increased by distributions to the owners (drawings by owners).
d. It is decreased by expenses incurred by the business.

52. Which of the following is a purpose of preparing an unadjusted trial balance?

a. to facilitate the preparation of the financial statements
b. to provide reasonable assurance that all accountable events are recorded
c. to facilitate the preparation of adjusting entries
d. to provide reasonable assurance that all nominal accounts are zeroed-out

53. Which of the following accounts is increased by a credit?

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

54. Which of the following accounts is increased by debiting it?

 Page |8

a. Accounts payable
b. Equipment
c. Sales
d. Accumulated depreciation

55. Entity A has accounts receivable of ₱500,000 and a related allowance for bad debts of
₱120,000. How much is the carrying amount of the accounts receivable?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

56. The financial statement that shows information on assets, liabilities and equity is the
a. balance statement.
b. income sheet.
c. balance sheet.
d. income statement.

57. This represents the unused portion of rentals that have been paid in advance.
a. Prepaid rent
b. Travel expense
c. Rent expense
d. Cost of sales

58. The balance of accumulated depreciation in Entity A’s unadjusted trial balance is
₱100,000. If the adjustments columns in the worksheet show a debit adjustment of
₱20,000, how much is the balance of accumulated depreciation that is extended to the
adjusted trial balance columns of the worksheet?
a. 80,000
b. 100,000
c. 120,000
d. 0

59. When preparing closing entries, which of the following accounts is debited when
closing to the “Income summary” account?
a. Depreciation expense
b. Owner’s drawings
c. Sales
d. Salaries payable

60. If the “Income summary” account has a credit balance after all income and expense
accounts are closed, there is
a. profit.
b. loss.
c. owner’s drawings.
d. an error.

61. Which of the following adjustments can be reversed in the next accounting period?
a. Adjusting entry to take up depreciation expense
b. Adjusting entry to record bad debts expense
c. Adjusting entry to record accrued interest income
d. All of these

62. Which of the following is not an adjusting entry?

a. An entry to take up bad debts expense at the end of the period.
b. An entry to take up depreciation expense for the period.
 Page |9

c. An entry to recognize interest expense for the period.

d. An entry to record the cash acquisition of equipment.

63. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1.
Entity A uses a calendar year period. The principal and interest on the note are due on
October 1, 20x2. How much is the interest income to be accrued on December 31,
20x1?
a. 24,000
b. 12,000
c. 6,000
d. 0

64. At the beginning of the period, a business has a cash balance of ₱20,000. During the
period, total cash collections and total cash payments amounted to ₱100,000 and
₱70,000, respectively. How much is the ending balance of cash?
a. 10,000
b. 30,000
c. 50,000
d. 70,000

65. At the beginning of the period, a business has accounts payable of ₱200,000. During
the period, the total debits and credits to the accounts payable account were
₱100,000 and ₱70,000, respectively. How much is the ending balance of accounts
payable?
a. 230,000
b. 170,000
c. 370,000
d. 30,000

66. At the beginning of the period, the owner’s capital account of a business has a balance
of ₱220,000. During the period, the total debits and credits to that account were
₱60,000 and ₱70,000, respectively. How much is the ending balance of the owner’s
capital account?
a. 230,000
b. 210,000
c. 350,000
d. 90,000

67. If the ending balance of accounts receivable is ₱100,000 and the total debits and
credits to that account during period were ₱60,000 and ₱40,000, respectively, the
beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000

68. The equipment of ABC Co. has a historical cost of ₱500,000 and an accumulated
depreciation of ₱120,000. How much is the carrying amount of the equipment?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

69. The business acquires equipment. The business allocates the equipment’s cost over
the equipment’s useful life, instead of expensing it right away. The portion of the
equipment’s cost that is expensed during the period is recorded as
 P a g e | 10

a. Bad debts expense.

b. Equipment.
c. Allowance for bad debts.
d. Depreciation expense.

70. Revenues earned from rendering services are recorded in this account.
a. Sales
b. Service fees
c. Interest income
d. Gains

71. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

72. Which of the following would result to total expenses of ₱480,000?

a. Total income of ₱360,000 and profit ₱120,000
b. Total income of ₱580,000 and loss of ₱100,000
c. Total income of ₱630,000 and profit of ₱150,000
d. Total income of ₱630,000 and loss of ₱150,000

73. Which of the following statements is correct?

a. The “Sales” account is used by both service and merchandising businesses in
recording revenues from primary business activities.
b. “Accounts receivable” is used only by service businesses but not by merchandising
businesses.
c. The “Inventory” account is most likely to be found in the financial statements of a
merchandising or manufacturing business but not of those of a service business.
d. A manufacturing business cannot be organized as a sole proprietorship.

74. What is the normal balance of the purchase returns account?

a. debit
b. credit
c. zero
d. none of these

75. Which of the following is equal to total goods available for sale?
a. Net purchases – Inventory, beg.
b. Cost of sales – Inventory, end.
c. Inventory, end. + Cost of sales
d. Net purchases + Inventory, end.

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

Product A Product B Product C

Net sales (income) 5,000,000 3,500,000 2,100,000
Attributable costs (expenses)
(4,800,000) (2,275,000) (630,000)
 P a g e | 11

Which product will you most likely consider to stop producing?

a. Product A
b. Product B
c. Product C
d. All them

77. Which of the following is not a special journal?

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

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

79. Imagine you are a business manager of a manufacturing company. Your company’s
manufacturing process involves four (4) stages. The first stage takes most of the
manufacturing time and costs and is the bottleneck (i.e., obstacle, hindrance or
handicap) in the manufacturing process. The demand for your product is high and
your company can sell all that it can produce. Your predicament now is your
productive capacity.

You want to streamline the first stage and came up with two proposals. Each of those
proposals decreases the manufacturing time but entails additional costs, such as
additional investment in new machines and employment of additional personnel. Your
accountant prepared the following cost analysis to help you decide which of those
proposals to implement:

Existing set-
Proposal #1 Proposal #2
up
4, 4, 5,
Units of production 000 400 300
Manufacturing time (in days)
30 30 30
1,346,
Attributable costs
1,000,000 1,249,600 200
Sale price per unit 450 450 450

So what is your decision? (Hint: Prepare pro-forma statements of profit for each of the
proposals, including the existing set-up.)
a. Implement Proposal #1
b. Implement Proposal #2
c. Retain the existing set-up
d. This is too difficult for me. I’m quitting my job.

80. Which of the following special journal is used when a business purchases inventory on
cash basis?
a. Cash disbursements journal
b. Purchases journal
c. Inventory journal
d. Cash receipts journal
 P a g e | 12

81. Entity A’s income statement shows a line item described as “Cost of goods sold.”
Entity A is most likely a
a. service business.
b. merchandising business.
c. sole proprietorship business.
d. partnership business.

82. This account is used when a business purchases inventory on account (on credit).
a. Cash
b. Accounts receivable
c. Accounts payable
d. Prepaid supplies

83. The accounts debited when recording purchases of inventory under the perpetual
inventory system and periodic inventory system, respectively, are
Perpetual Periodic
a. Inventory Purchases
b. Purchases Inventory
c. Inventory Merchandise inventory
d. Purchases Purchases

84. Under this inventory system, physical count is necessary in order to determine the
inventory on hand and cost of goods sold.
a. Perpetual system
b. Counting system
c. Periodic system
d. Physical system

85. The account used under the periodic inventory system to record the transportation
costs incurred on purchases.
a. Freight-out
b. Transportation out
c. Freight-in
d. Purchases-in

86. Cost of goods sold is debited each time a sale is made under which of the following
inventory systems?
a. Perpetual system
b. COGS system
c. Periodic system
d. Endocrine system

87. Net sales minus cost of sales equals

a. Gross profit.
b. Net net sales.
c. Net profit.
d. Net cost.

88. Which of the following results to the amount of cost of goods sold?
a. Inventory, beg. + Inventory, end. – Net purchases
b. Net purchases – Inventory, end.
c. Inventory, beg. + Net purchases – Inventory, end.
d. Sale price x number of units sold

89. Which of the following is equal to the amount of total goods available for sale?
a. Inventory, beg. + Inventory, end.
 P a g e | 13

b. Net purchases + Inventory, end.

c. Cost of goods sold – Inventory, beg.
d. Cost of goods sold + Inventory, end.

90. Which of the following is a report used in external reporting?

a. Statement of cost of goods sold and gross profit
b. Statement of T-account
c. Worksheet
d. Balance sheet

91. Inventory, beg. ₱50,000; Net purchases, ₱120,000; Cost of goods sold, ₱80,000. How
much is the Inventory, end.?
a. 90,000
b. 120,000
c. 70,000
d. 80,000

92. Inventory, beg. ₱50,000; Net purchases, ₱180,000; Inventory, end., ₱90,000. How
much is the Cost of goods sold?
a. 140,000
b. 120,000
c. 90,000
d. 180,000

93. Inventory, beg. ₱50,000; Cost of goods sold, ₱80,000; Inventory, end. ₱90,000. How
much is the Net purchases?

a. 90,000
b. 120,000
c. 70,000
d. 80,000

94. Inventory, end. ₱162,000; Net purchases, ₱216,000; Cost of goods sold, ₱144,000.
How much is the Inventory, beg.?
a. 90,000
b. 120,000
c. 144,000
d. 80,000

95. Inventory, end. ₱162,000; Net purchases, ₱216,000; Cost of goods sold, ₱144,000.
How much is the Total Goods Available for Sale?
a. 306,000
b. 163,000
c. 370,000
d. 280,000

96. Which of the following does not describe an advantage of a partnership over the other
forms of business organizations?
a. “Two heads are better than one.”
b.“The more the merrier.”
c.Making business decisions may give rise to conflict among the partners.
d.Sharing of risk.

Use the following information for the next two questions:

A, B and C formed a partnership. Their contributions are as follows:
A B C
 P a g e | 14

Cash 750,000 1,000,000 500,000

Accounts receivable 1,500,000
Inventories 1,250,000
Building 1,875,000
Totals 2,250,000 2,875,000 1,750,000

Additional information:
 Only ₱875,000 of the accounts receivable are deemed collectible.
 The inventories have a net realizable value of ₱1,125,000 and related accounts
payable of ₱375,000 which the partnership assumes to repay.
 The building is under-depreciated by ₱125,000.

97. The partners agreed to equalize their interests. Cash settlements among the partners
are to be made outside the partnership. Which of the following statements is correct?
a. A and C pay B ₱250,000 and ₱625,000, respectively.
b. A pays B ₱250,000 while B pays C ₱625,000.
c. C pays A and B ₱625,000.
d. A provides additional ₱250,000 to the partnership.

98. How much are the capital balances of partners’ A, B and C, respectively, right after
the formation of the partnership?
a. 1,875,000; 1,875,000; 1,875,000
b. 1,625,000; 2,750,000; 1,250,000
c. 1,500,000; 1,500,000; 1,500,000
d. 750,000 ; 1,000,000; 500,000

99. A and B agreed to form a partnership. The contributions of the partners are as
follows:

A B
600,
Cash
000
20,000
Inventory
400,
Land 000
50,0
Equipmen
00
t

Additional information:
 Half of the inventory is unpaid. The partnership agreed to assume the related
accounts payable.
 The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000.
However, B agreed to settle the mortgage personally.

How much are the adjusted capital contributions of A and B, respectively?

a. 670,000; 690,000
b. 670,000; 700,000
c. 660,000; 700,000
d. 670,000; 600,000

100. A and B formed a partnership. The following are their contributions:

A B
 P a g e | 15

Cash 400,000 -

Accounts receivable 100,000 -

700,00
Equipment 0

700,00
Total 500,000 0

A, capital 500,000

700,00
B, capital 0

700,00
Total 500,000 0

Additional information:
 The accounts receivable includes a ₱30,000 account that is deemed uncollectible.
 The equipment is over-depreciated by ₱50,000. The equipment was obtained by B
through financing. The related loan payable has an unpaid balance of ₱250,000 which
the partnership assumes on repaying.

Which partner has the higher capital credit, and how much?
a. A, ₱470,000
b. A, ₱500,000
c. B, ₱500,000
d. B, ₱400,000

Bonus question (The perfect score is 101/100!)

101. Who invented the calculator?
a. Jose Rizal
b. Justin Bieber
c. Taylor Swift
d. Blaise Pascal

“I press on toward the goal to win the prize for which God has called me heavenward in
Christ Jesus.” (Philippians 3:14)

- END –