Accounting Process

1. Comparison of the balance sheet of De Guzman and Associates at the end of 2016 with its balance sheet
at the end of 2015 showed a decrease in total assets of P 69,000 and owner’s equity by P 15,000. The change
in liabilities during the year was
a. Increase of P 84,000 c. Decrease of P 54,000
b. Decrease of P 84,000 d. Increase of P 54,000

2. Chris Company had total assets of P 20,000,000 and shareholder’s equity of P 15,000,000 on January 1.
During the year, assets increased by P 3,000,000 and liabilities decreased by P 1,000,000. Tung Company
should report what amount of shareholder’s equity on December 31?
a. P 18,000,000 c. P 19,000,000
b. P 17,000,000 d. P 16,000,000

3. The following transactions and events relate to Chris Company for the current accounting period.
(a) Sold merchandise costing P 450,000 for P 100,000 cash and P 700,000 on open account. A
perpetual inventory system is used.
(b) Purchased land for P 1,00,000 cash and a P 3,000,000 mortgage.
(c) Received payment on account, P 120,000
(d) Estimated that utilities expense for the coming six months will total P 80,000
(e) Declared cash dividend totaling P 100,000. The dividend will be paid in six weeks.

The foregoing transactions and events increased

a. Total assets by P 4,920,000
b. Total liabilities by P 3,000,000
c. Total equity by P 700,000
d. Net assets by P 250,000

4. The trial balance of Chris Company shown below does not balance. Your review of the ledger reveals the
following: (a) Each account had normal balance; (b) the debit footings in Prepaid Insurance, Accounts
Payable, and Property Tax Expense were each understated by P 100; (c) A transposition error was made in
Accounts Receivable; the correct balances for Accounts Receivable and Service Revenue are P 2,750 and P
6,690 respectively; (d) A debit posting to Advertising Expense of P 300 was omitted; (e) A P 1,500 cash
drawing by the owner was debited to Mistake Capital, and credited to Cash.

Mistake Company
Trial Balance
December 31

Debit Credit
Cash P 4,800
Accounts Receivable 2,570
Prepaid Insurance 700
Equipment P 8,000
Accounts Payable 4,500
Property Tax Payable 560
Mistake Capital 11,200
Service Revenue 6,960
Salaries Expense 4,200
Advertising Expense 1,100
Property Tax Expense 800
 Total P 20,890 P 24,500

The corrected trial balance of the company should show total debits of
a. P 24,350 c. P 22,850
b. P 23,070 d. P 21,570

Use the following information for the next two questions:

For each situation, reconstruct the adjusting entry that was made to arrive at the ending balance. Assume
that the entity prepares statements and adjusting entries only once each year.

5. Prepaid Insurance:
Balance beginning of year P 5,600
Balance end of year 6,400
During the year, an additional business insurance policy was purchased. A 2-year premium of P 2,500
was paid and charged to Prepaid Insurance.
a. Debit Insurance Expense and credit Prepaid Insurance, P 1,700
b. Debit Prepaid Insurance and credit Insurance Expense, P 1,700
c. Debit Prepaid Insurance and credit Insurance Expense, P 800
d. Debit Prepaid Insurance and credit Insurance Expense, P 6,400

6. Unearned Rent:
Balance beginning of year P 11,000
Balance end of year 15,000
Warehouse quarterly rent received in advance is P 18,000. During the year, equipment was rented to
another company at an annual rent of P 9,000. The quarterly rent payments were credited to Rent Income;
the annual equipment rental was credited to Unearned Rent.
a. Debit Rent Income and credit Unearned Rent, P 4,000
b. Debit Unearned Rent and credit Rent Income, P 4,000
c. Debit Rent Income and credit Unearned Rent, P 5,000
d. Debit Unearned Rent and credit Rent Income, P 5,000

7. The accountant of Chris Company made the following adjusting entry on December 31.

Prepaid Rent P 1,800

Rent Expense P 1,800

If annual rent is paid in advance every October 1. The original transactions entry made was
a. Debit Prepaid Rent and credit Cash, P 1,800
b. Debit Rent Expense and credit Cash, P 1,800
c. Debit Rent Expense and credit Cash, P 2,400
d. Debit Rent Expense and credit Cash, P 7,200

8. The accountant of Chris Company made the following adjusting entry on December 31.

Rent Income p 900

Unearned Rent Income P 900

If annual rent is received in advance every March 1. The original transaction entry made was
a. Debit Cash and credit to Unearned Rent Income, P 900
b. Debit Cash and credit Rent Income, P 5,400
 c. Debit Cash and credit Rent Income, P 5,400
d. Debit Rent Income and credit Cash, P 5,400

9. Chris Company had these unadjusted account balances on December 31:

Inventory, January 1 P 188,250

Purchases 142,700
Freight – in 12,880
Purchase Discounts 2,140
Purchase Returns 26,710

Assume that the ending inventory is P 97,900, the entry to adjust the inventory would include
a. A debit to Inventory of P 90,350
b. A debit to Cost of Goods Sold of P 217,080
c. A credit to Purchase Discounts of P 2,140
d. A credit to Purchase Returns of P 26,710

10. A company receives interest on a P 30,000, 8%, 5-year note receivable each April 1. At December 31,
2016, the proper adjusting entry was made to accrue interest receivable. Assuming that the company does
not use reversing entries, what entry should be made on April 1,2017 when the annual interest payment is
received?

a. Cash P 600
Interest Income P 600
b. Cash P 1,800
Interest Income P 1,800
c. Cash P 2,400
Interest Receivable P 1,800
Interest Income 600
d. Cash P 2,400
Interest Income P 2,400

11. The beginning-of-the-year total equity for a frim was P 40,000. During the year, the firm issued ordinary
shares for total proceeds of P 20,000, earned P 20,000 net income, and paid P 5,000 in cash dividends. If
ending total liabilities are P 100,000, what is ending total assets?
a. P 165,000 c. P 175,000
b. P 45,000 d. P 100,000

12. Chris Company purchased equipment on November 1, 2016, by giving its supplier a 12-month, 9 percent
note with a face value of P 48,000. The December 31, 2016 adjusting entry is
a. Debit Interest Expense and credit Cash, P 720
b. Debit Interest Expense and credit Interest Payable, P 720
c. Debit Interest Expense and credit Interest payable, P 1080
d. Debit Interest Expense and credit Interest Payable, P 4,320

13. Chris Corporation loaned P60,000 to another corporation on December 1, 2016 and received a 3-month,
8% interest bearing note with face value of P 60,000. What adjusting entry should Chris make on December
31, 2016?
a. Debit Interest Receivable and credit Interest Income, P 1,200
b. Debit Cash and credit Interest Income, P 400
c. Debit Interest Receivable and credit Interest Income, P 400
 d. Debit Cash and credit Interest Receivable, P 1,200

14. Chris Corporation renewed an insurance policy for 3 years beginning July 1, 2016 and recorded that P
81,000 premium in the prepaid insurance account. The P81,000 premium represents an increase of P 23,400
from the P57,600 premium charged 3 years ago. Assuming Chris’ records its insurance adjustments only at
the end of the calendar year, the adjusting entry required to reflect the proper balances in the insurance
accounts at December 31, 2016, Chris’ year end is to
a. Debit Insurance Expense for P 13,500 and credit Prepaid Insurance for P 13,500.
b. Debit Prepaid Insurance for P 13,500 and credit Insurance Expense for P 13,500.
c. Debit Insurance Expense for P 67,500 and credit Prepaid Insurance for P 67,500.
d. Debit Insurance Expense for P 23,100 and credit Prepaid Insurance for P 23,100.

15. Chris Company received P 9,600 on April 1, 2016 for one year’s rent in advance and recorded the
transaction with a credit to a nominal account. The December 31, 2016 adjusting entry is
a. Debit Rent Income and credit to Unearned Rent, P 2,400.
b. Debit Rent Income and credit to Unearned Rent, P 7,200
c. Debit Unearned Rent and credit Rent Income, P 2,400.
d. debit Unearned Rent and credit Rent Income, P 7,200.

Answers:

1. C 11. C
2. C 12. B
3. D 13. C
4. A 14. D
5. A 15. A
6. D
7. C
8. C
9. B
10. C