1.

A trial balance will not balance if

an entry on purchase of supplies is recorded twice.

a P20,000 payment on account is debited to Accounts payable for P2,000 and credited to Cash for P2,000.

a cash withdrawal of P5,000 is debited to a Capital account and credited Cash.

The purchase of supplies on account is debited to Supplies and credited to Cash.

2. Which of the following sequences of documents or records describes the proper sequence in the accounting cycle?
Source documents, ledger, journal, financial statements

Journal, source documents, ledger, financial statements

Source documents, journal, ledger, financial statements

Ledger, source documents, journal, financial statements

3. Which of the following statements is incorrect?

The Trial Balance of balances is more frequently used in preparing the financial statements.

The Trial Balance of Totals is useful in identifying indicators of inaccuracies in the financial records.

An equal total of debits and credits in the Trial Balance assures perfection in the financial records of the
business.

A Trial Balance is prepared before the preparation of financial statements.

4. The following statements are incorrect, except:

The preparation of Trial Balance is required by the taxing authority.

The Trial Balance taken from the ledger balances is still unadjusted and needs to be adjusted or corrected
prior to the preparation of financial statements.

The Trial Balance is an unnecessary step in the process of preparing the financial statements.

The profit determined using the Trial Balance of Balances is different from the profit taken from Trial
Balance of Totals, however, may be reconciled.

5. The Trial Balance is prepared

Prior to the posting posting.

Immediately after the journal entries.

Prior to the preparation of the financial reports.

At the discretion of the President.

6. Which of the following comes first in the accounting process?

Preparation of an unadjusted trial balance

Worksheet preparation
 Preparation of an adjusted trial balance

Journalizing external transactions

7. The focal point of the accounting cycle is the

financial statements.

trial balance.

adjusted trial balance.

worksheet.

8. Identify the following statements as true or false.

S1. The financial statements, adjusting entries and closing entries may be prepared by merely looking at a
completed worksheet.

S2. The difference between the property and equipment account and the related accumulated
depreciation
account is called the carrying value of the asset.

9. Identify the following statements as true or false.

S1. Depreciation means the allocation of the cost of an asset over its useful life.

S2. An accrued expense is adjusted by debiting the accrued expense account.

10. Which of the following adjusting entry is not found in a servicing type of business?
Depreciation expense.

Accruals and deferrals.

Bad debts.

Merchandise inventory.

11. Which of the following is not an example of an adjusting item?

Unrecorded expenses.

Accrued income.

Overstatement of sales.

Unrecorded ending inventory.

12. The entry to adjust a deferred revenue using an income method is:
Debit the affected income account.

Credit the affected income account.

 Debit the affected liability account.

Credit the related asset account.

13. In an imprest system of controlling cash, it is the fund set aside for small amount of disbursements.
Tax fund

Payroll fund

Dividends fund

Petty cash fund

14. The objective of establishing a petty cash fund is to?

Cash checks for employees

Account for all cash receipts and disbursements

Account for cash sales

Facilitate payment of small, miscellaneous items

15. Who is responsible, at all times, for the amount of the petty cash fund?
general cashier

petty cash custodian

president of the company

chairman of the board of directors

16. What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting
entry for the payment of expenses that should be part of replenishment?
The petty cash custodian should turn over the petty cash to the general cashier.

Cash will not be overstated and expenses understated

Expenses will be overstated and cash will be understated

Cash will be overstated and expenses will be understated

17. It is a business document authorizing cash payments?

Check

Voucher

Journal

Official receipt

18. On January 1,20Y1, ROX COMPANY established a petty cash fund of P10,000. on December 31,20Y1, the petty
cash fund was examined and found to have receipts and documents for miscellaneous general expenses amounting
 to P8,120. In addition, there was cash counted amounting to P1,500. What is the amount of petty cash shortage or
overage?

P380 overage

P380 shortage

P1880 Shortage

P1,880 overage

19. On January 1,20Y1, ROX COMPANY established a petty cash fund of P10,000. on December 31,20Y1, the petty
cash fund was examined and found to have receipts and documents for miscellaneous general expenses amounting
to P8,120. In addition, there was cash counted amounting to P1,500. What entry would be required to adjust the
petty cash fund on December 31,20Y1?
DR. Miscellaneous general expenses, 8120; DR. Cash short or over, 380; CR. Petty cash fund, 8500

DR. Miscellaneous general expenses, 8120; CR. Cash short or over, 380; CR. Petty cash fund, 7,740

DR. Miscellaneous general expenses, 8120; CR. Petty cash fund, 8120

DR. Miscellaneous general expenses, 8,500; CR. Cash short or over, 380; CR. Petty cash fund, 8120

20. When a petty cash fund is used, which of the following is true?
The balance of the petty cash fund should be reported on the statement of financial position as
investment.

The petty cashier summaries of petty cash payments serve as a journal entry that is posted to the
appropriate general ledger account.

The reimbursement of the petty cash fund should be credited to the cash account

Entries that include a credit to the cash account should be recorded at the time the payment from the petty
cash fund is made

21. Account of the petty cash fund of Timex Company showed its composition as follows:
Coins and currency   3,300
Paid vouchers:    
                Transportation 600  
                Gasoline 400  
                Office supplies 500  
                Postdated 300  
                Due from employees 1,200  
   
Manager’s check returned by bank marked “NSF” 1,000
   
Check drawn by the entity to the order of petty cash custodian 2,700

What is the correct amount of-- the petty cash fund for statement presentation purposes?
10,000

7,000
 6,000

9,000

22. The petty cash fund of Liwanag Company on December 31, 2019, the end of the entity’s reporting
period, is composed of the following:
Currencies 20,000
Coins 2,000
Petty cash vouchers:  
                Gasoline payments for delivery equipment 3,000
                Medical supplies for employees 1,000
                Repairs of office equipment 1,500
                Loans to employees 3,500
A check drawn by the entity payable to the order of Grace dela Cruz, petty cash  
custodian, representing by the bank 15,000
An employee’s check returned by the bank for insufficiency of funds 3,000
A sheet of paper with names of several employees together with contribution for a  
birthday gift of co-employee.  
Attached to the sheet of paper is a currency of 5,000

The petty cash general ledger account has an imprest balance of P50, 000. What is the amount of petty
cash fund that should be shown in the statement of financial position on December 31, 2019?
42,000

27,000

37,000

22,000

23. When the bank receives cash from its depositor, the bank book entry would be a credit to?
Cash on hand

Cash in bank

Deposit liability

Unearned Income

24. In preparing adjusted balances bank reconciliation, which of the following is added to the book cash balance?
Deposit in transit

Outstanding checks

Credit memo

Bank debit memo

25. In preparing adjusted balances bank reconciliation, which of the following is added to the bank statement cash
balance?
Deposit in transit
 Outstanding checks

Credit memo

Bank debit memo

26. Maricar Corporation keeps all its cash in a checking account. An examination of the company’s
accounting records and bank statement for the month ended June 30, 2016 revealed the following
information:
a.     The cash balance per book on June 30 is P850,000
b.     A deposit o P100,000 that was placed in the bank’s night depository on June 30 does not appear on
the bank statement.
c.     The bank statement shows on June 30, the bank collected note for Maricar and credited the
proceeds of P95,000 to the company’s account.
d.     Checks outstanding on June 30 amount to P30,000
e.     Maricar discovered that a check written in June for P20,000 in payment of an account payable, had
been recorded in the company’s record as 2,000
f.     Included with the June bank statement was NSF check for P25,000 that Maricar had received from a
customer on June 26.
g.     The bank statement shows a P2,000 service on June 30, 2016
 
The adjusted cash balance is?
900,000

936,000

830,000

918,000

27. Yowie Company provided the following data for the purpose of reconciling the cash balance per book
with the balance per bank statement on December 31, 2015:

Balance per bank statement 2,000,000

Balance per book 850,000
Outstanding checks (including certified check of P100,000) 500,000

Deposit in transit 200,000

December NSF checks (of which P50,000 had been re-deposited and  
cleared by December 27) 150,000

Erroneous credit to Yowie’s account, representing proceeds of loan  

granted to another company 300,000

Proceeds of note collected by bank for Yowie, net of service charge of  

P20,000 750,000
 
The cash in bank balance to be shown on Yowie’s December 31, 2016 Statement of Financial Position
is?
1,500,000

1,400,000
 1,800,000

1,450,000

28. Information pertaining to Kotse Company appears below.

Balance per bank statement July 31 1,240,000
Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo – service charge 10,000
Credit memo – collection of note by bank for Kotse
300,000
Outstanding checks ?
An analysis of the canceled checks returned with the bank statement reveals the following:
·         Check for purchases of supplies was drawn for P60,000 but was recorded as P90,000.
·         The manager wrote a check for traveling expenses of P100,000 while out of town.   The check was not
recorded.
 
What is the amount of outstanding checks on July 31?
970,000

270,000

550,000

610,000

29. The cash account in the ledger of Sue Company shows a balance of P1,652,000 at September 30,2016. The bank
statement, however shows a balance of P2,090,000 at the same date. The only reconciling items consist of a bank
service charge of P2,000, a large number of outstanding checks totaling P 590,000 and a deposit in transit . What
is the deposit in transit in the September 30, 2016 bank reconciliation?
150,000

154,000

440,000

592,000

30. On March 3, 2016, Maricar Company received its bank statement.   However, the closing balance of the
account was unreadable.  Attempts to contact the bank after hours did not secure the desired information.  
Thus, you had to prepare a bank reconciliation from the available information summarized below:
February 28 book balance 1,460,000
Note collected by bank 100,000
Interest earned on note 10,000
NSF check of customer 130,000
Bank service charge on NSF check 2,000
Other bank service charges 3,000
Outstanding checks 202,000
Deposit of February 28 placed in night depository 85,000

Check issued by Axle Company charged to Maricar’s account 20,000

What was the cash balance per bank statement?

 1,435,000

1,532,000

338,000

1,557,000

31. The following information pertains to Yowie Company as of December 31, 2016:
Cash balance per bank statement 4,000,000
Checks outstanding (including certified check of P100,000) 500,000

Bank service charge shown in December bank statement 20,000

Error made by Yowie in recording a check that cleared the bank  

December (check was drawn in December for P100,000 but  
recorded at P10,000) 90,000
Deposit in transit 1,300,000
What is the cash balance per ledger on December 31, 2016?
4,900,000

5,010,000

4,910,000

4,830,000

32. Same as 31

33. Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The
following loans were at a 12% interest rate, with interest payable maturity. Loeb repaid each loan on its
scheduled maturity date.
Date of loan                          Amount                 Maturity date                       Term of loan
11/1/18                                                 P5,000                   10/31/19                               1 year
2/1/19                                   15,000                   7/31/19                                                 6 months
5/1/19                                   8,000                     1/31/20                                                 9 months
Loeb records interest expense when the loans are repaid. As a result, interest expense of P1,500 was
recorded in 2019. If no correction is made, by what amount would 2019 interest expense be understated?
P540

P620

P640

P720

34. During 2015, Paul Company discovered that the ending inventories reported on its financial statements were
incorrect by the following amounts:

2013 P60,000 understated

2014 75,000 overstated

 Paul uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using
the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, Paul’s retained
earnings at January 1, 2015, would be
Correct

P 15,000 overstated

P 75,000 overstated

P135,000 overstated

35. Tack, Inc. reported a retained earnings balance of P150,000 at December 31, 2014. In June 2015, Tack discovered
that merchandise costing P40,000 had not been included in inventory in its 2014 financial statements. Tack has a
30% tax rate. What amount should Tack report as adjusted beginning retained earnings in its statement of retained
earnings at December 31, 2015?
P190,000

P178,000

P150,000

P122,000

36. Conn Co. reported a retained earnings balance of P400,000 at December 31, 2014. In August 2015, Conn
determined that insurance premiums of P60,000 for the three-year period beginning January 1, 2014, had been
paid and fully expensed in 2014. Conn has a 30% income tax rate. What amount should Conn report as adjusted
beginning retained earnings in its 2015 statement of retained earnings?
P420,000

P428,000

P440,000

P442,000

37. Lore Co. changed from the cash basis of accounting to the accrual basis of accounting during 2011. The
cumulative effect of this change should be reported in Lore’s 2011 financial statements as a
Prior period adjustment resulting from the correction of an error.

Prior period adjustment resulting from the change in accounting principle.

Component of income before extraordinary item.

Component of income after extraordinary item.

38. Bren Co.’s beginning inventory at January 1, 2015, was understated by P26,000, and its ending inventory was
overstated by P52,000. As a result, Bren’s cost of goods sold for 2015 was
Understated by P26,000.

Overstated by P26,000.
 Understated by P78,000

Overstated by P78,000.

39. On January 2, 2015, Air, Inc. agreed to pay its former president P300,000 under a deferred compensation
arrangement. Air should have recorded this expense in 2014 but did not do so. Air’s reported income tax expense
would have been P70,000 lower in 2014 had it properly accrued this deferred compensation. In its December 31,
2015 financial statements, Air should adjust the beginning balance of its retained earnings by
P230,000 credit.

P230,000 debit

P300,000 credit.

P370,000 debit.

40. Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation
computation when using the
Straight-line method Production or use method

a. Yes No
b. Yes Yes
c. No No
d. No Yes

41. In 20PY, MJP Corporation’s profit was P800,000 and in 20CY it was P200,000.   What percentage
increase in profit must MPX achieve in 20NY to offset the 20CY decline in profit?

300% 

42. The following common size income statement is available for Sparky Corporation for the two years
ended December 31, 20PY and 20CY: 
20PY  20CY
s 100% 100%
of sale 55 70
s profit on sales 45 30
rating expenses (including income tax expense) 20 18
t 25% 12%

The trend percentages for sales are as follows:

    20PY                       130%
   20CY                       100%
 What should be the trend percentage for gross profit on sales for 20CY?

195%
 43. Nory Company is preparing its common-size financial statements and revealed the following information
(in thousands of pesos):
              
ounts receivable 10,000
ntory 20,000
l current assets 35,000
l assets  84,000
ds payable 21,000
ined earnings  7,000
s revenue   75,000
of goods sold 62,000
me taxes expense  22,000
 
How would Nory’s inventory appear on a common-size balance sheet?
23.80%

44. Nory Company is preparing its common-size financial statements and revealed the following information
(in thousands of pesos):
 
Accounts receivable 10,000
Inventory 20,000
Total current assets  35,000
Total assets   84,000
Bonds payable   21,000
Retained earnings  7,000
Sales revenue 75,000
Cost of goods sold  62,000
Income taxes expense  22,000
 
How would Nory’s retained earnings appear on a common-size balance sheet?
8.30%

45. It refers to the practice of financing assets with borrowed capital. Its extensive use may impact on the
return on ordinary shareholders’ equity to be above or below the rate or return on total assets.
Leverage.

46. Securing of funds for investment at a fixed rate of return to fund suppliers to enhance the well being of
the ordinary shareholders is known as:

Financial leverage.  

47. In the process of investing of surplus cash, the term “riding the yield curve” refers to

Swapping different maturities of similar quality debt securities in order to obtain higher yield.

48. The following information relates to Gold Corporation:

  
                       Gold Corporation
                           Selected Financial Data
         For The Year Ended, December 31, 20CY
Operating profit                                                    P    900,000
Interest expense                                                         100,000
Profit before income tax                                               800,000
Income tax expense                                                    320,000
Profit                                                                             480,000
Preference shares dividends                                        200,000
Profit available to ordinary shareholders                     280,000
Ordinary shares dividends                                           120,000
Increase in retained earnings                                P    160,000
 The times interest earned ratio is
9.0 to 1

49. The Intelinet Corporation and Comp Inc. have assets of P100,000 each and a return on common equity of
17%. Intelinet has twice the debt of Comp Inc., while Comp has half the sales of Intelinet. If Intelinet has net
income of P10,000 and a total assets turnover ratio of 3.5, what is Comp Inc.'s profit margin?
7.71% 

50. Which of these ratios are measures of a company’s profitability?

1, 3 and 5 only

51. Cebu Corporation’s books disclosed the following information as of and for the year ended December 31,
20CY:
 
                Net credit sales                                                    P2,000,000
                Net cash sales                                                        500,000
                Merchandise purchases                                      1,000,000
                Inventory at beginning                                            600,000
                Inventory at end                                                       200,000
                Accounts receivable at beginning                           300,000
                Accounts receivable at end                                      700,000
                Profit                                                                         100,000
Marble’s percent of profit on sales is?
4%

52. Northern Division reported the following results for 20CY:

                 Annual sales                        P500,000

                Net earnings                             80,000
                Investment                              250,000
What is Northern Division’s return on sales?
16%
 53. At December 31, 20CY, Morgan, Inc., had 100,000 shares of P10 par value ordinary shares issued and
outstanding.  There was no change in the number of shares outstanding during 20CY.  Total shareholders’
equity at December 31, 20CY, was P2,800,000.  The profit for the year ended December 31, 20CY, was
P800,000.  During 20CY Morgan paid P3 per share in dividends on its ordinary shares.   The quoted market
value of Morgan’s ordinary shares was P48 per share on December 31, 20CY.   What was the price-earnings
ratio on ordinary shares for 20CY?
6.0 to 1

54. Data pertaining to Classics Corp.’s ordinary shares are presented for the fiscal year ending May 31, 20CY:

Ordinary shares outstanding

Stated value per share
Market price per share
20PY dividends paid per share
20CY dividends paid per share
Basic earnings per share
Diluted earnings per share
The price earnings ratio of ordinary shares of Classics Corp is:
5.0 times

55. How are the dividends per share for ordinary shares used in the calculation of the following?

Dividend payout ratio                 Earnings per share

Numerator                                            Not used

56. How are the following used in the calculation of the dividend payout ratio for a company with only
ordinary shares outstanding?

Dividends             Earnings             Book value

per share              per share             per share

Numerator            Denominator        Not used

57. Mr. Kenobi, the owner of Galactic Company is arguing with his accountant as to the best measure of
liquidity. He was considering the following and you are to advise him which one is the best. Which one will you
choose?
Current assets minus inventories to current liabilities.

58. Spurs Corporation has an acid test ratio 1.5 to 1.0. Which of the following will cause this ratio to
deteriorate?
Borrowing short-term loan from a bank.
 59. If current assets exceed current liabilities, payments to creditors made on the last day of the month will?
Increase current ratio.

60. GRX, Inc. has a current ratio of 4:1.  Which of the following transactions would normally increase its
current ratio?
Selling inventory on account.