Accounting 1 AND 2 - Lecture notes 1 PDF

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ACCOUNTING 1 AND 2 When sale is made with the credit terms of 2/10, net 30, the “10” refers to the period. a. payment period c. discount period b. discount rate d. none of the above When , the cost of goods sold will be the same as the cost of purchases a. There is no beginning merchandise inventory...

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ACCOUNTING 1 AND 2 1. When sale is made with the credit terms of 2/10, net 30, the “10” refers to the period. a. payment period b. discount rate

c. discount period d. none of the above

2. When , the cost of goods sold will be the same as the cost of purchases a. There is no beginning merchandise inventory (first year of business) b. There is no ending merchandise inventory c. Purchases are equal to net sales d. The beginning and ending merchandise inventory values are the same 3. It is the realizable value if the asset is to be sold a. Market value b. Book value

c. Asset cost d. Present value

b. Faithful representation

d. None of the above

9. Company A recognizes revenue for P63,000 advance payment received from its customers. However, the customer’s order can only be shipped next month. a. Full disclosure b. Expense recognition principle c. Business entity d. Revenue recognition principle 10. Company A includes the personal assets of its principal shareholders. Which accounting principle was violate? a. Business entity b. Matching principle c. Accrual principle d. Revenue recognition principle 11. In preparing a ten-column worksheet for a merchandising firm that uses the periodic inventory system

4. What is not a value of accounting relevance? a. Predictive value b. Feedback value

c. Timeliness d. Reliability

5. To arrive at cost of sales, this account is deducted from goods available for sale a. Beginning inventory b. Net sales

c. ending inventory d. Net purchases

6. A fixed asset with a cost of $50,000 is depreciated over its useful life of 7 years rather than expensing the entire amount when it is purchased a. Consistency b. Matching principle

c. business entity d. going concern

7. Which principle/guideline directs a company to show all the expenses related to its revenues of a specified period even if the expenses were not paid in that period? a. Accrual principle b. Cash basis

c. Timeliness d. Completeness

8. Use a common unit of measurement for reporting financial activity a. Timeliness

c. Monetary measurement

a. The beginning inventory is extended as a credit in the income statement columns b. The beginning inventory is extended as a credit in the balance sheet columns c. The ending inventory is shown as a debit in the income statement columns and as a credit in the balance sheet columns d. The ending inventory is shown as a credit in the income statement columns and as a debit in the balance sheet columns 12. Which of the following is a cash outflow from operating activities? a. Payment to acquire property and equipment b. Payment to settle loans payable c. Payment of utilities expense d. Payment to owners in the form of withdrawals 13. Payment of insurance premiums in advance gives rise to a. Unearned income b. Prepaid expense

c. Accrued income d. Accrued expense

14. Cash receipts journal is used to record a. Cash investment b. Cash sales

c. Cash borrowed d. All of the above

15. A deferred revenue should be recorded by a a. Seller when a customer pays for a service before the service is rendered b. Seller when a service is rendered on receipt of cash c. Buyer when a service is received on payment of cash d. Seller when a service is rendered before receipt of cash 16. Aubrey Co. is involved in a major lawsuit where it has been sued for P1M relating to the infringement of its competitors’ patent. Aubrey Co. felt that the suit is without merit and therefore does not disclosed its existence in its financial statements

a. Debit Memorandum b. Credit Memorandum

c. Both A and B d. Neither A nor B

21. The account appropriately assigned to the transportation cost of merchandise inventory bought is a. Freight in b. Freight out

c. Transportation expense d. None of the above

22. A document issued by the seller of goods or services to the buyer, reducing the amount that the buyer owes to the seller under the terms of an earlier invoice. a. Debit memo b. Credit memo

c. Invoice d. Bill

a. Revenue recognition principle b. Matching principle c. Accrual principle d. Full disclosure

23. A bill for electricity used was received at the end of the year. The bookkeeper failed to record this. It will

17. A service activity that records transactions of the business and prepares a progress report about its financial position and result of operation

a. Understate the expenses causing net income to increase b. Understate the current assets and total assets c. Both a and b d. Both a and c

a. Budgeting b. Auditing

c. Accounting d. Costing

18. Normal balance of Purchases, Purchase returns and allowances, Purchase discounts, Freight in a. Debit, Credit, Credit, Debit b. Credit, Debit, Debit, Credit c. Debit, Credit, Debit, Credit d. Credit, Debit, Credit, Debit e. Debit, Debit, Debit, Credit 19. At the beginning of the year, a business had a twoyear, P1,200 insurance policy on its office equipment. On July 1 it purchased a three-year, P1,800 policy on new constructed building, A December 31, year-end, adjusting entry was made for the policy on the building but not for the policy on the office equipment. As a consequence of the oversight a. Expenses are understated and assets are overstated b. Expenses are overstated and assets are understated c. Expenses are understated and assets are understated d. Expenses are overstated and assets are overstated 20. It is a business document issued by the seller informing the buyer that his account was decreased accordingly for the return made or for the reduction of price requested.

24. Entries prepared at the end of every accounting period to clear the books of the temporary accounts a. Adjusting entries b. Closing entries

c. Reversing entries d. Post-closing entries

25. The accountant submitted audited financial statements to the stakeholders duly certified by an independent CPA that these are in conformity with generally accepted accounting principle. a. Relevance b. Objectivity

c. Neutrality d. Reliability

26. An adjusting entry cannot include a debit to a(an) a. Expense and a credit to an asset b. Asset and a credit to a revenue c. Liability and a credit to a revenue d. Asset and a credit to a liability 27. All of the following are deducted to sales, which is not? a. Sales discount b. Return of the product sold by the entity c. Discount granted to a loyal customer d. Return of the product sold to the entity

28. Agency tasked in reviewing, preparing and codifying standards for use in accounting approach c. PRC d. PICPA

a. PFRS council b. ACPAE1

29. Discharges its mandate of supervising, regulating and controlling the practice of accounting professionals including the conduct of the CPA licensure exam. a. IASB b. SEC

70,000 2,500 365,000

Given the following data, what is the amount of purchases? a. P290,000 b. P287,500

c. P292,500 d. P655,000

34. Company records disclose the following:

c. BOA d. BIR

30. A freight term which requires the buyer to pay for the transportation of the goods from the point of shipment to the buyer’s place a. FOB shipping point b. FOB destination c. FOB shipping point Freight Collect d. FOB shipping point freight prepaid 31. Ace Advertising Company handles the advertising and promotions of various clients all on credit terms of 180 days. Its unadjusted trial balance on December 31, 2018, end of its first year of operation, showed among others: Accounts Receivable, P1,750,000 and Professional Fees, P3,760,000. Among its transactions for the year 2019 are the following: a) Professional services rendered on account, P7,650,000 b) Total collections of previous and current accounts, P4,300,000 c) The accountant adopted a policy of providing for doubtful accounts based on 3% of the outstanding accounts receivable at the end of the year. What is the net realizable value of accounts receivable? a. 4,947,000 b. 5,100,000

Ending inventory Purchase discount Overhead

c. 153,000 d. 5,253,000

Sales Purchase Transportation-in Beginning merchandise inventory Gross profit from sales Purchase discounts

P95,000 45,000 500 10,000 50,000 1,000

The ending merchandise inventory is a. P0 b. P9,000

c. P9,500 d. P10,000

35. On July 1 Chedrick Shoes of Laguna bought goods from Marikina Shoes Factory for 20,000. A 2% trade discount was granted and the term of the purchase was 2/15, n/30. FOB shipping point, Freight prepaid P1,000. Alonzo paid for the account on July 15. What will be the net invoice price to be paid within the discount period? a. 19,208 b. 19,600

c. 20,208 d. 20,600

36. On November 1, 2017, Key Co. paid P3,600 to renew its insurance policy for 3 years and used an income statement account to record this transaction. At December 31, 2017, Key’s unadjusted trial balance showed a balance of P90 for prepaid insurance and P4,410 for insurance expense. What amounts should be reported for insurance expense in Key’s December 31, 2017 financial statement?

32. Refer to No. 31, how much is doubtful account expense in the income statement at the end of 2018?

a. 1,200 b. 1,250

a. 282,000 b. 459,000

37. James Lee, M.D., keeps his accounting records on a cash basis. During 2017, Dr. Lee collected P100,000 in fees from his patients. At December 31, 2017, Dr. Lee had accounts receivable of P20,000. At December 31, 2017, Dr. Lee had accounts receivable of P30,000 and unearned fees of P1,000. On an accrual basis, how much was Dr. Lee’s patient service revenue for 2017?

c. 564,000 d. 153,000

33. The cost of goods sold is P560,000. Other data are presented: Beginning inventory

P340,000

c. 1,100 d. 1,010

a. 111,000 b. 109,000

c. 90,000 d. 89,000

38. On December 31 of the current year, Holmgren Company’s bookkeeper made an entry debiting Supplies Expense and crediting Supplies on Hand for P12,600. The Supplies on Hand account had a P15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand of P11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was a. Debit Supplies on Hand, P8,700 and credit Cash, P8,700 b. debit Supplies Expense, P8,700 and credit Accounts Payable, P8,700 c. debit Supplies on Hand, P8,700 and credit Accounts Payable, P8,700 d. debit Supplies on Hand, P16,500 and credit Accounts Payable, P16,500 39. Arid Company paid P1,704 on June 1, 2013, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2013, adjusting entry is

b) Total expenses will amount to P700,000 but P150,000 will be unpaid c) Business loans will be paid P250,000 d) Owner’s personal drawings will amount to P100,000 e) New equipment will be acquired and paid in cash for P225,000 How much is the cash balance on December 31, 2019? a. 575,000 b. 975,000

c. 2,475,000 d. 2,725,000

42. Refer to No. 41. Using the same information, what will be the projected net income of Lakeshore hotel? a. 700,000 b. 600,000

c. 900,000 d. 800,000

43. Refer to No. 38 and 39. Using the same information, if the owner’s equity was P1,100,000 on December 31, of the previous year, what was the owner’s equity as at January 31 of the current year? a. 1,700,000 b. 1,600,000

c. 1,900,000 d. 1,800,000

a. debit Prepaid Insurance and credit Insurance Expense, P497 b. debit Insurance Expense and credit Prepaid Insurance, P497 c. debit Insurance Expense and credit Prepaid Insurance, P1,207 d. debit Prepaid Insurance and credit Insurance Expense, P1,207

44. On May 1, RVQ Co. sold goods for 6,000 on terms of 2/10, 1/15, n/30. Customer made a partial payment of P1,000 discounts are given only upon full payment of account. The customer pays the balance on May 12, RVQ will receive on May 12

40. Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of P27,000 on credit. The entry to record the receipt of the cattle would be:

45. A machine costing P500,000 which was already 50% depreciated was sold by NY Travel Agency for P170,000. NY Travel Agency should recognize a

a. Debit: Purchase (27,000); Credit: Accounts Payable (27,000) b. Debit: Inventory (27,000); Credit: Accounts Payable (27,000) c. Debit: Purchases (27,000); Credit: Cash (27,000) d. Debit: Inventory (27,000); Credit: Cash (27,000) 41. The cash balance of Lakeshore hotel on December 31 of the previous year was P950,000. For 2019, the finance manager made the following forecast: a) Total revenues will amount to P1,400,000 but P200,000 will be uncollected

a. 4,900 b. 4,880

a. 330,000 b. 70,000

c. 4,950 d. 4,940

c. 80,000 d. 170,000

46. The trial balance of Carsten’s Mart as of Dec. 31, 2018 shows among others, the following account balances: Debit Credit Accounts Receivable 300,000 Allowance for doubtful 7,500 Accounts Sales 500,000 Sales return and allowances 15,000 Sales discount 9,000

It is the policy of the company to provide for doubtful accounts based on 1% of sales. Determine the amount of ending allowance for doubtful accounts using income statement approach. a. 5,000 b. 7,500

c. 12,500 d. 9,000

47. Using the same information in No. 46, assume that the company provides 1% of net sales as bad debts. Carsten will record a net realizable amount of a. 287,500 b. 287,740

c. 283,500 d. 291,000

48. Using the same information, assume that it is the company’s policy to increase allowance by 3% of accounts receivable. What is the ending allowance? a. 16,500 b. 7,500

c. 12,500 d. 12,260

49. Assume that the allowances should be increased to 3%, how much will be the provision for bad depts.? a. 4,500 b. 3,500

c. 2,500 d. 1,500

53. Work-Days Clothing had beginning merchandise inventory of P45,000. It made purchases of P80,000 and recorded sales of P130,000 during November. Its estimated gross profit on sales was 25%. On November 30, the store was destroyed by fire. The merchandise inventory loss was a. P27,000 b. P125,000

c. P97,500 d. P25,000

54. At the end of the accounting period, the business had P450 of office supplies on hand, which was a 50% increase over the beginning balance. If the business purchased P1,200 of office supplies during the year, then P Office supplies were used during the year. a. P975 b. P1,050

c. P1,650 d. P1,425

55. Insurance premium recorded as prepaid insurance, P15,000 was for six months starting September 1, 2018. What is the amount of the adjustment in December 31, 2018 using the ASSET method? a. Debit to insurance expense, P10,000 b. Debit to insurance expense, P5,000 c. Credit to insurance expense, P10,000 d. Credit to insurance expense, P5,000

50. In October 1, 2018, Celie, sole proprietor, has billed Mr. Oin for a personal debt amounting to P360,000. What is the amount to be recognized in the books of the business?

56. Net sales amounted to P100,000 with cost of sales representing 75%. If operating expense is 10% of net sales, net income will be

a. 360,000 b. 30,000

a. 15,000 b. 25,000

c. 0 d. No answer

51. The owner of the business withdrew an equipment which cost P12,000 but having a current market value of 5,000. It is 50% depreciated. Drawing account should be debited for a. 6,000 b. 5,000

c. 12,000 d. 7,000

52. Assume the following: Accounts receivable, P300,000, Allowance for bad debts, P6,000. How much is bad debts if it’s the policy of the company to increase the allowance for bad debts to 5% of accounts receivable? a. 9,000 b. 12,000

c. 15,000 d. 13,000

c. 75,000 d. 10,000

57. A law firm began on November with office supplies of P16,000. During the month, the firm purchases supplies of P29,000. On November 30, supplies on hand totaled P21,000. Supplies expense for the period is a. P21,000 b. P24,000

c. P29,000 d. P45,000

58. During the year total purchases amounted to P50,000 representing 250 tables bought at 200 each. At the end of the year, a physical count showed 70 tables on hand. What will be the cost of goods sold on year end? a. 33,000 b. 36,000

c. 26,000 d. 23,000

59. Use the information above. If the merchandise was sold at 50% above cost, how much is the gross profit? a. 16,250 c. 15,000 b. 12,500 d. 18,000 60. A cabinet with the list price of P25,000 was delivered to the customer with a trade discount of 2% and 1%. How much will be the gross invoice price? a. 24,255 b. 23,725

c. 22,355 d. 26,375

6. The accountant prepares and distributes general purpose reports common to all users based on the qualitative characteristics of a. Consistency b. Neutrality

c. Comparability d. Relevance

7. A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. a. Asset b. Income

c. Liability d. Expense

DIAGNOSTIC EXAMINATION 1. What is the primary goal of business? a. Profit b. Increase in the selling price of its products or services c. Make a name in the community d. None of these

8. A present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits a. Asset b. Income

c. Liability d. Expense

2. This is the branch of accounting that is concerned primarily with the preparation of general purpose financial statements.

9. The accounting equation is normally presented as: A=L+E. Which of the following is an acceptable alternative presentation of the accounting equation?

a. Managerial Accounting b. Tax Accounting c. Financial Accounting d. Government Accounting

a. Assets + Liabilities = Equity b. Equity + Assets = Liabilities c. Assets = Equity – Liabilities d. Assets – Liabilities = Equity

3. According to the conceptual framework, the process of reporting an item in the financial statements of an entity is

10. When a customer is billed for services performed, the cash account is:

a. Realization b. Recognition

c. Matching d. Allocation

a. Debited b. Credited

c. Debited and Credited d. Not affected

11. Credits: 4. A service activity that records transactions of business and prepares a progress report about its financial position and result of operation a. Business b. Bookkeeping

c. Journalizing d. Accounting

a. Increase both assets and liabilities b. Decrease both assets and liabilities c. Increase assets and decrease liabilities d. Increase liabilities and decrease assets 12. This is called the book of original entry

5. A business is assumed to have an indefinite existence a. Business Entity Concept b. Going concern Assumption c. Accrual Assumption d. Objectivity principle

a. General Ledger b. General Journal

c. Cash receipt book d. Cash disbursements

13. Indicate the normal balance of asset, liability, capital, income and expense a. Debit, debit, credit, debit, credit

b. Debit, debit, credit, credit, credit c. Debit, credit, credit, credit, debit d. Debit, credit, credit, debit, credit

b. Under...