PAMANTANSAN NG LUNGSOD NG VALENZUELA

Accountancy Department
Final Examinations - Financial Accounting 1
Multiple Choice
Identify the choice that best completes the statement or answers the question. Strictly, no erasures. Use permanent black ink
on final answers and write your answers in capslock. God bless!

1. Control of inventory should begin as soon as the inventory is received. Which of the following internal
control steps is not done to meet this goal?
a. check the invoice extensions and totals
b. check the invoice to the receiving report
c. check the invoice with the person who specifically purchased the item
d. check the invoice to the purchase order
2. Ending inventory is made up of the oldest purchases when a company uses
a. retail method
b. first-in, first-out
c. last-in, first-out
d. average cost
3. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets, and owner's equity?
a. net income is understated, assets are understated, owner's equity is overstated
b. net income is overstated, assets are overstated, owner's equity is understated
c. net income is overstated, assets are overstated, owner's equity is overstated
d. net income is understated, assets are understated, owner's equity is understated
4. If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an
equivalent equation can be written as?
a.
b.
c.
d.

EI + P = COGS - BI
BI + P = COGS + EI
BI - P = COGS + EI
BI + P = COGS - EI

5. Which intangible assets are amortized over their useful life?

a. trademarks
b. patents
c. goodwill
d. all of the above
6. Receipts from cash sales of P7,500 were recorded incorrectly in the cash receipts journal as P5,700.
What entry is required in the company's accounts?
a. debit Accounts Receivable; credit Cash
b. debit Sales; credit Cash
c. debit Cash; credit Accounts Receivable
d. debit Cash; credit Sales
7. When a company exchanges machinery and receives a trade-in allowance greater than the book value, this
transaction would be recorded with the following entry (assuming the exchange was considered to have
commercial substance):
a. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
b. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
c. debit Cash and Machinery; credit Accumulated Depreciation
d. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal
8. When a company exchanges machinery and receives a trade-in allowance less than the book value, this
transaction would be recorded with the following entry:
a. debit Cash and Machinery; credit Accumulated Depreciation and Machinery
b. debit Cash and Machinery; credit Accumulated Depreciation
c. debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and
Cash
d. debit Machinery and Accumulated Depreciation; credit Machinery and Cash
9. During a period of falling prices, which of the following inventory methods generally results in the lowest
balance sheet amount for inventory.
a. FIFO method

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b.
c.
d.

average method
LIFO method
can not tell without more information

10. Accompanying the bank statement was a credit memo for a short-term note collected by the bank for the
company. This item is a(n)
a. addition to the balance per bank statement
b. deduction from the balance per bank statement
c. addition to the balance per company's records
d. deduction from the balance per company's records
11. Inventory costing methods place primary emphasis on assumptions about
a. flow of costs
b. flow of goods or flow of costs depending on the method
c. flow of goods
d. neither flow or goods or flow of costs
12. Allowance for Doubtful Accounts has a debit balance of P1,200 at the end of the year (before adjustment).
The company prepares an analysis of customers' accounts and estimates the amount of uncollectible
accounts to be P13,900. Which of the following adjusting entries is needed to record the Bad Debt
Expense for the year?
a. debit Allowance for Doubtful Accounts, P15,100; credit Bad Debt Expense, P15,100
b. debit Bad Debt Expense, P15,100; credit Allowance for doubtful Accounts, P15,100
c. debit Allowance for Doubtful Accounts, P12,700; credit Bad Debt Expense, P12,700
d. debit Bad Debt Expense, P12,700; credit Allowance for Doubtful Accounts, P12,700
13. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly
states the effect of the error?
a. gross profit is understated
b. cost of merchandise sold is overstated
c. owner's equity is overstated
d. net income is understated
14. All of the following are reasons to use an estimated method of costing inventory except:
a.
b.

A disaster has destroyed the inventory records and the inventory.

Interim financial statements are required but physical inventory is only taken at the end of
the financial accounting period.
c. Perpetual inventory records are not maintained.
d. Purchase records are not maintained.
15. When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
a. debit Cost of Merchandise Sold; credit Merchandise Inventory
b. debit Cost of Merchandise Sold; credit Sales
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. No journal entry is made to record the cost of merchandise sold.
16. The inventory data for an item for November are:
Nov. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at P19
10 units
30 units at P20
20 units
10 units at P21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses
FIFO?
a. P610
b. P600
c. P580
d. P590
Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item
for the month of September:
Sep. 1

Inventory

20 units at P20

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4
10
17
30

Sold
Purchased
Sold
Purchased

10 units
30 units at P25
20 units
10 units at P30

17. If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
a. P650
b. P750
c. P800
d. P700
The following units of an inventory item were available for sale during the year:
Beginning inventory
First purchase
Second purchase
Third purchase

10 units at P50
25 units at P55
30 units at P60
15 units at P65

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
18. The value of ending inventory using FIFO is:
a.
b.
c.
d.

P1,150
P1,050
P1,275
P1,250

19. The value of ending inventory using average cost is:

a.
b.
c.
d.

P1,050
P1,275
P1,252
P1,163

The following lots of a particular commodity were available for sale during the year:
Beginning inventory
First purchase
Second purchase
Third purchase

10 units at P30
25 units at P32
30 units at P34
10 units at P35

20. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
What is the amount of inventory at the end of the year according to the FIFO method?
a. P620
b. P659
c. P655
d. P690
21. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
What is the amount of inventory at the end of the year according to the average cost method?
a. P655
b. P620
c. P690
d. P659
The following lots of a particular commodity were available for sale during the year:
Beginning inventory
First purchase
Second purchase
Third purchase

5 units at P61
15 units at P63
10 units at P74
10 units at P77

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.

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22. What is the amount of cost of good sold for the year according to the average cost method?
a. P1,250
b. P1,375
c. P1,510
d. P1,380
23. During the taking of its physical inventory on December 31, 2010, Barrys Bike Shop incorrectly counted
its inventory as P270,000 instead of the correct amount of P190,000. The effect on the balance sheet
and income statement would be as follows:
a. assets and retained earnings overstated by P80,000; net income understated by P80,000.
b. assets overstated by P80,000;retained earnings understated by P80,000; net income
statement understated by P80,000.
c. assets overstated by P80,000;retained earnings understated by P80,000; no effect on the
income statement.
d. assets and retained earnings overstated by P80,000; net income overstated by P80,000.
24. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31
using the retail method?

May 1
May 1-31
May 1-31
a.
b.
c.
d.

Cost
P125,000
235,000

Merchandise Inventory
Purchases (net)
Sales (net)

Retail
P166,667
313,333
230,000

P172,500
P187,500
P360,000
P250,000

Use the following information to answer the following questions.

The Boxwood Company sells blankets for P60 each. The following was taken from the inventory records
during May. The company had no beginning inventory on May 1.
Date
May 3
May 10
May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
P30
P34

P40

25. Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold
for the sale of May 20 using the FIFO inventory cost method.
a. P250
b. P180
c. P196
d. P204
26. Assuming that the company uses the perpetual inventory system, determine the ending inventory value for
the month of May using the FIFO inventory cost method.
a.
b.
c.
d.

P422
P502
P520
P494

27. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of
May 23 using the FIFO inventory cost method.
a. P78
b. P102
c. P90
d. P180

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28. Derek Company gathered the following reconciling information in preparing its September bank
reconciliation:
Cash balance per books, 9/30
Deposits in transit
Notes receivable and interest collected by bank
Bank charge for check printing
Outstanding checks
NSF check
The adjusted cash balance per books on September 30 is
a.
b.
c.
d.

P2,750
200
630
30
1,250
190

P1,910.
P2,110.
P5,050.
P3,160.

29. Jamison Company developed the following reconciling information in preparing its June bank
reconciliation:
Cash balance per bank, 6/30
Note receivable collected by bank
Outstanding checks
Deposits-in-transit
Bank service charge
NSF check

P13,000
4,000
7,000
2,500
35
1,900

Using the above information, determine the cash balance per books (before adjustments) for the Jamison
Company.
a. P8,065
b. P6,435
c. P10,565
d. P15,065
30. Thompson Company developed the following reconciling information in preparing its October bank
reconciliation:
Cash balance per bank, 10/31
Note receivable collected by bank
Outstanding checks
Deposits-in-transit
Bank service charge
NSF check

P17,000
4,800
6,500
3,000
50
2,300

Using the above information, determine the cash balance per books (before adjustments) for the
Thompson Company.
a. P11,150
b. P15,950
c. P11,050
d. P19,450
31. Allowance for Doubtful Accounts has a credit balance of P800 at the end of the year (before adjustment),
and an analysis of accounts in the customer ledger indicates the estimated amount of uncollectible
accounts should be P16,000. Based on the estimate above, which of the following adjusting entries
should be made?
a. debit Allowance for Doubtful Accounts, P800; credit Bad Debt Expense, P800
b. debit Bad Debt Expense, P800; credit Allowance for Doubtful Accounts, P800
c. debit Bad Debt Expense, P15,200; credit Allowance for Doubtful Accounts, P15,200
d. debit Bad Debt Expense, P16,800; credit Allowance for Doubtful Accounts, P16,800

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32. When using the allowance method to estimate uncollectible accounts receivable based on an analysis of
receivables shows that P790 of accounts receivables are uncollectible. The Allowance for Doubtful
Accounts has a debit balance of P120. The adjusting entry at the end of the year will include a credit to
Allowance for Doubtful Accounts in the amount of:
a. P120
b. P790
c. P910
d. P670
33. A 60-day, 12% note for P10,000, dated May 1, is received from a customer on account. The maturity
value of the note is
a. P10,200
b. P9,800
c. P11,200
d. P10,000
34. On October 1, Black Company receives a 6% interest bearing note from Reese Company to settle a
P20,000 account receivable. The note is due in six months. At December 31, Black should record
interest revenue of
a. P600
b. P1,200
c. P300
d. P0
35. Allowance for Doubtful Accounts has a debit balance of P500 at the end of the year (before adjustment),
and bad debt expense is estimated at 4% of net credit sales. If net credit sales are P600,000, the amount
of the adjusting entry to record the estimate of the uncollectible accounts is
a. P23,500
b. P24,000
c. P24,500
d. cannot be determined
36. A P6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal
entry to recognize this event is
a. debit Accounts Receivable, P6,120; credit Notes Receivable, P6,000; Credit Interest
Receivable, P120
b. debit Notes Receivable, P6,060; credit Accounts Receivable, P6,060
c. debit Cash, P6,120; credit Notes Receivable, P6,120
d. debit Accounts Receivable, P6,120; credit Notes Receivable, P6,000; Credit Interest
Revenue, P120
37. On August 1, Kim Company accepted a 90-day note receivable as payment for services provided to Hsu
Company. The terms of the note were P10,000 face value and 6% interest. On October 30, the journal
entry to record the collection of the note should include a
a. debit to Interest Receivable for P150
b. credit to Notes Receivable for P10,150
c. debit to Notes Receivable for P10,000
d. credit to Interest Revenue for P150
38. A machine with a cost of P80,000 has an estimated residual value of P5,000 and an estimated life of 5
years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of
depreciation for the second full year, during which the machine was used 5,000 hours?
a. P15,000
b. P26,667
c. P5,000
d. P25,000
39. Equipment with a cost of P130,000 has an estimated residual value of P10,000 and an estimated life of 5
years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of
depreciation for the first full year, during which the equipment was used 3,300 hours?
a. P33,000
b. P32,500
c. P35,750
d. P24,000

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40. A machine with a cost of P75,000 has an estimated residual value of P5,000 and an estimated life of 4
years or 18,000 hours. What is the amount of depreciation for the second full year, using the double
declining-balance method?
a. P18,750
b. P37,500
c. P17,500
d. P16,667
41. Equipment with a cost of P160,000, an estimated residual value of P40,000, and an estimated life of 15
years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that
the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation
expense for the current and future years is
a. P16,000
b. P8,000
c. P11,000
d. P11,636
42. A fixed asset with a cost of P52,000 and accumulated depreciation of P47,500 is traded for a similar asset
priced at P60,000 in a transaction with commercial substance. Assuming a trade-in allowance of
P5,000, the cost basis of the new asset is
a. P59,500
b. P60,500
c. P60,000
d. P54,000
43. A fixed asset with a cost of P41,000 and accumulated depreciation of P36,000 is traded for a similar asset
priced at P50,000. Assuming a trade-in allowance of P4,000, the cost basis of the new asset is
a. P51,000
b. P54,000
c. P50,000
d. P45,000
44. A fixed asset with a cost of P30,000 and accumulated depreciation of P28,500 is sold for P3,500. What is
the amount of the gain or loss on disposal of the fixed asset?
a. P1,500 loss
b. P2,000 loss
c. P2,000 gain
d. P3,500 gain
45. On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the
equipment was P215,000 with an accumulated depreciation of P185,000. Depreciation has been taken up
to the end of the year. The following will be included in the entry to record the disposal.
a. Accumulated Depreciation Dr. P215,000
b. Equipment Cr. P215,000
c. Loss on Disposal of Asset Dr. P185,000
d. Gain on Disposal of Asset Cr. P30,000
46. On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has
a cost of P500,000. The seller of the batting cage is willing to allow a trade-in amount of P11,000. The
initial cost of the old equipment was P215,000 with an accumulated depreciation of P185,000.
Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the
amount of the gain or loss on this transaction?
a. No loss or gain will be recorded.
b. Gain of P11,000
c. Loss of P11,000
d. Loss of P19,000
47. The Weber Company purchased a mining site for P500,000 on July 1, 2011. The company expects to
mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The
estimated residual value of the property is P80,000. During 2011 the company extracted 4,000 tons of
ore. The depletion expense for 2011 is
a. P10,500
b. P43,200
c. P20,000
d. P16,800

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48. Machinery was purchased on January 1, 2010 for P51,000. The machinery has an estimated life of 7
years and an estimated salvage value of P9,000. Double-declining balance depreciation for 2011 would
be
a. P10,500
b. P10,408
c. P6,000
d. P10,929
On the acquisition date, DYOSA Company designates purchase of debt and equity securities as available
for sale. Dyosas intent in buying investment securities is to make them available for sale when
circumstances warrants, not to earn profit from short term fluctuations in price, and not necessarily to hold
debt until maturities.
Dyosas financial year ends on December 31. No investments were held by the company at the beginning
of the year. Describe below are the companys investment related transactions:
2013
March 01
commissions.
April 15
July
23
Oct.
15
Oct.
16
Nov. 02
fees and

Purchased 30,000 Ganda Inc. ordinary shares for P750,000, including brokerage fees and
Purchased P1,000,000 of 10% bonds at face value from Beauty Corporation.
Received cash dividends of P60,000 on the investment in Ganda Inc. ordinary shares.
Received semiannual interest on the investment in Beauty Corporation bonds.
Sold the Beauty Corporations bonds for P1,100,000.
Purchased 250,000 Pretty Co. preference shares for P12,500,000, including brokerage

commissions.
Dec. 31
Record the necessary adjusting entries relating to the investments. The market values of
the investments are P30 for Ganda Inc. and P44 for Pretty Co.
2014
Jan.
27
March 02

Sold half of Ganda Inc. shares for P65 per share.

Sold the Pretty Co, preference shares for P78 per share.

49. How much is the unrealized gain/loss should be reported in the profit/loss in 2013 for the change in the
fair value of the investments?
a. (P1,500,000)
b. P150,000
c. P0
d. (P1,350,000)
50. What is the gain/(loss) on sale of Beuaty Corporations bonds on October 2013?
a. P200,000
b. P0
c. P100,000
d. (P100,000)
51. What is the gain on sale of the Pretty Co. preference shares on March 2014?
a. P0
b. P7,000,000
c. P5,500,000
d. P8,500,000
52. What amount of gain on sale of Ganda Inc. shares on January 27, 2014 should the company recognize?
a. P0
b. P75,000
c. P1,050,000
d. P600,000
53. What is the total amount that would be reported on DYOSAs December 31, 2013 income statement
relative to these investments?
a. P160,000
b. P110,000
c. P260,000
d. P210,000

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The following accounts were included in the unadjusted trial balance of MAY PAG-ASA COMPANY as
of December 31, 2013:
Cash
P 240,800
Accounts receivable
563,500
Merchandise inventory
1,512,500
Accounts payable
1,050,250
Accrued expenses
107,750
MAY PAG-ASA held its cash books open after year-end. In addition, the following information are
available:
1. Receipts for January 2014 of P163,650 were recorded in the December 2003 cash receipts book.
The receipts of P90,025 represents cash sales and P73,625 represents collections from customers,
net of 5% cash discounts.
2. Payments to suppliers made on January 2014 of P93,100, on which discounts of P3,100 were taken,
were included in the December 2013 check register.
3. Merchandise inventory is valued at P1,512,500 prior to any adjustments. The following information
has been found relating to certain inventory transactions.
a. Goods valued at P68,750 are on consignment with a customer. These goods are not included
in the P1,512,500 inventory figure.
b. Goods costing P54,375 were received from a vendor on January 4, 2014. The related invoice
was received and recorded on January 6, 2014. The goods were shipped on December 31,
2013, terms FOB shipping point.
c. Goods costing P159,375 were shipped on December 31, 2013, and were delivered to the
customer on January 3, 2014. The terms of the invoice were FOB shipping point. The goods
were included in the 2013 ending inventory even though the sale was recorded in 2013.
d. A P45,500 shipment of goods to a customer on December 30, terms FOB destination are not
included in the year-end inventory. The goods cost P32,500 and were delivered to the
customer on January 3, 2014. The sale was properly recorded in 2014.
e. The invoice for goods costing P43,750 was received and recorded as a purchase on December
31, 2013. The related goods, shipped FOB destination were received on January 4, 2014, and
thus were not included in the physical inventory.
f. Goods valued at P153,200 are on consignment from a vendor. These goods are not included
in the physical inventory.
Determine the adjusted balances of the following as of December 31, 2013.
54. Cash
a. 173,350
b. 240,800
c. 167,150
d. 170,250
55. Accounts receivable
a. 727,150
b. 563,500
c. 637,125
d. 641,000
56. Merchandise inventory
a. 1,465,000
b. 1,520,000
c. 1,252,500
d. 1,508,750
Northstar Sales Corp. was organized on January 1, 2014. On December 31, 2015, the company lost most
of its inventory in a warehouse fire just before the year-end count of inventory was to take place. Data
from the records disclosed the following:

Inventory, January 1
Purchases during year
Purchase returns and allowances during year

2014
P
0
860,000
46,120

2015
P173,120
692,000
64,600

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Sales during year

Sales returns and allowances during year

788,000
16,000

836,000
20,000

On January 1, 2015, Northstar's pricing policy was changed so that the gross profit rate would be 3
percentage points higher than the one earned in 2014. Salvaged undamaged merchandise was marked to
sell at P24,000, while damaged merchandise marked to sell at P16,000 had an estimated net realizable
value of P3,600.
57. Gross profit rate for 2015?
a. 35%
b. 30%
c. 20%
d. 25%
58. Companys inventory loss due to fire that occured December 31, 2015?
a. P130,000
b. P124,920
c. P125,000
d. P126,820

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