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UNIVERSITY OF ST LA SALLE

COLLEGE OF BUSINESS AND ACCOUNTANCY


BACOLOD CITY
ACCOUNTING 1 HM
MIDTERM EXAM
AY 2015-2016, 1st Semester
I. True or False. Write True if the statement is correct and False if the statement is incorrect in the Answer Sheet
provided. STRICTLY NO ERASURES.
1. A debit to an expense account results unfavorably to the owners equity.
2. Adding or deducting the account balances horizontally refer to as cross- footing.
3. Generally, an adjusting entry that increases assets or liabilities can be reversed.
4. Adjusting entries does not affect cash flows in the current period.
5. Failure to record the adjusting entry for accrued wages results in the current years profit being understated.
6. If cash method of accounting is used, the adjusting entries are not necessary.
7. Revenue earned is equal to the cash received by a business firm during an accounting period.
8. All decreases in owners equity are a result of expenses.
9. In recording the adjusting entry for accrued interest expense, all the accounts involved are increased.
10. Failure to record depreciation does not affect total assets.
11. On a worksheet, the balance of the owners equity is its ending mount for the precious period.
12. All nominal accounts must be closed before the Income Summary account can be closed.
13. A reversing entry may include either a debit to an income account or a credit to an expense account.
14. On a worksheet, the total credit column of the balance sheet is greater the total debit column signifies net profit
for the period.
15. Real method of deferral refers to the adjusting entries made at the end of the period.
16. During the closing process, expenses are transferred to the debit side of the Income Summary account.
17. Trial balance is prepared primarily to ensure that no errors have been committed.
18. Closing entries can be prepared by referring solely to the Income Statement columns of the worksheet.
19. Financial statements can be prepared without the worksheet.
20. Buying the stock/shares of another company is an example of a financing activity.
21. Cash withdrawal of the owner is an example of operating activity.
22. The accrual of expense is an event classified as an exchange of claims.
23. The collection of customers account is an event classified as a source of assets.
24. Every transaction is recorded in terms of increases and/or decreases in two or more accounts.
25. Income is increases in economic benefits during the accounting period that increases owners equity which may
have resulted from the sale of goods and investment by the owner.
26. Accounts that appear on the left side of the accounting equation usually have debit balances.
27. Business transactions are expressed in terms of money.
28. A listing of the accounts in a ledger is called a chart of accounts.
29. Carrying value is the original cost of equipment less depreciation for the year.
30. The ending balance of Supplies account is greater than its beginning balance, it signifies that more supplies used
than purchased during the period.
II. Multiple Choice Questions: Write the choice letter in the Answer Sheet provided. STRICTLY NO ERASURES.
1. Accrued salaries are
a. salaries that have been paid but not earned by the workers
b. salaries that were earned by the workers and have been paid
c. salaries that have been paid
d. salaries that have been earned by the workers but not paid
2. It is used to classify and summarize transactions, and to prepare data for financial statements.
a. general journal
b. general ledger
c. worksheet
d. trial balance
3. Accumulated depreciation Building, is shown as
a. a liability on the balance sheet
c. an expense on the income statement
b. an effect account on the balance sheetd. an addition to Building account on the balance sheet
4. Assuming a business firm has incurred a loss for the period, the total of the balance sheet credit column in the
worksheet will be
a. larger than the balance sheet debit column
c. larger than the income statement debit column
b. smaller than the balance sheet debit column d. smaller than the income statement credit column

5. Which of the following is a cash outflow from operating activities?


a. cash receipt from customers account
c. payment for interest expense
b. payment to settle notes payable
d. payment to owners as a withdrawal
6. Which of the following comes last in the accounting process?
a. worksheet preparation
c. journalizing external transactions
b. preparation of an unadjusted trial balance
d. preparation of an adjusted trial balance
7. Which of the following is an example of use of asset event?
a. purchase of an equipment
c. selling a vehicle
b. producing goods
d. paying off a loan
8. The recording of an expense could result in a corresponding increase in
a. a liability
b. revenue
c. an asset
d. owners equity
9. An adjusting entry cannot include a debit to a (an)
a. liability and a credit to a revenue
c. asset and a credit to a revenue
b. asset and a credit to a liability
d. expense and a credit to an asset
10. Which of the following accounts will appear on the post-closing trial balance?
a. accrued expense
c. services income
b. depreciation expense building
d. supplies used
11. The income summary account is used to close the following accounts except
a. interest expense
b. unearned revenue c. service revenues
d. salaries expense
12. If a trial balance were to be prepared on the first day of the accounting period, and the account Interest Income
had a debit balance, you would know that
a. the trial balance is an adjusted trial balance c. a reversing entry has been made
b. the trial balance is a post-closing trial balance d. the adjusting entries have been recorded
13. Closing entries will
a. not affect the owners equity balance
c. decrease the owners equity balance
b. increase the owners equity balance
d. either increase or decrease the owners equity balance
14. Which of the following accounting cycle steps comes before the other?
a. worksheet is prepared
c. trial balance
b. posting of journal entries
d. adjusting entries are recorded and posted
15. In the accounting equation, an increase in asset can be associated with
a. a decrease in owners equity
c. an increase in a liability
b. a decrease in a liability
d. an increase in another asset
16. The first phase of accounting is
a. recording
b. classifying
c. measuring
d. summarizing
17. If the amount of profit for the current period is more than the amount of the owners withdrawals, there will be a
(an)
a. decrease in the owners equity account
c. increase in the owners equity account
b. decrease in the cash account
d. increase in the cash account
18. It refers to the availability of cash over the longer term to meet financial commitments as they fall due
a. solvency
b. liquidity
c. financial flexibility
d. cash forecast
19. If the income statement debit and credit columns on the worksheet are not equal after adding the respective
columns,
a. the business firm earned a profit
c. an error has been made
b. the business firm incurred a loss
d. the business firm earned a profit or incurred a loss
20. On a worksheet, the amount of loss will appear on the credit side of the income statement columns,
a. if total revenues exceeded total expenses for the period
b. if total expenses exceeded total revenue for the period
c. if profit exceeds the owners withdrawals
d. if total assets exceeded total liabilities for the period
21. Which of the following accounts is classified differently from the others listed?
a. accrued interest
b. accounts payable
c. interest revenue
d. salaries payable
22. Which of the following events would not be considered an accounting transaction?
a. payment of owners withdrawals
c. booked an appointment with a tax consultant
b. rendered services on account
d. purchase of supplies on account
23. Payment of interest in advance gives rise to
a. deferred expense
b. deferred income
c. accrued expense
d. accrued income
24. When owners equity decreases, one of the following must occur
a. an asset increases b. an income increases c. a liability increases d. withdrawals decrease
25. The underlying assumptions/concepts in the accounting process are the following except
a. going concern
b. accrual
c. entity
d. relevance

26. Which of the following does not directly or indirectly affect the owners equity account?
a. cash acquisition of supplies
c. incurring of expenses
b. earning of revenues
d. withdrawals by the owner
27. Failure to record the entry for accrued salaries results in
a. total liabilities are overstated
c. total owners equity is overstated
b. total assets are overstated
d. total owners equity is understated
28. Failure to record the adjusting entry at the end of the period the unexpired insurance, the omission will cause
a. total assets to be overstated
c. total owners equity to be overstated
b. total expenses to be overstated
d. total revenues to be overstated
29. An adjusting entry must contain
a. two real accounts
c. an asset account and a liability account
b. two nominal accounts
d. a real account and a nominal account
30. The amount of accrued but unrecorded income at the end of the period is both an asset and
a. an expense
b. a liability
c. a revenue
d. a deferral
III. Multiple Choice Problems. Write the letter of the corresponding correct answer in the answer sheet provided.
STRICTLY NO ERASURES.
1. The rental collection was received in advance, P7, 600. A nominal method was used. At the end of the period, P1,
600 is not yet earned. The adjusting entry is
a. Debit unearned rent income P6, 000; credit rent income P6, 000
b. Debit rent income P6, 000; credit unearned rent income P6, 000
c. Debit unearned rent income P1, 600; credit rent income P1, 600
d. Debit rent income P1, 600; credit unearned rent income P1, 600
2. A purchase of supplies was debited P3, 800 using the real account P1, 300 cost of supplies were actually on hand
when the period ended. The adjusting entry is
a. Debit supplies P1, 300; credit supplies expense P1, 300
b. Debit supplies expense P2, 500; credit supplies P2, 500
c. Debit supplies expense P1, 300; credit supplies P1, 300
d. Debit supplies P2, 500; credit supplies expense P2, 500
3. An interest on notes receivable was received in advance in the amount of P2, 000. Real method was used. At the
end of the period P1, 600 is actually earned. The reversing entry is
a. Debit unearned interest income, P1, 600; credit interest income P1, 600
b. Debit interest income, P1, 600; credit unearned interest income P1, 600
c. Debit unearned interest income, P400; credit interest income P400
d. Not applicable
4. Paid an insurance premium amounting to P9, 000. Expense method was used, at the end of the period, P3, 500
has actually expired. The effect on net income if adjusting entry was not prepared
a. The net income is overstated by P5, 500
b. The net income is understated by P5, 500
c. The net income is overstated by P3, 500
d. The net income is understated by P3, 500
5. Total salaries paid on January 5, 2010, P5, 000. Out of the amount paid, P1, 500 is applicable on the preceding
period 2009. The effect on 2009 balance sheet accounts if no adjusting entry is prepared
Assets
a. Overstated P1, 500
b. Understated P1, 500
c. No effect
d. No effect

Liabilities
No effect
No effect
Overstated P1, 500
Understated P1, 500

Capital
Overstated P1, 500
Understated P1, 500
Understated P1, 500
Overstated P1, 500

6. The allowance for bad debts has a debit balance of P600. The accounts receivable has a debit balance of P100,
000. The allowance for bad debts should be adjusted to one percent of the outstanding accounts receivable. The
adjusting entry is
a. Debit bad debts P1, 000; credit allowance for bad debts P1, 000
b. Debit bad debts P400; credit allowance for bad debts P400
c. Debit bad debts P1, 600; credit allowance for bad debts P1, 600
d. Answer is not given

7. Machinery was acquired on March 31, 2010 P210, 000 with an estimated life of 5 years with a residual value of
P10, 000 at the end of its life. The adjusting entry on December 31, 2010 is
a. Debit depreciation expense P30, 000; credit accumulation depreciation P30, 000
b. Debit depreciation expense P33, 333.33; credit accumulation depreciation P33, 333.33
c. Debit depreciation expense P40, 000; credit accumulation depreciation P40, 000
d. Debit depreciation expense P30, 000; credit machinery P30, 000
8. A P200, 000 12%, 90-day note was issued to a supplier dated November 1, 2010. The interest was not yet paid at
the end of the year 2010. The adjusting entry for December 31, 2010 is
Debit
a. Accrued interest income P4, 000
b. Interest expense P4, 000
c. Accrued interest income P6, 000
d. Interest expense P6, 000

Credit
Interest income P4, 000
Accrued interest expense P4, 000
Interest income P6, 000
Accrued interest expense P6, 000

9. An advertising contract was signed on September 15, 2010 with a radio station for P60, 000. The contract will
commence upon payment on October 1, 2010 and will terminate on September 30, 2011. Expense method is
used in recording prepayment. The adjusting entry for December 31, 2010 is
Debit
a. Advertising expense P15, 000
b. Prepaid advertising P15, 000
c. Advertising expense P45, 000
d. Prepaid advertising P45, 000

Credit
Prepaid advertising P15, 000
Advertising expense P15, 000
Prepaid advertising P45, 000
Advertising expense P45, 000

10. Using the information in number 9, the reversing entry is


Debit
a. Advertising expense P15, 000
b. Prepaid advertising P15, 000
c. Advertising expense P45, 000
d. Prepaid advertising P45, 000

Credit
Prepaid advertising P15, 000
Advertising expense P15, 000
Prepaid advertising P45, 000
Advertising expense P45, 000

11. The prepaid insurance account on January 1, 2010 is P10, 000 and on December 31, 2010 is P15, 000. The
insurance expense for the year is P25, 000. The amount of insurance paid during the period is
a. P35, 000
b. P30, 000
c. P25, 000
d. P20,000
12. The unearned rent income account on January 1, 2010 is P20, 000. During the year, P50, 000 was collected
representing advance rent income. The unearned rent income account as December 31, 2010 is P25, 000. The
rent income earned during the year is
a. P70, 000
b. P55, 000
c. P50, 000
d. P45, 000
13. The salaries paid during the month are P90, 000. The salary charged as expense in the income statement for the
month is P80, 000. The account Salary Payable has a balance of P20, 000 at the end of the month. The salary
payable has a balance at the beginning of the month is
a. P10, 000
b. P20, 000
c. P30, 000
d. P60, 000
14. The cash collection from interest income is P85, 000 during the month. The accrued interest income account as
of January 1, 2010 is P75, 000 and January 31, 2010 is P70, 000. The interest income earned during the month
is
a. P90, 000
b. P85, 000
c. P80, 000
d. P75, 000
15. The ledger of Lyka Service Center showed the following balances
Cash
Accounts receivable
Accounts payable
Lyka, capital
Lyka, drawing
Expenses
Service revenues

800, 000
400, 000
200, 000
560, 000
?
120, 000
640, 000

What is the Lyka, drawing account balance?


a. P70, 000
b. P80, 000
c. P90, 000

d. P100, 000

16. Jameanns Beauty Parlor has an equity of P1, 100, 000 as of January 1, 2010 and P1, 240, 000 as of December
31, 2010. The owner had an additional investment of P100, 000 and withdrawal of P120, 000 for 2010. What is
Jameanns net income/net loss for 2010?
a. P160, 000 net income
c. P160, 000 net loss
b. P120, 000 net income
d. P360, 000 net income
17. Darlenes Income Summary account has a debit balance of P120, 000 and credit balance of P150, 000 as of
December 31, 2010. The closing entry should
a. debit to Darlenes capital P30, 000and credit Income Summary P30, 000
b. debit to Income Summary P30, 000 and credit Darlene capital P30, 000
c. debit to Darlene capital P120, 000and credit Income Summary P120, 000
d. debit to Darlene, capital P30, 000and credit Darlene, drawing P30, 000
18. Eriz Enterprise had a profit of P600, 000 in 2010. Accounts receivable decreased by P80, 000 and accounts
payable increased by P90, 000. During the year depreciation expense was provided P60, 000. It started its
operation in 2010. What is net cash flows from operating activities using the indirect method?
a. P670, 000 b. P490, 000 c. P650, 000 d. P830, 000
Item 19 through 22 is based on the following data:
On September 1, 2010, Warren Farias Enterprises bought a brand new computer costing P65, 000. It has an
estimated life of 5 years and a scrap value of P5, 000 at the end of its life. the accounting period ends on December
31, 2010.
19. How much is the annual depreciation of the computer?
a. P4, 000
b. P4, 333
c. P12, 000
d. P13, 000
20. How much depreciation expense that should be recorded at the end of the accounting period?
a. P3, 000
b. P4, 000
c. P4, 333
d. P12, 000
21. How much is the carrying amount of the computer as of December 31, 2010?
a. P47, 000
b. P48, 000
c. P60, 000
d. P61, 000
22. If the computer will be sold on January 1, 2011 at an amount of P62, 000, how much is the gain or loss on
disposal?
a. P1, 000 gain
b. (P1, 000) lossc. P3, 000 gain
d. (P4, 000) loss
23. Karlo Perez Co. has an unpaid rental in the amount of P6, 000. The bookkeeper mistakenly recorded the
adjustment at P9, 000. The adjusting entry to correct the balances of accounts affected in the entry would be
Debit
a. Rent Expense, P3, 000
b. Rent Expense, P6, 000
c. Accrued Rent Expense, P3, 000
d. Accrued Rent Expense, P6, 000

Credit
Accrued Rent Expense, P3, 000
Accrued Rent Expense, P6, 000
Rent Expense, P3, 000
Rent Expense, P6, 000

Item 24 through 25 is based on the following data:


Michael Scofield Company has acquired a printing machine worth P500, 000 on September 1, 2010. The
machine has an estimated life of 5 years with a scrap value of 1/10 of its acquisition value at the end of its
serviceable life
24. What is the annual depreciation rate of the printing machine?
a. 16%
b. 17%
c. 18%
d.20%
25. What is the carrying amount of the printing machine on December 31, 2010?
a. P450, 000 b. P470, 000 c. P480, 000 d. P490, 000

UNIVERSITY OF ST LA SALLE
COLLEGE OF BUSINESS AND ACCOUNTANCY
BACOLOD CITY
ACCOUNTING 1 HM
MIDTERM EXAM
AY 2015-2016, 1st Semester
ANSWER SHEET
Name ___________________________________ Course, Yr. & Section: __________ Score _________
Test 1: True or False
(1pt. each)

Test II. Multiple Choices Theory


(1pt. each)

Test III. Multiple Choice Problems


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