Far Easter University

Institute of Internal Auditing Student Chapter’s

MOCK QUALIFYING EXAMINATION

Name:
Contact No:
FND ACT 2 Section Code:

Answer Sheet

Problem 1:
Amount for the year ended 2014
Cost of Goods Sold
Net Sales
Gross Profit
Net Income

Problem 2:
Le’Joy Accounting Firm
Adjusted Trial Balance
December 31, 2014
Account Title Debit Credit
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Supplies
Prepaid Rent
Prepaid Advertising
Office Equipment
Accumulated Depreciation – Office Equipment
Unearned Service Revenue
Jonas, Capital
Jonas, Drawings
Service Revenue
Advertising Expense
Supplies Expense
Doubtful Accounts Expense
Rent Expense
Depreciation Expense
Total

Correcting Entries
e)

1)

2)

Total Assets = Total Revenue =

Total Liabilities = Total Expenses =
Total Owner’s Equity =
Adjusting Journal Entries
a)

b)

c)

d)

f)

g)

Problem 3:

1. 5. 9.
2. 6. 10.
3. 7.
4. 8.

Problem 4:

Adjusting Journal Entries

a)

1b)

2b)

c)

d)

e)

f)

g)

h)
 Adjusted Trial Balance
December 31, 2014
Account Title Debit Credit
Cash
Accounts Receivable
Allowance for Bad Debts
Prepaid Supplies
Library
Accumulated Depreciation – Library
Medical Equipment
Accumulated Depreciation – Medical Equipment
Loans Payable
Accounts Payable
SS and EC Premiums Payable
HDMF Premiums Payable
PhilHealth Premiums Payable
Withholding Taxes Payable
Lorraine, Capital
Lorraine, Personal
Medical Fees Earned
HDMF Premium Expense
PhilHealth Premium Expense
Salaries Expense
Rent Expense
SS and EC Premium Expense
Taxes and Licenses Expense
Utilities Expense
Interest Expense
Rent Payable
Depreciation Expense
Unearned Medical Fees
Supplies Expense
Tax and Licenses Payable
Interest Payable
Utilities Payable
Bad Debts Expense
Total

Problem 5

1
2
3
4

Hi guys!! Walang limutan ha! Lahat ng natutunan n’yo ay isapuso’t isa-isip. Lalong lalo na yung adjusting
entries! Goodluck on your accounting journey! We will still lend you our hands whenever you need some .
May God bless you! And pray always! – Teacher Ann

Good luck and God bless! Wag kayong mahihiyang magtanong sa amin, basta alam namin, sasagutin namin! 
Always find a way to see the bigger picture - Kuya Jonas
THEORIES PART 1

1. Which of the following is NOT an essential characteristic of an asset?

a. The item has a probably chance of providing future benefits to the business enterprise
b. The item has been paid for
c. The amount of the item can be reasonably estimated
d. The value of the item is established in past transaction

2. It is the specific principle, basis, convention, rule and practice adopted by an enterprise in preparing and
presenting the financial statements.
a. Accounting policy c. Conceptual framework
b. Accounting estimate d. Qualitative characteristic

3. Which of the following accounts normally has a credit balance?

a. Sales return and allowances
b. Sales discount
c. Treasury Stock
d. Allowance for doubtful accounts

4. The accounting process is of 5 basic phases. The statement that best describes the classifying phase is
a. Transactions are analyzed in terms of their impact on the accounting equation.
b. Accountable transactions are entered into the accounting books
c. Journal Entries are posted to the ledgers on per-accounting books.
d. Financial statements are prepared to serve as the end-product of accounting.

5. The basic financial statements are: (1) Balance Sheet (2) Statement of Retained Earnings (3) Income
Statement (4) Statement of Cash Flows. In which of the following sequences does an accountant
ordinarily prepare the statements?
a. 1,3,2,4
b. 1,2,3,4
c. 3,2,1,4
d. 3,2,4,1

6. The general rule on revenue recognition calls for recording of a revenue account in the books
a. When the customer’s order is received
b. When the customer’s order is accompanied by a check as an advanced payment
c. When the transaction results to recording an account receivable
d. When the title to the goods changes (transfer of title)

7. If the beginning inventory is overstated, what effect would this error has on cost of goods sold and net
income for the year ended, respectively?
a. Overstated, Understated c. Overstated, Overstated
b. Understated, Overstated d. Understated, Understated
8. When a specific customer’s account is written-off by a company using the allowance method, the effect
on the net income and the net realizable value of the accounts receivable is

Net Income Net Realizable Value of Accounts Receivable

a. None none
b. Decrease Decrease
c. Increase Increase
d. None Decrease

9. A company using a periodic inventory system neglected to record a purchase of merchandise on account
at year-end. This merchandise was omitted from the year-end physical count. How will these errors
affect inventory at year-end and cost of goods sold for the year?

Inventory Cost of Goods Sold

a. No effect Understate
b. No effect Overstate
c. Understate Understate
d. Understate No effect

10. Liabilities are arranged in the balance sheet in the order of

a. Liquidity c. Maturity
b. Materiality d. All of these

11. The seller is the one that actually paid for the freight charges and is likewise the one responsible for the
same.
a. FOB Shipping point, freight prepaid
b. FOB Shipping point, freight collect
c. FOB Destination, freight prepaid
d. FOB Destination, freight collect

12. Which of the following is a recordable even or item?

a. Changes in managerial policy
b. The value of human resources
c. Changes in personnel
d. None of these

13. A trial balance may prove that debits and credits are equal, but
a. An amount could be entered in the wrong account
b. A transaction could have entered twice
c. A transaction could have been omitted
d. All of these
14. Which of the following would not be a correct form for an adjusting entry?
a. A debit to a revenue and a credit to a liability
b. A debit to an expense and a credit to a liability
c. A debit to a liability and a credit to a revenue
d. A debit to an asset and a credit to a liability

15. If the inventory account at the end of the year is understated, the effect will be to
a. Overstate the gross profit, or sales
b. Understate the net purchases
c. Overstate the cost of goods sold
d. Overstate the goods available for sale

16. Adjusting entries that should be reversed include

a. All accrued revenues
b. All accrued expenses
c. Those that debit an asset or credit a liability
d. All of these

17. A trial balance is prepared to

a. Prove that there were no errors made in recording transactions into the journal
b. Prove that no errors were made in posting to the ledger
c. Prove that each account balance is correct
d. Summarize the account balance to help prepare financial statements

18. The general term employed to indicate a delay of the recognition of an expense already paid or of
revenue already received is
a. Depreciation
b. Deferral
c. Accrual
d. Inventory

19. Posting
a. should be performed in account number order.
b. accumulates the effects of journalised transactions in the individual ledger accounts.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. is accomplished by examining ledger accounts and seeing which ones need updating.

20. Which of these reflects the situation if a prepayments account is not adjusted for the amount of the
expense consumed?
a. The statement of financial position prepayments account is understated and the profit is understated.
b. The statement of financial position prepayments account is overstated and the profit is overstated.
c. The statement of financial position prepayments account is overstated and the profit is understated.
d. The statement of financial position prepayments account is understated and the profit is overstated.
21. To enter the profit (or loss) for the period into the above worksheet requires an entry to the
a. income statement debit column and the statement of financial position credit column.
b. income statement credit column and the statement of financial position debit column.
c. income statement debit column and the income statement credit column.
d. statement of financial position debit column and the statement of financial position credit
column.

22. The purpose of the post-closing trial balance is to

a. prove that the ledger is correct.
b. prove the equality of the statement of financial position account balances that are carried forward
into the next accounting period.
c. prove that the profit is correct.
d. list all the statement of financial position accounts in alphabetical order for easy reference.

23. If errors occur in the recording process, they

a. should be corrected as adjustments at the end of the period.
b. should be corrected when preparing closing entries.
c. cannot be corrected until the next accounting period.
d. should be corrected as soon as they are discovered.

24. Which of these is incorrect? Current liabilities

a. are normally expected to be paid from existing current assets or through the creation of other current
liabilities.
b. are listed first in the liabilities section of the statement of financial position.
c. should include the portion of long-term debt that is expected to be paid within the next year.
d. none of the statements is incorrect.

25. A reversing entry

a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in the previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when an entity sustains a loss in one period and reverses the effect with a profit in the
next period.

26. The use of reversing entries

a. is a required step in the accounting cycle.
b. changes the amounts reported in the financial statements.
c. simplifies the recording of subsequent transactions relating to adjustments.
d. is required for all adjusting entries.

27. A credit note is used as documentation for a journal entry that requires a debit to
a. Sales and a credit to Cash.
b. Sales Returns and Allowances and a credit to Accounts Receivable.
c. Accounts Receivable and a credit to a contra revenue account.
d. Cash and a credit to Sales Returns and Allowances.
28. Profit will always result if
a. the cost of sales exceeds other expenses.
b. sales exceed cost of sales.
c. sales exceed other expenses.
d. gross profit exceeds other expenses.

29. Using the perpetual inventory system, the inventory account balance appearing in a worksheet represents
the
a. ending inventory.
b. beginning inventory.
c. cost of inventory purchased.
d. cost of inventory sold.

30. Westcoe’s goods in transit at December 31 include:

sales made purchases made
(1) FOB destination (3) FOB destination
(2) FOB delivery point (4) FOB delivery point
Which items should be included in Westcoe's inventory at December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)

31. If the beginning inventory for 2010 is overstated, the effects of this error on cost of goods sold for 2010,
net income for 2010, and assets at December 31, 2011, respectively are
a. Overstatement, understatement, overstatement
b. Overstatement, understatement, no effect
c. Understatement, overstatement, overstatement
d. Understatement, overstatement, no effect

32. Which of the following errors will cause an imbalance in the trial balance?
a. Omission of a transaction in the journal
b. Posting an entire journal entry twice to the ledger
c. Posting a credit of $ 720 to Accounts Payable as a credit of $ 720 to Accounts Receivable.
d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

33. The failure to properly record an adjusting entry to accrue an expense will result in an:
a. Understatement of expenses and an understatement of liabilities
b. Understatement of expenses and an overstatement of liabilities
c. Understatement of expenses and an overstatement of assets
d. Overstatement of expenses and an understatement of assets.

34. If ending accounts receivable exceeds beginning accounts receivable:

a. Cash collections during the period exceed the amount of revenue earned.
b. Net income for the period is less than the amount of cash basis income.
c. No cash was collected during the period.
d. Cash collections during the year are less than the amount of revenue earned.
35. Goods in transit should be included in the inventory of the buyer when the
a. public carrier accepts the goods from the seller.
b. terms of sale are FOB Seller
c. terms of sale are FOB destination.
d. none of the above.

36. The premium on a two-year insurance policy expiring on June 30, 2013, was paid in total on July 1,
2011. The original payment was debited to the insurance expense account. The appropriate journal entry
has been recorded on December 31, 2011. The balance in the prepaid asset account on December 31,
2011, should be
a. the same as the original payment.
b. higher than if the original payment had been initially debited to an asset account.
c. lower than if the original payment had been initially debited to an asset account.
d. the same as it would have been if the original payment had been initially debited to
an asset account.

37. Which of the following statements regarding the conceptual framework is incorrect?
a. The framework is concerned with general-purpose financial statements
b. The framework applies to financial statements of business reporting enterprises both in the private and
public sectors
c. In cases where there is conflict between the framework and a PFRS, the requirement if the framework
will prevail
d. The framework deals with concepts of capital

38. What is the objective of financial statements according to the Framework

a. To provide information about the financial position, performance, and changes in financial position of
an enterprise that is useful to a wide range of users in making economic decision
b. To prepare and present a balance sheet, income statement, a cash flow statement, and a statement of
changes in equity
c. To prepare and present comparable, relevant, reliable and understandable information to investors and
creditors
d. To prepare financial statements in accordance with all applicable standards and interpretation

39. Marjorie is the owner and manager of sMiles Trave & Tours. Marjorie purchased a new Hyundai Elantra
for personal use and a L300 Truck to be used in business. Which of the following assumptions,
principles or constraints would be violated if both the Hyundai Elantra and L300 Truck are recorded as
assets of the business?
a. Materiality
b. Conservatism
c. Continuity assumption
d. Separate entity assumption

40. The basic elements of the financial position of an entity include the following
 A. Resources controlled by the entity as a result of past event and from which future economic benefits
are expected to flow to the entity
B. Present obligations of an entity arising from past events, the settlement of which is expected to result
in an outflow of economic benefits
C. Increases in economic benefits during the accounting period other than those relating to contributions
from equity participant
D. Decreases in economic benefits during the accounting period other than those relating to
contributions from equity participant
E. Residual interest in the assets of the entity after deducting its liabilities

a. All of these
b. A, B, C and D only
c. A, B and E only
d. A, B and C only

PROBLEMS PART 2

Problem 1:

The following are useful information regarding Join Mee Co.’s Income Statement for the year ended 2014. Net Income is
40% of Net Sales, Net Purchases and Operating Expenses equaled to 40,000 and 50,000 respectively and the cost of the
inventory is decreased by 30,000. Determine the Net Sales for the year ended 2014, Cost of Goods Sold for the year ended
2014, Gross Profit for the year ended 2014 and Net Income for the year ended 2014. (Assume Net Income = Operating
Profit)

Problem 2: Jonas organized a service type of organization named Le’Joy Accounting Firm on January 1, 2013. He is
practicing his profession as a Certified Public Accountant in a building near Morayta. He contributed Cash, transferred the
right of his receivables to the company. In addition, he invested office equipment to help the operations of the company.
At December 31, 2014, the end of the current year the trial balance of the company s as follows:

Le’Joy Accounting Firm

Trial Balance
December 31, 2014
Cash ₱ 12,000
Accounts Receivable 18,000
Allowance for Doubtful Accounts ₱900
Supplies 1,500
Prepaid Rent 30,000
Prepaid Advertising 6,000
Office Equipment 30,000
Accumulated Depreciation 5,000
Unearned Service Revenue 60,000
Jonas, Capital 36,600
Jonas, Drawing 5,000
Total: ₱102,500 ₱102,500

The newly hired auditor, Bernz has seen flaws as Jonas did not set up any adjusting entries for the year due to his
lack of Bookkeeping training. The following information was found during the year.
 a) The unearned service revenue is for the client who opted to pay in advance for the firm’s future services. Jonas
was hired by Chok Marcelo, the client and the company started their obligation on February 1 of this year. The
contract ceases on January 31 of next year.

b) Jonas opted to put up an advertising campaign in order to boost the company’s financial performance. He hired
Harmonami Advertising Company for 1 year to advertise the firm in the city on July 1, 2014. The firm has
benefited the campaign which started on July 31, of the same year.

c) Supplies on hand as of the end of the year are ₱400.

d) The firm has a bad debt policy of 5 point of outstanding accounts receivable. However, Bernz has forgotten to set
up an entry for the firm’s client on November 30, which they billed for ₱10,000. There have been ₱5,000
collections for the year. Consequently, the bookkeeper also set up any adjustments for the firm’s bad debts.

e) Jonas has withdrawn ₱5000 for personal use.

f) The prepaid rent account is for the rent of his office in Morayta, Bernz forgot to set up adjusting entries for this
asset. The prepaid rent is good for 3 years.

g) The firm uses straight-line for depreciation on his office equipment that has an estimated useful life of 6 years.

Instruction: Prepare all the required journal entries (Journal Entries includes Correcting Entries) and adjusting entries for
the year. Compute for the total debit, credit, assets, liabilities, owner’s equity, revenue and expenses.

Problem 3: JCompany wanted to determine certain unknown (1-10) under the different sets of conditions. The given
financial data as well as the unknown are presented below.

1st Condition 2nd Condition 3rd Condition 4th Condition

Assets, beginning 10,000 6. ? 8,200
Assets, ending 11,000 11,600
Liabilities, beginning 6,000 12,000 4,000
Liabilities, ending 1. ? 6,000
Capital, beginning 2. ?
Capital, ending 5,000 10,000
Sales 15,000 14,000
Inventory, beginning 6,000 7. ?
Inventory, ending 7,000 7,000 1,500
Purchases 10,000 6,000 5,000
Goods Available for Sale
Cost of Goods Sold 4. ? 8. ? 10. ?
Gross Profit 6,000
Operating Expenses 4,000 4,000
Net Income (Net loss) 3. ? 5. ? 9. ?
Drawing 1,500 400
Additional Investment 5,000 1,000
Problem 4: The following account balances appeared in the general ledger of Dr. Ann Lorraine at the end of December
2014 the second year of her private medical practice:

Cash 350,403
Accounts Receivable 205,000
Allowance for Bad Debts 7,550
Prepaid Supplies 11,500
Library 155,000
Accumulated Depreciation – Library 15,500
Medical Equipment 96,000
Accumulated Depreciation – Medical Equipment 2,000
Loans Payable 200,000
Accounts Payable 18,000
SS and EC Premiums Payable 200
HDMF Premiums Payable 100
PhilHealth Premiums Payable 75
Withholding Taxes Payable 427
Lorraine, Capital 180,650
Lorraine, Personal 42,000
Medical Fees Earned 729,000
HDMF Premium Expense 1,100
PhilHealth Premium Expense 825
Salaries Expense 72,000
Rent Expense 110,000
SS and EC Premium Expense 4,974
Taxes and Licenses Expense 9,000
Utilities Expense 75,700
Interest Expense 20,000

Data for Adjustments follows:

a. Rent Expense represents payment for rent from January to November.

b. The estimated annual depreciation of the property and equipment is 10% per year of its acquisition cost. The library is
part of the doctor’s investment at the start of the practice on January 1, 2013 while the medical equipment was acquired in
two groups: P48,000 was acquired August 1,2013 and the balance was acquired six months after the first acquisition.

c. Included in the medical fees is P12,500 received in advance for surgical services to be rendered early next year

d. Only P2,750 of the supplies has not been used up.

e. Taxes accrued at the end of the year amounted to P2,500.

f. Interest expense includes the 18% interest on a 200-day loan discounted when the loan was taken 60 days ago.

g. Received a bill from Meralco for electric consumption for the month of December, P3,500.

h. A provision for uncollectible accounts equal to 5% of the outstanding receivables is deemed reasonable

Required: 1. Prepare Adjusting Journal Entries

2. Prepare an Adjusted Trial Balance

Problem 5:Tutor Evaluation!!! Strengths, Weaknesses, Suggestions and Comments 