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to balance by P100?
1. Which of the following equations is not true? (a) a P100 debit was posted as a P100 credit
(a) Assets + Liabilities = Owners Equity (b) a P100 debit was posted as a P100 credit and a
P100 credit was posted as a P100 debit
(b) Assets = Liabilities + Owners Equity (c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never
(c) Assets Owners Equity = Liabilities posted to the general ledger
(d) Assets Liabilities = Owners Equity 8. Increase in net assets may result from:
(a) revenues
(b) expenses
2. Dave started his own cheese factory on March 16, (c) withdrawals
2003. Which of the following transactions would not (d) all of the above are correct
be admissible in Daves accounting system for the
month of March?
(a) On March 18, Dave purchased a cow on account 9. Which of the following statements is false?
for P3,000. (a) Increases to owners capital are recorded with
(b) On March 20, Dave sold his cow to a fast food credits.
restaurant for P5,000. (b) Sales are recorded as debits.
(c) On March 21, Dave contracted with a local radio (c) Expenses reduce owners capital.
station to run several one-minute advertising (d) Expenses and dividends are both recorded as
spots during the month of April. debits.
(d) All of the above transactions would be
admissible for Daves accounting system in the 10. Zinc Company recorded office supplies as an asset
month of March. account when the supplies were purchased. Failure
to make an adjusting entry reflecting the use of
3. Jeff purchased a new register system for his grocery these supplies will result in:
store, paying P1,000 in cash and issuing a P6,000 (a) an understatement of assets
note payable for the balance owed. As a result of (b) an overstatement of owners equity
this transaction, Jeffs balance sheet would reflect: (c) an understatement of liabilities
(a) an increase in assets and an increase in (d) an understatement of owners equity
liabilities
(b) a decrease in assets and an increase in liabilities
(c) an increase in assets and a decrease in liabilities 11. Compared to its 2001 cash basis net income, Pry
(d) an increase in assets and an increase in owners Companys 2001 accrual basis net income increased
equity when it:
I. declared a cash dividend in 2000 that it paid in
4. The double-entry system of accounting means that 2001.
every transaction: II. wrote off more accounts receivable balances
(a) is recorded initially on both the journal and the that it reported as uncollectible accounts
general ledger expense in 2001.
(b) increases one general ledger account while III. had lower accrued expenses on December 31,
decreasing another 2001 than on January 1, 2001.
(c) affects at least two general ledger accounts and IV. sold used equipment for cash at a gain in 2001.
is recorded by an equal amount of debits and
credits
(d) results in changes in accounts on both sides of 12. Before 2001, Druid Company used the cash basis of
the balance sheet accounting. As of December 31, 2001, Druid
changed to the accrual basis. Druid cannot
5. Which of the following statements is not correct? determine the beginning balance of supplies
(a) debits may increase assets inventory. What is the effect of Druids inability to
(b) credits may increase liabilities determine beginning supplies inventory on its
(c) debits may increase liabilities accrual basis net income and December 31, 2001
(d) credits may increase owners equity accrual basis owners equity?
29. Which of the following is not a basic characteristic of 37. In a cash flow statement, which of the following
a system of cash control? items is reported as a cash flow from financing
(a) use of a voucher system activities?
I. Payments to retire mortgage notes
(b) combined responsibility for handling and
II. Interest payments on mortgage notes
recording cash
III. Dividend payments
(c) daily deposit of all cash received (a) I, II and III
(d) internal audits at irregular intervals (c) I only
(b) II and III
(d) I and III
30. The following statements relate to the petty cash
fund. Which statement is true? 38. In a cash flow statement, if used equipment is sold
(a) The amount of coins and currency in the petty at a gain, the amount shown as a cash flow from
cash fund is the same before the fund is investing activities equals the carrying amount of the
reimbursed as it is afterwards. equipment:
(b) Entries to record the replenishment of the (a) plus the gain.
imprest petty cash fund result in debit to various (b) plus the gain and less the amount of tax
expense accounts and a credit to the petty cash attributable to the gain.
funds. (c) plus both the gain and the amount of tax
(c) At any time, the sum of the cash in the petty attributable to the gain.
cash fund and the total petty cash vouchers (d) with no addition or subtraction.
should equal the amount for which the imprest
petty cash fund was established.
(d) Under the imprest petty cash system, it is not 39. In a cash flow statement, which of the following
necessary to adjust unreplenished petty cash would increase reported cash flows from operating
expenses at end of the year. activities using the direct method?
(a) dividends received from investments
(b) gain on sale of equipment
31. An enterprise should prepare a cash flow statement (c) gain on early retirement of bonds
and should present it as: (d) change from straight-line to accelerated
(a) supplementary financial statement. depreciation
(b) note to financial statement.
(c) supporting schedule for amount appearing as 40. ABC Companys accounts receivable decreased from
cash and cash equivalent. the beginning to the end of the year. In the
(d) integral part of the enterprises basic financial companys cash flow statement, the cash collected
statements. from customers would be:
(a) sales revenue plus accounts receivable at the
32. Cash flows in the cash flow statement are: beginning of the year.
(a) inflows of cash and cash equivalents. (b) sales revenue plus the decrease in accounts
(b) outflows of cash and cash equivalents. receivable from beginning to the end of the
(c) inflows and outflows of cash. year.
(d) inflows and outflows of cash and cash (c) sales revenue less the decrease in accounts
equivalents. receivable from beginning to the end of the
year.
(d) the same as sales revenue.
33. Cash receipts from issuing shares and other equity
instruments are:
(a) cash inflows from investing activities. 41. The following statements relate to the financial
(c) cash inflows from financing activities. statements. Which is not?
(b) cash outflows for investing activities. (a) The purpose of financial statements is to
(d) cash outflows for financing activities. provide information about the financial position,
performance and cash flows of an enterprise
34. In a cash flow statement, interest payments to that is useful to management in making
lenders and other creditors should be classified as: economic decisions.
(a) operating activities. (b) Financial statements do not provide all the
(c) lending activities. information that users may need to make
(b) borrowing activities. economic decisions since they largely portray
(d) financing activities. the financial effects of past events and do not
necessarily provide nonfinancial information.
35. In a cash flow statement, alternatively interest (c) Financial statements also show the results of
received and dividend received may be classified as the stewardship of management, or the
cash flow from: accountability of the management for the
(a) operating activities. resources entrusted to it,
(c) financing activities. (d) The management of an enterprise has the
(b) investing activities. primary responsibility for the preparation and
(d) revenue activities. presentation of the financial statements of the
enterprise.
49. The basic components of the financial statements do
42. The following statements relate to the principles of not include:
statement presentation, except: (a) balance sheet (c) statement of cash flows
(a) The financial statements should present fairly (b) income statement (d) statement of cost of goods
the financial position, performance and cash sold
flows of an enterprise.
(b) The financial statements should be based on 50. The basic components of financial statements
historical cost rather than market value. include (choose the incorrect one):
(c) A balance sheet should classify cash to (a) statement of changes in equity (c) statement of
distinguish between cash on hand, petty cash retained earnings
fund, cash in bank and cash equivalent. (b) statement of recognized gains and losses
(d) Offsetting of receivables and payable balances (d) cash flow statement
with the same person is allowed if a right of
offset exists or if separate settlement of those 51. The purpose of accounting is:
balances is expected. (a) to provide comprehensive financial information
about a business or other economic entity.
43. Which of the following statements is correct about (b) to provide comprehensive reports on the debits
the principles of statement presentation? and credits.
(a) Financial statements are prepared on a (c) to interpret the results of operations of a
liquidating concern with appropriate disclosure. business entity.
(b) Technically, offsetting applies to reporting of (d) to classify the business transactions of a
assets net of valuation. business entity.
(c) An enterprise should prepare its financial
statements, except for cash flow information, 52. The principles, which constitute the ground rules for
under the accrual basis of accounting. financial reporting, are termed as generally accepted
(d) The financial statements should present fairly accounting principles. To qualify as generally
only the financial position and performance of accepted, an accounting principle:
an enterprise because, anyway, the cash flows (a) must guide corporate managers in the
are not very significant in making decisions. preparation of financial statements which should
be understood by widely scattered stockholders.
(b) must guide corporate managers in the
44. The overall principles of statement presentation preparation of financial statements which will be
include (choose the incorrect one): used in making collective bargaining agreements
(a) The financial statements should present fairly with trade unions.
the financial position, performance and cash (c) must guide entrepreneurs in the choice of
flows of the enterprise. investments.
(b) Management should select and apply accounting (d) must receive substantial authoritative support
policies that are in conformity with ASC from the public and the members of the
standards. profession.
(c) An enterprise should prepare its financial
statements in accordance with the cash basis of
accounting. 53. The opinions and pronouncements of the ASC of
(d) Financial statements should be prepared on a the PICPA provide the highest authoritative
going concern basis. pronouncements on accounting principles. The
authority of these opinions rests upon their:
45. Interim financial statements are usually made for a (a) rules and regulations of the SEC
period of: (c) integrity of the board
(a) one month (b) management and their internal accounting staff.
(c) six months (d) opinions of authors.
(b) three months
(d) twelve months 54. The basic assumptions or fundamental propositions
concerning the economic, political and sociological
46. Financial statements must be prepared: environment in which accounting must operate are
(a) monthly (c) semi-annually called:
(b) quarterly (d) yearly (a) accounting postulates
(c) accounting theories
47. Technically, offsetting in financial statements is (b) accounting principles
accomplished when: (d) accounting opinions
(a) the allowance for doubtful accounts is deducted
from accounts receivable. 55. In accounting, those standards and practices that
(b) the accumulated depreciation is deducted from have won acceptance because of their logic and
property, plant and equipment. proven usefulness are referred to as:
(c) the total liabilities are deducted from total assets (a) accounting dogmas
to arrive at net assets. (c) accounting procedures
(d) gains or losses from disposal of noncurrent (b) accounting principles
assets are reported by deducting from the (d) accounting theories
proceeds the carrying amount of the assets and
the relating selling cost. 56. An accounting entity is created whenever there is a
need to understand the economic and financial
48. These portray the financial effects of transactions activities of:
and other events by grouping them into broad (a) an economic unit
classes according to their economic characteristics. (c) a partnership
(a) financial reports (c) interim statements (b) a financial unit
(b) financial statements (d) audit reports (d) a single proprietorship
57. Strict adherence to the entity concept would not (b) nature of expense analysis
allow: (d) matching principles method
(a) the use of the account form of the balance
sheet. 65. These are income or expenses that arise from
(b) the use of replacement cost as a basis of events or transactions that are clearly distinct from
valuation on the financial statements of the ordinary activities of the enterprise and
branches. therefore are not expected to recur frequently or
(c) the capitalization of certain construction costs regularly.
subsidiary companies. (a) extraordinary items
(d) a parent company to take up in its books its (c) changes in accounting estimates
proportionate share in its subsidiarys profits and (b) ordinary items
losses. (d) changes in accounting policies
58. Which of the following is the primary elements that 66. A transaction that is material in amount, unusual in
distinguishes accounting for corporations from nature, but not infrequent in occurrence, should be
accounting for legal forms of business (such as presented separately as:
partnership)? (a) component of income from continuing
(a) The entity theory relates primarily to the other operations, but not net of applicable income tax.
forms of business organization. (b) component of income from continuing
(b) The corporation draws a sharper distinction in operations, net of applicable income tax.
accounting for sources of capital. (c) extraordinary item, net of applicable income tax.
(c) In a corporation, retained earnings may be (d) prior period adjustment, but not net of
reduced only by the declaration of dividends. applicable income tax.
(d) Generally accepted accounting principles apply
to corporations but have relatively little 67. The amounts of revenues, expenses and net income
applicability to other forms of business or loss from ordinary activities attributable to a
organizations. discontinuing operation and the related income tax
expense are shown:
59. The accounting period convention regards the life of (a) as extraordinary items.
the entity as consisting of: (b) as part of the continuing operation.
(a) a chain of one-year segments (c) separately in juxtaposition with the continuing
(c) the remaining corporate life of the business operation.
(b) the entire life of the venture (d) as gain or loss from discontinuing operation.
(d) the nature life of the owner(s)
62. As a minimum, information to be presented on the 70. The net income or loss for the period comprises the
face of the income statement are as follows, except: following components, each of which should be
(a) extraordinary items (c) net income or loss disclosed on the face of the income statement:
for the period I. Income or loss from ordinary activities
(b) provisions (d) finance costs II. Extraordinary items
IV. Fundamental errors
63. This capital concept considers the all price changes (a) I and II
affecting assets and liabilities in the measurement of (b) I and III
net income. Accordingly, capital is equal to the net (c) II and III
assets of the enterprise valued at current cost, (d) I, II and III
rather than historical cost.
(a) physical capital (c) capital maintenance 71. A consideration in determining the useful life of an
approach intangible asset is not the:
(b) financial capital (d) net assets approach (a) legal, regulatory or contractual provision
(b) initial acquisition
(c) expected action of competitors
64. This method is simple to apply in many smaller (d) effect of obsolescence, demand, competition and
enterprises. Expenses are aggregated in the income other economic factor
statement such as depreciation, purchases of
materials, transportation costs, wages and salaries,
and advertising costs.
(a) functional analysis
(c) cost of sales method
72. Indicate which one of these statements is true. (d) amortized over the remaining useful life of the
(a) Since intangible assets lack physical substance, patent for the product whose market would
they need to be disclosed only in the notes to have been impaired by competition from the
the financial statements. newly patented product.
(b) Goodwill should be reported as a contra account
in the stockholders equity section. 80. A purchased patent has a remaining legal life of 15
(c) Totals of major classes of assets can be shown years. It should be:
in the balance sheet, with asset details disclosed (a) expensed in the year of acquisition.
in the notes to the financial statements. (b) amortized over 15 years regardless of the useful
(d) Intangible assets are typically combined with life.
plant assets and natural resources and then (c) amortized over its useful life if less than 15
shown in property, plant and equipment section. years.
(d) amortized over 20 years.