AC 501

PRE-MIDTERM EXAM
Name _____________________________ Class Schedule _________________ Date _________ Score _____

I. Multiple Choice (nx2)

1. A form of balance sheet that shows the assets on the left and equity accounts on the right side and the grand
totals must be footed on the same line to signify that it is balanced is called:
a. Account form b. Real form c. Report form d. Multiple step form

2. The income statement links up with this section of the balance sheet.
a. Owner’s equity b. Assets c. Current liabilities d. expenses and revenues

3. Which of the following is not a satisfactory statement of the accounting equation?

a. Assets = Liabilities – Owner’s equity c. Assets = Liabilities + Owner’s equity
b. Assets – Liabilities = Owner’s equity d. Assets – Owner’s equity = Liabilities

4. Owner’s equity is affected by the

a. Earning of revenues c. Payment of a liability
b. Purchase of supplies with cash d. Purchase of supplies on credit

5. Which of the following accounts will not affect owner’s equity?

a. Owner’s withdrawals c. Advertising expense
b. Land d. Professional Fees Income

6. When collections are made on Accounts Receivable

a. Total assets remain the same c. Total assets income
b. Owners’ equity increases d. Total assets decrease

7. The rule that requires accountants to prepare financial statements under the assumption that the business
will continue operating instead of being put up for sale or closure, unless evidence shows that it will not
continue.
a. Going concern assumption c. Objectivity principle
b. Business entity concept d. Historical cost principle

8. To make the information available on time is an attribute of this qualitative characteristic of accounting
information:
a. Understandability b. Relevance c. Reliability d. Comparability

9. It is the exercise of care and caution in dealing with uncertainties in measurement so as not to overstate
assets and income and not understate liabilities and expenses:
a. Neutrality b. Completeness c. Faithful representation d. Prudence

10. The financial accounting information is directed towards the common needs of users and is independent of
presumptions about particular needs and desires of specific users.
a. Relevance b. Completeness c. Verifiability d. Neutrality

11. Accountants do not recognize that the value of the peso changes over time. This concept is called the
a. Stable-monetary unit concept c. Cost principle
b. Going concern concept d. Entity Concept

12. During the lifetime of an entity, accountants produce financial statements at arbitrary point in time in
accordance with which basic accounting concept?
a. Objectivity c. Matching
b. Conservatism d. Periodicity

13. Groovy Co. buys a 90000 worth of machine on credit. This transaction will affect the
a. Income statement only c. Income statement and statement of owner’s equity
b. Balance sheet only d. Income statement, Owner’s equity and balance sheet

14. One of the following statements about users of accounting information is incorrect. The incorrect statement
is:
a. Management is considered an internal user
b. Taxing authorities are considered external users
c. Present creditors are considered external users
d. Regulatory bodies are considered internal users
15. Many accountants are employed in business enterprises in various capacity as accounting staff, chief
accountant or controller. These accountants are said to be engaged in
a. Public accounting c. Private accounting
b. Gov’t. accounting d. Financial accounting

16. Each of the following companies is a merchandising firm, except:

a. Wholesale parts company c. Carwash
b. Candy store d. Department store

17. Accountants whose services as professionals are hired, not on employee-employer relationships are said
to be engaged in:
a. General accounting c. Private accounting
b. Public accounting d. Government accounting

18. These are also known as postulates:

a. Accounting Principles c. Accounting Assumptions
b. Accounting Standards d. GAAP

19. What is the classification of an entity that produces its own goods for sale?
a. Servicing c. Manufacturing
b. Merchandising d. All of these

20. Which of the following best describes bookkeeping?

a. The analysis part of accounting
b. The identifying part of accounting
c. The clerical part of accounting
d. The summarizing part of accounting

21. What do you call a financial statement that reports the financial condition of the business
a. Income statement c. Statement of cash flows
b. Balance sheet d. Statement of earnings

22. Which of the following accounting elements is the residue after satisfying the outside creditor’s claims?
a. Assets b. Liabilities c. Owner’s capital d. net profit

23. Which of the following is considered as a financing activity of the business?

a. Payment of operating expenses
b. Earning of revenue through rendering of services
c. Acquiring of long-term loan through bank credit
d. Acquiring of real property for future factory site

24. A financial statement that reports the sources and uses of cash.
a. Income statement c. cash flows statement
b. Balance sheet d. statement of changes in owner’s equity

25. A famous Italian monk and mathematician who was a close friend and tutor to Leonardo da Vinci, who
described a system to ensure that financial information was recorded efficiently and accurately and later
known as Father of Accounting:
a. St. Matthew b. Luke Paciolo c. Luca Pacioli d. Lucio Pacioli

26. If revenue was 45,000, expenses were P37,000 and the owner’s withdrawals were P10,000, the amount of
net income or net loss would be:
a. P7,500 net income b. P45,000 net income c. P2,500 net loss d. P37,500 net loss

27. Which of the following best states the purpose of general-purpose financial statements?
a. To disclose the market value of the firm’s assets and liabilities
b. To determine compliance with tax laws
c. To identify owner’s
d. To help users make decision

28. Which of the following has the primary responsibility for the preparation, presentation and reliability of
information in the financial statements?
a. Internal management accountant c. internal audit staff
b. External auditor d. management

29. This refers to the phase of accounting whereby liquidity, solvency, stability and profitability of an
enterprise are significantly portrayed is known as:
a. Summarizing b. Classifying c. recording d. interpreting
 30. It is the accounting standard setting body created by PRC upon recommendation of the Board of
Accountancy to assist the latter in carrying out its powers and functions under Republic Act # 9298.
a. Auditing and Assurance Standards Council
b. Financial Reporting Standards Council
c. Accounting Standards Council
d. Philippine Accounting Standards Board

II. Transaction Analysis (n x 2)

Write the appropriate letter which identifies the effect/s of each transaction on the accounting equation before the
corresponding number. The effect of the transactions given below would:

Choices:
A. Increase in Asset; increase in Liabilities
B. Increase in one Asset, decrease in another Asset
C. Decrease in Asset; decrease in Owner’s Equity
D. Increase in Owner’s Equity; decrease in another Owner’s Equity account
E. Decrease in Owner’s Equity; increase in Liabilities
F. Increase in Asset; Increase in Owner’s Equity
G. Decrease in Asset; decrease in Liabilities

2012
1. April 1 – Deposited the cash investment of the proprietor amounting to P200,000 in Cebu City Savings
Bank in the name of Jetsetter Travel Agency
2. 4 – Paid P4, 000 cash for April office rent.
3. 8 – Purchased office equipment for P25, 000 cash.
4. 12 – Incurred P3, 000 of advertising costs in the Cebu Daily News, on account.
5. 14 – Paid P6, 000 cash for office supplies.
6. 15 – Earned P9, 000 for services rendered: Cash of P1, 000 is received from the customers, and
the balance of P8, 000 is billed to customers on account.
7. 17 – Withdrew P2, 000 cash for personal use.
8. 18 – Billed the customer for services rendered totaling P1, 500.
9. 20 – Paid Cebu Daily News the amount due in full.
10. 22 – Partial collection of customer’s accounts P1, 000.
11. 24 – Issued a check to an employee for cash advances amounting to P5, 000.
12. 25 – Received P8, 000 in cash from customers who were previously billed last April 15.
13. 28 – The owner contributed to the business his personal computer costing P38, 000.
14. 29 – Borrowed money from the bank amounting to P25, 000 and signed a promissory note.
15. 30 – Paid employees’ salaries, P22, 000.

“If at first you don’t succeed, destroy all evidence that you tried.”
GOD BLESS!