FAR EASTERN UNIVERSITY
Institute of Accounts, Business and Finance
FUNDAMENTALS OF ACCOUNTING 1
REVIEWER FOR FINALS
Which of the following accounts will not appear in the post-closing trial balance?
Prepaid insurance expense
Accumulated depreciation
Unearned rental income
Doubtful account expense
Tim Point Company prepares reversing entries at the beginning of the accounting period. Which of the following adjusting entries prepared by Tim Point Company should be reversed?
The entry to take up the earned portion of rent collected in advance
The entry to take up the expired portion of the insurance premium paid in advance
The entry to take up the unused supplies at the end of accounting period
The entry to record depreciation of a fixed asset
After posting the closing entries:
Income summary, revenue accounts and equity accounts have zero balances
Expenses accounts, revenue accounts and equity accounts have zero balances
Revenue accounts, expenses accounts and income summary account have zero balances
The balance of all accounts will become zero
Which of the following are real accounts?
Rent expense, Capital, Prepaid Insurance
Notes payable, Notes receivable, Fees earned, Cash
Accounts receivable, Salaries expense, Commission income
Prepaid advertising, Accumulated depreciation, Unearned revenue
Failure to recognize the consumption of prepaid expenses will:
Overstates net income and asset
Overstates capital and understates liability
Understates net income and overstates asset
Not affect liability but overstates expenses
If a company uses the periodic inventory method, which of the following is subtracted from cost of goods available for sale to arrive at cost of goods sold?
Ending inventory
Net purchases
Beginning inventory
Purchase discounts and purchase returns and allowances
J Company should include the following items in its merchandise inventory:
Goods purchased FOB destination still en route.
Goods held on consignment from the R Company to J Company
Goods sold by J Company FOB shipping point still en route
Goods purchased FOB shipping point still en route
As a general rule, which of the following is not subject to reversal?
Accrued expenses
Accrued revenues
Prepaid expenses recorded as assets upon payment
Deferred revenues recorded as revenue upon receipt.
An adjusting entry should never include
A debit to an expense account and a credit to a liability account
A debit to a liability account and a credit to revenue account
A debit to a revenue account and a credit to a liability account.
All of these are acceptable
Which of the following properly describes a deferral?
Cash is received after revenue is earned.
Cash is received before revenue is earned.
Cash is paid after expense is incurred.
Cash is paid in the same time period that an expense is incurred.
The advanced receipt of rental fee is recorded by debiting cash and crediting rent income, this approach of recording is known as
Asset method
Expense method
Liability method
Income method
If the advanced payment of an expense was initially recorded in an asset account, then the adjusting entry will involve
A debit to expense and a credit to an asset account in the amount of the unexpired cost.
A debit to expense and a credit to an asset account in the amount of the expired cost.
A debit to an asset account and a credit to expense in the amount of the expired cost.
A debit to an asset account and a credit to expense in the amount of the unexpired cost.
If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, the end-of-period adjusting entry would involve
A liability account and an asset account.
As asset or contra-asset accounts and an expense account.
A liability account and an expense account.
A receivable account and a revenue account.
Asset cost less its related accumulated depreciation equals:
Net realizable value
Depreciable cost
Residual value
Book value
The adjusting entry to record the depreciation of equipment for the fiscal period is
Debit Depreciation Expense; credit Equipment
Debit Depreciation Expense; credit Accumulated Depreciation
Debit Accumulated Depreciation; credit Depreciation Expense
Debit Equipment; credit Depreciation Expense
At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
Total assets will be understated at the end of the current year.
The balance sheet and income statement will be misstated but the statement of owner's equity will be correct for the current year.
Net income will be overstated for the current year.
Total liabilities and total assets will be understated.
If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?
Increases the balance of a contra asset account
Increases the balance of an asset account
Decreases the balance of an owner's equity account
Increases the balance of an expense account.
What is the type of account and normal balance of Allowance for Doubtful Accounts?
Contra asset, credit
Asset, debit
Asset, credit
Contra asset, debit
A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been performed at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b.profit to be overstated.
c.liabilities to be understated.
d.revenue to be understated.
Which economic event would not be recorded in the cash receipts journal?
Cash sale of inventory
Collection of an accounts receivable
Cash purchase of inventory
None of the above, i.e., all would be recorded in the cash receipts journal.
Which if the following best presents the effect of performing services on credit?
Increase in assets and decrease in owner's equity.
Increase in assets and increase in owner's equity.
Increase in assets and increase in liabilities.
Increase in liabilities and increase in owner's equity.
Debit postings in an accounts receivable subsidiary ledger generally come from the
Sales journal.
Cash receipts journal.
Purchases journal.
Cash payments journal.
Which of the following discount has no account of its own and requires no special accounting entry?
Cash discount
Trade discount
Purchase discount
Sales discount
If a customer returns goods to a merchandiser, what effect, will the return have on the books of the merchandiser?
A decrease in sales account.
A decrease in the accounts payable and allowance accounts.
An increase in the purchase return and allowance account.
An increase in the sales return and allowance account.
A purchase discount results from
Returning goods to the seller.
Receiving a purchase allowance from the seller.
Buying a large enough quantity of merchandise to get the discount
Paying within the discount period
In a merchandising operation, the Sales account should include
Only credit sales of merchandise
Only cash sales of merchandise
Both cash and credit sales of merchandise
Sales of both merchandise and other assets of the business
Sales return and allowances is commonly referred to as:
An expense account
A contra revenue account
A revenue account
A cost of goods sold account
Revenue is normally entered in the accounting records when:
A customer orders goods
A customer pays for the goods
Goods are received
Goods are sold
The adjusted trial balance
Is used to prepare the financial statements
Is where adjusting entries are journalized
Is identical to the trial balance
Is prepared to check the income statement debit and credit equally
Financial statements are generally prepared directly from the
Journal
Source documents
General ledger
Adjusted trial balance
A balance sheet is prepared to
Find the total shared outstanding
Calculated the amount of total reserves
Report total assets and liabilities
Calculate the amount of profit earned
The components of a complete set of financial statements does not include
Manufacturing schedule
Income statement
Cash flow statement
Statement of financial position
The essential characteristics of an asset are
It is a result of past event or transaction.
It provides future economic benefit.
It has a cost or value that can be measured reliably.
All of these
In the statement of cash flows, receipts from sale of property, plant, and equipment would be classified as cash inflows from.
Liquidating activity
Operating activity
Investing activity
Financing activity
The balance in a deferred revenue account represents an amount that is
Earned and collected
Earned but not yet collected
Collected but not yet earned
Not yet earned and not yet collected
The general journal, sales journal, purchases journal, cash receipts journal and cash disbursements journal are collectively known as
Books of final entry
Books of original entry
Books of accounts
Business documents
Which is not an example of an operating activity?
Cash receipts from sale of goods or the rendering of services.
Additional investment of cash by owners.
Cash payments to suppliers.
Cash payments to employees.
Adjusting entries are necessary in order to:
Detect and correct an erroneously recorded transaction
Prove that the debit and credit totals of the trial balance is equal
Facilitate the preparation of Financial Statements
Correctly state the balances of accounts
If owner's equity of P270,000 were two-thirds of total assets, how much would total liabilities be?
P270,000
P405,000
P110,000
P135,000
If capital is 4 times as much as total liabilities which in turn 20% of assets totaling P520,000, how much is capital?
P416,000
P420,000
P140,000
P520,000
If total liabilities increased by P30,000 during a period of time and owner's equity increased by P5,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is:
P35,000 increase
P20,000 decrease
P25,000 increase
P25,000 decrease
Merchandise with a sales price of P500 is sold on account with term 2/10 n/30. The journal entry to record the sale would include a
Debit to cash for P500
Debit to Sales Discount for P10
Credit to Sales for P500
Debit to Accounts Receivable for P490
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for P15,000. The seller paid transportation cost of P1,000 and issued a credit memorandum for P5,000 prior to payment. What is the amount of the cash discount allowable?
P160
P150
P140
P100
Merchandise with an invoice price of P4,000 is purchased on June 2 subject to terms of 2/10, n30, FOB destination. Transportation costs paid by the seller totaled P150. What is the cost of the merchandise if paid on June 12. Assuming the discount is taken?
P4,150
P4,070
P4,067
P3,920
Merchandise with an invoice price of P5,000 is purchased subject to terms of 2/10, n/30, FOB shipping point. Transportation cost paid by the seller totaled P150. What is the cost of the merchandise purchased?
P5,150
P4,900
P5,025
P5,050
These are the attributes that make the information provided in the financial statements useful to users.
Qualitative characteristics
Quantitative characteristics
Qualitative and quantitative characteristics
Underlying assumptions
Neutrality means that financial accounting information should:
Not influence or affect the decision of the users
Not be biased or prejudiced
Not have undesirable or negative consequences
All of the above
A business has cash of P6,000, notes payable of P5,000, accounts payable of P8,600, service revenue of P14,000 and salaries expense of P3,600. Based on these data, how much are its total liabilities?
P11,000
P27,600
P13,600
P19,600
Sophia Company sold merchandise to Britney Company on October 6, 2013 at a list price of P150,000, trade discounts of 5% and 8%, FOB shipping point. Cash discount terms: 2/eom, n/60. Because defective merchandise amounting to P10,000 was erroneously delivered, Sophia Company issued a credit memorandum to the buyer on October 11, 2013. Britney Company paid in full the balance due on October 25, 2013. The invoice price of goods purchased on October 6, 2013 is:
a. P131,100
b. P130,500
c. P150,000
d. P122,360
According to the rules of debit and credit, which of the following is correct?
If one liability account has been debited another liability account maybe credited for the same transaction.
Increase in revenue and expenses are recorded by debit and credit respectively.
Revenue earned on account is recorded by debit to accounts payable and credit to a revenue account.
An asset acquired by issuing a note requires a debit to drawing account and credit to notes payable account.
The accountant of Rence Company made the following adjusting entry on December 31, 2013:
Prepaid rent 1,800
Rent expense 1.800
If annual rent is paid in advance every October 1, the original transaction entry made was:
Debit Prepaid rent and Credit Cash, P1,800
Debit Rent expense and Credit Cash, P1,800
Debit Rent expense and Credit Cash, P2,400
Debit Rent expense and Credit Cash, P7,200
The accountant of Babes Company made the following adjusting entry on December 31, 2013:
Rent income 900
Unearned rent income 900
If annual rent is received in advanced every March 1, the original transaction entry made was:
Debit Cash and Credit Unearned Rent income, P900
Debit Cash and Credit Rent income, P1,080
Debit Cash and Credit Rent income, P5,400
Debit Rent income and Credit Cash, P5,400
An equal trial balance means that
Total debits equal total credits
All transactions are recorded in the correct accounts
Correct amounts are recorded
One of the accounting concepts upon which deferrals and accruals are based is
Matching
Cost
Price-level adjustment
Conservatism
What accounting concept justifies the usage of accruals and deferrals?
Going concern assumption
Materiality constraint
Consistency characteristic
Monetary unit assumption
Part II.
Indicate in which column of the worksheet each account would be extended. (20 points)
Income Statement, credit
Income Statement, debit
Balance Sheet, credit
Balance Sheet, debit
__________1. Cash __________11. Accounts receivable
__________2. Service fees income __________12. Withdrawals
__________3. Salaries expense __________13. Interest revenue
__________4. Bonds payable __________14. Unearned income
__________5. Prepaid rent __________15. Salaries payable
__________6. Insurance expense __________16. Buildings
__________7. Utilities expense __________17. Interest payable
__________8. Land __________18. Office supplies
__________9. Finance cost __________19. Equipment
__________10. Accumulated Depreciation-Bldg. __________20. Accounts payable
Part III.
Solve for the missing items in the partial income statement given below (30 points)
2007
2008
2009
2010
2011
Sales
P100,000
P120,000
P150,000
P160,000
(13)
Gross Profit
(1)
(4)
44,000
39,000
18,000
Beginning Inventory
80,000
70,000
(7)
85,000
75,000
Net Purchases
90,000
80,000
120,000
(10)
165,000
Cost of Goods Sold
70,000
(5)
(8)
(11)
135,000
Sales ret & allow
6,000
(6)
(9)
(12)
18,000
Ending Inventory
(2)
65,000
85,000
100,000
(14)
Net Sales
(3)
117,000
144,000
150,000
(15)
Part IV.
Determine if the adjustment on the individual transactions can be reversible or not. (10 points)
Reversible
Not reversible
__________1. Upon purchase of Insurance Policy for 2-year period, the company recorded the transaction by charging the whole
amount of policy purchased to appropriate asset account.
__________2. Upon receipt of full payment from a customer of their 3 years prepayments of advertisement, the company recorded the
transaction by debiting cash and crediting unearned advertising revenue
__________3. Dave Company purchased a one-year insurance policy for P18,000. On that date, the bookkeeper debited the prepaid
insurance account for P18,000.
__________4. An adjusting entry was made for one year prepayments of rental paid. Entry made was: Debit – Rent expense;
Credit – Prepaid rent
__________5. Depreciation of an equipment.
__________6. The accountant of Rence Company made the following adjusting entry on December 31, 2013:
Prepaid rent 1,800
Rent expense 1.800
__________7. The accountant of Babes Company made the following adjusting entry on December 31, 2013:
Rent income 900
Unearned rent income 900
__________8. Unpaid salaries worth P60,000.
__________9. Kay Company has prepaid insurance account balance before adjustment, P15,500, and unexpired amounts per
analysis of policies, P4,500?
__________10. Service rendered but cash not yet received worth P100,000.
