Fundamentals of Accounting I ACCOUNTING CYCLE: Completion
Fundamentals of Accounting I ACCOUNTING CYCLE: Completion
Fundamentals of Accounting I ACCOUNTING CYCLE: Completion
BCSV
Fundamentals of Accounting I
ACCOUNTING CYCLE: Completion
I. CONCEPTUAL SKILLS
A. True or False
Write A if the statement is true otherwise, write B.
1. Accounts receivables not collectible within 12 months after reporting date is classified as
noncurrent assets.
2. Comprehensive income is the change in equity during a period resulting from transactions and
other events, other than changes resulting from transactions with owners in their capacity as
owners.
3. An income statement is a formal statement showing the financial position of an entity for a given
period of time.
4. The statement of changes in equity is a basic statement that shows the movements in the
elements of the owner’s net worth.
5. Financial statement users are assumed to have no reasonable knowledge of business and
financial accounting matters.
6. Notes to financial statements is not required since all information are stated already in the
statement of comprehensive income, changes in equity, and financial position.
7. Cash receipt from a sale of machine is an example of an investing activity. The business is
engage in manufacturing and selling of machines.
8. Accrued expense understates liabilities if not recorded or recognized in the period incurred.
9. Advances from customers account is an income from the perspective of a company using accrual
basis accounting.
10. Depreciation expense is an example of noncash expense that reduces company’s profit.
11. If a company wanted to determine its profit under cash basis, they would include prepaid
insurance expired in the computation.
12. Statement of changes in equity is usually prepared before statement of comprehensive income. B
13. Post-closing trial balance contains only real accounts.
14. Reversing entries brings about segregation of items within an accounting period.
15. Prepaid expenses initially recorded as assets and adjusted at yearend can be reversed at the
beginning of an accounting period.
B. Multiple Choice
Choose the letter of the best answer.
1. A document prepared to prove the equality of debits and credits after all adjustments have been
prepared is
A. Adjusted statement of financial position
B. Adjusted trial balance
C. Adjusted financial statements
D. Post-closing trial balance
2. An entity is preparing the annual financial statements based on the adjusted trial balance. Which
financial statement shall be prepared first?
A. Statement of financial position
B. Balance sheet
C. Income statement
D. Choices A and B are correct
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3. Closing entries
A. Are optional step in the accounting cycle.
B. Affect only real accounts.
C. Permit an entity to analyze routine and repetitive transactions the same way all the time.
D. Remove the balances from the temporary accounts.
9. Which of the following statements best describes the purpose of closing entries?
A. To facilitate posting and taking a trial balance.
B. To determine the amount of net income or net loss for the period.
C. To reduce the balances of temporary accounts to zero so that these are used to accumulate
the revenue, expenses and withdrawals of the next period.
D. To complete the record of various transactions that were started in a prior period.
C. Shows that the accounting equation is in balance at the end of the accounting period.
D. All of the above are correct.
16. A reversing entry should never be made for an adjusting entry that
A. Accrues unrecorded revenue.
B. Adjusts expired costs from an asset account to an expense account.
C. Accrues unrecorded expenses.
D. Adjusts unexpired costs from an expense account to an asset account.
17. Adjusting entries that should be reversed include those for prepaid or unearned items that
A. Create an asset or a liability account.
B. Were originally entered in a revenue or expense account.
C. Were originally entered in an asset or liability account.
D. Create an asset or a liability account and were originally entered in a revenue or expense
account.
18. An entity initially records prepayments in real accounts and makes reversing entries when
appropriate. Which of the following year-end adjusting entries should be reversed?
A. The adjusting entry to record depreciation for the period.
B. The adjusting entry to record the portion of service fees received in advance that is earned
by year-end.
C. The adjusting entry to record supplies used during the period.
D. The adjusting entry to record service fees earned by year-end but not billed.
19. The trial balance debit or credit amount of each account is combined with the amount of any
debit or credit adjustment to that account to determine the new balance of the account. This
process is known as
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A. Footing
B. Cross-footing
C. Balancing
D. Totaling
23. In the Philippines, the common practice is to present in the statement of financial position
A. Current assets before non-current assets, current liabilities before non-current liabilities and
equity after liabilities.
B. Non-current assets before current assets, non-current liabilities before current liabilities and
equity after liabilities.
C. Current assets before non-current assets, non-current liabilities before current liabilities and
equity after liabilities.
D. Non-current assets before current assets, current liabilities before non-current liabilities and
equity after liabilities
25. Accrued revenue would normally appear in the statement of financial position under
A. Non-current assets
B. Current liabilities
C. Long-term liabilities
D. Current assets
V Manpower Services
Unadjusted Trial Balance
December 31, 2015
Debit: Credit:
Cash P 120,000
Accounts receivable 80,000
Office supplies 20,000
Office equipment 50,000
Accumulated Depreciation – Office equipment 5,000
Janitorial equipment 200,000
Accumulated Depreciation – Janitorial equipment 20,000
Service revenue 650,000
Salaries expense 170,000
Supplies expense 24,000
Transportation expense 36,000
V, Capital 25,000
700,000 700,000
Adjustments to be made:
Accrued salary expense, P 30,000
Unrecorded service revenue, P 150,000
From P 20,000 supplies, used office supplies = P 12,000
Depreciation, 10% of cost
Personal drawings of Mr. V, P 10,000
Problem 3: The following is the post-closing trial balance of IT Company dated March 31, 2014:
Debit: Credit:
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Cash P 60,000
Accounts receivable 140,000
Allowance for uncollectible accounts P 1,400
Unused supplies 400
Equipment 120,000
Accum. Depreciation – Equipment 24,000
Accounts payable 44,400
Notes payable 50,000
Accrued interest payable 600
IT, Capital 200,000
P 320,400 P 320,400
At the end of the month, the following information is available to effect adjustments:
A. The insurance in #2 for P 6,000 is applicable for six months starting April 1.
B. The rent of P 12,000 paid in #3 is for 3 months, starting April 1.
C. The promissory note in #5 is earning 12% interest per annum. The note is dated April 1 and is
due on June 30.
D. Uncollectible accounts expense is estimated at 2% of accounts receivable balance.
E. The annual depreciation is 20% of cost.
F. The unused supplies balance is P 500.
Problem 4: The following accounts were taken from the trial balance of Gunther Enterprises as of
December 31, 2015:
Debit: Credit:
Cash P 160,000
Notes receivable – trade 150,000
Accounts receivable 72,000
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Problem 5: The accountant of Deckard Shaw Services made the following erroneous closing entry:
Problem 6: On December 31, 2015, Franco Rental Services prepared a Statement of Comprehensive
Income and Statement of Financial Position and failed to take into account certain adjusting entries.
The Statement of Comprehensive Income, prepared on this incorrect basis, reflected P 20,400 net
income, after income taxes.
The Statement of Financial Position after closing entries and income taxes reflected total assets of P
90,000; total liabilities of P 40,000; and owner’s equity of P 50,000. The data for the adjusting entries
that the company failed to take into account were:
(a) Recorded depreciation for the year on an equipment that costs P 85,000 with an estimated useful
life of 10 years and a residual value of P 5,000 was P 800.
(b) Wages amounting to P 17,000 for the last three days of December 2015 were not paid and not
recorded (the next payroll will be on January 10, 2016).
(c) Rent revenue of P 4,800 was collected on December 1, 2015 for office space for the period of
December 1, 2015 to February 28, 2016. The P 4,800 was credited in full to rent revenue when
collected.
(d) Income tax rate is 32%.
35. What amount of adjustment was made to reflect the correct depreciation for 2015?
36. What amount of adjustment was made to reflect the correct income tax expense for
2015?
37. How much is the correct net income (loss) after taxes for the year 2015?
38. What is the correct amount of liabilities?
39. If the adjusting entries were not taken into account, by how much is the owner’s
equity be under- or over-stated?
Problem 7: the adjusted trial balance for Cham Services as of June 30, 2014 is presented below:
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Cash P 21,700
Accounts receivable – Trade* 4,200
Supplies 1,800
Prepaid Insurance 6,300
Land 43,500
Buildings 132,000
Accum. Depreciation – Bldg. P 25,000
Accounts payable 3,700
Notes payable** 10,300
Salaries payable 6,600
Deferred income 2,600
Loans payable*** 100,000
Cham, Capital ?
Service income 78,600
Wages expense 14,800
Utilities expense 8,100
Insurance expense 6,700
Supplies expense 5,100
Depreciation expense 8,800
Interest expense 13,200
Miscellaneous expense 1,200
P 267,400 P 267,400
* Semi-annual payments of P 700 is due every February 1 and June 30 of every year for three years.
** Classified as trade.
*** Quarterly payments of P 5,000 is due every March 31, June 30, September 30 and December 31 of
every year for five years.
Problem 8: Ser Corp. failed to recognize accruals and prepayments since the inception of its business six
years ago. The accruals and prepayments at the end of 2013 are given below:
45. What is the net effect of the above errors in the 2013 income statement?
46. What is the net effect of the above errors on assets?
47. What is the net effect of the above errors on liabilities?
Problem 9: Red horse Corporation’s accounting records provided the following information:
12/31/13 12/31/2012
Current Assets ? 240,000
Property, Plant, and Equipment 1,700,000 1,600,000
Current Liabilities 130,000 ?
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All assets and liabilities of the entity are reported at yearend. Working capital of P102,500 remained
unchanged from 2012 to 2013. Profit in 2013 was P73,000. There were no other changes in owner’s
equity.
Compute for:
48. Noncurrent liabilities, December 31, 2013
49. Current Assets, December 31, 2013
Problem 10: Demon Company had the following assets at December 31, 2013:
Cash P520,000
Accounts receivable, net 1,760,000
Notes receivable 3,050,000
Prepaid expenses 120,000
Property, plant, and Equipment, net 10,800,000
An analysis of accounts takes place on December 31, 2013 and returned the following results:
o Included in the cash account is a P20,000 which is earmarked for payment of bonds due in early
2014 and a P 180,000 which is earmarked for the acquisition of a machine, it is expected to be
disbursed on January 21, 2014.
o An open account receivable from an executive officer of the company, in the amount of
P140,000. Collectible within 30 days. This amount is not included in the above accounts
receivable.
Problem 11: On May 3, 2013, Lucky Co. received a 180 day, 15% promissory note from El Tzi, a
customer. The note has a face value of P230,000. Company’s fiscal yearend falls on September 30, 2014.
Problem 12: Swine Co. sells office equipment contracts agreeing to service equipment for a two – year
period. Cash receipts from contracts are credited to unearned service contract revenue and service
contract costs are charged to service contract expense as incurred. Revenue from service contract is
recognized as earned over the lives of the contracts.
Additional information for the year ended December 31, 2013 is as follows:
55. What amount should Swine report as unearned service contract on its 2013
statement of financial position?
Problem 13: On December 31, 2013, the bookkeeper of Vector Co. provided the following information:
Accounts payable P2,500,000
Notes payable - short term 2,000,000
Serial bonds 10,000,000
Accrued interest on bonds, to be paid on 300,000
January 17, 2014
Deferred rental 100,000
o Deposits and advances from customers in the amount of P500,000 is included in accounts
payable.
o Annual Interest on notes payable is 9%. It was dated October 31, 2013. No interest has been
accrued on this note.
o Serial bonds is payable in quarterly installments of P500,000 per year starting 2014.
56. In the Dec. 31, 2013 statement of financial position, how much current liabilities
should be reported?
57. In the Dec. 31, 2013 statement of financial position, how much noncurrent liabilities,
if any, should be reported?
Problem 14: Sequiola Co. reported the following real accounts for the past two years of operation:
2014: 2015:
Current assets P 365,000 P 450,000
Non-current assets 1,435,000 1,350,000
Total assets P 1,800,000 P 1,800,000
During 2015, the owner invested additional P 1,200,000 cash and withdrew P 900,000 cash.
58. What is the amount of net income (loss) for the calendar year 2015?
Problem 15: Under the accrual basis, rental income of Vin Company for the calendar year 2014 is P
600,000. Additional information regarding rental income are presented below:
59. Under the cash basis, how much rental income should be reported by Vin in year
2014?
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Problem 16: The following information was obtained from the incomplete records of Tinker related to its
expenses:
12/31/13: 12/31/14:
Total payments made P 670,000
Total expenses 690,000
Prepaid expenses P 120,000 ?
Accrued expenses 230,000 190,000
60. What is the balance of the prepaid expenses account on December 31, 2014?
“You are capable of more than you know. Choose a goal that seems right for you and strive to be the best, however
hard the path. Aim high. Behave honorably. Prepare to be alone at times, and to endure failure. Persist! The world
needs all you can give.”
~ E.O. Wilson
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Suggested Key
I. CONCEPTUAL SKILLS
A. True or False
1. B 9. B
2. A 10. A
3. B 11. B
4. A 12. B
5. B 13. A
6. B 14. B
7. B 15. B
8. A
B. Multiple Choice
1. B 14. D
2. C 15. C
3. D 16. B
4. A 17. D
5. B 18. D
6. D 19. B
7. A 20. A
8. A 21. D
9. C 22. A
10. C 23. A
11. D 24. C
12. C 25. D
13. D
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