COLEGIO DE DAGUPAN MIDTERM EXAMINATION ACCTG 1 & 2 FUNDAMENTALS OF ACCOUNTING I

Instructions: Turn off your cell phone/s. Use of CP is not allowed during exam. Write ALL YOUR ANSWERS legibly on your TEST BOOKLET. Name: Course, Year and Block: Subject Code & Description: Date:

SET A Part I. MULTIPLE CHOICE. Choose the letter that best corresponds to your answer. 1. Which of the following best describes accounting? a. Can be thought of as the language of business b. Is of limited or little use by individuals outside of the business c. Records economic data but does not communicate the data to users d. Relies upon concepts and principles that are independent of specific user needs 2. Equipment with an estimated market value of $80,000 is offered for sale at $85,000. The equipment is acquired for $10,000 in cash and a note payable of $65,000. The amount used in the buyers accounting records to record this acquisition is: a. $80,000 b. $85,000 c. $10,000 d. $75,000 3. The business entity concept means that: a. An entity is organized according to state or federal statutes. b. An entity is organized according to the rules set by the FASB c. The entity is an individual economic unit separate and apart from its owners d. The owner is the entity. 4. Properties owned by a business are referred to as: a. stockholders equity b. liabilities c. assets d. equities 5. If total assets decreased by $1,000 during a period of time and liabilities increased by 2,000 during the same period, then the amount and direction (increase or decrease) of the periods changes in owners equity is: a. $1,000 increase

b. $3,000 increase c. $3,000 decrease d. $1,000 decrease 6. How does the rendering of services on account affect the accounting equation? a. Liabilities increase; owners equity decreases b. Assets increase; liabilities increase c. Assets decrease; owners equity increases d. Assets increase; owners equity increases 7. If assets and liabilities at the beginning of the year were $205,000 and $140,000 respectively and at the end of the year were $225,000 and $175,000 respectively, calculate the net income if drawings of $35,000 were made and $10,000 of additional investments were infused. a. Net income of $10,000 b. Net income of $15,000 c. Net loss of $15,000 d. Net income of $25,000 8. Which of the following financial statements reports information as of a point in time? a. Retained earnings statement b. Statement of cash flows c. Income statement d. Balance sheet 9. Transactions affecting owners equity include: a. only the withdrawals made and investments to the business b. only the investments to the business and net income or loss c. only withdrawals made and net income or loss d. withdrawals made, investments to the business, and net income or loss 10. a. b. c. d. Which of the following would not appear on the income statement? Service Revenue Interest Expense Unearned Revenue Fees Earned

11. Cindys Maid Service began the year with total assets of $120,000 and owners equity of $40,000. During the year the company earned $90,000 in net income and withdrawals amounting to $20,000 were made. Total assets at the end of the year were $215,000. Owners equity at the end of the year was: a. $130,000 b. $110,000

c. $150,000 d. $135,000 12. Using the information in Question 11, total liabilities at the end of the year were: a. $080,000 b. $090,000 c. $110,000 d. $105,000 13. Use the following appropriate amounts to calculate net income: Revenues $12,000 Liabilities 5,000 Expenses 4,000 Assets 19,000 Drawings 4,000 $06,000 $08,000 $04,000 $14,000

a. b. c. d.

14. Liabilities are best defined as: a. Amounts the company expects to collect in the future from customers. b. Debts or obligations the company owes resulting from past transactions. c. The amounts that owners have invested in the business. d. Distributions to the owner. 15. The financial statement that represents activity over the entire life of the company is the: a. Income statement. b. Statement of financial accounting. c. Balance sheet. d. Statement of cash flows. 16. a. b. c. d. Which financial statement is prepared at a point in time? Income statement Balance sheet. Statement of changes in equity. Statement of cash flows.

17. S1: Accounting is a system that collects and processes financial information about an -------------organization and reports that information to decision makers. S2: Assets are recorded at market value or replacement cost. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect 18. S1: The accounting period in which service revenue is recognized (i.e., revenue for --------000services rendered) is generally the period in which the cash is collected. S2: In accounting and reporting for a business entity, the accounting and reporting for ------the business must be kept separate from other economic affairs of its owners. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

19. S1: The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity. S2: The financial statement that shows an entity's economic resources and its liabilities is -----------0the statement of cash flows. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

20. S1: Companies prepare financial statements at the end of each year and more often as ---------0needed. S2: The income statement equation is Expenses - Revenues = Net Income. a. b. c. d. 21. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect S1: Stockholders are creditors of a company.

S2: Accounts payable and accounts receivable are reported on the income statement. a. Only statement 1 is correct b. Only statement 2 is correct

c. Both statements are correct d. Both statements are incorrect 22. S1: The stockholders' equity of a company is the difference between assets and liabilities. S2: Accounts payable, notes payable and wages payable are liability accounts. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

23. S1: Expenses are the necessary costs a business incurs to earn revenue. S2: Revenue is reported on the income statement only if cash was received at the point of sale. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

24. S1: After recording each transaction, total assets must equal total liabilities plus capital. S2: Borrowing cash from the bank causes assets to increase and liabilities to increase. a. b. c. d. 25. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect S1: Providing services to customers for cash causes capital to increase.

S2: Receiving cash in advance from a customer for services to be provided in the future --------------0causes assets to increase and capital to increase. a. b. c. d. 26. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect S1: Expenses have the effect of decreasing Owners equity.

S2: The Drawing account increases with a credit and decreases with a debit. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

27. S1: A journal provides a chronological record of all transactions affecting a firm. S2: A credit to an account balance always results in the balance decreasing. a. b. c. d. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect

28. S1: For each transaction, there must be at least one debit amount and one credit amount. S2: Paying employees' salaries for the current period is recorded with a debit to Salaries --------0Expense. a. b. c. d. 29. a. b. c. d. 30. a. b. c. d. 31. a. b. c. Only statement 1 is correct Only statement 2 is correct Both statements are correct Both statements are incorrect Normal balances for assets & liabilities Debit, Debit Credit, Debit Debit, Credit Credit, Credit When a journal entry consists of a debit to Accounts Payable Assets increased Liabilities increased Revenue increased Liabilities decreased Which of the following is a nominal or income statement account? Salaries expense Accounts receivable Salaries payable

d. Owners capital 32. a. b. c. d. The unearned revenue account is a/an: Asset account Liability account Expense account Revenue account

33. Properties and rights owned by the business a. Assets c. Income b. Liabilities d. Expenses 34. The financial statement that reports the portion of change in owners equity resulting from revenues and expenses during a specified time interval. a. Balance Sheet b. Statement of Financial Performance c. Notes to Financial Statements d. Cash Flow Statement

35. a. b. c. d.

Remaining claims on the assets after deducting all liabilities Assets Liabilities Profit Capital

36. Principle stating that revenues should be recognized when earned and expense should be recognized when incurred regardless of cash transactions. a. Entity Concept b. Stable Monetary Unit c. Accrual d. Going Concern 37. A Profit is earned if:

a. Assets exceed Expenditure b. Income exceeds Expenditure c. Cash Inflow exceeds Cash Outflow d. Income exceeds Liabilities

38. a. b. c. d. 39. a. b. c. d.

The credit side of an account: Is the right-hand side of the account Is the left-hand side of the account Depends on whether the account is an asset, liability, or capital Can be either side of the account depending on how the accountant set up the system. A debit may signify a(n): Increase in liability accounts Increase in the capital account Decrease in expense accounts Increase in asset accounts

40. In which of the following types of accounts are increases recorded by credits? a. Expense, Asset b. Expense, Liability c. Liability, Revenue d. Revenue, Withdrawal 41. a. b. c. d. 42. a. b. c. If an expense is incurred but not paid, then Owners equity will increase Assets will decrease Liabilities will increase Expenses will decrease Which of the following is a category or element of the balance sheet? Expenses Gains Liabilities

d. Losses 43. a. b. c. d. 44. a. b. c. d. 45. a. b. c. d. 46. a. b. c. d. Which of the following is an asset account? Accounts Payable Prepaid Insurance Unearned Revenue Salaries Expense If the business collected payment from charge customers, then: Total assets will increase Total liabilities will decrease Total assets will remain the same Owners equity will increase Which of the following is correct? When assets increase, are credited. When assets increase, are debited and credited. When assets increased, are not entered into the books When assets increase, are debited. Which of the following is not an asset? Money owed to the firm by its debtors. Cash in the firms safe Loan obtained from a bank Factory owned by the firm

47. Accounts: a. Are records of increases and decreases in individual financial statement items. b. Are only used by large entities with many transactions. c. Do not reflect money amounts. d. Are used only by entities that manufacture products. 48. a. b. c. d. The process of initially recording a business transaction is called: Sliding Posting Journalizing Transposing

49. Which of the following applications of the rules of debit and credit is true? a. Decrease accounts receivable with credits and the normal balance is credit. b. Increase rent expense with debits and the normal balance is debit. c. Increase accounts payable with debits and the normal balance is credit. d. Decrease cash with debits and the normal balance is credit. 50. Which of the following entries records the payment of an account payable? a. Debit Utilities Payable, Credit accounts Payable b. Debit Accounts Payable, Credit Utilities Payable c. Debit Utilities Expense, Credit Accounts Payable d. Debit Accounts Payable, Credit Cash 51. Which of the following entries records the payment of rent for the current month?

a. b. c. d.

Cash, debit; Rent expense, credit Rent Expense, debit; Cash, credit Rent expense, debit; Accounts Payable, credit Accounts Payable, debit; Rent expense, credit

52. Which of the following entries records the payment of a utilities bill from the power company? a. Debit Utilities Payable, credit Accounts Payable b. Debit Accounts Payable, credit Utilities Payable c. Debit Utilities Expense, credit Accounts Payable d. Debit Accounts Payable, credit Utilities Expense 53. Which of the following entries records the collection of cash from cash customers? a. Accounts Receivable, debit; Fees earned, credit b. Fees Earned, debit; Accounts Receivable, credit c. Fees Earned, debit; Cash, credit d. Cash, debit; Fees Earned, credit 54. a. b. c. d. Which of the following is an asset? Prepaid Expense Accrued Expense Unearned Revenue Professional Fees

55. When cash is debited, a typical credit is to a. withdrawals c. accounts receivable b. accounts payable d. expenses 56. What function do journals serve in the accounting process? a. Classifying c. Recording b. Summarizing d. Recording 57. a. b. c. d. Which of the following statements is true about a proper journal entry? An explanation must follow each debit and each credit. The name of the month should be repeated for each entry. The posting reference column is filled in prior to posting. All debits are listed before credits.

For numbers 58 - 60, use the following data pertaining to Mada Lee Lhang Etoh Trading: P150,0 Salaries P32,0 Service Revenue 00 Expense 00 Telephone Interest Expense 5,000 Revenue 2,500 Supplies 20,00 Expense 2,500 Cash 0 Unearned Rentals 10,000 Withdrawals 7,500 58. Using the data above, the total revenues amount to a. P182,500 b. P172,500 c. P162,500 d. P152,500

59. a. b. c. d. 60. a. b. c. d.

The total expenses for the period to be shown in the income statement P47,000 P39,500 P07,500 P32,000 Net profit for the period would be P113,000 P125,500 P133,000 P135,500

PART II. PREPARATION OF JOURNAL ENTRIES. Prepare the journal entries concerning the following transactions. Mr. Macko P. Yah is operating Toyo Motor Service Center. The following were the transactions that transpired during the month of August. Aug. 3 Paid P18,000 covering office rent for 3 months. 5 Received cash from customers on account, P51,000 7 Ordered automotive supplies, P12,600 8 Billed customers for services rendered, P86,000 10 Made payments on accounts payable, P26,000 12 Received the supplies ordered on Aug. 7 and agreed to pay for them in 30 days 15 Paid salaries for the first fifteen days, P43,750 16 Discovered some of the supplies were of a different specifications as ordered and --------- returned for a full credit, P2,410 20 Received cash from a customer for services provided, P115,485 22 Paid the utility bill for August, P3,200 25 Paid the telephone bill due to Smart for August, P2,580 26 Received a bill to be paid in September, for advertisements placed in the local -----------0newspaper during the month of August, P16,920 29 Billed a customer for services provided, P45,000 30 A client made a partial payment of his account, P30,500 30 Paid salaries for the last fifteen days of August, P40,000 31 Withdrew cash for personal use, P15,000 31 Made a partial payment on Notes Payable, P50,000

Record the following transactions using the accounts: Cash; Notes Receivable; Accounts Receivable; Automotive Supplies; Prepaid Rent; Automotive Equipment; Notes Payable; Accounts Payable; Mortgage Payable; Macko P. Yah, Capital; Macko P. Yah, Personal; Service Revenues; Interest Revenue; Advertising Expense. Salaries Expense; Repairs Telephone & Expense; Utilities Expense; Expense; Maintenance Expense; Miscellaneous

Prepared by: Rusty L. Lopez, CPA