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BCSV

ACCOUNTING 1

The Basic Accounting Equation [Theoretical and Computation]


Accounting Process
All steps [Theoretical]
Steps 1 to 4 [Computation]
Correcting errors in the trial balance[Theoretical and Computation]

I.
THEORIES.
Choose the letter of the best answer.
1. The basic objective of accounting is
A. To provide the information that the managers of an economic entity need
to control its operations.
B. To provide information that the creditors of an economic entity can use in
deciding whether to make additional loans to the entity.
C. To measure the periodic income of the economic entity.
D. To provide quantitative financial information about an entity that is useful
in making rational economic decisions.
2. What is the law regulating the practice of accountancy in the Philippines?
A. R.A. 9298
B. R.A. 9829
C. R.A. 9928
D. R.A. 9892
3. Financial accounting is concerned with
A. General purpose reports on financial position and financial performance.
B. Specialized reports for inventory management and control.
C. Specialized reports for income tax computation and recognition.
D. General purpose reports on changes in share prices and future estimates
of market position.
4. Financial accounting can be broadly defined as the area of accounting that
prepares
A. General purpose financial statements to be used by parties internal to the
entity only.
B. Financial statements to be used by investors only.
C. General purpose financial statements to be used by parties both internal
and external to the entity.
D. Financial statements to be used primarily by management.
5. Managerial accounting is the area of accounting that emphasizes
A. Reporting financial information to external users
B. Reporting to the SEC
C. Combining accounting knowledge with an expertise in data processing
D. Developing accounting information for use within an entity
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6. General purpose financial statements are the product of
A. Financial accounting
B. Managerial accounting
C. Both financial and managerial accounting
D. Neither financial nor managerial accounting
7. The communicating process of accounting include all of the following except
A. Recording
B. Classifying
C. Summarizing
D. Interpreting
8. Which of the following statements best describes the term going concern?
A. When current liabilities of an entity exceed current assets
B. The ability of the entity to continue in operation for the foreseeable future
C. The potential to contribute to the flow of cash and cash equivalents to the
entity
D. The expenses of an entity exceed its income
9. The financial statements that are prepared for the business are separate and
distinct from the owners according to the
A. Going concern assumption
B. Matching principle
C. Economic entity assumption
D. Accounting period assumption
10.Which underlying assumption serves as the basis for preparing financial
statements at regular artificial points in time?
A. Accounting entity
B. Going concern
C. Accounting period
D. Stable monetary unit
11.The primary users of financial information include
I.
Existing and potential investors
II.
Existing and potential lenders and other creditors
III.
User group such as employees, customers, governments and their
agencies, and the public
A.
B.
C.
D.

I only
I and II only
I and III only
I, II, and III

12.The fundamental qualitative characteristics are


A. Relevance and faithful representation
B. Relevance, faithful representation and materiality
C. Relevance and reliability
D. Faithful representation and materiality

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13.The elements directly related to the measurement of financial performance
are
A. Income and expenses
B. Assets, liabilities, and equity
C. Assets and liabilities
D. Income, expenses and equity
14.It is the residual interest in the assets of the entity after deducting all of its
liabilities
A. Income
B. Expense
C. Profit
D. Equity
15.It is an increase in economic benefit during the accounting period related to
an increase in asset or a decrease in liability that results in increase in equity
other than contribution from owners
A. Asset
B. Liability
C. Income
D. Expense
16.It is the amount of cash or cash equivalent that would have to be paid if the
same or an equivalent asset was acquired currently.
A. Historical cost
B. Current cost
C. Realizable value
D. Present value
17.Which of the following terms best describes the amount of cash or cash
equivalents that could currently be obtained by selling an asset in an orderly
disposal?
A. Fair value
B. Realizable value
C. Residual value
D. Value in use
18.If total assets increased P20,000 during a period and total liabilities increased
P12,000 during the same period, the amount and direction (increase or
decrease) of the change in owners equity for that period is:
A. A P32,000 increase
B. A P32,000 decrease
C. An P8,000 increase
D. An P8,000 decrease
19.A listing of a business entitys assets, liabilities and owners equity as of a
specific date is:
A. Statement of financial position
B. Statement of comprehensive income
C. Statement of cash flows
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D. Statement of changes in equity
20.If revenue was P45,000, expenses were P37,500, and owners drawings were
P10,000, the amount of net income (loss) would be:
A. P45,000 net income
B. P7,500 net income
C. P37,500 net loss
D. P2,500 net loss
II.
Problem Solving.
Supply the answer.
PROBLEM A:
The liabilities of Broodmother Company amounted to P126,000 and the net worth is
60%.
Q1: What is the net worth of Broodmother?
PROBLEM B:
Selected information for Storm Spirit Company for the year 2013 follows:
December 31,
December 31, 2012
2013
Cash
11,200
P51,250
Accounts Receivable
P302,450
287,600
trade
Collections from
customers on credit
P595,500
Q2: How much was the cash payments during 2013?
Q3: How much revenue on credit was earned during 2013?
PROBLEM C:
Selected information for Necrolyte Company for the year 2013 follows:
December 31, 2012
December 31, 2013
Cash
P45,550
P32,400
Cash payments during the
P234,700
year
Q4: How much was collected from customers during 2013?
PROBLEM D:
Some information that was taken from the books of Earth Spirit Corporation are as
follows:
Cash
Accounts receivable
Service income for the year (all are on
credit)
Kaolin, Capital
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Beginning
P131,250
93,000

End
204,340
234,500
P312,000

312,500

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Liabilities

42,520

Assuming there were no additional investments nor withdrawal during the year.
Q5: How much was collected from customers during the year?
Q6: What is the total amount of cash disbursements during the year?
Q7: Assuming total assets, beginning and end is P451,200 and P502,300
respectively, How much is the net income (loss) during the year?
Q8: based on Q7, How much is the net increase / decrease in liabilities
during the year?
PROBLEM E:
Below is a trial balance of Butcher Inc as of December 31. it was full of errors:
Butcher Inc.
Trial Balance
December 31, 2013
Cash
Accounts Receivables
Prepaid insurance
Equipment
Accounts payable
Unearned rent
Pudge, capital
Pudge, drawing
Service revenue
Salaries expense
Advertising expense
Miscellaneous expense

75,350
23,600
3,300
86,000
9,450
2,570
91,615
10,000
64,940
33,400
5,200
291,765

1,380
115,040

When the ledger and other records are reviewed, you discover the following: (a) the
debits and credits in the cash account total P75,350 and P53,975, respectively. (b) a
billing of P1,000 to a customer on account was not posted to the accounts
receivable account. (c) a payment of P1,500 made to a creditor on account was not
posted to the accounts payable account. (d) the balance of the unearned rent
account is P2,750. (e) the correct balance of the equipment account is P68,000. (f)
some accounts were placed in the wrong side of the trial balance.
Q9: How much is adjusted total assets as of December 31, 2013?
Q10: How much is the net income (loss) for the year ended December 31,
2013?
Q11: What is the adjusted trial balance footing total?
PROBLEM F:
Given is a trial balance of Mortred Corporation as of October 31, 2013:
Mortred Corporation
Trial balance
October 31, 2013
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Cash
Accounts receivable
Prepaid insurance
Equipment
Accounts payable
Salaries payable
Mortred, capital
Drawing
Service revenue
Salaries expense
Advertising expense
Miscellaneous expense

8,010
16,400
2,400
52,000
1,850
750
39,600
5,000
78,700
28,400
7,200
1,490
94,150

94,150

Q12: What is the adjusted trial balance total?


PROBLEM G:
On April 5, Bag Ong Bookas established an interior decorating business, Bag Ong
Deko Rasyon. During the remainder of the month, Bag Ong completed the following
transactions related to the business:
Apr.
5

Bag Ong transferred cash from a personal bank account to an account to be


used for the business, P18,000
6 Paid rent for the period of April 6 to end of month, P2,000 (an expense
account was debited)
7 Purchased office equipment on account, P10,500
8 Purchased a used truck for P18,000, paying P10,000 cash and the balance is
on credit.

10 Purchased supplies for cash, P1,315 (an asset account was debited)
12 Received cash for job completed, P7,300
20 Paid annual premiums on property insurance, P1,200 (an asset account was
debited)
23 Recorded jobs completed on account and sent invoices to customers, P4,950
24 Received an invoice for truck expenses, to be paid next month, P450
29 Paid utilities expense, P750
Paid miscellaneous expenses, P210
30 Received cash from customers who owe, P2,200
Paid salaries of employees, P3,000
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Paid creditor a portion of the amount owed for equipment purchased on April
7, P1,800.
Withdrew cash for personal use, P3,500

Q13:
Q14:
Q15:
Q16:

How much is the total assets as of Apr. 30, 2013?


How much is the profit (loss) for the month ended Apr. 30, 2013?
How much is the business net worth as of Apr. 30, 2013?
What is the trial balance footing total?

PROBLEM H:
Enigma Co. has the following trial balance as of March 31:
Cash
Accounts Receivable
Supplies
Prepaid insurance
Equipment
Bank loan
Accounts payable
Capital
Drawing
Fees earned
Salaries expense
Rent expense
Advertising expense
Miscellaneous expense

7,315
5,545
1,010
250
25,000
20,000
4,960
18,800
5,500
54,790

31,100
7,455
320
1,505
85,000
98,550
The debit and credit totals are not equal as a result of the following errors:
a. The balance of cash was understated by P900
b. A cash receipt of P1,750 was posted as a debit to cash of P7,150
c. A debit of P2,500 for a withdrawal by the owner was posted as a credit to
capital
d. The balance of P3,200 in advertising expense was entered as P320 in the trial
balance
e. A debit of P580 to accounts receivable was not posted.
f. A return of P125 of defective supplies was erroneously posted as a P215
credit to supplies
g. The balance of bank loan was overstated by P5,000
h. An insurance policy acquired at a cost of P150 was posted as a credit to
prepaid insurance.
i. Utilities expense, with a balance of P3,150. Was omitted from the trial
balance
j. A debit of P1,050 in accounts payable was overlooked when determining the
balance of the account.
Q17: How much is the correct owners equity as of March 31?
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Q18: How much is the adjusted prepaid insurance account?
Q19: What is the correct trial balance footing total?
PROBLEM I:
The trial balance of Armada Corporation as of November 30 is presented below:
Cash
Accounts receivable
Prepaid insurance
Office supplies
Accounts payable
Sarah, capital
Sarah, drawing
Fees earned
Salaries expense
Rent expense
Advertising expense
Miscellaneous expense

19,500
28,600
?
625
3,250
12,625
?
158,725
83,075
16,000
10,500
4,550

Prepaid insurance is equal to 17.5% of the drawing account balance.


The following business transactions were completed by Armada during December:
Dec.
1

Purchased office supplies on credit, P1,100


2 Paid rent on office for the month, P1,600 (Expense method is used)
3 Received cash from clients on credit, P24,200
8 Paid annual insurance premiums, P1,925

14 Paid advertising expense, P2,150


23 Paid creditors, 1,650
29 Paid miscellaneous expense, P1,065
31 Paid salaries for the month, P10,850
Recorded revenue earned and billed to clients during the month, P26,200
Purchased land for a future building site for P50,000, paying P10,000 in
cash and the balance is payable on January.
Withdrew cash for personal use, P2,500
Q20: What is the balance of the prepaid insurance as of Nov. 30?
Q21: How much is the total assets as of December 31?
Q22: How much is the net increase / decrease in total liabilities?
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Q23: What is the December 31 trial balance total?
PROBLEM J:
Icarus Co. had total assets of P4,000,000 and owners equity, which is 67% at the
beginning of the year. During the year, assets decrease to P3,520,000 and liabilities
increased by P230,000.
Q24: How much is Icarus equity at yearend?
PROBLEM K:
Selected information for Queen of Pain Company for the year follows:
Cash, Jan. 1
P130,000
Accounts Receivable, Jan. 1
190,000
Collections from customers
2,100,000*
Owners Equity, Jan. 1
380,000
Total Assets, Jan. 1
750,000
Cash, Dec. 31
160,000
Total Assets, Dec. 31
880,000
Accounts Receivable, Dec.31
360,000
Total Liabilities, Dec. 31
390,000
*included in the 2,100,000 is a P340,000 cash income from customers.
There were no additional investments or withdrawal by the owner during the year.
Q25: What is the Net profit for the current year?
Q26: What is the amount of expenses incurred for the current year?
PROBLEM L:
14,000
8,560

*Various Account*
300
1,560

20,700

Given above is a ledger balance of an account of Aqua Vera Corporation. Upon the
examination of the auditor, he observed that the cost of P300 should be a debit to
that account, the amount of P1,560 should be recorded at a correct amount of
P1,650, and the debit of P85,600 was erroneously recorded as a debit in the amount
of P8,560.
Q27: How much is the net adjustment to the account? (state if debit or
credit)
Q28: What is the correct balance of the account?
~o0o~

Trust yourself. You know more than you think you do.
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BCSV

I.
1. D
2. A
3. A
4. C
5. D
6. A
7. D
8. B
9. C
10.C
11.B
12.A
13.A
14.D
15.C
16.B
17.B
18.C
19.A
20.B

*Suggested Key*
THEORIES
II.
PROBLEM SOLVING
1. P189,000
2. P635,550
3. P610,350
4. P221,550
5. P170,500
6. P97,410
7. (P96,180)
8. P147,280 increase
9. P117,275
10. P24,960
11. P167,255
12. P120,900
13. P37,490
14. P5,840
15. P20,340
16. 47,400
17. P16,680
18. P550
19. P90,000
20. P1,750
21. P97,960
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22.
23.
24.
25.
26.
27.
28.

P39,450
P240,250
P1,970,000
P110,000
P2,160,000
P77,550 debit
P98,250

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