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University of Perpetual Help System laguna Isabela Campus

Minante 1, Cauayan City, Isabela


30
College of Business and Accountancy Copies
MGT420 - Principles of Accounting Part 1
1st Semester, A.Y. 2017 - 2018

Middle Term Examination

Name: ________________________________________ Date: ___________


Course Year & Section: _____________________ Score: __________

Instruction: Answer the following questions. Strictly NO ERASURES are


allowed.

I. MULTIPLE CHOICE. Encircle the letter of your choice.


1. The process of accounting is needed to
I. take a holiday
II. assist in decision making
III. invest in start up of a business
IV. track money spent
A. I, II and III
B. I, II and IV
C. I, III and IV
D. II, III and IV

2. Which of the following describes the practical framework of bookkeeping?


A. Classifying, recording and summarizing
B. Reporting, analyzing and interpreting
C. Classifying, analyzing and interpreting
D. Recording, summarizing and reporting

3. Which of the following principles assumes that a business will continue for a long time?
A. Historical cost
B. Periodicity
C. Objectivity
D. Going concern

4. Which of the following users assesses the attractiveness of investing in a business?


A. Tax authorities
B. Financial analysts
C. Bank
D. Employees

5. Which of the following highlights the correct order of the stages in the accounting cycle?
A. Journalizing, final accounts, posting to the ledger and trial balance
B. Journalizing, posting to the ledger, trial balance and final accounts
C. Posting to the ledger, trial balance, final accounts and journalizing
D. Posting to the ledger, journalizing, final accounts and trial balance

6. The financial statement that reports the revenues and expenses for a period of time such
as a year or a month is the
A. Balance Sheet
B. Income Statement
C. Statement Of Cash Flows
D. Statement of changers in owners equity

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7. Accountants use Generally Accepted Accounting Principles (GAAP) to make the financial
information communicated
I. relevant
II. reliable
III. comparable
IV profitable
A. I, II and III
B. I, II and IV
C. I, III and IV
D. II, III and IV

8. The financial statement that reports the assets, liabilities, and stockholders' (owner's)
equity at a specific date is the
A. Balance Sheet
B. Income Statement
C. Statement Of Cash Flows
D. Statement of changers in owners equity

9. Unearned Revenues is what type of account?


A. Asset
B. Liability
C. Stockholders' (Owner's) Equity
D. Revenues

10. Accounting entries involve a minimum of how many accounts?


A. One
B. Two
C. Three
D. Four

11. Which term is associated with "left" or "left-side"?


A. Debit
B. Credit
C. Contra
D. All of the above

12. Which term is associated with "right" or "right-side"?


A. Debit
B. Credit
C. Contra
D. All of the above

13. When cash is received, the account Cash will be


A. Debit
B. Credit
C. Contra
D. All of the above

14. When a company pays a bill, the account Cash will be


A. Debit
B. Credit
C. Contra
D. All of the above

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15. What will usually cause an asset account to increase?
A. Debit
B. Credit
C. Contra
D. All of the above

16. What will usually cause the liability account Accounts Payable to increase?
A. Debit
B. Credit
C. Contra
D. All of the above

17. Entries to expenses such as Rent Expense are usually


A. Debit
B. Credit
C. Contra
D. All of the above

18. Entries to revenues accounts such as Service Revenues are usually


A. Debit
B. Credit
C. Contra
D. All of the above

19. Which of these is not included as a separate item in the basic accounting equation?
A. Assets
B. Revenues
C. Liabilities
D. Owners equity

20. The accrual basis of accounting records revenues when they are:
A. Collected
B. Earned
C. Contracted
D. Readily available for use

21. Asset accounts have what type of balance?


A. Debit
B. Credit
C. Contra
D. All of the above

22. Which of the following equations properly represents a derivation of the fundamental
accounting equation?
A. Assets + liabilities = owner's equity.
B. Assets = owner's equity.
C. Cash = assets.
D. Assets liabilities = owner's equity.

23. Which of the following would not be included on a balance sheet?


A. Accounts receivable.
B. Accounts payable.
C. Sales.
D. Cash.

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24. Wilson Company owns land that cost $100,000. If a quick sale of the land was necessary
to generate cash, the company feels it would receive only $80,000. The company continues
to report the asset on the balance sheet at $100,000. Which of the following concepts
justifies this?
A. The historical-cost principle.
B. The value is tied to objective and verifiable past transactions.
C. Neither of the above.
D. Both "a" and "b".

25. The accounting profession can be divided into three major categories; specifically, the
practice of public accounting, private accounting, and governmental accounting. A
somewhat unique and important service of public accountants is:
A. Financial accounting.
B. Managerial accounting.
C. Auditing.
D. Cost accounting.

II. TRUE OR FALSE. Underline True if the statement is correct and False if wrong. (20 points)

1. Understanding of financial information is very important in the making of economic


decisions.
True False

2. Accounting is the medium of communication through which financial information is


furnished to different parties for decision making.
True False

3. Economic decision making is the main reason why accounting records and reports are
prepared.
True False

4. The American Institute of CPAs described accounting as an art.


True False

5. Bookkeeping is synonymous to accounting.


True False

6. Auditing is performed before financial accounting starts.


True False

7. When a CPA offers his professional services to clients for a fee, he is said to be in private
accounting.
True False

8. Financial accounting is primarily concerned with the preparation and issuance of general
purpose financial statements.
True False

9. Management accounting provides reports for internal users. These financial reports observe
generally accepted accounting principles.
True False

10. Public accountancy is restricted only to those who passed the CPA exam.
True False

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11. The accounting records of the sole proprietorship include the proprietors personal financial
records.
True False

12. Nonprofit organizations need similar financial information as businesses.


True False

13. Classification of financial data is achieved through the preparation of financial statements.
True False

14. A sole proprietorship can have more than one owner.


True False

15. Government agencies require financial information from enterprises as part of their
regulatory function.
True False

16. An accounting principle has relevance to the extent that it can be implemented without undue
complexity or cost.
True False

17. The elements directly related to the measurement of financial position in the balance sheet
are assets, liabilities and equity.
True False

18. Trading companies purchase goods that are ready for sale and then sell these customers.
True False

19. If each company made up its accounting rules, there could be no basis for comparing the
earnings and financial position of different firms.
True False

20. The periodicity concept involves dividing the life of the business entity into accounting
periods of equal length thus enabling the financial users to periodically evaluate the results
of business operations.
True False

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III. JOURNALIZING TRANSACTIONS. (30 points)

Tina Go opened a plumbing service, Born Secretly Plumbing. Operations began on July 1, 2014,
and the following transactions were completed during the month.

July 1 Withdrew P67,000 from a personal savings account and used it to open a new
account in the name of Born Secretly Plumbing.

2 Acquired a service vehicle costing P81,000. A payment of P17,500 in cash was


made and a note payable given for the P63,500 remainder.

3 Paid rent for the month, P7,150.

6 Acquired plumbing supplies on account, P15,700.

7 Paid for three months of advertising and recorded Prepaid Advertising in the
amount of P6,000.

8 Cash in the amount of P18,350 was received for plumbing services rendered.

15 Rendered plumbing services and billed Bob Uy, P42,200.

16 Paid P5,700 of the amount owed from the transaction of July 6.

19 Paid miscellaneous expenses, P4,300.

20 Collected P21,000 from the customer on the July 15 transaction.

21 Withdrew P14,500 from the business.

22 Paid salaries P25,700.

24 Paid the first installment on the note payable, P3,850.

25 Paid telephone expense, P1,250.

27 Billed Eva Yan for plumbing services rendered, P14,150.

Required:

1. Journalize the above transactions. Establish the following accounts: Cash; Accounts
Receivable; Plumbing Supplies; Prepaid Advertising; Service Vehicle; Notes Payable;
Accounts Payable; Tina Go, Capital; Tina Go, Withdrawals; Plumbing Revenues;
Salaries Expense; Rent Expense; Telephone Expense; and Miscellaneous Expense.

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IV. ADJUSTING ENTRIES. Record the following adjusting entries. (30 points each)

Eva-Eva Store completing the accounting process for the year just ended December 31, 2014. The
transactions in 2014 have been journalized and posted. The following data with respect to adjusting
entries were available:

1. Wages earned on December 31, 2014, unpaid and unrecorded on December 31, 2014,
amounted to P27,000. The last payroll was December 28; next payroll will be January 6,,
2015.

2. On January 1, 2014, the business purchased a store equipment in cash at a cost of P12,000.
The equipment has an estimated useful life of 10 years and residual value.

3. Office supplies inventory at January 1, 2014 was P2,500. Office supplies purchased and
debited to office supplies inventory during the year amounted to P6,000. The year-end
inventory showed P3,000 of supplies on hand.

4. The remaining basement space is rented to Ordinary Specialty Shop for P5,200 per month,
payable monthly. On December 31, 2014, the rent for November and December was neither
collected nor recorded. Collection is expected on January 10 2015.

5. Three-fourths of the basement of the store is rented for P11,000 per month to another
merchant, Kano Enterprises. Kano sells comparable, but not competitive, merchandise. On
November 1, 2014, the store collected six months rent in advance from Kano in the amount
of P66,000, which was credited in full to rent revenue when collected.

6. On July 1, 2014, a two-year insurance premium amounting to P30,000 was paid in cash
and debited in full to Prepaid Insurance. Coverage began on July 1, 2014.

7. Delivery equipment that cost P300,000 was being used by the store. The equipment was
estimated to have a useful life of four years and a residual value of P6,000 at the end of
four years. Assume depreciation for a full year for 2014. The asset will be depreciated
evenly over its useful life.

8. Eva-Eva operated a repaid shop to meet its own needs. Also, the shop does repairs for
Kano. At the end of December 31, 2014, Kano did not pay for repairs completed amounting
to P7,500. This amount has not been recorded as Repairs Shop Revenue. Collection is
expected on January 2015.

9. On October 1, 2014, Eva-Eva received a 5-month note from a customer amounting to


P500,000, 10% interest.

10. On September 1, 2014, Eva-Eva issued a 6-monthnoteto a supplier amounting to 300,000,


12% interest.

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Date Particulars Ref. Debit Credit

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Date Particulars Ref. Debit Credit

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Date Particulars Ref. Debit Credit

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Date Particulars Ref. Debit Credit

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Date Particulars Ref. Debit Credit

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