RESA Level 1

EASY

1. If a transaction causes total liabilities to decrease but does not affect the owner’s equity, what
change, if any, will occur in total assets?
(a) assets will be increased (c) no change in total assets
(b) assets will be decreased (d) none

2. A company has assets of P45,000, no liabilities, and stockholders’ equity of P45,000. It buys store
fixtures worth P5,000 on credit. What effect would this transaction have?
(a) both assets and stockholders’ equity increase by P5,000
(b) both assets and stockholders’ equity decrease by P5,000
(c) assets remain the same and stockholders’ equity increases by P5,000
(d) both assets and liabilities increase by P5,000

3. In accounting parlance, the sequence of the arrangements of the accounts in a ledger – that is,
assets first, followed by liabilities, owner’s equity accounts, revenues and expenses – is called:
(a) financial statement order (c) double entry method
(b) account balance (d) accounting cycle

4. The recording phase of accounting covers the following steps, except:

(a) business documents are received and prepared.
(b) transactions are journalized.
(c) transactions are posted to the ledger.
(d) financial statements are prepared.

5. An accrued expense is an expense:

(a) incurred but not paid (c) paid but not incurred
(b) incurred and paid (d) not reasonably estimable

6. Balance sheet accounts that are not eliminated in the closing entries are called:
(a) nominal (c) positive
(b) private (d) real

7. Entries prepared, as a step in the accounting process, to bring the books and accounts up-to-date, is
known as:
(a) opening entries (c) closing entries
(b) adjusting entries (d) reversing entries

8. If a general partnership, whose partnership contract provides for interest on partners' capital
account balances, incurs a net loss, the interest provision of the contract:
 a. Must be enforced c. May be either enforced or disregarded
b. Must be disregarded d. Must be rescinded by the partners

9. A partner by estoppel:
a. Ostensible partner c. Dormant
b. Secret partner d. Nominal

10. The theory which viewed the assets of a business as belonging to the owner or proprietor, the
liabilities as debts of the owner, and the income of the business as an increase in the owner’s net
worth or capital.
a. Proprietary theory c. Entity theory
b. Equity theory d. Funds theory
Answer:
1. B
2. D
3. A
4. D
5. A
6. D
7. B
8. A
9. D
10. A

AVERAGE

11. The income summary account:

(a) generally has a credit balance after all the accounts that should be closed have closed.
(b) summarizes revenues, expenses, and net earnings or loss for the accounting period.
(c) summarizes changes in assets, liabilities, and net earnings or loss for the accounting period.
(d) is used to close the retained earnings account.

12. Reversing entries apply to:

(a) all adjusting entries. (c) all accruals.
(b) all deferrals. (d) all closing entries.

13. Which of the following combinations of trial balance totals does not indicate a transposition?
(a) P65,470 debit and P64,570 credit (c) P25,670 debit and P26,670 credit

(b) P32,540 debit and P35,420 credit (d) P14,517 debit and P15,471 credit

14. Which of the following errors would cause unequal totals in the trial balance?
 (a) The company records a payment of P20,000 in advance of delivery of goods as a debit of P2,000
to purchases and a credit of P2,000 to cash.
(b) The company fails to accrue salaries of P50,000 for the month of December.
(c) Both a and b.
(d) None of the above.

15. Which of the following errors would cause unequal totals in the trial balance?
(a) The firm records P21,000 received from a customer in advance of delivery of goods as a debit of
P1,000 to cash and a credit of P21,000 to sales.
(b) The firm fails to enter the cost of electric current used during the month as an expense and fails
to recognize the P22,000 owed to DLPC.
(c) All these errors will cause unequal trial balance totals.
(d) None of these errors will cause unequal trial balance totals.

16. 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

17. The primary responsibility of an independent auditor who is a CPA is to:

(a) Verify the accuracy of the amounts determined by the client.
(b) Assess whether the management is honest.
(c) Evaluate the “fair presentation” of the company’s eternal financial statements.
(d) Prepare current financial reports for the client.

18. Loka and Moko formed a partnership on July 1, 2007 and contributed the following assets:
Loka Moko
Cash P65,000 P100,000
Realty 300,000

The realty was subject to a mortgage of P25,000, which was assumed by the partnership. The
partnership agreement provides that Loka and Moko will share profits and losses in the ratio of one-
third and two-thirds respectively. Moko’s lcapital account at July 1, 2007 should be:
a. P400,000 b. P391,667 c. P375,000 d. P310,000

19. A, B and C are partners in an accounting firm. Their capital account balances at year-end were: A,
P90,000; B, P110,000; C, P50,000. They share profits and losses in a 4:4:2 ratio, after the following
special terms:
a. Partner C is to receive a bonus of 10% of the net income after the bonus.
b. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000.
 c. Salaries of P10,000 and P12,000 shall be paid to partners A and C, respectively.

Assuming a net income of P44,000 for the year, the total profit share of partner C would be:
a. P7,800 b. P16,800 c. P19,400 d. P19,800

20. The basic components of financial statements include (choose the incorrect one):
(a) statement of changes in equity (c) statement of retained earnings
(b) statement of recognized gains and losses (d) cash flow statement
Answer:
11.B
12.C
13.C
14.D
15.A
16.C
17.C
18.C
19.C
20.C
DIFFICULT

21. Accrued salaries payable of P5,000 were not recorded at December 31, 2006. Supplies on hand of
P2,000 at December 31, 2007 were erroneously treated as expense instead of supplies inventory.
Neither of these errors were discovered nor corrected. The effect of these two errors would cause:
(a) 2007 net income to be understated by P7,000 and December 31, 2007 retained earnings to be
understated by P2,000.
(b) 2006 net income and December 31, 2006 retained earnings to be understated by P5,000 each.
(c) 2006 net income to be overstated by P5,000 and 2007 net income to be understated by P2,000.
(d) 2007 net income and December 31, 2007 retained earnings to be understated by P2,000 each.

22. Nick and Carter are partners who share profits and losses in the ratio of 7:3, respectively. Their
respective capital accounts are as follows:
Nick P35,000 Carter P30,000

They agreed to admit Brian as a partner with a one-third interest in the capital and profits and losses,
upon an investment of P25,000. The new partnership will begin with a total capital of P90,000.
Immediately after Brian’s admission, what are the capital balances of Nick, Carter, and Brian,
respectively?
a. P30,000; P30,000; P30,000 c. P31,667; P28,333; P30,000
b. P31,500; P28,500; P30,000 d. P35,000; P30,000; P25,000

23. At December 31, Miga and Migo are partners with capital balances of P40,000 and P20,000, and
they share profits and losses in the ratio of 2:1, respectively. On this date Ami invests P17,000 in
 cash for a one-fifth interest in the capital and profit of the new partnership. Assuming that goodwill
is not recorded, how much should be credited to Ami’s capital account on December 31?
a. P12,000 b. P15,000 c. P15,400 d. P17,000

24. If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among
the partners according to the:
a. Profit-sharing percentages of the previous partnership.
b. Profit-sharing percentages of the new partnership.
c. Capital percentages of the previous partners.
d. Capital percentages of the new partnership.

25. The essential characteristics of an asset include (choose the incorrect one):
(a) The asset is the result of past transaction or event.
(b) The asset provides future economic benefits.
(c) The cost of the asset can be measured reliably.
(d) The asset is tangible.

26. Immaterial amounts of similar nature and function should be grouped or condensed as one line item
in the financial statements.
(a) consistency (c) offsetting
(b) aggregation (d) comparability

27. The “accounting policies section” of the notes to financial statements should describe:
(a) only the measurement basis used in preparing the financial statements.
(b) only the specific accounting policies followed by the enterprise.
(c) both the measurement basis and accounting policies followed.
(d) nature of the enterprise’s operations and its principal activities.

28. You are given the data as follows for CHIN UP CORPORATION:
Net Assets at the beginning of the year P130,000
Net Assets at the end of the year 175,000
Dividends declared 8,000
Capital Stock Issued 70,000

The net income (loss) is:

(a) Net loss – P107,000 (c) Net income – P107,000
(b) Net income – P17,000 (d) Net loss – P17,000

Net assets at the end of the year P 175,000

Net assets at the beginning of the year (130,000)
Increase in net assets P 45,000
Dividends declared 8,000
Capital Stock issued ( 70,000)
Net loss P 17,000
29. Kern and Pate are partners with capital balance of P60,000 and P20,000, respectively. Profits and
losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant,
who invested land valued at P15,000 for a 20% capital interest in the new partnership. Grant’s cost
of the land was P12,000. The partnership elected to use the bonus method to record the admission
of Grant into the partnership. Grant's capital account should be credited for:
a. P12,000 b. P15,000 c. P16,000 d. P19,000

30. Partners Dado, Etoy, Fapo, and Gaga share profits 50%, 30%, 10%,and 10%. Accounts maintained
with partners just prior to liquidation follow:
Advances (Dr) Loans (Cr) Capitals (Cr)
Dado P 5,000 P40,000
Etoy 10,000 30,000
Fapo P4,500 15,000
Gaga 2,500 25,000

At this point P18,000 is available for distribution to the partners. How much cash is to be distributed
to Gaga?
a. P6,625 b. P0 c. P11,375 d. P12,375

31. Working capital is:

(a) the group assets which enables the business to operate profitably.
(b) capital which has been reinvested in the business.
(c) unappropriated retained earnings.
(d) current assets less current liabilities.

32. John and Eddie form a partnership on March 1, 2002 with the following investments:
John Eddie
Cash P10,000 P 35,000
Land 105,000
Furniture and fixtures 35,000

John and Eddie agree to divide profits and losses in the ratio of 70:30, respectively, and to assume
the P20,000 mortgage on the land of Eddie. If John is required to make his share in equity equal to
40% he must make an additional investment of:
a. P48,000 b. P35,000 c. P80,000 d. P45,000

33. It presents an indication in conformity with GAAP of the financial status of the enterprise at a
particular point in time.
(a) balance sheet (c) statement of retained earnings
(b) statement of earnings (d) cash flow statement
Answer:
21.A
22.B
23.C
24.A
25.D
26.B
27.C
28.D
29.D
30.C
31.D
32.B
33.A