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ACCRUAL BASIS OF ACCTG/ FINANCIAL


STATEMENTS

Q1. These are items of adjusting entries that do not involve cash flows except
A. Provision for Doubtful Accounts
B. Deferred Income
C. Ending Inventory Adjustment
D. Depreciation

Q2. The Statement of Financial Position would should prepayments as


A. Deduction from the capital
B. Non-current assets
C. Current liabilities
D. Current assets

Q3. When preparing its financial statements, if a business deliberately under-estimates the
allowance required to cover doubtful debts, it would be:
A. Overstating its performance as well as its assets
B. Overstating its performance as well as its liability
C. Overstating its performance and understating its assets
D. Overstating its performance and understating its liability

Q4. As generally used, the term "net assets" represents


A. Retained Earnings
B. Current assets less current liabilities
C. Total contributed capital
D. Total assets less total liabilities
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Q5. Comprehensive income includes


A. Profit or loss
B. Other comprehensive income
C. Both A and B
D. Neither A nor B

Q6. The length of time into which the life of a business is divided for the purpose of preparing
periodic financial statements
A. Natural business year
B. Calendar year
C. Accounting period
D. Interim period

Q7. Accrual accounting focuses on:


A. Earnings process
B. Legal considerations of the business entity
C. Articulation of financial statements
D. Cash flows of the business

Q8. The systematic and rational allocation of the cost of a long-lived item from asset to expense
is called
A. Matching
B. Recognition
C. Depreciation
D. Realization

Q9. Conceptually, net income is a measure of


A. Wealth
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B. Change of wealth
C. Capital maintenance
D. Cash flow

Q10. Which of the following is not a characteristic of an adjusting entry?


A. They are generally not based on sourced documents
B. Include at least one nominal account and one real account
C. Usually refer to transactions that have effects on more than one accounting period
D. They rarely affect both an income statement account and balance sheet account

Q11. When the relationship between revenue and expense as no direct cause and effect, the
expense can be immediately recognized:
A. When allocation of the cost of a purchased item provides no additional useful information
B. If an item has no discernable future benefit
C. Both A and B are correct
D. None of these answers are correct

Q12. In analyzing an entity's financial statements, which of these would a potential investor
primarily use to assess liquidity and financial flexibility?
A. Income Statement
B. Statement of Financial Position
C. Statement of Retained Earnings
D. Statement of Cash Flows

Q13. Conceptually, asset valuation accounts are


A. Assets
B. Neither assets or liabilities
C. Part of shareholder's equity
D. Liablities
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Q14. Which of the following is not a long-term investment?


A. Franchise
B. Land held for speculation
C. Cash surrender value of life insurance
D. A sinking fund

Q15. The term "deficit" refers to


A. An excess of current assets over current liabilities
B. An excess of current liabilities over current assets
C. A debit balance in retained earnings
D. A prior period error

Q16. If accounts receivable has a debit posting of 580,000; credit posting of 440,000; and ending
normal balance of 480,000, compute for its beginning balance.
X + 580,000 – 440,000 = 480,000
X = 340,000

Q17. A business pays a weekly salary of 200,000 every Friday for a 5-day-work ending on that
day. If the fiscal period ends on Wednesday, the adjusting entry is
3
200,000 x = 120,000
5
Salaries Expense 120,000
Salaries Payable 120,000

Q18. Office supplies were 9,000 at the end of January and 11,400 at the end of February. During
February, office supplies expense equaled 3,000. How much cash is paid for office supplies
during February?
9,000 – 3,000 + X = 11,400
X = 5400
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Q19. Hillary Clinton, sole owner of Clinton Mattress Company, has an ownership interest in the
company of 50,000 at January 1, 2018. During that year, he invests an additional 10,000 in the
company and the company reports a net income of 25,000. What it the balance of equity at the
end of the year?
50,000 + 10,000 + 25,000 = 85,000

Q20.

Asset 600,000 Liabilities – 100,000


Equity – 100,000
Liabilities ?

Beginning capital 150,000

Revenues 400,000

Expenses ?

Net income (loss) 300,000

Additional 100,000
investment
Withdrawal 50,000

Ending capital 500,000