JOSE MARIA COLLEGE

Philippine Japan Friendship Highway, Sasa, Davao City

COLLEGE OF BUSINESS EDUCATION
Pre – Review 1 Class: Theories of Accounts
2 Semester – S.Y: 2020 -2021
nd

Name :_ Date  :_
Instructor : JOHN PAUL S. TAN, CPA, MDM, CATP

1. Which of the following statements is/are true?

I. Accounting is a service activity intended to fulfill a useful function in society

  II. Accounting involves the art of recording, classifying and summarizing transaction and events,
and interpreting the results thereof.
III. Accounting is an art but not a science
IV. Accounting provides quantitative financial information intended to be useful in making
economic decisions

a. I, II, III, IV c. I, II, IV

b. I, II, III d. II, III, IV

2. The branch of accounting concerned with the presentation of financial information primarily for use
of third person outside of business enterprise.

a. Financial Accounting c. Government Accounting

b. Management Accounting d. All of the above

3. Accounting is an art because

a. of the existence of a body knowledge governing accounting practice
b. of accounting theory
c. the necessity of applying creative skill and ability
d. None of the above

4. Financial accounting is the branch of accounting that focuses on

a. special purpose reports of financial position and results of operations
b. financial statements
c. the various need of statement users
d. general purpose  reports of financial position and results of operations

5. General-purpose information is 

a. not intended to satisfy the specialized needs of individual users.
b. intended to satisfy the specialized needs of individual users
c. not intended to satisfy the common needs of individual users.
d. Provided by managerial accounting.
6. Which of the following is not true?
a. Accounting is concerned primarily with quantitative information used by persons who
must make economic decisions among alternative actions.
b. Governmental accounting is also known as municipal or fund accounting
c. The branch of accounting concerned with the presentation of financial information to
assist management in planning and controlling operations is called managerial accounting.
d. Financial accounting emphasizes special purpose information based on presumption
that significant numbers of users need similar information.

7.  The body of rules and principles which govern accounting practices is referred to as
a. Accounting practice c. Accounting concepts
b. Accounting principles d. Accounting theory

8. The layers of the structure of accounting theory include the following except
a. methods and procedures c. measurement and recognition
b. principles d. postulates and conventions

9. The basic assumption or premises on which accounting principles rest are called
a. accounting postulates c. accounting principles
b. accounting procedures d. accounting laws

10. The normative attitudes or ideas of the accounting profession as to what ought to represent good
accounting practice and which modify the application of accounting principles are known as
a. accounting postulates c. accounting procedures
b. accounting conventions d. accounting principles

11. The general guidelines used in accounting practice that are based on substantial authoritative
support are called
a. Accounting postulates c. accounting procedures
b. accounting conventions d. accounting principles

12. The specific methods used by accountants in carrying out t5he general guidelines provided by GAAP,
including the numerous rules specifying how financial data should be recorded, classified, summarized
and reported are referred to as
a. accounting postulates c. accounting procedures
b. accounting conventions d. accounting principles

13. “The accounting entity is assumed to be separate and distinct from other entities and from the
owners, managers and employees which constitute the firm”. This postulate is referred to as
a. Matching c. Historical cost
b. Going concern d. Specific-separate-entity

14. Unless there is specific evidence to the contrary, the firm will continue to be in existence in the
foreseeable future. This postulate is referred to as
a. Matching c. Historical cost
b. Going concern d. Specific-separate-entity
15. “Money is the best measuring unit of a firm’s assets, liabilities and equity, as well as changes therein;
its instability is immaterial”. This postulate is referred to as
a. Historical cost c. Money-measuring unit
b. Revenue recognition d. Fiscal period

16. “Cost is normally the proper money measurement of a firm’s assets, liabilities, and equity, and
changes in them because it is objective, verifiable and convenient to obtain, approximating value at time
of acquisition. “ This postulate is referred to as
a. Historical cost c. Money measuring unit
b. Revenue recognition d. Fiscal period

17. “The life of a business firm can be segmented into short run time periods in order to provide timely
financial information to aid in financial decision making; hence, periodic reporting implies the use of
accrual accounting and use of estimates ( approximations) and informed judgment by accountants.” This
postulate is referred to as
a. Historical cost c. Money measuring unit
b. Revenue recognition d. Fiscal period

18. “The point of sale when goods are delivered or services are rendered, is the time at which revenue is
to be recognized.” This postulate is referred to as
a. Historical cost c. Money measuring unit
b. Revenue recognition d. Fiscal period

19.“Goods and services used (“expenses”) during the fiscal period can be associated with the revenue
earned during the same fiscal period”. This postulate referred to as
a. Matching c. Historical Cost
b. Going concern d. Specific-separate entity

20. “Exception to the application of accounting theory are permitted if the amount involve is not
material; financial reporting is concerned only with information that is significant enough to affect
evaluations or decisions.” This convention is called
a. Conservatism c. Consistency
b. Objectivity d. Materiality

21. “The same accounting procedures for a given entity should be used from one period to the next.
Changes may however be made if it will result in more accurate or useful information for decision
making provided it disclosed”. The convention is called
a. Conservatism c. Consistency
b. Objectivity d. Materiality

22. “Financial statements of different firms should be based on similar accounting principles and
procedures in order to aid users of financial statements in finding similarities and differences among
firms for purposed of financial decision making” This convention is called
a. Consistency c. Objectivity
b. Comparability d. Conservatism
23. “Accounting measurement should be based on evidence that is verifiable by competent persons”.
This convention is called
 a. Consistency c. Objectivity
b. Comparability d. Conservatism

24. “The accountant should recognize all possible losses but anticipate no profit. Where alternative
courses of action are available, he should choose the alternative least favorable to owners’ equity.
a. Consistency c. Objectivity
b. Comparability d. Conservatism

 
25. A business received cash of P300,000 in advance for service that will be provided later.  The cash
receipt entry debited Cash and credited Unearned Revenue for P300,000.  At the end the period,
P110,000 is still unearned.
The adjusting entry for this situation will 
a. Debit Unearned revenue and Credit Revenue for P190,000
b. Debit Unearned revenue and Credit Revenue for P110,000
c. Debit Revenue and Credit Unearned Revenue for P190,000
d. Debit Revenue and Credit Unearned Revenue for P110,000
26. Prepaid Insurance has an ending balance of P23,000.  During the period, insurance in the amount
of P12,000 expired.  The adjusting entry would contain a debit to
a. Prepaid insurance for P12,000  c. Prepaid insurance for P11,000
b. Insurance expense for P12,000 d. Insurance expense for P11,000
27. On December 31, Printshop Property management made an adjusting entry to record P30,000
management fees earned but not yet billed to a client.  This entry was reversed on January 1.  On
January 15, the client paid P120,000, of which P90,000 was applicable to the period January 1
through January 15. 
The journal entry made by Printshop to record receipt of the P120,000 on January 15 includes
a. A credit to Management Fees Earned of P120,000
b. A credit to Accounts Receivable of P30,000
c. A debit to Management Fees Earned of P30,000
d. A credit to Management Fees Earned of P90,000
28. On December 31, Lotus made an adjusting entry to record P11,000 accrued interest payable on its
note.  This entry was reversed on January 1.  On January 15, the note was paid.  The payment
included interest of P25,000.  The entry to record the payment of January 15 should
a. Debit Interest Expense of P25,000
b. Debit Accrued Interest Payable of P25,000
c. Debit Interest Expense of P14,000 and accrued Interest Payable of P11,000
d. Debit Interest Expense of P14,000 and credit accrued Interest Payable of P11,000.
29. Windows Company sublet a portion of its office space for ten years at an annual rental of
P360,000, beginning on May 1.  The tenant is required to pay one year’s rent in advance, which
Windows recorded as a credit to Rental Income.  Windows reports on a calendar-year basis.  The
adjustment on December 31 of the first year should be
a. Rental Income 120,000
    Unearned Rental Income  120,000
b. Rental Income 240,000
    Unearned Rental Income 240,000
c. Unearned Rental Income 120,000
     Rental Income 120,000
d. Unearned Rental Income 240,000
    Rental Income 240,000

30 Dbase Company paid P170,400 on June 1, 2002, for a two-year insurance policy and recorded the
. entire amount as Insurance Expense.  The December 31, 2002, adjusting entry is
a. debit Prepaid Insurance and credit Insurance Expense, P49,700
b. debit Insurance Expense and credit Prepaid Insurance, P49,700
c. debit Insurance Expense and credit Prepaid Insurance, P120,700
d. debit Prepaid Insurance and credit Insurance Expense, P120,700
31 The Supplies on Hand account balance at the beginning of the period was P66,000.  Supplies
. totaling P128,250 were purchased during the period and debited to Supplies on Hand.  A physical
count shows P38,250 of Supplies on Hand at the end of the period.  The proper journal entry at the
end of the period.
a. debits supplies on Hand and credits Supplies Expense for P90,000.
b. debits supplies Expense and credits Supplies on Hand for P128,250. 
c. debits Supplies on Hand and credits Supplies Expense for P156,000.
d. debits Supplies Expense and credits Supplies on Hand for P156,000.
32 Moon Company purchased equipment on November 1, 2001, by giving their supplier a 12-month,
. 9 percent note with a face value of P480,000.  The December 31, 2001, adjusting entry is
a. debit Interest Expense and credit Cash, P7,200.
b. debit Interest Expense and credit Interest Payable, P7,200.
c. debit Interest Expense and credit Interest Payable, P10,800.
d. debit Interest Expense and credit Interest Payable, P43,200.
33 On December 31 of the current year, Holmgren Company’s bookkeeper made an entry debiting
. Supplies Expense and crediting Supplies on Hand for P126,000.  The Supplies on Hand account had
a P153,000 debit balance on January 1.  The December 31, balance sheet showed Supplies on
Hand of P114,000.  Only one purchase of supplies was made during the month, on account.  The
entry for that purchase was
a. debit Supplies on Hand, P87,000 and credit Cash, P87,000.
b. debit Supplies Expense, P87,000 and credit Accounts Payable, P87,000.
c. debit Supplies on Hand, P87,000 and credit Accounts Payable, P87,000.
d. debit Supplies on Hand, P165,000 and credit Accounts Payable, P165,000.
34 The balance in the capital account of Wordstar Co. at the beginning of the year was P650,000. 
. During the year, the company earned revenue of P4,300,000, incurred expenses of P3,600,000, the
owner withdrew P500,000 in assets, and the balance in the cash account increased by P100,000.  
At year-end, the company’s net income and the year-end balance in the capital account were,
respectively:
a. P200,000 and c. P600,000 and P750,000
P950,000
b. P700,000 and d. P700,000 and P850,000
P950,000
35 A law firm began November with office supplies of P16,000.  During the month, the firm purchased
. supplies of P29,000.  At November 30 supplies on hand total P21,000.  The adjusting entry at
November 30 will result in supplies expense of 
a.  P21,000 b.  P24,000 c.  P29,000 d.  P45,000
36 At the end of the first month of operations, Word Co.’s bookkeeper prepared financial statements
. which showed assets of P4,000,000 liabilities of P1,500,000 and net income of P500,000.   In
preparing the statements, the bookkeeper overlooked the accrued wages at month-end of
P30,000.
The correct owner’s equity at month-end is
a.  P2,970,000 b.  P2,530,000 c.  P2,470,000 d.  P1,970,000
37 Before any year-end adjustments were made, the net income of Power Point Co. was P4,000,000. 
. However, the following adjustments were necessary:  office supplies used, P60,000; services
performed for clients but not yet collected, P130,000; interest accrued on note payable, P30,000.  
After recording these adjustments, the net income would be:
a.  P3,780,000 b.  P3,840,000 c.  P4,040,000 d.  P4,100,000
38 At December 31, 2002, the unadjusted trial balance shows office supplies of P60,000 and Office
. Supplies Expense of P101,000.  The December 31, adjusting entry recorded office supplies expense
of P17,000.  After the December adjusting entries have been posted, what is the proper balance in
the Office Supplies account on December 31, 2002?
a.  P118,000 b.  P84,000 c.  P77,000 d.  P43,000
39 Winword Co. recorded accrued salaries of P25,000 at December 31, 2001.  During 2002, Winword
. paid salaries of P872,000.  Unpaid salaries at December 31, 2002 amounted to P34,000.  Winword
prepares adjustments only at December 31, and also reversing entries on January 1.  The balance
of the salaries expense account that would appear in the post-closing trial balance at December
31, 2002 is 
a.  P0 b.  P881,000 c.  P872,000 d.  P847,000
40 Before the month-end adjustments are made, the January 31, trial balance of Acad Express
. contains revenues of P580,000 and expenses of P178,000.  Adjustments are necessary for the
following items:  (a) Depreciation for January, P48,000;  (b)  Portion of fees collected in advance
earned in January, P110,000;  (c)  Fees earned in January, not yet billed to customers, P65,000; (d)
Portion of prepaid rent applicable to January, P90,000.
Net income of Acad Express in January is
a.  P569,000 b.  P439,000 c.  P352,000 d.  P259,000
41 Paintbrush Co. paid P72,000 to renew its only insurance policy for 3 years on March 1, 2002, the
. effective date of the policy.  At March 31, 2002, Paintbrush unadjusted trial balance showed a
balance of P3,000 for prepaid insurance and P72,000 for  insurance expense.  What amounts
should be reported for prepaid insurance and insurance expense in Paintbrush’s financial
statements for the three months ended March 31, 2002? 
Prepaid Insurance Insurance Prepaid Insurance Expense
Expense Insurance
a. P72,000 P3,000 c. P72,000 P3,000
b. P70,000 P5,000 d. P73,000 P2,000
42 On September 1, 2001, Clipper Corporation issued a note payable to Federal Bank in the amount
. of P450,000.  The note had an interest rate of 12 percent and called for three equal annual
principal payments of P150,000.  The first payment for interest and principal was made on
September 1, 2002.  At December 31, 2002, Clipper should record accrued interest payable of`
a.  P11,000 b.  P12,000 c.  P16,500 d.  P18,000

43 In November and December 2002, Bee Company, a newly organized newspaper publisher,
. received P720,000 for 1,000 three-year subscriptions at P240 per year, starting with the January 2,
2003, issue of the newspaper.  How much should Bee report in its 2002 income statement for
subscription revenue?
a.  P0 b.  P120,000 c.  P240,000 d.  P720,000
44 The following errors were made in preparing a trial balance:  the P135,000 balance of Inventory
. was omitted; the P45,000 balance of Prepaid Insurance was listed as a credit; and the P30,000
balance of Salaries Expense was listed as Utilities Expense.  The debit and credit totals of the trial
balance would differ by 
a.  P135,000 b.  P180,000 c.  P210,000 d.  P225,000
45 The trial balance prepared at December 31, did not balance.  Debit total was P1,592,500 and credit
. total was P1,532,000.  In determining the cause of the difference, you discovered the following
errors:  a credit to Cash of P6,500 was not posted; a P20,000 credit to be made to Sales account
was credited to the Accounts Receivable account instead;  the wages payable account balance of
P93,000 was listed in the trial balance as P39,000.  What is the correct trial balance total?
a.  P1,592,500 b.  P1,606,000 c.  P1,612,500 d.  P1,586,000

46 You are given the following closing entries of PASS NOW, INC.:
.
Entry 1 Interest Revenue 4,700

Accounts Payable 1,900

Capital Stock 10,000

Sales 45,000
        Income Summary 61,600
Entry 2 Income Summary 48,700
Gain on Sale of Land 3,000
    Cost of Goods Sold   32,000
    Accounts Receivable   12,000
        Operating Expense 4,200
      Other Assets   3,500
Entry 3 Income Summary 12,900
    Retained Earnings   12,900
The properly computed net income is -
a.  P11,800  b.  P8,800 c.  _P12,900 d.  P16,500

47 Columbus Co.’s advertising expense account had a balance of P146,000 at December 31, 2003,
. before preparing the year-end adjusting entries relating to the following:
 Included in the P146,000 is the P15,000 cost of printing catalogs for a sales promotional
campaign in January 2004.
 Radio advertisements broadcast during December 2003 were billed to Columbus on
January 2, 2004.  Columbus paid the P9,000 invoice on January 11, 2004. 
After posting the adjusting entries at December 31, 2003, Columbus adjusted advertising expense
for year 2003 should be
a.  P155,000 b.  P140,000 c.  P131,000 d.  P122,000
48 The account balances for Villash Corp. as of December 31, 2003 follow:
.  
Accounts payable - P100,000;   Accounts receivable - P120,000;   Building -
 P400,000;   Capital stock - P760,000;   Cash - P60,000;    Equipment - P160,000;  
Land - P50,000;   Notes payable - P280,000;   Retained earnings - P100,000
In a trial balance prepared on December 31, 2003, the sum of the debit column is:
a. P860,000           b.    c. P790,000              d.  
P1,440,000 P1,240,000

49 On November 1, 2003, Georgetown Co. paid P360,000 to renew its insurance policy for three
. years.  At December 31, 2003, Georgetown’s adjusted trial balance showed a balance of P9,000 for
prepaid insurance and P441,000 for insurance expense.

What amounts should be reported for prepaid insurance and insurance expense in Georgetown’s
December 31, 2003 financial statements?
a. P349,000 and P101,000 c. P330,000 and P120,000
b. P340,000 and P120,000 d. P340,000 and P110,000