Name ________________________________________________ Section __________ R# ____ S# ____

Write your final answer with supporting computations in a yellow pad paper. Double rule your final answer.

1. At the beginning of the year Knicks Company had Accounts Receivable of P 220,000 with allowance for bad debts of
P 2,500. At the end of the year, the accounts receivable has a balance of P 300,000. It is the company’s policy to
provide allowance for uncollectible accounts equal to 5% of the outstanding accounts receivable.
The bad debts expense for the period is ______________________

2. Lakers Medical Clinic acquired medical supplies during the year amounting to P 86,000. The medical supplies account at
the beginning of the year had a balance of P 25,000. At the end of the year, medical supplies inventory amounted to P
18,500. The medical supplies for the year is __________________________

3. At the beginning of the year, Prepaid Insurance account has a balance of P 30,000 representing insurance for the first
quarter of the year. The company pays its insurance annually every April 1 in the amount of P 120,000.
The Insurance expense to be recognized for the year is __________________________

4. The following balances were taken from the general ledger of Celtics Law Office at the beginning of the year:
Office Equipment – P 150,000 Accumulated depreciation – P 30,000
Additional equipment was purchased on April 1 of the current year with a total costs of P 80,000. Office equipment is
depreciated at 20% per year. The depreciation for the year is __________________________________

5. Mr. Kobe Bryant, a CPA, just opened its accounting office on October 1, 2017. The company bought P 5,000 worth office
supplies and recorded it using the asset method. On December 31, 2017, office supplies on hand amounted to P 2,600.
What is the balance of the Office Supplies account on December 31, 2017? _________________________

6. On November 1, 2017, Golden State Company paid P 24,000 representing a one year rental for an office space in a
building owned by Cleveland Company. The asset method was used to record the payment.
The Insurance Expense on December 31, 2017 is __________________________

7. Using data in # 6 above, the Unearned Rent Income of Cleveland Company on December 31, 2017 is ________________

8. Equipment costing P 100,000 was purchased on October 1, 2017. It is estimated that the equipment will have a residual
value of P 20,000 after its 5 year useful life.
What is the book value of the Equipment at December 31, 2019? _____________________________

9. On December 31, 2017, salaries for the last 3 days of December were accrued in the amount of P 15,000.
If no adjusting entry is made for the salaries on December 31, 2017, what is the effect of this omission in the
net income ? ____________________________ (answer overstated or understated)

10. Mr. Kobe Bryant, CPA, performed an audit during the last quarter of 2017 for a financially troubled company for a
package fee of P 20,000. This was not recorded by the bookkeeper because no payment is received yet. What is the
effect of not recording the transaction in the assets of the firm? _____________________ (answer overstated or
understated)

11. On December 28, 2017, Garnett Law Office received P 60,000 for services to be performed on January, 2018. The
amount was recorded using the revenue method. No adjustment was made for this transaction. Also on December 31,
2017, the bookkeeper failed to record the adjustment for revenue earned but not yet received in the amount of
P 25,000. The client was already billed on December 28, 2017. By how much will the net income be affected for the
failure to make the adjustments on December 31, 2017? __________________________
(indicate beside your answer if overstated or understated)

12. The unadjusted trial balance of Miami Heat Company at December 31, 2017 showed the following accounts and their
balances: Prepaid Insurance- P 36,480; Prepaid Rent – P 120,000
The Prepaid insurance account is a one-year insurance premium on policy taken on November 1, 2017 while the Prepaid
Rent is a one-year period starting August 1, 2017. If no adjusting entry is made on the above accounts, By how much
will the net income be affected for the failure to make the adjustments on December 31, 2017?
__________________________ (indicate beside your answer if overstated or understated)
Name ________________________________________________ Section ___________ R# ___ S# ___

A. Circle T if the statement is true and F if the statement is false. No erasures.

T F 1. Adjusting entries, although required, represent a violation of the matching principle.

T F 2. The difference between accrued revenues and unearned revenues is that accrued revenues are
earned before cash is received while unearned revenues are earned after cash is received.
T F 3. The use of an asset which is depreciated over time is an example of an internal event.
T F 4. The payment of a year’s insurance policy in advance requires a prepaid expense adjusting entry.
T F 5. Prepaid expenses are expense accounts appearing in the Statement of Comprehensive Income.
T F 6. The recording of accrued revenue results in the increase of an asset account and the decrease of a
revenue account.
T F 7. Recording depreciation results in the reduction of (credit entry to) the asset account being
depreciated.
T F 8. Prepaid expenses are expenses which have been incurred during the accounting period but have
been neither paid nor recorded.
T F 9. The recording of an accrued expense will always result in an increase of an expense account and an
increase of a liability account.
T F 10. The difference between prepaid assets and assets requiring depreciation is that prepaid assets
usually expire in one year, while depreciable assets last for more than one year.
T F 11. Unearned revenues are an offset to accrued revenue.
T F 12. Revenue is accrued upon the receipt of cash from the customer.
T F 13. The payment of an expense in advance requires an accrued expense adjusting entry.
T F 14. All adjusting entries involve one entry to an income statement account and another entry to a
balance sheet account.
T F 15. Recording the expiration of a prepaid asset results in the reduction of the asset account and an
increase in the related expense account.

B. MULTIPLE CHOICE. Encircle the letter that corresponds to your answer. No erasures.

1. Recording of all expenses incurred during the accounting period, regardless of the timing of the cash
payments, is required to satisfy
a. the revenue principle c. the matching principle
b. cash-basis accounting d. prepaid expense adjusting entries
2. All of the following statements are true except one, which statement is false?
a. the accrual basis of accounting generally presents more complete financial information than does the
cash basis of accounting.
b. the revenue principle says to record revenue equal to the cash value of goods or services transferred to a
customer.
c. according to the matching principle, expenses must be recorded in the period in which cash is paid.
d. the fiscal year of a business might end on June 30.
3. The elements directly related to the measurement of financial position are
a. assets, liabilities, capital, income and expenses c. income and expenses
b. assets, liabilities and capital d. assets and liabilities
4. Book value of a plant asset is determined by
a. deducting the depreciation expense account from the original balance of the asset account
b. deducting the contra account from the original balance of the asset account
c. adding the contra account to the original balance of the asset account
d. an independent appraisal
5. Recording the expiration of a prepaid expense would require
a. a debit to the appropriate prepaid asset account c. a credit to Accounts Payable
b. a debit to the appropriate expense account d. a credit to Cash
6. Adjusting entries are necessary in order to
a. bring liability accounts to correct balance c. measure properly the period’s income
b. bring asset accounts to correct balance d. all of these
7. Accrued revenue adjusting entries are required when
a. cash is received before the revenue is earned c. revenue is recorded as cash is received
b. cash is received after the revenue is earned d. none of these
8. An entry that results in a debit to an expense account and a credit to an associated liability account is an
example of which category of adjusting entries?
a. cash expense b. accrued expense c. prepaid expense d. depreciation expense
9. An entry that results in a debit to an expense account and a credit to an associated asset account is an
example of which category of adjusting entries?
a. cash expense b. accrued expense c. prepaid expense d. depreciation expense
10. Which of the following is an example of accrual basis accounting?
a. recording utility expense when the bill is received c. recording revenue when payment is received
b. recording salary expense when wages are paid d. recording the purchase of land for cash
11. Depreciation is the process of
a. systematically allocating the cost of plant assets over their useful life
b. systematically recording the current market values of assets
c. recording the physical deterioration of assets
d. saving money to purchase new assets
12. Where would you find Unearned Service Revenue?
a. in the owner’s equity section of the Statement of Financial Position
b. in the revenue section of the Statement of Comprehensive Income
c. in the liability section of the Statement of Financial Position
d. in the asset section of the Statement of Financial Position
13. Cash received from a customer prior to delivery of the product is
a. an unearned revenue b. a prepaid expense c. an accrued expense d. an accrued revenue
14. Which of the following statements describing cash basis of accounting is correct?
a. cash-basis accounting records revenue when it is earned and expenses when they are incurred.
b. cash-basis accounting records revenue when it is received and expenses when they are paid.
c. cash-basis accounting is the method required for most business, according to GAAP
d. none of these
15. All adjusting entries involve:
a. a balance sheet account and an income statement account
b. a cash account and an income statement account
c. an asset account and a capital account
d. an asset account and a liability account
16. On April 1, 2014 Goya Company paid P 4,500 for two years insurance coverage. In accounting for this item
a. under the accrual basis of accounting, 2015 insurance expense will be P 2,250
b. under the cash basis of accounting, 2016 insurance expense will be P 562.50
c. under the cash basis of accounting, 2015 insurance expense will be P 0
d. both (a) and (c) are correct
17. On December 31, Serg Company failed to make an adjustment for P 450 of accrued service revenue earned
and also failed to record the expiration of P 750 of insurance premiums that has been debited to Prepaid
Insurance. As a result of these errors, on the Statement of Comprehensive Income
a. revenues will be understated P 450 and expenses will be understated P 750
b. revenues will be understated P 450 and expenses will be overstated P 750
c. revenues will be overstated P 450 and expenses will be understated P 750
d. revenues will be overstated P 450 and expenses will be overstated P 750
18. Golden Jewelry Store has accrued P 6,750 of service revenue. What effect will the entry have on the Cash
account and (ultimately) on the Capital account?
a. Cash will increase P 6,750; Capital will increase P 6,750
b. Cash will not change; Capital will decrease P 6,750
c. Cash will not change; Capital will increase P 6,750
d. Cash will decrease, P 6,750; Capital will not change
19. Anthor Store records P 9,000 of unearned service revenue being earned and P 3,000 of service revenue being
accrued. The impact of these entries on total service revenue is
a. an increase of P 12,000 c. an increase of P 6,000
b. an increase of P 9,000 d. an increase of P 3,000
20. Andeng Child Care Center paid P 13,500 for three months’ rent in advance. The Prepaid Rent account had a
remaining balance of P 4,500 at the end of the accounting period. The adjusting entry to reflect this must
have been
a. debit Prepaid Rent and credit Rent Expense for P 18,000
b. debit Rent Expense and credit Prepaid Rent for P 9,000
c. debit Rent Expense and credit Prepaid Rent for P 4,500
d. debit Prepaid Rent and credit Cash for P 13,500
21. Eight months ago, MJS Insurance Co. sold a one-year auto insurance policy to a customer for P 3,000. The
company recorded the sale as: debit Cash for P 3,000 and credit Unearned Premium Revenue for P 3,000.
It is now the end of the year, assume no adjusting entries have been made. What is the proper year-end
adjustment for this transaction?
a. debit Unearned Premium Revenue and credit Premium Revenue for P 3,000
b. debit Unearned Premium Revenue and credit Premium Revenue for P 2,000
c. debit Unearned Premium Revenue and credit Premium Revenue for P 1,000
d. debit Premium Revenue and credit Unearned Premium Revenue for P 2,000
22. James Padilla Law Office, records P 12,000 of service revenue being received in advance and P 8,000 of service
revenue being accrued. The impact of these entries on total service revenue is
a. an increase of P 20,000 c. an increase of P 8,000
b. an increase of P 12,000 d. an increase of P 4,000
23. Guess Recording Company records the payment of P 18,000 cash for a previously accrued expense and the
accrual of P 10,000 of another expense. The impact of these entries on total expenses and net income is
Total Expenses Net Income
a. increase by P 28,000 decrease by P 28,000
b. increase by P 18,000 decrease by P 18,000
c. increase by P 10,000 decrease by P 10,000
d. increase by P 8,000 decrease by P 8,000
24. Joe’s Tailoring had paid P 23,400 for a one-year advertising contract to publish the company ad in 52
consecutive issued of a weekly magazine. The Advertising Expense account was debited when cash was paid.
On December 31, only 28 issued had been published. The adjusting entry to reflect this must have been
a. debit Advertising Expense and credit Prepaid Advertising for P 12,600
b. debit Prepaid Advertising and credit Advertising Expense for P 12,600
c. debit Prepaid Advertising and credit Advertising Expense for P 10,800
d. debit Advertising Expense and credit Prepaid Advertising for P 10,800
25. Commissions Income had a credit balance of P 8,600 representing commissions received in advance for selling
10 air conditioners. As of December 31, only 7 air conditioners had been sold. The adjusting entry to reflect
this must have been
a. debit Commissions Income and credit Unearned Commissions for P 6,020
b. debit Commissions Income and credit Unearned Commissions for P 2,580
c. debit Unearned Commissions and credit Commissions Income for P 6,020
d. debit Unearned Commissions and credit Commissions Income for P 2,580
26. Salaries of P 11,040 are paid every Saturday to all employees for a six-day work week ending Saturday.
Assume that the last payday was on December 26. The adjusting entry as of December 31 includes
a. a debit to salaries expense of P 9,200 c. a credit to salaries payable of P 7,360
b. a credit to salaries expense of P 3,680 d. a debit to salaries payable of P 7,360
27. An item of equipment was acquired on September 1, 2014 at a cost of P 30,000. This equipment was
estimated to have a life of 8 years with a residual value of P 6,000. The entry to record the depreciation of
this equipment on December 31, 2014 is
a. debit Equipment Expense and credit Equipment for P 3,000
b. debit Depreciation Expense and credit Accumulated Depreciation for P 3,750
c. debit Depreciation Expense and credit Accumulated Depreciation for P 3,000
d. debit Depreciation Expense and credit Accumulated Depreciation for P 1,000
28. The Prepaid Insurance account has a debit balance of P 4,080 which represents a one year insurance premium
paid on May 31. The entry to record the expired insurance as of December 31 is
a. debit Insurance Expense and credit Prepaid Insurance for P 2,720
b. debit Insurance Expense and credit Prepaid Insurance for P 2,380
c. debit Insurance Expense and credit Prepaid Insurance for P 1,700
d. debit Prepaid Insurance and credit Insurance Expense for P 1,700
29. The Unearned Subscriptions account has a credit balance of P 6,720 representing a one year subscription to
monthly journal received in advance from a client on March 31. If subscriptions started the month following
payment, the entry to record the adjustment as of December 31 is
a. debit Unearned Subscriptions and credit Subscriptions Income for P 5,040
b. debit Subscriptions Income and credit Unearned Subscriptions for P 5,040
c. debit Unearned Subscriptions and credit Subscriptions Income for P 1,680
d. debit Subscriptions Income and credit Unearned Subscriptions for P 1,680
30. Pierce Garnett, owner of an apartment building, had a tenant who only paid P 14,400 for a three months rent
on August 1. As of December 31, the tenant is still using the apartment. The entry to record the adjustment
as of December 31 includes
a. a credit to Unearned Rent of P 9,600 c. a debit to Prepaid Rent of P 9,600
b. a credit to Rent Income of P 9,600 d. a debit to Rent Income of P 9,600