Republic of the Philippines

Commission on Higher Education

Don Honorio Ventura State University
Bacolor, Pampanga

MIDTERM EXAMINATION
ACCOUNTING 101- FINANCIAL ACCOUNTING AND REPORTING
1ST SEMESTER, AY 2023-2024
1. 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

2. Mr. Juan Batumbakal is an accountant in the Philippines while Mr. John Stonesteel is an accountant in a foreign country that
uses the International Financial Reporting Standards. Which of the following statements is correct?

a. Mr. John’s accounting standards are superior to those of Mr. Juan’s.

b. Mr. John is more intelligent than Mr. Juan because Mr. John uses better accounting standards.
c. Mr. Juan is an inferior accountant compared to Mr. John because Mr. John is a foreigner and Filipinos give higher regard
to foreigners compared to their fellow countrymen.
d. Mr. Juan and Mr. John use essentially the same accounting standards.

3. Accounting has been given various definitions, which of the following is not one of those definitions.

a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about
economic entities that is intended to be useful in making economic decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part of at least, of a financial character and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of correspondence between these assertions and established criteria
and communicating the results to interested users.
d. Accounting is the process of identifying, measuring, and communicating economic information to permit informed
judgment and decisions by users of information.

4. Which of the following statements regarding the recording of events is valid?

a. Only non-accountable events are recorded in the accounting books.
b. Only accountable events are recorded in the accounting books.
c. Both non-accountable and accountable events are recorded in the accounting books.
d. Neither non-accountable nor accountable events are recorded in the accounting books.

5. Financial report’s qualitative characteristics that make information useful to the users.
a. Fundamental characteristics
b. Enhancing characteristics
c. Financial characteristics
d. Timeliness

6. The following are decisions made by internal users except

a. To analyze the profitability of product lines
b. To impose taxes
c. To decide whether to continue or discontinue product lines.
d. To decide whether to build new production facilities.
7. In which of the following cases would you have a present obligation?
a. You have a strong will to purchase new machinery next year.
b. You promised all your employees that you will give a bonus if the sales hit above the target as a consequence, you
will have to honor your promise.
c. You told a supplier of your intention to purchase machinery, but you did not make any commitment hence you can
always purchase from another supplier.
d. You purchased supplies from your new supplier on credit.

8. An increase in the income would normally result to a

a. Increase in asset
b. Increase in liability
c. Increase in Accounts Payable
d. Decrease in cash account

9. Under the accrual basis of accounting,

a. income is recorded only when cash is received and expenses are recorded only when cash is paid.
b. income is recorded in the period it is earned and expense is recorded in the period it is incurred, irrespective of when
cash is received or paid.
c. liabilities, owner's capital, and drawings all have normal credit balances.
d. all real accounts have normal debit balances.

10. When uncertainty exists, the convention of conservatism or prudence uses estimates of a conservative nature in an attempt to
ensure which of the following?
a. Assets, income, liabilities, and expenses are not overstated
b. Assets, income, liabilities, and expenses are not understated
c. Assets and income are not understated; liabilities and expenses are not overstated
d. Assets and income are not overstated; liabilities and expenses are not understated

11. While making a delivery, the driver of ABC Courier collided with another vehicle causing both property damage and
personal injury. The party sued ABC for damages which could exceed ABC's insurance coverage. Existence of the lawsuit
was reported in the notes to financial statements. What accounting principle, assumption or constraint is being applied in this
situation?
a. Full-disclosure principle
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption

12. The normal balance side of equity, liability and asset are:
a. Debit Credit Credit
b. Credit Credit Debit
c. Debit Credit Debit
d. Credit Debit Credit

13. Entity A had total assets, liabilities, and equity of ₱120M, ₱75M and ₱45M, respectively, at the beginning of the period.
During the period, Entity A’s total liabilities decreased by ₱20M, while its profit was ₱25M. There were no other
transactions or events that affected equity during the period. How much is Entity A’s ending total assets?

a. ₱70M
b. ₱85M
c. ₱95M
d. ₱125M

14. Entity A had total assets, liabilities, and equity of ₱140M, ₱90M and ₱50M, respectively, at the beginning of the period.
During the period, Entity A’s total liabilities decreased to ₱40M, while its profit was ₱25M. There were no other transactions
or events that affected equity during the period. How much is Entity A’s ending total assets?

a. ₱75M
b. ₱95M
c. ₱115M
d. ₱125M
15. Which of the following represents an abnormal balance?

a. Accounts receivable, end. ₱10 (Dr.)

b. Inventory, end. ₱10 (Dr.)
c. Accounts payable, end. ₱10 (Dr.)
d. All of these looks normal to me.

16. Obtaining a loan result to

a. an increase in asset but a decrease in liability.

b. a decrease in asset but an increase in liability.
c. increase in both asset and liability.
d. decrease in both asset and liability.

17. Liabilities, owners' equity, and income are.

a. decreased by credits and increased by debits.

b. decreased by debits and increased by credits.
c. decreased by both debits and credits.
d. its depend on the situation

18. Entity A had a cash balance of ₱310,000 at the beginning of the period. During the period Entity A had the following
transactions:
• Rendered services worth ₱420,000, on account.
• Obtained a ₱500,000 loan.
• Collected ₱270,000 accounts receivable.
• Paid total expenses of ₱680,000.
• Paid half of the loan.

How much is the ending balance of cash?

a. 150,000
b. 90,000
c. 160,000
d. 140,000

Instruction for next five (5) questions: Choose the letter corresponding to the correct account titles used in recording each
of the transactions described.
(debit) (credit)
In this column in this column
19. The business pays ₱1M rent in advance.
a. Rent expense Rent payable
b. Prepaid rent Accounts payable
c. Prepaid rent Cash
d. Rent expense Owner’s drawings

20. The business collects ₱3M accounts receivable from a customer.

a. Cash Accounts receivable
b. Cash Accounts payable
c. Accounts receivable Service Income
d. Cash Service Income

21. The business pays accounts payable of ₱900K on the furniture purchased on account.
a. Cash Accounts payable
b. Furniture Cash
c. Equipment Accounts payable.
d. Accounts payable Cash
22. Received water bill for the month.
a. Utilities Expense Cash
b. Utilities Payable Cash
c. Utilities Expense Accounts Payable
d. Utilities Payable Utilities Expense

23. The business received Equipment from the owner to be used in rendering services.
a. Equipment Accounts payable.
b. Equipment Cash
c. Equipment Service Income
d. Equipment Owner’s Capital

24. The beginning balance of “Cash” is placed on which side of the T-account?

a. Left side.
b. Right side
c. Bottom side
d. Every side

25. Which of the following statements is correct?

a. Freight-out is an expense account.

b. Building is a liability account.
c. Unearned income is an income account.
d. In accounting parlance, depreciation means the decline in the value of an asset.

26. You are a business owner. Which of the following would you most likely consider as a favorable event?

a. Your total liabilities increased, while your total assets decreased.

b. Your business earned income of ₱10M and incurred expenses of ₱40M.
c. Your total equity increased even though you did not make any contributions to the business during the period.
d. Your business becomes a liquidating concern.

27. Office Supplies are expensed:

a. At no time since they are assets.

b. When they are consumed
c. When they are paid for
d. When they are purchased

28. Financial reporting is concerned only with the information that is significant enough to affect evaluation or decision.

a.) Comparability c.) Materiality

b.) Cost and Benefit d.) Timeliness

29. A P 200,000 machine is purchased by paying P 50,000 cash and issuing a promissory note for the remainder. The Journal
Entry should include a

a.) Credit to Machinery

b.) Credit to Notes Payable
c.) Credit to Notes Receivable
d.) Debit to Cash

30. Which of the following accounts might be placed first in a proper journal entry?

a.) Bonds Payable when it has been decreased.

b.) Cash, when it has been decreased.
c.) Interest Income when it has been increased.
d.) Unearned Revenues when it has been increased.
31. Which of the following accounts would be credited in proper journal entry?

a.) Accounts Receivable when it has been decreased.

b.) Owner’s Withdrawals, when it has been increased.
c.) Salaries Expense when it has been increased.
d.) Salaries Payable when it has been decreased.

32. A credit may result in

a.) Decrease in a liability account.

b.) Decrease in the Capital account.
c.) Increase in a liability account.
d.) Increase in an asset account.

33. In the accounting equation, an increase in asset can be associated with

a.) A decrease in a liability

b.) A decrease in owner’s equity
c.) An increase in a liability
d.) None of the choices

34. The Statement of Financial Position reports the following, except:

a.) Profitability
b.) Financial Condition
c.) Liquidity
d.) Solvency

35. Which of the following has a normal debit balance?

a.) Owner’s Capital

b.) Owner’s Withdrawals
c.) Salaries Payable
d.) Unearned Revenues

36. Which of the following statements is true?

a.) Revenue encompasses both income and gain.

b.) Income encompasses both revenue and gain.
c.) Income encompasses revenue only.
d.) Gains encompasses both income and revenue.

37. The accounting cycle is:

a.) The length of time it takes to complete a set of financial statement after the books are closed.
b.) Applicable only to manual systems, not to computerized systems.
c.) A process that begins with adjusting entries and ends with the preparation of financial statements.
d.) The sequence of procedures used by a business to process economic information and to produce financial
statements.

38. Set of accounting standards issued by the Financial Reporting Standards Council.

a. Auditing Standards
b. Generally Accepted Accounting Principles
c. PAS or PFRS
d. Accounting Standards

39. Which of the following is not a possible combination of a journal entry?

a.) Increase in Asset and Increase in Liability

b.) Decrease in equity and increase in liability.
c.) Decrease in Liability and Decrease in Asset
d.) Increase in Asset and Decrease in Equity
40. The field of accounting which deals on ensuring adherence to prescribed management policies.

a.) General Accounting

b.) Cost Accounting
c.) Managerial Accounting
d.) Internal Auditing

41. Expenses can be defined as:

a. Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases in equity.
b. Decreases in equity.
c. Increases in Owner’s equity.
d. Inflows of assets from delivering or producing goods or rendering services

42. Which does not describe what a financial statement is.

a.) It shows the changes in financial position.

b.) It shows the results of operations in each period.
c.) It shows the schedule of receivables and payables of the company.
d.) It shows the financial position of the company.

43. Transactions and other events are recorded in the periods in which they occur, not when they affect cash.
a. Going concern
b. Accrual basis
c. Reporting period
d. Consistency

44. Under this concept, some costs are initially recognized as assets and recognized only as expenses when the related revenue is
recognized.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

45. Which of the following is correct concerning the qualitative characteristics?

a. Free from error means the information contained in the financial statements is perfectly accurate in all respects.
b. Neutrality means information is selected or presented with bias to increase the probability that the information will be
received favorably by the users.
c. Information that is not capable of affecting the decisions of users is considered irrelevant.
d. The enhancing qualitative characteristics can convert non-useful information to useful information.

46. Which of the following is a correct accounting equation?

ASSETS LIABILITIES EQUITY INCOME EXPENSES

a. ₱920,000 ₱710,000 ₱290,000 ₱440,000 ₱420,000
b. ₱870,000 ₱310,000 ₱240,000 ₱570,000 ₱150,000
c. ₱890,000 ₱240,000 ₱340,000 ₱600,000 ₱190,000
d. ₱740,000 ₱530,000 ₱170,000 ₱1,900,000 ₱1,860,000

47. Which of the following statements is correct?

a. A contra-asset account is increased through credit.

b. Accounts receivable is increased through credit.
c. Owner’s equity is increased through debit.
d. Accounts payable is decreased through credit.
48. 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

49. 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. Government accounting is also known as 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.

50. Tony owns a store specializing in bags. Tony has just completed a transaction that caused a P12,000 increase in total assets
and a P12,000 increase in liabilities. This transaction could have been:

a. the investment in his business of P12,000 in cash

b. the purchase of store equipment, paying P9,000 in cash and issuing a P12,000 note payable for the balance owed.
c. the purchase of bags for his inventory, paying P4,000 in cash and issuing an P8,000 note payable for the balance owed.
d. none of the above transactions would cause total assets and total liabilities to increase by P12,000

For Questions Number 51-55:

The following are the financial statements of KADENA Security Services owned and operated by BULAKLAK which was
established on January 1, 2023, with a cash investment of P 200,000 and an additional investment on June 1 of 140,000. the
financial statement was prepared by a staff who is non- accounting graduate, the company assigned you as the accountant to
check the work of the said staff and make necessary adjustments in the computation if needed and answer the below questions.

KADENA SECURITY SERVICES

Income Statement
For the month ended December 31, 2023
Revenues Earned:

Security Fees Revenue P 350,000

Other Fess Revenue 71, 200

Total Revenues Earned 441, 200

Less: Operating Expenses:

Rent Expense P 64,000

Wages Expense 154,900
Insurance Expense 60,000
Depreciation Expense 41,000
Supplies Used 36,200
Utilities Expense 15,330
Bale, Personal 59,770

Total Operating Expenses 431,200

NET INCOME P 10,000

KADENA SECURITY SERVICES
Statement of Financial Position
As of December 31, 2023
ASSETS
Cash in Bank P 5,000
Accounts Receivable 115,000
Prepaid Expense 41,800
Unused Supplies 200
Office Equipment 55,000
Furniture and Fixtures 487,000
TOTAL ASSETS P 704,000
LIABILITIES & OWNER’S EQUITY

Accumulated Depreciation- Office Equipment P 3,000

Accumulated Depreciation- Furniture & Fixtures 57,000
Accounts Payable 14,000
Notes Payable Due 2025 250,000
Deferred Income 50,000
Bale, Capital 330,000

TOTAL LIABILITIES & OWNER’S EQUITY P 704,000

51.

Statement I – The Net Income is P 69, 770

Statement II – The Total Current Liabilities is P14,000
Statement III – The Owner’s Equity at the end of the period is P 330,000
Statement IV – The Total Current Assets is P 162,000

a. Only Statement I is true

b. Only Statement II is true
c. Only Statements II and IV are true
d. Only Statements III and IV are true

52.

Statement I – The Ending Capital is P 620,230

Statement II – A chart of accounts is a flowchart of all transactions.
Statement III – The contra asset accounts is P 60,000
Statement IV – The Total Operating Expenses is P 413,230

a. Only Statement II is true

b. Only Statement III is true
c. Only Statements II and III are true
d. Only Statements II and IV are true

53.

Statement I – The Total Assets is P 602,200

Statement II – The objective of the financial statements is to provide
information about the financial performance, financial position and changes in
financial position useful to a wide range of users.
Statement III – The total non- current assets is P 492,000
Statement IV – The Net Income is P 49,770

a. Only Statement I is true

b. Only Statement II is true
c. Only Statements II and IV are true
d. Only Statements I and IV are true
54

Statement I – The Total Current Liabilities is P 64,000

Statement II – Total Non-Current Liabilities is P 300,000
Statement III – The total Liabilities and Owner’s equity is P 644,000
Statement IV – The Income Statement talks about the financial position of the company.

a. Only Statement I is true

b. Only Statement II is true
c. Only Statements II and IV are true
d. Only Statements I and III are true ( EDITED VERSION)

NOTE: THIS IS CONSIDERED BONUS, SINCE LETTER D IN THE ORIGINAL TEST PAPER IS NOT CORRECT…

55.

Statement I – A Journal entry contains more than one debit, and one
credit is a Compound Journal Entry
Statement II – The normal balance of an account is on the Side represented by the decrease in the account balance.
Statement III. The debit and credit analysis of a transaction normally takes place at some other point in the accounting cycle.
Statement IV – The accounting equation must remain in balance throughout each step in the accounting cycle.

a. Only Statement I is true

b. Only Statement II is true
c. Only Statements II and IV are true
d. Only Statements I and IV are true

56. In recording transactions

a. The word “debit” means increase, and the word “credit” means decrease.
b. Assets, expenses and drawing accounts are credited for increases.
c. Liabilities, revenue and capital accounts are credited for increases.
d. Assets, expenses and drawing accounts are debited for decreases.

57. Willis Company purchased a computer for P200,000. The company paid P50,000 cash as down payment and issued a
P150,000 note payable without interest in 60 days. Which one of the following is not descriptive of the transaction?

a. Total liabilities increased by P150,000.

b. Total assets increased by P200,000.
c. The transaction did not immediately affect the owner’s equity.
d. From the viewpoint of a short time creditor the transaction made the business less solvent.

58. Which of the following is an asset of a firm?

a.) An overdrawn balance on the firm’s bank account

b.) Computer Equipment owned by the firm.
c.) Money owed by the firm to one of its suppliers of good purchased on credit.
d.) The capital of the firm

59. When a customer buys services on credit, the contract is regarded as complete when:

a. The bill is prepared.

b. The date specified in the contract is at hand.
c. The cash payment is received.
d. The services are rendered.
60. In accounting, the concept of “Recognition” means

a.) Assigning an amount or value to an accountable event

b.) Journalizing a transaction in the books or original entry
c.) The process of formally incorporating in the totals of the balance sheet and income statement an item that meets the
probability and measurability criteria for accountable events.
d.) Journalizing and posting an accountable event and including it in the trial balance total.

“NEVER GIVE UP ON A DREAM JUST BECAUSE OF THE TIME IT WILL TAKE TO

ACCOMPLISH IT. THIS TIME WILL PASS ANYWAY- EARL NIGHTINGALE

“IT IS YOUR ATTITUDE AT THE BEGINNING OF A TASK THAT DETERMINES SUCCESS OR

FAILURE.”- CORRINE DEWLOW.”

“YOUR TALENT IS GOD’S GIFT TO YOU, WHAT YOU DO WITH IT IS YOUR GIFT BACK TO GOD. -
LEO BUSCAGLIA”