L-NU AA-23-02-01-18

LYCEUM-NORTHWESTERN UNIVERSITY
Tapuac District, Dagupan City

COLLEGE OF BUSINESS EDUCATION

MIDTERM EXAMINATION – CAE 2 Financial Accounting and Reporting

1st Semester, AY 2020– 2021
Prepared by: Amie Jane R. Miranda, CPA

Name:_____________________________________ Score:____________________

Student No.: _______________ Year/Section:___________ Date of Exam: ____________

I. MULTIPLE CHOICE. Choose the best answer from the choices and encircle your answer. Strictly “NO
ERASURES”.

1. 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.
2. It refers to money held and bank deposits that are available for unrestricted use by the business.
a. Cash
b. Accounts receivable
c. Income
d. Inventory
3. An increase to an account is recorded
a. in the debit side of that account.
b. in the credit side of that account.
c. in the side of that account that represents its normal balance.
d. beside the account.
4. 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
5. When a customer buys goods from your business and promises orally to pay for the sale price next
week, you will
a. debit accounts receivable.
b. credit accounts receivable.
c. not give him the goods.
d. ignore the customer.
6. When the customer in #5 above pays the sale price, you will
a. debit cash.
b. credit cash.
c. say “Thank you.”
d. a and c

7. The amounts shown on this trial balance represent the beginning balances of accounts in the next
accounting period.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Carry-over trial balance

Use the following information for the next three questions:

Entity A started operations on November 1, 20x1. The following were the transactions during the
month:

Nov. 1, 20x1 The business owner provides ₱2,000,000 cash as investment to the business.
Nov. 5, 20x1 Entity A obtains a ₱500,000 loan and issues a promissory note.
Nov. 8, 20x1 Entity A acquires land costing ₱1,000,000 on cash basis.

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 Nov. 16, 20x1 Entity Arenders services worth ₱1,200,000 on account.
Nov. 30, 20x1 Entity Apays salaries expense of ₱280,000.

8. How much is the total assets at the end of the period? (Hint: use the basic accounting equation)
a. 4,320,000
b. 3,840,000
c. 3,420,000
d. 2,980,000

9. How much is the total liabilities at the end of the period?

a. 500,000
b. 520,000
c. 580,000
d. 680,000

10. How much is the equity at the end of the period after taking into account income and expenses?
a. 2,920,000
b. 2,980,000
c. 3,120,000
d. 3,280,000
11. In a worksheet, which of the following is prepared after the unadjusted trial balance?
a. Adjusted trial balance columns
b. Income statement columns
c. Adjusting entries columns
d. Balance sheet columns
12. In accounting parlance, an account that has no balance is called a
a. closed account.
b. dead account.
c. ghost account.
d. blocked account.
13. This trial balance contains only real accounts.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Permanent trial balance
14. The first step in the accounting cycle is
a. posting to the ledger.
b. journalizing.
c. preparing the adjusting entries.
d. analyzing events.

15. Credit is on which side of an account?

a. Right
b. Left
c. Top
d. Bottom
16. A debit may signify an increase in
a. liability account.
b. asset account.
c. revenue account.
d. liability and revenue account.

17. A business sells goods in Year 1 but collects the sale price only in Year 2. According to the accrual
basis and time period concepts, the business should include the sale in its income statement in
a. Year 1.
b. Year 2.
c. Year 3.
d. Every year
18. Debit and debit result to
a. addition.
b. deduction.
c. multiplication.
d. two debits.

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Instruction for the next twelve (12) questions: Choose the letter corresponding to the correct journal
entry for each of the transactions described.

19. Owner’s cash investment to the business.

Debit Credit
a. Cash Owner’s capital
b. Cash Owner’s drawings
c. Owner’s capital Cash
d. Cash Sales

20. Acquisition of equipment on cash basis.

Debit Credit
a. Cash Equipment
b. Expense Cash
c. Equipment Cash
d. Equipment Owner’s capital

21. Acquisition of inventory on cash basis

Debit Credit
a. Inventory Accounts payable
b. Expense Cash
c. Inventory Cash
d. Cost of sales Cash

22. Acquisition of inventory on credit.

Debit Credit
a. Inventory Accounts payable
b. Accounts payable Inventory
c. Accounts payable Cash
d. Cost of sales Accounts payable

23. Payment (settlement) of accounts payable

Debit Credit
a. Inventory Accounts payable
b. Cash Accounts payable
c. Accounts payable Cash
d. Cost of sales Inventory

24. Sale of inventory on cash basis

Debit Credit
a. Inventory Sales
b. Cash Accounts receivable
c. Cash Sales
d. Cost of sales Cash

25. Sale of inventory on credit

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

26. Collection of accounts receivable

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

27. Payment of advertising expense

Debit Credit
a. Advertising expense Cash
b. Cash Advertising expense

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 c. Cash Advertisement payable
d. Advertising expense Accounts payable

28. Owner’s drawings (owner’s withdrawal of cash from the business)

Debit Credit
a. Drawings expense Cash
b. Cash Owner’s drawings
c. Owner’s drawings Cash
d. Cash Owner’s capital

29. Recognition of depreciation

Debit Credit
a. Depreciation expense Cash
b. Depreciation expense Equipment
c. Depreciation expense Accumulated depreciation
d. Accumulated depreciation Depreciation expense

30. Recognition of bad debts

Debit Credit
a. Bad debts expense Cash
b. Bad debts expense Accounts receivable
c. Bad debts expense Allowance for bad debts
d. Allowance for bad debts Bad debts expense

31. Which of the following statements is correct?

a. The “Sales” account is used by both service and merchandising businesses in recording revenues
from primary business activities.
b. “Accounts receivable” is used only by service businesses but not by merchandising businesses.
c. The “Inventory” account is most likely to be found in the financial statements of a
merchandising or manufacturing business but not of those of a service business.
d. A manufacturing business cannot be organized as a sole proprietorship.

32. Recording assets at their acquisition cost (entry value), rather than at their net selling price (exit
value), is in line with the concept of
a. Single entity concept.
b. Historical cost concept.
c. Going concern concept.
d. Matching principle.

33. The term “posting” as used in accounting means

a. recording an accountable event in debit-credit format.
b. transferring the debits and credits of journal entries from the journal to the affected accounts in
the ledger.
c. checking the equality of the monetary totals of debits and credits of accounts in the ledger.
d. uploading photographs to the internet.

34. At the beginning of the period, Addy had a cash balance of ₱20,000 and a notes payable of ₱15,000.
During the period, Addy collected ₱11,000 accounts receivable, paid ₱8,000 notes payable, and
issued additional notes payable of ₱5,000 in exchange for cash. How much are the ending balances
of cash and notes payable, respectively?
Cash Notes payable
a. 17,000 20,000
b. 20,000 12,000
c. 28,000 12,000
d. 36,000 20,000
35. A business has total assets, liabilities, and equity of ₱10,000, ₱7,000 and ₱3,000, respectively, at the
beginningof the period. During the period, total liabilities decreased to₱4,000 while profit
was₱5,000. How much is the ending total assets?
a. 12,000
b. 11,000
c. 9,000
d. 7,000

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36. Which of the following is not a special journal?
a. General Journal
b. Sales Journal
c. Purchase Journal
d. Cash Receipts Journal

37. A business sells goods on cash basis. This transaction is most likely recorded in which of the
following special journals?
a. Sales journal
b. Purchases journal
c. Cash receipts journal
d. Diary journal

38. At the beginning of the period, Entity A’s notes payable had a balance of ₱1,200. During the period,
Entity A obtained an additional loan of₱800 and made total payments of ₱500. How much is the
ending balance of Entity A’s notes payable?
a. 1,800
b. 1,500
c. 1,200
d. 900
39. This branch of accounting involves teaching accounting, taxation, and other business-related
subjects.
a. Accounting education
b. Government Accounting
c. Accounting research
d. Tax accounting

40. This account is used to record payments received from customers prior to the delivery of goods or
rendering of services.
a. Accrued income
b. Unearned income
c. Prepaid asset
d. Accounts receivable

41. A chart of accounts is

a. a listing of all accounts and their balances.
b. a subsidiary ledger.
c. a special journal.
d. a listing of all account titles.

42. How is profit or loss calculated?

a. It is the difference between net assets at the beginning and end of the accounting period
irrespective of transactions with owners.
b. It is the difference between net liabilities at the beginning and end of the accounting period.
c. It is the difference between assets and liabilities.
d. It is the difference between income and expenses.

43. The beginning equity is ₱5,000. If total income for the period is ₱8,000 while total expenses are
₱6,000, how much is the ending balance of equity?
a. 7,000
b. 5,000
c. 3,000
d. 1,000
44. The ending equityis ₱9,000. If total income for the period is ₱5,000 while total expenses are ₱8,000,
how much is the beginning balance of equity?
a. 12,000
b. 9,000
c. 6,000
d. 0

45. At the start of the period, a business has total assets of ₱500,000 and total liabilities of ₱300,000.
During the period, the business earned total income of ₱1,000,000 and total expenses of ₱640,000.
No additional investments or withdrawals were made by the owner. Total assets at the end of the
period were ₱830,000. How much is the total liabilities at the end of the period?

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 a. 280,000
b. 270,000
c. 260,000
d. 240,000

46. The generally accepted accounting principles (GAAP) in the Philippines are represented by the PFRSs
which are issued by the
a. Pinoy Accounting Standards.
b. Kapisanan ng mga Kontador sa Pilipinas.
c. Financial Reporting Standards Council.
d. Philippine Accounting Standards Board.

47. Which of the following accounts is increased by a credit?

a. Cash
b. Accounts receivable
c. Accounts payable
d. Owner’s drawings

48. Which of the following accounts is increased by debiting it?

a. Accounts payable
b. Equipment
c. Sales
d. Accumulated depreciation

49. Which of the following special journal is used when a business purchases inventoryon cash basis?
a. Cash disbursements journal
b. Purchases journal
c. Inventory journal
d. Cash receipts journal

50. If the ending balance of accounts payable is ₱100,000 and the total debits and credits to that
account during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000

51. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning of the period.
The business earns income of ₱220,000 during the period and reports profit of ₱80,000. There were
no transactions with the owner during the period. Total liabilities increased by ₱40,000 by the end
of the period. How much is the total assets at the end of the period?
a. 560,000
b. 440,000
c. 860,000
d. 760,000

52. On January 1, 20x1, Johnny Company acquires a building for ₱10M. The building is estimated to
have a useful life of 20 years. How much expense is recognized in 20x1 in relation to the building?
a. 10,000,000
b. 1,000,000
c. 500,000
d. 0

53. The main purpose of accounting is

a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the industry’s econ

54. This branch of accounting focuses on catering to the information needs of external users.
a. Management accounting
b. Financial accounting
c. Auditing
d. External accounting

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55. Entity A’s income statement shows a line item described as “Cost of goods sold.” Entity A is most
likely a
a. service business.
b. merchandising business.
c. sole proprietorship business.
d. partnership business.

56. Under this concept, the business is treated separately from its owners.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

57. Which of the following statements regarding owner’s capital is not valid?
a. It is increased by investments to the businessby the owner.
b. It is increased by income earned by the business.
c. It is increased by distributions to the owners (drawings by owners).
d. It is decreased by expenses incurred by the business.

58. Which of the following is a purpose of preparingan unadjusted trial balance?

a. to facilitate the preparation of the financial statements
b. to provide reasonable assurance that all accountable events are recorded
c. to facilitate the preparation of adjusting entries
d. to provide reasonable assurance that all nominal accounts are zeroed-out

59. Which of the following does not describe an advantage of a partnership over the other forms of
business organizations?
a. “Two heads are better than one.”
b.“The more the merrier.”
c.Making business decisions may give rise to conflict among the partners.
d.Sharing of risk.

60. Entity A has accounts receivable of ₱500,000 and a related allowance for bad debts of ₱120,000.
How much is the carrying amount of the accounts receivable?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

II. PROBLEM SOLVING.

Mr Uhtred opened a business called a business called Bebbanburg Merchandising. The following were
the transactions for the year ended December 31, 20x1:

1. Mr. Uhtred contributed 600,000 to the business.

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 2. Bebbanburg obtained a loan of 400,000.
3. Bebbanburg purchased inventory worth 200,000 on cash basis
4. Bebbanburg purchased inventory worth 500,000 on account
5. Bebbanburg sold goods for 900,000, on account. The cost of the goods is 400,000.
6. Bebbanburg paid 400,000 accounts payable
7. Bebbanburg collected 500,000 accounts payable
8. Bebbanburg purchased equipment for 480,000 cash
9. Bebbanburg distributed 10,000 cash to Mr. Uhtred
10. Bebbanburg paid interest expense of 5,000

Requirements:
a. Provide the journal entries
b. Post the entries to the ledger (use T-accounts)
c. Prepare the unadjusted trial balance
ajmiranda
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Goodluck and Godbless

Reviewed and Checked by:

Dr. Genoveva Y. Reyes, CPA, FRIAcc

Dean, College of Business Education

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