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Interworld Colleges Foundation Inc.

Burgos St, Paniqui,Tarlac

COLLEGE OF BUSINESS AND ACCOUNTANCY

NAME: Date:
Professor: Section: Score:

Financial Accounting & Reporting

PRELIMINARY EXAMINATION

1. 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.

2. What is the primary purpose of accounting?

a. To count money.
b. To provide accounts.
c. To provide information that is intended to be useful in making economic decisions.
d. To produce accountants.

3. 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.

4. Accounting can be used as a tool in doing evil things, like embezzling of funds. All of the following
can guide the accountant so that he/she will not misuse accounting, except
a. the strict adherence to generally accepted accounting standards and practices.
b. the adherence to a code of ethical conduct.
c. proper education and the inculcation of a sense of integrity on the accountant.
d. the regular use of social media and the strict adherence to the values promoted by TV shows
and Hollywood movies.
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5. Statement I: Financial information is information expressed in terms of money.

Statement II: Financial information is always qualitative information.
a. True; False
b. False; True
c. True; True
d. False; False

6. The branch of accounting that deals with providing financial information to external decision
makers is
a. Public accounting.
b. Government accounting.
c. Financial accounting.
d. Managerial accounting.

7. Financial accounting applies to which of the following:

a. Businesses
b. Non-profit organizations
c. Governments
d. All of the above

8. External users of general-purpose financial statements include all of the following except
a. Creditors
b. Investors
c. Owners who are directly involved in managing the business
d. Lenders

9. You want to put up a business – a pizza parlor. However, you have this dilemma – you do not want
to put up the business alone but you also do not want to enter into business deals with people you
do not trust. At the most, you are only willing to accept one other individual to help you put up
your pizza business. You have in mind your best friend who is more than willing to contribute
resources in putting up the business. She is very excited about your business proposal and even
changed her Facebook status to “self-employed.” She just texted you that she is willing to quit her
day job in order to help you put up the pizza business. What type of business organization best
suits your need?
a. Sole proprietorship
b. Partnership
c. Corporation
d. Cooperative

10. 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

11. Mang Kulas Company sells “balut,” “penoy,” “taho,” and barbeque. At the same time, Mang Kulas
Company also offers spa, manicure, pedicure, and armpit hair removal to its customers. Mang
Kulas Company is referred to as a
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a. high breed business.

b. hybrid business.
c. jack of all trades business.
d. hard-working business.

12. Accounting concepts and principles can be derived from

a. the Standards (i.e., IFRS or PFRS).
b. the Conceptual Framework.
c. long-time use in the profession and have been proven to be most useful.
d. All of these are sources of accounting concepts and principles used in practice.

13. 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

14. Which of the following does not form part of the accounting standards used in the Philippines?
a. Philippine Financial Reporting Standards (PFRSs)
b. Philippine Accounting Standards (PASs)
c. Interpretations
d. Philippine Auditing Practice Statements

15. Under this concept, the life of the business is divided into series of reporting periods. Thus,
businesses normally prepare financial statements at least annually.
a. Time period
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption

16. Under this concept, the cost of processing and communicating information should not exceed the
benefits to be derived from it.
a. Time period
b. Conservatism
c. Materiality
d. Cost-benefit

17. While making a delivery, the driver of Fastrac Courier collided with another vehicle causing both
property damage and personal injury. The party sued Fastrac for damages which could exceed
Fastrac's insurance coverage. Existence of the lawsuit was reported in the notes to Fastrac's 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
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18. The official accounting standard setting body in the Philippines is the
a. Accounting Standards Committee (ASC).
b. Financial Reporting Standards Council (FRSC).
c. Bureau of Internal Revenue (BIR).
d. Financial Accounting Standards Board (FASB).

19. Information has this qualitative characteristic if two different users could reach a general agreement
as to what the information intends to represent.
a. Relevance
b. Comparability
c. Faithful representation
d. Verifiability

20. 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.

21. 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. liabilities, owner's capital, and drawings all have normal credit balances.
c. all real accounts have normal debit balances.
d. 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.

22. Mr. Van owns a butcher shop, a restaurant, and a catering business. Separate financial statements
are prepared for each business independent of the other businesses. What accounting principle or
assumption is being applied in this situation?
a. Time period assumption
b. Separate entity assumption
c. Full-disclosure principle
d. Matching

23. In accounting, an amount enclosed in parentheses means that the amount is

a. a monetary amount.
b. not material.
c. a negative amount.
d. owned by the accountant.

24. The term ‘control’ as used in the definition of an asset means

a. you have the exclusive right to enjoy the economic benefits that an economic resource may
produce.
b. you can prevent others from enjoying the benefits that an economic resource may produce.
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c. a and b
d. the inflows of economic benefits that an economic resource is expected to produce.

25. In which of the following cases would you have a present obligation?
a. You have a strong desire to purchase a new electronic gadget next year.
b. You promised all your friends that you will treat them for a snack tomorrow and, as a
consequence, you will have to honor your promise.
c. You told a supplier of your desire in (a) above, but you did not make any commitment hence
you can always purchase from another supplier.
d. You purchased a can of sardines from the store, on credit. Upon opening the can, you found out
that the sardines were spoiled. The store owner agreed not to collect the purchase price.

26. In which of the following cases would you have a present obligation?
a. You intend to enrol in a school but you don’t have money for tuition fee.
b. Your Mama gave you money for tuition fee but you have not yet enrolled.
c. You enrolled in school and were assessed tuition fee. However, because you qualified for a
100% scholarship, your school cancelled your tuition fee, including miscellaneous fees. Your
school even committed on giving you monthly allowance.
d. You enrolled in school and paid in full your tuition fee.

27. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

28. It is a present obligation that has resulted from past events and has the potential to cause a transfer
of an economic resource in its settlement.
a. asset.
b. liability.
c. expense.
d. income.

29. 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 incurred total expenses of
₱640,000. No additional investments or withdrawals were made by the owner. How much is the
total equity at the end of the period?
a. 480,000
b. 520,000
c. 560,000
d. 640,000

30. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner and
an additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000
d. ₱250,000
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31. 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 despite the fact that you did not make any contributions to the
business during the period.
d. Your business becomes a liquidating concern.

32. 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

33. 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

34. Entity A had total assets of ₱100M and total liabilities of ₱60M at the beginning of the period. If at
the end of the period, total assets increased by ₱30M, while total liabilities remained the same,
Entity A’s total equity at the end of the period would be
a. ₱70M
b. ₱60M
c. ₱90M
d. ₱80M

35. Entity A had total assets and total liabilities of ₱120M and ₱75M, respectively, at the beginning of
the period. During the period, Entity A earned total income of ₱60 and incurred total expenses of
₱45. How much is Entity A’s ending total equity?
a. ₱60M
b. ₱80M
c. ₱90M
d. ₱120M

36. Entity A had total assets and total liabilities of ₱120M and ₱70M, respectively, at the beginning of
the period. During the period, Entity A earned total income of ₱60 and incurred total expenses of
₱40. Entity A’s total assets increased to ₱130M by year-end. There were no additional contributions
by, or distributions to, the owner during the period. How much is Entity A’s ending total liabilities?
a. ₱60M
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b. ₱70M
c. ₱80M
d. ₱90M

37. Entity A has ending total assets of ₱60M and ending total liabilities of ₱45M. Entity A had a
beginning equity of ₱10M. If Entity A earned total income of ₱25M during the year, how much
were the total expenses?
a. ₱0
b. ₱15M
c. ₱20M
d. ₱25M

38. Entity A has ending total assets of ₱160M and ending total liabilities of ₱90M. Entity A had a
beginning equity of ₱30M. If Entity A incurred total expenses of ₱50M during the year, how much
was the total income?
a. ₱70M
b. ₱80M
c. ₱90M
d. ₱120M

39. At year-end, Entity A’s total assets and total liabilities are ₱180M and ₱70M, respectively. If Entity
A had a beginning equity of ₱75M and there were no contributions from, or distributions to, the
owner during the period, how much profit (loss) did Entity A earn (incur) during the year?
a. ₱35M
b. (₱35M)
c. ₱25M
d. (₱25M)

40. In which of the following instances would it be acceptable for the accounting equation to not be
balanced?
a. When the accountant is feeling sad and lonely.
b. When there is a strong typhoon and classes are suspended.
c. When the accountant’s calculator is “lowbat.”
d. None. The accounting equation should be balanced at all times.

41. It is an economic resource controlled by the entity that has resulted from past events and has a
potential to produce economic benefits.
a. Asset
b. Equity
c. Liability
d. Income

42. This financial statement element is defined in terms of increases or decreases in assets or liabilities
during the period resulting in changes in equity, but excluding contributions from, or distributions
to, the business owner.
a. Income
b. Expense
c. Profit
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d. a and b

43. If income exceeds expenses,

a. a loss is incurred.
b. total equity is decreased.
c. total equity is not affected.
d. profit is earned.

44. Which of the following account numberings would most likely connote an expense account?
a. 110
b. 210
c. 410
d. 510

45. 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.

46. 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

47. 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.

48. 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

49. 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.

50. When the customer in #49 above pays the sale price, you will
a. debit cash.
b. credit cash.
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c. say “Thank you.”

d. a and c

51. If your business uses special journals, where will you record the transactions in #’s 49 and 50 above?
Transaction in #1 Transaction in #2
a. Sales journal Cash receipts journal
b. General journal General journal
c. General journal Cash receipts journal
d. Not recorded Cash receipts journal

52. If you debit a liability account, what happens?

a. Its balance increases.
b. Its balance decreases.
c. Its balance disappears.
d. Nothing!

53. 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 look normal to me.

54. Which of the following is not an example of a source document?

a. Delivery receipt
b. Sales invoice
c. Special journal
d. Bank statement

55. Journal entries are recorded in the journal

a. chromatically.
b. chronologically.
c. pharmaceutically.
d. cutely.

56. A journal entry with more than one debit or more than one credit is called a
a. simple journal entry.
b. compound journal entry.
c. complicated journal entry.
d. sophisticated journal entry.

57. This represents the steps or procedures used to record transactions and prepare financial
statements. It implements the accounting processes of identifying, recording, and communicating
economic information.
a. Accounting cycle
b. Analyzing
c. Journalizing
d. Posting
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58. It is a document issued by a buyer to a seller indicating the types, quantities and agreed prices for
products or services that the buyer intends to purchase.
a. Buyer document
b. Purchase invoice
c. Purchase order
d. Sales order

59. It is a document signed by the receiver of a shipment indicating that the goods have been received
by the intended recipient.
a. Official receipt
b. Delivery receipt
c. BIR receipt
d. Shipment receipt

60. If you pay your tuition fee in school, the school will issue you this document.
a. Official receipt
b. Sales invoice
c. Thank you note
d. Change

61. This document evidences a deposit transaction with a bank.

a. Bank reconciliation
b. Bank statement
c. Withdrawal slip
d. Deposit slip

Instruction for next ten (10) questions: Choose the letter corresponding to the correct account titles
used in recording each of the transactions described.

62. During the year, you started a sole proprietorship business. You invested ₱10M cash to the
business.
a. Accounts receivable Owner’s drawings
b. Cash Owner’s capital
c. Cash Investment expense
d. Owner’s capital Owner’s drawings

63. The business acquires equipment for ₱6M cash.

a. Equipment Owner’s capital
b. Equipment Accounts receivable
c. Owner’s capital Equipment
d. Equipment Cash

64. The business recognizes depreciation of ₱250,000 on the equipment.

a. Prepaid supplies Equipment
b. Depreciation expense Accumulated depreciation
c. Depreciation expense Equipment
d. Equipment Accumulated depreciation
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65. The business purchases inventories for ₱2M cash.

a. Inventory Owner’s capital
b. Inventory Sales
c. Inventory Cash
d. Cost of sales Freight out

66. The business makes a ₱3M sale to a customer who orally promises to pay for the purchase price
after 30 days.
a. Accounts receivable Sales
b. Accounts receivable Owner’s capital
c. Cash Sales
d. Cost of sales Accounts receivable

67. 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

68. The business spends ₱1M in marketing and promoting the products.
a. Advertising expense Owner’s capital
b. Advertising expense Cash
c. Accounts receivable Equipment
d. Accounts payable Cash

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

a. Cash Accounts receivable
b. Cash Accounts payable
c. Accounts receivable Sales
d. Cash Sales

70. The business purchases inventory costing ₱900K on account or on credit.

a. Cash Accounts payable
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Owner’s capital

71. The business pays accounts payable of ₱900K.

a. Cash Sales
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Cash

72. Which of the following is the effect of purchasing inventory on account?

a. Inventory is increased and Cash is decreased
b. Inventory is increased and Accounts payable is increased
c. Inventory is increased and Accounts payable is decreased
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d. Inventory is decreased and Accounts payable is increased

73. Which of the following is the effect of a sale of goods on account?

a. Accounts receivable is increased and Cash is decreased
b. Accounts receivable is increased and Accounts payable is increased
c. Accounts receivable is increased and Sales is increased
d. Accounts receivable is decreased and Sales is decreased

74. It is the step in the accounting cycle where the identified accountable events are recorded in the
journals.
a. Analyzing
b. Journalizing
c. Accounting
d. Posting

75. These are transactions that involve the business and another external party.
a. Outside transactions
b. External events
c. Internal events
d. External events other than transfers

76. This type of journal entry contains only a single debit and a single credit.
a. Single entry
b. Compound entry
c. Simple entry
d. One-sided entry

77. This source document is prepared each time goods are sold.
a. Sales journal
b. Cost of goods sold
c. Deposit slip
d. Sales invoice

78. Obtaining a loan results 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.

79. 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 depen on the situation

80. Entity A has the following information:

1) Accounts receivable, ₱100,000
2) Accounts receivable – Mr. George U. Tang, ₱20,000
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Where will you find the accounts described above?

a. Both in the General ledger
b. First one, in the General ledger; second one, in the Subsidiary ledger
c. First one, in the General ledger; second one, nowhere
d. Both on the forehead of the accountant

81. The general ledger account that summarizes the detailed information in a subsidiary ledger is
known as a
a. summary account.
b. controlling account.
c. balance sheet.
d. any of these

82. This refers to process of transferring the amounts of debits and credits in a recorded journal entry to
the ledger accounts.
a. Analyzing
b. Journalizing
c. Posting
d. Trial balancing

83. The primary purpose of posting is to

a. record transactions.
b. classify transactions.
c. summarize transactions in a report form.
d. all of these

84. The balance of an accounts receivable from a certain customer at any given point of time can be
determined by referring to the
a. general journal.
b. general ledger.
c. subsidiary ledger.
d. financial statements.

85. The primary purpose of preparing a trial balance is to

a. record transactions as they occur.
b. classify the effects of the transactions on the accounts.
c. check the equality of total debits and total credits in the ledger.
d. report the processed information to interested users.

86. After posting, the next step in the accounting cycle is

a. preparation of closing entries.
b. preparation of an adjusted trial balance.
c. journalizing.
d. preparation of an unadjusted trial balance.

87. Which of the following statements regarding the trial balance is correct?
a. Trial balances are prepared to check the equality of debits and credits in the accounts.
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b. The accounts are presented on the trial balance according to magnitude, i.e.., in order of size.
c. A contra asset account would appear in the debit column of the trial balance.
d. A trial balance is one of the components of a complete set of financial statements. As such,
financial reporting requires the preparation of a trial balance.

88. 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

89. You recorded a ₱21,000 amount as ₱2,100. You committed an accounting error called
a. Transplacement error.
b. Transposition error.
c. Transformation error.
d. Transgender error.

90. The main purpose of preparing a trial balance is

a. to determine whether the debits and credits in the journal are equal.
b. to try if total debits equal total credits in the ledger.
c. to determine whether transposition or transplacement errors have been committed.
d. to annihilate the accounts.

91. If you get the balances of the accounts in the general ledger and place them on a single report, that
report would be
a. financial statements.
b. ledger report.
c. trial balance.
d. chart of accounts.

92. Which is of the following is a correct sequence of the steps in the accounting cycle?
a. Posting, Journalizing, Identifying and analyzing, Trial balance
b. Identifying and analyzing, Journalizing, Posting, Trial balance
c. Journalizing, Identifying and analyzing, Trial balance, Posting
d. Left, right, up and down

93. Which of the following statements regarding the trial balance is most likely to be invalid?
a. The purpose of preparing a trial balance is to determine whether the total debits and total
credits in the ledger are equal.
b. If total debits and credits are not equal, an error surely exists in the accounts.
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c. The trial balance is a prerequisite in preparing financial statements.

d. The preparation of the trial balance creates a starting point for the preparation of the financial
statements.

94. This trial balance is prepared before adjusting entries are made.
a. Unadjusted trial balance
b. Adjusted trial balance
c. Post-closing trial balance
d. Pre-closing trial balance

95. The heading of a trial balance does not include which of the following?
a. Name of the business
b. Title of the report
c. Type of activity that the business is engaged with
d. Date of the report

96. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

97. Aling Nena’s Sari-sari Store’s total sales during the period were ₱100M. Of that amount, ₱60M was
on credit. If the total business expenses were ₱70M, how much is the profit (loss)?
a. 30M c. 10M
b. (30M) d. (10M)

98. The purpose of adjusting entries is

I. to take up unrecorded income and expense of the period.
II. to split mixed accounts into their real and nominal elements.
III. to transfer financial data from the journal to the ledger.
a. I only c. I and II
b. I, II, and III d. II and III

99. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1. Entity A uses a
calendar year period. The principal and interest on the note are due on October 1, 20x2. The
adjusting entry to take up accrued interest income on December 31, 20x1 includes a
a. debit to interest income for ₱6,000.
b. credit to interest income for ₱12,000.
c. credit to interest receivable for ₱12,000.
d. debit to interest receivable for ₱6,000.

100. The mother of accounting is

a. Fra Luka Lady Gaga. c. Mami Siopao.
b. Accountant Mama. d. None of these
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“He will have no fear of bad news; his heart is steadfast, trusting in the Lord. His
heart is secure, he will have no fear; in the end he will look in triumph on his foes.”
(Psalm 112:7-8)

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