1.

A
Income statement - shows the financial performance of an enterprise
Balance sheet - shows the financial position of an enterprise
Cash flow statement - shows the inflow and outflow of cash in an enterprise
Owner’s equity statement- shows the claims of the owners in the assets of the business
2. B
The entry to record the purchase of office supplies on account is to debit Office Supplies
and credit Accounts Payable which increases assets and liabilities. Posting this entry twice
will cause the assets and liabilities to increase further, thus, overstating the amount of
assets and liabilities.
3. A
Accounts Receivable is adjusted for Allowance for Doubtful Accounts. Building is adjusted
for depreciation. Accounts Payable is not adjusted at the end of the accounting period.
4. A
Trade discounts are discounts offered to a buyer for their purchase, which is deducted
outright in the list price to get the invoice price. So, trade discounts are not recorded in the
books since it is deducted outright. Cash discounts are those discounts offered by sellers
through credit terms such as 2/10 n/30, etc. When discount is availed by the buyer (payment
of account within discount period), the discount is recorded in the books of the buyer.
5. C
General Journal is also known as the “Book of Original Entry”. General Ledger is known as
the “Book of Final Entry”.
6. A
Purchases have input tax levied into it while sales have output tax levied into it. Input tax is
an asset (receivable) while output tax is a liability (payable). Remember the acronym PISO
to remember that Purchases and Input Tax have debit balances and Sales and Output Tax
have credit balances.
7. A
Freight terms are:
FOB Shipping Point - buyer is legally liable to pay the freight charge
FOB Destination - seller is legally liable to pay the freight charge
Freight collect - buyer actually pays the freight charge
Freight prepaid - seller actually pays the freight charge
8. DV Partnership agreement provides for Denise to receive 20% bonus on profits before bonus.
Remaining profits and losses are divided between Denise and Valerie in the ratio of 2:3,
respectively. Which partner has a greater advantage when the partnership has a profit or when
it has a loss?
Profit Loss
A. Denise Valerie
B. Denise Denise
C. Valerie Denise
D. Valerie Valerie

9. Statement I: The increase in the equity of the partner due to distribution of profits can be
attributed to a particular asset
Statement II: The form and content of the statement of comprehensive income of a
partnership resemble those of a sole proprietorship with no exceptions.
A. Both statements are true
B. Both statements are false
C. Only the first statement is true
D. Only the second statement is true

10. Statement I: In certain cases when distribution of profits or losses involves salary and
interest allowances, some partners may receive an increase in equity and others may suffer a
decrease.
Statement II: The partnership income is calculated traditionally, however, partner’s
salaries and interest on capital are treated differently.
A. Both statements are true
B. Both statements are false
C. Only the first statement is true
D. Only the second statement is true

11. Statement I: Bonuses are given as incentives for earnings, not for losses
Statement II: The prescribed allocation for salaries and/or interest on capital balances
should be given to the partners if there is sufficient net income
A. Both statements are true
B. Both statements are false
C. Only the first statement is true
D. Only the second statement is true

12. Which of the following best describes the nature of salary and interest allowances in a
partnership profit and loss sharing agreement?
A. A means of determining reasonable monthly withdrawals by each partner
 B. The amount upon which each partner will have to pay personal income tax
C. Expenses of the business that should be deducted from revenue in determining profit
D. A means of distributing profit in relation to services rendered and capital
invested by partners

13. The partner’s drawing account is debited except for

A. Withdrawal of assets by the partner
B. Partnership obligations assumed or paid by the partner
C. Funds or claims of partnership collected and retained by the partner
D. Partner’s personal indebtedness paid or assumed by the partnership.

14. Statement I: A new partner could be admitted even without the consent of the other partners
as long as the admission of the new partner is by direct purchase of existing partner’s interest.
Statement II: Whenever a partner totally withdraws or retires from the partnership, his
capital balance should be brought to zero balance with a corresponding credit of assets
representing settlement of his equity claim from the partnership.
A. Both statements are true
B. Both statements are false
C. Only the first statement is true
D. Only the first statement is false

15. Statement I: All nominal accounts are closed to real account at the end of each accounting
period.
Statement II: All real accounts are reported in the statement of financial performance.

Which of these statement is/are true?

A. I only B. II only C. I and II D. none of these

16. Statement I: Under the asset method of initially recording prepayments, the corresponding
adjusting entry will increase the expense and asset.
Statement II: All adjusting entries should be reversed on the first day on the next accounting
period.

Which of these statement is/are true?

A. I only B. II only C. I and II D. none of these

17. Statement I: The amount of merchandise unsold at the end of the accounting period
comprise the inventory to be reported in the statement of financial position.
Statement II: When the problem is silent, it is assumed that the perpetual method of inventory
is being used by the business.

Which of these statement is/are true?

A. I only B. II only C. I and II D. none of these
18. Which of the following is not finally closed to the capital account at the end of each
accounting period?
A. Interest Expense
B. Legal Fees
C. Owner’s Drawing
D. Accrued Rent Receivable

19. Statement I: The adjustments for the asset method of prepayment record asset debit and
expense as credit.
Statement II: The income summary account is the other term used to describe “revenue and
expense account”

Which of these statement is/are true?

A. I only B. II only C. I and II D. none of these

20. Statement I: Deferred Revenue is a liability account.

Statement II: When pre collection was initially recorded as income, the year-end adjustment
will decrease the liability account if the pre collection are not yet totally earned at the date of
statement of financial position.

Which of these statement is/are true?

A. I only B. II only C. I and II D. none of these

21. A
Cash 109 000
Accounts Receivable 56 000
Allowance for Doubtful Accounts (10 080)
Loans Receivable – payable on December 31, 2015 1 500 000
Prepaid Insurance 250 000
Prepaid Utilities 75 000
Merchandise Inventory, end 215 264
Prepaid Rent 62 015
Unused Supplies 15 025
Advances to creditors 1 500 000
Total current assets 3 772 224

22. C.
Delivery Equipment 65 000
Building 1 252 000
Land 2 051 200
 Furniture and Fixtures 1 500 000
Delivery Van 750 000
Accumulated Depreciation – Equipment (15 000)
Accumulated Depreciation – Building (650 000)
Accumulated Depreciation – Delivery Van (50 000)
Notes Receivable – payable on June 21, 2018 2 500 000
Total non-current assets 7 403 200

23. D.
Total current assets 3 772 224
Total non-current assets 7 403 200
Total Assets 11 175 424

24. B
Advances from customers 2 500 000
Accounts Payable - trading 3 000 000
Notes Payable – Payable on June 30, 2015 2 500 000
Loans Payable – payable on September 2, 2015 1 500 000
Salaries Payable 75 000
Income Tax Payable 65 000
Unearned Rent Income 100 000
Unearned Service Fees 2 000
Accrued Interest Expense – note payable 50 000
Accrued Interest Expense – loans payable 75 000
SSS Premium Payable 15 000
Insurance Payable 25 000
HDMF Payable 30 000
PhilHealth Payable 15 000
Taxes and Licenses Payable 25 000
Current liabilities 9 977 000

25. A.
Loans Payable – payable on September 30, 2019 4 500 000
Deferred Revenue – long term 350 000
Total Non-current liabilities 4 850 000

26. C.
Merchandise Inventory, beg 165 000
Purchases 4 750 000
Purchase Returns (62 500)
Purchase Discounts (75 000)
Freight In 70 000
 Merchandise Inventory, end (215 264)
Cost of sales 4 632 236

27. A
Net Sales
Sales 6 250 000
Sales Return and Allowances (250 000)
Sales Discounts (75 000) 5 925 000
Less COS
Merchandise Inventory, beg 165 000
Purchases 4 750 000
Purchase Returns (62 500)
Purchase Discounts (75 000)
Freight In 70 000
Merchandise Inventory, end (215 264) 4 632 236
GP 1 292 764

28. D
Gross profit 1 292 764
Less OpEx:
Rent Expense 125 000
Salaries Expense 75 000
Utilities Expense 75 000
Depreciation Expense 130 000
Freight Out 75 000
Taxes and Licenses Expense 25 000
SSS Premium Expense 15 000
Insurance Expense 25 000
HDMF Expense 15 000
Supplies Expense 30 075
Operating Income 702 689

29.
Operating Income 702 689
Interest Expense (125 000)
Commission Income 75 000
Interest Income 25 000
Net Profit 677 689

30. D
31. 287 833
Nah Nal Aas Total
Interest 22 500 37 500 75 000 135 000
Salary 24 000 24 000
Bonus to Nal -0- 130 000 -0- 130 000
Residual 120 333 120 333 120 333 361 000
Total 166 833 287 833 195 333 650 000

B = .25 ( 650 000 – B)

B = 162 500 - .25B
B = 130 000

32. C
Balance, 2011 Net Addl Invest. Share in Net profit (6 mos) Total Asset Rev Adjusted Bal.
Kay 750 000 15 000 65 000 830 000 30 000 860 000
Kap 500 000 (10 000) 97 500 587 500 45 000 632 500
Cop 250 000 10 000 162 500 585 000 75 000 660 000
150 000

33. A
Adj. Cap. Bal Bonus Agreed Balance
Kay 860 000 (16 000) 844 000
Kap 632 500 (24 000) 608 500
Cop 660 000 40 000 700 000

34. C
Authorized Ordinary Shares 5 000 000
Unissued Ordinary Shares (2 000 000)
Subscribed Ordinary Shares 1 000 000
Subscription Receivable (400 000)
Share Premium 500 000
Retained Earnings, unappropriated 800 000
Retained Earnings, appropriated 400 000
Treasury shares, at cost (500 000)
TSE 4 800 000
35. B.
Pref Common Total
18% * P100 * 10 000 180 000 180 000
Remainder to Ord. 420 000 420 000
total 600 000
36. A.
Pref Common Total
18% * P100 * 10 000 180 000 180 000
Remainder to Ord. 420 000 420 000
total 600 000

37. A.
Pref Common Total
18% * P100 * 10 000 * 3 540 000 540 000
18% * P50 * 5 000 45 000 45 000
Remainder (15 000)
Pref (1000/1250 * 15 000) 12 000 12 000
Ord (250/1250 * 15 000) 3 000 3 000
Total 552 000 48 000 600 000

38. C
n/eom means that account is due at the End Of Month. Thus, account is due on June 30,
2015 (There’s no such date as June 31, 2015)
39. B
Recognition of freight charges in the view of the buyer will involve entries depended on
credit terms.
So in the buyer’s point of view,
FOB Shipping Point, Freight collect - Buyer is legally liable, and buyer actually pays the
freight. So the journal entry to record it is to debit Freight-in and credit Cash.
FOB Shipping Point, Freight prepaid - Buyer is legally liable, but seller actually pays the
freight. So, the journal entry to record it is to debit Freight-in and credit Accounts Payable to
increase the liability of the buyer.
FOB Destination, Freight collect - Seller is legally liable, but buyer actually pays the freight.
So, the journal entry to record it is to debit Accounts Payable and credit Cash to reduce the
liability of the buyer.
FOB Destination, Freight prepaid - Seller is legally liable, and seller actually pays the freight.
So, there’s no journal entry to be made in the buyer’s books.
And in the seller’s point of view,
FOB Shipping Point, Freight collect - Buyer is legally liable, and buyer actually pays the
freight. So there’s no journal entry to record it in the seller’s books.
 FOB Shipping Point, Freight prepaid - Buyer is legally liable, but seller actually pays the
freight. So, the journal entry to record it is to debit Accounts Receivable and credit Cash to
increase the cash received from the buyer as the result of the seller’s freight shouldering.
FOB Destination, Freight collect - Seller is legally liable, but buyer actually pays the freight.
So, the journal entry to record it is to debit Freight-out and credit Accounts Receivable to
reduce the cash received from the buyer as the result of the buyer’s freight shouldering.
FOB Destination, Freight prepaid - Seller is legally liable, and seller actually pays the freight.
So, the journal entry to record it is to debit Freight-out and credit Cash.
(Note: FOB terms determine who is legally liable for the freight, and determines whether the
accounts Freight-in (buyer) and Freight-out (seller) will be used. Freight terms determine
who actually pays the freight, and thus, a credit in cash will be made by the party who
actually pays for it)
40. A
The journal entry to record the settlement within the discount period (1/15) will be:
Accounts Payable (P 250 000 - 10 000) P 240 000
Cash P 237 500
Purchase Discount (1% x P 250 000) P 2 500
Note that the accounts payable had been reduced as the result of freight (which is debited
by 10 000), and also the purchase discount is based on the original invoice price (P 250
000) and not by the netted amount as a result of freight (P 240 000).
41. A
Purchases must be debited at the invoice price and not the list price (list price - trade
discounts = invoice price). Since the invoice price is given, there’s no need to compute for
the trade discounts, and the journal entry to record the purchase is:
Purchases P 200 000
Cash P 200 000
42. A
Depreciation is computed by the formula (Cost - scrap value) / Useful life
Thus, Depreciation = (P 150 000 - P 50 000) / 10 years
= P 10 000
43. A
44. C
45. B
Recognition of VAT in purchases and sales may either be on a VAT-inclusive or a VAT Add-
on approach. To show the difference, let’s account for each transaction.
For purchases,
VAT Inclusive
Purchases (672 000/1.12) P 600 000
Input Tax (672 000 - 600 000) P 72 000
Cash P 672 000
VAT Add-on
Purchases P 672 000
Input Tax (672 000 x 0.12) P 80 640
Cash (672 000 + 80 640) P 752 640

For sales,
VAT inclusive
Cash P 1 008 000
Sales (1 008 000/1.12) P 900 000
Output Tax (1 008 000 - 900 000) P 108 000
Vat Add-on
Cash (1 008 000 + 120 960) P 1 128 960
Sales P 1 008 000
Output Tax (1 008 000 x 0.12) P 120 960

Take note that:

- For VAT-inclusive, Cash is debited (sales) or credited (purchases) for the actual amount,
and Purchases/Sales can be computed by dividing the actual amount by 1.12.
Input/Output Tax can be computed by getting the difference of the actual amount and
the purchases/sales computed.
- For VAT add-on, Purchases is debited (purchases) or Sales is credited (sales) for the
actual amount. Input/Output Tax can be computed by multiplying the actual amount by
12% (0.12). Cash debited (sales) or credited (purchases) can be computed by adding
the purchases/sales and the input/output tax.
To close the tax accounts into a single tax account for remittance to BIR (VAT
Payable/Receivable), you will debit output tax and credit input tax. The difference may be a
VAT Payable (Output Tax > Input Tax) and is credited since it is a liability, or a VAT
 Receivable (Input Tax > Output Tax) and is debited since it is an asset, but which is rare to
happen since in an enterprise, the goal is to have more sales than purchases.
46. B
Total capital will be:
Fire, Capital (25 000 + (40 000 - 15 000)) P 50 000
Water, Capital (1 000 000 - 100 000) P 900 000
Earth, Capital P 0
Air, Capital P 175 000
Total Capital P 1 125 000

Take note of the following:

- Fire’s merchandise is adjusted for the obsolete merchandise as agreed by the partners.
- Water’s land is recorded at fair value, but will reduce his capital since the mortgage is
assumed by the partnership.
- Earth’s services don’t render any capital amount. His services will only give him a share
in the partnership profits, not on the partnership assets.
- Air, Capital is recorded at the agreed value.
47. A
Statement of Changes in Partner’s Equity of Cann will show

Initial Contribution P 100 000

Add: Permanent Changes
Additional Contribution P 50 000
Permanent Withdrawal (P 40 000) P 10 000
Total Capital (fixed approach) P 110 000
Add: Temporary Changes
Share in Net Profit P 120 000
Personal Withdrawal (P 60 000) P 60 000
Total Capital (fluctuating capital) P 170 000

- Under a fixed capital approach, the drawing account is not closed to the capital account
at year-end. Therefore, the only ones who will affect the capital will be the permanent
changes.
 - Under a fluctuating capital approach, the drawing account is closed to the capital
account at year-end. Therefore, the capital account is affected by both the permanent
changes and the temporary changes.
48. C
With multiple bonus rates given to partners, since the partnership is working for a common
fund, therefore, the bonus will also be put into a common fund which is allocated to the
partners based on their bonus rates.

To compute for their total bonus,

Bonus = Bonus Rate (Net income - bonus)*
B = (20%+10%+10%+10%) (120 000 - B)
B = 50%(120 000 - B)
B = 60 000 - 0.5B
1.5B = 60 000
B = 40 000
*My bad, the bonus basis is not indicated :) but the bonus is based on net income after
bonus.
So, this P 40 000 bonus is allocated based on the bonus rates of each partner.
Sales manager = (20%/50%) x P 40 000 = P 16 000
Each sales clerk = (10%/50%) x P 40 000 = P 8 000
- There are 3 10%’s since there are 3 sales clerks in the partnership.
49. P 40 000 (My bad also, the answer is not in the choices because of a typographical error)
Since it is an admission by investment, we recognize TAC and TCC, along with the bonus
(because of difference in new partner’s actual and agreed capital) and asset revaluation
(because of difference in total actual and agreed capital).

Partners TCC TAC Asset Revaluation Bonus

Ada P 25 000 (P 10 000) (25/75) P 5 000
Bess P 50 000 (P 20 000) (50/75) P 10 000
Carol P 75 000 > P 60 000 (P 15 000)
Total P 150 000 > P 120 000
 Revised Bess’ Capital is (50 000 - 20 000 + 10 000) P 40 000.

Take note of the following:

- New partner’s (Carol’s) TAC is determined by multiplying his agreed share by the agreed
partners’ equity.
- Since TCC > TAC, therefore the difference will be recognized as an asset impairment
will happen, thereby reducing the capital balances of the old partners based on their
capital contributions.
- Since Carol’s TCC > Carol’s TAC, therefore the difference will be recognized as a bonus
given to the old partners, thereby reducing the capital balance of the new partner and
increasing the capital balances of the new partners allocated based on their capital
contribution.
50. D
Whatever method you will use (Safe Payment Schedule for accuracy vs Cash Priority
Program for speed), the result must be same. The problem is based on the given illustrative
example in Manuel’s book, and my apologies since I didn’t give any data referring to the
partner’s profit and loss ratio, but it’s there in the book so you can check it for yourself.
51. B
The preference share is cumulative (includes dividends in arrears) but is non-participating
(preference share will not share with the ordinary share in the remaining dividends to be
distributed). Thus,

Cash Dividends declared P 750 000

Less: Cumulative Preference share (15% x P 30 x 20 000 x 4 years) P 360 000
Dividend distributed to common shareholders P 390 000
52. C
Retained Earnings (P 2 000 000 - P 750 000) P 1 250 000

- If the corporation plans to reacquire its own shares, therefore, it will have a reserve,
thus, creating an appropriation reserve for treasury shares. But this transaction will not
affect the retained earnings balance since it will decrease the free retained earnings to
increase the appropriated retained earnings.Therefore, the only one deducted from the
retained earnings balance will be the cash dividends declared.
53. B
Gigi’s share in the corporation ((1 000 x P 75) / 7 500 000) 1%
That will be Gigi’s share when the authorized capital is P 7 500 000. So when it will increase
by P 15 000 000, therefore the authorized capital will now be (P 7 500 000 + P 15 000 000)
P 22 500 000. So how much should Gigi buy more to maintain her 1% ownership?
Required capital (P 22 500 000 x 1%) P 225 000
Current capital (P 75 x 1 000) P 75 000
Additional contribution

54. Partners Billy, Vhong and Jhong share profits and losses in the ratio of 4:5:1. The statement
of financial position for the partnership follows:
Cash P 112,500 Accounts Payable P 337,500
Inventory 810,000 Billy, Capital 360,000
Vhong, Capital 101,250
Jhong, Capital 123,750
Total P 922,500 Total P 922,500

The partnership will be liquidated on installment basis and that cash will be distributed as
it becomes available. If inventory costing P 450,000 is sold for P 317,500 net of
liquidation expenses, how much cash should be distributed to each partner assuming
estimated liquidation expenses next month of P 2,500?

Billy Vhong Jhong

A. P 126,000 P 157,700 P 31,500
B. 36,000 45,000 9,000
C. 72,000 0 18,000
D. 45,000 0 45,000

55. Tan invested P300,000 for a one fifth interest in a partnership in which the other partners
have capital totaling P 600,000 before the admission of Tan. After the distribution of bonus, Tan
Capital is
A. 120,000
B. 180,000
C. 240,000
D. 300,000

54.
Billy 40% Vhong 50% Jhong 10%
Cap. bal 307,000 35,000 110,500
Less: Restricted (145,000) (181250) (36,250)
(362,500)
162000 (146250) 74,250
Less: Restricted (117000) 146250 (26250)
(146250)
Cash distribution 45,000 - 45,000

55. Total contributed capital 900,000

Multiply by 1/5
`Tan’s capital credit 180,000

Tan’s contributed capital 200,000

Less: Capital credit 180,000
120,000