NATIONAL FEDERATION OF JUNIOR PHILIPPINE

INSTITUTE OF ACCOUNTANTS REGION IV

R4 Accounting Varsity Basic Acctg – Level 1
Batch 2019-2020
Instructions: Identify the choice that best completes the statement or answers the question.
You have (1) hour to answer this 40-item exam. Good luck!

____1. Black Company sold Red Company merchandise on account FOB shipping point, 2/10, net
30, for P10,000. Blackprepaid the P200 shipping charge. Which of the following entries does
Black make to record this sale?

a) Accounts Receivable-Red, debit P10,000; Sales, credit P10,000, and

Accounts Receivable-Red, debit P200; Cash, credit P200
b) Accounts Receivable-Red, debit P10,000; Sales, credit P10,000
c) Accounts Receivable-Red, debit P10,000; Sales, credit P10,000, and
Transportation Out, debit P200; Cash, credit P200
d) Accounts Receivable-Red, debit P10,400; Sales, credit P10,400

____2. Using a perpetual inventory system, the entry to record the return of merchandise
purchased on account includes a

a) credit to Accounts Payable b) credit to Merchandise Inventory

c) debit to Cost of Merchandise Sold d) credit to Sales

____3. Decker Company assigns some of its patents to other enterprises under a variety of
licensing agreements. In some instances advance royalties are received when the agreements
are signed, and in others, royalties are remitted within 60 days after each license year-
end. The following data are included in Deckers December 31 balance sheet:

2016 2017
Royalties receivable P90,000 P85,000
Unearned royalties 60,000 40,000

During 2017 Decker received royalty remittances of P200,000. In its income statement for the
year ended December 31, 2017, Decker should report royalty revenue of

a) 195,000 b) 215,000 c) 225,000 d) 220,000

____4. Which of the following accounts has a normal credit balance?

a) Sales Returns and Allowances b) Merchandise Inventory

c) Sales d) Delivery Expense

____5. The premium on a 3-year insurance policy expiring on December 31, 2017, was paid in
total on January 1, 2015. Assuming that the original payment was initially debited to an
expense account, and that appropriate adjusting entries have been recorded on December 31,
2015 and 2016, the balance in the prepaid asset account on December 31, 2016, would be

a) The same as the original payment.

b) Lower than the balance on December 31, 2017.
c) Zero.
d) The same as it would have been if the original payment had been initially debited to a
prepaid asset account.

____6. Rent revenue collected 1 month in advance should be accounted for as

a) Revenue in the month collected.

b) A current liability.
c) A separate item in stockholders equity.
d) An accrued liability.
____7. Which of the following is a deferred cost that should be amortized over the periods
estimated to be benefited?

a) Advance from customer to be returned when sale completed.

b) Security deposit representing 2-months rent on leased office space.
c) Prepayment of 3-year insurance premiums on machinery.
d) Property tax for this year payable next year.

____8. If title to merchandise purchases passes to the buyer when the goods are shipped from
the seller, the terms are

a) FOB destination b) FOB shipping point

c) consigned d) n/30

____9. Merchandise is ordered on November 12; the merchandise is shipped by the seller and
the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is
received by the buyer on November 17; the entry is made in the buyer's accounts on November
18. The credit period begins with what date?

a) November 17 b) November 18 c) November 12 d) November 15

____10. On January 2, 2017, Smith purchased the net assets of Jones Cleaning, a sole
proprietorship, for P350,000, and commenced operations of Spiffy Cleaning, a sole
proprietorship. The assets had a carrying amount of P375,000 and a market value of P360,000.
In Spiffys cash-basis financial statements for the year ended December 31, 2017, Spiffy
reported revenues in excess of expenses of P60,000. Smiths drawings during 2017 were
P20,000. In Spiffys financial statements, what amount should be reported as Capital-Smith?

a) 415,000 b) 400,000 c) 410,000 d) 390,000

____11. Wright Company sells for cash major household appliance service contracts agreeing
to service customers appliances for a 1-year, 2-year, or 3-year period. Cash receipts from
contracts are credited to unearned service contract revenues and this account had a balance
of P1,440,000 at December 31, 2017, before year-end adjustment. Service contract costs are
charged to service contract expense as incurred and this account had a balance of P360,000
at December 31, 2017. Outstanding service contracts at December 31, 2017, expire as follows:

During 2018 P300,000

During 2019 450,000
During 2020 200,000

What amount should Wright report as unearned service contract revenues at December 31, 2017?

a) 1,080,000 b) 712,500
c) 950,000 d) 490,000

____12. Smith Company purchased P105,000 of computer equipment from Brown Company. Smith
Company paid for the equipment using cash that had been obtained from the initial investment
by Connie Smith. The transaction involving the computer equipment should be recorded on the
accounting records of which of the following entities?

a) Brown Company and Connie Smith's personal records

b) Brown Company
c) Smith Company and Brown Company
d) Smith Company and Connie Smith's personal records

____13. Which of the following accounts usually has a debit balance?

a) Sales tax Payable b) Transportation-In

c) Purchase Discounts d) Allowance for Doubtful Accounts

____14. Posting is the process of making an entry in

a) The special journal b) The trial balance

c) The general ledger d) The general journal
____15. Under Gerber Companys accounting system, all insurance premiums paid are debited to
prepaid insurance. For interim financial statements, Gerber makes monthly estimated charges
to insurance expense with an offset to prepaid insurance. Additional information for the
year ended December 31, 2017, is as follows:

Prepaid insurance at December 31, 2016 P150,000

Charges to insurance expense during 2017
(including a year-end adjustment of P25,000) 625,000
Unexpired insurance premiums at December 31, 2017 175,000

What was the total amount of insurance premiums paid by Gerber during 2017?

a) 625,000 b) 600,000 c) 650,000 d) 475,000

____16. How does the purchase of supplies on account affect the accounting equation?

a) liabilities increase; stockholders' equity decreases

b) assets increase; liabilities decrease
c) assets increase; stockholders' equity decreases
d) assets increase; liabilities increase

____17. At December 31, 2016, Cobb Company had a P695,000 balance in its advertising expense
account before any year-end adjustments relating to the following:

I. Included in the P695,000 is P80,000 for printing sales catalogs for a January 2017 sales
promotional campaign.
II. Television advertising spots telecast during December 2016 were billed to Cobb on
January 2, 2017. The invoice cost of P45,000 was paid on January 11, 2017.

Cobbs advertising expense for the year ended December 31, 2016, should be

a) 615,000 b) 570,000 c) 660,000 d) 740,000

____18. If total assets decreased by P47,000 during a period of time and stockholders'
equity increased by P24,000 during the same period, then the amount and direction (increase
or decrease) of the period's change in total liabilities is

a) P71,000 decrease b) P47,000 decrease c) P71,000 increase d) P23,000 increase

____19. The premium on a 3-year insurance policy expiring on December 31, 2017, was paid in
total on January 1, 2015. Assuming that the original payment was recorded as a prepaid
asset, how would total assets and stockholders equity be affected during 2017?

a) Both total assets and stockholders equity would increase.

b) Neither total assets nor stockholders equity would change.
c) Both total assets and stockholders equity would decrease.
d) Total assets would decrease and stockholders equity would increase.

____20. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a
customer for P15,000. The seller paid transportation costs of P1,000 and issued a credit
memorandum for P5,000 prior to payment. What is the amount of the cash discount allowable?

a) 150 b) 100 c) 160 d) 140

____21. How does paying a liability in cash affect the accounting equation?

a) assets decrease; liabilities decrease

b) assets increase; liabilities decrease
c) liabilities decrease; stockholders' equity increases
d) assets increase; liabilities increase
____22. A business paid P9,000 to a creditor in payment of an amount owed. The effect of the
transaction on the accounting equation was to

a) increase one asset, decrease another asset

b) increase an asset, increase a liability
c) decrease an asset, decrease a liability
d) increase an asset, increase stockholders' equity

____23. The amount of the total cash paid to the seller for merchandise purchased would
normally include

a) only the sales tax b) the list price plus the sales tax
c) the list price less the sales tax d) only the list price

____24. Silver Co. sold merchandise to Bronze Co. on account, P23,000, terms 2/15, net 45.
The cost of the merchandise sold is P18,500. Silver Co. issued a credit memorandum for
P2,500 for merchandise returned that originally cost P1,900. The Bronze Co. paid the invoice
within the discount period. What is amount of net sales from the above transactions?

a) 20,090 b) 20,500 c) 3,490 d) 23,000

____25. Lane Company acquires copyrights from authors, paying advance royalties in some
cases, and in others, paying royalties within 30 days of year-end. Lane reported royalty
expense of P375,000 for the year ended December 31, 2017. The following data are included in
Lanes December 31 balance sheets:

2016 2017
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000

During 2017 Lane made royalty payments totaling

a) 380,000 b) 370,000 c) 350,000 d) 400,000

____26. Which of the following is an accrued liability?

a) Portion of long-term debt payable in current year.

b) Rent revenue collected 1 month in advance.
c) Cash dividends payable.
d) Wages payable.

____27. On November 1, 2017, Key Co. paid P3,600 to
and used an income statement account to record this
unadjusted trial balance showed a balance of P90
insurance expense. What amounts should be reported
31, 2017 financial statements?
renew its insurance policy for 3 years
transaction. At December 31, 2017, Keys
for prepaid insurance and P4,410 for
for prepaid insurance in Keys December

a) 3,300 b) 3,390 c) 3,400 d) 3,490

____28. When purchases of merchandise are made for cash, the transaction may be recorded
with the following entry

a) debit Merchandise Inventory; credit Cash Discounts

b) debit Merchandise Inventory; credit Purchases
c) debit Merchandise Inventory; credit Cash
d) debit Cash; credit Merchandise Inventory

____29. An accrued expense is an expense

a) Incurred but not paid. b) Not reasonably estimable.

c) Incurred and paid. d) Paid but not incurred.
____30. Merchandise with a sales price of P500 is sold on account with term 2/10, n/30. The
journal entry to record the sale would include a

a) Debit to Accounts Receivable for P490 b) Debit to Sales Discounts for P10
c) Credit to Sales for P500 d) debit to Cash for P500

____31. On November 1, 2017, Key Co. paid P3,600 to
and used an income statement account to record this
unadjusted trial balance showed a balance of P90
insurance expense. What amounts should be reported
31, 2017 financial statements?
renew its insurance policy for 3 years
transaction. At December 31, 2017, Keys
for prepaid insurance and P4,410 for
for insurance expense in Keys December

a) 1,200 b) 1,100 c) 1,010 d) 1,250

____32. The proper journal entry to record the receipt of inventory purchased on account in
a perpetual inventory system would be:

a) Jan 1 Inventory (250.00); Accounts Payable (250.00)

b) Jan 1 Purchases (250.00); Accounts Receivable (250.00)
c) Jan 1 Office Supplies (250.00); Accounts Payable (250.00)
d) Jan 1 Purchases (250.00); Accounts Payable (250.00)

____33. A retailer purchases merchandise with a catalog list price of P10,000. The retailer
receives a 25% trade discount and credit terms of 2/10, n/30. What amount should the
retailer debit to the Merchandise Inventory account?

a) 7,500 b) 10,000 c) 9,800 d) 7,350

____34. The voucher system is used to control

a) Proceeds from sale of fixed assets b) Payments for various expenditures

c) Release of goods from company warehouse d) Collection of customer receivable

____35. The adjusting entry at the end of the accounting year to reflect revenues recorded
and collected but not yet earned will

a) Increase both assets and liabilities b) Increase both income and liabilities
c) Increase assets and income d) Increase liabilities only

____36. What is the normal order of accounts in preparing the post-closing trial balance?

a) Asset, equity, income, expense and liability

b) Asset, liability, equity income and expense.
c) Asset, liability and equity
d) All accounts with debit balances and then all accounts with credit balances

____37. How does the rendering of services on account affect the accounting equation?

a) liabilities increase; stockholders' equity decreases

b) assets decrease; stockholders' equity decrease
c) assets increase; stockholders' equity decreases
d) assets increase; stockholders equity increases

____38. On January 1, 2017, Brecon Co. installed cabinets to display its merchandise in
customers stores. Brecon expects to use these cabinets for 5 years. Brecons 2017 multi-step
income statement should include

a) All of the cabinet costs in selling, general, and administrative expenses.

b) One-fifth of the cabinet costs in selling, general, and administrative expenses.
c) One-fifth of the cabinet costs in cost of goods sold.
d) All of the cabinet costs in cost of goods sold.
____39. Stockholders' Equity is increased by which of the following accounts?

a) all are correct b) revenue

c) accounts receivable d)cash

____40. Under the periodic inventory system, the journal entry to record the purchase of
merchandise inventory will include a debit to

a) Cost of Merchandise Purchased

b) Merchandise Inventory
c) Purchases
d) Accounts Payable

---- Thank you for taking the exam. We will be informing you about the results. ----

Answer Key:

1. a DIFFICULT
2. b EASY
3. b AVERAGE
4. c EASY
5. d EASY
6. b EASY
7. c EASY
8. b EASY
9. d AVERAGE
10. d EASY
11. c AVERAGE
12. c DIFFICULT
13. b EASY
14. c EASY
15. c AVERAGE
16. d AVERAGE
17. c AVERAGE
18. a AVERAGE
19. c DIFFICULT
20. b DIFFICULT
21. a AVERAGE
22. c AVERAGE
23. b EASY
24. a DIFFICULT
25. c AVERAGE
26. d EASY
27. c AVERAGE
28. c AVERAGE
29. a EASY
30. c AVERAGE
31. b AVERAGE
32. a EASY
33. a AVERAGE
34. b EASY
35. d EASY
36. c EASY
37. d AVERAGE
38. b EASY
39. b EASY
40. c EASY