PROBLEM 1: TRUE OR FALSE

True 1. The main purpose of accounting is to provide information that is useful in making economic

decisions.

False 2. All business transactions are recorded in the books of accounts.

True 3. Accounting information is expressed both in numbers (eg. monetary amount) and in words

(e.g., descriptions and explanatory information.

True 4. Accounting is considered a practical art because it requires the use of creative skills and

judgment.

True 5. Accounting, as an information system, consists of an input, a process and an output.

True 6. Although bookkeeping is part of accounting, the two are not the same.

True 7. Entity A buys goods and sells them at a mark-up. Entity A is a merchandising business.

True 8. Entity B is required to file audited annual financial statements with the SEC. Entity B can

either be a corporation or a partnership, but not a sole proprietorship or a cooperative.

True 9. A school is most likely to be considered a manufacturing business – the raw materials are the

students and the finished products are responsible and competent business professionals.

True 10. A business that produces goods in large quantities can save on fixed costs. This is called

economies of scales.
PROBLEM 2: TRUE OR FALSE

True 1. Only accountable events are recorded in the books of accounts. Accountable events are those

that affect the accountant.

False 2. General purpose financial statements are the end product of the financial accounting process.

These statements are intended for internal users.

True 3. Accounting is the major facet of a business that is responsible in generating funds needed to

support the business operations.

True 4. A business transaction is considered an accountable event if it affects the assets, liabilities,

equity, income or expenses of the business.

False 5. You and your friend are members in a cooperative. You hold 1 share, while your friend holds

10,000 shares. During members’ meetings, your friend can cast 10,000 votes, whereas you can only cast 1

vote.

True 6. Mr. A owns and manages a sole proprietorship business. The financial reports prepared tailored

to Mr. A's financial information needs are not general purpose financial statements.

True 7. Mr. A (in #6 above) accepts Mr. B as co-owner to his business. The business is now called

A&B Co. The business of Mr. A and Mr. B is a partnership.

False 8. Mrs. C is a taxi and jeepney operator. Mrs. C has three taxis and five jeepneys. Mrs. C's

business is registered with the DTI. Mrs. C's business is a corporation.

False 9. Mr. A and Mr. B in #7 above decided to acquire the business of Mrs. C in #8. The newly

formed business is called ABC, Inc. ABC, Inc. is owned by Mr. A, Mr. B, Mrs. C and two drivers of Mrs.

C. ABC, Inc. issued shares of stocks to the owners representing their ownership interest in the business.

The newly formed business is a partnership.

True 10. The word "Inc." in ABC, Inc. (see #9 above) is the abbreviation for incorporated, which

connotes a corporate business.

Definition, nature and function of Accounting

D 1. Which of the following does not properly describe accounting?

a. It is a process by which useful information is generated.

b. It is a social science.

c. It requires the application of creative skills and judgment.

d. It is often referred to as the "language of the soul."

Users of accounting information

D 2. Which of the following is considered an internal user of financial information?

a. Rank and file employees of the reporting entity

b. Stockholders of the entity who are not directly involved in managing the entity

c. Lenders and other creditors

d. The entity's management

A 3. What type of information needs of users do general purpose financial statements cater to?

a. common needs

b. specific needs

c. a and b

d. caring needs

C 4. Which of the following is least likely to be a decision made by an external user of the financial

information of an entity?

a. whether to buy, hold or sell investment in stocks

b. whether to extend loan or other forms of credit

c. whether to obtain additional financing

d. all of these are decisions that external users make.

C 5. This branch of accounting deals with the preparation of general purpose financial statements.

a. General accounting

b. Management accounting

c. Financial accounting

d. Auditing

C 6. General purpose financial statements are intended to meet

a. all the information needs of all users–exteral and internal alike.

b. the common needs of both external and interal users.

c. the common needs of external users, primarily investors, lenders and other creditors.

d. both the common and specific needs of external users.

Forms of business organizations

C 7. This type of business organization is created by a contractual agreement between two or more

individuals.

a. corporation

b. cooperative

c. partnership

d. sole proprietorship

Types of business according to activities

C 8. Which of the following refers to a manufacturing business?

a. buying and selling of goods in their original form

b. sale of a skill-set and not necessarily a physical object

c. ability or potential to mass-produce

d. absence of ability to stock goods for future sale

D 9. A disadvantage of a partnership is

a. better decisions–"two heads are better than one."

b. business risk is assumed by more than one owner.

c. unlimited life.

d. unlimited liabilities of the partners.

D 10. This type of business organization has the tendency to become monopolistic. It can hamper

the economy by funneling wealth to only few individuals (i.e., the organization's top owners) restricting

the redistribution of wealth to the majority of the members of the society.

a. Cooperative

b. Sole proprietorship

c. Partnership

d. Corporation