Foa Midterm

FUNDAMENTALS OF ACCOUNTING
MIDTERM EXAMINATION
SET A
I. MULTIPLE CHOICE QUESTIONS:
1. One of the following is not part of the phases of accounting.
a. classifying
b. auditing
c. journalizing
d. interpreting
2. The statement of financial position is another name for the _______.
a. statement of owner's equity

b. income statement
c. statement of cash flows
d. balance sheet
3. The economic resources that a business owns and expects to be useful to the enterprise are
called ______.
a. owner's equity
b. liabilities
c. receivable
d. assets
4. The objectives of financial accounting for business enterprises are based on-
a. generally accepted accounting principles

b. the need for conservatism
c. reporting on management's stewardship
d. the needs of the users of the information
5. The primary function of accounting is _____________.
a. To provide quantitative primarily financial information about economic entities that is

useful in making economic decisions.
b. To provide information that the creditors of an entity can use in deciding whether to make
additional loans to the entity.
c. To measure the resources owned by economic entities and the financial obligations of the
entities.
d. To provide the information that managers of an entity need to control its operations.
6. The purchase of office supplies (or any other asset) on account will ___________.
a. increase in an asset and increase in owner's equity

b. increase one asset and decrease another asset
c. increase an asset and increase a liability
d. increase an asset and decrease a liability
A-1
7. The performance of service for a customer or client and immediate receipt of cash will __.
a. increase one asset and decrease another asset

b. increase in an asset and increase in owner's equity
c. decrease an asset and decrease a liability
d. increase an asset and increase a liability
8. Omega is famous for fashion wristwatches and leather goods. At the end of a recent year,
Omega's total assets add up to P19,050,000 and owner equity was P13,200,000.
How much did Omega owe creditors?
a. cannot be determined from the data given

b. P 13,200,000
c. P 19,050,000
d. P 5,850,000
9. Assume that Omega sold watches for P25,000 to a department store on account.
How would this transaction affect Omega's accounting equation?
a. Increase in both assets and liabilities by P 25,000.

b. Increase both assets and owner's equity by P 25,000.
c. Increase both liabilities and owner's equity by P25,000.
d. No effect on the accounting equation.
10. Refer on Omega's sale of watches on the preceding question.

Which part of the accounting equation does the sale on account affect?
a. Accounts Receivable and Accounts Payable

b. Accounts Receivable and Owner, Capital
c. Accounts Payable and Owner, Capital
d Accounts Payable and Cash
11. Assume Omega paid expenses totaling P17,500. How does this transaction affect
Omega's accounting equation?
a. Decreases both assets and owner's equity.

b. Decreases assets and increases liabilities.
c. Increases both assets and owner's equity.
d. Increases assets and decreases liabilities.
12. Consider all the effects of transactions 9 and 11 on Omega. What is Omega's net income or
net loss?
a. Net loss of P 17,500.

b. Net income of P 25,000
c. Net income of P 7,500
d. Cannot be determined from the data given
13. Which of the following pertains to a ledger?
a. Contains only asset and liability accounts

b. Is a book of original entry
c. Should show accounts in alphabetical order.
d. Is a collection of the entire group of accounts maintained by a company.
A-2
14. Which of the following pertains to a trial balance?
a. Proves that all transactions have been recorded.

b. Will not balance if a correct journal entry is posted twice.
c. Proves the mathematical accuracy of journalized transactions.
d. Is a list of accounts with their balances at a given time.
15. The Trial Balance will be out of balance if:
a. P 1,000 cash drawing by the owner is debited to Owner's Drawing for P 10,000 and
credited to Cash for P 1,000.
b. The purchase of supplies on account is debited to Supplies and credited to Cash.
c. A P 4,500 payment on account is debited to Accounts Payable for P 450 and credited to
Cash for P 450.
d. A correct journal entry is posted twice.
16. Posting is the process of:
a. Transferring entries from the ledger to the journal.

b. Transferring entries from the journal to the ledger.
c. Reconciling entries from the journal to the ledger.
d. Reconciling entries from the ledger to the journal.
17. The erroneous rearrangement of digits like writing P 875 as P 785 is a:
a. posting error
b. footing error
c. transposition
d. slide
18. The special feature of accrual basis of accounting is _____________.
a. recording expenses only when cash is paid

b. recording revenues only when cash is received
c. recording adjustments only if it has a favorable effect on the company's income
d. recording revenues and expenses when they are earned and incurred regardless of when
cash is received or paid
19. Compiling adjusting data is the process of ___________.
a. recording transactions as they occur during the period

b. recording entries to bring the balances of nominal accounts to zero balances
c. recording entries to correct erroneous entries made in the previous period
d. gathering and putting together data necessary to update the balances of some ledger
accounts.
20. The matching principle states ______________.
a. that revenue is recorded only when cash is received

b. that revenue is recorded only after you have earned it
c. that revenue and expenses are recorded only if they have favorable effect to the business
d. expenses be recorded in the period they are incurred and match them against the revenues
earned during the same time period
A-3
21. Adjusting entry for accrued revenue is required when __________.
a. cash is received for services rendered

b. cash is received after the revenue is earned
c. cash is received before the revenue is earned
d. none of these
22. An entry that results in a debit to an expense account and a credit to a related liability
account is an example of which category of adjusting entries?
a. accrued expense
b. prepaid expense
c. accrued revenue
d. uncollectible accounts
23. An entry that results in a debit to an expense account and a credit to a related asset
account is an example of which category of adjusting entries?
a. accrued expense
b. prepaid expense
c. accrued revenue
d. depreciation expense
24. Adjusting entries are necessary to ______________.
a. record revenue for the period

b. ensure the equality of the debits and credits
c. balance the books at the end of the accounting period
d. update the balance of some ledger accounts at the end of the accounting period.
25. The amount of accrued but unpaid expenses at the end of the period is both an expense
and _______.
a. an asset
b. a revenue
c. a liability
d. a deferral
26. An item that represents the advance payment received by the firm for services to be
rendered in the future is ______________.
a. unearned revenue
b. accrued revenue
c. accrued revenue
d. prepaid expense
27. Accrued expenses
a. decrease liabilities
b. increase liabilities
c. increase assets
d. decrease assets
A-4
28. Accrued revenues
a. increase assets
b. decrease assets
c. increase liabilities
d. decrease liabilities
29. The adjusting entry for accrued salaries
a. debits salaries expense and credits cash

b. debits salaries payable and credits cash
c. debits salaries expense and credits salaries payable
d. debits salaries payable and credits salaries expense
30. Which of the following is an example of an adjusting entry?
a. recording depreciation expense on a truck

b. recording the purchase of supplies on account
c. recording the payment of salaries to employees
d. recording the receipt of cash from customers for services rendered
31. The journal entry to record accrued revenue results in which of the following types of
accounts being debited and credited?
a. asset and revenue

b. asset and liability
c. expense and asset
d. expense and liability
32. Entries required at the end of the accounting period to bring the accounts up to date are called ____.
a. journal entries
b. adjusting entries
c. correcting entries
d. compound entries
33. An adjustment for accrued revenue is required because ______________.
a. cash is received before the revenue is earned

b. cash is received after the revenue is earned
c. revenue is recorded as cash is received
d. none of these
34. Failure to record adjusting entries at the end of the accounting period would affect the company's:
a. income statement
b. statement of financial position
c. statement of changes in owner's equity
d. all of these
35. Where would you find Unearned Service Revenue?
a. in the owner's equity section of the balance sheet

b. in the revenue section of the income statement
c. in the liability section of the balance sheet
d. in the asset section of the balance sheet
A-5

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FUNDAMENTALS OF ACCOUNTING

I. MULTIPLE CHOICE QUESTIONS:

1. One of the following is not part of the phases of accounting.

2. The statement of financial position is another name for the _______.

a. statement of owner's equity

a. generally accepted accounting principles

5. The primary function of accounting is _____________.

a. To provide quantitative primarily financial information about economic entities that is

a. increase in an asset and increase in owner's equity

a. increase one asset and decrease another asset

a. cannot be determined from the data given

a. Increase in both assets and liabilities by P 25,000.

10. Refer on Omega's sale of watches on the preceding question.

a. Accounts Receivable and Accounts Payable

a. Decreases both assets and owner's equity.

a. Net loss of P 17,500.

13. Which of the following pertains to a ledger?

a. Contains only asset and liability accounts

a. Proves that all transactions have been recorded.

15. The Trial Balance will be out of balance if:

16. Posting is the process of:

a. Transferring entries from the ledger to the journal.

17. The erroneous rearrangement of digits like writing P 875 as P 785 is a:

18. The special feature of accrual basis of accounting is _____________.

a. recording expenses only when cash is paid

19. Compiling adjusting data is the process of ___________.

a. recording transactions as they occur during the period

20. The matching principle states ______________.

a. that revenue is recorded only when cash is received

a. cash is received for services rendered

24. Adjusting entries are necessary to ______________.

a. record revenue for the period

27. Accrued expenses

29. The adjusting entry for accrued salaries

a. debits salaries expense and credits cash

30. Which of the following is an example of an adjusting entry?

a. recording depreciation expense on a truck

a. asset and revenue

33. An adjustment for accrued revenue is required because ______________.

a. cash is received before the revenue is earned

35. Where would you find Unearned Service Revenue?

a. in the owner's equity section of the balance sheet

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