Fundamentals of Accounting

Answer Key
Quiz #1
SET B

TEST I. TRUE OR FALSE

1. Going concern results in the reporting of possible losses, but not possible gains.
FALSE
Conservatism results in the reporting of possible losses, but not possible gains.

2. The starting point of the accounting process is the preparation of financial statements.
FALSE
The starting point of the accounting process is the identification of economic events relevant to a
business.

3. Accounting focuses on quantifiable financial transactions.

TRUE

4. Accounting is a means and not an end since it is a tool to achieve specific objectives.
TRUE

5. Reports generated using management accounting are for external users only.
FALSE
Reports generated using management accounting are for internal users only.

6. A sole proprietorship is exempted from the entity assumption.

FALSE
All companies should adhere to the principle behind the entity assumption.

7. A school is considered primarily as a service company.

TRUE

8. Under the monetary unit assumption, a financial activity is measured in peso in the Philippines, and
only transactions that can be expressed in pesos are recorded.
TRUE

9. When an accountant is unsure whether or not to recognize an expense, the concept of conservatism
states that he or she should not recognize it in the accounting records.
FALSE
When an accountant is unsure whether or not to recognize an expense, the concept of conservatism
states that he or she should recognize it in the accounting records.

10. According to the accounting entity assumption, only corporations (which can be a sole
proprietorship, partnership, or corporation) are separate from the owners, managers, and
employees operating the business.
FALSE
According to the accounting entity assumption, the business (which can be a sole proprietorship,
partnership, or corporation) is separate from the owners, managers, and employees operating the
business.

TEST II. MULTIPLE CHOICE THEORY

11. This is achieved through notes to financial statements

A. Full disclosure
B. Timeliness
C. Materiality
D. Industry practice

12. Accounting is described in the following statements except for

A. It is a process that involves identifying the events that affect a business
B. It is a tool that helps a business earn more revenue
C. It involves recording of economic events
D. It communicates the summarized results of all events within a particular period to interested
parties.
13. It is a branch of accounting that primarily handles the recording of financial transactions of a
business.
A. Cost accounting
B. Accounting education
C. Government accounting
D. Financial accounting

14. For this type of business, the term used for its owners is shareholders or stockholders
A. Cooperative
B. Partnership
C. Sole proprietorship
D. Corporation

15. These firms produce their own products by using raw materials and process them to produce
finished products.
A. Wholesalers
B. Retailers
C. Manufacturing companies
D. Service companies

16. Under this principle, if the revenues are recorded in period 1, the related expenses should also be
recorded in period 1.
A. Accrual accounting
B. Matching principle
C. Periodicity
D. Revenue recognition

17. Under this assumption, only those with monetary value are recorded in accounting books.
A. Full disclosure
B. Going concern
C. Monetary unit
D. Periodicity

18. This assumption implies that if a person has three businesses, each business will keep its own
accounting records, hence, the assets and liabilities of the three businesses should not be mixed
with one another.
A. Going concern
B. Materiality
C. Accounting entity
D. Accrual accounting

19. This account represents an amount paid in advance for goods or services anticipated to be received
by the entity in the future.
A. Accrued Income
B. Prepaid Expense
C. Expense
D. Accounts Payable

20. This account represents a liability that should be paid within twelve months
A. Mortgage Payable
B. Accounts Payable
C. Bonds Payable
D. Long-Term Notes Payable

TEST III. MULTIPLE CHOICE PROBLEM SOLVING

The following were taken from the books of Faith D. Nakpil Accounting Services
Notes payable ₱ 120,000
Property, plant and equipment 750,000
Accounts receivable 56,000
Accounts payable 65,000
Cash 77,000
Faith D. Nakpil, Capital ???
Unearned revenue 15,345
Notes receivable 244,000
Prepaid expense 56,700
21. How much is total assets?
A. ₱1,183,700
B. ₱433,700
C. ₱377,000
D. ₱77,000

22. How much is total liabilities?

A. ₱65,000
B. ₱185,000
C. ₱241,700
D. ₱200,345

23. How much is Faith D. Nakpil, Capital?

A. ₱15,345
B. ₱142,000
C. ₱618,700
D. ₱1,384,035

24. The beginning equity of Faith D. Nakpil Accounting Services (FDNACCT) is ₱5,000. If total
revenues for the period is ₱8,000 while total expenses is ₱6,000, how much is the ending balance
of equity?
A. ₱1,000
B. ₱5,000
C. ₱3,000
D. ₱7,000

25 If the beginning equity is ₱50,000 while the ending equity is ₱70,000, how much is the profit
(loss) for the period?
A. ₱10,000
B. ₱(10,000)
C. ₱20,000
D. ₱(20,000)

26. Which of the following would result to revenues of ₱320,000?

A. Total expenses of ₱360,000 and loss of ₱40,000
B. Total expenses of ₱280,000 and loss of ₱40,000
C. Total expenses of ₱360,000 and profit of ₱40,000
D. Total expenses of ₱220,000 and loss of ₱100,000

27. Which of the following would result to total expenses of ₱480,000?

A. Total revenues of ₱360,000 and profit ₱120,000
B. Total revenues of ₱630,000 and profit of ₱150,000
C. Total revenues of ₱580,000 and loss of ₱100,000
D. Total revenues of ₱630,000 and loss of ₱150,000

28. If total assets is ₱100,000 while total liabilities is ₱80,000, how much is owner’s equity?
A. ₱180,000
B. ₱120,000
C. ₱90,000
D. ₱20,000

29. Given the following information, calculate FDNACCT’s net income:

▪ Service Income: ₱260,000
▪ Salaries and Wages: ₱20,000
▪ Rent Expense: ₱15,000
▪ Cash collections: ₱50,000
A. ₱225,000
B. ₱260,000
C. ₱275,000
D. ₱345,000
30. Faith D. Nakpil Accounting Services has the following assets:

Cash ₱20,000
Accounts receivable 40,000
Notes receivable (nontrade) - ₱60,000 due within 1 yr. 100,000
Prepaid supplies 10,000
Land 200,000
Building 800,000
Total assets ₱1,170,000

How much is the total Property, Plant & Equipment?

A. ₱800,000
B. ₱810,000
C. ₱1,000,000
D. ₱1,110,000

31. The Owner’s Capital has a beginning balance of ₱500,545. The owner gave ₱100,000 additional
contribution during the year. Based on the Income Statement, net income for the year was ₱120,445.
At the end of the accounting period, the Owner’s Capital has a balance of ₱500,000. How much
money did the owner withdraw from the business?
A. ₱720,990
B. ₱220,990
C. ₱600,545
D. ₱400,000

32. If total expenses amounted to ₱300,000 and total revenues amounted to ₱1,000,000, then what
was the result of company operations?
A. ₱1,300,000 net income
B. ₱1,300,000 net loss
C. ₱700,000 net income
D. ₱700,000 net loss