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ACTIVITY

basic accounting

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7 views3 pages

ACTIVITY

basic accounting

Uploaded by

Bheatrice
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. The matching principle requires that efforts be matched with accomplishments.

ANS. TRUE

The matching principle requires that expenses be matched with revenues.

2. In general, adjusting entries are required each time financial statements are prepared.

ANS. TRUE

3. When a prepaid expense is initially debited to an expense account, expenses and assets are both
overstated prior to adjustment.

ANS. FALSE

4. The time period assumption states that the economic life of a business entity can be divided into
artificial time periods.

ANS. TRUE

5. An accounting time period that is one year in length, but does not begin on January 1, is referred to
as

a. a fiscal year. c. the time period assumption.


b. an interim period. d. a reporting period.

ANS. A

6. Which statement is correct?

a. As long as a company consistently uses the c. The cash basis of accounting is objective
cash basis of accounting, generally accepted because no one can be certain of the amount
accounting principles allow its use. of revenue until the cash is received.

b. The use of the cash basis of accounting d. As long as management is ethical, there are
violates both the revenue recognition and no problems with using the cash basis of
matching principles. accounting.

ANS. B

7. An adjusting entry

a. affects two balance sheet accounts. b. affects two income statement accounts.
c. affects a balance sheet account and an d. is always a compound entry.
income statement account.

ANS. C

8. Neil Company purchased a truck from Cute Co. by issuing a 6-month, 8% note payable for P60,000
on November 1. On December 31, the accrued expense adjusting entry is

ANS.

INTEREST EXPENSE 800

INTEREST PAYABLE 800

9. Nick is a lawyer who requires that his clients pay him in advance of legal services rendered. Nick
routinely credits Legal Service Revenue when his clients pay him in advance. In June Nick collected
P12,000 in advance fees and completed 75% of the work related to these fees. What adjusting
entry is required by Nick’s firm at the end of June?

ANS.

LEGAL SERVICE REVENUE 3,000

UNEARNED REVENUE 3,000

Beef Company had the following transactions during 2024.

• Sales of P4,500 on account

• Collected P2,000 for services to be performed in 2025

• Paid P625 cash in salaries

• Purchased airline tickets for P250 in December for a trip to take place in 2025

10. What is Beef’s 2024 net income using accrual accounting?

ANS. 3,875

11. What is Beef’s 2024 net income using cash basis accounting?

ANS. 1,125

ABC company purchased an equipment on June 1, 2024 for P15,000,000. The company estimated that
after 8 years the equipment will only be P1,000,000. After the third year of using the equipment, the
company decided to sell the equipment for P7,500,000. The company take a full year depreciation at
the year of acquisition.

12. If the company uses sum of years digits method to depreciate its equipment what amount should
be recorded as depreciation for 2025?
ANS. 2, 625, 000

13. What amount of gain or loss the company should recognize in 2026?

ANS. 375, 000 GAIN

On January 1, 2024 an entity borrows P10,000,000 from a bank.

Interest – 8%

Principal payment – P2,000,000 annually (every December 31)

14. Compute for interest expense for the year 2024


15. Compute for interest expense for the year 2027

ANS. 2024 800,000

2027 320,000

BONUS QUESTION

Assuming that the principal will be paid in full after 5 years compute for interest income the company
should record at 2028

ANS. 0

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