MERCHANDISING

1. When the perpetual inventory system is used, the inventory sold is shown on the
income statement as
a. purchases
b. purchase returns and allowances
c. net purchases
d. cost of merchandise sold
2. The term inventory indicates
a. materials in the process of production or held for production
b. merchandise held for sale in the normal course of business
c. supplies
d. both a and b
3. The inventory system employing accounting records that continuously disclose the
amount of inventory is called
a. physical
b. retail
c. periodic
d. perpetual
4. Expenses that are incurred directly or entirely in connection with the sale of
merchandise are classified as
a. other expenses
b. administrative expenses
c. general expenses
d. selling expenses
5. Using a perpetual inventory system, the entry to record the sale of merchandise on
account includes a
a. credit to Accounts Receivable
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. debit to Sales
6. Office Salaries, depreciation of office equipment, and office supplies are examples of
what type of expense?
a. Miscellaneous Expense
b. other expenses
c. Administrative Expense
d. Selling Expense
7. Merchandise Inventory is classified on the balance sheet as a
a. Current Asset
b. Current Liability
c. Long-Term Asset
d. Long-Term Liability
8. Net Income plus operating expenses is equal to
a. Cost of Goods Available for Sale
b. Net Sales
c. Gross Profit
d. Cost of Goods Sold
9. Discounts taken by a buyer because of early payment are recorded on the sellers
accounting record as
a. Purchase Discount

b. Early Payment Discount

c. Trade Discount
d. Sales Discount
10.Where are selling and administrative expenses found on the multi-step income
statement?
a. after Gross Profit
b. after Net Income before Expenses
c. before Gross Profit
d. after Sales before Gross Profit
11.When comparing a retail business to a service business, the financial statement
that changes the most is the
a. Balance Sheet
b. Income Statement
c. Statement of Owners Equity
d. Statement of Cash Flow
12.
Which account is not classified as a selling expense?
a. Sales Discounts
b. Transportation Out
c. Sales Salaries
d. Advertising Expense
13.Using a perpetual inventory system, the entry to record the purchase of P30,000 of
merchandise on account would include a
a. credit to Sales
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. debit to Sales
14.When the perpetual inventory system is used, the inventory sold is debited to
a. supplies expense
b. sales
c. merchandise inventory
d. cost of merchandise sold
15.What is the term applied to the excess of net revenue from sales over the cost of
merchandise sold?
a. income from operations
b. gross sales
c. net income
d. gross profit
16.Generally, the revenue account for a merchandising business is entitled
a. Net Sales
b. Sales
c. Gross Profit
d. Gross Sales
17.Using a perpetual inventory system , the entry to record the return from a
customer of merchandise sold on account includes a
a. debit to Merchandise Inventory
b. credit to Sales Returns and Allowances
c. debit to Cost of Merchandise Sold
d. credit to Merchandise Inventory
18.The primary difference between a periodic and perpetual inventory system is that a
a. periodic system keeps a record showing the inventory on hand at all times

b. periodic system provides an easy means to determine inventory shrinkage

c. periodic system determines the inventory on hand only at the end of the
accounting period
d. periodic system records the cost of the sale on the date the sale is made
19.Under the perpetual inventory system, all purchases of merchandise are debited to
the account entitled
a. Merchandise Inventory
b. Cost of Merchandise Available for Sale
c. Purchases
d. Cost of Merchandise Sold
20.Under a perpetual inventory system,
a. accounting records continuously disclose the amount of inventory
b. increase in inventory resulting from purchases are debited to Purchases
c. the Purchase Returns and Allowances account is credited when goods are
returned to vendors
d. there is no need for a year-end physical count
21.Which of the following accounts has a normal debit balance?
a. Interest Revenue
b. Sales
c. Sales Returns and Allowances
d. Accounts Payable
22.Using a perpetual inventory system, the entry to record the return of merchandise
purchased on account includes a
a. credit to Merchandise Inventory
b. credit to Sales
c. credit to Accounts Payable
d. debit to Cost of Goods Sold
23.In credit terms of 1/10, n/30, the 1 represents the
a. full amount of the invoice
b. number of days in the discount period
c. percent of the cash discount
d. number of days when the entire amount is due
24.Which one of the following is not a difference between a retail business and a
service business?
a. the inclusion of gross profit in the income statement
b. in what is sold
c. merchandise inventory included in the balance sheet
d. accounting equation
25.Gross Profit is equal to
a. Sales plus (sales discounts and sales returns and allowances)plus cost of goods
sold
b. Sales plus sales returns and allowances less sales discounts less cost of goods
sold
c. Sales plus sales discounts less sales returns and allowances less cost of goods
sold
d. Sales less (sales discounts and sales returns and allowances)less cost of goods
sold
26.What effect will this adjusting journal entry have on the accounting records?

Supplies Expense
678
Supplies
678
a. increase Income
b. decrease Net Income
c. decrease Expenses
d. increase Assets
27.What effect will this adjusting journal entry have on the accounting records?
Depreciation Expense
1,500
Accumulated
1,500
Depreciation
a. increase Net Income
b. increase Revenues
c. decrease Expenses
d. decrease Net Book Value
28.How will the following adjusting journal entry affect the accounting equation?
Unearned Subscriptions
12,000
Subscriptions Earned
12,000
a. increase Assets, increase Revenues
b. increase Liabilities, increase Revenues
c. decrease Liabilities, increase Revenues
d. decrease Liabilities, decrease Revenues
29.The balance in the supplies account before adjustment at the end of the year is
P625. The proper adjusting entry if the amount of supplies on hand at the end of the
year is P325 would be
a. debit Cash P325, credit Supplies P325
b. debit Supplies Expense P300, credit Supplies P300
c. debit Supplies Expense P325, credit Supplies P325
d. debit Supplies P300, credit Supplies Expense P300
30.Which of the accounting steps in the accounting process below would be completed
last?
a. preparing the adjusted trial balance
b. posting
c. preparing the financial statements
d. journalizing
31.What is the purpose of the adjusted trial balance?
a. to verify that all of the adjusting entries have been posted
b. to verify that the net income(loss) is correctly reported
c. to verify that no adjusting journal entry has been omitted
d. to verify that the debits and credits balance
32.Robles Co. sells P1, 000 of inventory to Salas Co. for cash. Robles paid P650 for the
merchandise. Under a perpetual inventory system, the following journal entry(ies)
would be recorded
a. Cash 1, 000 Dr, Merchandise Inventory 650 Cr.
b. Cash 1,000 Dr, Sales 1, 000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise
Inventory 650 Cr.
c. Cash 1,000 Dr, Sales 1, 000 Cr.

d. Accounts Receivable 1, 000 Dr, Sales 1, 000 Cr. Cost of Merchandise Sold 650 Dr,
Merchandise Inventory 650 Cr.
33.Apple Co sells merchandise on credit to Zea Co in the amount of P8000. The invoice
is dated on September 15 with terms 1/15, net 45. If Zea Co chooses not to take the
discount, by when should the payment be made?
a. September 30
b. October 30
c. October 15
d. September 25
34.Discounts taken by a buyer because of early payment are recorded on the sellers
accounting record as
a. Purchase Discount
b. Sales Discount
c. Trade Discount
d. Early Payment Discount
35.Who pays the freight costs when the terms are FOB Shipping Point?
a. the ultimate customer
b. the buyer
c. the seller
d. either the buyer or the seller
36.Who pays the freight costs when the terms are FOB Destination?
a. the seller
b. the buyer
c. the customer
d. either the buyer or the seller
37.A retailer purchases merchandise with a catalog list price P10, 000. The retailer
receives a 25% trade discount and credit terms of 2/10, n/30. How much cash will
be needed to pay this invoice within the discount period?
a. P10,000
b. P7, 500
c. P9, 800
d. P7, 350
38.Which of the following accounts will only be found in the chart of accounts of a
merchandising company?
a. Sales
b. Accounts Receivable
c. Merchandise Inventory
d. Accounts Payable
39.Which of the following items would affect the cost of merchandise inventory
acquired during the period?
a. quantity discounts
b. cash discounts
c. transportation-in
d. all of the above
40.If title to merchandise purchases passes to the buyer when the goods are delivered
to the buyer, the terms are
a. consigned
b. n/30
c. FOB Shipping Point

d. FOB Destination
41.If title to merchandise purchases passes to the buyer when the goods are shipped
from the seller, the terms are
a. n/30
b. FOB Shipping Point
c. FOB Destination
d. consigned
42.When the perpetual inventory system is used, the inventory sold is debited to
a. Supplies Expense
b. Cost of Merchandise Sold
c. Merchandise Inventory
d. Sales
43.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 Office Supplies
250.00
Accounts Payable
250.00
c. Jan 1 Purchases
250.00
Accounts Payable
250.00
d. Jan 1 Purchases
250.00
Accounts Receivable
250.00
44.Which of the following items should not be included in the cost of ending
merchandise inventory?
a. units on consignment
b. purchased units in transit, shipped FOB Destination
c. units on hand in the warehouse
d. both a and c
45.The Paula Corp. sold merchandise for cash, P6, 900. The cost of the merchandise
sold was P4,250. The journal entry (s) to record this transaction would be
a. Cash 6900
Merchandise Inventory 6900

b.

c.

d.

e.

COMS 4250
Sales 4250
Accounts Rec.
6900
Sales 6900
COMS 4250
Merchandise Inventory 4250
Cash
6900
Sales 6900
COMS 6900
Merchandise Inventory 6900
Cash 4250
Sales 4250
COMS 4250
Merchandise Inventory 4250
Cash 6900
Sales 6900
COMS
4250
Merchandise Inventory 4250

46.Which account will be included in both service and merchandising companies

closing entries?
a. Sales
b. Cost of Merchandise Sold
c. Sales Discounts
d. Sales Returns and Allowances
47.What is the major difference between a periodic and a perpetual inventory system?
a. Under the periodic inventory system, the purchase of inventory will be debited to
the Purchases account
b. Under the periodic inventory system, no journal entry is recorded at the time of
the sale of inventory
c. Under the periodic inventory system, all adjustments such as purchases returns
and allowances and discounts are reconciled at the end of the month
d. All are correct
48.Which of the following accounts will not be found on the Cost of Merchandise Sold
section on the Income Statement?
a. Purchases
b. Transportation-in
c. Sales Returns and Allowances
d. Merchandise Inventory
49.Under the periodic inventory system, the journal entry to record the purchase of
merchandise inventory will include a debit to
a. Merchandise Inventory
b. Purchases
c. Accounts Payable
d. Cost of Merchandise Purchased
50.The proper journal entry to record the receipt of inventory purchased on account in
a periodic inventory system would be:
a. Jan 1 Inventory
250.00
Accounts Payable
250.00
b. Jan 1 Office Supplies
250.00
Accounts Payable
250.00
c. Jan 1 Purchases
250.00
Accounts Payable
250.00
d. Jan 1 Purchases
250.00
Accounts Receivable
250.00
51.Net Income plus operating expenses is equal to
a. Cost of Goods Sold
b. Cost of Goods Available for Sale
c. Net Sales
d. Gross Profit
52.Generally, the revenue account for a merchandising business is entitled
a. Sales
b. Net Sales
c. Gross Sales
d. Gross Profit
53.What is the term applied to the excess of net revenue from sales over the cost of
merchandise sold?
a. Gross Profit
b. Income from operations

c. Net Income
d. Gross Sales
54.A company using the periodic inventory system has the following account balances:
Merchandise Inventory at the beginning of the year, P4000; Transportation-In, P450;
Purchases, P12000; Purchase Returns and Allowances, P2300; Purchase Discounts,
P220. The cost of merchandise purchased is equal to
a. P13, 930
b. P9, 930
c. P9, 489
d. P14, 520
55.A company using the periodic inventory system has merchandise inventory costing
P140 on hand at the beginning of the period. During the period, merchandise
costing P400 is purchased. At year-end, merchandise inventory costing P180 is on
hand. The cost of merchandise sold for the year is
a. P720
b. P550
c. P360
d. P140

56.Expenses that are incurred directly or entirely in connection with the sale of
merchandise are classified as
a. selling expenses
b. general expenses
c. other expenses
d. administrative expenses
57.Office Salaries, depreciation of office equipment, and office supplies are examples
of what type of expense?
a. selling expense
b. miscellaneous expense
c. administrative expense
d. other expense
58.Using the following information, what is the amount of Net Sales?
Purchases
P28, 000
Purchase Discounts
P800
Merchandise
6, 500
Merchandise
7, 800
Inventory,
Inventory,
April 1
April 30
Sales Returns and
750
Sales
57, 000
Allowances
Purchase Returns
1, 000
Transportation In
880
and Allowances
a. P25, 780
b. P57, 000
c. P57, 750
d. P56, 250
59.Silver Co sold merchandise to Bronze CO on account, P 23, 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. P20, 090
b. P20, 500
c. P3, 490
d. P23, 000
60.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
buyers accounts on November 18. The credit period begins with what date?
a. November 12
b. November 15
c. November 17
d. November 18
61.If merchandise sold on account is returned to the seller, the seller may inform the
customer of the details by issuing a
a. sales invoice
b. purchase invoice
c. credit memorandum
d. debit memorandum
62.The arrangements between buyer and seller as to e=when payments for
merchandise are to be made are called
a. credit terms
b. net cash
c. cash on demand
d. gross cash
63.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.
P160
b. P150
c.
P140
d.
P100
PART 2
1. Gross profit from sales is the difference between
a. Net sales and operating expenses
b. Net sales and the cost of good sold
c. Net sales and the cost of good sold plus all the expenses
d. Gross sales less the sales discounts and sales returns and allowances
2. The buyer received an invoice from the seller for merchandise with a list price of
P400 and credit terms of 2/10, n/60. The number 10 in the credit terms is the
a. Credit period
b. Cash discount allowed for early payment of the invoice
c. Discount period
d. Trade discount

3. The records for the Uptown Pet Shop showed the following:
Sales P75,000
Purchases P45,000
Beginning merchandise inventory P10,000
Cost of goods sold P50,000
The ending merchandise inventory must have been
a. P5,000
b. P15,000
c. P25,000
d. P40,000
4. Under the periodic inventory system, the Purchases account is used to record
a. Only cash purchases of merchandise inventory
b. Purchases of any asset on account or note payable
c. Only purchases of merchandise inventory on account
d. Purchases of merchandise inventory cash or on account
5. The Sun Set Shade Company purchased three pieces of office equipment for a total
price of P2,100. One piece of equipment costing P800 was damaged on delivery and
was returned to the vendor. The invoice has not been paid. The proper journal entry
for the return is
a. Merchandise inventory, debit, P800; Accounts Payable, credit P800
b. Acc. Payable, debit, P800; Merchandise Inventory, credit, P800
c. Acc. Payable, debit P800; Office equipment, credit, P800
d. Acc. Payable, debit P2,100; Purchases, credit P2,100
6. Company records disclose the following:
Sales P95,000
Beg. Merchandise Inventory P10,000
Purchases P45,000
Gross profit from sales P50,000
Transportation-in P500
Purchases Discounts P1,000
The ending merchandise inventory (periodic)
a. Must be P5,000
b. Must be P6,000
c. Must be P9,500
d. Must be P10,000
7. Which of the following is used to determine the cost of goods available for sale
(periodic inventory)?
a. Beginning merchandise inventory + ending merchandise inventory
b. Ending merchandise inventory + purchases freight charges
c. Beginning merchandise inventory + purchases freight charges
d. Beginning merchandise inventory + purchases purchases discount + freight
charges
8. Under a perpetual inventory system merchandise is purchased on account. The
correct journal entry for this purchase will be a
a. Debit to purchases and a credit to Cash
b. Debit to merchandise Inventory and a credit to Accounts Payable
c. Debit to Merchandise inventory and credit to Cash
d. Debit to Purchases Return and a credit to Cost of Goods sold

9. Bought office tables and chairs from MCI P15,120 Vat Inclusive, terms COD. The
correct journal entry would be
a. Debit furniture & fixtures P15,120 and credit Cash P15,120
b. Debit Furniture & Fixtures P13, 500, debit vat input P1,620 and credit Cash P15,
120
c. Debit Furniture & Fixtures P13,500, debit Vat output P1,620 and credit Cash
P15,120
d. Debit Furniture & Fixtures P13,500 and credit Cash P13, 500
10.Cash purchases, Vat exclusive P8000 the amount for Vat would be
a. Debit Vat input P960
b. Credit Vat input P960
c. Debit Vat output P960
d. Credit Vat output P960
11.An item of merchandise was sold with an invoice price of P400 and credit terms of
2/10, n/30. The entry to record the sale would be include a credit to Sales of
a. P400
b. P396
c. P408
d. P392
12.An item of merchandise was sold with an invoice price P800 cash by a business
using the perpetual inventory system. The product sold cost the business P600.
After the sale entry has been recorded, a second entry will
a. Debit Cash and credit Sales for P800
b. Debit Sales and credit Merchandise Inventory P600
c. Debit Cost of Goods Sold and credit Merchandise Inventory P600
d. Debit Merchandise Inventory and credit Cost of Goods Sold P800
13.Under the periodic inventory system, which of the following is a correct closing
entry?
a. Income Summary, debit; Sales credit
b. Income Summary, credit Sales Returns and Allowances, debit
c. Income Summary, debit; Merchandise Inventory (beginning), credit
d. Purchases, debit; income Summary, credit
14.When
___________________, the cost of goods sold will be the same as the cost
of purchases
a. There is no beginning merchandise inventory (first year of business)
b. There is no ending merchandise inventory
c. Purchases are equal to net sales
d. The beginning and ending merchandise inventory values are the same
15.An item of merchandise with a list price of P100 was purchased with a trade
discount of 40% and credit terms of 2/10, n/30. If the vendor is paid within the
discount period, the journal entry to record the payment would be
a. Purchases, dr., P100; Purchase Discounts, cr., P42; cash, cr., P58
b. Accounts Payable, dr., P60; Purchase Discounts, cr., P1.20; Cash, cr., P58.80
c. Accounts Payable, dr., P100; Purchase Discounts, cr., P42; Cash, cr., P58
d. Accounts Payable, dr., P40; Purchase Discounts, cr., P80; Cash, cr., P32.90
16.The proprietor of a restaurant purchased a three-year insurance policy. Recording
the purchase of the policy requires
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. One asset to be debited, another asset to be credited

d. Withdrawals to be debited, an asset to be credited

17.A business purchased equipment by issuing a one-year note payable. The entire
amount of the note is due at the end of one year. Recording the transaction requires
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. An asset to be debited, capital to be credited
d. Withdrawals to be debited, an asset to be credited
18.Olivia, the proprietor, deposited P40,000 in the companys bank account. She got
the money from selling all of her General Motors common stock. Recording the
transaction on the company books will require
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. An asset to be debited, capital to be credited
d. Withdrawals to be debited, an asset to be credited
19.Solar Mow, makers and sellers of solar powered lawn mowers, paid the rent for the
month of January on January 1. Recording the transaction requires
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. An expense to be debited, an asset to be credited
d. An asset to be debited, a revenue to be credited
20.Solar Mow, makers and sellers of solar powered lawn mowers, determined that its
chief executive officer should attend a workshop on solar energy to be held on the
beach at Waikiki, Honolulu. The workshop cost P2,000, including air fare, meals, and
lodging. The firm charged the cost of the trip with a local travel agency. Recording
the transaction requires
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. An expense to be debited, a liability to be credited
d. An asset to be debited, revenue to be credited
21.Peter Ati received P5,000 for some excavation work to be done when the weather
permits. Peter figures it will be at least three weeks before he can start the job.
Recording the transaction requires
a. An asset to be debited, a liability to be credited
b. A liability to be debited, an asset to be credited
c. Withdrawal to be debited, an asset to be credited
d. An asset to be debited, revenue to be credited
22.Which of the following statements is not true?
a. Journalizing errors should be erased and a correct entry made
b. Asset accounts are increased by debit entries
c. Debit entries are entries involving the left-hand side of an account
d. Journalizing precedes posting
23.The personal telephone bill of Junior Sample was paid by issuing a cheque from the
business chequing account. No business calls had been made from Juniors personal
phone. What account must be debited for this transaction?
a. Junior, Capital
b. Cash
c. Junior, withdrawals
d. Telephone expense
24.An account entitled Unearned fees would be classified as a/an

a. Asset account
b. Liability account
c. Revenue account
d. Expense account
25.At the end of the fiscal year, an adjusting entry was made for accrued salaries of
P500. The salaries for one week, P1,250, were paid on the first Friday of the new
fiscal period. The entry to record paying the salaries expense for the week would be
a
a. Sal. Exp., dr., P750; Salaries Payable, dr., P500; Cash, cr., P1,250
b. Sal. Exp., dr., P500; Salaries Payable, dr., p750; Cash, cr., P1,250
c. Salaries expense, dr., P1,250; Cash, cr., P1,250
d. Sal. Exp., dr., p1,250; Sal. Payable, cr., P1,250
26.The ______________ is the length of time into which the life of a business is divided
for the purpose of preparing periodic financial statements.
a. Natural business year
b. Calendar year
c. Accounting period
d. Interim period
27.The notion that the life of a business is divisible into equal time periods of equal
length is known as the
a. Continuing concern principle
b. Accounting period principle
c. Business entity principle
d. Recognition principle
28.The adjusting process is based on two accounting principles. The two accounting
principles are
a. Realization and recognition
b. Revenue recognition and matching
c. Cost and business entity
d. Continuing-concern and realization
29.At the beginning of the year, a business had a two-year, P1,200 insurance policy on
its equipment. On July 1, it purchased a three-year, P1,800 policy on a newly
constructed building. The December 31, year-end, adjusting entry would be
a. Insurance Expense, debit, P3,000; Prepaid Insurance, credit, P3,000
b. Insurance Expense, debit, P1,200; Prepaid Insurance, credit , P1,200
c. Insurance Expense, debit, P1,000; Prepaid Insurance, credit, P1,000
d. Insurance Expense, debit, P900; prepaid Insurance, credit, P900
30.At the beginning of the year, a business had a two-year, P1,200 insurance policy on
its office equipment. On July 1 it purchased a three-year, P1,800 policy on the office
equipment. As a consequence of the oversight
a. Expenses are understated and assets are overstated
b. Expenses are overstated and assets are understated
c. Expenses are understated and assets are understated
d. Expenses are overstated and assets are overstated
31.At the end of the accounting period, the business had P450 of office supplies on
hand, which was a 50% increase over the beginning balance. If the business
purchased P1,200 of office supplies during the year, then P________ of office supplies
were used
a. P975

b. P1050
c. P1,650
d. P1,425
32.A tenant rented space in an office building on September 1 at P450 per month,
paying six months rent in advance. The bookkeeper recognized a current liability of
P2,700. The December 31, year-end adjusting entry would be
a. Unearned Rent , dr., P1,800; Rent Revenue, cr., P1,800
b. Unearned Rent, dr., P1,350; Rent Revenue, cr., P1,350
c. Rent Revenue, dr., P900; Unearned Rent, cr., P900
d. Cash, dr., P2,700; Rent Rev., cr., P1,800; Unearned Rent, cr., P900
33.A tenant rented space in an office building on October 1 at P450 per month, paying
six monthhs rent in advance. The bookkeeper recorded the October entry with a
debit to Cash and a credit to Rent Revenue. The December 31, year-end adjusting
entry would be
a. Unearned Rent, dr., P1,800; Rent Revenue, cr., P1,800
b. Unearned Rent, dr., P1,350; Rent Revenue, cr., P1,350
c. Rent Revenue, dr., P1,350; Unearned Rent, cr., P1,350
d. Cash, dr., P2,700; Rent Revenue, cr., P1,350; Unearned Rent, cr., P1,350
34.A tenant rented space in an office building on October 1 at P450 per month, paying
six months rent in advance. The bookkeeper recognized a current liability upon
receipt of the P2,700. No year-end adjustment was recorded. As a consequence of
overlooking the required adjustment
a. Revenue was overstated and liabilities were understated
b. Revenue was understated and liabilities were understated
c. Revenue was overstated and liabilities were overstated
d. Revenue was understated and liabilities were overstated
35.Des Preciated rented an office space to Core Poration for three months at P500 per
month, payable at the end of the third month, January 31. No year-end adjusting
entry was recorded on December 31. As a consequence of this oversight
a. Assets were overstated and revenue was overstated
b. Assets were overstated and revenue was understated
c. Assets were understated and revenue was overstated
d. Assets were understated and revenue was understated
36.You have agreed he accounting records for a business that has agreed to pay you
P800 per month, beginning December 16. You use the accrual basis and recorded
adjusting entries on December 31. When you receive the P800 on January 16, you
will record the following entry
a. Cash, dr., P800; Acc. Rec., cr., P400; Fees Earned, credit, P400
b. Cash, dr., p400; Ac. Rec., P400
c. Cash, dr., P800; fees Earned, cr., P800
d. Acc. Rec., dr., P800; Cash, cr., P400; Fees Earned, cr., P400
37.The financial position of the business on a given date is reported on the
a. Income Statement
b. Balance Sheet
c. Statement of Changes in Owners Equity
d. Statement of Cash Flows
38.The net profit or loss for a particular period of time is reported on the
a. Income Statement
b. Balance Sheet

c. Trial Balance
d. Statement of Changes in Owners Equity
39.The investment of cash into the business results in a/an
a. Increase in cash and a decrease in capital
b. Increase in cash and an increase in capital
c. Decrease in cash and an increase in capital
d. Increase in fees earned and an increase in capital
40.The purchase of supplies for cash will result in a/an
a. Increase i cash and a decrease in capital
b. Increase in cash and an increase in supplies
c. Increase in supplies and a decrease in cash
d. Increase in equipment and an increase in capital
41.The process of rewriting the information from the journal into the ledger is called
a. Sliding
b. Transporting
c. Journalizing
d. Posting
42.An example of the transposition error is
a. P330 recorded as P303
b. P341 recorded as P341
c. P30 recorded as P300
d. P100 recorded as P10
43.Keeping the records of the business separate from the personal records of the
owner of the business is said to be adherence to which accounting principle or
concept?
a. Continuing-concern concept
b. Business Entity concept
c. Realization principle
d. Objectivity principle
44.Which of the following is formal written promise to pay a definite sum of money on
demand or at a fixed or determinable future date?
a. Account payable
b. Account receivable
c. Note payable
d. Prepaid insurance policy
45.Peter Ati decided to pay himself a salary of P3,00 per month for the work he
performs for his business, a single proprietorship. Each time a cheque is recorded
for P3,000, which account should be increased?
a. Salaries Expense
b. Capital
c. Peter Ati, withdrawals
d. Owner Salary expense
46.Which of the following account is NOT a liability
a. Accounts Payable
b. Accounts Receivable
c. Salaries Payable
d. Notes Payable
47.A broad rule adopted by the accounting profession as a guide in measuring,
recording, and reporting this financial affairs and activities of a business is known as
a. An accounting concept

b. An accounting principle
c. The basic accounting equation
d. Objectivity principle
48.Using a sales invoice as the basis for recording a sale of merchandise is an example
of using which accounting principle or concept for recording transactions?
a. Recognition principle
b. Objectivity principle
c. Realization principle
d. Continuing-concern concept
49.Keith Manich deposited P5,000 in a bank account for a et store that he is going to
own and operate as KMs Pets. Recording the deposit will
a. Increase an asset, increase a liability
b. Decrease an asset , decrease a liability
c. Increase an asset, increase owners equity
d. Decrease an asset, decrease owners equity
50.Better-Cars Selection, a used car dealer, has a total assets and liabilities of P50,000
and P18,000, respectively. The firm constructed a shelter for its automobiles by
promising to pay building contractor, upon completion of the building, P500 per
month for twenty-four months. Upon completion, owners equity will:
a. Increase by P12,000
b. Remain unchanged
c. Decrease by 12,000
d. Increase by P500, each month
51.Which of the following accounts is not temporary account?
a. Income Summary
b. Rental Revenue
c. Capital
d. Withdrawals
52.The subtotals of the Income Statement columns of the worksheet are P3,500 and
P4,900, respectively. If the subtotal of the Balance Sheet Debit column is P9,600,
then the subtotal of the Balance Sheet credit column should be
a. P1,400
b. P11,000
c. P8,200
d. P6,800
53.The subtotals of the Income Statement columns of the worksheet are P6,200 and
P4,900, respectively. If the subtotal of theBalance Sheet Debit column is P19,000,
then the subtotal of the Balance Sheet Credit column should be
a. P20,300
b. P1,300
c. P17,700
d. P14,400
54.Revenue and expense accounts at the beginning and end og the accounting period
should have
a. Balance of zero
b. Balances of cumulative amounts of activity during the period
c. A net balance (credits minus debits) equal to the capital amount
d. A net balance equal to assets minus liabilities
55.Which is true about an adjusting entry?
a. Only a permanent account is adjusted

b. Only a temporary account is adjusted

c. A permanent account and a temporary account is adjusted
d. It is required to satisfy the realization principle only
56.After the closing procedure is complete, which of the documents proves the equality
of debits and credits?
a. Income Statement
b. Account form balance sheet
c. Post-Closing Trial Balance
d. Worksheet
57.An example of sliding error is
a. P330 recorded as P303
b. P341 recorded as P341
c. P30 recorded as P300
d. Answer not given
58.Optional entries that transfer the balances in balance sheet accounts which arose as
a result of certain adjusting entries to income statement accounts is the definition
for which term below?
a. Adjusting entries
b. Reversing entries
c. Closing entries
d. Declaration of cash dividends
59.The right side of the T account is
a. Debit
b. Credit
c. Both
d. Cannot be determine
60.The last account listed on the post-closing trial balance for a single proprietorship
business is the
a. Capital account
b. Withdrawals account
c. Retained Earnings account
d. Common Stock account
61.Use the information below
Assets

2013

2012

2011

2010

Cash

P10,0
00

P15,000

P12,000

P8,000

Other current assets

18,00
0

15,000

24,000

15,000

Plant and equipment

20,00
0

23,000

24,000

15,000

Total assets

48,00
0

53,000

49,000

33,000

Which of the following statements is true?

a. Plant and equipment had the largest percentage gain from 2010 to 2012

b. Cash had the greatest percentage decrease between 2012 and 2013
c. Cash increased at a faster rate than total assets from 2010 to 2013
d. Cash was always the same percentage of total assets

62.Use the information below

2013

2012

2011

2010

Sales

P160,000

P130,000

P100,000

P80,000

Cost of Goods
Sold

96,000

71,500

53,000

41,600

Net income

28,000

26,000

25,000

24,000

Which of the following is NOT true?

a. Sales have increased 200% since
b. Net income has increased 16.67% since 2010
c. Gross profit on sales has increased 666.67 since 2010
d. Net income as a percentage of sales has decreased
63.Which is NOT true of common-size comparative statements?
a. Each item shown as a percentage of some total of which it it a part
b. Peso amounts are generally not shown
c. The net change in each item, on a yar-to-year basis, is not shown
d. Total assets are used as a total against which all assets are measures
64.Use the information below
Current Assets

P120,000

Cash

P20,000

Accounts Receivable

P45,000

Short-term
investments

P12,000

Merchandise
inventory

P42,000

Current Liabilities

P68,000

Which of the following is true?

a. Working capital is P52,000, current ratio is 1.17
b. Current ratio is 2.0, acid-test ratio is 1.15
c. Working capital is P10,000, acid-test ratio is 1.15
d. Working capital is P52,000, current ratio is 1.76
65.Net sales were P450,000, and the accounts receivable turnover was 5.5 times. What
is the average account receivable?

a. Not determinable from the information provided

b. P24,750
c. P81,818
d. P90,000
66.The cost of goods sold was P240,000. Beginning and ending merchandising
inventory balances were P20,000 and P30,000, respectively. The merchandise
turnover was:
a. 8.0 times
b. 12.0 times
c. 7.0 times
d. 9.6 times
67.The days sales in inventory is 73. The cost of goods sold is P720,000. The net sales
are P1, 020,000. The beginning inventory was P82,000. What is the ending
inventory?
a. P98,360
b. P144,000
c. P139,726
d. P82,000
68.Total asset turnover is a component of:
A. Solvency
B. Profitability
C. Comparability
D. Operating efficiency
69.Which change in the following ratios would be regarded as generally favourable by
creditors but generally unfavourable by shareholders?
a. Debt to equity ratio changed from 1:2 TO 1:2.5
b. Current ratio changed from 2:5 to 3:4
c. Debt to equity ratio changed from 2:5 to 1:3
d. Return on total assets changed from 10% to 12.5%
70.Which of the following formulas and its result is not correct?
a. Formula: net sales / average total assets
Result: Total asset turnover
b. Formula: (Net income/net sales) x 100
Result: Profit Margin
c. Formula: (net Income/Average total assets) x 100
Result: Return on total assets employed
d. Formula: (Total liabilities/Total assets) x 100
Result: Equity ratio
71.Which of the following ratios would not be considered a measurement of short-term
liquidity?
a. Current ratio
b. Days sales uncollected
c. Acid-test ratio
d. Working capital ratio
72.Which of the following would be of the least interest to the short-term creditor of the
business?
a. Current ratio
b. Times interest earned
c. Acid-test ratio
d. Working capital ratio

73.Net income is not used as a numerator or a denominator in which of the following

financial ratios?
a. Return on total assets employed
b. Times fixed interest charges earned
c. Return on common shareholders equity
d. Profit margin measurement
74.Net sales were P360,000. The cost of goods sold was P180,000. Operating expenses
were P120,000. The ending balance of the Accounts Receivable account was
P20,000. The merchandise turnover ratio was 12.75. the profit margin was:
a. 16.67%
b. 20.0%
c. 40.0%
d. 33.3%
75.Credit terms of 2/10, n/30 mean that
a. A 10% cash discount may be taken if payment is made immediately, a 2%
discount if paid within 30 days.
b. A 2% cash discount may be taken if payment is made within 10 days of the
invoice date; otherwise the full amount is due the end of the month
c. An additional amount equal to 2% of the invoice price must be paid if payment is
not received within 10 days; the account is overdue after 30 days.
d. A 2% cash discount may be taken if the payment is made within 10 days of the
invoice date; otherwise the full amount is due within 30 days.
76.Which of the following accounts should appear in the non-operating section of a
multiple shop income statement?
a. Freight out
b. Sales discounts
c. Sales returns and allowances
d. Interest expense
77.Freight terms of FOB shipping point mean that the
a. Buyer must bear the freight costs
b. Seller must debit freight out
c. Goods are placed free on board at the buyers place of business
d. Seller must bear the freight costs
78.With regard to the accounts used to record freight costs,
a. Freight out is added to cost of goods sold
b. Freight out has a normal balance of debit
c. Freight out is recorded when freight terms are FOB shipping point
d. Freight out is a contra account to sales
79.The Sales Returns and Allowances account
a. Normally has credit balance
b. Should be closed at the end period
c. Is contra account to Accounts Receivable
d. Is used by a merchandising company, but not a service enterprise
80.Given the following information, compute the amount cash finally remitted by the
customer.
Oct. 22 Sale on Credit, terms of 2/10, n/30 P6,000
Oct. 27 Allowance granted due to some items being damaged P600
Oct 31 Payment in full received from customer P?
a. P5,292
b. P6,000

c. P5,280
d. P5,628
81.The ending inventory of Larkin Company, which uses a periodic inventory system,
was understated P7,000 on December 31, 2013. Because of this error, 2013 net
income was
a. Overstated P5,000
b. Overstated P7,000
c. Understated P2,000
d. Understated P7,000
82.It is in change of administering the professional examination for CPA licensure
a. BOA
b. PRC
c. SEC
d. CDA
83.It is in change of regulating the business operation of a partnership, corporation,
and foundation
a. BOA
b. PRC
c. SEC
d. CDA
84.The field of accounting which accountant can practice their profession by rendering
professional services for a certain fee
a. Private accounting
b. Government accounting
c. academe accounting
d. public accounting
85.Republic Act No.__________ known as the act of regulating the practice of
accountancy in the Philippines is?
a. RA 9198
b. RA 9293
c. RA9829
d. RA 9891
86.The license renewal period for CPA is?
a. 7 years
b. 5 years
c. 4 years
d. 3 years
87.Marz companys bank statement shows that a note receivable of P15,000 and
interest of P1,050 were collected by the bank on behalf of the depositor. The entry
required on the companys book is
a. Debit Cash, Credit Notes Receivable
b. Debit Cash, debit Interest Expense, credit Notes Receivable
c. Debit Cash, debit Interest Income, credit Notes Receivable
d. Debit Cash, credit Interest Income, credit, Notes Receivable
88.The bank statement will show
a. The amounts of checks paid during the month
b. Any deductions from the bank statement balance
c. The balance on deposit at the end of the month
d. All of the above

89.On a bank statement, a deposit of P402 was recorded by the bank as P204. The
difference of P198 should be treated as
a. An addition to the bank statement balance
b. An addition to the book balance
c. A deduction from the book balance of cash
d. Subtracted from the book balance
90.An outstanding check which has not yet been cleared the bank should be
a. Subtracted from the bank balance
b. Added to the book balance
c. Added to the bank balance
d. Subtracted from the book balance
91.A check to the utility company written correctly for P404 was incorrectly posted as
P440 in the general ledger cash account. To fix this error on the bank reconciliation,
a. Subtract from the banks balance an additional P36
b. Add to the book balance an additional P36
c. Add to the bank balance an additional P36
d. Subtract from the book balance an additional P36
92.A check to the utility company written correctly for P404 was incorrectly pos ted as
P440 in the general ledger cash account. The adjusting entry to fix this error in the
general journal after the bank reconciliation is performed would include,
a. A debit to Cash for P36
b. A credit to Cash for P36
c. A credit to Utilities Expense for P36
d. A credit to Cash for P404
93.On June 1st Mr. Guts Sol merchandise with a list price of P500, 000 to Banana Quolits
on account. Mr. Guts allowed trade discounts to 30% and 20%. Credit terms were
2/15, n/40 and the sale was made FOB Shipping point. Mr. Guts prepaid P20,000 of
delivery cost of Banana Quolits as an accommodation. On June 12 th Mr. Guts
received from Banana Quolits as remittance in full payment amounting to _________.
a. P274,000
b. P294,000
c. P294,400
d. P314,000
94.The company bought goods totalled to P95,000 on account with 20%, 10%, 5/10,
3/20, net 30, meaning the company can obtain?
a. Trade discount of 20% and 10% in invoice price plus 10% ash discount when
company pay before or after 5 days or 20% in 3 days ad no discount beyond 20
days.
b. Trade discount of 30% to invoice price pus 5% or 3 % cash discount when
company paid the account before or within 20 days and no discount after 30
days
c. Trade discount of 20% and 10% in invoice plus 5% when it paid the account
before or within 10 days, 3% within 20 days or paid beyond 20 days to 30 days
without taking cash discount
d. Trade discount of 30% to invoice plus 5% cash discount within 20 days and no
discount after 30 days.

Classify the following either component of Income Statement or Balance Sheet and its
normal balances:
1. Cost of Sales
2. Total Goods Available for Sale
3. Beginning Inventory
4. Ending Inventory
5. Equipment
6. Cash
7. Accounts Payable
8. Gains
9. Service Revenue
10.Accounts Receivable
11.Purchases
12.Sales Discount
13.Trade Discount
14.Merchandise Inventory
15.Machinery
16.Furniture & Fixture
17.Prepaid Expense
18.Accrued expense
19.Notes Payable
20.Bad Debts
21.Accumulated Depreciation
22.Freight in
23.Purchase Discount
24.Sales Returns and Allowances
25.Supplies on Hand
26.Unearned Revenue
27.Freight out
28.Loss