EASY ROUND

Question#1:
Under the cash basis of accounting
a. Revenue is recorded when earned
b. Accounts receivable would appear in the statement of financial position.
c. Depreciation of assets having an economic life of more than one year is not recognized.
d. The matching principle is ignored

Answer:d

Question #2:
Based on 2016 sales of compact discs recorded by an artist under a contract with Laser Company, the artist earned
P1,000,000 after an adjustment of P80,000 for anticipated returns. The entity paid the artist P750,000 in 2016 as a
reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should be
reported as royalty expense for 2016?
a. 1,000,000
b. 1,080,000
c. 1,750,000
d. 1,830,000

Answer: a

Question #3:
Compared to the accrual basis of accounting, the cash basis understates income by the net decrease during the
accounting period of
a. Both accounts receivable and accrued expense
b. Accrued expenses but not of a/r
c. Neither A/R Nor accrued expenses
d. A/R but not of accrued expenses

QUESTION #4

During 2013, Tara Company received P8,000,000 from tenants. The statement of financial position contained the
following data:
2015 2016
Rentals Receivable 960,000 1,240,000
Unearned rentals 3,200,000 2,400,000

What amount of rental revenue should be reported for 2016?

a. 9,080,000
b. 8,520,000
c. 7,480,000
d. 6,920,000

Answer: a
QUESTION #5:
Incomplete accounting records using only a cash book is a characteristic of
a. Cash basis
b. Accrual basis
c. Single entry system
d. Double entry system

MODERATE

Question #1
During 2016, Cooke Company acquired patent right and remitted royalties of P3,000,000. The entity reported prepaid
royalties of P550,000 and P450,000 royalties payable of P800,000 and P750,000, respectively on December 31,2015 and
2016. What amount should be reported as royalty expense for 2016?
a. 2,950,000
b. 3,050,000
c. 3,100,000
d. 3,300,000

Answer: 3,050,000

QUESTION #2
The premium on a three year insurance policy expiring on December 31, 2015 was paid in total on January 1, 2013. If the
entity has six month operating cycle, then o December 31, 2013 the prepaid insurance reported as a current asset would
be for
a. 6mos
b. 12mos
c. 18mos
d. 24mos

question #3
Thrift Company reported that the unadjusted prepaid expense on December 31, 2016 comprised the following:
 An opening balance of P150,000 for an insurance policy. The entity had paid an annual premium of P300,000 on
July 1, 2015.
 A P320,000 annual insurance premium payment July 1, 2016.
 A P200,000 advance rental payment for a warehouse leased for one year beginning January 1, 2017.
On December 31, 2016, what amount should be reported as prepaid expenses?
a. 520,000
b. 360,000
c. 200,000
d. 160,000

Answer: 360,000
Question #4
On January 1, 2016 an entity reported supplies inventory of P1,200,000. During the current year, supplies
purchased amounted to P3,400,000 and the purchases were charged to supplies expense. The December 31,
2016 statement of financial position showed supplies inventory of P900,000. If no revising entry was made on
January 1, 2016, what was the amount needed for the year end adjusting entry for supplies expense?
a. 2,500,000 increase
b. 2,500,000 decrease
c. 300,000 increase
d. 300,000 decrease

Question #5

Which of the following statements regarding accrual versus cash basis accounting is true?
a. The cash basis is appropriate for some smaller entities
b. The cash basis is less useful in predicting the timing and amounts of future cash flows
c. Application of the cash basis results in an income statement reporting revenue and expenses
d. The cash basis requires a complete set of double entry records
DIFFICULT
QUESTION #1
Eros Company kept the records on a cash basis. At the end of 2016, the accountant prepared the following cash basis
income statement.
Revenue 1,910,000
Expenses 809,000
Net Income 1,101,000
The following amounts of accrued, prepaid and unearned items were ignored at the end of 2015 and 2016:
2015 2016
Accrued revenue 91,000 73,000
Unearned revenue 66,000 108,000
Accrued expenses 49,000 65,000
Prepaid expenses 46,000 56,000

WHAT IS THE NET INCOME UNDER ACCRUAL BASIS FOR 2016?

ANSWER: 1,035,000

QUESTION #2
Timm Company failed to recognize accruals and prepayments since the inception of business three years ago. The
income before tax, accrual and prepayments at the end of the current year are:

Prepaid Insurance 20,000

Accrued Wages 25,000
Rent Revenue collected in advance 30,000
Interest receivable 50,000
Income before tax 1,400,000

WHAT IS THE CORRECTED INCOME BEFORE TAX?

QUESTION #3:
On January 1, 2016 Reims purchased the net assets of Alador Laundry, a sole proprietorship, for P3,500,000, and
commenced operations of Saint Etienne Laundry, a sole proprietorship. The assets had a carrying amount of P3,750,000
and a market value of P3,600,000. In Saint Etienne’s cash basis financial statements for the current year, Saint Etienne
reported revenue in excess of expenses of P600,000. Reim’s drawings during the current year totaled P200,000. In Saint
Etienne’s financial statements, what amount should be reported as Capital – Reims on December 31, 2016?

Answer:
3,900,000

QUESTION #4

During the current year, SeaWall Company reported total operating expenses of P3,200,000, consisting of P1,000,000
depreciation, P700,000 insurance and P1,500,000 salaries. The prepaid insurance is P150,000 on January 1 and P200,000
on December 31. The accrued salaries payable totaled P120,000 on January 1 and P100,000 on December 31. What total
amount was paid for operating expenses?

ANSWER:
2,270,000
QUESTION #5