Learning Objectives

LO1 Adjusting Entries

LO2 Worksheet Preparation
LO3 Closing Entries & Post Closing Trial Balance
LO4 Reversing Entries
LO5 Financial Statements (Merchandising & Service Concern)
Balance Sheet
Income Statement
Statement of Owner's equity
Instructions: Choose the letter of your answer.
LO1 1. Adjusting entries are required
a. because some costs expire with the passage of time and have not yet been journalized.
b. when the company's profits are below the budget.
c. when expenses are recorded in the period in which they are incurred.
d. when revenues are recorded in the period in which they are earned.

LO1 2. An adjusting entry

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

LO1 3. Expenses incurred but not yet paid or recorded are called
a. prepaid expenses.
b. accrued expenses.
c. interim expenses.
d. unearned expenses.

LO1 4. Accrued revenues are

a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.

LO1 5. Unearned revenues are

a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.

LO1 6. Expenses paid and recorded as assets before they are used are called
a. accrued expenses
b. interim expenses
c. prepaid expenses
d. unearned expenses

LO1 7. If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of
the accounting period, then failure to make an adjusting entry will cause
a. assets to be understated
b. assets to be overstated
c. expenses to be understated
d. contra-expenses to be overstated

LO1 8. Employees at B Corporation are paid P5,000 cash every Friday for working Monday through Friday.
The calendar year accounting period ends on Wednesday, December 31. How much salary expense
should be recorded two days later on January 2?
a.5,000
b.3,000
c. None, matching requires the weekly salary to be accrued on December 31

d.2,000

LO1 9. Sue Smiley has performed P500 of CPA services for a client but has not billed the client as of the end of the
accounting period. What adjusting entry must Sue make? a. Debit Cash and credit Unearned Revenue
b. Debit Accounts Receivable and credit Unearned Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Revenue and credit Service Revenue

LO1 10. A law firm received P2,000 cash for legal services to be rendered in the future. The full amount was credited to the
liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no
adjusting entry is made, this would cause a. expenses to be overstated
b. net income to be overstated
c. liabilities to be understated
d. revenues to be understated
LO1 11. An analysis of Thrift Corp.’s unadjusted prepaid expense account at December 31, 2022, revealed the following: (1) An
opening balance of P1,500 for Thrift’s comprehensive insurance policy. Thrift had paid an annual premium of P3,000 on
July 1, 2021. (2) A P3,200 annual insurance premium payment made July 1, 2022. (3) A P2,000 advance rental payment for
a warehouse Thrift leased for one year beginning January 1, 2023.
In its December 31, 2022 balance sheet, what amount should Thrift report as prepaid expenses? a.

5,200

b. 3,600
c. 2,000
d. 1,600

LO1 12. The difference between Accounts Receivable and the related Estimated Uncollectible Accounts is known
asa. net book value
b. net realizable value
c. net gain
d. net of allowance method

LO1 13. A method of providing uncollectible accounts which will not pass through the estimated uncollectible accounts
a. uncollectible accounts recovery method
b. allowance method
c. direct write-off
d. direct recovery method

LO1 14. What is the possible effect in the Balance Sheet if recording of depreciation expense is
omitted? a. net income is overstated
b. depreciation expense is understated
c. non-current asset section is overstated
d. non-current asset section is understated

LO1 15. When an Accumulated Depreciation account is overstated because of an overstatement in depreciation expense by same amount,
how will the balance sheet be affected by this error?
Asset Liability Owner's
Equity
a. understated no effect overstated
b. overstated no effect understated
c. understated no effect understated
d. overstated no effect overstated
LO1 16. Mr. Jose Manila has reported profit of P60,000 at the end of the year but before the following omissions were discovered:
1. Unpaid salaries of P5,000 was not booked-up;
2. depreciation was not recorded, P4,000;
3. expired portion of rental paid in advance in the amount of P2,000 was not taken up.
Incorporating the would-be adjustment on the above omission, how much is the corrected profit? a.
P49,000
b. P53,000
c. P57,000
d. P71,000

LO1 17. Jessa Mae Banse was engaged in building rental business in Dipolog City. On Aug. 28, 20A, she received P144,000 for a 3 year
advance rental payment to commence on September 1, 20A. If Unearned Rental Income account was credited upon receipt of cash, the
adjusting entry on Dec. 31, 20A would be -
DEBIT CREDIT
a. Unearned Rental Income, P16,000 Rental Income, P16,000
b. Unearned Rental Income, P128,000 Rental Income, P128,000
c. Rental Income, P16,000 Unearned Rental Income, P16,000
d. Rental Income, P128,000 Unearned Rental Income, P128,000

144,OOO/3?12*4

LO1 18. Dorting Company purchased a computer system for P3,600 on January 1, 2008. The company expects to use the computer system
for 3 years. It has no salvage value. Monthly depreciation expense on the asset is a. P0.
b. P100.
c. P1,200.
d. P3,600.

LO1 19. Quirk Company purchased office supplies costing P6,000 and debited Office Supplies
for the full amount. At the end of the accounting period, a physical count of office
supplies revealed P2,400 still on hand. The appropriate adjusting journal entry to be made
at the a. Debit Office Supplies Expense, P2,400; Credit Office Supplies, P2,400.
b. Debit Office Supplies, P3,600; Credit Office Supplies Expense, P3,600.
c. Debit Office Supplies Expense, P3,600; Credit Office Supplies, P3,600.
d. Debit Office Supplies, P2,400; Credit Office Supplies Expense, P2,400.

LO1 20. The balance of accounts receivable is P2,000,000 and the credit balance in the allowance for doubtful accounts is P10,000. Doubtful
accounts are estimated at 3% of accounts receivable. What is the adjusting entry for the doubtful accounts?
 DEBIT CREDIT

a. Doubtful accounts 60,000 Allowance for doubtful accounts 60,000

b. Doubtful accounts 50,000 Allowance for doubtful accounts 50,000

c. Allowance for doubtful accounts 60,000 Doubtful accounts 60,000

d. Allowance for doubtful accounts 50,000 Doubtful accounts 50,000

LO1 21. Refer to the following given below:

Accounts receivable 1,000,000

Sales 5,050,000

Sales return 50,000

Allowance for doubtful accounts 20,000

If doubtful accounts are estimated at 1% of net sales, how much is the doubtful accounts expense? a.
50,500
b. 50,000
c. 30,000
d. 30,500

LO1 22. Under the adjusting entry method of merchandise inventory adjustment, the first entry will include
a. The removal of the beginning inventory balance
b. the setting up of ending inventory balance
c. the credit to income & expense
d. the establishing of cost of sales

LO2 23. If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has
a. earned net income for the period.
b. an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.

LO2 24. A worksheet is a multiple column form that facilitates the

a. identification of events.
b. measurement process.
c. preparation of financial statements.
d. analysis process.

LO2 25. A worksheet can be thought of as a(n)

a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.

LO2 26. If the total debits exceed total credits in the balance sheet columns of the worksheet, owner's equity
a. will increase because net income has occurred.
b. will decrease because a net loss has occurred.
c. is in error because a mistake has occurred.
d. will not be affected.

LO2 27. Which of the following statements is correct?

a. A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.
b. If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.
c. The post-closing trial balance is entered in the first two columns of a worksheet.
d. The balance of the depreciation expense account will appear in the income statement credit column of a worksheet.

LO3 28. Each of the following accounts is closed to Income Summary

except a. Expenses.
b. Owner's Drawing.
c. Revenues.
d. All of these are closed to Income Summary.

For items 29, 30, and 31

The income statement for the month of June, 2008 of Delgado
Enterprises contains the following information:
Revenues P7,000
Expenses:
Wages Expense P2,000

Rent Expense 1,000

Supplies Expense 300

Advertising Expense 200

 Insurance Expense 100

Total expenses 3,600

Net income P3,400

LO3 29. After the revenue and expense accounts have been closed, the balance in Income Summary will
be a. P0.
b. a debit balance of P3,400.
c. a credit balance of P3,400.
d. a credit balance of P7,000.

LO3 30. The entry to close Income Summary to Delgado, Capital includes
a. a debit to Revenue for P7,000.
b. credits to Expenses totalling P3,600.
c. a credit to Income Summary for P3,400
d. a credit to Delgado, Capital for P3,400.

LO3 31. At June 1, 2008, Delgado reported owner’s equity of P35,000. The company had no owner drawings during June. At
June 30, 2008, the company will report owner’s equity of a. P35,000.
b. P42,000.
c. P38,400.
d. P31,600.

LO3 32. The entry to close the expense accounts includes a

a. debit to Income Summary for P3,400.
b. credit to Rent Expense for P1,000,
c. credit to Income Summary for P3,600.
d. debit to Wages Expense for P2,000.

LO3 33. In closing the cost of sales account and establishing the merchandise ending inventory, the balancing account would
be a. Income and Expense Summary
b. Gross Profit
c. Merchandise Inventory, Beg.
d. Cost of Goods Sold

LO4 34. The use of reversing entries

a. is a required step in the accounting cycle.
b. changes the amounts reported in the financial statements.
c. simplifies the recording of subsequent transactions.
d. is required for all adjusting entries.

LO4 35. A reversing entry

a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in a previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when a company sustains a loss in one period and reverses the effect with a profit in the next period.

LO4 36. Reversing entries are applicable to

a. Accruals only
b. Deferrals only
c. Deferrals using Income Method
d. Deferrals using Liability Method

LO5 37. In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting
a. Purchases.
b. Purchase Returns.
c. Purchase Allowance.
d. Merchandise Inventory.

LO5 38. Under a periodic inventory system, acquisition of merchandise is debited to the
a. Merchandise Inventory account.
b. Cost of Goods Sold account.
c. Purchases account.
d. Accounts Payable account

LO5 39. Which of the following financial statements is completed in a worksheet?

a. Notes to Financial Statements
b. Income Statement
c. Statement of Changes in Owner's Equity
d. Statement of Cashflows

LO5 40. The following changes in Owner's Equity of Clint Balibay Company took place for the period from January 1 to December 31,
20A:
Owner's Equity, End 900,000
Owner's Equity, Beg 800,000
 Increase in Owner's Equity 100,000
The following were the operating reults:

Revenue 90,000
Cost and expenses 60,000
If withdrawal of P20,000 was in form of "cash", how much represents additional investment?
a. 60,000
b. 70,000
c. 80,000
d. 90,000

For items 41, 42, and 43

The income statement of Miller, Inc. includes the items listed below:
Net sales 900,000 Gross profit 320,000 Beginning
inventory 80,000 Purchase discounts 15,000 Purchase returns
and allowances 8,000 Freight-in 10,000 Operating
expenses 300,000
Purchases 540,000

LO5 41. How much is the cost of goods sold?

a. 580,000
b. 570,000
c. 595,000
d. 280,000

LO5 42. How much is the Cost of goods available for sale?
a. 607,000
b. 615,000
c. 597,000
d. 527,000

LO5 43. How much is the Ending Inventory?

a. 27,000
b. 42,000
c. 400,000
d. 37,000

LO5 44. Boholano Company provided the following information for the current year:
Beginning Inventory 2,000,000
Purchases 7,500,000
Purchase returns 500,000
Sales returns and allowances 750,000
Ending Inventory 2,800,000
Gross profit rate 20%
What is the amount of gross sales for the current year? a.
7,750,000
b. 8,500,000
c. 7,000,000
d. 9,125,000

LO5 45. Which of the following items has no effect on owner’s equity?
a. Expense
b. Owner's Withdrawal
c. Purchase of Land
d. Revenue

LO5 46. Hiligaynin Company provided the following information for the current year:
Beginning Inventory 400,000
Freight In 300,000
Purchase returns 900,000
Ending Inventory 500,000
Selling Expenses 1,250,000
Sales Discount 250,000
The cost of goods sold is six times the selling expenses.
What is the amount of gross purchases? a.
6,500,000
b. 6,700,000
c. 8,000,000
d. 8,200,000
LO5 47. Professional Income 100,000
Rent Expense 70,000

Carolina Garbo, Drawing 20,000

Taxes and Licenses 15,000

 Miscellaneous income 25,000

Carolina Garbo, Capital-Beginning 280,000

How much is Carolina Garbo, Capital-Ending?
a. 300,000
b. 20,000
c. 320,000
d. 275,000

For items 48, 49, and 50

Balance sheet Assets:
Cash in Bank 70,000 Accounts Receivable 80,000
Supplies Inventory 10,000
Liabilities:
Accounts Payable 30,000 Notes Payable 0
Owner's Equity
D. Dizon, Capital 130,000

Consider the following additional transactions:

1. 30% was collected from Accounts Receivable;
2. 10% of the Accounts Payable was paid;
3. additional cash investment by Mr. Dizon, P20,000;
4. acquired supplies inventory on credit, P4,000;
5. borrowed money from a bank and issued a note, P50,000.

LO5 48. How much is the total assets?

a. 71,000
b. 231,000
c. 207,000
d. 255,000
LO5 49. How much is the total Liabilities?
a. 81,000
b. 30,000
c. 84,000
d. 51,000
LO5 50. How much is the total Owner's Equity?
a. 130,000
b. 150,000
c. 110,000
d. 20,000