POLYTECNIC UNIVERSITY OF THE PHILIPPINES

SPECIAL QUALIFYING EXAM

MARCH 2011
I.Theory
1. If during an accounting period, an expense item has been incurred and
consumed but not yet paid for or recorded, the end-of-period adjusting entry
should involve
a. A liability account and an asset account
b. An asset or contra asset account and an expense account
c. A liability account and an expense account
d. A receivable and a revenue account
2. A credit balance in which of the following accounts indicate a likely error?
a. Sales discount
c. Fees Earned
b. Purchase Order
d. Revaluation Surplus
3. Which of the following does not initiate an entry to be made in the books of
accounts?
a. Purchase invoice
c.
Sales invoice
b. Purchase order
d.
Official receipt
4. LMN Company prepares a worksheet to facilitate the preparation of its
financial statements. The companys operations for the year 2010 resulted in
profit, if before considering profit
a. The total debits exceed total credits in the income columns
b. The total debits are equal total credits in the income statement column
c. The total debits exceed total credits in the statement of financial
position columns
d. The total debits are equal to total credits in the statement of financial
position column
5. Which of the following statements is not true as it pertains to the accounting
process?
a. The established system for recording transactions and other events as
they occur is referred to as double entry-accounting.
b. Events are two types: external and internal. Accountants record events
that affect the financial position of the enterprise.
c. Adjustments are necessary to achieve a proper matching of revenues and
expenses to determine net income for the current period and to achieve
an accurate statement of the assets and the equities existing at the end of
the period.
d. Posting is the initial recording of all transaction in chronological
order.
6. Year-end net assets would be understated and current expense would be
overstated as a result of failure to record which of the following adjusting
entries?
a. Expiration of prepaid insurance
b. Depreciation of fixed assets
c. Accrued wages payable
d. Unexpired portion of insurance premium paid
7. Anthon Company sold merchandise on credit with a list price of P 105,000
and a trade discount of 10%. Terms were 2/10, n/30. Which of the following

entries is correct, given the indicated method of accounting for cash

discounts?
a. Gross Price Method
Accounts Receivable
105,000
Sales
105,000
b. Gross Price Method
Accounts Receivable
92,610
Sales
92,610
c. Net Price Method
Accounts Receivable
Sales
d. Net Price Method
Accounts Receivable
Sales

94,500
94,500
92,610
92,610

8. Which of the following statements regarding a trial balance is incorrect?

a. A trial balance should always balance.
b. A trial balance is a test of equality of debits and credits in the ledger
c. The trial balance proves no error of any kind has been made in
the accounts during an accounting period.
d. The trial balance is useful in the preparation of financial statements.
9. Which of the following steps maybe omitted in the completion of the
accounting cycle?
a. Entries are posted to the ledger.
c. Financial statements are
prepared.
b. Adjusting entries are journalized.
d. Certain adjustments are
reversed.
10.Gay Company prepares reversing entries at the beginning of the accounting
period. Which of the following adjusting entries prepared by Gay should be
reversed?
a. The entry to take up the expired portion of the insurance premium paid in
advance.
b. The entry to take up the earned portion of rent collected in advance.
c. The entry to take up the unused supplies at the end of the period.
d. The entry to provide doubtful accounts expense.
11.After posting the closing entries,
a. All the accounts have zero balances
b. The income accounts, expense accounts and income summary
accounts have zero balances.
c. The asset, liability and equity account have zero balances.
d. The income accounts, expense accounts, income summary accounts and
retained earnings account have zero balances.
12.What function do general ledgers serve in the accounting process?
a. Recording
b. Classifying
c. Summarizing
d. Reporting
13.Adjusting entries are necessary in order to
a. Measure properly the periods net income
b. Bring the asset accounts to correct balances
c. Bring liability accounts to correct balances
d. All of these

14.The balance in a deferred revenue account represents an amount that is

a. Earned and collected
c. collected but not yet earned
b. Earned but not yet collected
d.
not yet earned and not yet
collected
15.What function do accounting journals serve in the accounting process?
a. Recording
b. Classifying
c. Summarizing
d. Reporting
16.External events are those that affect the enterprise and in which other
entities participate. An example of an external event is
a. Transfer of goods from one department to another
b. Issuance of promissory note in settlement of an account
c. Loss of property due to flood
d. Manufacture of a product out of raw materials
17.The premium on a three-year insurance policy expiring on December 31,
2012 was paid in total on January 1, 2010. The original payment was initially
debited to a prepaid asset account. The appropriate journal entry has been
recorded on December 31, 2009. The balance in the prepaid asset account on
December 31, 2010 should be
a. Zero
b. The same as it would have been if the original payment had been
debited initially to a prepaid asset account
c. The same as the original payment
d. Higher than if the original payment had been debited to an expense
account
18.The accounting equation A = L + OE must remain in balance
a. Throughout
each step in the accounting cycle
b. Only when the journal entries are recorded
c. Only at the time the trial balance is prepared
d. Only when formal financial statements are prepared
19.Which of the following assets does not have the
exchangeability?
a. Patents
b. Goodwill
c. Copyrights

characteristic of
d. Franchise

20.Legal fees incurred by a company in defending its patent rights should be

expensed when the outcome of litigation is
Successful
unsuccessful
a.
Yes
no
b.
Yes
yes
c.
No
yes
d.
No
no
21.Any instrument representing ownership shares and the right to acquire
ownership shares is
a. Debt security
c. shareholders equity
b. Equity security
d. marketable security
22.M Corporation declares and distributes dividend that is a result of current
earnings. How will the receipt of the dividends affect the investment balance
of the investor under each of the following classification?
Available for sale
Investment in Associate
a.
No effect
decrease
b.
Increase
decrease
c.
No effect
no effect

d.

Decrease

no effect

23.When dividend is declared, an entry is not made on the

a. Date of declaration
c. Date of payment
b. Date of record
d. an entry is made on all of these
dates
24.Cash dividends are paid on the basis of the number of shares
a. Authorized
b. Issued
c. Outstanding
d. Outstanding less the number of treasury shares
25.Which of the following is least likely to affect the retained earning balance?
a. Conversion of preference share into ordinary share
b. Stock Splits
c. Treasury stock transaction
d. Stock dividends
26.To compute the price to pay for a bond, you use
a. Only the present value of P 1 concept
b. Only the present value of an annuity of P 1 concept
or B

c. both A and B
d. neither A

27.Which of the following assets held by an enterprise would not qualify as

investment property as defined by IAS 40, Investment Property?
a. Land held for capital appreciation
b. Building held to earn rentals
c. Land for sale in the ordinary course of business
d. Land held for undetermined future use
28.A biological asset is
a. Any tangible asset used in biology class
b. A living plant or animal
c. Any asset owned and controlled by an entity engaged in agricultural
activity
d. A living plant or animal and the land on which the plant is attached.
29.Farm lots by an entity engaged on agriculture re classified on the entitys
statement of financial position as
a. Agricultural assets
c. Investment property
b. Biological asset
d. Property, plant and equipment
30.The harvested products of the entitys biological assets are referred to by IAS
41, Agriculture, as
a. Agricultural harvest
c. Agricultural produce
b. Agricultural products
d. Biological produce

II. Probem Solving

31.In preparing its August 31 bank reconciliation, Divine Company has available
the folowing information:
Balance per bank statement,
8/31/10
Deposit in transit, 8/31/10
Return of customers NSF check,
8/31/10
Outstanding checks, 8/31/10
Bank Service charges for August

P 180,500
32,500
6,000
27,500
1,000

At August 31,2010, Divines Company correct cash balance is

a. P 185,500
b. P179,500
c. P 178,500
175,500

d.

32.Gold Copany had the following account balances at December 31,2010:

Cash in banks
Cash on hand
Cash legally restricted for addition to
plant (expected to be disbursed in
2011)

P 2,250,000
125,000
1,600,000

Cash in banks includes P 600,000 of compensating balances against sortterm borrowing arrangements. The compensating balances are not legally
restricted as to withdrawal by Gold.
In the current asset section of Golds December 31, 2010 statement of
financial position, total cash should be reported at
a. P 1,775,000
b. P 2,250,000
c. P 2,375,000
d. P 3,975,000
33.On December 31, 2009, Lee Corpoarion sold equipment to Jag Company for P
100,000. Lee accepted a 10% note receivable for the entire sales price. This
note is payable in two equal installments of P 50,000 plus accrued interest on
Deccember 31, 2010 and December 31,2011. On July 1,2011, Leo discounted
the note t abank interest rate of 12%.
Leas proceeds from the discounted notes were
a. P 48,400
b. P 49,350
c. P 50,350

d. P51,700

34.You are given the following information to Honda Trading a general

merchandising company:
Rate of gross profit on sales
Accounts Receivable, December 31,
2010
Collections on Account Receivable in
2011
Cost of goods available for sale in
2011
Merchandise Inventory, December 31,
2011

20%
P 80,000
430,000
460,000
100,000

Assuming all sales were on account, what was the comoanys Accounts
Receivable balance on Decemer 31, 2011?
a. P 120,000
b. P 100,000
c. P90,000
d. P 50,000
35.Delta Sportswear, Inc. regularly buys sweaters from Times Company and is
allowed a trade discount of 20% and 10% from the list price. Delta made
purchase on March 20,2010 and received an invoice with a list price of P
90,000, a freight charge of P 5,000 and payment terms of net 30 days. What
is the total cost of inventory purchase?
a. P 63,000
b. P 64,000
c. P 69,000
d. P 69,800
36.Justine Company purchased an item of merchandise quoted and listed at
P150,000 unde the following terms: Trade discounts of 15%, 10%, 5%, 2/10,
n/30
What was the invoice price of the merchandise?
a. P 100,900.00
b. P 105,000.00
d. P 106,832. 25

c. P 109,012.50

37.Use the same information given above (No. 36), how much was the cash
payment if settlement was made within the discount period?
a. P 106,832.25 b. P 104,93.50
c. P 102,900.00
d.
P
100,842.00
38.The inventory on hand on December 31,2011 for Rob Corporation is valued at
a cost of P 3,000,000. The following items were not included in the inventory:
a. Goods purchased in transit shipped FOB destination, with price of P
300,000, which includes freight charge of P 30,000.
b. Goods sold in transit with invoice price of P 490,000 which includes freight
charge of P40,000 to deliver the goods.
c. Goods held on consignment by Rob at a sales price of P 100,000,
excluding a 20% commission on he sales price. Freight paid by Rob, P
10,000
d. Goods purchased in transit FOB shipping point with invoice of P 600,000.
Freight ost amounts to P 60,000.
e. Goods out on consignment with sales price of P 300,000. Shipping cost
amounts to P 30,000.
The company sells goods at 150% of cost. What is the correct inventory on
December 31, 2011?
a. P 4,400,000
b. P 4,190,000
c. P 4,160,000
d. P 4,100,000
39.On April 1, 2010, Bang Manufcturing Company bought a new equipent for P
800,000. The equipment has an estimated salvage value of P 20,000 and a
useful life of 12 years. Depreciation is computed using the sum of the digits
method.
How much is the amount of depreciation for 2010?
a. P 20,000
b. P 60,000
c. P75,000

d.

P 90,000

40.Use the information given no. 39, what is the arryig value of this asset in the
statement of financial position at December 31, 2011?
a. P 574,800
b. P 577,500
c. P 597,500
d. P 90,000

41. A law firm began November with Office Supplies of P 16,000. During the
month, the firm purchased supplies of P 29,000. At November 30, supplies on
hand total P 21,000. The adjusting entry at Nvember 30 will result in supplies
expense of:
a. P 21,000
b. P 24,000
c. P 29,000
d. P 45,000
42.York Companys trial balance reflected the following liability account balance
at December 31, 2010:
Accounts Payable
P 380,000
Bonds Payable, due 2011
680,000
Discount on Bonds Payable
40,000
Cash dividends payable on 2/15/11
100,000
Income tax payable
180,000
Notes payable due 1/19/12
120,000
In Yorks December 31, 2010 statement of financial position, the current
liabilities total was
a. P 1,200,000
b. P 1,300,000
c. P 1,380,000
d. P 1,420,000
43.The balance in Vegas Companys accounts payable at December 31, 2010
was P 900,000 before any year end adjustments relating to the following:
a. Goods were in transit from a vendor to Vegas on December 31, 2010, the
invoice cost was P50,000 and the goods were shipped FOB Destination on
December 29, 2010. Th goods were received on Januay 3, 2011.
b. Goods shipped FOB Shipping Point on December 20, 2010 from a vendor
to vegas were lost in transit. The invoice cost was P 25,000. On Jauary 5,
2011, Vegas filed a P 25,000 claim against the common carrier.
c. Goods shipped FOB Shipping Point on December 21, 2010 from a vendor
to Vegas was received on January 6, 2011. The invoice cost was P 15,000.
What amount hould Vegas report as accounts payable on its December 31,
2010 statement of financial position?
a. P 925,000
b. P 940,000
c. P 950,000
d. P 975,000
44.Blue Company collected P 12,350 in interest during 2010. Blue showed P
1,850 in interest receivable on its December 31, 2010 statement of financial
position and P 5,300 on December 31, 2009. How much is the interest
revenue reported on blues statement of comprehensive income for 2010?
a. P 14,200
b. P 12,350
c. P 8,900
d. P 3,450
45.Red Company sublet a portion of its office space for ten years at n nnual entl
of P 36,000 beginning on May 1. The tenant is require to pay one years rent
in advance, which red recorded as a credit to Rental Income. Red reports on a
calendr basis. The adjustments on December 31 of the first year should be
a. Rental Income
12,000
Unearned Rental Income
12,000
b. Rental Income
24,000
Unearned Rental Income
24,000
c. Unearned Rental Income
12,000
Rental Income
12,000
d. Unearned Rental Income
24,000
Rental Income
24,000

46.Bikini Corporation was Incorporated on January 4, 2010. The following

information petaining to Bikinis ordiny share transactions:
1/2/09Number of share authorized
80,000
2/1/09Number of shares issued
60,000
7/1/09Number of sares reacquired but not canceled 5,000
12/1/09 Two-for-one stock split
What is the nuber of shares of Bikinis ordinary share outstanding at
December 31, 2010?
a. 150,000
b. 120,000
c. 115,000
d. 110,000
47.The directors of Pido Corporation, whose P 50 par value ordinary share is
currently sellng at P70 per share, have decided to declae a bonus issue, Pidro
has an authoization for 250,000 ordinry shares, has issued 100,000 shares of
which 10,000 shares are now held as treasury, and desires to capitalizee P
945,000 of the retained earnings balance. To acomplish this, the percentage
of bonus issue that the directors should declare is
a. 18.9%
b. 15%
c. 12%
d. 9%
48.On December 29, 2009, Joy Company was registered at the Securities and
Exchangee Commision with 100,000 authorized ordinary share of P100 par
value. On the same date, 40,000 shares were sold and issued at P105 per
share. On May 4, 2010,the corporation purchased 600 shares of its ordinary
share capital at P110 per share. On September 15, 2010, 400 treasury sahres
were sold at P95. During 2010, the corporation realized a net income after
tax of P830,000 an paid cash dividend of P200,000. What is the total
shareholders equity of Joy on December 31, 2010?
a. P10,602,000
b. P4,820,000
c. P4,802,000
d. P4,325,000
49.Dick Cmpany has granted 200 share appreciation rightd to each of its 300
employees on January 2010. The rights are due to vest on December 31,
2011, with payment being made on December 31, 2012. During the year
2010, the company estimated that all options would vest; although only 90%
of the options actually vested. Share prices are as follows:
January 1, 2010
P20
December 31, 2010
24
December 31, 2011
27
December 31, 2012
30
What liability will be recored on December 31, 2010 as a result of the share
appreciation rights?
a. P108,000
b. P120,000
c. P189,000
d. P270,000
50.Of the 125,000 ordinary shares issued by Nike Company, 25,000 were held as
treasury shares on December 31, 2009. During 2010, transactions involving
Nikes ordinary shares were as follows:
January 1 through October 31, - 13,000 treasury shares were distributed to
officers s part of share compensation plan.
November 1 a 3-for-1 share split took effect
December 1 Nike purchased 5,000 of its own shares to discourge an
unfriendly takeover. These shares were not retired.
At December 31, 2010, how many shares of Nike Companys ordinary share
capital were issued?

a. 150,000 shares b. 324,000 shares c. 334,000 shares d.

shares

375,000