Name: ___________________________________ Course and Year: ___________ Date: ___________

Fundamentals of Accounting
Midterm Examination

1. Expenditures for items that are expected to be used by the business for more than one year are
also called
a. capital expenditures.
b. period costs.
c. accrued expenses.
d. capital.

2. The first step in the accounting cycle is

a. posting to the ledger.
b. journalizing.
c. preparing the adjusting entries.
d. analyzing events.

3. Credit is on which side of an account?

a. Right
b. Left
c. Top
d. Bottom

4. A debit may signify an increase in

a. liability account.
b. asset account.
c. revenue account.
d. liability and revenue account.

5. Which of the following accounts is increased by a credit?

a. Cash
b. Accounts receivable
c. Accounts payable
d. Owner’s drawings

Instruction for next ten (10) questions: Choose the letter corresponding to the correct account
titles used in recording each of the transactions described.

6. During the year, you started a sole proprietorship business. You invested ₱10M cash to the
business.
a. Accounts receivable Owner’s drawings
b. Cash Owner’s capital
c. Cash Investment expense
d. Owner’s capital Owner’s drawings

7. The business acquires equipment for ₱6M cash.

a. Equipment Owner’s capital
b. Equipment Accounts receivable
c. Owner’s capital Equipment
d. Equipment Cash

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8. The business recognizes depreciation of ₱250,000 on the equipment.
a. Prepaid supplies Equipment
b. Depreciation expense Accumulated depreciation
c. Depreciation expense Equipment
d. Equipment Accumulated depreciation

9. The business purchases inventories for ₱2M cash.

a. Inventory Owner’s capital
b. Inventory Sales
c. Inventory Cash
d. Cost of sales Freight out

10. The business makes a ₱3M sale to a customer who orally promises to pay for the purchase
price after 30 days.
a. Accounts receivable Sales
b. Accounts receivable Owner’s capital
c. Cash Sales
d. Cost of sales Accounts receivable

11. The business pays ₱1M rent in advance.

a. Rent expense Rent payable
b. Prepaid rent Accounts payable
c. Prepaid rent Cash
d. Rent expense Owner’s drawings

12. The business spends ₱1M in marketing and promoting the products.
a. Advertising expense Owner’s capital
b. Advertising expense Cash
c. Accounts receivable Equipment
d. Accounts payable Cash

13. The business collects ₱3M accounts receivable from a customer.

a. Cash Accounts receivable
b. Cash Accounts payable
c. Accounts receivable Sales
d. Cash Sales

14. The business purchases inventory costing ₱900K on account or on credit.

a. Cash Accounts payable
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Owner’s capital

15. The business pays accounts payable of ₱900K.

a. Cash Sales
b. Inventory Cash
c. Inventory Accounts payable
d. Accounts payable Cash

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16. Obtaining a loan results to
a. an increase in asset but a decrease in liability.
b. a decrease in asset but an increase in liability.
c. increase in both asset and liability.
d. decrease in both asset and liability.

17. Liabilities, owners' equity, and income are

a. increased by credits and decreased by debits.
b. decreased by debits and increased by credits.
c. decreased by both debits and credits
d. its depen on the situation

18. It is the left side of an account.

a. Debit
b. Credit
c. Date
d. Account title

19. If total assets is ₱100 while total liabilities is ₱80, owner’s equity must be
a. ₱180
b. ₱120
c. ₱20
d. 0

20. A business sells goods in Year 1 but collects the sale price only in Year 2. According to the
accrual basis and time period concepts, the business should include the sale in its income
statement in
a. Year 1
b. Year 2
c. Year 3
d. Every year

21. Debit and debit result to

a. addition.
b. deduction.
c. multiplication.
d. two debits.

22. Which of the following accounts is increased by debiting it?

a. Accounts payable
b. Equipment
c. Sales
d. Accumulated depreciation

23. At the beginning of the period, Entity A’s notes payable had a balance of ₱1,200. During the
period, Entity A obtained an additional loan of ₱800 and made total payments of ₱500. How
much is the ending balance of Entity A’s notes payable?
a. 1,800
b. 1,500
c. 1,200
d. 900

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24. Aling Nena’s Sari-sari Store’s total sales during the period were ₱100M. Of that amount, ₱60M
was on credit. If the total business expenses were ₱70M, how much is the profit (loss)?
a. 30M
b. (30M)
c. 10M
d. (10M)

25. The beginning equity is ₱5,000. If total income for the period is ₱8,000 while total expenses are
₱6,000, how much is the ending balance of equity?
a. 7,000
b. 5,000
c. 3,000
d. 1,000

26. The ending equity is ₱9,000. If total income for the period is ₱5,000 while total expenses are
₱8,000, how much is the beginning balance of equity?
a. 12,000
b. 9,000
c. 6,000
d. 0

27. The beginning balance of “Cash” is placed on which side of the T-account?
a. Left side
b. Right side
c. Bottom side
d. Every side

28. Imagine you are a business manager. Your company has an opportunity to venture out into a
new market with a new product. However, your current resources are limited. In order to take
the opportunity, you need to discontinue the production of one of your existing products. Your
company’s accountant provided you with the following information to help you decide which
product to discontinue.

Product A Product B Product C

Net sales (income) 5,000,000 3,500,000 2,100,000
Attributable costs (expenses) (4,800,000) (2,275,000) (630,000)

Which product will you most likely consider to stop producing?

a. Product A
b. Product B
c. Product C
d. All them

29. The ending equity is ₱9,000. If total income for the period is ₱5,000 while total expenses are
₱8,000, how much is the beginning balance of equity?
a. 12,000
b. 9,000
c. 6,000
d. 0

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30. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning of the
period. The business earns income of ₱220,000 during the period and reports profit of ₱80,000.
There were no transactions with the owner during the period. Total liabilities increased by
₱40,000 by the end of the period. How much is the total assets at the end of the period?
a. 560,000
b. 440,000
c. 860,000
d. 760,000

Use the following information for the next three questions:

Entity A started operations on November 1, 20x1. The following were the transactions during the
month:

Nov. 1, 20x1 The business owner provides ₱2,000,000 cash as investment to the business.
Nov. 5, 20x1 Entity A obtains a ₱500,000 loan and issues a promissory note.
Nov. 8, 20x1 Entity A acquires land costing ₱1,000,000 on cash basis.
Nov. 16, 20x1 Entity A renders services worth ₱1,200,000 on account.
Nov. 30, 20x1 Entity A pays salaries expense of ₱280,000.

31. How much is the total assets at the end of the period?
a. 4,320,000
b. 3,840,000
c. 3,420,000
d. 2,980,000

32. How much is the total liabilities at the end of the period?
a. 500,000
b. 520,000
c. 580,000
d. 680,000

33. How much is the equity at the end of the period after taking into account income and
expenses?
a. 2,920,000
b. 2,980,000
c. 3,120,000
d. 3,280,000

34. Which of the following is not a characteristic of an asset?

a. It is expected to provide future economic benefits.
b. It is a resource controlled by the entity.
c. It causes an outflow of economic benefits when it is settled.
d. It has resulted from a past event.

35. Payments to employees as compensation for the services they have rendered during a period
are recorded in this account.
a. Rent expense
b. Cost of sales or Cost of goods sold
c. Freight-out
d. Salaries expense

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36. This account is used to record the investments of the business owner to the business.
a. Owner’s capital
b. Owner’s drawings
c. Salaries expense
d. Loss

37. Revenues earned from rendering services are recorded in this account.
a. Sales
b. Service fees
c. Interest income
d. Gains

38. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

39. Which of the following would result to total expenses of ₱480,000?

a. Total income of ₱360,000 and profit ₱120,000
b. Total income of ₱580,000 and loss of ₱100,000
c. Total income of ₱630,000 and profit of ₱150,000
d. Total income of ₱630,000 and loss of ₱150,000

40. A business has total assets, liabilities, and equity of ₱10,000, ₱7,000 and ₱3,000, respectively, at
the beginning of the period. During the period, total liabilities decreased to ₱4,000 while profit
was ₱5,000. How much is the ending total assets?
a. 12,000
b. 11,000
c. 9,000
d. 7,000

- END -

Prepared by: Checked and verified by:

________________________ ________________________
KEVIN ELREY E. ARCE Dr. ELMER M. DELA CRUZ
Instructor Dean