AVERAGE ROUND

1. Which of the following would not result in the recording of an expense?

• A. Withdrawal by the owner

• B. Payment of salaries to employees

• C. Receipt of a bill from the telephone company

• D. Payment of interests of bonds

2. Analyze the transaction: Received P35,000 in cash from clients with credit

• A. Increase in Assets = Increase in Capital

• B. Increase in one type of asset = Decrease in another type of Asset

• C. Increase in one type of Liability = Decrease in another type of Liability

• D. Decrease in Assets = Decrease in Liabilities

3. Which of the following is an application of the concept of prudence or conservatism?

• A. Choosing a potentially unfavorable outcome over a potentially favorable one

• B. Choosing a potentially favorable outcome over a potentially unfavorable one

• C. Deliberately understating assets and income and deliberately overstating liabilities and expenses

• D. Doing nothing in cases of uncertainty

4. 4. Statement 1: Under the liability method, adjusting entry is needed to recognize the unearned portion of a mixed account.

Statement 2: Under the expense method, the unused portion of the prepayments is recognized as asset at the end of the period.

• A. True, True

• B. True, False

• C. False, False

• D. False, True

5. Which of the following is correct if a company purchases equipment for P70,000 cash?

• A. The company's total owners' equity will decrease

• B. Total assets will decrease by P70,000

• C. Total assets will increase by P70,000

• D. Total assets will remain the same

6. Statement 1: The purchase of an asset such as office equipment, for cash will cause owners' equity to decrease.

Statement 2: The collection of an account receivable will cause total assets to decrease.

• A. True, True

• B. True, False

• C. False, False

• D. False, True

7. The owner of a business invested P100,000 in the business. What are the effects on the fundamental accounting equation?

• A. Assets decrease P100,000; Liabilities, no effect; Owner’s Equity increases P100,000

• B. Assets increase P100,000; Liabilities increase P100,000; Owner’s Equity, no effect

• C. Assets increase P100,000; Liabilities, no effect; Owner’s Equity decreases P100,000

• D. Assets increase P100,000; Liabilities, no effect; Owner’s Equity increases P100,000

8. Inumaki purchased a computer for P2,950 on account for his business. What is the effect of this transaction?

• A. Equipment increase of P2,950 and cash increase of P2,950

• B. Equipment decrease of P2,950 and accounts payable increase of P2,950

• C. Equipment increase of P2,950 and accounts payable increase of P2,950

• D. Cash decrease of P2,950 and owner’s equity increase of P2,950

9. This type of error is committed when the number of digits in an amount is incorrectly increased or decreased.

• A. Transposition error

• B. Typographical error

• C. Margin of error

• D. Transplacement error

10. Statement 1: Both sides of the fundamental accounting equation must always be equal.

Statement 2: Payment of a liability will not affect total assets but will decrease total liabilities.

• A. True, True

• B. True, False

• C. False, False

• D. False, True