THEORIES

1. A Under accrual basis of accounting, revenue is recognized when earned regardless of when
the cash was received or collected. Unlike cash basis of accounting where
revenue is recognized when the cash was received rather than when it was actually earned

2. C. Matching principle tells that expenses are also recognized when related revenue is recogni

3. C. Under accrual basis of accounting, expenses are recognized when incurred

regardless of when cash was actually paid.

4. B The effects of transaction and other events are recognized when they occur
not when cash is received or paid. Income a recognized when earned rather than when
cash is received and expenses are recognized when incurred not when cash is paid.

5. B. Accrual basis of accounting recognized in common expenses when they are actually
earned or incurred which can help to measure the financial performance of an entity
over a period of time.

6. C. Adjusting entries are performed to update the balances of accounts before the
preparation of financial statements to maintain that in accrual basis
of accounting, expenses and revenue are recognized in the period the related transactions

7. D. Adjusting entries directly affects those accounts except the capital stocks. Assets, Liabilitie
Revenue are affected through transactions related to operations and recognition of revenu
On the other hand, capital stock records transactions that results to changes to owners' eq
like issuance of shares and withdrawals made by owners.

8. D. All of the choices are necessary in making adjusting entries. The recorded amounts should
before making adjustments, identify what element is needed to adjust and what related ac
should be needed to be on the debit side and credit side.

9. C. Since adjusting entry is done because of recognition of revenues and expenses, it usually a
one element on balance sheet ( Assets, Liabilities or Equity) and one account in
statement of comprehensive income.

10. D. The notes to the financial statements give details about specific items, explain the compan
and describe the accounting methods used. They do not include financial analysis.

11. B. Since Retained Earnings represents the net profit or loss and Retained Earnings' normal ba
is credit side, Retained Earning is debited to record net loss as deduction on Retained Eear
12. A. Balance sheet only include the assets, liabilities and equity which a real accounts
and does not show nominal accounts like revenue and expense.

13. C. Closing entries are done to close all the balances of nominal accounts to zero
at the end of accounting period.

14. D. Since the normal balance of expense is debit,we need to credit each expense account
to close its balances to zero.

15. C. Preparation a financial statements should show that assets are not understated and
liabilities are not overstated to avoid presenting a weaker financial position and
misrepresentation of of obligations of an entity.

16. A. Republic Act No. 9298 are also known as philippine accountancy act of 2004
which governs the practice of accounting profession in the Philippines.

17. D. Fair value represents the price received the sell an asset in an orderly transactions.
Value in use is the present value of expected cash flows from asset while fulfillment value
present value of cash expected as a payment of liability.

18. C. Financial statement analysis is used to analyze past events to forecast

future outcomes and assessing financial results in order to identify the
strength and weaknesses needed to be improved.

19. A. First, determine the involved accounts. Second, determine how

the transaction affects each account and lastly how much should be recorded
as an effect based on the transactions.

20. C. Statement A: False - an account is an accounting record of either an

asset, liability, equity, revenue or expense.
Statement B: False - an account shows both increase and decrease.
Statement C: False - No two accounts can be combined together.
arned regardless of when 1. B.

en it was actually earned.

elated revenue is recognized.

2. C .
hey occur
ned rather than when
when cash is paid.

n they are actually 3. B.

mance of an entity

ts before the 4. D.

the related transactions occurred.

l stocks. Assets, Liabilities and

nd recognition of revenue and expenses.
to changes to owners' equity 5. C.

ecorded amounts should be

djust and what related account

and expenses, it usually affects

ne account in 6. A

ems, explain the company’s assumptions,

financial analysis.

7. A.
ined Earnings' normal balance
duction on Retained Eearnings.
a real accounts

8. D.
unts to zero

ch expense account

9. D.
t understated and
l position and

ct of 2004

10. D.
erly transactions.
et while fulfillment value is the

11. B.

be recorded

12. A

13. A.

14. D.
15. B.
Problems and Case Study
Cash sales $21,760
Credit sales 15,225
Total sales 36,985
less:
Operating expenses -27,700
Advertising expenses (4,800x3/18) -750
Net income $18,535

Service revenue $81,000

Unearned services revenue 29,250
Cash collected from accounts receivable 4,500
Cash collected $114,750

Since Gambit billed Beast every 2 months and Gambit already rendered service
for 3 months until december 31, Gambit needs to debit accounts receivable
and credit service revenue of $3,000 for 1 month to record its receivable from Beast Company.

Retained earnings-beginning $21,500

Net income 5,700
Total retained earnings during the year 27,200
Less: Retained earnings-ending -22000
Dividends declared and paid $5,200

Net income $155,100

Interest income 7,268
Fees collected in advance 586
Total income 162,954
Less: Salaries payable -1,574
Expired prepaid insurance -5,538
Net income $155,842

Cash in bank- Current accounts $5,000,000

Cash in Bank- Payroll account 1,000,000
Cash on hand (500k-200k) 300,000
Time deposit 2,000,000
Cash and cash equivalents $8,300,000

Bank statement, unadjusted $27,200

Deposit in transit 8,000
Outstanding checks -2,000
Erroneous bank debit 400
Correct cash balance $33,600

Cash received on accounts receivable $45,000

Cash sales 30,000
Accounts receivable-Dec. 31 75,000
Accounts receivable written off 2,000
Less: Account receivable -Dec. 1 -80,000
Gross Sales $72,000

Accounts receivable-Dec 31 $384,000

Accounts receivable,NRV 304,000
Allowance for doubtful accounts 80,000
Accounts written off 35,200
Allowance for doubtful accounts-beg. -51,200
Bad debt expense $64,000

Unadjusted accounts payable $1,400,000

Goods in transit 250,000
Adjusted accounts payable $1,650,000

Cost $102,750
Residual value 6,750
Depreciable amount 96,000
Multiply by: 2/6
Accumulated Depreciation $32,000

Cost $102,750
Less: Acc. Depreciation-as of 2017 -32,000
Carrying amount as of 2017 70,750
Less: Residual value -4,500
Depreciable Amount 66,250
Divided by: Useful life 7 years
Depreciation expense for 2017 $9,464

Fair value through profit or loss is recorded (debit) at issued price of $55,000
and transaction cost are treated as expense.

Cash ( 400x60) -sales proceeds $24,000

Financial Assets (FVTPL)-(400x55) $22,000
Gain on Financial Assets(400x5) $2,000

Unrealized Loss (600x50)-33k $3,000

Fair value through profit or loss $3,000
Sale of investment (2,500x82) $205,000
Less:Issued price (2,500x90) -225,000
Loss on sale of investment -$20,000
Beast Company.