First Grading Examination - Key Answers
First Grading Examination - Key Answers
First Grading Examination - Key Answers
3. These are receivables that arise from the sale of goods or services in the ordinary course of
business.
a. Accounts receivable
b. Notes receivable
c. Trade receivables
d. Non-trade receivables
5. These are present obligations that have resulted from past events and are expected to require
giving up of resources when settling them.
a. Assets
b. Expenses
c. Liabilities
d. Losses
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7. This type of balance sheet (statement of financial position) does not show distinctions between
current and noncurrent assets and liabilities.
a. Classified
b. Unclassified
c. Report form
d. Account form
9. Entity A is a merchandising business. It is engaged in buying and selling grocery items. Unsold
groceries at the end of the period will be presented in Entity A’s statement of financial position
under which of the following line items?
a. Prepaid supplies
b. Trade and other receivables
c. Property, plant and equipment
d. Inventory
10. The land on which Entity A’s building was constructed is classified in the statement of financial
position as
a. current asset.
b. noncurrent asset.
c. current liability.
d. equity.
11. Accumulated depreciation is most commonly reported in the statement of financial position as
a. a separate current asset.
b. a separate noncurrent asset.
c. a deduction to the related noncurrent asset account.
d. an addition to the related noncurrent asset account.
12. Which of the following is presented as a noncurrent liability in an entity’s statement of financial
position?
a. Accounts payable
b. Notes payable due in 6 months
c. Income tax payable
d. Loans payable due after 5 years
13. Which of the following liabilities is presented as current liability even if it is due to be settled
beyond one year from the end of the reporting period but within the entity’s normal operating
cycle?
a. Accounts receivable arising from sales of goods in the ordinary course of business
b. Notes payable issued in conjunction with the purchase of equipment. The notes payable is
due after 2 years
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c. Accounts payable arising from purchases of inventory
d. None of these
14. For purposes of presenting items on the financial statements, assets, liabilities, equity, income
and expenses with similar nature and function within the business are grouped together. These
groupings are called
a. account titles.
b. line items.
c. financial statements.
d. notes.
15. Accounts receivable is commonly presented in the statement of financial position under the
heading
a. Property, plant and equipment
b. Cash and cash equivalents
c. Prepaid assets
d. Trade and other receivables
16. This is the most commonly used format of the balance sheet. It presents the entity’s assets,
liabilities and equity in a vertical manner.
a. Report form
b. Account form
c. Standing form
d. Lying form
17. Entity A reports a loss of ₱60,000 and total expenses of ₱240,000. Entity A’s total income must be
a. 360,000
b. 300,000
c. 180,000
d. 400,000
18. The financial statements most frequently provided include all of the following except the
a. statement of profit or loss and other comprehensive income.
b. statement of financial position.
c. statement of cash flows.
d. statement of retained earnings.
Cash 20,000
Accounts receivable 40,000
Notes receivable (nontrade) - ₱60,000 due within 1 yr. 100,000
Inventory 130,000
Prepaid supplies 10,000
Land 200,000
Building 800,000
Accumulated depreciation (240,000)
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Total assets 1,060,000
Solution:
Cash 20,000
Accounts receivable 40,000
Notes receivable (nontrade) - due within 1 yr. 60,000
Inventory 130,000
Prepaid supplies 10,000
Total current assets 260,000
Solution:
Accounts payable 60,000
Notes payable (nontrade) - due within 1 yr. 200,000
Rent payable (due within 1 yr.) 20,000
Utilities payable 10,000
Interest payable 200,000
Salaries payable 800,000
Unearned income 240,000
Total liabilities 1,530,000
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21. Entity A has a capital balance of ₱3,400,000 at the start of the period. During the period, Entity A
earned income of ₱8,800,000 and incurred expenses of ₱4,500,000. The sole proprietor of Entity A
made additional investments of ₱1,200,000 to the business but made a withdrawal of ₱960,000 at
the end of the period. How much is the capital balance of Entity A at the end of the period?
a. 7,849,000
b. 8,497,000
c. 8,740,000
d. 7,940,000
Solution:
Cash 20,000
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Accounts receivable 122,000
Allowance for bad debts (30,000)
Notes receivable
8,000
(Trade)
Inventory 200,000
Prepaid supplies 15,000
Prepaid rent 25,000
Prepaid insurance 10,000
Total current assets 370,000
25. Which of the following statements is correct regarding the statement of comprehensive income?
a. The “Statement of profit or loss and other comprehensive income” and the “Income
statement” are the same.
b. Both the “Income statement” and the “Statement of profit or loss and other comprehensive
income” show profit or loss and “other comprehensive income.”
c. Comprehensive income and profit or loss are the same.
d. “Statement of comprehensive income” is another term used to describe the “Statement of
profit or loss and other comprehensive income.”
26. The financial position of the business on a given date is reported on the
a. Income Statement
b. Balance Sheet
c. Statement of Changes in Equity
d. Statement of Cash Flows
27. The profit or loss for a particular period of time is reported on the
a. Income Statement
b. Balance Sheet
c. Trial Balance
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d. Statement of Changes in Equity
28. A common business transaction that would not affect the amount of owners' equity is
a. purchasing an equipment on account.
b. payment of salaries.
c. billing of customers for goods sold.
d. drawings of the business owner from the business.
29. The cost of goods and services used in the process of generating revenue are called
a. expenses.
b. assets.
c. profits.
d. liabilities.
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Solution: 950,000 – 493,000 = 457,000
The accounts of Entity A on December 31, 20x1 show the following balances:
Solution:
₱18,00
Advertising expense
0
Freight-out 36,000
Rent expense (120,000 x ½) 60,000
Salaries expense (200,000 x ¾*) 150,000
Sales commission expense 20,000
Selling expenses ₱284,000
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b. 296,000
c. 286,000
d. 236,000
Solution:
Insurance expense ₱120,000
Rent expense (120,000 x 1/2) 60,000
Salaries expense (200,000 x 1/4) 50,000
Bad debts expense 6,000
Administrative expenses ₱236,000
Additional information:
a. Ending inventory is ₱80,000.
b. One-half of the salaries, rent, and depreciation expenses pertain to the sales department. The sales
department does not share in the other expenses.
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b. 198,000
c. 203,000
d. 222,000
Solution:
Purchases ₱200,000
Freight-in 10,000
Purchase returns (5,000)
Purchase discounts (7,000)
₱198,00
Net Purchases
0
Solution:
Inventory, beg. ₱50,000
Purchases 200,000
Freight-in 10,000
Purchase returns (5,000)
Purchase discounts (7,000)
Total goods available for
sale 248,000
Inventory, end (80,000)
Cost of goods sold ₱168,000
Solution:
Sales ₱900,000
Interest income 60,000
Gains 20,000
Total income 980,000
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c. 235,000
d. 255,000
Solution:
Freight-out ₱25,000
Sales commission 30,000
Advertising expense 15,000
Salaries expense (300,000 x 1/2) 150,000
Rent expense (30,000 x 1/2) 15,000
Depreciation expense (40,000 x 1/2) 20,000
Distribution costs ₱255,000
Solution:
Salaries expense (300,000 x 1/2) ₱150,000
Rent expense (30,000 x 1/2) 15,000
Depreciation expense (40,000 x 1/2) 20,000
Utilities expense 20,000
Supplies expense 10,000
Transportation and travel expense 5,000
Insurance expense 12,000
Taxes and licenses 70,000
Miscellaneous expense 1,000
Administrative expenses ₱303,000
Solution: Total Credits (992,000 + 80,000 ending inventory) – Total Debits 835,000 = 237,000 profit
40. This method of presenting expenses shows information on cost of sales or cost of goods sold.
a. Classified method
b. Unclassified method
c. Nature of expense method
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d. Function of expense method
“You will eat the fruit of your labor; blessings and prosperity will be yours.”
(Psalms 128:2)
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