CHAPTER 1

Question 1

Which of the following does not properly described accounting?

1. It is a process by which useful information is generated.
2. It is a social science.
3. It requires the application of creative skills and judgment.
4. It is often referred to as the “language of the soul.”

Answer 1

4
It is often referred to as the “language of the soul.”

Question 2

Which of the following is considered an internal user of financial information?
1. Rank and file employees of the reporting entity.
2. Stockholders of the entity who are not directly involved in managing the entity
3. Lenders and other creditors
4. The entity’s management

Answer 2

4
The entity’s management.

Question 3

What type of information needs of users do general purpose financial statements cater to?
1. common needs
2. specific needs
3. a and b
4. caring needs

Answer 3

1
common needs

Question 4

Which of the following is least likely to be a decision made by an external user of the financial information of an entity?
1. whether to buy, hold or sell investment in stocks
2. whether to extend loan or other forms of credit
3. whether to obtain additional financing
4. all of these are decisions that external users make

Answer 4

3
whether to obtain additional financing

Question 5

This branch of accounting deals with the preparation of general purpose financial statements.
1. General accounting
2. Management accounting
3. Financial accounting
4. Auditing

Answer 5

3
Financial accounting

Question 6

General purpose financial statements are intended to meet
1. all the information needs of all users - external and internal alike.
2. the common needs of both external and internal users.
3. the common needs of external users, primarily investors, lenders and other creditors.
4. both the common and specific needs of external users.

Answer 6

3
the common needs of external users, primarily investors, lenders and other creditors

Question 7

This type of business organization is created by a contractual agreement between two or more individuals.
1. corporation
2. cooperative
3. partnership
4. sole proprietorship

Answer 7

3
partnership

Question 8

Which of the following refers to a manufacturing business?
1. buying and selling of goods in their original form
2. sell of a skill-set not necessarily a physical object
3. ability or potential to mass-produce
4. absence of ability to stock goods for future sale

Answer 8

3
ability or potential to mass produce

Question 9

A disadvantage of a partnership is
1. better decisions - “two heads are better than one.”
2. business risk is assumed by more than one owner.
3. unlimited life
4. unlimited liabilities of the partners.

Answer 9

3
unlimited liabilities of the partners

Question 10

This type of business organization has the tendency to become monopolistic. It can hamper the company by funneling wealth to only few individuals (i.e., the organization’s top owners) restricting the redistribution of wealth to the majority of the members of the society.
1. Cooperative
2. Sole proprietorship
3. Partnership
4. Corporation

Answer 10

4
Corporation

Question 11

Which of the following statements is correct?
1. Accounting is not a service activity
2. Both accountable and non-accountable eventes are recorded in the books of accounts.
3. Recording is the accounting process in which financial statements are prepared.
4. Posting is the process of classifying the effects of recorded events on the accounts.

Answer 11

4
Posting is the process of classifying the effects of recorded events on the accounts.

Question 12

It is the basic storage of information in accounting.
1. Account
2. Journal
3. Memory card
4. USB

Answer 12

1
Account

Question 13

The terms “record” and “recording” are most synonymous with
1. identifying.
2. journalizing.
3. posting.
4. communicating.

Answer 13

2
journalizing.

Question 14

Imagine you are an accountant. Which of the following would most likely describe your basic purpose?
1. to be used by unsurpulous persons in embezzling funds.
2. to count money, cows and sheep.
3. to provide objective information about a reporting entity that is intended to be useful to interested users in making different types of economic decisions.
4. to chitchat with officemates, regularly check Facebook, drink coffee, kill time, wait for 5PM then go home.

Answer 14

3
to provide objective information about a reporting entity that is intended to be useful to interested users in making different types of economic decisions.

Question 15

Which of the following statements is incorrect?
1. The basic purpose of accounting is to provide information that is useful in making economic decisions.
2. Although bookkeeping and accounting are interrelated, they are not the same.
3. Accounting is often referred to as the “language of business” because it is fundamental to the communication of financial information.
4. Fra Luca is the mother of modern accounting.

Answer 15

4
Fra Luca is the mother of modern accounting.

Question 16

Which of the following statements is correct regarding financial accounting?
1. Financial accounting is mainly intended to provide financial information tailored to the needs of entity’s management.
2. Information processed in financial accounting is not used in the other branches of accounting.
3. Financial accounting is the branch of accounting that deals with the inspection of an entity’s financial statements for the purpose of expressing an opinion thereon.
4. Compared to the other branches of accounting, financial accounting necessarily needs to conform to the Philippine Financial Reporting Standards (PFRSs) for it to be able to produce information.

Answer 16

4
Compared to the other branches of accounting, financial accounting necessarily needs to conform to the Philippine Financial Reporting Standards (PFRSs) for it to be able to produce information.

Question 17

Without this branch of accounting there will be no accountants.
1. Tax accounting
2. Auditing
3. Accountin education
4. Daddy accounting

Answer 17

3
Accounting education

Question 18

You are planning on investing in the stock market. You have your eyes on ABC Corporation. Being an accounting student, you know that “haste makes waste.” Accordingly, you downloaded ABC Corporation’s financial statements from the internet to help you analyze whether the current market price of ABC Corporation’s shares of stocks are undervalued or overvalued. In this regard, what type of financial statement user are you?
1. External user
2. Internal user
3. Wi-Fi user
4. User name and password

Answer 18

1
External user

Question 19

ABC Co. is a car dealer. It buys cars from companies like Toyota, Mitsubishi and Ford and resells the cars to end consumers. What type of a business is ABC Co. according to the type of activity it undertakes?
1. Corporation
2. Partnership
3. Merchandising
4. Manufacturing

Answer 19

3
Merchandising

Question 20

It is the form of business organization that provides the highest degree of continuity.
1. Sole proprietorship
2. partnership
3. Cooperative
4. Corporation

Answer 20

4
Corporation

Question 21

You are the accountant of a business. Your company entered into a transaction. After identifying that the transaction is an accountable event, what you should do next?
1. Record it
2. Communicate it.
3. Ignore it.
4. Tell your boss about it.

Answer 21

1
Record it.

Question 22

Users of financial information are broadly classified into external and internal users based on
1. their relationship with the reporting entity.
2. the extent of their ability to affect the internal affairs of the reporting entity.
3. whether they reside inside or outside of the company’s main office building.
4. the first letter of their surnames.

Answer 22

2
the extent of their ability to affectthe internal affairs of the reporting entity.

Question 23

It is the branch of accounting that supports virtually all the other branches of accounting.
1. Management Accounting
2. Financial Accounting
3. Government Accounting
4. General Accounting

Answer 23

2
Financial Accounting

Question 24

Although financial accounting and reporting are similar frequently interchanged in practice, there is a subtle difference between them. Which of the following is correct regarding this difference?
1. Financial accounting involves accounting, while financial reportimg does not.
2. Financial accounting involves the processes of identifying, recording, classifying and summarizing, while financial reporting involves only the process of communicating.
3. Financial accounting is governed by U.S. standards, while financial reporting is governed by international standards.
4. Financial accounting focuses on general purpose financial statements, while financial reporting focuses on general purpose financial statements plus “other financial reporting.”

Answer 24

4
Financial accounting focuses on general purpose financial statements, while financial reporting focuses on general purpose financial statements plus “other financial reporting.”

Question 25

Your friend says he is a stockholder. This means that your friend is
1. a part owner of a corporation.
2. a co-owner of a partnership.
3. an owner of a sole proprietorship business.
4. raising chickens and other livestocks.

Answer 25

1
part owner of a corporation

Question 26

Sole proprietorship businesses are registered with the
1. DTI.
2. SEC.
3. CDA.
4. all of these.

Answer 26

1
DTI

Question 27

Fact pattern:

You want a new laptop computer and good internet connection so you can market your products on Facebook. The problem is you are short of cash. You went to Papa to get a loan but he said “No way, Jose!”

Which of the following would most likely persuade Papa to give you the loan?

1. Cry like a spoiled brat while running up and down the stairs.
2. Look at Papa with teary eyes while wiping the liquid dripping from your nose.
3. Get mama on your side.
4. Show Papa your projected financial syayements, explain to him your plan and confidently assure him that you will pay back the loan.

Answer 27

4
Show Papa your projected financial syayements, explain to him your plan and confidently assure him that you will pay back the loan.

Question 28

Fact pattern:

You want a new laptop computer and good internet connection so you can market your products on Facebook. The problem is you are short of cash. You went to Papa to get a loan but he said “No way, Jose!”

Papa’s decision on whether to extend you a loan is a decision made by a(an)
1. external user.
2. internal user.
3. wise man.
4. kuripot man.

Answer 28

1
external user.

Question 29

You are a business owner. It came to your attention that some of your products are overstocked, while some are frequently out-of-stock. Warehousing costs have been increasing and you are losing potential sales. To come up with a right mix of products to store in your warehouse, what should you do?
1. Fire your sales personnel.
2. Fire your warehouse custodian.
3. Cry like a baby; face pressed on a pillow.
4. Obtain an accounting record of your sales per product line and identify which products are sold faster than the others. Stock more of those products and stock less of the products that take longer to sell.

Answer 29

4
Obtain an accounting record of your sales per product line and identify which products are sold faster than the others. Stock more of those products and stock less of the products that take longer to sell.

Question 30

Your friend offered you a business proposal. According to your friend, the initial investment is Php10,000. You will get some products - 2 skin whitening soaps and 1 bottle of dishwashing liquid. If you get other investors to invest and those other investors get other investors to invest and those other investors get some more investors and those “other” other investors get some more investors, you will receive a house and lot! (Wow!) As a business learner, you should do any of the following except
1. give your parent’s hard earned money to your friend.
2. ask if your friend’s business is properly registered with government regulatory agencies, e.g., Securities and Exchange Commission ‘SEC.’ Ask if you can examine the related registration documents.
3. obtain an object understanding of your friend’s business and his or her ability to give you a house and lot. Ask if your friend owns a house and lot. If he or she answers “No,” there is a small chance that he or she could give you one.
4. say LOL. In your mnd, you are thinking “I am an accounting student, You cannot fool me with your scam.

Answer 30

1
give your parent’s hard earned money to your friend.