Theory of Accounts Reviewers /
Test banks
1.
Which
of the following statements is false?
(a)
Financial
reporting should provide information which is relevant to investment, credit
and public policy decisions.
(b)
Generally
speaking, GAAP are those accounting principles with substantial authoritative
support.
(c)
GAAP
are established to ensure the relevancy of the general-purpose financial
statements to the widespread uses of the information by external decision
makers.
(d)
Once established, GAAP should never be changed.
2.
A
firm signs a major contract in December to construct custom machinery for a
client. No work is begun the current year yet the footnotes to the firm’s
financial statements discuss the nature and peso amount of the contract. This
is an example of
(a)
reliability (c) historical cost
(b)
full disclosure (d) conservatism
3.
A
corporation needed a new warehouse; a contractor quoted a P250,000 prices to
construct it. The corporation believed that it could build the warehouse for
P215,000 and decided to use company employees to construct the warehouse. The
final construction cost incurred by the corporation was P240,000 but the asset
was recorded at P250,000. This is in violation of the:
(a)
time
period assumption (c) cost principle
(b)
matching
principle (d)
revenue principle
4.
Which
of the following accounting concepts best justifies the use of accruals and
deferrals?
(a)
Cost/benefit
constraint (c) Continuity
assumption
(b)
Unit-measure
assumption (d) Materiality constraint
5.
Which
of the following most clearly states the most important quality which an
expenditure must have to be recognized as an asset on the balance sheet?
(a)
It
must be both material and relevant
(b)
It must have reasonably certain future benefit to the business.
(c)
It
must be a physical object
(d)
It
must be used in operation of the business.
6.
Which
of the following is a current asset?
(a) cash surrender value of a life insurance
policy, where the company is the beneficiary
(b) investment in marketable securities for the
purpose of controlling the issuing company
(c) cash designated for the purchase of
tangible fixed assets
(d) trade installments receivable
normally collectible in 24 months
7.
The
basic components of financial statements include (choose the incorrect one):
(a) statement of changes in equity (c)
statement of retained earnings
(b) profit (loss) statement (d) statement of cash flow
8.
Which
of the following reconciling items would require an adjusting journal entry on
the company’s books?
(a) outstanding checks (c) deposits
in transit
(b) non-sufficient
funds checks (d) cash on hand
9.
In
recording the bank balance with the book cash balance, which of the following
would not cause the bank balance shown on the bank statement to be lower than
the unadjusted book balance?
(a) cash on hand at the
company
(b) NSF checks from a
customer, as reported on the bank statement
(c) interest
credited to the account by the bank
(d) deposits in transit
10. In determining the cost
of goods sold:
(a)
purchase
discounts are deducted net purchases
(b)
freight
out is added to net purchases
(c)
purchase
returns and allowances are deducted from net purchases
(d)
freight in is added to net purchases
11. Which of these would
cause the inventory turnover ratio to increase the most?
(a)
increasing
the amount of inventory on hand
(b)
keeping
the amount of inventory on hand constant but increasing sales
(c)
keeping
the amount of inventory on hand constant but decreasing sales
(d)
decreasing the amount of inventory on hand and increasing sales
12. An entity is a large
manufacturer of machines. A major
customer has placed an order for a special machine for which it has given a
deposit to the entity. The parties have
agreed on a price for the machine. As
per the terms of the sale agreement, it is FOB (free on board) contract and the
title passes to the buyer when goods are loaded into the ship at the port. When should the revenue be recognized by the
entity?
(a) When the customer
orders the machine
(b) When the deposit is
received
(c) When the
machine is loaded at the port
(d) When the machine has
been received by the customer
13. A large manufacturer of
cosmetics sells merchandise to a retailer, which in turn sells the goods to the
public at large through its chain of retail outlets. The retailer purchases merchandise from the
manufacturer under a consignment contract.
When should revenue from the sale of merchandise to the retailer be
recognized by the manufacturer?
(a) When goods are
delivered to the retailer
(b) When goods
are sold by the retailer
(c) It will depend on the
terms of delivery of the merchandise (i.e., CIF cost, insurance, and freight or
FOB)
(d) It will depend on the
terms of payment (i.e., cash or credit)
14. When the allowance
method of recognizing bad debt expense is used, the typical write off of a
specific customer’s account:
(a)
has no effect on net income (c) decreases current asset
(b)
decrease
net income (d)
decreases working capital
15. Which of the following
is the incorrect statement?
(a)
The
fair value method of accounting is the most appropriate method of accounting
for short-term investments in marketable debt securities.
(b)
Unrealized
holding gains and losses on investments in trading securities are recognized in
income.
(c)
All
investments in available for sale securities are reported at fair value.
(d)
Only investments in bonds are accounted for by the fair value
method.
16. Which of the following
is false?
(a)
A
debit valuation allowance balance for an investment in available for sale
securities implies a corresponding owners’ equity account with a credit balance
of the same amount.
(b)
Unrealized
holding gains on investments in available for sale securities may be recognized
as a direct increase to owners’ equity.
(c)
Investments in trading securities may be classified as current or
long-term.
(d)
Investments
in available for sale securities may be classified as current or long-term.
17. Which of the following
is incorrect?
(a)
Investments
classified as long-term are reclassified as short-term investments only if it
is the intention of the management to dispose of them in the short term.
(b)
If
an investor company does not have significant influence in another company, it
must use either the fair value method or the cost method to account for that
investment in equity securities.
(c)
If an investor company has a controlling interest in another
company, it must use either the cost method or the equity method to account for
that investment in equity securities.
(d)
The
cost method is sometimes applied to investments in equity securities.
18. Select the incorrect
statement.
(a)
The cost method of accounting for an investment in a subsidiary
recognizes the legal fact that the parent and subsidiary are one economic unit.
(b)
Realized
gains and losses on investments in equity securities accounted for under the
cost method are usually measured by the difference between the cost and current
selling price.
(c)
Under
the equity method of accounting for long-term investments in equity securities,
the investor’ investment account is decreased by all dividends received from
the investee.
(d)
The
equity method of accounting for long-term investments in equity securities is
based on the presumption that the investor owns a sufficient number of the
outstanding voting shares of another company to exercise significant influence
over the operating and financing policies of the other company.
19. Which of the following
is the incorrect statement?
(a)
For
a long-term equity investment, the investor accounts for a stock split in the
same manner as for a stock dividend.
(b)
The
relative sales value method is usually used to apportion the book or carrying
value of a long-term equity investment between the old shares still owned and
newly received stock rights related to those shares.
(c)
A
stock dividend received on an investment reduces the per share cost to the
investor.
(d)
For the equity method to be applicable to equity investments, it is
presumed that the investor owns enough voting shares of the investee to
exercise managing control.
20. An entity shall
classify a noncurrent asset or disposal group as “held for sale” when:
(a) The
carrying amount of the asset or disposal group will be recovered through continuing
use.
(b) The carrying amount of the asset or disposal group will be recovered
through a sale transaction.
(c) The
noncurrent asset or disposal group is to be abandoned.
(d) The
noncurrent asset or disposal group is idle or retired from active use.
21. Noncurrent asset or
disposal group is classified as “held for sale” when the asset is available for
immediate sale and the sale is highly probable. For the sale to be highly
probable, (choose the incorrect one)
(a) Management
must be committed to a plan to sell the asset.
(b) An
active program to locate a buyer and complete the plan must have been
initiated.
(c) The asset must be actively marketed for sale at a reasonable price
in relation to its carrying value.
(d) The
sale is expected to qualify for recognition as a completed sale within one year
from the date of classification of the asset as “held for sale”.
22. Which statement is
incorrect concerning presentation of noncurrent asset or disposal group
classified as held for sale?
(a) An
entity shall present a noncurrent asset held for sale and the assets of a
disposal group classified as held for sale separately from other assets.
(b) The
liabilities of a disposal group classified as held for sale shall be presented
separately from other liabilities.
(c) The assets and liabilities a disposal group classified as held for
sale shall be offset as a single amount.
(d) An
entity shall not depreciate a noncurrent asset classified as held for sale or
while it is part of a disposal group classified as held for sale.
23. What is the treatment
of gain on an initial increase in the fair value less cost to sell of a
noncurrent asset classified as held for sale?
(a) The
gain shall be recognized in full.
(b) The gain shall not be recognized.
(c) The
gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized.
(d) The
gain shall be recognized but only in retained earnings.
24. Noncurrent asset
classified as for rental to others shall be presented in the statement of
financial position as:
(a) Current
asset
(b) Other
noncurrent asset
(c) Noncurrent investment
(d) Property,
plant and equipment
25. How should the assets
and liabilities of a disposal group classified as held for sale be shown in the
statement of financial position?
(a) The
assets and liabilities shall be offset and presented as a single amount.
(b) The assets of the disposal group shall be shown separately from
other assets in the statement of financial position, and the liabilities of the
disposal group shall be shown separately from other liabilities in the
statement of financial position.
(c) The
assets and liabilities shall be presented as a single amount and as a deduction
from equity.
(d) There
should be no separate disclosure of assets and liabilities that form part of a
disposal group.
26. An entity acquires a
subsidiary exclusively with a view to selling it. The subsidiary meets the criteria to be
classified as held for sale. At the end
of the reporting period, the subsidiary has not yet been sold, and six months
have passed since its acquisition. How
will the subsidiary be valued in the statement of financial position at the
date of the first financial statements after acquisition?
(a) At
fair value
(b) At the lower of its cost and fair value less cost to sell
(c) At
carrying amount
(d) In
accordance with applicable PFRS
27. An entity classified a
noncurrent asset accounted for under the cost model as held for sale on
December 31, 2009. Because no offers
were received at an acceptable price, the entity decided on July 1, 2010 not to
sell the asset but to continue to use it.
In accordance with PFRS 5, the asset shall be measured on July 1, 2010
at:
(a) The
lower of its carrying amount and its recoverable amount
(b) The
higher of its carrying amount and its recoverable amount
(c) The
higher of its carrying amount on the basis that is had never been classified as
held for sale and its recoverable amount
(d) The lower of its carrying amount on the basis that it had never been
classified as held for sale and its recoverable amount
28. The following
statements relate to the term “profit”.
Statement 1: Profit is
any amount over and above that required to maintain the capital at the
beginning
of the period.
Statement 2: Profit is
the residual amount that remains after expenses have been deducted
from
income.
(a) Both statements are
false.
(b) Statement 1 is false.
(c) Statement 2 is false.
(d) Both
statements are true.
29. Which of the following
is not true of a subsidiary ledger?
(a)
The
purpose of a subsidiary ledger is to store details of certain general ledger
accounts.
(b)
The
sum of the individual balances in a subsidiary ledger should equal the balance
in the general ledger control accounts.
(c)
Journal entries posted to a subsidiary ledger need not be posted to
the general ledger.
(d)
One
benefit of a subsidiary ledger is that the number of general ledger accounts
necessary is reduced.
30. The purpose of trial
balance is to:
(a)
indicate whether total debits equal total credits.
(b)
ensure
that all transactions have been recorded.
(c)
speed
the collection of cash receipts from customers.
(d)
increase
assets and owner’s equity.
31. The closing entry for
sales discounts is:
(a)
debit
sales discounts and credit income summary.
(b)
debit
sales discounts and credit sales revenue.
(c)
debit income summary and credit sales discounts.
(d)
not
used because sales discount is a real account which is not closed.
32. Which of the following
is not reversed at the start of the new accounting period?
(a)
expense
paid in advance that is debited to the expense account at the time of payment
(b)
doubtful accounts computed using the aging schedule
(c)
income
earned but not yet recorded because was not yet received
(d)
rent
collected in advance and credited to a nominal account
33. In the equation,
“Assets + Expenses = Liabilities + Revenue + Capital”, the expenses and
revenues are:
(a)
contra
asset and contra liability accounts, respectively, that assist analysis of the
financial progress of the firm
(b)
incorrectly
stated because their signs are reversed, i.e., both are contra items that
should have negative signs in the formula
(c)
adjustments to capital that are postponed until the end of a
specific accounting period to determine their net effect on capital for that
period
(d)
incorrectly
included in the formula because “Assets = Liabilities + Capital”
34. Which of the following
statements is true?
(a)
Service
companies do not need to prepare financial statements.
(b)
Manufacturing
companies maintain the simplest accounting records.
(c)
Merchandising companies purchase goods that are ready for sale and
then sell them to customers.
(d)
A
drugstore is an example of a service company.
35. Which of the following
is not an accurate statement regarding the rules of debit and credit in
recording revenue and expense transactions?
(a)
revenue
increases owner’s equity; since increases in owner’s equity are recorded by
credits, revenue is recorded by a credit
(b)
expenses
decreases owner’s equity; since decreases in owner’s equity are recorded by
debits, expenses are recorded by debits
(c)
in
recording revenue transactions, we debit the assets received and credit the
revenue account
(d)
expenses used up assets; since decreases in assets are recorded by
credits, expenses are recorded by credits to the expense account
36. Consider the following:
I. increase an asset VI. decrease owner’s equity
II. decrease an asset VII.
increase a revenue
III.
increase a liability VIII.
decrease a revenue
IV.
decrease a liability IX. increase an expense
V. increase owner’s equity X. decrease an expense
Using the above, if an
asset account is debited, what are the five possible corresponding credits?
(a) I, IV, VI, VIII, IX (c) I, III, V, VII,
IX
(b) II, IV, VI, VIII, X (d) II, III, V, VII, X
37. The historical cost
concept measures assets on the basis of:
(a)
the
replacement cost of assets on the balance sheet
(b)
the
amount of cash for which the assets could be sold
(c)
an
appraisal by the auditors
(d)
the fair market value of assets on the day they were acquired
38. In financial
accounting, gains may be defined as:
(a)
total
receipts of cash
(b)
total
receipts of cash in excess of the historical costs of the assets being sold
(c)
total
revenues
(d)
total increases in net assets other than revenues
39. Under the accrual basis
of accounting, if cash is received prior
to the sale, then:
(a)
revenue
is recognized when the cash is received
(b)
a liability is recognized when cash is received
(c)
a
liability is removed from the system when the cash is received
(d)
revenue
is removed from the system when the services have been performed or the goods
have been delivered
40. If there is an
objective evidence that AFS is impaired, the cumulative loss that had been
recognized in other comprehensive income:
(a) Shall be amortized over
a reasonable period
(b) Shall remain
unpaid until the financial asset is disposed of
(c) Shall be recognized in
profit or loss
(d) Shall be recognized as
an adjustment of the beginning balance of retained earnings
41. A net unrealized loss
on an entity’s portfolio of AFS equity securities shall be reflected in the
current financial statements as:
(a) Direct reduction of
retained earnings
(b) Current loss resulting
from holding equity securities
(c) Footnote or
parenthetical disclosure only
(d) Component of
other comprehensive income
42. What should happen when
the financial statements of an associate are not prepared as of the same date
as of the financial statements of the investor?
(a) The associate
shall prepare financial statements for the use of the investor at the same date
as that of the investor.
(b) The financial
statements of the associate prepared up to a different date shall be used as
normal.
(c) Any major transactions
between the date of the financial statements of the investor and that of the
associate shall be accounted for.
(d) As long as the gap is
not greater than 3 months, there is no problem.
43. When an investor
purchases sufficient ordinary shares to gain significant influence over the
investee, what is the proper accounting treatment of any excess of cost over
book value acquired?
(a) The excess remains in
the investment account until it is sold.
(b) The excess is
immediately expensed in the period in which the investment is made.
(c) The excess is
amortized over the time period that is reasonable in the light of the
underlying cause of the excess.
(d) The excess is charged
to retained earnings at the time the investor resells the investment.
44. Land, building and
equipment should be reported on the balance sheet at their cost, less
accumulated depreciation, unless:
(a) some obsolescence is
known to have occurred
(b) some of the
property still on hand were written down pursuant to a quasi-organization
(c) the amount of insurance
carried on the property is well in excess of its book value
(d) not given
45. Dave started his own
cheese factory on March 16, 2003. Which
of the following transactions would not be admissible in Dave’s accounting
system for the month of March?
(a) On March 18, Dave
purchased a cow on account for P3,000.
(b) On March 20, Dave sold
his cow to a fast food restaurant for P5,000.
(c) On March 21,
Dave contracted with a local radio station to run several one-minute
advertising spots during the month of April.
(d) All of the above
transactions would be admissible for Dave’s accounting system in the month of
March.
46. Jeff purchased a new
register system for his grocery store, paying P1,000 in cash and issuing a
P6,000 note payable for the balance owed.
As a result of this transaction, Jeff’s balance sheet would reflect:
(a) an increase
in assets and an increase in liabilities
(b) a decrease in assets
and an increase in liabilities
(c) an increase in assets
and a decrease in liabilities
(d) an increase in assets
and an increase in owner’s equity
47. The double-entry system
of accounting means that every transaction:
(a) is recorded initially
on both the journal and the general ledger
(b) increases one general
ledger account while decreasing another
(c) affects at
least two general ledger accounts and is recorded by an equal amount of debits
and credits
(d) results in changes in
accounts on both sides of the balance sheet
48. Which of the following
statements is not correct?
(a) debits may increase
assets
(b) credits may increase
liabilities
(c) debits may
increase liabilities
(d) credits may increase
owner’s equity
49. Tony owns a store
specializing in bags. Tony has just
completed a transaction that caused a P12,000 increase in total assets and a
P12,000 increase in liabilities. This
transaction could have been:
(a) the investment in his
business of P12,000 in cash
(b) the purchase
of store equipment, paying P9,000 in cash and issuing a P12,000 note payable
for the balance owed
(c) the purchase of bags
for his inventory, paying P4,000 in cash and issuing an P8,000 note payable for
the balance owed
(d) none of the above
transactions would cause total assets and total liabilities to increase by
P12,000
50. Dean has completed the
posting process for the month of June and has prepared a trial balance in which
the debits total P11,000 and the credits total P11,100. Which of the following errors would be the
most likely candidate in causing the trial balance not to balance by P100?
(a) a P100 debit was posted
as a P100 credit
(b) a P100 debit was posted
as a P100 credit and a P100 credit was posted as a P100 debit
(c) a P50 debit
was posted as a P50 credit
(d) the purchase of
supplies on account was never posted to the general ledger
51. Which of the following is the correct
statement?
(a)
The
best way to ascertain whether a marketable security is short-term or a
long-term investment is to check with a securities dealer.
(b)
For
balance sheet classification, a security is classified as a short-term
investment if it is readily marketable.
(c)
For balance sheet classification, a security is classified as a
short-term investment based on the intended holding period.
(d)
All
investments in trading securities are reported at book values. C
53.
Which
of the following is the incorrect statement?
(a)
The
fair value method of accounting is the most appropriate method of accounting
for short-term investments in marketable debt securities.
(b)
Unrealized
holding gains and losses on investments in trading securities are recognized in
income.
(c)
All
investments in available for sale securities are reported at fair value.
(d)
Only investments in bonds are accounted for by the fair value
method. D
54.
Which
of the following is true?
(a)
The fair value method of accounting is the most appropriate method
of accounting for short-term investments in marketable equity securities.
(b)
All
bond investments are accounted for by the amortized cost method.
(c)
The
carrying value of an investment in trading securities or available for sale
securities is limited to market value at the date of acquisition.
(d)
The
realized gain or loss on a short-term investment in an equity security is
usually equal to the difference between its cost and its sale price. A
55.
Which
of the following is false?
(a)
A
debit valuation allowance balance for an investment in available for sale
securities implies a corresponding owners’ equity account with a credit balance
of the same amount.
(b)
Unrealized
holding gains on investments in available for sale securities may be recognized
as a direct increase to owners’ equity.
(c)
Investments in trading securities may be classified as current or
long-term.
(d)
Investments
in available for sale securities may be classified as current or long-term. C
56.
Which
of the following is the correct statement?
(a)
Investments in available for sale securities and trading securities
are classified separately in a balance sheet.
(b)
Investments
in available for sale securities include only equity securities.
(c)
Investments
in trading securities include only debt securities.
(d)
Increases
in the market value of trading securities and available for sale securities
investments always cause the valuation account to decrease. A
57.
Tangible
goods used in the productive process and directly related to the products being
manufactured are called:
(a)
factory supplies. (c) raw materials.
(b)
finished goods. (d)
goods in process. C
58.
When
a portion of inventories has been pledged as security on a loan:
(a)
the value of the portion pledged should be subtracted form the debt.
(b)
an equal amount of retained earnings should be appropriated.
(c) the fact should be disclosed but the amount of current assets
should not be affected.
(d) the cost of the
pledged inventories should be transferred from current assets to noncurrent
assets. C
59.
Slow-moving
and obsolete inventory items should be priced for balance sheet purposes at:
(a)
retail
inventory price.
(b)
cost
or market, whichever is lower.
(c) moving average.
(d) at an amount not in
excess of possible realizable value. D
60.
Subnormal
or obsolete goods, either under the cost or the lower of cost or market basis:
(a)
should
be taken up an unrealized inventory loss.
(b)
should be valued at bona-fide selling price less direct cost of
disposition.
(c)
should
be valued by applying an inventory method that uses a constant or nominal value
for the normal inventory level.
(d)
should
be adjusted in the cost of goods sold. B
61.
Merchandise
which a trader contracted to purchase but which was not delivered or identified
in the year should:
(a)
not be included in the inventory.
(b)
be
included in the inventory at cost.
(c)
be
included in the inventory at its probable retail value.
(d)
be
included in the inventory at a normal price. A
62.
The
appropriate valuation of an operating lease on the statement of financial
position of a lessee is:
(a)
zero
(b)
the
absolute sum of the lease payments
(c)
the
present value of the sum of the lease payments discounted at an appropriate
rate
(d)
the
market value of the asset at the date of the inception of the lease A
63.
When
equipment held under an operating lease is subleased by the original lessee,
the original lessee would account for the sublease as:
(a)
operating lease (c) direct financing lease
(b)
sales-type
lease (d)
capital lease A
64.
Equal
monthly rental payments for a particular lease should be charged to rental
expense by the lessee for which of the following?
Capital Operating Capital Operating
lease lease lease lease
(a)
Yes No (c)
No No
(b)
Yes Yes (d)
No Yes D
65.
In
a lease that is recorded as an operating lease by the lessee, the equal monthly
rental payments should be:
(a)
allocated
between a reduction in the liability for leased asset and depreciation expense
(b)
allocated
between a reduction in the liability for leased asset and interest expense
(c)
recorded
as a reduction in the liability for leased asset
(d)
recorded as rental expense D
66.
Where
the balance sheet indicates that a portion of property, plant and equipment the
related accumulated depreciation pertains to equipment leased to customers, it
is evident that the:
(a)
operating method of accounting is used for the lease
(b)
financing
method of accounting is used for the lease
(c)
lessor
has violated GAAP
(d)
lessor
is using the income tax method of accounting for the lease A
67.
A
20-year property lease, classified as an operating lease, provides for a 10%
increase in annual payments every five years.
In the 6th year compared to the 5th year, the
lease will cause the following expenses to increase:
Rent Interest Rent Interest
(a)
Yes No (c) No No
(b)
Yes Yes (d)
No Yes C
68.
Which
is not an essential characteristic of an accounting liability?
(a)
The
liability is the present obligation of a particular enterprise.
(b)
The
liability arises from past transaction or event.
(c)
The
settlement of the liability requires an outflow of resources embodying economic
benefits.
(d)
The liability is payable to a specifically identified payee. D
69.
Current
liabilities include:
(a)
only
obligations which are expected to be settled within the normal operating cycle.
(b)
only
obligations which are due to be settled within one year from balance sheet
date.
(c)
obligations which are expected to be settled within the normal
operating cycle and obligations which are due to be settled within one year
from balance sheet date.
(d)
refinanced
long-term debt falling due within one year from balance sheet. C
70.
A
long-term debt falling due within one year should be reported as noncurrent
liability should be reported as noncurrent liability if the following
conditions are met (choose the incorrect one):
(a)
The
original term is for a period of more than one year.
(b)
The
enterprise intends to refinance the obligation on a long-term basis.
(c)
The
intent to refinance is supported by an agreement to refinance which is
completed before the issuance of the financial statements.
(d)
The intent to refinance is supported by an agreement to refinance
which is completed after the issuance of the financial statements.
D
71.
Which
will demonstrate an agreement to refinance (choose the incorrect one)?
(a) Long-term obligation has
in fact been issued before the issuance of the financial statements for the
purpose of refinancing.
(b) Equity security has in
fact been issued before the issuance of the financial statements for the
purpose of refinancing.
(c) Before the issuance of
the financial statements, the enterprise has in fact entered into a financing
agreement that clearly permits the enterprise to refinance the currently
maturing long-term debt on a long-term basis.
(d) Preferred
stock has in fact been issued before the issuance of financial statements for
the purpose of obtaining working capital.
D
72.
Some
obligations that are due to be repaid within the next operating cycle and
expected to be refinanced or “rolled over” should be classified as noncurrent:
(a) If the
refinancing or “rolling over” is at the discretion of the enterprise and the
refinancing agreement has been reached before the issuance of the statements.
(b) If the refinancing or
“rolling over” is at the discretion of the enterprise regardless of whether a
refinancing agreement has been reached or not before the issuance of the
statements.
(c) If the refinancing or
“rolling over” is not at the discretion of the enterprise.
(d) Subject to no
conditions.
A
73.
Which
is not a characteristic of an intangible asset?
(e) the asset lacks physical
substance
(f) the asset is used in
production or supply of goods and services, for rental to others or for
administrative purposes
(g) the asset provides
future economic benefits
(h) the asset has
indeterminate useful life D
74.
Which
is not unidentifiable intangible asset?
(a) patent (c)
copyright
(b) franchise (d) goodwill D
75.
If
the pattern in which the economic benefits from the asset are consumed cannot
be predicted reliably, the method of amortization for an intangible asset
should be:
(a)
straight line (c) declining balance
(b)
output
method (d) sum of years’ digits A
76.
Intangible
assets should be carried (benchmark treatment):
(a) gross cost
(b) fair value on balance
sheet date
(c) revalued amount minus
accumulated amortization and accumulated impairment losses
(d) cost minus
accumulated impairment losses and accumulated amortization D
77.
Which
of the following is not considered in estimating the useful life of intangible
assets?
(a) expected usage of the
asset by the enterprise
(b) stability of the
industry in which the intangible asset operates
(c) salvage value
of the asset
(d) level of maintenance
expenditure required to obtain the future economic benefit from the asset C
78.
Choose
the correct statement.
(a)
Financial
accounting is a social science and cannot be influenced by changes in legal,
political, business and social environments.
(b)
Financial
accounting is an information system designed to provide information primarily
to the internal users.
(c)
General-purpose
financial statements must be prepared by a certified public accountant.
(d)
The preparation of general-purpose financial statements is usually
based on the assumption that the primary users of the information are external
decision makers. D
79.
Which
of the following statements is false?
(e)
Financial
reporting should provide information which is relevant to investment, credit
and public policy decisions.
(f)
Generally
speaking, GAAP are those accounting principles with substantial authoritative
support.
(g)
GAAP
are established to ensure the relevancy of the general-purpose financial
statements to the widespread uses of the information by external decision
makers.
(h)
Once established, GAAP should never be changed. D
80.
Which
of the following statement is true?
(a)
Managers
of an entity are considered to be internal decision makers.
(b)
External
decision makers can be obtained whatever financial data they need whenever they
need it.
(c)
Accounting
information is prepared for and useful to only outside decision makers.
(d)
The members of the Board of Directors are not “internal users” only. D
81.
Choose
the incorrect statement.
(a)
The
objective of the external financial statements is to communicate the economic
effects of completed transactions and other events on the entity.
(b)
The
practice of accounting requires considerable professional judgment.
(c)
Security
analysis use information from financial statements and other sources to project
future earnings.
(d)
The assessment of earnings quality has become an exact science. D
82.
Which of the following statement is correct?
(a)
Certified
Public Accountants are not independent for the benefit of the users of the
financial statements, because they are paid by the client.
(b)
Accounting
concepts, principles and standards are just as broad and general today as they
were sixty years old.
(c)
Due
the excellent work of the ASC, there are very few choices among alternative
accounting policies today.
(d)
Disclosure notes are an integral part of the financial statements. D
83.
Which
of the following equations is not true?
(a) Assets +
Liabilities = Owner’s Equity
(b) Assets = Liabilities +
Owner’s Equity
(c) Assets – Owner’s Equity
= Liabilities
(d) Assets – Liabilities =
Owner’s Equity A
84.
Dave
started his own cheese factory on March 16, 2003. Which of the following transactions would not
be admissible in Dave’s accounting system for the month of March?
(e) On March 18, Dave
purchased a cow on account for P3,000.
(f) On March 20, Dave sold
his cow to a fast food restaurant for P5,000.
(g) On March 21,
Dave contracted with a local radio station to run several one-minute
advertising spots during the month of April.
(h) All of the above
transactions would be admissible for Dave’s accounting system in the month of
March. C
85.
Jeff
purchased a new register system for his grocery store, paying P1,000 in cash
and issuing a P6,000 note payable for the balance owed. As a result of this transaction, Jeff’s
balance sheet would reflect:
(a) an increase
in assets and an increase in liabilities
(b) a decrease in assets
and an increase in liabilities
(c) an increase in assets
and a decrease in liabilities
(d) an increase in assets
and an increase in owner’s equity A
86.
The
double-entry system of accounting means that every transaction:
(a) is recorded initially
on both the journal and the general ledger
(b) increases one general
ledger account while decreasing another
(c) affects at
least two general ledger accounts and is recorded by an equal amount of debits
and credits
(d) results in changes in
accounts on both sides of the balance sheet C
87.
Which
of the following statements is not correct?
(a) debits may increase
assets
(b) credits may increase
liabilities
(c) debits may
increase liabilities
(d) credits may increase
owner’s equity C
88.
Tony
owns a store specializing in bags. Tony
has just completed a transaction that caused a P12,000 increase in total assets
and a P12,000 increase in liabilities.
This transaction could have been:
(a) the investment in his
business of P12,000 in cash
(b) the purchase
of store equipment, paying P9,000 in cash and issuing a P12,000 note payable
for the balance owed
(c) the purchase of bags
for his inventory, paying P4,000 in cash and issuing an P8,000 note payable for
the balance owed
(d) none of the above
transactions would cause total assets and total liabilities to increase by
P12,000 B
89.
Dean
has completed the posting process for the month of June and has prepared a
trial balance in which the debits total P11,000 and the credits total
P11,100. Which of the following errors
would be the most likely candidate in causing the trial balance not to balance
by P100?
(a)
a
P100 debit was posted as a P100 credit
(b)
a
P100 debit was posted as a P100 credit and a P100 credit was posted as a P100
debit
(c)
a P50 debit was posted as a P50 credit
(d)
the
purchase of supplies on account was never posted to the general ledger C
90.
Increase
in net assets may result from:
(a) revenues
(b) expenses
(c) withdrawals
(d) all of the above are
correct A
91.
Which
of the following statements is false?
(a)
Increases
to owner’s capital are recorded with credits.
(b)
Sales are recorded as debits.
(c)
Expenses
reduce owner’s capital.
(d)
Expenses
and dividends are both recorded as debits. B
92.
Zinc
Company recorded office supplies as an asset account when the supplies were
purchased. Failure to make an adjusting
entry reflecting the use of these supplies will result in:
(a) an understatement of
assets
(b) an
overstatement of owner’s equity
(c) an understatement of
liabilities
(d) an understatement of
owner’s equity B
BPS/EPS
93)
Under
PAS 33, EPS disclosures are required for
I. Entities whose ordinary
shares or potential ordinary shares are publicly traded.
II. Entities that are in
the process of issuing ordinary shares in the public market.
a.
I
only b. II only c. Both I and II d. Neither I nor II
94)
Under
PAS 33, which of the following statements about an ordinary share is true?
I. An ordinary share is an
equity instrument that is superior to
all other classes of equity instrument.
II. A potential ordinary
share is a financial instrument or other contract that may entitle its holder
to ordinary shares.
a.
I
only b. II only c. Both I and II d. Neither I nor II
subordinate
95)
Which
of the following statements is true?
I. Earnings per share
amounts should not be presented if they are negative, i.e. loss per share.
II. Earnings per share
amounts calculated for discontinued operations should be presented.
a.
I
only b. II only c. Both I and II d. Neither I nor II
96)
When
computing diluted EPS for an entity with a complex capital structure, what is
the denominator in the computation?
a.
Number
of ordinary shares outstanding at year-end
b.
Weighted
average number of ordinary shares outstanding
c.
Weighted
number of ordinary shares outstanding plus all other potentially antidilutive
securities.
d.
Weighted average number of ordinary shares outstanding plus all
other potentially dilutive securities
97)
For
purpose of computing the weighted average number of shares outstanding in EPS
calculation, a mid-year that must be treated as occurring at the beginning oif
the year is the
a. Issuance of the share warrants
b. Purchase of treasury shares
c. Issuance of share certificates
d. Issuance of new
shares from share split
98)
When
EPS is computed, dividends on preferred stock are
a. Added because they represent earnings to
preferred share holders
b. Reported separately on the income statement
c. Subtracted they
represent earnings to preferred shareholders
d. Ignored because so they do not pertain to
the common stock
99)
It
is reduction in earnings per share or an increase in loss per share
resulting from the assumption that convertible instruments
are converted, that options or warrants are exercised, or that ordinary shares
are issued upon the satisfaction of specified conditions.
a. Dilution c. Either dilution or antidilution
b. Antidilution d. Neither dilution nor antidilution
100)
What
is the inherent justification underlying the concept of potential diluters in
an earnings per share computation?
a. form
over substance
b. substance over form
c. form
and substance considered equally
d. substance
over form or form over substance depending on the circumstances
101)
In
determining earnings per share, interest expense, net of applicable income
taxes, on convertible debt which is dilutive should be
a. Added back to net income for diluted earnings per share.
b.
Deducted from net income for basic earnings per share and ignored for diluted
earnings per share.
c. Deducted
from net income for both basic earnings per share and diluted earnings per
share.
d. Added
back to net income for basic earnings per share, and ignored for diluted
earnings per share.
102)
Potential
ordinary shares do not include
a. Share
warrants
b. Employee
share options
c. Financial
liabilities or equity instruments, including preference shares, that are not
convertible into ordinary
shares.
d. Shares
which would be issued upon the satsfaction of certain conditions resulting from
contractual arrangements, such as the purchase of a business or other assets.
103)
For
a company that has only ordinary share outstanding , total shareholder’s equity
divided by the number of shares outstanding represents the:
a. return
on equity c. stated value per share
b. book value per share d. price-earnings ratio
104)
A
company with a simple capital structure for purposes of computing earnings per
share would include which of the following in the computation of earnings per
share?
a. potentially
dilutive securities
b. dividends
on ordinary share
c. dividends on nonconvertible cumulative
preferred stock
d. number
of shares of nonconvertible cumulative preferred stock
Sharebased
105)
The
entity has issued a range of share options to employees. In accordance with
PFRS 2, what type of share-based payment transaction does this represent?
a.
Equity-settled share-based payment transaction
b.
Asset-settled
share-based payment transaction
c.
Cash-settled
share-based payment transaction
d.
Liability-settled
share-based payment transaction
106)
In accordance with PFRS2, how should an entity
recognize the change in the fair value of the liability in respect of a
cash-settled share-based payment transaction?
a.
Should
not recognize in the financial statements but disclose in the notes thereto
b.
Should
recognize in the statement of changes in equity
c.
Should recognize in profit or loss
d.
Should
recognize in other comprehensive income
107)
A cash-settled share-based payment shall give
rise to an increase in which of the following?
a.
A
current asset c.
Equity
b.
A
noncurrent asset d. A liability
108)
An
entity has entered into a contract with another entity. The latter will supply
the former with a range of services. The payment for those services will be in
cash and based upon the price of former’s ordinary shares on completion of the
contract. In accordance with PFRS 2, what type of share-based payment
transaction does this represent?
a.
Asset-settled
share-based payment transaction
b.
Cash-settles share-based payment transaction
c.
Liability-settled
share-based payment transaction
d.
Equity-settled
share-based payment transaction
109)
If
share-based payment transaction provides that employees have the right to
choose the settlement whether in cash or shares, the entity is deemed to have
issued
a.
An
equity instrument
b.
A
liability instrument
c.
A compound financial instrument
d.
Either
an equity instrument or liability instrument but not both
110)
Under
PFRS 2 share – based Payment, the method that must be used to measure employee
stock options and other payments given to employees in the form of equity
securities, is:
a. Initial cost c. Fair value
b. Discounted cash flows d. Selling price
111)
Many
shares and most share options are not traded in an active market. Therefore, it
is often difficult to arrive at a fair value of the equity instruments being
issued. Which of the following option valuation techniques should not be used
as a measure of fair value in the first instance?
a. Black – Scholes model c. Monte –
Carlo model
b. Binomial model d.
Intrinsic value
112)
It
is the difference between the fair value of the shares to which the
counterparty has the right to subscribe and the price the counterparty is
required to pay for those shares.
a. fair
value c. Market value
b. Intrinsic value d. Book
value
113)
These
are transactions in which the entity receives goods or services as
consideration for equity instruments of the entity including shares and share
options.
a. Equity settled share-based payment transactions
b. Cash
settled share-based payment transactions
c. Equity
payment transactions
d. Cash
payment transactions
114)
Compensatory
stock options were granted to executives on January 1, 2008, for services to be
rendered during 2008, 2009, and 2010. The fair value of the option was measured
at the grant-date fair value using the observable market price of an option
with similar terms. The fair value of the options was in excess of the amount
the executives must pay for the stock. The stock options were exercised on
December 30, 2010 Compensation expense should be recognized in the income
statement in which of the following years?
2008
2009 2010 2008 2009
2010
a. No No Yes c. Yes Yes Yes
b. No Yes Yes d. Yes No No
115)
For
cash settled share-based payment transactions, an entity shall measure the
goods or services received and the liability incurred at the
a. Fair value of the
liability
b. Fair value
of the goods and services received
c. Either the fair value of the goods or services
received or the fair value of the liability
d. Neither the fair value of the goods or
services received nor the fair value of the liability
116)
Sydney
Corporation granted 1,000 stock options to its employees on January 1, 2006,
for services performed during 2006 and 2007. At the date of the grant, the fair
value of the stock options is P6,000. The options are exercisable on January 1,
2008, and expire on June 30, 2008. On July 1, 2008, it was determined that none
of the options were exercised. On December 31, 2008, Sydney Corporation should
a. Restate its financial statements for 2006
and 2007 and reduce compensation expense for each year.
b. Make a prior period adjustment to retained
earnings for compensation expense recognized in 2006 and 2007.
c. Not adjust or
reverse compensation expense.
d. Record P6,000 of compensation expense in
2008.
SHE
117)
Under
IFRIC 17, a property dividend declared before the end of the reporting period
should be recognized as liability at the end of the reporting period at
a.
Carrying
amount of the asset to be distributed
b.
Fair
value of the asset on the date of declaration
c.
Fair value of the asset at the end of reporting period
d.
Fair
value of the asset at the date of distribution
118)
Which
of the following should be reported as a stockholder equity account?
a.
Discount
on convertible bonds
b.
Premium
on convertible bonds
c.
Cumulative foreign exchange translation loss
d.
Organization
costs
119)
Gains
and losses on the purchase and resale of treasury stock may be only be
reflected in
a.
Paid-in
capital accounts
b.
Paid-in capital and retained earnings accounts
c.
Income,
paid-in capital and retained earnings
d.
Income
and paid-in capital accounts
120)
Deposits
on subscriptions to a proposed increase in capital stock are reported on the
balance sheet as
a.
Unearned
revenue
b.
Advances
from subscribers
c.
A separate item in the capital stock section
d.
An
addition to retained earnings
121)
Which
of the following statements best describes the net effect on retained earnings
of the purchase and subsequent sale of treasury stock?
a. retained earnings
may never be increased , but sometimes decreased.
b. Retained earnings may never be
increased or decreased
c. Retained earnings may be increased
but never be decreased.
d. Retained earnings account is always
affected unless the selling price is exactly equal to cost
122)
When
stock rights are exercised, how much should be treated as total proceeds from
the issuance of shares?
a. only
the consideration received
b. The total
of the consideration received and the amount previously recorded for the stock
rights
c. the amount
previously recorded for the stock rights
d. The total par value
of the shares
123)
Liabilities
and stockholders’ equity are similar in that
a. Both provide certain
amount of payments in the form of interest and dividends
respectively based upon
written agreements.
b. Both provide
specific timing of payments as a result of specific maturity dates.
c. Both
creditors and stockholders are equity holders although they have different
rights with respect to income, risk, control and liquidation.
d. Both liabilities and
owners equity are ranked equally when the enterprise’s assets are distributed.
124)
The
declaration of a 10% stock dividend
a.
Would
decrease both accumulated profits and total shareholders’ equity
b.
Would decrease accumulated profits but would have no effect on total
shareholders’ total
c.
Would
have no effect on accumulated profits but would decrease total shareholders’
equity
d.
Would
have no effect both on accumulated profits and total shareholders’ equity
125)
What
is the most likely effect of a share split down?
Par value PER SHARE Numbers of shares
a. Decrease No effect
b. Decrease Increase
c. Increase Decrease
d. No effect No effect
126)
How
would the declaration of a liquidating dividend by a corporation affect each of
the following?
Contributed capital Total
shareholders’ equity
a. Decrease No effect
b. No
effect
Decrease
c. No
effect
No effect
d. Decrease
Decrease
127)
An
entity issued what is called a “12% stock dividend” on its share capital. At what amount per share, if any, should
retained earnings be reduced for this transaction?
a. Zero
because no entry is made
b. Par
value
c. Market value at the declaration
d. Market
value at the date of issuance
128)
The
peso amount of total shareholders’ equity remains the same when there is
a.
Issuance
of preference share in exchange for convertible debentures
b.
Issuance
of nonconvertible bonds with share warrants
c.
Declaration of a stock dividend
d.
Declaration
of a cash dividend
Income taxes
129)
Justification
for the method of determining periodic deferred tax expense is based on the
concept of
a. Matching of periodic expense to
periodic revenue
b. Objectivity in the calculation of
periodic expense
c. Recognition
of asset and liability
d. Consistency of tax expense measurement
with the actual tax planning strategies.
130)
The
deferred tax expense is the
a.
Increase
in balance of deferred tax asset minus the increase in balance of deferred tax
liability
b.
Increase in balance of deferred tax liability minus the increase in
balance of deferred tax asset
c.
Increase
in balance of deferred tax asset plus the increase in balance of deferred tax
liability
d.
Decrease
in balance of deferred tax asset minus the increase in balance of deferred tax
liability
131)
Where
a business transaction requires a direct adjustment to an equity account, the
tax effect is adjusted against
a.
Income c. Equity
b.
Tax
expense d.
Cash
132)
Under
PAS 12 Income Taxes, deferred tax
assets and liabilities are measured at the tax rates that:
a.
Applied
at the beginning of the reporting period
b.
At
the end of the reporting period
c.
At
the rates that prevail at the reporting date
d.
Are expected to apply when the asset or liability is settled
133)
Which
of the following could never be subject to interperiod tax allocation?
a. Interest revenue on
government bonds.
a. Depreciation expense on operational assets.
b. Estimated warranty expense.
c. Rent revenue
134)
A
temporary difference which would result in deferred tax asset is
a. Tax, penalty or surcharge
b. Dividend received on stock investment
c. Excess tax depreciation over accounting
depreciation
d. Rent received in
advance included in taxable income at the time of receipt but deferred for
accounting purposes
135)
Differences
between taxable income and pretax accounting income arising from transactions
that, under applicable tax laws and regulations, will not be offset by
corresponding differences or turn around in future periods is a definition of
a. Temporary differences c. Deductible differences
b. Permanent differences d. Taxable differences
136)
When
a temporary difference will result in taxable amounts in 5 years
a. A deferred tax
liability is recognized in the current year.
b. A deferred tax asset is recognized in the
current year.
c. A deferred tax liability may be recognized in
the current year if certain conditions are met.
d. A deferred tax asset may be recognized in the
current year if certain conditions are met.
137)
As
a result of differences between depreciation for financial reporting purposes
and tax purposes, the financial reporting basis of a company's plant assets
falls below the tax basis. Assuming the company had no other temporary
differences, the company should report a
a. Current
tax receivable. c. Deferred tax
asset.
b. Current
tax payable. d. Deferred
tax liability.
138)
Income
tax expense is computed based on
a. Taxable
income
b. Total-pretax
financial income
c. Accounting income subject to income tax
d. The
temporary difference
139)
These
are differences between carrying amount of an asset or liability in the
statement of financial position and its tax base.
a. Temporary differences c. Permanent differences
b. Timing
differences d.
Accounting differences
140)
Which
of the following differences would result in future taxable amounts?
a. Expenses
or losses that are deductible after they are recognized in financial income.
b. Revenue
or gains that are taxable before they are recognized in financial income.
c. Revenues or gains that
are recognized in financial income but are never included in taxable income.
d. Expenses and losses
that are deductible before they are recognized in financial income.
Benefits
141)
Which
of the following is not one of the six components of pension expense (or part
of a component)?
a.
Initial transition asset
b.
Amortization
of unrecognized gain or loss
c.
Expected
return on plan assets
d.
Growth
(interest cost) in PBO/ABO since the beginning of the period
142)
What
is measured by the accumulated benefit obligation?
a.
The
pension expense, computed by the plan formula applied to years of service to
date, assuming future salary levels
b.
The
pension expense, computed by the plan formula applied to years of service to
date, using existing salary levels
c.
The pension obligation, computed by the plan formula applied to
years of service to date, using existing salary levels.
d.
The
pension obligation, computed by the plan formula applied to year of service to
date, assuming future salary levels.
143)
Under
which category should lump sum benefit of 1% of the final salary for each year
of service and actuarial gains be accounted for?
a.
Lump sum benefits should be accounted for under defined benefit
plans.
Actuarial
gains should be accounted for under defined benefit plans.
b.
Lump
sum benefit should be accounted for under short term employee benefits
Actuarial gains should be
accounted for under defined benefit plans.
c.
Lump
sum benefit should be accounted for under defined benefit plans
Actuarial gains should be
accounted for under defined contribution plans
d.
Lump
sum benefit should be accounted for under short term employee benefits
Actuarial gains should be
accounted for under defined contribution plans
144)
Investments
held by retirement benefit plans should be stated in the statement of net
assets at
a.
Net
realizable value c.
Original cost less impairment
b.
Fair value d.
Value in use
145)
In
a rare circumstance, when a retirement benefit plan has attributes of both
defined contribution and defined benefit plan, it is deemed
a.
Defined
contribution plan
b.
Define benefit plan
c.
Neither
a defined contribution nor a defined benefit plan
d.
Both
defined contribution and defined benefit
plan
146)
Which
is incorrect concerning the recognition and measurement of a defined benefit
plan?
a. actuarial
assumptions are required to measure the obligation and expense and there is a
possibility of actuarial gains and losses.
b. the obligation is
measured at a discounted basis.
c. the
defined benefit plan must be fully funded
d. the expense
recognized for a defined benefit plan is not necessarily the amount of
contribution due for the period
147)
The
vested benefits:
a. are
employee benefits that are not conditional of future employment
b. are benefits to be paid to the
retired employees in the current period.
c. are benefits to be paid to the
retired employees in the subsequent period.
d. are benefits accumulated in the
hands of a trustee.
148)
Any
transition loss on first adopting PAS 19 shall be recognized:
I. as expense immediately
II. as expense over a
maximum of 5 years
a. I only c. Either I or II irrevocably
b. II only d.
Either I or II revocably
149)
An
employer’s obligation for postretirement health benefits that are expected to
be provided to an employee must be fully accrued by the date the
a. Employee is fully eligible for benefits
b. Employee
retires
c. Benefits
are utilized
d. Benefits
are paid
150)
For
a defined benefit pension plan, the discount rate used to calculate the
projected benefit obligation is determined by the
Expected return on plan asset Actual return on plan asset
a. yes
yes
b. no no
c. yes
no
d. no
yes
151)
The
present value of pension benefits accrued to date using assumptions as to
future compensation levels is the
a. Prior
service cost. c. Projected benefit
obligation.
b. Accumulated
benefit obligation. d. Accrued pension cost.
152)
Interest
cost included in the net pension cost recognized by an employer sponsoring a
defined benefit plan represents the:
a. amortization
of the discount on unrecognized past service cost
b. increase
in the fair value of plan assets due to passage of time
c. increase in the projected benefit obligation due to passage
of time
d. shortage
between the expected and actual return on plan assets
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