Identify The Choice That Best Completes The Statement or Answers The Question
Identify The Choice That Best Completes The Statement or Answers The Question
Multiple Choice
Identify the choice that best completes the statement or answers the question.
2. The primary focus of financial accounting has been on meeting the needs of which of the following groups?
a. Managers of an entity
b. Present and potential creditors of an entity
c. National and local taxing authorities
d. Independent auditors
3. It is a “global phenomenon” intended to bring about transparency and a higher degree of comparability in financial
reporting, both of which will benefit the investors and are essential to achieve the goal of one uniform and globally
accepted financial reporting standards.
a. IFRS
b. Borderless accounting
c. World trade
d. Information technology
4. Accounting is a service activity and its function is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decision. This accounting definition is given
by
7. Which accounting process is the recognition or non-recognition of business activities as accountable events?
a. Identifying
b. Measuring
c. Recording
d. Communicating
8. It is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy professions
in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountant
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
10. Financial accounting can be broadly defined as the area of accounting that prepares
a. General purpose financial statements to be used by parties internal to the entity only.
b. Financial statements to be used by investors only.
c. General purpose financial statements to be used by parties both internal and external to the
entity.
d. Financial statements to be used primarily by management.
14. It is the accounting standard setting body created by PRC upon recommendations of the Board of Accountancy to assist
the Board of Accountancy in carrying out its powers and functions under R.A. No. 9298
a. Accounting Standards Council
b. Auditing and Assurance Standard Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standard Council
15. The “communicating” process of accounting includes all of the following, except
a. Recording
b. Classifying
c. Summarizing
d. Interpreting
MODULE 2 Post-test
Conceptual Framework for Financial Reporting
Multiple Choice
Identify the choice that best completes the statement or answers the question.
All answers shall be submitted on or before AUGUST 14, 2020 (Friday)
1. Which of the following is not one of the fundamental criteria for recognition?
a. Timeliness
b. Measurability
c. Relevance
d. Reliability
2. When a large number of individuals, using the same measurement method, demonstrate that a high degree of
consensus can be secured among independent measurers, then the result exhibits the characteristic of
a. Verifiability
b. Neutrality
c. Relevance
d. Reliability
3. The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the
accounting concept of
a. Accrual
b. Consistency
c. Comparability
d. Going concern
4. Accounting for inventories by applying the lower-of-cost-or- market is an example of the application of
a. Conservatism
b. Comparability
c. Consistency
d. Materiality
7. The branch of accounting that is concerned primarily with providing information for internal users is called
a. Auditing
b. managerial accounting
c. financial accounting
d. income tax accounting
9. The primary current source of generally accepted accounting principles for nongovernmental operations is the
a. American Institute of Certified Public Accountants
b. Securities and Exchange Commission
c. Financial Accounting Standards Board
d. Governmental Accounting Standards Board
10. Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with
the accounting concept of
a. Matching
b. Comparability
c. Accounting periods
d. Materiality
11. When financial reports from two different companies have been prepared and presented in a similar manner, the
information exhibits the characteristic of
a. Relevance
b. Reliability
c. Comparability
d. Consistency
13. Historical cost has been the valuation basis most commonly used in accounting because of its
a. Timelessness
b. Conservatism
c. Reliability
d. Accuracy
14. The financial statements that are prepared for the business are separate and distinct from the owners according to the
a. going-concern principle
b. matching principle
c. economic entity assumption
d. full disclosure principle
15. Which of the following statements concerning the objectives of financial reporting is correct?
a. The objectives are intended to be specific in nature.
b. The objectives are directed primarily toward the needs of internal users of accounting
information.
c. The objectives were the end result of the FASB's conceptual framework project.
d. The objectives encompass not only financial statement disclosures, but other information as
well.
16. According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an
entity is
a. Realization
b. Recognition
c. Matching
d. Allocation
18. Recording the purchase price of a chalkboard eraser (with an estimated useful life of 10 years) as an expense of the
current period is justified by the
a. going-concern assumption
b. materiality constraint
c. matching principle
d. comparability principle
19. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Corporate form of organization
c. Consistency characteristic
d. Arm's-length transactions
Problem
1. An entity can rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or
explanatory material.
a. True
b. False
c. Maybe True
d. Maybe False
3. The following are considered as identifiable intangible assets in the balance sheet except
a. Computer Software
b. Franchise
c. Goodwill
d. Trademark
4. Under PAS 1, paragraph 7, the holders of instruments classified as equity are simply known as
a. Owners
b. Entity
c. Proprietor
d. Shareholders
5. Which of these classifications are needed for a liability to be considered under current liability?
I. Expected to be settled beyond the entity’s normal operating cycle
II. Held for purpose of trading
III. Due to be settled after 12 months
IV. For which the entity does not have an unconditional right to defer settlement beyond 12 months
(settlement by the issue of equity instrument does not impact classification).
a. I and II only
b. I and III only
c. II and IV only
d. I, II and III only
7. The information which must be provided so as to properly identify each component of a set of Financial Statements does
not include:
a. The country in which the entity operates
b. The presentation currency used
c. The name of the reporting entity
d. The level of rounding used
13. The judgement on whether additional items are presented separately is based on an assessment of:
1. The nature and liquidity of assets
2. The function of assets
3. The amounts, nature and timing of liabilities
4. The space available in the financial statements
a. 1, 2 and 3 only
b. 1, 2 and 4 only
c. 1 and 2 only
d. 2, 3 and 4 only
14. As a minimum, the face of the Statement of profit or loss shall include line items that present the following amounts for
the period:
1. Revenue
2. Finance Cost
3. Share of the income of associates, and joint ventures accounted for using equity
method
4. Pre-tax gain(or loss) recorded on the disposals of assets, or settlement of liabilities
attributable to discontinuing operations
5. Tax expense
6. Profit or Loss
a. 1, 2, 4, 5, and 6 only
b. 1 to 6 all inclusive
c. 1, 2, 5 and 6 only
d. 1, 2, 3, 5 and 6 only
19. Accounts produced on a going-concern basis suggest the business will continue in operation for:
a. One decade
b. Six months
c. One year
d. The foreseeable future
MODULE # 4 Post-test
STATEMENT OF FINANCIAL POSITION
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Which of the following should be disclosed in the financial statements as contingent liability?
a. The entity has accepted liability prior to year-end for unfair dismissal of an employee and is to pay damages.
b. The entity has received a letter from a supplier complaining about an old unpaid invoice.
c. The entity is involved in a legal; case which it may possibly lose, although this is not probable.
d. The entity has not yet paid claims under sales warranties.
2. A retail store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate was
issued, a
a. Deferred revenue account should be decrease
b. Deferred revenue account should be increase
c. Revenue account should be decreased
d. Revenue account should be increase
3. Which of the following must be included on the face of statement of financial position?
a. Number of shares authorized
b. Contingent Asset
c. Contingent Liability
d. Investment Property
9. These are probable future economic benefits obtained or controlled by an entity as a result of past transactions
or events.
a. Liabilities
b. Assets
c. Equity
d. None of the above
10. Which of the following should not be considered as a current asset in the balance sheet?
a. Installment notes receivable due over 18 months in accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the business.
c. Equity or debt securities purchased with cash available for current operations.
d. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.
12. What is the appropriate treatment for a contingent asset in the financial statements of an entity?
a. Disclosure of information in the notes but not recognized in the financial
statements.
b. Recognition in the financial statements and a note disclosure.
c. Recognition in the financial statements but no further disclosure in the notes.
d. Not recognized in the financial statements and neither disclosed in notes.
13. If an entity expects and has the discretion to refinance on a long-term basis, the notes payable should be
reclassified as
a. Current Liabilities
b. Noncurrent Asset
c. Non-current Liabilities
d. Current liabilities
14. Which of the following is not an acceptable presentation of current liabilities?
a. Listing current liabilities in the order of maturity
b. Listing current liabilities according to amount
c. Offsetting current liabilities against assets that are to be applied to their
liquidation
d. Showing current liabilities in the order of liquidation preference
17. Which of the following is not a component of contributed capital under equity section?
a. Ordinary shares
b. Treasury shares
c. Preference share
d. Share premium
18. The trading securities and other investments in quoted equity instrument is an example of what line item under
current assets?
a. Financial assets at fair value
b. Financial assets at book value
c. Other current assets
d. Noncurrent assets
19. Which is not true about the Statement of Financial Position in the given choices?
a. Biological Assets should be reported in the statement of financial position
b. The number of shares authorized for issue should be reported in the statement of
financial position or the statement of changes in equity or in the notes
c. Provision should be recognized in the statement of financial position
d. A revaluation surplus on a noncurrent asset in the current year should be recognized in
the income statement
20. The analysis of the statement of financial position is useful in assessing the liquidity, which is the ability to
a. Satisfy short-term obligations.
b. Maintain profitable operations.
c. Maintain past levels of preferred and ordinary dividends
d. Survive major economic downturn.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Angel Company provided the following account balances at year-end:
Solution:
Accounts receivable 1,600,000
Financial assets at fair value 500,000
Cash 1,100,000
Prepaid Expenses 100,000
Equipment held for sale 1,800,000
current assets at year-end 8,100,000
Solution:
CCE 700,000
Trade Accounts 940,000
Inventory 800,000
Current assets at year-end 2,440,000
4. Kaila Company trial balance reflected the following account balances at December 31, 2021:
Accounts receivable 1,600,000
Trading securities 500,000
Accumulated depreciation on equipment and furniture 1,500,000
Cash 1,100,000
Inventory of merchandise 3,000,000
Equipment and furniture 2,500,000
Patent 400,000
Prepaid expenses 100,000
Land held for future business site 1,800,000
In Kaila Company’s December 31, 2021 balance sheet, the current assets total is
a. 8,100,000
b. 7,300,000
c. 6,700,000
d. 6,300,000
Solution:
In its June 30, 2021 balance sheet, what amount should Kaila report as current assets?
a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000
Solution:
Cash (300k-100k) 200,000
Accounts receivable, net 350,000
Inventory 580,000
Prepaid expenses 120,000
Land classified as “held for sale” 1,000,000
Current assets 2,250,000
6. Presented below are account balances and related information on December 31, 2021 for Jerome Company:
Cash and cash equivalents 3,700,000
Accounts receivable 1,500,000
Allowance for doubtful accounts ( 200,000)
Inventory 2,000,000
Prepaid insurance 300,000
7,300,000
The cash and cash equivalents include the following:
Cash in bank, net of bank overdraft of P300,000
Maintained in a separate bank 1,000,000
Cash set aside by the Board of Directors for the
Purchase of a plant site 2,000,000
Petty cash 10,000
Cash withheld from wages for income tax of employees 190,000
General cash 500,000
3,700,000
========
The accounts receivable balance includes past due account in the amount of P100,000 on which a loss of
50% is anticipated. The account should be written off.
The merchandise inventory includes goods held on consignment amounting to P150,000 and goods of
P200,000 purchased and received on December 31, 2021. Neither of these items have been recorded as a
purchase.
The prepaid-insurance includes cash surrender value of life insurance of P50,000.
CCE 2,000,000
A/R 1,400,000
AFDA (150,000) 1,300,000
Inventories (2M-150k) 1,850,000
Prepaid Exp 250,000
Current assets 5,400,000
7. Jerome Company’s December 31, 2021 balance sheet reported the following current assets:
Cash 4,000,000
Accounts receivable 7,500,000
Inventory 4,000,000
Deferred tax asset 1,200,000
Equipment used and held for resale 300,00
17,000,000
An analysis of the accounts receivable disclosed the accounts receivable comprised the following
Trade accounts receivable 5,000,000
Allowance for doubtful accounts (500,000)
Selling price of Jerome Company’s unsold goods sent to Tar Company on
consignment at 150% of cost and excluded from Jerome’s ending
inventory 3,000,000
7,500,000
Solution:
Cash 4,000,000
Accounts receivable 4,500,000 (3M on consignment not included)
Inventory (2M+ (3M/150%)) 6,000,000
Equipment used and held for resale 300,000
Current assets 14,800,000
8. The following trial balance of Jerome Company at December 31, 2021 has been adjusted except for income tax
expense:
Cash 2,000,000
Accounts receivable, net 20,000,000
Prepaid taxes 4,000,000
Inventory 12,000,000
Property, plant & equipment 35,000,000
Accounts payable 20,000,000
Common stock 30,000,000
Retained earnings 18,000,000
Foreign currency translation adjustment 5,000,000
Revenues 40,000,000
Expenses 30,000,000
108,000,000 108,000,000
During 2021, estimated tax payments of P4,000,000 were charged to prepaid ta7xes. Jerome has not yet
recorded income tax expense. The tax rate is 35%. Included in accounts receivable is P6,000,000 due from a
customer. Special terms granted to this customer require payment in equal semiannual installments of
P1,000,000 every June 1 and December 1.
In the December 31, 2021 balance sheet, what amount should be reported as total current assets?
a. 34,500,000
b. 28,500,000
c. 35,500,000
d. 30,500,000
Solution:
Cash 2,000,000
A/R (20M-4M non current) 16,000,000
Prepaid taxes (4M - 3.5M tax exp) 500,000
Inventory 12,000,000
Current assets 30,500,000
How much should be presented as total current liabilities on the balance sheet?
a. 6,700,000
b. 6,600,000
c. 7,100,000
d. 7,700,000
Solution:
Accounts payable (4.4M + 100k) 4,500,000
Accrued expenses 1,500,000
Credit balances of customers’ accounts 500,000
Estimated expenses 600,000
Current Liabilities 7,1000,000
10. The trial balance of Joshtine Company reflected the following liability account balances at December 31,
2021:
Accounts payable 1,900,000
Bonds payable 3,400,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2022 600,000
Discount on bonds payable 200,000
The deferred tax liability is based on temporary differences that will reverse equally in 2022 and 2023.
In Joshtine’s December 31, 2021 balance sheet, the current liabilities total was
a. 7,100,000
b. 4,300,000
c. 3,900,000
d. 4,100,000
Solution:
Accounts payable 1,900,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2022 600,000
Current liabilities 3,900,000
11. The trial balance of Angel Company reflected the following liability account balances on December 31, 2021:
Accounts payable 5,000,000
Bonds payable, due December 30, 2022 10,000,000
Premium on bonds payable 500,000
Deferred tax liability 2,500,000
Dividends payable 4,500,000
Income tax payable 1,500,000
Note payable – bank 4,000,000
The bank note payable matures on June 30, 2022. On March 1, 2022, the entire balance of the bank payable
was refinanced on a long-term basis. Angel’s financial statements were issued on March 31, 2022.
In its December 31, 2021, Angel Company should report current liabilities at
a. 21,500,000
b. 24,000,000
c. 25,500,000
d. 28,000,000
Solution:
Accounts payable 5,000,000
Bonds payable, due December 30, 2022 10,000,000
Premium on bonds payable 500,000
Dividends payable 4,500,000
Income tax payable 1,500,000
Note payable – bank 4,000,000
Current Liabilities 25,500,000
12. The following information about Manchester Company is available at December 31, 2021:
Employee income taxes withheld 900,000
Cash balance at first state Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000
Estimated expenses of meeting warranties on merchandise previously sold The
500,000
Estimated damages as a result of unsatisfactory performance on a contact
1,500,000
Accounts payable 3,000,000
Deferred serial bonds, issued at par and bearing interest at 12%, payable in
semiannual installments of P500,000 due April 1 and October 1 of each year,
the last bond to be paid on October 1, 2027. Interest is also paid
semiannually. 5,000,000
Stock dividend payable 2,000,000
December 31, 2021 balance sheet should report current liabilities at
A. 8,100,000
b. 7,950,000
c. 9,100,000
d. 7,350,000
Solution:
Employee income taxes withheld 900,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against Joshtine. Joshtine’s
legal council expects the suit to be settled in 2022 and has estimated that Joshtine will be liable for damages in
the amount of 450,000
The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2022
What amount should Joshtine report in its December 31, 2021 balance sheet for current liabilities?
a. 10,350,000
b. 10,150,000
c. 9,900,000
d. 4,900,000
Solution
Account payable 550,000
Unsecured note, 8%, due July 1, 2022 4,000,000
Accrued expenses 350,000
Senior bonds, 7%, due March 31, 2022 5,000,000
Current Liabilities 9,900,000
Solution
Accounts payable (1350-150on consignment) 1,200,000
Accrued taxes payable 125,000
Customers’ deposit 100,000
Bank overdraft 55,000
Accrued electric and power bills 60,000
Current Liabilities 1540000
15. The following information pertains to Kaila Company on December 31 of the current year:
Property, plant and equipment 35,000,000
Accounts receivable 20,000,000
Prepaid insurance 2,500,000
Short-term note payable 3,000,000
Cash 5,000,000
Bonds payable 40,000,000
Total assets 101,500,000
Land 20,000,000
Accounts payable 8,000,000
Allowance for doubtful accounts 1,000,000
Merchandise inventory 13,000,000
Available for sale securities – to be held indefinitely 7,000,000
Wages payable 2,000,000
Total liabilities 56,000,000
Premium on bonds payable 3,000,000
Solution
16. Rosalie Corporation is located in London but does business throughout Europe. The company builds and sells
equipment used in manufacturing pharmaceuticals. On December 31, 2021, Rosalie has trading securities
valued at £42,000; goodwill valued at £300,000; prepaid insurance valued at £24,000; patents valued at
£140,000; and a customer list valued at £260,000. On Rosalie Corporation’s statement of financial position at
December 31, 2021, what amount should be reported as intangible assets?
a. 742,000
b. 766,000
c. 700,000
d. 440,000
Solution
GW 300k
Pantents 140k
CList 260k
700k
17. The accounts and balances shown below were taken from Kaila Company’s trial balance on December 31,
2021. All adjusting entries have been made.
Wages Payable, P250,000; Cash, P175,000; Bonds Payable, P600,000; Dividends Payable, P140,000;
Prepaid rent, P136,000; Inventory, P820,000; Sinking Fund Assets, P525,000; Trading securities,
P153,000; Premium on Bonds Payable, P48,000; Stock Investment in Subsidiary, P1,020,000; Taxes
Payable, P228,000; Accounts Payable, P248,000; Accounts Receivable, P366,000; Property Plant &
Equipment, P1,200,000; Patents- net, P150,000; Accumulated Depreciation-PPE, P400,000; Land held
for future business site, P900,000.
How much should be reported in Kaila’s December 31, 2021 balance sheet as current and non-current assets,
respectively?
a. 1,650,000 and 2,375,000
b. 1,650,000 and 3,395,000
c. 1,800,000 and 2,225,000
d. 1,800,000 and 3,795,000
18. Jostin Company’s adjusted trial balance at December 31, 2021 includes the following accounts balances:
Solution:
OSC 3000000
OSS 500,000
SP 4,000,000
Reserve for uninsured earthquake losses 750,000
Reserve for treasury share 250,000
Accumulated profits 1,000,000
Net unrealized loss on available for sale securities 100,000
Treasury shares, at cost (250,000)
9150000
19. Facundo Corporation’s post-closing trial balance at December 31, 2021 was as follows:
Facundo Corporation
Post-Closing Trial Balance
December 31, 2021
Debit Credit
Accounts payable P 495,000
Accounts receivable P 963,000
Reserve for depreciation 360,000
Reserve for doubtful accounts 54,000
Premium on ordinary shares 1,800,000
Gain on sale of treasury shares 450,000
Bonds payable 720,000
Building and equipment 1,980,000
Cash 396,000
Dividends payable on preference shares 7,200
Ordinary share capital (P1 par value) 270,000
Inventories 1,116,000
Land 684,000
Available-for-sale securities at fair value 513,000
Trading securities at fair value 387,000
Net unrealized loss on available-for-sale
securities 45,000
Preference share capital (P50 par value) 900,000
Prepaid expenses 72,000
Donated capital 800,000
Share warrants outstanding 208,000
Retained earnings 415,800
Treasury shares – ordinary, at cost 324,000
Totals P6,480,000 P6,480,000
At December 31, 2021, Facundo had the following number of ordinary and preference shares:
Ordinary Preference
Authorized 900,000 90,000
Issued 270,000 18,000
Outstanding 252,000 18,000
The dividends on preference shares are P0.40 cumulative. In addition, the preference share has a preference in
liquidation of P50 per share.
Based on the above and the result of your audit, determine the following as of December 31, 2021:
Prem OS 1800000
Gain OSOPS 400000
Donated C. 800000
SWOutstanding 208000
3258000
PS 900000
OS 270000
SP 3258000
4428000
Total RE 415800
App for TS (324000)
Unappropriated 91800
4. Total equity
a. P4,266,800 c. P4,888,800
b. P4,519,800 d. P4,474,800
Total CC 4428000
Total RE 415800
Less: TS (324000)
NULoAFS (45000)
4474800
20. Tricia Industries provided the following balances on December 31, 2021
Accounts payable 1,400,000
Accrued taxes 55,000
Ordinary share capital 7,700,000
Dividends – ordinary share 4,400,000
Dividends – preference share 1,600,000
Mortgage payable ( 500,000 due in 6 months) 6,000,000
Notes payable, due on January 14, 2023 2,300,000
Preference share capital 3,250,000
Premium on notes payable 125,000
Income summary – credit balance 9,090,000
Retained earnings – January 1 8,080,000
Unamortized issue cost on note payable 65,000
Unearned rent income 35,000
Beg RE 8080000
Et Income 9090000
Div OS (4400000)
Div PS (1600000)
11170000
Conceptual Framework
QUIZ #1
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. The financial statements that are prepared for the entity are separate and distinct from the owners according
to the
a. Going concern principle
b. Matching principle
c. Economic entity assumption
d. Accounting period assumption
2. It is a “global phenomenon” intended to bring about transparency and a higher degree of comparability in
financial
reporting, both of which will benefit the investors and are essential to achieve the goal of one uniform and
globally
accepted financial reporting standards.
a. IFRS
b. Borderless accounting
c. World trade
d. Information technology
3. The purpose of the International Financial Reporting Standards is to
a. Issue enforceable standards which regulate the financial accounting and reporting of
multinational entities.
b. Develop a uniform currency in which the financial transactions of entities throughout the
world would be measured.
c. Promote uniform accounting standards among countries of the world.
d. Arbitrate accounting disputes between auditors and international entities.
8. Many accountants are employed in entities in various capacity as accounting staff, chief accountant or
controller.
These accountants are said to be engaged in
a. Public accounting
b. Private accounting
c. Government accounting
d. Financial accounting
10. These users are interested in information about the profitability and stability of an entity in order to assess
the
ability of the entity to provide remuneration, retirement benefits and employment opportunities.
a. Customers
b. The public
c. Government and their agencies
d. Employees
11. These users require information on risk and return on investment and hence an entity’s ability to pay
dividends.
a. Investors
b. Employees
c. Lenders
d. Customers
12. This accounting concept justifies the usage of accruals and deferrals
a. Going concern
b. Materiality
c. Consistency
d. Stable monetary unit
13. Once an accounting standard has been established
a. The standard is continually reviewed to see if modification is necessary.
b. The standard is not reviewed unless the SEC makes a compliant.
c. The task of reviewing the standard to see if modification is necessary is given to the
PICPA.
c. The principle of consistency requires that no revisions ever be made to the standard.
15. Which of the following terms best describes financial statements whose basis of accounting recognizes
transactions
and other events when they occur?
a. Accrual basis of accounting
b. Going concern basis of accounting
c. Cash basis of accounting
d. Invoice basis of accounting
16. These users are interested in information that enables them to determine whether amounts owing to them
will be
paid when due.
a. Suppliers and trade creditors
b. Lenders
c. Banks
d. Finance entities
18. It is the accounting standard setting body created by PRC upon recommendations of the Board of
Accountancy to
assist the Board of Accountancy in carrying out its powers and functions under R.A. No. 9298
a. Accounting Standards Council
b. Auditing and Assurance Standard Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standard Council
22. Which underlying concept serves as the basis for preparing financial statements at regular intervals?
a. Accounting entity
b. Going concern
c. Accounting period
d. Stable monetary unit
23. Which of the following statements best describes the term “going concern”
a. When current liabilities of an entity to continue in operation for assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses of an entity exceed its income
b. Guide corporate managers in preparing financial statements, which will be used, for
collective bargaining agreement with trade unions
c. Guide an entrepreneur of the choice of an accounting entity like single proprietorship,
partnership or corporation.
D. Receive substantial authoritative support.
37. During the lifetime of an entity accountants produce financial statements at arbitrary points in time in
accordance
with which basic accounting concept.
a. Accrual
b. Periodicity
c. Unit of measure
d. Continuity
38. These users are interested in information about the continuance of an entity, especially when they have a
long-
term involvement with or are dependent on the entity.
a. Customers
b. Employees
c. Trade unions
d. Suppliers
39. Continuation of an accounting entity in the absence of evidence to the contrary is the basic concept of
a. Accounting entity
b. Time period
c. Going concern
d. Accrual
2. The accounts and balances shown below were gathered from Paynter Corporation's trial
balance on December 31, 2021. All adjusting entries have been made.
Wages Payable ........................................... 25,600
Cash .................................................... 17,700
Mortgage Payable ........................................ 151,600
Dividends Payable ....................................... 14,000
Prepaid Rent ............................................ 13,600
Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400
Short-Term Investments .................................. 15,200
Premium on Bonds Payable ................................ 4,600
Stock Investment in Subsidiary .......................... 102,400
Taxes Payable ........................................... 22,800
Accounts Payable ........................................ 24,800
Accounts Receivable ..................................... 36,600
The amount that should be reported as current liabilities on Paynter Corporation's balance sheet
is
a. 87,200.
b. 91,800.
c. 73,200.
d. 238,800.
Solution:
Wages payable 25600
Dividends Payable 14000
Taxes Payable 22800
A/P 24800
Current Liabilities 87200
3. Balance sheet analysis is useful in assessing a firm's liquidity, which is the ability to
a. satisfy short-term obligations.
b. main profitable operations.
c. maintain past levels of preferred and common dividends.
d. survive a major economic downturn.
4. Neptune Corporation's trial balance contained the following account balances at December 31,
2021:
Accumulated Depreciation--Equipment ..................... 45,000
Short-Term Investments .................................. 15,000
Prepaid Insurance ....................................... 3,000
Cash .................................................... 33,000
Inventory of Merchandise ................................ 90,000
Equipment and Furniture ................................. 54,000
Patent .................................................. 12,000
Accounts Receivable (net) ............................... 48,000
Land Held for Future Business Site ...................... 75,000
On Neptune's December 31, 2021, balance sheet, the current assets total should be
a. 189,000.
b. 201,000.
c. 219,000.
d. 243,000.
Cash 33000
Short term Investments 15000
Prepaid insurance 3000
Inventory of Merchandise 90000
A/R 48000
Current Assets 189000
5. Baggins Company prepared a draft of its 2021 balance sheet. The draft statement reported total
assets of 437,500. Included in this total assets figure were the following items:
Treasury stock of Baggins Company at cost, which approximates
market value on December 31 ................
12,000
Unamortized patents ..................................... 5,600
Cash surrender value of life insurance on corporate executives
.............................................. 6,850
Unrealized holding losses on available-for-sale
securities ............................................ 4,200
At which amount should Baggins' total assets be correctly reported in the December 31, 2021,
balance sheet?
a. 420,850
b. 421,300
c. 425,050
d. 425,500
Assets 437500
Treasury at cost (13000)
Total asset 424500
6. Which of the following would not be reported in the stockholders' equity section of the balance
sheet?
a. Retained earnings appropriated for future plant expansion
b. Dividends declared on preferred stock
c. Paid-in capital in excess of par value
d. Deficit in retained earnings
7. Blues Corporation's trial balance included the following account balances at December 31,
2021:
Accounts Payable ........................................ 45,000
Bonds Payable, due 2022 ................................. 75,000
Discount on Bonds Payable, due 2022 ..................... 9,000
Dividends Payable January 31, 2022 ...................... 24,000
Notes Payable, due January 31, 2025 ..................... 60,000
What amount should be included in the current liability section of Blues' December 31, 2021,
balance sheet?
a. 135,000
b. 153,000
c. 195,000
d. 234,000
Solution:
A/P 45000
Bonds payable 75000
Discount on bonds payable -9000
Dividends payable 24000
Current Liabilities 135000
9. Which of the following would not be classified as a current liability on a classified balance
sheet?
a. Unearned revenue.
b. Deferred income tax liability.
c. The currently maturing portion of long-term debt.
d. Accrued salaries payable to management.
10. Seahawk Company's adjusted trial balance at December 31, 2021, includes the following
account balances:
Common Stock, 3 par .................................... 300,000
Additional Paid-In Capital .............................. 400,000
Treasury Stock, at cost ................................. 25,000
Net Unrealized Holding Loss on Available-For-Sale
Securities ............................................ 10,000
Retained Earnings--Appropriated for Uninsured Earthquake
Losses ................................................ 75,000
Retained Earnings--Unappropriated ....................... 100,000
What amount should Seahawk report as total owners' equity in its December 31, 2021, balance
sheet?
a. 840,000
b. 860,000
c. 890,000
d. 910,000
Solution:
Common stock 300000
Addl Paid in capital 400000
Treasury Stock -25000
NUHL on AFS -10000
RE appropriated 75000
RE Unappropriated 100000
Total owners’ equity 840000
11. Martin Corporation was organized on January 3, 2021. Martin was authorized to issue 50,000
shares of common stock with a par value of 10 per share. On January 4, Martin issued 30,000
shares of common stock at 25 per share. On July 15, Martin issued an additional 10,000 shares
at 20 per share. Martin reported income of 33,000 during 2021. In addition, Martin declared a
dividend of .50 per share on December 31, 2021. The
amount reported on Martin Corporation's December 31, 2021, balance sheet as stockholders'
equity was
a. 400,000.
b. 550,000.
c. 950,000.
d. 963,000.
Common stock30000 @25 750000
Addl paid in capital10000 @ 20 200000
Income 33000
Div Declared (20000)
stockholders equity 963000
14. The accounts and balances shown below were gathered from Paynter Corporation's trial
balance on December 31, 2021. All adjusting entries have been made.
Wages Payable ........................................... 25,600
Cash .................................................... 17,700
Mortgage Payable ........................................ 151,600
Dividends Payable ....................................... 14,000
Prepaid Rent ............................................ 13,600
Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400
Short-Term Investments .................................. 15,200
Premium on Bonds Payable ................................ 4,600
Stock Investment in Subsidiary .......................... 102,400
Taxes Payable ........................................... 22,800
Cash 17700
Prepaid rent 13600
Inventory 81800
Short term investments 15200
A/R 36600
Current Assets 164900
15. The December 31, 2021, balance sheet of Madden Inc., reported total assets of 1,050,000 and
total liabilities of 680,000. The following information relates to the year 2022:
• Madden Inc. issued an additional 5,000 shares of common stock at 25 per
share on July 1, 2022.
• Madden Inc. paid dividends totaling 80,000.
• Net income for 2022 was 110,000.
• No other changes occurred in stockholders' equity during 2022.
The stockholders' equity section of the December 31, 2022, balance sheet would report a
balance of
a. 400,000.
b. 525,000.
c. 685,000.
d. 835,000.
Solution:
equity 370000
contributed (addl) 125000
Income 110000
dividends Payable -80000
Stockholders equity 525000
16. Which of the following characteristics may result in the classification of a liability being changed
from current to noncurrent?
a. Violation of a subjective acceleration clause.
b. Violation of an objective acceleration clause.
c. A demand provision for payment.
d. Refinancing on or before the balance sheet date.
17. Eagle Co. prepared a draft of its 2021 balance sheet. The draft statement reported current
liabilities totaling 200,000. However, none of the following items were included in this
preliminary total at December 31, 2021:
Accounts payable ........................................ 30,000
Bonds payable, due 2022 ................................. 50,000
Discount on bonds payable, due 2022 ..................... 6,000
Dividends payable on January 31, 2022 ................... 16,000
Notes payable, due 2023 ................................. 40,000
At which amount should Eagle's current liabilities be correctly reported in the December 31,
2021, balance sheet?
a. 230,000
b. 290,000
c. 296,000
d. 302,000
Solution:
Reported Liab 200000
A/p 30000
Bonds payable 50000
Disocunt on bonds payable (6000)
Dividends Payable 16000
Current Liabilities 290000
19. Mejarus Co.'s adjusted trial balance at December 31, 2021, includes the following account
balances:
Common Stock, 3 par .................................... 360,000
Additional Paid-In Capital .............................. 480,000
Treasury Stock, at cost ................................. 30,000
Net Unrealized Loss on Available-for-Sale Securities .... 12,000
Retained Earnings: Appropriated for Uninsured Earthquake
Losses ................................................ 90,000
Retained Earnings: Unappropriated ....................... 120,000
What amount should Mejarus report as total stockholders' equity in its December 31, 2021,
balance sheet?
a. 1,008,000
b. 1,032,000
c. 1,068,000
d. 1,092,000
Solution:
Common Stock 360000
Addl paid in capital 480000
Treasury Stock -30000
UL on AFSS -12000
RE: AFUEL 90000
RE: UA 120000
Total stockholders equity 1008000
20. Which of the following would not be classified as a current asset on a classified balance sheet?
a. Investment securities (trading).
b. Short-term investments.
c. Prepaid expenses.
d. Intangible assets.
21. Maryk Electronics Inc. reported the following items on its December 31, 2021, trial balance:
Accounts Payable ........................................ 108,900
Advances to Employees ................................... 4,500
Unearned Rent Revenue ................................... 28,800
Estimated Liability Under Warranties .................... 25,800
Cash Surrender Value of Officers' Life Insurance ........ 7,500
Bonds Payable ........................................... 555,000
Discount on Bonds Payable ............................... 22,500
Trademarks .............................................. 3,900
The amount that should be recorded on Maryk's balance sheet as total liabilities is
a. 696,000.
b. 700,500.
c. 703,500.
d. 741,000.
22. The accounts and balances shown below were gathered from Paynter Corporation's trial
balance on December 31, 2021. All adjusting entries have been made.
Wages Payable ........................................... 25,600
Cash .................................................... 17,700
Mortgage Payable ........................................ 151,600
Dividends Payable ....................................... 14,000
Prepaid Rent ............................................ 13,600
Inventory ............................................... 81,800
Sinking Fund Assets ..................................... 52,400
Short-Term Investments .................................. 15,200
Premium on Bonds Payable ................................ 4,600
Stock Investment in Subsidiary .......................... 102,400
Taxes Payable ........................................... 22,800
Accounts Payable ........................................ 24,800
Accounts Receivable ..................................... 36,600
Paynter Corporation's working capital is
a. 62,500.
b. 73,100.
c. 77,700.
d. 125,700.
Solution:
Total Current Asset:
Cash 17,700
Prepaid Rent 13,600
Inventory 81,800
Short-Term Investments 15,200
Accounts Receivable 36,600
Total Current Liabilities.:
Wages Payable -25,600
Dividends Payable -14,000
Taxes Payable -22,800
Accounts Payable -24,800
Working Capital 77,700
23. Which of the following would not be considered an element of working capital?
a. Investment securities (current)
b. Organization costs
c. Accrued interest on notes payable
d. Work in process inventories
25. At year-end, the current assets of Hazel Company revealed cash and cash equivalents of
P700,000, accounts receivable of P1,200,000 and inventories of P600,000. The examination of
accounts receivable disclosed the following:
Trade accounts 930,000
Allowance for doubtful accounts ( 20,000)
Claim against shipper for goods lost in transit 30,000
Selling price of unsold goods sent by Hazel
On consignment at 130% of cost and not
Included in ending inventory 260,000
Total accounts receivable 1,200,000
What total amount should be reported as current assets at year-end?
a. 2,412,000
b. 2,440,000
c. 2,240,000
d. 2,500,000
Solution:
Cash and cash equivalent 700,000
Trade and other receivables (1,200,000 minus 260,000) 940,000
Inventories (600,000 + 200,000) 800,000
Total current assets 2,440,000
Adjustments
1. Sales 260,000
Accounts Receivable 260,000
2. Inventory (260,000 / 130%) 200,000
Cost of goods sold 200,000