Module 1 - External Financial Reporting - Balance Sheet and Valuation
Module 1 - External Financial Reporting - Balance Sheet and Valuation
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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____ 19. Long-term productive assets used in the normal course of business are typically classified as:
a. Investments. c. Current assets.
b. Property, plant and equipment. d. Intangible assets.
____ 20. Patents, copyrights, franchises, and trademarks are examples of:
a. Intangible assets. c. Current assets.
b. Investments. d. Property, plant and equipment.
____ 21. ABC Company uses IFRS in preparing its financial statements and provided the following
information at year-end:
Cash 1,500,000
Accounts receivable- unassigned 2,000,000
Accounts receivable- assigned 1,200,000
Inventory, including inventory expected in the ordinary course of 1,000,000
operations to be sold beyond 12 months amounting to PHP700,000
Financial assets held for trading 300,000
Equity investment at FVOCI 8,000,000
Investment in associate 2,500,000
Equipment held for sale 2,000,000
Deferred tax asset 1,500,000
Cash 5,000,000
Accounts receivable 2,000,000
Inventory, including goods received on consignment PHP200,000 800,000
Trading Securities- Bond Investment 1,000,000
Prepaid expenses, including a deposit of PHP50,000 made on 150,000
inventory to be delivered in 18 months
Total current assets 8,950,000
What amount should ABC report as total stockholders' equity in its December 31, 2004, balance
sheet?
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a. PHP1,092,000 c. PHP1,068,000
b. PHP1,008,000 d. PHP1,032,000
____ 24. ABC Corporation's trial balance included the following account balances at December 31, 2021:
What amount should be included in the current liability section of ABC' December 31, 2021, balance
sheet?
a. PHP153,000 c. PHP135,000
b. PHP195,000 d. PHP234,000
____ 25. ABC Co. has total debt of PHP252,000 and stockholders' equity of PHP420,000. ABC is seeking
capital to fund an expansion. ABC is planning to issue an additional PHP180,000 in common stock,
and is negotiating with a bank to borrow additional funds. The bank requires a maximum debt ratio
of .75. What is the maximum additional amount ABC will be able to borrow after the common stock
is issued?
a. PHP1,548,000 c. PHP1,236,000
b. PHP639,000 d. PHP852,000
____ 26. The accounts and balances shown below were gathered from ABC Corporation's trial balance on
December 31, 2021. All adjusting entries have been made.
The amount that should be reported as current assets on ABC Corporation's balance sheet is
a. PHP267,300. c. PHP151,300.
b. PHP217,300. d. PHP164,900.
____ 27. The December 31, 2021, balance sheet of ABC Inc., reported total assets of PHP1,050,000 and total
liabilities of PHP680,000. The following information relates to the year 2022:
• ABC Inc. issued an additional 5,000 shares of common stock at PHP25 per
share on July 1, 2022.
• ABC Inc. paid dividends totaling PHP80,000.
• Net income for 2022 was PHP110,000.
• 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. PHP525,000. c. PHP835,000.
b. PHP685,000. d. PHP400,000.
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ABC Corporation was organized on January 3, 2021. ABC was authorized to issue 50,000 shares of
common stock with a par value of PHP10 per share. On January 4, ABC issued 30,000 shares of
common stock at PHP25 per share. On July 15, ABC issued an additional 10,000 shares at PHP20
per share. ABC reported an income of PHP33,000 during 2021. In addition, ABC declared a dividend
of PHP.50 per share on December 31, 2021.
____ 28. The amount reported on ABC Corporation's December 31, 2021, balance sheet as additional paid-in
capital was:
a. PHP563,000. c. PHP550,000.
b. PHP400,000. d. PHP950,000.
____ 29. The amount reported on ABC Corporation's December 31, 2021, balance sheet as stockholders'
equity was:
a. PHP963,000. c. PHP950,000.
b. PHP400,000. d. PHP550,000.
____ 30. The accounts and balances shown below were gathered from ABC Corporation's trial balance on
December 31, 2021. All adjusting entries have been made.
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____ 34. An analysis of an entity’s $150,000 accounts receivable at year-end resulted in a $5,000 ending
balance for its allowance for uncollectible accounts and a bad debt expense of $2,000. During the
past year, recoveries on bad debts previously written off were correctly recorded at $500. If the
beginning balance in the allowance for uncollectible accounts was $4,700, what was the amount
of accounts receivable written off as uncollectible during the year?
a. $2,800 c. $1,200
b. $1,800 d. $2,200
____ 35. The following information applies to a manufacturing company, which has a 6-month operating
cycle:
The total of the company’s trade accounts receivable at the end of the current cycle is:
a. $160,000 c. $260,000
b. $262,000 d. $152,000
____ 36. CMA Cakes and Pastries estimates the allowance for uncollectible accounts at 3% of the ending
balance of accounts receivable. During 2021, CMA's credit sales and collections were $125,000 and
$131,000, respectively. What was the balance of accounts receivable on January 1, 2021, if $180
in accounts receivable were written off during 2021 and if the allowance account had a balance
of $750 on December 31, 2021?
a. $31,000.
b. $31,180.
c. None of these answer choices are correct.
d. $5,820.
____ 37. The following information relates to CMA Co.'s accounts receivable for 2021:
What amount should CMA report for accounts receivable, before allowances, at December 31,
2021?
a. $1,040,000.
b. $970,000.
c. None of these answer choices are correct.
d. $760,000.
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____ 38. The following aging information pertains to CMA Co.'s accounts receivable at December 31, 2021:
Estimated %
Days Outstanding
Amount Uncollectible
0-30 $ 420,000 2%
31-60 140,000 5%
61-120 100,000 10%
Over 120 120,000 20%
During 2021, CMA wrote off $18,000 in receivables and recovered $6,000 that had been written off
in prior years. CMA's December 31, 2020, allowance for uncollectible accounts was $40,000. Using
the balance sheet approach, what amount of allowance for uncollectible accounts should CMA
report at December 31, 2021?
a. $31,400. c. $49,400.
b. $55,400. d. $28,000.
____ 39. A corporation uses a calendar year for financial and tax reporting purposes and has $100 million of
mortgage bonds due on January 15, Year 2. By January 10, Year 2, the corporation intends to
refinance this debt with new long-term mortgage bonds and has entered into a financing agreement
that clearly demonstrates its ability to consummate the refinancing. This debt is to be:
a. considered off-balance-sheet debt
b. classified as a current liability on the statement of financial position at December
31, Year 1
c. retired as of December 31, Year 1
d. classified as a long-term liability on the statement of financial position at
December 31, Year 1
____ 40. In a perpetual inventory system, the cost of purchases is debited to:
a. Inventory. c. Accounts payable.
b. Cost of goods sold. d. Purchases.
____ 41. Which of the following is false regarding the FIFO inventory method?
a. FIFO under a perpetual inventory system results in the same cost of goods sold as
FIFO under a periodic inventory system.
b. A company can choose to account for the flow of inventory using the FIFO
method even if this doesn't match the actual flow of its inventory.
c. Perishable goods often follow an actual physical flow that is consistent with the
FIFO method assumptions.
d. All of the other answer choices are true.
____ 42. Inventory records for CMA Company revealed the following:
Purchases: Sales:
Mar. 10 600 gals @ $ 7.25 Mar. 5 400 gals
Mar. 16 800 gals @ $ 7.30 Mar. 14 700 gals
Mar. 23 600 gals @ $ 7.35 Mar. 20 500 gals
Mar. 26 700 gals
In applying the lower of cost or net realizable value rule, the inventory of surgical equipment
would be valued at:
a. $230. b. $240. c. $170. d. $152.
____ 48. For companies using LIFO, inventory is valued at:
a. Cost. c. Lower of cost or market.
b. Replacement cost. d. Net realizable value.
____ 49. CMA Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information
pertaining to that inventory is as follows:
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____ 50. Data related to the inventories of CMA Medical Supply are presented below:
In applying the lower of cost or market rule, the inventory of surgical equipment would be
valued at:
a. $152. b. $170. c. $230. d. $240.
____ 51. Which of the following investment securities held by CMA Inc. are not reported at fair value in its
balance sheet?
a. Bonds held as trading securities.
b. All of these answer choices are reported at fair value.
c. Debt securities held-to-maturity.
d. Debt securities held as available-for-sale securities.
____ 52. CMA Inc. purchased several investments in debt securities during 2020, its first year of operations.
The following information pertains to these securities. The fluctuations in their fair values are not
considered permanent.
What balance sheet amount would CMA report for the total of its investments in bonds at
12/31/2020?
a. None of these answer choices are correct.
b. $637,000.
c. $645,400.
d. $644,500.
____ 53. On January 1, 2021, CMA Retailers purchased $100,000 of CPA Company bonds at a discount of
$5,000. The CPA bonds pay 6% interest but were purchased when the market interest rate was 7%
for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and
December 31 of each year. CMA accounts for the bonds as a held-to-maturity investment and uses
the effective interest method. In CMA's December 31, 2021, journal entry to record the second
period of interest, CMA would record a credit to interest revenue of:
a. $3,500. c. $3,336.
b. $3,325. d. $3,000.
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____ 54. If CMA Company concluded that an investment originally classified as a trading security would now
more appropriately be classified as held-to-maturity, CMA would:
a. Reclassify the investment as held-to-maturity, but there would be no income effect.
b. Reclassify the investment as held-to-maturity and immediately recognize in net
income all unrealized holding gains and losses that have not already been
recognized as of the reclassification date.
c. Not reclassify the investment, as original classifications are irrevocable.
d. Reclassify the investment as held-to-maturity and treat the fair value as of the date
of reclassification as the investment's amortized cost basis for future amortization.
____ 55. On January 1, 2021, Nana Company paid $100,000 for 8,000 shares of Papa Company common
stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence
over Papa Company. Papa reported net income of $52,000 for the year ended December 31, 2021.
The fair value of the Papa stock on that date was $45 per share. What amount will be reported in
the balance sheet of Nana Company for the investment in Papa at December 31, 2021?
a. $315,600. c. $284,400.
b. $300,000. d. $360,000.
____ 56. GAAP regarding fair value accounting for investments in equity securities will generally apply to
an investment when the percentage of ownership of another company is:
a. Over 50%. c. Less than 20%.
b. 20% to 50%. d. Exactly 100%.
____ 57. CMA Company bought 28,000 shares of the voting common stock of CISA Corporation in January
2021. In December, CISA announced $200,000 net income for 2021 and declared and paid a cash
dividend of $2 per share on all 200,000 shares of its outstanding common stock. CMA Company's
dividend revenue from CISA Corporation in December 2021 would be:
a. $28,000.
b. $0.
c. None of these answer choices are correct.
d. $56,000.
____ 58. If Pop Company exercises significant influence over Son Company and owns 40% of its common
stock, then Pop Company:
a. Would record 40% of the net income of Son Company as investment income each
year.
b. Would increase its investment account when Son Company declares dividends.
c. All of these answer choices are correct.
d. Would record dividends received from Son Company as investment revenue.
____ 59. When using the equity method to account for an investment, cash dividends received by the
investor from the investee should be recorded:
a. As an increase in the investment account.
b. As dividend income.
c. As a reduction in the investment account.
d. As a contra item to stockholders' equity.
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____ 60. A corporation purchased 100% of the shares of CMA Corporation for $600,000. Financial
information for CMA Corporation is provided below:
CMA Corporation
($000)
Carrying Fair
Amount Value
Cash $50 $50
Accounts receivable 100 100
Inventory 150 100
Total current assets 300 250
Property, plant, and equipment (net) 500 600
Total assets $800
The amount of goodwill resulting from this purchase, if any, would be:
a. $150,000 c. $100,000
b. $0 d. $200,000
Completion
Complete each statement.
Problem 1- The following are the typical classifications used in a balance sheet:
a. Current assets
b. Investments
c. Property, plant, and equipment
d. Intangible assets
e. Other assets
f. Current liabilities
g. Long-term liabilities
h. Paid-in capital
i. Retained earnings
1. Equipment
2. Accounts payable
3. Allowance for uncollectible accounts
4. Land (held for investment)
5. Notes payable (due in 5 years)
6. Deferred revenue (for the next 12 months)
7. Notes payable (due in 6 months)
8. The accumulated amount of net income less dividends
9. Investment in AYZ Corp. (long-term)
10. Inventory
11. Patent
12. Land (used in operations)
13. Accrued liabilities (due in 6 months)
14. Prepaid rent (for the next 9 months)
15. Common stock
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16. Building (used in operations)
17. Cash
18. Income Tax Payable
Required:
61. For each of the following balance sheet items, use the letters above to indicate the appropriate
classification category. If the item is a contra account, place minus sign before the chosen letter.
Problem 2- The following are the ending balances of accounts at December 31, 2021, for ABC
Corporation.
Additional Information:
1. The PHP120,000 balance in the land account consists of PHP100,000 for the cost of land where
the plant and office buildings are located. The remaining PHP20,000 represents the cost of land
being held for speculation.
2. The PHP44,000 balance in the investment in equity securities account represents an investment
in the common stock of another corporation. ABC intends to sell one-half of the stock within the
next year.
3. The notes payable account consists of a PHP100,000 note due in six months and a PHP150,000
note due in three annual installments of PHP50,000 each, with the first payment due in August of
2022.
Required:
62. Prepare a classified balance sheet for ABC Corporation at December 31, 2021. Use the additional
information to help determine appropriate classifications and account balances.
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