Final Exam201

Final exam financial accounting 201 1. Choose the incorrect statement. a. The objective of external financial statements is to communicate the economic effects of completed transactions and other events in the entity. b. General purpose financial statements were developed primarily because all outside users have the same information needs. c. The double-entry system of accounting has been used for centuries. d. The practice of accounting requires considerable professional judgment. 2. Which statement is incorrect regarding Philippine Financial Reporting Standards (PFRSs)? a. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements. b. PFRSs are based on the Framework, which addresses the concepts underlying the information presented in general purpose financial statements. c. PFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit-oriented entities. d. PFRSs are designed to apply to not-for-profit activities in the private sector. 3. Which of the following statements regarding the conceptual framework is correct? a. The framework is concerned with special-purpose financial statements. b. The framework applies to financial statements of business reporting enterprises in the private sector but not in the public sector. c. In cases where there is conflict between the framework and a PFRS, the requirement of the framework will prevail. d. The framework deals with concepts of capital. 4. If an item of income is not material, then the manner of presenting that information, or whether or not it is disclosed: a. Will have an impact on the economic decisions of users. b. Should not affect the economic decisions of users. c. Should not be included in the determination of profit or loss for the period. d. Will be included directly in retained earnings. 5. Which of the following statements is false? a. Depreciation expense, bad debt expense, and warranty expense are estimated expense because they all depend upon future events. b. Reversing entries are made to eliminate the need to monitor the effect of year-end adjusting entries during the next accounting period. c. Depreciation expense and accrued revenues are example of deferred items. d. When a company records reversing entries, adjusting entries like deferred expenses recorded initially as assets upon payment of cash generally are not reserved. 6. Which of the following statements is correct? a. The use of a general journal implies that there is no need for special journals. b. Each subsidiary ledger has a related control account in the general journal. c. Assume a company always records prepaid expenses as assets upon payment of cash, and deferred revenues as liabilities upon receipt of cash. If this company records reversing entries, generally only adjusting entries for accrued expenses and accrued revenues should be reversed. d. All entries in the general journal are supported by details contained in the special journals. 7. XYZ Inc. decided to extend its reporting period from a year (12-month period) to a 15month period. Which of the following is (are) not required under PAS in case of change in reporting period? I. XYZ Inc. should disclose the reason for using a longer period than a period of 12 months. II. XYZ Inc. should change the reporting period only if other similar entities in the geographical area in which it generally operates have done so in the current year; otherwise its financial statements would not be comparable to others. III. XYZ Inc. should disclose that comparative amounts used in the financial statements are not entirely comparable. a. I and II b. II and III c. III only

d. II only 8. At a minimum, based on PAS 1, the face of the Statement of Financial Position shall include all of the following line items, except a. Biological assets b. Investment property c. Agricultural produce d. Deferred tax assets and liabilities 9. The statement of changes in equity should disclose the following, except a. Total comprehensive income b. Effect of the change in an accounting estimate c. Capital transactions with owners and distribution to owners d. Effects of retrospective restatement 10.Revenue should be measured at a. Fair value of the consideration received or receivable. b. Cost of the consideration received or receivable c. Amount of cash received or receivable. 11.Which statement is incorrect regarding investment property? a. Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises. b. The cost of the purchased investment property includes its purchase price and any directly attributable expenditure c. Transfer from investment property to property, plant, and equipment are appropriate only when the entity adopts the fair value model under PAS 38. d. Investment property includes property that is being constructed or developed fuse as an investment property 12.The following may be included in the cost of inventories, except a. Administrative overheads b. Wasted materials, labor and other production costs c. Storage costs d. Selling costs 13.BMC, Inc. is evaluating whether to apply the lower of cost or net realizable value rule to total inventory, to groups of similar items, or to each item. Which applications should it use if it wants to show the lowest inventory amount? a. Separately to each time b. Total inventory c. Groups of similar items d. It does not matter, as all applications result in the same amount 14.The retail method has been used by a retail department store during its first year of operations. As of the end of the year, compare (A) the markdowns with (B) the markdown cancellations: a. A will be equal to B b. A will be less than or equal to B c. A will be greater than or equal to B d. A cannot be equal to B 15.Which of the following is an appropriate combination of a biological asset and its agricultural produce? Biological Assets Agricultural Produce a. Sheep Yarn b. Trees in a plantation forest Logs c. Dairy Cattle Butter d. Pigs Carcass 16.Which statement is incorrect concerning biological assets and agricultural produce? a. Inventories comprising agricultural produce an entity has harvested from its biological assets are measured on initial recognition at fair value. b. Changes in fair value of a biological assets or an agricultural produce are included in the determination of income of the current period.

c. An unconditional government grant related to a biological asset has been measured at fair value less point of sale costs should be recognized as income when the grant becomes receivable. d. Biological assets are measured at fair value less costs to sell at initial recognition and at each subsequent reporting period. 17.Which of the following values is unlikely to be used in fair value measurement for biological assets? a. Quoted price in a market b. The most recent market transaction price c. The present value of the expected net cash flows from the assets d. External in dependent valuation 18.Which statement is incorrect in determining recoverable amount? a. If the carrying amount is less than fair value less costs to sell or value in use, it is not necessary to calculate the other amount. b. If fair value less costs to sell cannot be determined, then recoverable amount is value in use. c. For assets to be disposed of, recoverable amount is fair value less costs to sell. d. All of the above statements are correct. 19.Which of the following appears on the bank side of the bank reconciliation? a. Outstanding checks b. Interest earned on bank balance c. NSF check d. Book error 20.If the balance shown on a company’s bank statement is less the correct cash balance, and neither the company nor the bank has made any errors, there must be a. Deposits credited by the bank but not yet recorded by the company b. Outstanding checks c. Bank charges not yet recorded by the company d. Deposits in transit 21.Which of the following is a method to generate cash from accounts receivable? Assignment Factoring a. No Yes b. Yes Yes c. Yes No d. No No 22.Which of the following items would be excluded from current liabilities? a. A long-term liability callable or due on demand by the creditor even though the creditor has given no indication that the debt will be called. b. Normal accounts payable which had been assigned by the creditor to the finance company c. Long-term debt callable within one year or less because the debtor violated a debt provision. d. Short-term debt which at the discretion of the entity can be rolled over at least twelve months after the balance sheet date. 23.Which of the following statements regarding provisions is incorrect? a. Provisions should be recognized for penalties or clean-up costs for unlawful environment damage b. Provisions should be recognized for product warranties c. Provisions should be recognized for future operating losses d. Provisions should be recognized for outstanding premiums offered to customers 24.Use of the effective interest method in amortizing a premium on bonds payable would result in a. A constant amount of premium amortization each period over the life of the bonds b. An increasing amount of premium amortization each period over the life of the bonds c. A decreasing amount of premium amortization each period over the life of the bonds d. Cannot be determined from the information given. 25.Which of the following transactions does not result in a decrease in retained earnings? a. Declaration and issuance of dividends for the period

b. Incurrence of a net loss for the period c. Acquisition of treasury stock for more than par value but less than the original issue price, when the cost method is used. d. Correction of an error in which depreciation expense was understated in a prior period 26.What do an appropriation of retained earnings and a declaration of cash dividend (for the same amount) have in common? a. Both increase the amount of appropriated retained earnings b. Both have the same consequences for stockholders c. Both permanently reduces future ability to pay dividends d. Both result in a decrease in unappropriated retained earnings 27.PROCESSOR Inc. leased a new machine having an expected useful life of 30 years from Carbride Co. Terms of the noncancellable 25-year lease were that PROCESSOR would gain title to the property upon payment of a sum equal to the fair market value of the machine at the termination of the lease. PROCESSOR accounted for the lease as a finance lease and recorded an asset and a liability in the finance records. The asset recorded under this lease should properly be amortized/ depreciated over a. 5 years (the period of actual ownership) b. 22.5 years (the period of actual ownership) c. 25 years (the term of the lease) d. 30 years (the total asset life) 28.Accounting policies should be followed a. When the financial results are improved b. Consistently c. Never d. Rarely 29.A cumulative effect of change in an accounting policy is measured as the a. The difference between the prior periods’ pretax profit under the old method and what would have been reported if the new method had been used in the prior years b. The post-tax difference between the prior period profit under the old method and what would have been reported if the new method had been used in the prior years. c. The difference between the total of the prior period profit and the current period profit under the new method and the total of the prior period profit and current period profit under the old method. d. The post-tax difference between the total of the prior period profit and current period profit under the new method and the total of the prior period profit and current period profit under the old method 30.Which statement is correct regarding changes in accounting policies? a. An entity is not permitted to change an accounting policy b. Changes in accounting policies include applying an accounting policy to a kind of transaction or event that did not exist in the past c. If a change in accounting policy is required by a new FRSC standard or interpretation, the change is accounted for as required by that new pronouncement d. If a new pronouncement does not include specific transition provisions, the change in accounting policy is applied prospectively 31.Which of the following items is reported only in current and future periods? a. Correction of a prior period error b. Effects of a change in accounting estimates c. Effects of a change in accounting policies d. All of the above 32.Which statement is incorrect regarding cash flow statements? a. All enterprises that prepare financial statements in conformity with GAAP are required to present a cash flow statement b. Cash flows must be analyzed between operating, investing and financing activities. c. The cash flow statement analyses changes in cash and cash equivalents during a period d. For operating cash flows, the indirect method of presentation is encouraged, but the direct method is acceptable 33.PAS 7 Cash Flow Statements, requires that investing and financing transactions that do not require the use of cash or cash equivalents should be: a. Exclude from a cash flow statement

b. Included in a cash flow statement before operating, investing and financing activities c. Presented in the cash flow statement after operating activities and before investing and financing activities d. Presented in a cash flow statement after the operating, investing and financing activities have been presented 34.Which of the following information should be included in Melay, Inc.’s 2010 summary of significant account policies? a. Property, plant and equipment is recorded at cost with depreciation computed principally by the straight-line method b. During 2010, the delay segment was sold. c. Business segment 2010 sales are Alay P 1M, Belay P2M, and Celay P3M d. Future common shares dividends are expected to approximate 60% of earnings 35.Unrelated parties include all of the following, except a. Providers of finance b. Two venturers simply because they share joint control over the joint venture c. Single customer with whom the entity transacts significant volume of business merely by virtue of the resulting economic dependence d. Key management personnel and close family members of such individual 36.The following transfers/ reclassifications of financial assets are permitted, except a. Transfer from held-to-maturity investments to available-for-sale category b. Reclassifications of non-derivative financial loss category if the financial asset is no longer held for purpose of selling it in the near term in particular circumstances c. Reclassification of non-derivative financial assets designated at fair value through profit or loss by the entity upon initial recognition out of the fair value through profit or loss category d. Transfer from the available- for-sale category to the loans and receivables category of a financial asset that would have met the definition of loans and receivables (if the financial asset had not been designated as available-for-sale), if the entity has the intention and ability to hold that financial asset for the foreseeable future. 37.In which of the following circumstances is derecognition of a financial asset not appropriate? a. The contractual rights to the cash flows of the financial assets have expired b. The financial asset has been transferred and substantially all the risks and rewards of ownership of the transferred asset have also been transferred c. The financial asset has been transferred and the entity has retained substantially all the risks and reward of ownership of the transferred asset d. The financial asset has been transferred and the entity has neither retained nor transferred substantially all the risks and rewards of ownership of the transferred asset. In addition, the entity has lost control of the transferred asset 38.An entity shall disclose in the summary of significant accounting policies: a. The measurement basis (or bases) used in preparing the financial statements b. All the measurement bases specified in the PFRS for SMEs irrespective of whether they were used by the entity in preparing its financial statements c. The measurement basis (or bases) used in preparing the financial statements and the accounting policies used that are relevant to an understanding of the financial statements. d. All of the measurement bases and the accounting policy choices available to the entity (ie. Specified in the PFRS for SMEs) irrespective of whether they were used by the entity in preparing its financial statements. 39.An entity : a. Must chose to present either a statement of income and retained earnings or a statement of comprehensive income and a statement of changes in equity (ie a free accounting policy choice available to all entities that prepare their financial statements in accordance with the PFRS for SMEs). b. Whose only changes to its equity in the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy is required to present a statement of income and retained earnings in place of a statement of comprehensive income and a statement of changes in equity. c. Whose only changes to its equity in the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period

errors, and changes in accounting policy is permitted but not required to present a statement of income and retained earnings in place of a statement of comprehensive income and a statement of changes in equity. d. That chooses to present a statement of income and retained earnings must also present a statement of comprehensive income and a statement of changes in equity.

In the course of our audit of Edilberto Inc.’s cash in bank for the year ended December 31, 2018, you ascertained the following Information: August 31 September 30 Cashperbooks P82,350 P201,425 Cashperbankstatements 535,410 689,085 Undepositedcollections 41,005 64,400 Outstandingchecks 138,590 150,560 Bankservicecharges 3,600 3,000 Insufficientfundcheck 41,250 Company’s notes receivable collected by bank. 359, 075 404, 500 The bank statement and the company's cash records show the following totals: Cancelled and debit memos per bank statement Cash receipts per cash records Checks written per cash books Deposits and credit memos per bank statement

P1, 091,865 823,185 1,059,585 1,245,540

The Insufficient fund check was redeposited in the same month.No entries are made to take up the return and redeposit. Requirements: 40. What is the total book receipts In December? a. 1,227,685 c. 1,160,660 b, 1,182,260 d.823,185 41. What is the total book disbursements In December? a. 1,059,585 c. 1,063,785 b. 1,063,185 d. 1,066,185 42. What is the adjusted book balance on November 30? a. 434,825 c. 441,425 b. 437,825 d. 445,025 43. The adjusted bank receipts In December should be: a. 1,268,935 c. 1,265,335 b. 1,268,337 d. 1,245,540 44. The adjusted bank disbursements In December should be: a. 1,105,035 c. 1,097,835 b. 1,103,835 d. 1,091,865 In relation to your audit of Inuyasha Inc.'s accounts receivable you ascertained the following Information: a. The general ledger balances of the client’s receivable and related accounts were: Accounts receivables Allowance for bad debts

P3,225,300 (169,000)

a. Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging schedule of accounts receivable at December 31, 2008, is presented below: Age of accounts Current 1- to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due b. The company normally sells n/30.

Amount P1,686,400 922,000 384,800 153,300 78,800

c.

Furthermore, the company's uncollectible accounts experience for the past 5 years is summarized in the schedule that follows: Year Current 1- 30 31 – 60 1-90 More than days PD days PD 90 days PD 2007 1% 6% 9% 23% 55% 2006 2% 8% 10% 18% 60% 2005 1% 4% 11% 16% 45% 2004 3% 5% 12% 22% 45% 2003 3% 2% 8% 21% 45%

Requirements: 45. What are the corresponding percentages to be used per age category in computing for the client's required allowance for bad debts? Current 1-30 31-60 1-90 > 90 a. 1% 3% 10% 20% 45% b. 1.5% 5% 10% 25% 0% c. 2% 5% 10% 20% 50% d. 2% 3% 10% 25% 45% 46. The required allowance for bad debt expense is: a.173,653 c. 188,368 b.185,415 d. 220,842 47. The net realizable value of the company's accounts receivable on December 31, 2008,should be: a.3,036,932 c. 2,986,345 b.3,004,458 d. 2,976,540 The Mexican Corp. grants its customers 30 days credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly-bad debt accrual is made by multiplying 2% by the amount of credit sales for the month.At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2007, account receivables were P1, 250,000 and the allowance had a credit balance of P106,000. Accounts receivable activity for 2008 was as follows: Credit sales P3,800,000 Write offs, 82,000 Collections, Thecompany'scontrollerpreparedthefollowingagingsummaryofyear-endaccounts receivable: Age Group Amount Percent Collectible 0- 60 days P825,000 98% 61-90 days 220,000 90% 91- 120 days 50,000 70% Over 120 days 128, 000 60% Total P1, 223, 000 It was ascertained that P40, 000 from the over 120 days accounts are absolutely worthless. Requirements: 48. How much is the total bad debt expense for 2008? a,104,700 c. 80,700 b. 71,300 d. 4,700 49. How much Is the net realizable value of accounts receivable at December 31, 2008? a.1,123,000 c. 1,094,300 b.1,118,300 d. 1,223,000

On May 31, 2006, a fire completely destroyed the work-In process Inventory of Alder Paints. Physical Inventory figures were published as follows:

Raw Materials Work-In Process Finished Goods

As of January 1. 2006 P 15,000 50,000 70,000

As of May 31, 2006 P 30,000 -60,000

Sales for the first five months of 2006 were P150, 000 raw materials purchased were P50, 000. Freight on purchases was P5, 000. Direct labor for the five months was P40, 000. To determine the value of the lost inventory, the Insurance

adjusters have agreed to use an average gross 'profit rate of 32.5%. Assume that manufacturing overhead was 45% of" direct labor cost. Requirements: 50. The value of the goods manufactured and completed as of May 31, 2006 was a. P60, 000 c.P95, 000 b. P90, 000 d. 91,250 51. Raw materials used during the first five months of 2006 were a. P25, 000 c. P40, 000 b. P35, 000 d.P45, 000 52. The total value of goods put in process during .the five-month period amounted to a. P143, 000 c.P168, 000 b. P150, 000 d. P148, 000 53. The value of the destroyed work-In process inventory as determined by the Insurance adjusters would be a. P56, 750 c.P86, 750 b. P65, 750 d.P57, 650 Bird Company is a manufacturer of small tools.The following information was obtained from the company's accounting records for the year ended December 31, 2008: Inventory at December 31, 2008 (based on physical count In Bird’s warehouse at cost on December 31, 2008) Accounts payable at December 31, 2008 Net sales (sales less sales returns)

P1,870,000 1,415,000 9,693,400

Your audit reveals the following Information: a. The physical count Included tools to be shipped to a customer FOB shipping point onDecember 31, 2008.These tools cost P64, 000 and were billed at P78, 500 and were recorded as December sales.They were physically segregated awaiting shipping Instructions from the customer. b. Goods shipped FOB shipping point by a vendor was in transit on December 31, 2008.These goods with Invoice cost of P93, 000 were shipped on December 29, 2008. . c.

Work In process Inventory costing P 7;000was sent to a job contractorfor further processing.

d. Not included in the physical count were goods returned by customers on December 31, 2008.These goods costing P49, 000 were inspected and returned to Inventory on January 7, 2009.Credit memos for P67, 800 were issued to the customers at that date. e. In transit to a customer on December 31, 2008, were tools costing P17, 000 shipped FOB destination on December 26, 2008.A sales Invoice for P29, 400 was Issued on January 3, 2009, when Bird Company was notified by a customer that the tools had been received. f.

At exactly 5:00 pm on December 31, 2008, goods costing P31, 200 were received from a vendor. There were recorded on a receiving report dated January 2, 2009. The related Invoice was recorded on December 31, 2008, but the goods were not included in the physical count.

g. Included In the physical count were goods received from a vendor on December 27,2008.However, the related Invoice for P36,000 was not recorded because the accounting department's' copy of the receiving report was lost. h. A monthly freight bill for P16,000 was received on January 3, 2009.It specifically related to merchandise bought In December 31, 2008, one-half of which was still In the Inventory at December 31, 2008.The freight was not included in either the Inventory or in accounts payable at December 31, 2008. Based on the preceding Information, compute the December 31, 2008, adjusted balance of the following: A B C D 54. Inventory 2, 095, 200 2, 031, 200 2, 046, 200 2, 078, 200 55. Accounts payable 1, 552, 000 1, 560, 000 1, 467, 000 1, 591, 200 56. Net sales 9, 614, 900 9, 576, 500 9, 625, 600 9, 547, 100 SITAW CORP. acquired and holds debt and equity securities as investment. The company has no Intention of earning profit from short-term fluctuations in price (P/L) nor did it have any Intention of holding debt securities to maturity(OCI). In addition, there Is no significant influence over any investee companies. Described below are the company's Investment-related transactions from 20017 to 2018: 2017

a. The company purchased on March 1, 1 million PATATAS, Inc. common shares for P62 million, including brokerage fees and commissions. b. The company purchased on April 15, P100 million of 10% bonds at face value fromSIBUY Corporation. c.

On July 2, the company received cash dividends of P1.5 million on the investment In PATATAS, Inc. common shares.

d. On October 15, the company received the semiannual Interest of P5 million on the investment in SIBUY Corporation bonds. e. Sitaw Corp. sold half of the SIBUY Corporationbonds for P51.25 million on October 16. f.

.

Sitaw Corp. purchased 250,000BAWA Co. preferredshares for P20 per share, Including brokeragefees and commissions on November 11.

g. On December 31, the market values of the Investments are P64 per share for PATATAS, Inc. and P74 per share for BAWA Co. preferred stock.In addition, SIBUY bonds were quoted at 1 h. Also, on December 31, the company recorded a transfer of all PATATAS shares to trading securities caption. 2018 i. The company sold half the PATATAS Inc. shares for P65 per share on February 14. j.

The company sold the BAWA Co. preferred stock for P78 per share on March 15. 57. What is the gain (loss) on the sale of the SIBUY Corporation bonds on October 16, 2017? a.1.25 million c.(1.25 million) b.3.75 million d.(3.75 million) 58. What is the total unrealized capital related to the investment to be reported at the balance sheet date December 31, 2017? , a.13.5 million c.5.75 million b.5.5 million d.2.5 million 59. What is the total dividend and Interest Income from the Investments to be reported in the company's 2017 Income statement? a.8.583 million c.7.542 million b.7.583 million d.7.5 million 60. What is the gain (Loss) on the sale of the PATATAS, Inc. shares in 2018? a.1.5 million c.(1.5 million) b.0.5 million d.(0.5 million) 61. What is the gain (loss) on .the sale of the BAWA Co. preferred shares in 2018? a.14.5 million c.(0.5 million) b.1 million d.(1 million)