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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

1. The term "comprehensive income" is most closely associated to a. Includes all changes in equity during a period except those resulting from investments by and distributions to owners. b. Must be reported on the face of the income statement. c. Is the net change in owners' equity for the period. d. Is synonymous with the term "net income." 2. Heath Co.’s current ratio is 4:1. Which of the following transactions would normally increase its current ratio? a. Purchasing inventory on account. b. Selling inventory on account. c. Collecting an account receivable. d. Purchasing machinery for cash. 3. A private not-for-profit organization located in Tucson, Arizona, reports a statement of functional expenses to show the amounts incurred for each of its program services as well as each of its supporting services. Which of the following statements is true? a. The statement of functional expenses is required of all private not-for-profit organizations. b. The statement of functional expenses is required of all hospitals but is optional for all other private not-for-profit organizations. c. The statement of functional expenses is required of all voluntary health and welfare organizations but is optional for all other private not-for-profit organizations. d. The statement of functional expenses is optional for all private not-for-profit organizations. 4. 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. 5. Which of the following balance sheet classifications would normally require the greatest amount of supplementary disclosure? a. Current assets b. Current liabilities c. Plant assets d. Long-term liabilities 6. An entity is preparing interim financial statements for six months ended June 30, 2017. In the interim financial statements for the six months ended June 30, 2017, a statement of financial position on June 30, 2017 and a statement of comprehensive income for the six months ended June 30, 2017 shall be presented. In addition, all of the following shall be presented, except a. A statement of financial position on June 30, 2016 b. A statement of financial position on December 31, 2016 c. A statement of comprehensive income for the half-year ended June 30, 2016. d. A statement of cash flows for the half-year ended June 30, 2016.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

7. In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of ordinary shares at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would a. Fairly present diluted earnings per share on a prospective basis. b. Fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. c. Reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. d. Be antidilutive. 8. The components of net periodic pension expense that involve delayed recognition are a. Interest cost, past service cost, transition cost, and expected return on plan assets. b. Service cost, transition cost and gains and losses. c. Gains and losses, transition cost and past service cost. d. Transition cost, past service cost and expected return. 9. Which of the following should be treated as a change in accounting policy? I. A new accounting policy of capitalizing development costs as a project has become eligible for capitalization for the first time. II. A new policy resulting from the requirements of a new PFRS. III. To provide more relevant information, items of property, plant and equipment and are now being measured at fair value, whereas they had previously been measured at cost. IV. A company engaging in construction contracts for the first time needs an accounting policy to deal with this. a. I, II, III and IV b. I and II only c. II and III only d. I and IV only 10. Although sometimes it may be difficult to identify an acquirer, there are usually indications that one exists. Choose the incorrect statement. a. If the fair value of one of the combining entities is significantly greater than that of the other combining entity, the entity with the greater fair value is likely to be the acquirer. b. If the business combination is affected through an exchange of voting equity instruments for cash or other assets, the entity giving up cash or other assets is likely to be the acquirer. c. If the business combination results in the management of one of the combining entities being able to dominate the selection of the management team of the resulting combined entity, the entity whose management is able to dominate is likely to be the acquirer. d. When a new entity is formed to issue equity instruments to effect a business combination, the new entity shall be identified as the acquirer. 11. An a. b. c. d.

option to convert a convertible bond into shares of common stock is a(n) Embedded derivative. Host security. Hybrid security. Fair value hedge.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

12. On December 1, 2012, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 20% of the subscription price of each share was collected as a down payment on December 1, 2012, with the remaining 80% of the subscription price of each share due in 2013. Collectibility was reasonably assured. At December 31, 2012, the stockholders’ equity section of the balance sheet would report additional paid-in capital for the excess of the subscription price over the par value of the shares of common stock subscribed and a. Common stock issued for 20% of the par value of the shares of common stock subscribed. b. Common stock issued for the par value of the shares of common stock subscribed. c. Common stock subscribed for 80% of the par value of the shares of common stock subscribed. d. Common stock subscribed for the par value of the shares of common stock subscribed. 13. Which of the following statements is false in determining the fair value of biological assets and agricultural produce? a. Contract prices are not necessarily relevant in determining fair value when entities enter into contracts to sell their biological assets or agricultural produce at a future date, because fair value reflects the current market in which a willing buyer and seller would enter into a transaction. b. If an active market exists for a biological asset or agricultural produce, in its present location and condition, the quoted price in that market is the appropriate basis for determining the fair value of that asset c. The determination of fair value for a biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes d. The fair value of a biological asset or agricultural produce is adjusted when entities enter into contracts to sell their biological assets or agricultural produce at a future date. 14. All of the following are valid procedures in restating shareholders’ equity during hyperinflation, except a. Contributed capital is restated by applying a general price index from the dates the components were contributed b. Treasury shares is restated by applying a general price index from the dates the shares were acquired c. Revaluation surplus is restated at the specific date of revaluation d. Restated retained earnings are derived from all the other amounts in the restated balance 15. The cost of purchasing a patent for a product that might otherwise have seriously competed with the purchaser’s patented product should be a. Expensed in the current period. b. Amortized over the legal life of the purchased patent c. Added to factory overhead and allocated to production of the purchaser’s product. d. Amortized over the remaining useful life of the patent for the product whose market would have been impaired by competition from the newly patented product. 16. Which of the following is not a reason why revenue is recognized at time of sale? a. Realization has occurred. b. The sale is the critical event. c. Title legally passes from seller to buyer. d. All of these are reasons to recognize revenue at time of sale.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

17. Which of the following statements is true? a. A loss may arise on initial recognition of a biological asset, such as when a calf is born b. A gain or loss may arise on subsequent measurement of agricultural produce c. A loss may arise on initial recognition of a biological asset, because costs to sell are deducted in determining fair value less cost to sell of a biological asset d. A gain or loss arising on initial recognition of agricultural produce at fair value less cost to sell shall be included in other comprehensive income for the period in which it arises 18.Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? a. Monetary unit assumption. b. Periodicity assumption. c. Going-concern assumption. d. Economic entity assumption. 19. Under a cash settled share-based payment transaction, when shall an entity measure the fair value of the liability arising from this arrangement? a. At the end of each reporting period only b. At the beginning of each reporting period only c. At the date of settlement only d. At the end of each reporting period and at the date of settlement 20. Amortization of the discount on bonds payable is added to net income in the reconciliation of net income to cash flows from operating activities because a. It should be classified as a financing cash flow, therefore the additional interest expense will understate net income. b. It decreases net income without a corresponding cash flow. c. Interest expense understates the cash paid for interest by the amount of the discount amortization. d. Interest expense overstates the cash paid for interest by the amount of the discount amortization. 21. A parent entity is acquiring a majority holding in an entity whose shares are dealt in a recognized market. Under IFRS 3, which of the following measurement bases may be used in measuring the noncontrolling interest at the acquisition date? a. Fair value only b. Book value only c. A proportionate share of the acquiree’s identifiable net assets d. Both fair value and a proportionate share of the acquiree’s identifiable net assets. 22. All of the following are valid procedures in restating shareholders’ equity during hyperinflation, except a. Contributed capital is restated by applying a general price index from the dates the components were contributed b. Treasury shares is restated by applying a general price index from the dates the shares were acquired c. Revaluation surplus is restated at the specific date of revaluation d. Restated retained earnings are derived from all the other amounts in the restated balance 23. Segment revenue less segment expense equals a. Segment result c. Operating profit or loss b. Segment profit d. Net profit or loss

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

24. Which of the following statements is false under the fair value model of valuing investment property? a. Equipment such as lifts or air-conditioning is often an integral part of a building and is generally included in the fair value of the investment property b. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure. c. The fair value of investment property includes prepaid or accrued operating lease income, because the entity recognizes it as a separate liability or asset d. If an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furniture, because the rental income relates to the furnished office 25. Which of the following is correct? a. The fair value of internally generated intangible assets should be estimated and recorded on the books of the entity that developed the assets even in the absence of a business acquisition. b. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity. c. Managers may value their own companies and recognize goodwill in the company accounts even though an entity has not been acquired in a business acquisition. d. Goodwill should be recognized in the accounts whenever the value of the firm increases based on current market prices of the firm’s share capital. 26.On July 31, 2013, Rhianna Company amended its single employee defined benefit pension plan by granting increased benefits for services provided prior to 2013. This prior service cost will be reflected in the financial statement(s) for a. Years before 2013 only. b. Year 2013 only. c. Year 2013, and years before and following 2013. d. Year 2013, and following years only. 27. Which is not a related party transaction? a. Between and among subsidiaries of a common parent b. Between a parent and its subsidiaries c. Between the enterprise and its key management and close members of the family d. Between an enterprise and its branch 28. In a comparison of 2013 to 2012, Neir Co.’s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio? a. Cost of goods sold decreased. b. Accounts receivable turnover increased. c. Total asset turnover increased. d. Gross profit percentage decreased. 29. If the fair value less cost to sell is higher than the carrying amount of a noncurrent asset classified as held for sale, the difference is a. Not accounted for b. Accounted for as an impairment loss c. Deferred gain as a component of equity d. Gain to be recorded in profit or loss

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

30. If the seller retains significant risk and rewards of ownership, the transaction is not regarded as a sale for purposes of recognizing revenue. Which of the following situations would signify that “risk and rewards” have been transferred to the buyer and therefore revenue should be recognized? a. When the seller retains an obligation for unsatisfactory performance not covered by normal warranty provision. b. When buyer has a right to return the goods or right to seek a refund and the seller can reliably estimate the future returns based on past experience and other relevant factors. c. When the receipt of revenue from a particular sale is contingent on the derivation of revenue from the buyer from its sale of the goods. d. When the goods are shipped subject to installation and the installation is a significant part of the contract, which has not yet been completed by the seller. 31. An investment previously accounted for on a cost basis may become qualified for use of the equity method by an increase in the level of ownership a. Restate the investment account to the equity basis and treat the change as a prior period adjustment b. Restate the investment account to the equity basis and include the prior period cumulative effect of the change in current period income c. Restate the investment account to the equity basis an amortize the cumulative effect as a charge against the income over a reasonable future period not to exceed ten years d. Disclose the nature and effect of the change without restating the investment account 32. Which of the following creates a permanent difference between financial income and taxable income? a. Interest received on treasury bonds b. Completed contract method of recognizing construction revenue c. Unearned rent revenue d. Accelerated cost recovery on plant and equipment 33. Windsor Company has outstanding both ordinary shares and nonparticipating, non-cumulative preference shares. The liquidation value of the preference shares is equal to its par value. The book value per share of the ordinary shares is unaffected by a. The declaration of a stock dividend on preference shares capital payable in preference shares when the market price of the preference shares is equal to its par value. b. The declaration of a stock dividend on ordinary share capital payable in ordinary shares when the market price of the ordinary shares is equal to its par value. c. The payment of a previously declared cash dividend on the ordinary shares. d. A 2-for-1 split of the ordinary shares. 34. Technically offsetting in the financial statements is accomplished when a. The allowance for doubtful accounts is deducted from accounts receivable. b. The accumulated depreciation is deducted from property plant and equipment. c. The total liabilities are deducted from total assets to arrive at net assets. d. Gains and losses from disposal of noncurrent assets are reported by deducting the proceeds from the carrying amount of the assets and the related selling cost.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

35. When a company amends a pension plan, for accounting purposes, prior service cost should be a. Treated as a prior period adjustment because no future periods are benefited. b. Amortized in accordance with procedures used for income tax purposes. c. Amortized under accrual accounting to current and future periods benefited. d. Treated as an expense of the period during which the funding occurs. 36. Lear Company purchased a computer for P200,000. The company paid P50,000 cash as down payment and issued a P150,000 note payable without interest in 60 days. Which one of the following is not descriptive of the transaction? a. Total liabilities increased by P150,000. b. Total assets increased by P200,000. c. The transaction did not immediately affect the owner’s equity. d. From the viewpoint of a short time creditor the transaction made the business less solvent. 37. The work sheet of PSI Company shows Income Tax Expense of P9,000 and Income Tax Payable of P9,000 in the Adjustments columns. What will be the ultimate disposition of these items on the work sheet? a. Income Tax Expense will appear as a debit of P9,000 and Income Tax Payable as credit in the Balance Sheet columns. b. Income Tax Expense will appear as a debit of P9,000 and Income Tax Payable as credit in the Income Statement columns. c. Income Tax Expense will appear as a debit of P9,000 in the Balance Sheet columns and Income Tax Payable as credit in the Income Statement columns. d. Income Tax Expense will appear as a debit of P9,000 in the Income Statement columns and Income Tax Payable as credit in the Balance Sheet columns. 38.Derivative instruments are financial instruments or other contracts that must contain a. One or more underlyings, or one or more notional amounts. b. No initial net investment or smaller net investment than required for similar response contacts. c. Terms that do not require or permit net settlement or delivery of an asset. d. All of the above. 39. A building is bought on August 1, Year One for 400,000 and is depreciated using the straight-line method over a life of 20 years with an expected residual value of 40,000. The half-year convention is used. On April 1, Year Three, the building is sold for a loss of 30,000. What appears on the company’s Year Three statement of cash flows? a. Investing activities cash inflow of 325,000 b. Investing activities cash inflow of 334,000 c. Investing activities cash inflow of 364,000 d. Investing activities cash inflow of 370,000 40. An enterprise has eight reporting segments. Five segments show an operating profit and three segments show an operating loss. In determining which segments are classified as reporting segments under the “reported profits” test, which of the following statements is correct? a. The test value for all segments is 10% of consolidated net profit. b. The test value for profitable segments is 10% or more of those segments reporting a profit, and the test value for loss segments is 10% or more of those segments reporting a loss. c. The test value for loss segments is 10% of the greater of (a) the absolute value of the sum of those segments reporting losses, or (b) 10% of consolidated net profit. d. The test value for all segments is 10% of the greater of (a) the absolute value of the sum of those segments reporting profits, or (b) the absolute value of the sum of those segments reporting losses.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

41. The approach most companies use to provide information related to the components of other comprehensive income is a a. Second separate income statement. b. Combined income statement of comprehensive income. c. Separate column in the statement of changes in stockholders’ equity. d. Footnote disclosure. 42. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a. The total interest cost actually incurred. b. A cost of capital charge for stockholders' equity. c. That portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made. d. That portion of average accumulated expenditures on which no interest cost was incurred. 43. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto? a. Probable losses not reasonably estimable b. Environmental liabilities that cannot be reasonably estimated c. Guarantees of indebtedness of others d. All of these must be disclosed. 44. Which of the following transactions does not affect the investment in associate account? a. Dividends received by the investor form the investee in the form of shares. b. Revaluation surplus and foreign currency translation adjustment recorded during the year by the investee. c. Net income reported by the investee. d. Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment. 45.Which is correct concerning the 75% overall size test for operating segments? a. The total external and internal revenue of all reportable segments is 75% or more of the entity’s external revenue b. The total external revenue of all reportable segments is 75% or more of the entity’s external and internal revenue c. The total external revenue of all reportable segments is 75% or more of the entity’s external revenue d. The total internal revenue of all reportable segments is 75% or more of the entity’s internal revenue 46. The cost of fully depreciated asset remaining in service and the related accumulated depreciation a. Should be removed from the accounts and excluded from property, plant and equipment b. Should not be removed from the accounts and therefore included in property, plant and equipment with disclosure c. Should not be removed from the accounts and therefore included in property, plant and equipment without disclosure d. Should be adjusted to conform to a new estimated useful life 47. Several maintenance repairmen, spent five days in unloading and setting up a new 30,000 precision machine in the plant. Their wages earned in this five-day period totaled 800. a. Asset(s) only. b. Accumulated amortization, depletion, or depreciation only. c. Expense only. d. Asset(s) and expense.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

48. When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must a. Make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. b. Notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. Make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. d. Do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period. 49. 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. 50. Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if a. It is probable that a future tax rate change will occur. b. It appears likely that a future tax rate will be greater than the current tax rate. c. The future tax rates have been enacted into law. d. It appears likely that a future tax rate will be less than the current tax rate. 51. Which is not an essential characteristic of an asset? a. The asset is controlled by the enterprise b. The asset is the result of a past transaction or event c. The asset provides future cash flows to the entity. d. The cost of the asset can be measured reliably. 52. An expenditure made in connection with a machine being used by an enterprise should be a. Expensed immediately if it merely extends the useful life but does not improve the quality. b. Expensed immediately if it merely improves the quality but does not extend the useful life. c. Capitalized if it maintains the machine in normal operating condition. d. Capitalized if it increases the quantity of units produced by the machine. 53. Owner’s equity was understated and liabilities were overstated. Which of the following errors could have been the cause? a. Making the adjustment entry twice. b. Failure to record interest on accrued note payable. c. Failure to make an adjusting entry to record revenue which has been earned but not yet billed to customers. d. Failure to record the earned portion of rent received in advance.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

54. The University of Middle Central has a significant amount of investments including equity securities and debt securities. If this school is a private not-for-profit organization, which of the following statements is true about the reporting of these investments? a. They are maintained at cost until the year in which they mature or will be sold. b. Trading securities are reported at fair value with gains and losses reported as increases and decreases in the organization’s net assets while available for sale securities are reported at fair value but gains and losses do not increase or decrease the net assets. c. All of the investments are reported at fair value with gains and losses increasing the net assets reported by the organization. d. Trading securities are reported at fair value with gains and losses reported as increases and decreases in the organization’s net assets while all other investments are reported at cost. 55. For contingent issue agreements requiring passage of time or earnings threshold that is met, before issuing stock, these should be Included in Included in computing basic diluted earnings earnings per per share share a. No No b. No Yes c. Yes No d. Yes Yes 56. An entity shall recognize any subsequent increase in fair value less cost to sell of a noncurrent asset or disposal group classified as held for sale as a. Deferred gain as component of equity b. Deferred gain as component of liability c. Gain entirely to be included in profit or loss d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss previously recognized. 57. Which of the following is a limitation of the statement of financial position? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these 58. Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is a. The ease with which convertible debt is sold even if the company has a poor credit rating. b. The fact that equity capital has issue costs that convertible debt does not. c. That many corporations can obtain financing at lower rates. d. That convertible bonds will always sell at a premium. 59. The interest rate written in the terms of the bond indenture is known as the a. coupon rate. b. nominal rate. c. stated rate. d. coupon rate, nominal rate, or stated rate.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

60. Which one of the following below is not a factor that influences a business's control environment? a. Management’s philosophy and operating style b. Organizational structure c. Proofs and security measurers d. Personnel policies 61. Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? a. Dividend preferences b. Liquidation preferences c. Call prices d. Conversion or exercise prices 62. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. Decreased by accrued interest from June 1 to November 1. b. Decreased by accrued interest from May 1 to June 1. c. Increased by accrued interest from June 1 to November 1. d. Increased by accrued interest from May 1 to June 1. 63. The balance sheet contributes to financial reporting by providing a basis for all of the following except a. computing rates of return. b. evaluating the capital structure of the enterprise. c. determining the increase in cash due to operations. d. assessing the liquidity and financial flexibility of the enterprise. 64. The University of South Central is a private not-for-profit organization. At the end of the current year, a grateful graduate pledges 5 million to be paid in cash over the next five years. No part of this pledge was contributed prior to the last day of the year but the organization is confident that the pledge will be met. What reporting is appropriate? a. A receivable for 5 million must be reported as an asset. b. No receivable can be reported since it is merely a pledge. c. A receivable of 5 million must be reported as an asset but only if the pledge is an unconditional promise. d. A receivable equal to the present value of the 5 million must be reported as an asset but only if the pledge is an unconditional promise. 65. A marketable debt security is transferred from available-for-sale to held-tomaturity securities. At the transfer date, the security’s carrying amount exceeds its market value. What amount is used at the transfer date to record the security in the held-to-maturity portfolio? a. Market value, regardless of whether the decline in market value below cost is considered permanent or temporary. b. Market value, only if the decline in market value below cost is considered permanent. c. Cost, if the decline in market value below cost is considered temporary. d. Cost, regardless of whether the decline in market value below cost is considered permanent or temporary. 66. The major difference between the service life of an asset and its physical life is that a. Service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. b. Physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. c. Physical life is always longer than service life. d. Service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners. for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

67. Which of the following arguments is supportive of allocation of income taxes? a. Future predictions of net income are enhanced when income taxes are allocated. b. Income tax expense computed under interperiod tax allocation is a better predictor of future cash flows than income taxes actually paid. c. Income tax is not an expense; it is a sharing of profits with government. d. Income tax expense based on actual payments is more understandable to users than allocated income taxes. 68. Which of the following is not true? a. The imprest petty cash system in effect adheres to the rule of disbursement by check. b. Entries are made to the Petty Cash account only to increase or decrease the size of the fund or to adjust the balance if not replenished at year-end. c. The Petty Cash account is debited when the fund is replenished. d. All of these are not true. 69. In an exchange of similar assets, Transit Co. received equipment with a fair value equal to the carrying amount of equipment given up. Transit also contributed cash. As a result of the exchange, Transit recognized a. A loss equal to the cash given up. b. A loss determined by the proportion of cash paid to the total transaction value. c. A gain determined by the proportion of cash paid to the total transaction value. d. Neither gain nor loss. 70. A company using the group depreciation method for its delivery trucks retired one of the trucks after the average service life of the group was reached. Cash proceeds were received from a salvage company. The net carrying amount of these group asset accounts would be decreased by the a. Original cost of the truck. b. Original cost of the truck less the cash proceeds. c. Cash proceeds received. d. Cash proceeds received and original cost of the truck. 71. When a business enterprise enters into what is referred to as off-balance-sheet financing, the company a. Is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. b. Wishes to confine all information related to the debt to the income statement and the statement of cash flow. c. Can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. d. is in violation of generally accepted accounting principles. 72. The cost of the plant asset “building” should usually include all, except a. Cost of renovation or remodeling required to prepare the building for its intended use b. Expenditures for service equipment and fixtures made as permanent part of the building c. Property taxes related to the period prior to acquisition that are assumed by the buyer d. Costs incurred to have existing building removed to make room for the construction of new building

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

73. The payment to executives from a performance-type plan is never based on the a. Market price of the common stock. b. Return on assets (investment). c. Return on common stockholders' equity. d. Sales. 74. Which of the following statements is(are) correct about the funds used by governmental entities? I. Funds are fiscal entities II. Funds are accounting entities a. I only b. II only c. I and II d. Neither I nor II 75. Which of the following is a general criterion for a hedging instrument? a. Sufficient documentation must be provided at the beginning of the process. b. Must be “highly effective” only in the first year of the hedge's life. c. Must contain a nonperformance clause that makes performance probable. d. Must contain one or more underlying. 76. Smith owns several works of art. At what amount should these art works be reported in Smith’s personal financial statements? a. Original cost. b. Insured amount. c. Smith’s estimate. d. Appraised value. 77. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. Market value of the services received. b. Par value of the shares issued. c. Market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction. 78. Net cash provided by operating activities divided by average total liabilities equals the a. current cash debt coverage ratio. b. cash debt coverage ratio. c. free cash flow. d. current ratio. 79. Gomez Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2017. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Gomez recall all cans of this paint sold in the last six months. The management of Gomez estimates that this recall would cost P800,000. What accounting recognition, if any, should be accorded this situation? a. No recognition b. Note disclosure only c. Operating expense of P800,000 and liability of P800,000 d. Appropriation of retained earnings of P800,000 80. Under current accounting practice, intangible assets are classified as a. Amortizable or unamortizable. b. Limited-life or indefinite-life. c. Specifically identifiable or goodwill-type. d. Legally restricted or goodwill-type.

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

81. If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the acquirer shall I. Reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination. II. Recognize immediately in retained earnings any excess remaining after the reassessment a. I only c. Both I and II b. II only d. Neither I nor II 82. How should research and development cost be accounted for? a. Must be capitalized when incurred and amortized over the estimated useful life. b. Must be expensed in the period incurred, unless contractually reimbursable c. Must be either capitalized or expensed when incurred depending upon the facts of the situation d. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have significant future benefits. 83. Which of the following is a condition for accruing a liability for the cost of compensation for future absences? a. The obligation relates to the rights that vest or accumulate. b. Payment of the compensation is probable. c. The obligation is attributable to employee services already performed. d. All of these are conditions for the accrual. 84. The University of MidSouth charges its students a total tuition for the current year of 50 million. However, financial aid equal to 16 million is also awarded. It is a private not-for-profit organization. How is this 16 million reported? a. As a direct reduction to the tuition revenue figure b. As an unrestricted expense c. As a restricted expense d. As a direct reduction to unrestricted net assets 85. What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? a. As offsets to capital. b. By means of footnotes only. c. As assets but separately from other receivables. d. As trade notes and accounts receivable if they otherwise qualify as current assets. 86. Which of the following research and development related costs should be capitalized and amortized over current and future periods? a. Research and development general laboratory building which can be put to alternative uses in the future b. Inventory used for a specific research project c. Administrative salaries allocated to research and development d. Research findings purchased from another company to aid a particular research project currently in process 87. How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balance sheet? a. As a current liability. b. As a deduction from the related installment accounts receivable. c. Within the net amount of installment accounts receivable. d. As an addition to the related installment accounts receivable.

for review and practice purposes only (Not to be assumed as actual examination)

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

88. Which is incorrect concerning the reversal of an impairment loss? a. The reversal of the impairment loss shall be recognized immediately as an adjustment of the opening balance of retained earnings. b. The carrying amount of the asset shall be increased to its new recoverable amount. c. The increased carrying amount of the asset due to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined, had no impairment loss been recognized in the prior years. d. Any reversal of an impairment loss on a revalued asset shall be treated as a revaluation increase. 89. In the absence of an accounting standard that applies specifically to a transaction, what is the most authoritative source in developing and applying an accounting policy? a. The requirement and guidance in the standard or interpretation dealing with similar and related issue. b. The definition, recognition criteria and measurement of asset, liability, income and expense in the conceptual framework. c. Most recent pronouncement of other standard-setting body. d. Accounting literature and accepted industry practice. 90. A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn? a. Vertically and sloping down to the right b. Vertically and sloping up to the right c. Horizontally and sloping down to the right d. Horizontally and sloping up to the right 91. Which of the following documents will require an entry being made in the accounts? a. Sales order c. Executory contract b. Purchase order d. Credit memorandum 92. All of the following could be valid reasons why the expected revenue from a fixed price construction contract has increased from the original contract value, except a. The costs in the contract have increased from the original contract value except b. The contractor has incurred additional costs due to errors made by its employees. c. The contractor has agreed variations to the contract with the client. d. The contractor would receive an incentive payment if work continues ahead of schedule and it is probable that specified performance standards are met or exceeded. c. Interest expense understates the cash paid for interest by the amount of the discount amortization. d. Interest expense overstates the cash paid for interest by the amount of the discount amortization. 93. Johnson Institute leased a new machine having an expected useful life of 12 years. The noncancelable lease term is 10 years, and Johnson may exercise a purchase option at the end of the noncancelable term. The machine should be capitalized by Johnson and depreciated over a. 9 years c. 10 years b. 12 years d. 10 or 12 years at Johnson's option

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MOCK CPA EXAMINATION OCTOBER 2012

Theory of Accounts (100 ITEMS, 16 PAGES)

94. For the last ten years, Woody Company has owned cumulative preferred stock issued by Hadley, Inc. During 2013, Hadley declared and paid both the 2013 dividend and the 2012 dividend in arrears. How should Woody report the 2012 dividend in arrears that was received in 2013? a. As a reduction in cumulative preferred dividends receivable. b. As a retroactive change of the prior period financial statements. c. Include, net of income taxes, after 2013 income from continuing operations. d. Include in 2013 income from continuing operations. 95. The theoretical support for using the percentage-of-completion method of accounting for long-term construction projects is that it a. Is more conservative than the completed-contract method. b. Reports a lower Net Income figure than the completed-contract method. c. More closely conforms to the cost principle. d. Produces a realistic matching of expenses with revenues. 96. The cost of land typically includes the purchase price and all of the following costs except a. Grading, filling, draining, and clearing costs. b. Street lights, sewers, and drainage systems cost. c. Private driveways and parking lots. d. Assumption of any liens or mortgages on the property. 97. In respect of loans classified as current liabilities, all of the following events would qualify for disclosure as nonadjusting events, except a. Refinancing on long-term basis occurring between the end of the reporting period and the date the financial statements are authorized for issue. b. Refinancing on a long-term basis occurring on or before the end of the reporting period. c. Rectification of a breach of long-term loan agreement occurring between the end of the reporting period and the date the financial statements are authorized for issue. d. Receipt from a lender of a grace period to rectify a breach of a long-term loan agreement ending at least twelve months after the end of the reporting period and before the financial statements are authorized for issue. 98. Which of the following funds are classified as governmental funds? a. Internal service and capital projects funds. b. Internal service and debt service funds. c. Enterprise and agency funds. d. The general and special revenue funds. 99. Which of the following should be recorded in Accounts Receivable? a. Receivables from officers b. Receivables from subsidiaries c. Dividends receivable d. None of these 100.A corporation has a defined-benefit plan. An accrued pension cost will result at the end of the first year if the a. Accumulated benefit obligation exceeds the fair value of the plan assets. b. Fair value of the plan assets exceeds the accumulated benefit obligation. c. Amount of employer contributions exceeds the net periodic pension cost. d. Amount of net periodic pension cost exceeds the amount of employer contributions. - - END- -

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