FND ACT 1 IA12115

Prelim Quiz 1

November 28, 2013

Mr. Michael Q. Liggayu

General Instructions: Write all answers on the cut cross-wise yellow paper. Part I answers should
be written on the front page. Part II answers should be written on the back
page. Use only ballpen in writing the answers. Any form of erasure will be
considered wrong. Failure to follow instruction will have 10-point deduction
from the raw score. Anyone caught cheating will be rated zero.
Part I.

Identify the term being referred by the statements that follow. Each correct item will be
rated two points.

1.
2.
3.
4.

A business organization owned by one person.

Field of accounting that deals with providing information needs of the internal decision makers.
Two or more individuals, joining their resources together to form a business.
The purpose of accounting to provide on a periodic basis, which the accountant is required by
owners to prepare, and which contains financial information on the status and performance of the
business.
5-7.
The following candidates have received the results of their CPA Board Examinations taken October
2008:
Candidate
General Average
Remarks
A, no previous exam taken
94.57%
Perfect scores in six subjects, and
one subject has a rating of 62%
B, no previous exam taken
75.00%
No subjects below 65%
C, only previous try was in May 2008 79.67%
This is C's removal examination for
three (3) subjects. These subjects
were rated as 75%, 100% and 64%,
respectively
5.
6.
7.
8.
9.
10.

11.
12.
13.
14.
15.

Did candidate A passed or failed the CPA Board Exam or is A conditional?

Did candidate B passed or failed the CPA Board Exam or is B conditional?
Did candidate C passed or failed the CPA Board Exam or is C conditional?
Company A bought a binding machine for P400,000 which can last for five years. The company
charged this cost to an Asset account. This is an example of what kind of measurement of the
elements of financial statements?
Under this basis, the effects of transactions and other events are recognized when they occur (and
not as cash or its equivalent are received or paid) and they are recorded in the accounting records
and reported in the financial statements of the periods to which they relate.
A qualitative characteristic of financial accounting information which states that financial
statements should be presented in general-purpose, and should be directed towards the common
information needs of a wide range of users. They should not influence the making of a decision or
judgment; in order achieve a predetermined result or outcome.
The process of determining the monetary amounts at which the elements of the financial
statements are to be recognized and carried in the balance sheet and income statement.
This accounting organization aims to promulgate and improve accounting standards that will
constitute GAAP in the Philippines.
The personal assets of the owner of a company will not appear on the company's balance sheet
because of which fundamental concept?
Financial reporting is concerned only with information that is significant enough to affect
evaluation or decision is stated in what qualitative characteristic?
Which principle/guideline requires a company's balance sheet to report its land at the amount the
company paid to acquire the land, even if the land could be sold today at a significantly higher
amount?

16. Which area of public accounting means the examination of financial statements by a CPA for the
purpose of expressing an opinion as to the fairness of the statements?
17. Migs uses his business bank account to pay for his monthly personal utility bills and recorded it as
Utilities expense. State the accounting principle or concept that was not adhered to?
18. Financial reports communicated after an accounting decision has been made defeat the primary
purpose of which characteristic of financial statements?
19. They encompass the conventions, rules and procedures necessary to define what accepted
accounting practice is.
20. This concept involves dividing the life of a business entity into accounting periods of equal length
thus enabling the financial users to periodically evaluate the results of business operations.
21.
Part II. State whether each statement that follow is True or False. Each item will be rated two
points.
1. A partnership is a business owned and operated by two or more persons who bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves
2. A merchandising business is one which buys goods from suppliers and sells them for a price not
higher than cost.
3. A service business is the most basic legal form of business organization.
4. From the accounting viewpoint, the sole proprietorship is distinct from its proprietor.
5. To be a CPA, one must finish a degree in Bachelor of Science in Accountancy and pass a rigorous
licensure examination given by the Board of Accountancy
6. A CPA candidate must have an average of at least 75% with no grade lower than 60% in order to
pass the CPA Board Examinations.
7. There are four sectors of the accountancy profession today: public practice, commerce and
industry, education, and government.
8. Understandability and comparability refer to content, while relevance and reliability refer to the
presentation of financial statements.
9. Information is relevant if it has a predictive role, that is, when it is used to confirm or correct the
earlier expectations of a financial statement user.
10. Only large amounts are considered as material in nature.
11. Prudence is the inclusion of a degree of caution in the exercise of judgment needed in making the
estimates required under conditions of uncertainty, such that assets or income are not understated
and liabilities or expenses are not overstated.
12. An asset is a resource controlled by the enterprise as a result of past events and from which future
economic benefits are expected to flow from the enterprise.
13. Recognition is the process of incorporating, in the financial statements an item that meets the
definition of an element and satisfies the criteria for recognition set out in the Framework.
14. Measurement is the process of determining the monetary amounts at which the elements of the
financial statements are to be recognized and carried in the balance sheet and income statement.
15. There are three underlying assumptions mentioned in the Framework: accrual basis, going concern,
and the matching principle.
16. The business entity concept does not apply to a sole proprietorship business.
17. If economic event cannot be measured in monetary terms, it is not considered part of the
accounting data.
18. Source documents are examples of objective evidence of transactions that have taken place.
19. It is the desire for objectivity that explains why historical cost rather than market value forms the
basis of valuation of assets.
20. Consistency in accounting methods is observed to prevent misleading profits arising from different
accounting methods being reported.

Part II.
KEY ANSWERS
Part I.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Sole Proprietorship
Management Accounting
Partnership
Financial Statements
A is conditional
B passed
C failed
Historical Cost
Accrual Accounting
Neutrality
Measurement
Financial Reporting Standards Council
Entity Concept
Relevance
Historical Cost
External Auditing
Entity Concept
Timeliness
Generally Accepted Accounting Principles
Periodicity Concept

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

True
False (not higher than cost)
False (business organization activity)
True
True
False (65%)
True
False (all refers to content and presentation)
False (predictive confirmatory role)
False (only large amounts)
False (assets or income not understated
overstated, liabilities and expense not
overstated understated)
False (flow from to the enterprise) BONUS
True
True
False (three two underlying assumptions:
accrual basis, going concern)
False (does not apply)
False (it is not still considered)
True
True
False (methods being reported used)