ee creace Com ema add, Crc_ece@yanoe.com FINANCIAL ACCOUNTING THEORY See ae ipliparcH FIRST PRE-BOARD EXAMINATION "gg yrpege yey, 1 2014; 2:00-3: i ions. Mark only one answer for each INSTRUCTIONS: Select the correct answer for each of the following questions. item by Shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only. 1. Which one of the following is fiot}among the conditions that will qualify a situation, particular action or set of * circumstances as an accountable event? i ‘A. It-changes (increases or decreases) one or more elements of the financial position of a business enterprise > Theeventhas already happened ; C. It must be capable of money measurement with a reasonable degree of precision D. There must be a value received and a value parted with between two parties 2 ‘The economic activities of a business enterprise increase or decrease its (the) eo ssets Liabilities Qwner’s Equity we A. yes. no yes ee 3B yes yes yes C. yes. no no D. no no. no 3. Which of the-foltowing statements does not pertain to the Going-Concern assumption of accounting? Assets and liabilities should be classified in the statement of financial position as to “current” or “non- current” : . Threats to the ability of an entity to operate as a going concer, such as “dacion en pago” should be disclosed in the notes to financial statements > The primary responsibility in assessing whether an entity has the ability to operate as a going concern rests. ~~ with the external auditor. Conceptually, the Accrual assumption is directly related to the Going Concern assumption 4, Which TWO of the following statements are correct, A. Assets are depreciated even if their fair value B. Land ané buildings are accounted for separately, even when acquired together A non-current asset acquired a the result of an exchange of assets is not recognized D. A gain on disposal of a non-current asset is classified as revenue. A.A and B B. AandC C. AandD D) BandD per PASI6 Property, plant and equipment? exceeds their carrying amount» > © ‘The underlying theme of the conceptual framework is ‘Ay Decision usefulness, B. Understandabilty. C. Reliabifity. Comparability § According othe Concept! Framework, this isan entiy-speifie aspect of relevance based on the nature or Magnitude, or both, of th ext of a he items to which the information relates in the context of an individeal en financial report. - A. Comparability (B® Materiality C.Verifiability _D, Compteteriess Which neo of the following are cited as fundamental qualities of financi q i n ted Coney tami cid as ualities of financial accounting informetion under the (AD Relevance and Faithful Representation rstandabilit i alpaca Pal C. Understandability and Comparability bility D. Relevance and Materiality 8. Under the revised Conceptual Framework, which of the f lowing objectives of financial accounting? ~ HNN OFS Glowing ave among. heen A. Relevance E raithfl representation ~G. Comparability 2, Be Neutrality B Verifiability H. Freedom from error ~ C.” Understandabitity ~ F, Timeliness - L Completeness ing qualitative A Ades e Bc, :Pmec CEGH D.C, D,Eande Cheea ood The International Accounting Standards Board's conceptual framework includes a cost-bemeft constraint Which of the following best describes the cost-benefit constraint? “ @® ‘The benefits of the information must be greater than the costs of providing it. Financial information should be free from cost to users of the information. C. Costs of providing financial information are not always evident or measurable, but must be considered. D. All of the choices are correct. ‘Which of the following cannot be shown as part of cash in the current assets section of the balance sheet? A. Compensating balance not legally restricted Cash surrender value of life insurance Check paid by depositor in payment of past due account » D. Regular payroll account « LMN Company issued a note solely in exchange for cash. Assuming that the items below differ in ‘amount the present value of note at issuance is equal to the ‘A. Proceeds received B. Face amount C. Proceeds received, discounted at the prevailing interest rate for similar notes ; D. Face amount discounted at the prevailing interest rate for similar notes Historical cost is a measurement base currently used in financial accounting. Which of the following measurement bases is (are) also currently used in financial accounting? _-pfaitvalue or current value Present Discounted Value Net realizable Value G Yes Yes Yes Yes Yes No c. No Yes No D. Yes No No Compared with other types of money prices used for measuring resources in financial accounting, the best argument in favor of historical cost is, itis more A. Indicative of the entity’s purchasing power G, Conservative B. Relevant D. Objective Financial accounting and reporting focuses on the information needs of ‘A. Management C. Creditors and investors B. Regulatory bodies D. Financial analysts and consultants How does accounting help the capital allocation process attract investment capital? ‘A. Provides timely, relevant information. C. Promotes productivity B. Encourages innovation. D) Both aand b What would be an advantage of having all countries adopt and follow the same accounting standards? A. Consistency. C. Lower preparation costs (By wrability. D. “b” and “c” . (B,)Compar rability. Both “b” and “c’ Given the dual effects of accountable events, an decrease in an asset cannot possibly be accompanied by @ (an) Decrease in liability “ C. Increase in an asset : (B)) Increase in owner's equity D. Increase in expense y ‘The objective of financial statements is ‘A. To summarize eash receipts and cash payments information that can be used in evaluating management performance To provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions D._ Torsupport the application for a bank loan Internal events ere mids : A. not recorded sinee they happened only wi (Ay seared bemse they are not capable of money measurement C recorded because they involve changes in values of the elements of accounting ecorded because they involve exchanges of values between the entity and another Parc 20. Which of the following statements about the historical background of accounting is (are) true? . 1. Historical data show that the earliest semblance of keeping records of accounts were done even before the fourteenth century. * * efoal IL, An Italian monk improved the system of record-keeping by introducing the theory of debit and credit I, The accounting cycle that Luca Pacioli designed is the same as what the accounting pr adopting today. A. Only Lis tue Ge Land I are true B. Only Il is true G) tythand Mt are true i : ‘i Y 21. Which ofthe following is (are) attribute of Accounting’ ata ee. & A. Itiscsoctatscience v’ yes YES NO a B. tis a communication profession / NO YES_NO YES 2°) ‘alta dynamite ineabine yes YES NO YES D. Itrecognizes and accounts for all types of resources YES NO N 22. Which of the following statements about Philippine GAAP is (are) false? 1. Before year 2000, Philippine GAAP was largely influenced by US GAAP (FASB) hots The use of revalued amounts of property and equipment was allowed in the Philippines even before IFRSs were adopted by the Philippine accountancy profession. amp TU. AIL economic entities or enterprises in the Philipines are required to follow full. Philippine Financial Reporting Standards" (PFRSs) and Philippine Accounting Standards (PAS) in the preparation of financial statements IV. There are a few instances when some provisions of the PASs and PFRSs differ from the IASs and the PFRSs A. Land Tlonly B, Mandillonly —-C. Til and IV only D. I, and TV only 23. Which of the following statements does not properly describe the fact that the Accountancy Profession isa ‘communication profession? A. Financial statements should use terminology within the level of understanding of the statement user. B. Financial statements can be expressed in the Spanish or Chinese language C. Financial statements, as far as possible, should show information that can be verified from documentary evidence in order to gain the confidence of statement users (_D./ Financial statements can be expressed in any dialect of a country 24. Which TWO of the following is an application of the science aspect of accounting ‘A. Accountants use their judgment in the choice of the inventory cost flow to be applied to’ inventory units on hand at the end of the accounting period. B. Accountants use well-defined steps in the processing and issuance of financial information C. External auditors attest to the faimess of presentation of financial condition and operating results ¥D. Accountants retord the value of a purchased machinery by referring to the amount appearing on the purchase invoice. A Tand 1 (°B. 0) and IV only land Monty — Dan WIV only 25. Which of the following features of an asset closely links its definition to the science of Economics? ‘A. An asset i controlled by an entity “C.) An asset can provide future benefits to an entity B. An asset can command a price 1D. An asset is exclusively owned by an entity 26. The major financial statements include all ofthe following except: A. Statement of financial position. C. Statement of Comprehensive Income (BD Statement of changes in financial position, D. Statement of Changes in Equity. neral-purpose financial statements are the product of Finan 2. accounting. CC. Both financial and managerial accounting ‘E° Managerial accounting. D. Neither financial nor managerial accounting 28. Which of the following is ag.asset but not an econgmic resource? ‘A. Investment property ©) Deferred tax asset B. Machinery % D._ Inventories 29.» Which of the following is Gg) a characteristic of fpanciel accounting? A. Use of facts and estimaies 7 ‘Subjective data provided relevant B. Primarily historical in nature 7 D. Concermed with general and purpose reportsé "= 30s-oWhich of the following statements about the bases of accounting for income and expense 8 “Total Operating expenses will be the same under pure cash and modified cash basis. 2 Income and expenses with cash flows are recognized in cash, modified cash and accrual bases. Modlified Cash basis will yield the same Gross Profit amount as Accrual basis VCash basis of accounting does nét recognize any adjusting entry at year end. (false? B 31. Which of the following is true about the operating cycle concept? ‘A. Itcauses the distinction between current and non-current items to depend on whether they will affect cash within one year. B. Itpermits some assets to be classified as current even though they are more than one year removed from becoming cash CC. Itaffeets the income statement but not the statement of cash flows oH D. The period covered is the time normally required to convert cash invested in tangible assets back into cash, or 12 months, whichever is longer. (3 ' 32. Which of the following accounting measurements ynay be made with the greatest degree of objectivity A. Bad debts expense for the year (CC. Appraised value of land at year-end B, Cost of land owned as at year-end pr Net Income A 33. The storage unit of information on accumulated increases and decreases relating to a particular accounting value such asan asset, a liability, ete. count +B. Ledger C. Jounal D. Book of secondary eniry A 34. Are the fotlowing statements true or false? (1) Before year-end adjustments are made, prepaid expenses and unearned income are usually mixed accounts» Q) Treasury stock is an auxilliary contra aecount Statement] Statement 2 Statement 1 Statement Ww true, true, Cc true false false ‘rue D. False false iG. 35. Which of the following operations can be performed by a computer without requiring an accountant's judgment? {AL} Selecting the events C. Preparing the trial balance Measuring the effects D. Adjusting the records C36. _dn.the equation, “Assets + Expenses = Liabilities + Revenue + Capital”, the expenses and revenues are (AL, Contra asset and contra lability accounts, respectively, that assist_analysis ofthe financial progress of the firm. B. Incorrectly stated becauise their signs are reversed’ i., both are contra items that should have fregative signs in the formula, Adjustments to capital that are postponed until the end of a specific accounting period to determine their effect on capital for that period D. Incorrectly included in the formula because “Assets = Liabi Some transaction extend beyond“one accounting period, B. They help to properly measure the period's net income or net loss C. Mixed accounts should be split into their rea! and nominal elements, D. Errors discovered at the end of the period should be corrected’ in order to generate more reliable financial reports D 37. af of the following statements ig no? A reason for preparing end-of-period adjusting entries ? & Cc 38, Which of the following statements about the accounting cycle is true? ‘A. The first step in posting is to transfer the debit account from the journal to the ledger. Z “B.-A periodic adjusting entry affects both a balance sheet and income statement accounts , oF in instances, only income statement accounts. fil (iy Selecting and analyzing accountable event are part of the recording phase of the accounti°s eyel (0) Adjusting entries are part of he recording phase of accountng ‘some rare 39. At what step in the accounting cycle is GAAP typically applied? A (fh) atone B. Posting C.. Trial balance preparation" .D. Alt oftheseONES ist Pre-board Examination -October 2014 Batch : re 40. Which TWO of the following areas of an accountant’.work are not part of financial accounting? — . (1). Reporting on parent and subsidiary relationships and transactions 2. Reporting on installment sales and long-term constriction contracts {3). Reporting on profitability trends as well as ratios and measurements (A). Reporting on the fairness of presentation of financial position and performance ‘of an entity in conformity with GAAP. A. (I)and Q) B, (3) and (4) iGo and (3) D. (2) and (8) & 41. The following pertain to Financial Accounting except . Its primarily historical in nature C.Itmust comply with GAAP B. ) Emphasizes subjective datas D. Generates general-purpose reports & 42, , The major financial statements include all of the following except: ‘A. Statement of financial position, C.. Statement of Comprehensive Income (® Statement of changes in financial position. D. Statement of Changes in Equity. D 43. What would be an advantage of having all countries adopt and follow the same accounting standards? Ae Consisteney C. Lower preparation costs (B,-Comparabitry. D. Both “b” and “c” 4 44, Which of the following statements ebout financial accounting is incorrect? ‘1. General purpose financial statements must be prepared by a certified public accountant. A 2X ll Financial accounting is a social science that can be influenced by changes in the legal, poifical and business environments Hil, The stewardship ability of management can be inferred from the information presented in the current set of general purpose financial statements per PAS No. 1, Presentation of Financial Statements. IV, Not all significant information useful to users, can be displayed on the face of the basic financial statements ‘ ‘A. Statement I only Statements Mand If only B. [and Il only D.) 1,Iland IV only B 45. After audit, the party responsible for the financial statements of the entity is the A. External auditor CC... Shareholders of the company B. Management D. President of the company B 46. Which of the following statements about single-entry. bookkeeping is nof'correct? A. Single-entry bookkeeping. makes use of a cashbook and subsidiary ledger B._Single-entry bookkeeping is the same as cash basis accounting, C. _Single-entry bookkeeping does not recognize individual revenue and expense accounts D. Insingle-entry bookkeeping, net income is computed using a residual approach. B 47. Modified cash basis (or hybrid basis) differs from the acerual basis in the computation of A. Gross Profit B, Expenses, C..Depreciation D. Bad debis expense 48. Which of the following statements is nof correct about the voucher system?_ & ‘A. Even if the voucher system is time consuming, repetitive and costly, it is recommended for use beceuse it offors a better internal control than the non-voucher system, oe B. Purchases are recorded in the youcher register at gross by debiting purchases and crediting vouche payable C... The voucher system is recommeded for installment transactions. ‘on aediioe D. When installments or other partial payments are made on an invoice, a separate voucher is Preps! the amount of each check issued. nce? 49, Which of the errors listed below would cause the unadjusted trial balance to be out of bal c A. Failure to record an adjusting entry FE ‘Overstating a liability balance by P100 and expense balance by the same amour ; Posting only the debit portion of a journal entry eto Inert Expense 0! © Interest on a 60-6% note payable for P6,000 was recorded and posted as @ debit to 600 and a credit to Cash of P6O0,@ 50. The following six adjusting entries were recorded by RNQ Corp. at the end of the Uiscal YSht: (1) Bank service charge expense xx (8) Wages expense Xx Cash 50 ‘Wages payable mn (2) Unearmed rent = (5) Insurance expense _x« Rent revenue x Prepaid insurance XX f (G) Bad éebis expense xe (6) Prepaid rent me Allowance for bad debts xx Rent expense 5 a should be appropriately reversed, which of Ifthe firm reverses all adjusting journal entries wi the six adjusting journal entries would be reversed? As (3), (A) and (6) Bay Mr) and (5) C) @ © 07 All six adjustments should be reversed c 51, The Financial Reporting Standards Council (FRSC) et ‘A. Works under the direct supervision of the Professional Regulation Commission B, Has the power to issue and revoke CPA license {s the authority of accounting standards in the Philippines (BS) Cited the implementing Rate and Repulations {(URR) of the Philippine Accountancy Act of 2004. statements ebout “due process” in accounting standard setting and the Conceptual B 52. Which of the fol Framework ts true? 'AII CPA professionals are given the opportunity to participate inthe standard-setting process Ti, The FRSC, the Board of Accountancy, the Philippine Institute of Certified Public Accountants participate in the due process of accounting standard-seting, and the Professional Regulation Commission is the final signing authority lil, Accounting standards become implementable only after it has been published in the PRC Official Gazette IV. The Conceptual Framework constitute the accounting laws of the accountancy profession and violations of its provisions will be meted corresponding sanctions by the regulatory bodies A. Land Hare true C. Ul, [land IV are true B. Land Mare true , D. Allstatements are true c 53. Which of these statements regarding the IFRS and U.S. GAAP is correct? ‘A. U.S.GAAP is considered to be "principles-based” and more detailed than IFRS. B. U.S. GAAP is considered to be “rules-based” and less detailed than IFRS. C. IFRS is considered to be “principles-based" and less detailed than U.S. GAAP\ 7 (D.)Both US. GAAP and IFRS are considered to be “rules-based”, but U.S. GAAP tends to be more \— complex. . D 54, - The following published documents are part of the "due process” system used by the IASB in the evolution of atypical IASB Standard 1, Exposure Draft : 2. IASB Standard “ 3. Discussion Paper / ‘The chronological order in which these items are released is as follows: AL 1,23. B. 13,2 C.2,3;1 (PB) 3t2 Do 55. A soundly developed conceptual framework of concepts and objectives should ‘a, Increase financial statement users' understanding of and confidence in financial reporting, 'b. Enhance comparability among companies’ financial statements. ¢.__ Allow new and emerging practical problems to be more quickly solved, 4. All ofthese. A 56. Which TWO of the following should be taken into account when determining the cost of inventories per PAS 2 Inventories? 1 Storage costs of part-finished goods “IIL. Recoverable purchase taxes I. Trade discounts IV Administrative costs () Tand I B. and I C. Mand IV D. Land 1V7 CRC-ACE: First Pre-board Examination -October 2014 Batch Te D_ 57. Anventory estimates will be required for the following except ‘A. When interim financial statements are prepared VB. When inventory is destroyed by typhoon or lahar flow X(C.) As proof of reasonable accuracy of the physical inventory \5~ in the determination of the ending inventory to be shown on the balance sheet at year end. C58. Using IFRS, which of the following items is matched correctly with its basis of valuation for purposes of ‘reporting on the statement of financial position? feem Basis of Valuation 1% Inventories [= A. Cost M. X Prepaid expenses A B, Estimated amount collectible ML” Receivables [2 C,_—_Lower-of-cost-or net realizable value A. Tand A B. Hand C Cc. Mand B D. Nand B C59 Compared to its 2014 cash basis net income, Rachelle Company's 2014 acorual basis net income increased. When it ‘A. Sold used equipment for cash at a gain in 2014 JB. Had lower accrued expenses on December 31, 2013, than on January 1, 2014 {C.) Recorded more account sales than that of the previous year. Sold used equipment for cash at @ gain in 2014 Z {B 60. Which of the following statements about bookkeeping system is (ate) false? 1. Single-entry bookkeeping and cash basis accounting are basically the same. Il. Any system of bookkeeping that falls short of the characteristics of double-entry bookkeeping is single-eniry bookkeeping i Ill. Single-entry bookkeeping is acceptable to some groups in the business community IV. Financial statements of any enterprise are deemed in compliance with GAAP as long as they are prepared under the double-entry system of bookkeeping. A. Land I only B. Tand IV only C. Hi Iland IV only D. LU, TL&1v -END OF EXAMINATION: