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51. Which of the following is the correct statement? 55. Which of the following is false?
(a) The best way to ascertain whether a marketable security is (a) A debit valuation allowance balance for an investment in
short-term or a long-term investment is to check with a available for sale securities implies a corresponding owners’
securities dealer. equity account with a credit balance of the same amount.
(b) For balance sheet classification, a security is classified as a (b) Unrealized holding gains on investments in available for sale
short-term investment if it is readily marketable. securities may be recognized as a direct increase to owners’
(c) For balance sheet classification, a security is classified as a equity.
short-term investment based on the intended holding period. (c) Investments in trading securities may be classified as current
(d) All investments in trading securities are reported at book or long-term.
values. C (d) Investments in available for sale securities may be classified
as current or long-term. C
53. Which of the following is the incorrect statement?
(a) The fair value method of accounting is the most appropriate 56. Which of the following is the correct statement?
method of accounting for short-term investments in (a) Investments in available for sale securities and trading
marketable debt securities. securities are classified separately in a balance sheet.
(b) Unrealized holding gains and losses on investments in (b) Investments in available for sale securities include only
trading securities are recognized in income. equity securities.
(c) All investments in available for sale securities are reported at (c) Investments in trading securities include only debt securities.
fair value. (d) Increases in the market value of trading securities and
(d) Only investments in bonds are accounted for by the fair available for sale securities investments always cause the
value method. D valuation account to decrease. A
54. Which of the following is true? 57. Tangible goods used in the productive process and directly
related to the products being manufactured are called:
(a) factory supplies. (c) raw materials.
(b) finished goods. (d) goods in process. (a) zero
58. When a portion of inventories has been pledged as security on a (b) the absolute sum of the lease payments
loan: (c) the present value of the sum of the lease payments
(a) the value of the portion pledged should be subtracted form discounted at an appropriate rate
the debt. (d) the market value of the asset at the date of the inception of
(b) an equal amount of retained earnings should be the lease A
appropriated.
(c) the fact should be disclosed but the amount of current assets 63. When equipment held under an operating lease is subleased by
should not be affected. the original lessee, the original lessee would account for the
(d) the cost of the pledged inventories should be transferred from sublease as:
current assets to noncurrent assets. (a) operating lease (c) direct financing lease
C (b) sales-type lease (d) capital lease
59. Slow-moving and obsolete inventory items should be priced for 64. Equal monthly rental payments for a particular lease should be
balance sheet purposes at: charged to rental expense by the lessee for which of the
(a) retail inventory price. following?
(b) cost or market, whichever is lower. Capital Operating lease
(c) moving average. Capital Operating lease
(d) at an amount not in excess of possible realizable value.
(a) Yes No (c) No No
60. Subnormal or obsolete goods, either under the cost or the lower (b) Yes Yes (d) No Yes
of cost or market basis:
(a) should be taken up an unrealized inventory loss. 65. In a lease that is recorded as an operating lease by the lessee,
(b) should be valued at bona-fide selling price less direct cost of the equal monthly rental payments should be:
disposition. (a) allocated between a reduction in the liability for leased asset
(c) should be valued by applying an inventory method that uses and depreciation expense
a constant or nominal value for the normal inventory level. (b) allocated between a reduction in the liability for leased asset
(d) should be adjusted in the cost of goods sold. and interest expense
61. Merchandise which a trader contracted to purchase but which (c) recorded as a reduction in the liability for leased asset
was not delivered or identified in the year should: (d) recorded as rental expense D
(a) not be included in the inventory.
(b) be included in the inventory at cost. 66. Where the balance sheet indicates that a portion of property,
(c) be included in the inventory at its probable retail value. plant and equipment the related accumulated depreciation
(d) be included in the inventory at a normal price. pertains to equipment leased to customers, it is evident that the:
(a) operating method of accounting is used for the lease
62. The appropriate valuation of an operating lease on the statement (b) financing method of accounting is used for the lease
of financial position of a lessee is: (c) lessor has violated GAAP
(d) lessor is using the income tax method of accounting for the (d) The intent to refinance is supported by an agreement to
lease A refinance which is completed after the issuance of the
financial statements. D
67. A 20-year property lease, classified as an operating lease,
provides for a 10% increase in annual payments every five 71. Which will demonstrate an agreement to refinance (choose the
years. In the 6th year compared to the 5th year, the lease will incorrect one)?
cause the following expenses to increase: (a) Long-term obligation has in fact been issued before the
Rent Interest Rent Interest issuance of the financial statements for the purpose of
(a) Yes No (c) No No refinancing.
(b) Yes Yes (d) No Yes (b) Equity security has in fact been issued before the issuance
of the financial statements for the purpose of refinancing.
68. Which is not an essential characteristic of an accounting liability? (c) Before the issuance of the financial statements, the
(a) The liability is the present obligation of a particular enterprise. enterprise has in fact entered into a financing agreement that
(b) The liability arises from past transaction or event. clearly permits the enterprise to refinance the currently
(c) The settlement of the liability requires an outflow of resources maturing long-term debt on a long-term basis.
embodying economic benefits. (d) Preferred stock has in fact been issued before the issuance
(d) The liability is payable to a specifically identified payee. of financial statements for the purpose of obtaining working
capital.
69. Current liabilities include: 72. Some obligations that are due to be repaid within the next
(a) only obligations which are expected to be settled within the operating cycle and expected to be refinanced or “rolled over”
normal operating cycle. should be classified as noncurrent:
(b) only obligations which are due to be settled within one year (a) If the refinancing or “rolling over” is at the discretion of the
from balance sheet date. enterprise and the refinancing agreement has been reached
(c) obligations which are expected to be settled within the before the issuance of the statements.
normal operating cycle and obligations which are due to be (b) If the refinancing or “rolling over” is at the discretion of the
settled within one year from balance sheet date. enterprise regardless of whether a refinancing agreement
(d) refinanced long-term debt falling due within one year from has been reached or not before the issuance of the
balance sheet. C statements.
70. A long-term debt falling due within one year should be reported (c) If the refinancing or “rolling over” is not at the discretion of
as noncurrent liability should be reported as noncurrent liability if the enterprise.
the following conditions are met (choose the incorrect one): (d) Subject to no conditions.
(a) The original term is for a period of more than one year.
(b) The enterprise intends to refinance the obligation on a long- 73. Which is not a characteristic of an intangible asset?
term basis. (e) the asset lacks physical substance
(c) The intent to refinance is supported by an agreement to (f) the asset is used in production or supply of goods and
refinance which is completed before the issuance of the services, for rental to others or for administrative purposes
financial statements. (g) the asset provides future economic benefits
(h) the asset has indeterminate useful life (d) The preparation of general-purpose financial statements is
usually based on the assumption that the primary users of
74. Which is not unidentifiable intangible asset? the information are external decision makers. D
(a) patent (c) copyright
(b) franchise (d) goodwill 79. Which of the following statements is false?
(e) Financial reporting should provide information which is
75. If the pattern in which the economic benefits from the asset are relevant to investment, credit and public policy decisions.
consumed cannot be predicted reliably, the method of (f) Generally speaking, GAAP are those accounting principles
amortization for an intangible asset should be: with substantial authoritative support.
(a) straight line (c) declining balance (g) GAAP are established to ensure the relevancy of the
(b) output method (d) sum of years’ digits general-purpose financial statements to the widespread uses
of the information by external decision makers.
76. Intangible assets should be carried (benchmark treatment): (h) Once established, GAAP should never be changed.
(a) gross cost
(b) fair value on balance sheet date 80. Which of the following statement is true?
(c) revalued amount minus accumulated amortization and (a) Managers of an entity are considered to be internal decision
accumulated impairment losses makers.
(d) cost minus accumulated impairment losses and accumulated (b) External decision makers can be obtained whatever financial
amortization D data they need whenever they need it.
(c) Accounting information is prepared for and useful to only
77. Which of the following is not considered in estimating the useful outside decision makers.
life of intangible assets? (d) The members of the Board of Directors are not “internal
(a) expected usage of the asset by the enterprise users” only. D
(b) stability of the industry in which the intangible asset operates
(c) salvage value of the asset 81. Choose the incorrect statement.
(d) level of maintenance expenditure required to obtain the (a) The objective of the external financial statements is to
future economic benefit from the asset C communicate the economic effects of completed
transactions and other events on the entity.
(b) The practice of accounting requires considerable
78. Choose the correct statement. professional judgment.
(a) Financial accounting is a social science and cannot be (c) Security analysis use information from financial statements
influenced by changes in legal, political, business and social and other sources to project future earnings.
environments. (d) The assessment of earnings quality has become an exact
(b) Financial accounting is an information system designed to science. D
provide information primarily to the internal users.
(c) General-purpose financial statements must be prepared by a 82. Which of the following statement is correct?
certified public accountant.
(a) Certified Public Accountants are not independent for the (b) a decrease in assets and an increase in liabilities
benefit of the users of the financial statements, because they (c) an increase in assets and a decrease in liabilities
are paid by the client. (d) an increase in assets and an increase in owner’s equity
(b) Accounting concepts, principles and standards are just as
broad and general today as they were sixty years old. 86. The double-entry system of accounting means that every
(c) Due the excellent work of the ASC, there are very few transaction:
choices among alternative accounting policies today. (a) is recorded initially on both the journal and the general
(d) Disclosure notes are an integral part of the financial ledger
statements. D (b) increases one general ledger account while decreasing
another
83. Which of the following equations is not true? (c) affects at least two general ledger accounts and is recorded
(a) Assets + Liabilities = Owner’s Equity by an equal amount of debits and credits
(d) results in changes in accounts on both sides of the balance
(b) Assets = Liabilities + Owner’s Equity sheet C
(c) Assets – Owner’s Equity = Liabilities 87. Which of the following statements is not correct?
(a) debits may increase assets
(d) Assets – Liabilities = Owner’s Equity (b) credits may increase liabilities
A (c) debits may increase liabilities
(d) credits may increase owner’s equity
84. Dave started his own cheese factory on March 16, 2003. Which C
of the following transactions would not be admissible in Dave’s 88. Tony owns a store specializing in bags. Tony has just completed
accounting system for the month of March? a transaction that caused a P12,000 increase in total assets and
(e) On March 18, Dave purchased a cow on account for P3,000. a P12,000 increase in liabilities. This transaction could have
(f) On March 20, Dave sold his cow to a fast food restaurant for been:
P5,000. (a) the investment in his business of P12,000 in cash
(g) On March 21, Dave contracted with a local radio station to (b) the purchase of store equipment, paying P9,000 in cash and
run several one-minute advertising spots during the month of issuing a P12,000 note payable for the balance owed
April. (c) the purchase of bags for his inventory, paying P4,000 in cash
(h) All of the above transactions would be admissible for Dave’s and issuing an P8,000 note payable for the balance owed
accounting system in the month of March. C (d) none of the above transactions would cause total assets and
total liabilities to increase by P12,000
85. Jeff purchased a new register system for his grocery store, B
paying P1,000 in cash and issuing a P6,000 note payable for the 89. Dean has completed the posting process for the month of June
balance owed. As a result of this transaction, Jeff’s balance and has prepared a trial balance in which the debits total
sheet would reflect: P11,000 and the credits total P11,100. Which of the following
(a) an increase in assets and an increase in liabilities
errors would be the most likely candidate in causing the trial II. Entities that are in the process of issuing ordinary shares in
balance not to balance by P100? the public market.
(a) a P100 debit was posted as a P100 credit a. I only b. II only c. Both I and II d. Neither I nor II
(b) a P100 debit was posted as a P100 credit and a P100 credit
was posted as a P100 debit 94) Under PAS 33, which of the following statements about an
(c) a P50 debit was posted as a P50 credit ordinary share is true?
(d) the purchase of supplies on account was never posted to the I. An ordinary share is an equity instrument that is superior to
general ledger C all other classes of equity instrument.
II. A potential ordinary share is a financial instrument or other
90. Increase in net assets may result from: contract that may entitle its holder to ordinary shares.
(a) revenues a. I only b. II only c. Both I and II d. Neither I nor II
(b) expenses subordinate
(c) withdrawals 95) Which of the following statements is true?
(d) all of the above are correct I. Earnings per share amounts should not be presented if they
A are negative, i.e. loss per share.
II. Earnings per share amounts calculated for discontinued
91. Which of the following statements is false? operations should be presented.
(a) Increases to owner’s capital are recorded with credits. a. I only b. II only c. Both I and II d. Neither I nor II
(b) Sales are recorded as debits.
(c) Expenses reduce owner’s capital. 96) When computing diluted EPS for an entity with a complex
(d) Expenses and dividends are both recorded as debits. capital structure, what is the denominator in the computation?
B a.Number of ordinary shares outstanding at year-end
b.Weighted average number of ordinary shares outstanding
92. Zinc Company recorded office supplies as an asset account c. Weighted number of ordinary shares outstanding plus all other
when the supplies were purchased. Failure to make an adjusting potentially antidilutive securities.
entry reflecting the use of these supplies will result in: d.Weighted average number of ordinary shares outstanding plus
(a) an understatement of assets all other potentially dilutive securities
(b) an overstatement of owner’s equity
(c) an understatement of liabilities 97) For purpose of computing the weighted average number of
(d) an understatement of owner’s equity shares outstanding in EPS calculation, a mid-year that must be
B treated as occurring at the beginning oif the year is the
a.Issuance of the share warrants
BPS/EPS b.Purchase of treasury shares
93) Under PAS 33, EPS disclosures are required for c. Issuance of share certificates
I. Entities whose ordinary shares or potential ordinary shares d.Issuance of new shares from share split
are publicly traded.
98) When EPS is computed, dividends on preferred stock are
a.Added because they represent earnings to preferred share c. Financial liabilities or equity instruments, including
holders preference shares, that are not convertible into ordinary
b.Reported separately on the income statement shares.
c. Subtracted they represent earnings to preferred shareholders d. Shares which would be issued upon the satsfaction of
d.Ignored because so they do not pertain to the common stock certain conditions resulting from contractual arrangements, such
as the purchase of a business or other assets.
99) It is reduction in earnings per share or an increase in loss
per share resulting from the assumption that convertible 103) For a company that has only ordinary share outstanding ,
instruments are converted, that options or warrants are exercised, total shareholder’s equity divided by the number of shares
or that ordinary shares are issued upon the satisfaction of specified outstanding represents the:
conditions. a. return on equity c. stated value per share
a. Dilution c. Either dilution or antidilution b. book value per share d. price-earnings ratio
b. Antidilution d. Neither dilution nor antidilution
104) A company with a simple capital structure for purposes of
100) What is the inherent justification underlying the concept of computing earnings per share would include which of the following
potential diluters in an earnings per share computation? in the computation of earnings per share?
a. form over substance a. potentially dilutive securities
b. substance over form b. dividends on ordinary share
c. form and substance considered equally c. dividends on nonconvertible cumulative preferred stock
d. substance over form or form over substance depending on d. number of shares of nonconvertible cumulative preferred
the circumstances stock
116) Sydney Corporation granted 1,000 stock options to its 120) Deposits on subscriptions to a proposed increase in capital
employees on January 1, 2006, for services performed during stock are reported on the balance sheet as
2006 and 2007. At the date of the grant, the fair value of the stock a. Unearned revenue
options is P6,000. The options are exercisable on January 1, 2008, b. Advances from subscribers
and expire on June 30, 2008. On July 1, 2008, it was determined c. A separate item in the capital stock section
that none of the options were exercised. On December 31, 2008, d. An addition to retained earnings
Sydney Corporation should
a. Restate its financial statements for 2006 and 2007 and 121) Which of the following statements best describes the net
reduce compensation expense for each year. effect on retained earnings of the purchase and subsequent sale
b. Make a prior period adjustment to retained earnings for of treasury stock?
compensation expense recognized in 2006 and 2007. a. retained earnings may never be increased , but
c. Not adjust or reverse compensation expense. sometimes decreased.
d. Record P6,000 of compensation expense in 2008. b. Retained earnings may never be increased or decreased
c. Retained earnings may be increased but never be
SHE decreased.
117) Under IFRIC 17, a property dividend declared before the end d. Retained earnings account is always affected unless the selling
of the reporting period should be recognized as liability at the price is exactly equal to cost
end of the reporting period at
a.Carrying amount of the asset to be distributed 122) When stock rights are exercised, how much should be
b.Fair value of the asset on the date of declaration treated as total proceeds from the issuance of shares?
c. Fair value of the asset at the end of reporting period a. only the consideration received
d.Fair value of the asset at the date of distribution b. The total of the consideration received and the amount
previously recorded for the stock rights
118) Which of the following should be reported as a stockholder c. the amount previously recorded for the stock rights
equity account? d. The total par value of the shares
a.Discount on convertible bonds
b.Premium on convertible bonds 123) Liabilities and stockholders’ equity are similar in that
c. Cumulative foreign exchange translation loss a. Both provide certain amount of payments in the form of interest
d.Organization costs and dividends
respectively based upon written agreements.
b. Both provide specific timing of payments as a result of specific a. Zero because no entry is made
maturity dates. b. Par value
c. Both creditors and stockholders are equity holders although they c. Market value at the declaration
have different rights with respect to income, risk, control and d. Market value at the date of issuance
liquidation.
d. Both liabilities and owners equity are ranked equally when the 128) The peso amount of total shareholders’ equity remains the
enterprise’s assets are distributed. same when there is
a.Issuance of preference share in exchange for convertible
124) The declaration of a 10% stock dividend debentures
a. Would decrease both accumulated profits and total b.Issuance of nonconvertible bonds with share warrants
shareholders’ equity c. Declaration of a stock dividend
b. Would decrease accumulated profits but would have no d.Declaration of a cash dividend
effect on total shareholders’ total
c. Would have no effect on accumulated profits but would Income taxes
decrease total shareholders’ equity
d. Would have no effect both on accumulated profits and 129) Justification for the method of determining periodic deferred
total shareholders’ equity tax expense is based on the concept of
a. Matching of periodic expense to periodic revenue
b. Objectivity in the calculation of periodic expense
125) What is the most likely effect of a share split down? c. Recognition of asset and liability
Par value PER SHARE Numbers of shares d. Consistency of tax expense measurement with the actual tax
a. Decrease No effect planning strategies.
b. Decrease Increase
c. Increase Decrease 130) The deferred tax expense is the
d. No effect No effect a.Increase in balance of deferred tax asset minus the increase in
balance of deferred tax liability
126) How would the declaration of a liquidating dividend by a b.Increase in balance of deferred tax liability minus the increase in
corporation affect each of the following? balance of deferred tax asset
Contributed capital Total shareholders’ equity c. Increase in balance of deferred tax asset plus the increase in
a. Decrease No effect balance of deferred tax liability
b. No effect Decrease d.Decrease in balance of deferred tax asset minus the increase in
c. No effect No effect balance of deferred tax liability
d. Decrease Decrease
131) Where a business transaction requires a direct adjustment to
127) An entity issued what is called a “12% stock dividend” on its an equity account, the tax effect is adjusted against
share capital. At what amount per share, if any, should retained a.Income c. Equity
earnings be reduced for this transaction? b.Tax expense d. Cash
certain conditions are met.
132) Under PAS 12 Income Taxes, deferred tax assets and
liabilities are measured at the tax rates that: 137) As a result of differences between depreciation for financial
a.Applied at the beginning of the reporting period reporting purposes and tax purposes, the financial reporting
b.At the end of the reporting period basis of a company's plant assets falls below the tax basis.
c. At the rates that prevail at the reporting date Assuming the company had no other temporary differences, the
d.Are expected to apply when the asset or liability is settled company should report a
a. Current tax receivable. c. Deferred tax asset.
133) Which of the following could never be subject to interperiod b. Current tax payable. d. Deferred tax liability.
tax allocation?
a.Interest revenue on government bonds. 138) Income tax expense is computed based on
a.Depreciation expense on operational assets. a. Taxable income
b.Estimated warranty expense. b. Total-pretax financial income
c. Rent revenue c. Accounting income subject to income tax
d. The temporary difference
134) A temporary difference which would result in deferred tax
asset is 139) These are differences between carrying amount of an asset
a.Tax, penalty or surcharge or liability in the statement of financial position and its tax base.
b.Dividend received on stock investment a. Temporary differences c. Permanent differences
c. Excess tax depreciation over accounting depreciation b. Timing differences d. Accounting differences
d.Rent received in advance included in taxable income at the time
of receipt but deferred for accounting purposes 140) Which of the following differences would result in future
taxable amounts?
135) Differences between taxable income and pretax accounting a. Expenses or losses that are deductible after they are
income arising from transactions that, under applicable tax laws recognized in financial income.
and regulations, will not be offset by corresponding differences b. Revenue or gains that are taxable before they are
or turn around in future periods is a definition of recognized in financial income.
a.Temporary differences c. Deductible differences c Revenues or gains that are recognized in financial income
b.Permanent differences d. Taxable differences but are never included in taxable income.
d. Expenses and losses that are deductible before they are
136) When a temporary difference will result in taxable amounts in recognized in financial income.
5 years
a.A deferred tax liability is recognized in the current year. Benefits
b.A deferred tax asset is recognized in the current year. 141) Which of the following is not one of the six components of
c. A deferred tax liability may be recognized in the current year if pension expense (or part of a component)?
certain conditions are met. a.Initial transition asset
d.A deferred tax asset may be recognized in the current year if b.Amortization of unrecognized gain or loss
c. Expected return on plan assets b.Fair value d. Value in use
d.Growth (interest cost) in PBO/ABO since the beginning of the
period 145) In a rare circumstance, when a retirement benefit plan has
attributes of both defined contribution and defined benefit plan, it
142) What is measured by the accumulated benefit obligation? is deemed
a.The pension expense, computed by the plan formula applied to a.Defined contribution plan
years of service to date, assuming future salary levels b.Define benefit plan
b.The pension expense, computed by the plan formula applied to c. Neither a defined contribution nor a defined benefit plan
years of service to date, using existing salary levels d.Both defined contribution and defined benefit plan
c.The pension obligation, computed by the plan formula applied to
years of service to date, using existing salary levels. 146) Which is incorrect concerning the recognition and
d.The pension obligation, computed by the plan formula applied to measurement of a defined benefit plan?
year of service to date, assuming future salary levels. a. actuarial assumptions are required to measure the obligation
and expense and there is a possibility of actuarial gains and
143) Under which category should lump sum benefit of 1% of the losses.
final salary for each year of service and actuarial gains be b. the obligation is measured at a discounted basis.
accounted for? c. the defined benefit plan must be fully funded
a.Lump sum benefits should be accounted for under defined d. the expense recognized for a defined benefit plan is not
benefit plans. necessarily the amount of contribution due for the period
Actuarial gains should be accounted for under defined benefit
plans.
b.Lump sum benefit should be accounted for under short term 147) The vested benefits:
employee benefits a. are employee benefits that are not conditional of future
Actuarial gains should be accounted for under defined benefit employment
plans. b. are benefits to be paid to the retired employees in the
c. Lump sum benefit should be accounted for under defined benefit current period.
plans c. are benefits to be paid to the retired employees in the
Actuarial gains should be accounted for under defined subsequent period.
contribution plans d. are benefits accumulated in the hands of a trustee.
d.Lump sum benefit should be accounted for under short term
employee benefits 148) Any transition loss on first adopting PAS 19 shall be
Actuarial gains should be accounted for under defined recognized:
contribution plans I. as expense immediately
II. as expense over a maximum of 5 years
144) Investments held by retirement benefit plans should be a. I only c. Either I or II irrevocably
stated in the statement of net assets at b. II only d. Either I or II revocably
a.Net realizable value c. Original cost less impairment
149) An employer’s obligation for postretirement health benefits
that are expected to be provided to an employee must be fully
accrued by the date the
a. Employee is fully eligible for benefits
b. Employee retires
c. Benefits are utilized
d. Benefits are paid
150) For a defined benefit pension plan, the discount rate used to
calculate the projected benefit obligation is determined by the
Expected return on plan asset Actual return on plan
asset
a. yes yes
b. no no
c. yes no
d. no yes