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23 O O O O Pre-Removal Examination in Intermediate Accounting
24 O O O O Name: ______________________________
25 O O O O
26 O O O O Score: _____ Rating: ___/40x70+30=_____
27 O O O O
Remarks: o Passed o Failed
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35 O O O O “ Try not to become a man of others
36 O O O O expectation but a man of your own”
37 O O O O
-JOHN EARL FALCESO
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Note: Solutions will administered
after you already answered the
problem. This is to assist further your
learnings. Good luck”

Multiple Choice:
1. The amount of time that is expected to elapse until an asset is realized or otherwise converted
into cash is referred to as

A. liquidity.
B. financial flexibility.
C. solvency
D. exchangeability.
2. The correct order to present current assets is
A. Cash, accounts receivable, prepaid items, inventories.
B. cash, prepaid items, account receivable and inventory.
C. Cash, inventories, accounts receivable, prepaid items.
D. Cash, accounts receivable, inventories, prepaid items.
3. The basis for classifying assets as current or noncurrent is conversion to cash within
A. the operating cycle or one year, whichever is longer
B. the accounting cycle or one year, whichever is shorter.
C. the accounting cycle or one year, whichever is longer.
D. none of the above

1. What is imputed interest?


A. Interest based on the stated interest rate.
B. Interest based on the implicit interest rate.
C. Interest based on the average interest rate.
D. Interest based on the bank prime interest rate.
2. Why would an entity sell accounts receivable to another entity?
A. To improve the quality of credit granting process.
B. To limit its legal liability.
C. To accelerate access to amount collected.
D. To comply with customer agreements.
3. If a note receivable is discounted with recourse.
A. The contingent liability may be disclosed.
B. Liability for note receivable discounted is credited.
C. Note receivable is credited.
D. The transaction shall be accounted for as a secured borrowing as opposed to a sale.
4. After being held for 40 days, a 120-day 12% interest bearing note receivable was
discounted at a bank at 15%. The net proceeds from discounting are equal to
A. Maturity value less the discount at 12%.
B. Maturity value less the discount at 15%.
C. Face value less the discount at 12%.
D. Face value less the discount at 15%.
5. Which of the following should be included in inventory?
A. Goods out on consignment
B. Good held on consignment
C. Goods held for pick-up by the buyer
D. Goods-in transit purchased FOB destination.
6. Which of the following cost of conversion cannot be included in the cost of the
inventory?
A. Cost of direct labor
B. Factory rent and utilities
C. Salaries of sales staff
D. Factory overhead based on normal capacity
7. Which of the following inventory method reports most closely the current cost of
inventory?
A. FIFO.
B. Specific identification.
C. Weighted average.
D. LIFO.
8. Cost of goods sold is the same under a periodic system and a perpetual system when an
entity uses.
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
9. Financial assets include all of the following, except
a. Prepaid expenses
b. Cash in bank
c. Trade account receivable
d. Loan receivable

10. Which should be classified as financial instrument?


a. Patent
b. Trade accounts receivable
c. Inventory
d. Land
11. Which of the following computations may properly result to the correct amount of share
in associates profit or loss for the period?
a. Share in profit of associate minus amortization of share in the undervaluation of
associates asset minus separate impairment loss on goodwill included in the
carrying amount of the investment.
b. Share in profit of associate minus amortization of share in the overvaluation of
associates asset
c. Share in profit of associate minus amortization of share in the undervaluation of
associates asset
d. Share in profit of associate minus amortization of share in the undervaluation of
associates asset minus share in dividends declared by associate.
12. The irrevocable election to present subsequent changes in fair value in other
comprehensive income is applicable only to.
A. Investment in equity instrument that is not held for trading.
B. Investment in equity instrument that is held for trading .
C. Financial asset measured at amortized cost.
D. Financial asset measured at fair value.
13. Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
a. Use by customers to determine a company's ability to provide needed goods and
services.
b. Use by labor unions to examine earnings closely as a basis for salary discussions.
c. Use by government agencies to formulate tax and economic policy.
d. Use by investors interested in the financial position of the entity.
14. When a debt investment at amortized cost is classified to FVPL, the difference between
the previous carrying amount and fair value at reclassification date is.
A. Recognized in profit or loss
B. Not recognized
C. Recognized in other comprehensive income
D. Included in retained earnings
15. Which of the following is an assumption used in fair value measurement?
A. The asset must be in-use
B. The asset must be considered in-exchange
C. The most conservative estimate must be used
D. The asset is in the highest and best use
16. The fair value at initial recognition is.
A. The price paid to acquire the asset .
B. The price paid to acquire the asset less transaction cost.
C. The price paid to transfer or sell the asset.
D. The carrying amount of the asset acquired.
17. Treasury stock should be reported as a(n)
a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders' equity.
18. Liquidating dividends are credited to.
A. Income
B. Retained earnings
C. Investment account
D. Share capital
19. It is an entity over which the investor has significant influence.
A. Associate
B. Investee
C. Venture capital organization
D. Mutual fund
20. When Eagle Company has less than 50% of the voting stock of Fish Corporation which of
the following applies?
A. Only the fair value method may be used
B. Only the equity method may be used.
C. Either the fair value method or the equity method may be used.
D. Neither the fair value method or the equity method may be used.
21. Which one of the following items, originally recorded in the Investment in Falcon Co.
account under the equity method, would not be systematically charged to income on a
periodic basis?
A. Amortization expense of goodwill.
B. Depreciation expense on the excess fair value attributed to machinery.
C. Amortization expense on the excess fair value attributed to lease agreements.
D. Interest expense on the excess fair value attributed to long-term bonds payable.

22. The following are investment property, except


a. Building leased out under an operating lease
b. Vacant building held to be leased out under an operating lease
c. Property under construction as investment property
d. Property held for sale in the ordinary course of business

23. When the loans are made by the bank, origination fees are either deducted from the loan
or collected up front. How are loan origination fees accounted for by the bank?
A. The amount collected up front is included in income in the year of receipt
B. The amount deducted from the loan proceeds is deferred and recognized in income
over the life of the loan.
C. The amount deducted from the loan proceeds is recognized in income in the year of
receipts.
D. The amount collected up front or the amount deducted from the loan proceeds is
deferred and recognized in income over the life of the loan.
24. PFRS requires entities to measure financial assets based on all of the following, except
A. The business model for managing financial assets.
B. Whether the financial asset is a debt or an equity investment.
C. The contractual cash flow characteristics of the financial asset.
D. All of the choices are PFRS requirements.
25. Which of the ff. statements best describes the term “significant influence”?
A. The holding of a significant proportion of the share of capital in another entity
B. The contractually agreed sharing of control over an economic entity.
C. The power to participate in the financial and operating policy decisions of an entity.
D. The mutual sharing in the risk and benefits of a combined entity.
26. How is goodwill arising on the acquisition of an associate dealt with in the Financial
statements?
A. It is amortized.
B. It is impairment tested individually.
C. It is written off against profit or loss.
D. Goodwill is not recognized separately within the carrying amount of the investment.

27. The excess of the investor’s share of the net fair value of the associate’s net assets over
the cost of the investment is:
A. Included in the determination of the investor’s share of the associate’s PNL in the period in
which investment is acquired.
B. Credited to retained earnings
C. Included in OCI.
D. A deferred gain
28. How is the impairment test carried out for an associate?
A. The goodwill is impairment tested individually
B. The entire carrying amount of the investment is tested for impairment by comparing the
recoverable amount with carrying amount.
C. The carrying amount of the investment shall be compared with the market value
D. The recoverable amount of all investments in associates shall be assessed together.
29. What is the accounting treatment when FS of an associate are not prepared as of the
same date as the FS of investor?
A. The associate shall prepare FS at the same date as of the investor.
B. The FS of the associate prepared up to a different date would be used.
C. Any major transactions during the time gap of financial instruments shall be accounted for.
D. As long as the gap is not greater than three months, there’s no problem.
30. Which of the following describes the flow of product costs through the inventory
accounts of a manufacturer?
a. Raw materials, direct labor, factory overhead
b. Raw materials, direct labor, factory overhead, finished goods
c. Raw materials, goods in process, factory overhead, finished goods
d. Raw materials, goods in process, finished goods
31. Roger Co. accepted delivery of merchandise which it purchased on account. As of
December 31, Roger had recorded the transaction, but did not include the merchandise
in its inventory. The effect of this on its financial statements for December 31 would be
a. net income was understated and current liabilities were overstated
b. net income was overstated and current assets were understated
c. net income was correct and current assets were understated
d. net income, current assets, and retained earnings were understated

32. Under PAS 2 Inventories, items of inventory that are used by business enterprise as
components in a self-constructed property asset are required to be:
a. capitalized and depreciated
b. expensed directly into equity in the period in which the items are used
c. added to a property construction provision account
d. aggregated into the cost of goods sold expense in the period in which the items are
used;
33. From an investor's point of view, a liquidating dividend from an investee is:
a. A dividend declared by the investee in excess of its earnings in the current year
b. Any dividend declared by the investee since acquisition
c. A dividend declared by the investee in excess of the investee's retained earnings
d. A dividend declared by the investee in excess of its earnings since acquisition by the
investor

34. All but one of the following are required before a transfer of receivables can be recorded
as a sale?
a. The transferred receivables are beyond the reach of the transferor and its creditors.
b. The transferor maintains continuing involvement
c. The transferor has not kept effective control over the transferred receivables through
a repurchase agreement.
d. The transferee can pledge or sell the transferred receivables.

35. If financial assets are exchanged for cash and other consideration but the transfer does
not meet the criteria for a sale, the transferor and the transferee should account for the
transaction as (I) Secured borrowing and (II) Pledge of collateral
a. I
b. II
c. Both I and II
d. Neither I and II

36. Fair value is


a. Neither a market based measurement nor an entity-specific measurement
b. And entity-specific measurement and not a market-based measurement
c. Market-based measurement and not an entity-specific measurement
d. Market-based measurement and an entity-specific measurement

37. The fair value at initial recognition is


a. The price paid to acquire the asset less transaction costs
b. The carrying amount of the asset acquired
c. The price paid to transfer or sell the asset
d. The price paid to acquire the asset

38. Which of the following is not correct in regard to trading investments?


a. Any discount or premium is not amortized
b. Unrealized holding gains and losses are reported as part of net income.
c. Trading investments are held with the intention of selling them in a short period of
time
d. All of these are correct.
39. An investment property is derecognized when
a. It is permanently withdrawn
b. It is disposed to other party
c. If there is no future economic benefits is expected.
d. A, B and C are valid.

43 The income from an equity investee is reported on one line of the investor
company’s income statement except when
a. the cost method is used.
b. the investee has extraordinary or other “below the line” items.
c. the investor company is amortizing cost-book value differentials.
d. the investor company changes from the cost to the equity method.

44. An exception to the general rule that costs should be charged to expense in the period
incurred is:
a. Factory overhead costs incurred on a product manufactured but not sold during the
current accounting period
b. Interest costs for financing of inventories that are routinely manufactured in large
quantities on a repetitive basis
c. Sales commission and salary costs incurred in connection with the sale of inventory
d. General and administrative fixed costs incurred in connection with the purchase of
inventory
45. Roger Co. accepted delivery of merchandise which it purchased on account. As of December
31, Roger had recorded the transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be
A. net income was understated and current liabilities were overstated
B. net income was overstated and current assets were understated
C. net income was correct and current assets were understated
D. net income, current assets, and retained earnings were understated
46. Gains or losses arising from changes in the fair value of investment property must be
included in
a. profit or loss for the period in which it arises.
b. OCI
c. Retained Earnings
d. None of the above
47. What is the treatment from the transfer of;
From Transferred Category

Investment property carried at Owner-occupied property or


fair value inventories

a. Fair value at the change of use is the 'cost' of the property under its new classification
b. Difference in carrying amount and fair value as revaluation under PAS 16
c. No change the carrying amount of the property transferred
d. Difference in carrying amount and fair value is recognized in profit or loss.
48. Bliss Co. uses the equity method to account for its investment in Nirvana, Inc. common
stock. How should Bliss record a 2% stock dividend received from Nirvana?
A. As a memorandum entry reducing the unit cost of all Nirvana stock owned.
B. As a reduction in the total cost of Nirvana stock owned.
C. As dividend revenue at the market value of the stock.
D. As dividend revenue at Nirvana's carrying value of the stock
49. Limitations of the income statement include all of the following except
a. items that cannot be measured reliably are not reported.
b. only actual amounts are reported in determining net income.
c. income measurement involves judgment.
d. income numbers are affected by the accounting methods employed.
50. An example of an item which is not an element of working capital is

a. accrued interest on notes receivable.


b. goodwill.
c. goods in process.
d. temporary investments.
Problem:
(Financial Asset at Fair value)

51. On January 1,2019, Earl Company purchased marketable equity securities to be held as
trading for 4,450,000. The company paid commission and taxes to stockbroker in the amount of
110,000. No securities were sold during 2019. The market value of the equity securities on
December 31,2007 is 4,900,000. What amount of unrealized gain on these securities should be
reported in the profit or loss for 2019?
a. 650,000 b. 450,000 c. 429,000 d. 0
52. On January 1, 2019, Falceso Co. purchased marketable securities for 5,000,000 to be held as
available for sale. The company also paid 320,000 in the form of transaction costs. The equity
securities had a market value of 4,700,000 on December 31, 2019. No securities were sold during
2019. What amount of unrealized loss on these securities should be reported in the Other
Comprehensive Income for 2007?
a. 620,000 b. 20,000 c. 300,000 d. 0

53. (Current assets)


Zaira Panganiban Company provided the following trial balance on June 30, 2015:
Cash overdraft ( 200,000) Property, plant and equipment, net 1,900,000
Accounts receivable, net 700,000 Accounts payable and accrued expenses 640,000
Inventory 1,200,000 Share capital 3,000,000
Prepaid expenses 200,000 Share premium 500,000
Land held for resale 2,000,000 Retained earnings 1,660,000
Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in
cash overdraft of P200,000. The checks were mailed on July 9. Land held for resale was sold for
cash on July 15. The financial statements were issued on July 31. On June 30, 2015, what total
amount should be reported as current assets?
A. 4,500,000
B. 4,100,000
C. 4,300,000
D. 2,500,000
Problem 54. (Factoring)
Falceso Company factored without recourse P2,000,000 of accounts receivable with a bank. The
finance charge is 3% and 5% was retained to cover sales discounts, sales returns and
allowances. What amount should be recognized as loss on factoring?
a. 160,000
b. 60,000
c. 100,000
d. 0
Problem 55. (Measurement of loan receivable)

A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest
rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred
P40,000 of direct loan origination cost and f,000 of indirect loan origination cost. In addition, the
bank charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying
amount of the loan receivable to be reported initially by the bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000

Problem 56 (Cost of inventory)


An entity reported inventory on December 31, 2015 at P6,000,000 based on a physical count at
cost and before any necessary year-end adjustments relating to the following:
 Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2015. These goods had a cost of P125,000 and were picked up by the carrier
on January 7, 2016.

 Goods shipped FOB shipping point on December 28, 2015 from a vendor to the entity
were received on January 4, 2016. The invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2015?


A. 5,875,000 .
B. 6,000,000
C. 6,175,000
D. 6,300,000
Problem 57 (Retail inventory method)

On December 31, 2015, an entity provided the following information:

Cost Retail

Inventory, January 1 735,000 1,015,000


Purchases 4,165,000 5,775,000
Additional markup 210,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the approximate
lower of average cost or NRV retail method, what is the inventory on December 31, 2015?

a. 1,050,000
b. 1,400,000
c. 994,000
d. 980,000

Problem 58 (Gross profit method)


An entity budgeted the following sales.
June July August
Sales on account 1,800,000 1,840,000 1,900,000
Cash sales 180,000 200,000 260,000

All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the
beginning of each month is 30% of that month's projected cost of goods sold. What is the amount
of anticipated purchases for July?
a. 1,632,000
b. 2,076,000
c. 1,700,000
d. 1,730,000

Problem 59 (Goodwill)
On December 31, 2015, an entity purchased for P40,000,000 cash all of the outstanding ordinary
shares of another entity when the subsidiary’s statement of financial position showed net assets
of P32,000,000. The subsidiary’s assets and liabilities had fair value different from the carrying
amount as follows:

Carrying amount Fair value


Property, plant and equipment, net 50,000,000 57,500,000
Other assets 5,000,000 0
Long-term debt 30,000,000 28,000,000

What amount should be reported as goodwill in the December 31, 2015 consolidated statement
of financial position of the acquirer and its wholly-owned subsidiary?
a. 3,500,000
b. 2,500,000
c. 7,500,000
d. 8,000,000

Problem 60 (Statement of financial performance)


Falceso Co. maintains a markup of 60% based on cost. The company’s selling and administrative
expense. Is 30% of sales. Annual sales were 1,440,000.How much should the corporation
records as its cost of sales for the year?
a. 900,000
b. 760,000
c. 576,000
d. 432,000