MIDTERM QUIZ 1

1.An item is recognized as liability if:

I. It meets the definition of a liability
II.Recognizing the liability results in a relevant
and faithfully represented information
III.The outflow of the economic benefits from
obligation is both probable and can be
measured reliably
a.I and II c. I and III
b.II and III d. I,II, and III
2. Financially liabilities are initially measured
at
a.Fair value plus transaction costs.
b.Fair value plus transaction costs except FVPL
liabilities whose transaction costs are expensed
immediately
c.Fair value plus transaction costs, except FVOCI
liabilities whose transaction costs are recognized in
OCI.
d.Fair value minus transaction costs, except FVPL
liabilities whose transaction costs are expensed
immediately.
 3. According to PAS 1, which of the following statements is
correct regarding refinancing of long-term obligations?

a.A currently maturing obligation is classified as current even if

a refinancing agreement is completed after the reporting
period but before the financial statements are authorized for
issue.
b.A currently maturing obligation is classified as noncurrent if
it is refinanced on a long-term basis after the reporting
period but before the financial statements are authorized for
issue.
c.A currently maturing obligation is always classified as a
current liability, without exception.
d.A currently maturing obligation is classified as current if the
entity expects, and has the discretion, to refinance it on a
 4. The conceptually appropriate method of measuring a
liability is to

a.Discount the amount of expected cash outflows that are

necessary to liquidate the liability using the market rate of
interest at the date the liability was initially incurred.
b.Discount the amount of expected cash outflows that are
necessary to liquidate the liability using the market rate of
interest at the date financial statements are prepared.
c.Record as a liability the amount of cash that the entity would
be required to pay to eliminate the liability in the ordinary
course of business on the date of the financial statements.
d.Record as a liability the amount of cash actually received
when a liability was incurred.
 5. A department store received cash and issued a gift
certificate that is redeemable in merchandise. When
the gift certificate was issued

a. Deferred revenue account should be decreased

b. Deferred revenue account should be increased
c. Revenue account should be decreased
d. Revenue account should be increased
6. For a liability to exist

a. A past transaction or event must have

occurred
b. The exact amount must be known
c. The identity of the party owed must be
known.
d. An obligation to pay cash in the future must
exist.
 7. Which does not meet the definition of a
liability?

a.The signing of a three-year employment

contract at a fixed annual salary
b.An obligation to provide goods or services in
the future
c.A note payable with no specified maturity
date
d.An obligation that is estimated in amount
 8. Which is not an acceptable presentation
of current liabilities?

a. Listing current liabilities in the order of

maturity
b.Listing current liabilities according to amount
c. Offsetting current liabilities against assets
that are to be applied to their liquidation
d. Showing current liabilities in the order of
liquidation preference.
 9. The most relevant measurement of
liabilities at initial recognition and
measurement should always reflect

a. The expectation of the management

b.Historical cost
c.The credit standing of the entity
d.The single most likely minimum or maximum
possible amount
 10. Which of the following is not an aspect
of the definition of a liability under the
revised Conceptual Framework?

a.Probable outflow of economic benefits

b.Transfer of an economic resource
c.Obligation
d.Present obligation is a result of past events
11. On December 31, 2014, Glare Company provided the
following information

Accounts payable, including deposits and

advances from customer of P25,000 125,000
Notes payable including note payable to bank
due on December 31, 2016 of P50,000 150,000
Stock Dividends payable 40,000
Credit balances in customers accounts 20,000
Serial bonds payable in semi annual instalment
of 50,000 500,000
Accrued interest on bonds payable 15,000
Contested BIR tax assessment –possible obligation 30,000
Unearned rent income 10,000

Compute the total current liabilities on December 31, 2014.

12. Cobb Department Store sells gift certificates redeemable
only when merchandise is purchased. These gift certificates
have no expiration date. Upon redemption or expiration, the
entity recognizes the unearned revenue as realized.
The entity provided the ff information for the current year:
Unearned revenue, January 1, 2018 650,000
Gift Certificates sold 2,250,000
Gift Certificate redeemed 1,950,000
Gift Certificates expected not to be redeemed 100,000
Cost of Goods Sold 60%
On December 31,2018, what amount should be reported as
unearned revenue?
13. Hart Company sells subscriptions to a specialized directory
that is published semi annually and shipped to subscribers on
April 15 and October 15.
Subscriptions after the March 31 and September 30 cut-off
dates are held for next publication.
Cash from subscribers is received evenly during the year
and s credited to deferred revenue from subscriptions.
Deferred revenue from subscriptions-January 1, 2018 1,500,000
Cash receipts from subscribers during the current year 7,200,000

What is the subscription for 2018?

14. Kemp Company must determine the Deceber31,2018 accruals for the
following expenses:
 A P500,000 advertising bill was received January 7,2019, comprising cost of
P350,000 for advertisement in December 2018 issues, and P150,000 for
advertisement in January 2019 issues of the newspaper.
 A one year lease, effective December16,2018, calls for fixed rent of P120,000
per month, payable one month form the effective date and monthly
thereafter.
 The entity has real property subject to real property tax. The city’s fiscal year
runs July 1 to June 30 and the tax assessed at 3% of real property on hand is
payable on June 30, 2019.
The entity estimated that the real property tax will amount to P600,000 for
the city’s fiscal year ending June 30, 2019.
 Total cash sales and collections on accounts amounted to P1,000,000.
Accounts receivable has a net increase of P200,000. Commissions of 15% of
sales are paid on the same day cash is received from customers.
On December 31, 2018, what amount should be reported as accrued
15. On January 1, 2019, Salvador Company received a P50,000
security deposit from a tenant in conjunction with a 5 year
lease. Salvador will return the Security deposit to the tenant at
the end of the lease term, net of cost of any damages to the
leased property. The discount rate is 10%.

Provide the journal entries for 2019.

ANSWERS
1.An item is recognized as liability if:
I. It meets the definition of a liability
II.Recognizing the liability results in a relevant
and faithfully represented information
III.The outflow of the economic benefits from
obligation is both probable and can be
measured reliably
a.I and II c. I and III
b.II and III d. I,II, and III
2. Financially liabilities are initially measured
at
a.Fair value plus transaction costs.
b.Fair value plus transaction costs except FVPL
liabilities whose transaction costs are expensed
immediately
c.Fair value plus transaction costs, except FVOCI
liabilities whose transaction costs are recognized in
OCI.
d.Fair value minus transaction costs, except FVPL
liabilities whose transaction costs are expensed
immediately.
 3. According to PAS 1, which of the following statements is
correct regarding refinancing of long-term obligations?

a.A currently maturing obligation is classified as current even if

a refinancing agreement is completed after the reporting
period but before the financial statements are authorized for
issue.
b.A currently maturing obligation is classified as noncurrent if
it is refinanced on a long-term basis after the reporting
period but before the financial statements are authorized for
issue.
c.A currently maturing obligation is always classified as a
current liability, without exception.
d.A currently maturing obligation is classified as current if the
entity expects, and has the discretion, to refinance it on a
 4. The conceptually appropriate method of measuring a
liability is to

a.Discount the amount of expected cash outflows that are

necessary to liquidate the liability using the market rate of
interest at the date the liability was initially incurred.
b.Discount the amount of expected cash outflows that are
necessary to liquidate the liability using the market rate of
interest at the date financial statements are prepared.
c.Record as a liability the amount of cash that the entity would
be required to pay to eliminate the liability in the ordinary
course of business on the date of the financial statements.
d.Record as a liability the amount of cash actually received
when a liability was incurred.
 5. A department store received cash and issued a gift
certificate that is redeemable in merchandise. When
the gift certificate was issued

a. Deferred revenue account should be decreased

b. Deferred revenue account should be increased
c. Revenue account should be decreased
d. Revenue account should be increased
6. For a liability to exist

a. A past transaction or event must have

occurred
b. The exact amount must be known
c. The identity of the party owed must be
known.
d. An obligation to pay cash in the future must
exist.
 7. Which does not meet the definition of a
liability?

a.The signing of a three-year employment

contract at a fixed annual salary
b.An obligation to provide goods or services in
the future
c.A note payable with no specified maturity
date
d.An obligation that is estimated in amount
 8. Which is not an acceptable presentation
of current liabilities?

a. Listing current liabilities in the order of

maturity
b.Listing current liabilities according to amount
c. Offsetting current liabilities against assets
that are to be applied to their liquidation
d. Showing current liabilities in the order of
liquidation preference.
 9. The most relevant measurement of
liabilities at initial recognition and
measurement should always reflect

a. The expectation of the management

b.Historical cost
c.The credit standing of the entity
d.The single most likely minimum or maximum
possible amount
 10. Which of the following is not an aspect
of the definition of a liability under the
revised Conceptual Framework?

a.Probable outflow of economic benefits

b.Transfer of an economic resource
c.Obligation
d.Present obligation is a result of past events
11. On December 31, 2014, Glare Company provided the
following information

Accounts payable, including deposits and

advances from customer of P25,000 125,000
Notes payable including note payable to bank
due on December 31, 2016 of P50,000 150,000
Stock Dividends payable 40,000
Credit balances in customers accounts 20,000
Serial bonds payable in semi annual instalment
of 50,000 500,000
Accrued interest on bonds payable 15,000
Contested BIR tax assessment –possible obligation 30,000
Unearned rent income 10,000

Compute the total current liabilities on December 31, 2014.

12. Cobb Department Store sells gift certificates redeemable
only when merchandise is purchased. These gift certificates
have no expiration date. Upon redemption or expiration, the
entity recognizes the unearned revenue as realized.
The entity provided the ff information for the current year:
Unearned revenue, January 1, 2018 650,000
Gift Certificates sold 2,250,000
Gift Certificate redeemed 1,950,000
Gift Certificates expected not to be redeemed 100,000
Cost of Goods Sold 60%
On December 31,2018, what amount should be reported as
unearned revenue?
13. Hart Company sells subscriptions to a specialized directory
that is published semi annually and shipped to subscribers on
April 15 and October 15.
Subscriptions after the March 31 and September 30 cut-off
dates are held for next publication.
Cash from subscribers is received evenly during the year
and s credited to deferred revenue from subscriptions.
Deferred revenue from subscriptions-January 1, 2018 1,500,000
Cash receipts from subscribers during the current year 7,200,000

What is the subscription for 2018?

14. Kemp Company must determine the Deceber31,2018 accruals for the
following expenses:
 A P500,000 advertising bill was received January 7,2019, comprising cost of
P350,000 for advertisement in December 2018 issues, and P150,000 for
advertisement in January 2019 issues of the newspaper.
 A one year lease, effective December16,2018, calls for fixed rent of P120,000
per month, payable one month form the effective date and monthly
thereafter.
 The entity has real property subject to real property tax. The city’s fiscal year
runs July 1 to June 30 and the tax assessed at 3% of real property on hand is
payable on June 30, 2019.
The entity estimated that the real property tax will amount to P600,000 for
the city’s fiscal year ending June 30, 2019.
 Total cash sales and collections on accounts amounted to P1,000,000.
Accounts receivable has a net increase of P200,000. Commissions of 15% of
sales are paid on the same day cash is received from customers.
On December 31, 2018, what amount should be reported as accrued
15. On January 1, 2019, Salvador Company received a P50,000
security deposit from a tenant in conjunction with a 5 year
lease. Salvador will return the Security deposit to the tenant at
the end of the lease term, net of cost of any damages to the
leased property. The discount rate is 10%.

Provide the journal entries for 2019.