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Intermediate Accounting 3

Covers the application of accounting theory to the distribution of income tax, and accounting for leases and pensions for the analysis of financial statements.

accountancy

business

business administration

valix

millan

ocampo

intermediate accountant

ballada

solution manual

rules

robles empleo

financial accounting

kieso

Financial statements are structured representation of the financial position and performance of an entity. The objective of general purpose financial statements is to provide information about the entity’s (choose the incorrect one)

  • financial performance
  • valuation
  • cash flows
  • financial position

In a statement of cash flows, receipt from sale of property, plant, and equipment would be classified as cash inflows from

  • financing activity
  • investing activity
  • operating activity
  • liquidating activity

Rajah Company paid P 72,000 to renew the only insurance policy for three years on March 1, 2020, the effective date of the policy. On March 31, 2020, the unadjusted trial balance showed a balance of P 3,000 for prepaid insurance and P 72,000 for insurance expense.

  • P 73,000 and P 2,000
  • P 72,000 and P 3,000
  • . P 70,000 and P 5,000
  • P 70,000 and P 3,000

Which of the following would appear only in the statement of cash flows using the indirect method?

  • cash payments for operating expenses
  • cash receipts for money borrowed from a bank
  • depreciation expense
  • cash receipts from customers

When there is much variability in the duration of entity’s normal operating cycle, the operating cycle is measured at

  • its median value
  • Three years
  • Its mean value
  • Twelve months

It is the residual interest in the assets of the entity after deducting all of its liabilities.

  • Net income
  • Income
  • Expense
  • Equity

Would the following be added to or deducted from profit when reporting cash flow from operating activities using the indirect method?

  • The depreciation expense is added and increase in accounts receivable is deducted.
  • Depreciation expense is deducted and increase in accounts receivable is added.
  • Depreciation expense is added and increase in accounts receivable is added.
  • Depreciation expense is deducted and increase in accounts receivable is deducted.

The following was taken from the 2020 financial statements of Tulip Company.

  • P 4,468,000
  • P 4,282,000
  • P 4,478,000
  • P 4,292,000

What is the core principle of PFRS 8 on operating segments?

  • II only
  • Neither I nor II
  • Both I and II
  • I only

Which of the following statements is incorrect concerning assets?

  • In determining existing of an asset, the right of ownership is essential.
  • There is a close association between incurring an expenditure and generating asset but the two do not necessarily coincide.
  • Physical form is not essential to the existence of an asset.
  • An asset results from past event

An entity shall disclose information about an operating segment when

  • its reported external and internal revenue is 10% or more of the combined external and internal revenue of all operating segments.
  • its reported external and internal revenue is 10% or more of the combined external revenue of all operating segments.
  • its reported external revenue is 10% or more of the combined internal and external revenue of all operating segments.
  • its reported external revenue is 10% or more of the combined external revenue of all operating segments.

Gold Company provided the following information at year-end:

  • P 8,700,000
  • P 5,800,000
  • P 8,000,000
  • P 8,500,000

Prior period errors are omissions from and misstatements in the financial statements or one or more periods arising from a failure to use or misuse of reliable information that

  • I only
  • Both I and II
  • II only
  • Neither I nor II

Failure to record accrued salaries at the end of an accounting period results in

  • understated retained earnings
  • overstated revenue
  • overstated retained earnings
  • overstated assets

Which of the following is a characteristic of a change in accounting policy?

  • shall be reported by retrospectively adjusting the financial statements for all years reported, and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported.
  • requires the reporting of prior year’s income for a a change in accounting policy.
  • never ends to be disclosed.
  • does not affect the financial statements of prior periods.

Under the indirect method, which of the following items would be added to profit to arrive at cash flows from operating activities?

  • gain on sale of investments
  • decrease in accounts receivable
  • decrease in accounts payable
  • increase in prepaid expenses

During the year ended December 31, 2020, Zoila Company paid interest totaling P 100,000. The prepaid interest expense is P 23,500 and P 18,000 respectively on December 31, 2019 and 2020. The interest payable is P 45,000 and P 53,500, respectively on December 31, 2019 and 2020.

  • P 97,000
  • P 86,000
  • P 103,000
  • P 114,000

Which of the following is classified as an operating activity in the statement of cash flows?

  • Cash advances and loans made to other parties, other than advances and loans made by a financial institution.
  • Cash receipts and payments involving property, plant and equipment, intangible assets and other long-term assets
  • Cash receipts and payments from contracts held for dealing or trading purposes
  • Cash receipts and payments involving equity and debt instruments of other entities

Which of the following is presented as an operating activity?

  • cash repayments by a lessee for the reduction of the outstanding liability relating to the finance lease.
  • Answer: A
  • cash proceeds from issuing shares or other equity instruments
  • cash payments of amount borrowed
  • cash advances and loans made by financial institutions

Which of the following statements is true concerning interim financial reporting?

  • Only second statement is true
  • Only first statement is true
  • Both statements are true
  • Both statements are false

Which of the following terms cannot be used to describe a line item in the statement of comprehensive income

  • Income before tax
  • Gross profit
  • Extraordinary item
  • Revenue

A. Corp. has a total equity of P 200 at the beginning of the period. During the period, A Corp. earns a profit of P 40 and declares dividends of P 10. The total equity at the end of the period is P 250.

  • True
  • False

These are the present obligations of an entity arising from past transactions or events the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

  • Equity
  • Expenses
  • Assets
  • Liabilities

An entity shall present expenses using a classification based on

  • The nature of expenses
  • Either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant.
  • Either the nature of expenses or the function of expenses within the entity, whichever the entity would prefer to present.
  • The function of expenses

An entity shall present all items of income and expense recognized in a period

  • I only
  • II only
  • Both I and II
  • Either I or II

Guard Company reported the following account balances on December 31, 2020:

  • P 4,100,000
  • P 7,100,000
  • P 3,900,000
  • P 4,300,000

Brent Corp. beginning inventory on January 1 was understated by P 260,000 and the ending inventory was overstated by P 520,000.

  • P 260,000 overstated
  • P 260,000 understated
  • P 780,000 overstated
  • P 780,000 understated

In a statement of cash flows, proceeds from the sale of a company’s own bonds or mortgages should be classified as

  • operating activity
  • investing activity
  • financing activity
  • leveraging activity

The elements directly related to the measurement of financial position are

  • Assets, liabilities, equity, income and expenses
  • Income and expenses
  • Assets and liabilities
  • Assets, liabilities and equity

Green Company incurred the following costs during the current year:

  • P 2,600,000
  • P 3,350,000
  • P 4,200,000
  • P 5,200,000

What is the objective of financial statements?

  • To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users.
  • To present relevant, reliable, comparable and understandable information
  • To prepare financial statements in accordance with all applicable standards
  • To prepare a statement of financial position and statement of comprehensive income

An entity shall classify an asset as current when (choose the incorrect one)

  • The asset is cash or cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period.
  • The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating cycle.
  • The entity expects to realize the asset within twelve months after the reporting period.
  • The entity holds the asset for the purpose of trading.

What is the purpose of reporting comprehensive income?

  • To combine income from continuing operations with income from from discontinued operations.
  • To replace net income with a better measure
  • To report changes in equity due to transactions with owners
  • To report a measure of overall entity performance

Which of the following statements is true?

  • When an entity discovers an error in its financial statements of a prior period, it must immediately withdraw those financial statements and reissue them with the error corrected.
  • To the extent practicable, an entity must correct a prior period error retrospectively in the first financial statements authorized for issue after its discovery.
  • To the extent practicable, an entity must correct a prior period error prospectively in the first financial statements authorized for issue after its discovery.
  • The effect of a change in accounting estimate is recognized retrospectively.

In a statement of comprehensive income, showing expenses according to their function, which of the following is included in the line item “Administrative expenses?”

  • salaries of sales personnel
  • cost of sales
  • legal and accounting fees
  • freight-out

Quezonian Company provided the following profit (loss) relating to operating segments:

  • V, W and X
  • V, W, X, Y and Z
  • V and W
  • V, W, X and Y

Separate line items of expenses by function include

  • Cost of sales, administrative expenses and distribution expenses
  • Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items
  • Depreciation, purchases of materials, transport costs, employee benefits and advertising costs.
  • Purchases of materials, distribution costs, administrative costs, employee benefits, depreciation, taxes

Which of the following is not a non-current investment?

  • Land held for speculation
  • Franchise
  • Sinking fund
  • Cash surrender value of life insurance

Which of the following would be classified as an investing activity?

  • payment of cash dividend.
  • purchase of treasury shares.
  • sale of financial assets at fair value through other comprehensive income.
  • issuance of ordinary shares.

Separate line items of expenses by nature include

  • Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items
  • Purchases of materials, distribution costs, administrative costs, employee benefits, depreciation, taxes
  • Depreciation, purchases of materials, transport costs, employee benefits and advertising costs.
  • Cost of sales, administrative costs, transport costs and distribution costs.

Winner Company provided the following information at year end:

  • P 6,800,000
  • P 6,000,000
  • P 4,000,000
  • P 4,800,000

Operating segments that do not meet any of the quantitative thresholds

  • cannot be considered reportable.
  • may be considered reportable and separately disclosed if this is the practice within the economic environment in which the entity operates.
  • may be considered reportable segment and separately disclosed if the information if for internal use only.
  • may be considered reportable and separately disclosed if management believes that information about the segment would be useful to the users of the financial statements.

A complete set of financial statements includes all of the following components, except

  • Statement of financial position
  • Environmental reports and value added statements
  • Notes to financial statements
  • Statement of changes in equity

These are the resources controlled by the entity as a result of past transactions or events and from which future economic benefits are expected to flow to the entity.

  • Assets
  • Income
  • Liabilities
  • Equity

What is the primary purpose of the statement of cash flows?

  • To provide information about the entity’s financial performance for a period of time.
  • To provide information about an entity’s financial structure.
  • To provide information about an entity’s financial position at a point in time.
  • To provide information that is useful in assessing the ability of the entity to generate cash and cash equivalents.

For interim financial reporting, an expropriation gain occurring in the second quarter shall be

  • recognized ratably over the last three quarters
  • recognized ratably over all four quarters with the first quarter being restated
  • disclosed by footnote in the second quarter
  • recognized in the second quarter

PAS 1 Presentation of Financial Statements

  • does not deal with the presentation of items in the financial statements.
  • prescribes the order or format in which an entity presented items in the financial statements.
  • does not prescribe the order or format in which an entity presents items in the financial statements.
  • prescribes some order or some format in which an entity presents items in the financial statements.

Little Company reported the following current assets on December 31, 2020:

  • P 7,750,000
  • P 6, 750,000
  • P 7,700,000
  • P 6,700,000

The statement of financial position may be presented either showing current/ non-current distinction (classified) or based on liquidity (unclassified) PAS 1 Presentation of Financial Statements encourages the

  • classified presentation
  • None of the choices
  • unclassified presentation
  • either a or b

The residual interest in the assets of the entity after deducting all of the liabilities is known as

  • par value
  • equity
  • retained earnings
  • Drawings

Which of the following is included in a complete set of financial statements?

  • Summarized statements of financial position for the last five years
  • Value added statement
  • a statement of the board of directors of compliance with local legislation
  • a statement of changes in equity

When preparing a statement of cash flows using the indirect method, the amortization of trademarks should be reported as a/an

  • cash inflow from investing activities
  • addition to profit to arrive at a cash flows from operating activities
  • cash outflow for investing activities
  • deduction from profit to arrive at cash flows from operating activities.

Corrections of error are reported in

  • shareholders’ equity
  • retained earnings
  • other income or expense
  • other comprehensive income

In a classified statement of financial position, PAS 1 Presentation of Financial Statements requires deferred tax assets and deferred tax liabilities to be presented as

  • none of the choices
  • current items
  • either a or b
  • non-current items

Which method is acceptable in the presentation of the income statement?

  • Neither I nor II
  • II only
  • Either I or II
  • I only

Show Company provided the following trial balance on December 31, 2020 which had been adjusted except for income tax expense:

  • P 5,400,000
  • P 4,400,000
  • P 3,400,000
  • P 4,900,000

An entity that changed its method of inventory valuation from weighted average to FIFO shall account for the change as

  • a correction of an error and account for it retrospectively.
  • a change in accounting policy and account for it prospectively.
  • a change in accounting policy and account for it retrospectively.
  • a change in estimate and account for it prospectively.

Lily Corporation’s transactions for the year ended December 31, 2019 included the following:

  • P 375,000
  • P 675,000
  • P 50,000
  • P 175,000

Change in accounting policy does not include

  • Change in method of inventory valuation from weighted average to FIFO.
  • Change from the practice of paying as Christmas bonus one month’s salary to the new practice of paying one half month’s salary.
  • Change in estimated useful life of an asset.
  • Change in method of inventory valuation from FIFO to weighted average.

On December 31, 2019, CAL Company sold merchandise for P 750,000 to Biday Company. The terms of the sale were net 30, F.O.B. shipping point. The merchandise was shipped on December 31, 2019, and arrived at Biday on January 5, 2020.

  • understated by P 750,000.
  • understated by P 150,000.
  • understated by P 600,000.
  • correctly stated

An entity paid P 1,000,000 for supplies during 2020. The full amount of P 1,000,000 was debited to supplies inventory. The January 1, 2020 balance of supplies inventory was P 360,000. A physical count of the supplies on hand on December 31, 2020 revealed the amount of P 600,000.

  • Debit supplies inventory and credit supplies expense P 60,000.
  • Debit supplies inventory and credit supplies expense P 240,000.
  • Debit supplies expense and credit supplies inventory P 760,000.
  • Debit supplies expense and credit supplies inventory P 600,000.

Each material class of similar items shall be presented separately and items of a dissimilar nature or function shall be presented separately unless they are immaterial.

  • Materiality and aggregation
  • Comparability
  • Offsetting
  • Accounting policy

An entity shall present all items of income and expense recognized in a period.

  • I only
  • II only
  • Either I or II
  • Neither I nor II

Which may be considered an operating segment?

  • Post-employment benefit plans
  • Start-up operations before earning revenue
  • Functional department
  • Corporate headquarters that earn revenue

For interim reporting, an inventory loss from a market decline in the second quarter shall be recognized as a loss

  • proportionately in each of the first, second, third and fourth quarters
  • in the fourth quarter
  • proportionately in the second, third and fourth quarters
  • in the second quarter.

This is the formal statement that shows the movement in the elements or components of the shareholders’ equity.

  • Income statement
  • Statement of Shareholders' Equity
  • Statement of Retained Earnings
  • Statement of Changes in Equity

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

  • issuance of bonds payable at a discount
  • sale of a business segment
  • purchase of treasury shares
  • sale of share capital

The following information is available for Champaca Company for the year ended December 31, 2020.

  • P 220,000
  • P 260,000
  • P 230,000
  • P 250,000

Interim financial reports shall include as a minimum

  • a statement of financial position and an income statement only
  • a complete set of financial statements
  • a condensed statement of financial position, income statement
  • a condensed set of financial statements and selected notes

Entity C’s total equity at the end of the period is P 230. During the period, Entity C earns profit of P 40 and declares total dividends of P 10. Entity C’s total equity at the beginning of the period was P 200.

  • True
  • False

Which of the following statements in relation to interim financial reporting is true?

  • Both I and II
  • I only
  • Neither I nor II
  • II only

A change in measurement basis is

  • a correction of error
  • a change in accounting estimate
  • not an accounting change
  • a change in accounting policy

The declaration of cash dividends by the board of directors

  • would be reported as a financing activity in the statement of cash flows
  • is an activity that would not be reported in a statement of cash flows.
  • would be reported as an operating activity in a statement of cash flows.
  • would be reported as an investing activity in the statement of cash flows.

Partner Company reported operating expenses as distribution and general or administrative.

  • P 6,000,000
  • P 4,900,000
  • P 4,550,000
  • P 3,650,000

Items reported as prior period adjustments

  • do not include the effect of a mistake in the application of accounting policy as this is accounted for as a change in accounting policy rather than as a prior period error.
  • are reflected as adjustments of the opening balance of retained earnings of the earliest period presented.
  • do not affect the presentation of prior period comparative financial statements.
  • do not require further disclosure in the body of the financial statements.

The expenses are classified according to their function, as part of cost of sales, distribution costs, administrative activities and other operating activities.

  • Account form
  • nature of expense method
  • Report form
  • Cost of sales method

Which of the following statements is incorrect regarding interim financial reporting?

  • Decline in inventory shall be deferred to future interim periods.
  • Costs and expenses not directly associated with interim revenue must be allocated to interim periods on a reasonable basis.
  • Gains and losses that arise in an interim period shall be recognized in the interim period in which they arise if they would not normally deferred at year-end.
  • Use of the gross margin method for computing cost of goods sold must be disclosed.

Winner Company has estimated that total depreciation expense for the year ended December 31, 2020 will amount to P 500,000, and that 2020 year-end bonuses to employees will total P 1,200,000.

  • P 850,000
  • P 1,100,000
  • P 500,000
  • P 1,700,000

Corny Company provided the following data relating to operating segments:

  • five
  • three
  • four
  • six

Prior period errors are omissions from and misstatements in the financial statements of one or more periods arising from a failure to use or misuse of reliable information that

  • I only
  • Both I and II
  • Either I or II
  • II only

Which statement indicates a going concern?

  • Management intends to cease the operations of the entity.
  • Management intends to liquidate the entity.
  • None of the choices would indicate going concern.
  • Management has no realistic alternative but to cease the operations of the entity.

Which should be classified as a non-current asset?

  • Goods in process
  • Plant expansion fund
  • Supplies
  • Prepaid rent

The total equity of D Co. at the beginning of the period was P 100. during the period D Co. reports total comprehensive income of P 40 and declares total dividends of P 10. The net change in equity during the period is an increase of P 40.

  • True
  • False

Brook Corporation reports operating expenses in two categories (1) selling, and (2) general and administrative. The adjusted trial balance at December 31, 20x1, including the following expense and loss accounts:

  • P 360,000
  • P 400,000
  • P 370,000
  • P 480,000

What is the function of the chief operating decision maker?

  • To allocate resources to the operating segments and assess their performance.
  • To allocate resources to the operating segments only.
  • To assess the performance of the operating segments only.
  • To provide general information to financial statement users about operating segments.

The effect of a change in accounting estimate shall be recognized prospectively by including it in profit or loss of

  • current period and future periods if the change affects both
  • future periods only
  • prior periods only
  • current period only

The effects of transactions and other events on economic resources and claims are depicted in the periods in which those effects occur even if the resulting cash receipts and payments occur in a different period.

  • Modified accrual accounting
  • Accrual accounting
  • Cash accounting
  • Modified cash accounting

An operating segment is a component of an entity

  • I and III
  • I, II and III
  • II only
  • I only

The effect of change in the expected pattern of consumption of economic benefits of a depreciable asset shall be

  • included as component of other comprehensive income
  • included in the determination of income or loss in the period of change and future periods
  • included in the statement of retained earnings as an adjustment of the beginning balance
  • included in the determination of income or loss in the period of change only

Financial statements must be prepared at least

  • every two years
  • quarterly
  • annually
  • semiannually

Which of the following changes during a period is not a component of other comprehensive income?

  • Treasury share, at cost
  • Unrealized gain on equity instruments measured at fair value through other comprehensive income
  • Minimum pension liability
  • Foreign currency translation adjustment

All of the following are components of other comprehensive income, except

  • Change in revaluation surplus
  • Foreign currency translation adjustment
  • Deferred gain and loss on derivative financial instruments
  • Unrealized gain and loss on financial asset held for trading

Firm B’s total equity at the beginning of the period was P 40. During the period, Firm B incurs loss of P 4 and declares total dividends of P 10. Total equity of Firm B at the end of the period is P 26.

  • True
  • False

Quezon Company, a calendar-year entity, had the following income before tax provision and effective annual tax rate for the first three quarters of the current year:

  • P 1,350,000
  • P 2,400,000
  • P 2,000,000
  • P 5,250,000

Other comprehensive income includes all of the following, except

  • actuarial gain on defined benefit plan that is fully recognized through other comprehensive income
  • loss from translating the financial statements of a foreign operation
  • unrealized gain on forward contract designated as cash flow hedge
  • dividend paid to shareholders

In preparing a statement of cash flows, sale of treasury shares at an amount greater than cost would be classified as a/ an

  • investing activity
  • operating activity
  • financing activity
  • transfer activity

The presentation and classification of items in the financial statements shall be retained from one accounting period to the next.

  • Consistency of presentation
  • Materiality
  • Comparability
  • Aggregation

Universal Company reported the following unadjusted current assets and shareholders’ equity at year-end:

  • P 7,800,000
  • P 5,200,000
  • P 7,500,000
  • P 7,200,000

These are the funds contributed by shareholders equal to the par or stated value.

  • revaluation surplus
  • share capital
  • share premium
  • retained earnings

The funds contributed by shareholders in excess of par or stated value

  • retained earnings
  • revaluation surplus
  • share capital
  • share premium

During 2020, an entity discovered that ending inventory reported in its 2019 financial statements was understated. How should the entity account for this understatement?

  • Adjust the beginning inventory in 2019.
  • Make no entry because the error will self-correct.
  • Restate the financial statements with corrected balances for all prior periods presented.
  • Adjust the ending balance in the 2020 retained earnings account.

The major financial statements include all, except

  • Statement of comprehensive income
  • Statement of changes in financial position
  • Statement of changes in equity
  • Statement of financial position

What is the approach prescribed by PFRS in identifying an operating segment?

  • Risks and rewards approach
  • Matrix approach
  • Geographical segment approach
  • Management approach

Where the financial statements for a single year are being presented, a prior period error recognized in the current year ordinarily should

  • be shown in the current year’s statement of changes in equity.
  • be included in the statement of recognized gains and losses.
  • affect net income of the current year.
  • be shown as an adjustment of the balance of retained earnings at the start of the current year.

Revenue may be derived from any of the following activities except

  • allowing others to use the entity’s resources
  • borrowing from banks
  • rendering services
  • selling products

Which of the following statements best describes prospective application?

  • Applying a new accounting policy to transactions occurring after the date at which the policy is changed.
  • Correcting the financial statements as if a prior period error had never occurred.
  • Applying a new accounting policy to transactions as if that policy had always been applied.
  • Recognizing a change in accounting policy in the current and future periods affected by the change.

Failure to record depreciation expense at the end of an accounting period results in

  • understated income
  • overstated assets
  • understated assets
  • overstated expenses

It is the total income less expenses, excluding the components of other comprehensive income.

  • Accounting income
  • Profit or loss
  • Economic income
  • Comprehensive income

This means applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.

  • prospective restatement
  • retrospective restatement
  • prospective application
  • retrospective application

Which of the following does not appear in the statement of retained earnings?

  • prior period error
  • other comprehensive income
  • Preference share dividend
  • net income

A company required a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities for the above transaction?

  • mortgage amount
  • cash payment
  • zero
  • acquisition price

Tiny Company started operations at the beginning of current year. The entity failed to recognize accruals and prepayments at end of the reporting period. The income before tax, accrual and prepayments at the end of the current year are:

  • P 1,385,000
  • P 1,415,000
  • P 1,400,000
  • P 1,375,000

Comprehensive income includes

  • both profit or loss and other comprehensive income
  • neither profit or loss nor other comprehensive income
  • profit or loss only
  • other comprehensive income

Which of the following information is not specifically a required disclosure in relation to financial statements?

  • .Names of major shareholders of the entity.
  • Whether the financial statements cover the individual entity or a group of entities.
  • Names of the reporting entity or other means of identification an any change in that information from the previous year.
  • .Level of rounding used in presenting the financial statements.

Interim financial statements are usually presented on a

  • nine-month basis
  • semiannual basis
  • monthly basis
  • quarterly basis

An interim financial report shall include, as a minimum, all of the following components, except

  • Condensed statement of cash flows
  • Condensed statement of changes in equity
  • Condensed statement of financial position and statement of comprehensive income
  • Accounting policies and explanatory notes

Under the cash basis of accounting, revenue is recorded

  • when earned.
  • when earned and realizable.
  • when realized.
  • when earned and realized.

The primary responsibility for the preparation of the financial statements is reposed in

  • External auditor
  • Controller
  • Internal auditor
  • Management of the entity

A change in reporting entity is actually a change in accounting

  • estimate
  • methods
  • concept
  • policy

In financial reporting for operating segments, an entity shall disclose all the following, except

  • types of products and services from which each reportable segment derives its revenue.
  • the title of the chief operating decision maker of each reportable segment.
  • the basis of measurement of segment profit or loss and segment assets.
  • factors used to identify the entity’s reportable segments.

These are the cumulative net earnings or profit of a firm which may be unappropriated and appropriated.

  • share capital
  • share premium
  • retained earnings
  • revaluation surplus

Red Company which began operations on January 2019 has elected to use cash basis accounting for tax purposes and accrual basis accounting for financial statements. The entity reported sales of P 1,750,000 and P 800,000 in the tax returns for years ended December 31, 2020 and 2019, respectively. The entity reported accounts receivable of P 300,000 and P 500,000 on December 31, 2020 and 2019, respectively.

  • P 1,450,000
  • P 1,550,000
  • P 1,950,000
  • P 2,050,000

Interim financial report means a financial report containing

  • II only
  • Either I or II
  • Neither I nor II
  • I only

ASB Company provided the following information for the current year:

  • P 8,000,000
  • P 6,700,000
  • P 8,200,000
  • P 6,500,000

Orchidia Company’s prepaid insurance was P 500,000 at December 31, 2020 and P 250,000 at December 31, 2019. Insurance expense was P200,000 for 2020 and P 150,000 for 2019.

  • P 550,000
  • P 300,000
  • P 450,000
  • P 200,000

Which statement is true about accrual and cash basis?

  • Under accrual, if the earning process is not complete, revenue is nevertheless recorded.
  • Under the cash basis, if cash has been collected, revenue is recorded regardless of the earning process.
  • Under cash basis, revenue is recognized when the receivable is initially recorded.
  • All these statements are true.

Statement of Cash flows is

  • Select one:
  • a financial statement showing revenues earned by a business, the expenses incurred in earning the revenues, and the resulting profit or loss.
  • another name for statement of financial position.
  • a financial report showing the assets, liabilities and equity of an enterprise on a specific date.
  • a financial statement that reports the cash inflows and outflows for an accounting period.

What is the quantitative requirement for the revenue that must be reported by reportable operating segments?

  • The total internal revenue of all reportable segments is 75% or more of the entity internal revenue.
  • The total external and internal revenue of all reportable segments is 75% or more of the entity external revenue.
  • The total external revenue of all reportable segments is 75% or more of entity external and internal revenue.
  • The total external revenue of all reportable segments is 75% or more of the entity external revenue

The operating cycle of an entity

  • Causes the distinction between current and noncurrent items to depend on whether they will affect cash within one year.
  • It is a period of one year.
  • It is the period of time normally elapsed from the time the entity expends cash to the time it converts trade receivables back into cash.
  • It is the time between the acquisition of materials entering into a process and their realization in cash or cash equivalent.

In a statement of cash flows using indirect method of presenting cash flow from operating activities, depreciation is treated as an adjustment to reported profit because depreciation

  • is an inflow of cash for asset replacement fund.
  • usually represents a significant portion of operating expenses.
  • reduces the reported profit but does not involve an outflow of cash.
  • reduces the reported profit and involves an inflow of cash.

Items of dissimilar nature or function

  • Must always be presented separately in financial statements.
  • Must be presented separately in financial statements if those items are material.
  • Must not be presented separately in financial statements.

Revenue may be derived from any of the following activities, except

  • rendering services
  • borrowing from banks
  • allowing others to use entity's resources
  • selling products

Non-current liabilities include

  • Deferred tax liability
  • All of these are non-current liabilities
  • Short-term obligation refinanced on a long-term basis at the end of the reporting period
  • Bonds payable

This term comprises items of income and expenses including reclassification adjustments, that are not recognized in profit or loss as required or permitted by PFRS.

  • Profit or loss
  • Retained earnings
  • Other comprehensive income
  • Comprehensive income

Which statement indicates a going concern

  • None of the choices would indicate going concern.
  • Management intends to liquidate the entity.
  • Management has no realistic alternative but to cease the operations of the entity
  • Management intends to cease the operations of the entity.

The elements directly related to the measurement of financial performance are

  • Assets, liabilities, equity, income and expenses
  • Assets, liabilities and equity
  • Income and expenses
  • Assets and liabilities

The following costs were incurred by LIP company, a manufacturer during 20x1:

  • P 550,000
  • P 260,000
  • P 810,000
  • P 635,000
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