i 173590341 Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila ‘3 (02) 735 2901 ‘ranch Rudel Bldg. V, Lower Mabinl cor Diego Slang, Baguto City (074)442-1440 email add: cre_ace@yahoo.com FINANCIAL ACCOUNTING THEORY MAY 2014 BATCH FIRST PRE-BOARD EXAMINATION sEr BE JANUARY 30, 2014; 2:00-3:00PM it ji q for INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer each item by Shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 1 or No. 2 only. 1. Which of the following statements does net pertain to the Going-Concem assumption of accounting? . ‘A. Assets and liabilities should be ciosiified in the statement of financial position os to “curent™ or “non-current* 8, Threats to the ability of on entity to operate as c going concem should be disclosed in the notes to financial statements - C. The primary responsibilty in assessing whether an entity has the abiity to operate as o going concern rests with the external auditor. D. Conceptually, the Acctucl assumption is directly related to the Going Concern assumption 2, Which of the following stotements about accounting slandord selfing and the Conceptual Framework is truce AICPA professionals are given the opportunity to participate in the standord-selting process |, The FRSC, the Board of Accountancy, the Philippine Insiitule of Cerliied Public Accountants Rorticipate in the due process of accounting standard-setting, and the Professional Regulation Commission is the final sgring authority The Conceptual Fromework constitute the accounting laws of the accountancy profession ond Violations of its provisions will be meted corresponding sanctions by the tequlatory bodies. IV. The Conceptual Framework provides the parameters within which the accounting standard setfers should work in crafting the financial cecounting standards of the accountancy profession A. tand flare tue C. Uh lend IV ore true 8. land. ore true D, Allstatements are true 3. Which of the followings (are) attribute of Accounting? A 8 Cc »D A. tis social science YES YES NO NO 8. itis a. communication profession NO YES NO YES C. is dyndmic in nature YES YES NO Yes D. Mtrecognizes and accounts for ail types of resources YES NO NO NO 4, The Financial Reporting Standards Couneil (FRSC) ‘A. Works under the direct supervision of the Protessional B. Has the power to issue ond revoke CPA license C, Is the authority of accounting standards in the Philippines BD. Gratted the Implementing Rules and Regulations (IRR) of the Philippine Accountancy Act of 2004. Regulation Commission 5. Which of the folowing is not port of the "Due Process" in the financial reporting stondord sett process in the Philippines? potting standard setting % Greation ofc task force by the standard setting body to study the proposed accounting standard . 8, Distribution of the exposure dratt for comment te CPA profession ©. Approval by the Financial Reporting Standards Council (FRSC) Professional Regulation Commission (PRC) . Publication in the PRC Official Gazette and in a newspaper of general circulation 1als ond other interested parties ‘nd eventually by the 6 fhe following are appication of the art aspect of accounting except "Accountants use creative skill and judgment in the choice of a porticulor depreci method to be applied to « particular asset nae B. Accountants inter format i ‘ Acegunk Pre! the information presented in the financial statements through ratios ond C. Accountants record an acquittion of on asset by cosh Agpauntant core by cash purchose at the amount stated in the. D-_Exleinl cucitors attest to the foimess of presentation of financial condition and operatingCRC-ACE: First Pre-bonrd Examination -May 2014 Batch 2 7. Which of the following statements about Philippine GAA? is (are) fake? |, Belore year 2000, Philippine GAAP was largely influenced by US GAAP (FASB) |. The use of revaiued amounts of property and equipment was allowed in the Philippines even before the IFRSs were adopted by the Phifippine accountancy profession. {i All economic entities or enterprises in the Philippines are tequired to follow ful Philippine Financial Reporting Standards (PFRSs) and Philippine Accounting Standards (PAS) in the: preparation of financial statements IV. There ore @ few instances when some provisions of the PASs and PERSs differ from the JASs and the PERSS ‘A. Lond il oniy 8. Wondillonly ——._tlland iV only BD. thullond iV only 8 Which of the following features of an asset closely links ils definition to the science of Economics? ‘A. Anosset is controled by an entity C._Anasset can provide future benefils to an entity, B. Anossetcancommanda price ° D. An asset is exclusively owned by an enity % Which of the following is an asset but not an economic resource? ‘A. Investment property C. Defened tax asset 8. Machinery D. Inventories 10. Which of the following is on incoect statement about the financial accounting process? ‘A. An accounting information sysiem is designed to collect data about each transaction and event thet should be recorded by an entity during a reporting yeor. B. Postings a transfer process which reclassifies chronological information into account classification format in the ledger. C. The steps of the accounting process implements the step of the accounting process D. Financial statements are prepared after adjusting entries 11. Which of the following Is not @ characteristic of financial accounting? A. Use of facts and estimates C.. Subjective data provided relevant 8. Primarily historical in nature D. Concerned with general and purpose reports 12, Which of the following is true about the operating cycle concept? A. It causes the distinction between current and non-curren! items 10 depend on whether they will affect cash within one year. B. It permits some assets to be classified os current even though they are more than one year semoved from becoming cash C. affects the income statement but not the statement of cash flows D. The period covered is the time normally required to convert cash invested in tangible assets back into cash, or 12 menths, whichever is longer, 13, The concept of verifiabilty is complied with when an accounting transaction occurs that ‘A. involves an arms-length transaction between two independent interests 8, furthers the objectives of the company CC. is promptly recorded in a fixed amount of pesos D. allocates revenues or expense items in a rational and systematic manner 14. Which of the following accounting measurements may be made with the greatest degree of objectivity A. Bad debts expense for the year C. Appraised value of land at yearend B. Cost of land owned as at yearend D.. Net income 15, The storage unit of information on accumulated increases ond decreases relating to a particular accounting value such as an asset, a liability, etc. A. Account 8. Ledger C. Joumal D. Book of secondary entry 16, Which one ef the following is not among the conditions that will qualify 4 situation, particular action oF set of circumstances os an accountoble event? [ A. itcchanges {Increases or decreases) one or more elements of the financial position of ¢ business enterprise 8, The event has cheady happened C. if must be capable of money measurement with a reasonable degree of precision D. There must be a value received and a valve parted with between two partiesCRO-ACE: First Pre-Yoard Examination -May 2044 Batch 2, 18 9 2 22, 23, 24, 25. 26. 27. The economic activities of a business enterprise increase or decrease ils (the) Assots Ligbiltles Owner's Eauily A yes ‘no yes B. yes yes yes Cc. yes no no ono no no. Historical cost is o measurement base currently used in financial accounting. Which of the following measurement bases is (ore) oiso currentty used in financial accounting? Ecicvolve orcurent value Present Discounted Value Net recizable Valve A Yes Yes _ Yes BL Yes Yes i No c No Yes No D. Yes No No Which of the following is not part of the environment of accounting? ‘A. Accountable events B._ Uses and Users of financial information C. Measurement boses ; D. Qualitative characteristics of accounting Intemal events are A. notrecorded since they happened only within the business 8. not recorded because they are not capable of money measurement C. recorded because they involve changes in vaives of the elements of accounting D. recorded becouse they involve exchanges of voiues between the entity and another party Which TWO of the folowing areas of an accountant" work are not part of financial accounting? (0). Reporting on parent and subsidiary relationships and transactions {2}, Reporting on installment soles and long-term construction contracts (3). Reporting on profitobiity trencs os well as ratios and measurements (4). Reporting on the foimess of presentation of financial position and performance of an enfity in conformity with GAAP. (Hand (2) B. (3) and (4) D. (2) and (3) ¢. (1) and (3) Compored with other types of moriey prices used for meosuring resources in financial accounting, the best orgument in favor of historical cost is e more A. Indicative of the entity's purchasing power B. Relevant C. Conservative D. Objective Financiol Gecounting and reporting focuses on the information needs of ‘A. Management CC. Creditors ond investors B. Regulatory bodies D. Financial analysts ond consultants The following pertain to Financial Accounting except A. Its primarily historical in nature C. it must comply with GAAP B, Emphasizes subjective data D. Generates general-purpose reports ASlotement of Assets and Liabilities (SALN), which government officials ore required fo file for public: scrutiny in the name of transparency reporting is comparable to an entily's Statement of Cash flows Statement of changes in equity Statement of financial position : Statement of comprehensive income. > soe (Compared to its 2014 cash bosis net income, Incteased . when it ‘A. Sold used equipment for cash at a gain in 2014 B. Had lower accrued expenses on December 31, 2013, than on January 1, 2014 C. Recorded more account sales than that of the previous year, D. Sold used equipment for cash ata goin in 2014 Rachelle Company's 2014 accrual basis net income Which of the following operations con @ccountant’s judgment? A. Selecting the events S B. Measuring the effects D. be performed by a computer without requiting an Preparing the trial balance Adjusting the records Gin tTPT ORCACE: First Pre-beard Examination may 2014 Batch 4 2. 31 32. 34, 36. 7. Which of ine fotowing statements cbout bookkeeping system is (are) false? |. Siagie-entry sookkeesing and cosh basis accounting are basically the some. 1. Any system of bookkeeping that fol’ short of the characteristics of double-entry bookkeening is sngle-entry bookkeeping - Sag's-entry bookkeeping is occeptabie lo some groups in the business community Financ‘al stclements of cny enterprise cre deemed in compliance wilh GAAP as iong as they ore srepaxed under the double-eniry system of bookkeeping. A. tend only B. lend iV only C. Ih.llland WV only D. 1H. Ml, IV Given the dua’ effects of accountabie events, an decrease in on assel cannot possibly be accomporied by c {cn} A. Decrease in icbsi CC. Increasein an osset B. Increase in owner's equity D. Inctease in expense The objective of financial statements is A. To summarze cosh receipts and cash payments 8. To provide information thal con be used in evaluating management performence €. To provice intormation cout the financial position, performance and cosh flows of en enterprise that is useful to o wide ronge of use's in making economic decisions. D. To support the cppication for ¢ bank loan Which of the foiowing stctements obout single-entry bookkeeping is not correct? A. Singie-entry bookkeeping makes use of a coshdook and subsidiary ledger 8. Singie-entry bookkeeping is the same os cash basis accounting C. Singe-entry Dockkeeping does not recognize individual revenue ond expense accounts ©. Insingie-entry bookkeesing, nel income is computed using aresidual approach. Modified cosh basis {or hybrid boss) citfers from the accrual bass i A. Gross Profit 8. Expenses C. Depreciation the computation of 0. Bad debls expense Vinich of ine following statements about the bases of accounting for income and expense is folse? A. Toto! Operating excenses wil be the same under pure cash and modified cash basis, 8. income and expenses with cash flows are recognized in cash, modified cash and accrual boses. C. Mocified Cash desis wit yietd the same Gross Profit amount as Accrual basis D. Cash basis of eccounting does not recognize ony adjusting entry al year end. Are the following statements true or false? (1) Before yecr-enc acjustments cre made, prepaid expenses ond unearned income are usuoly mixed accounts £2) Teosury stock on ouniiory contra account fotement] Statement? Sictement1 Statement 2 A, | te ive ©. “Wwe false B, foise tire D. False tole The manner in which eecounting records ore orgonized and employed within a business is referred toas ‘A. Accounting system 8. Business document C. Voucher system 0. Special journals Which of the folowing expicins the debit and credit rules relating fo recording of revenue and expenses? ‘A. Espenses oppear on the lel side of the bolance shee! and ore recorded by debils: revenue Cppears on the right side of the balance shee! and is ecorded by creaits. 8. The affects of revenue ond expenses upon owner's equily. ©. Swpenses ore reported on the deduction section of the income statement ond recorded by ebils revenue oppears on the addition section of the income statement and is recorded by crecits, 0, The reaization principie ond matching principle. Which of the fofowing statements is not correct about the voucher system? A. Eveniif the voucher system: is time consuming, repetitive and costly, if is recommended for use beccuse it offers a better internal control than the non-voucher system, 8. Purchoses are recorded in the voucher register at gross by debiting purchases and crediting vouchers payabie C. The voucher system is recommended for installment ironsactions. SET BCRO-ACE: First Pre-board Exantuation may 2014 Batch 9, 40. a 42, a. 45, descriptive of the above event.2 ©. When installments or other partic! payments are made on an invoice, a separate voucher is Prepared for the amount of each check issued. Which of the following stolements about o workshest is are) true? ; 1 in proporing a worksneet one the company’ profiable the Curent pesiod. the total ofthe Bolance sheet creait column will be smatier han the balance sheet debi COT ogee 41. Ifthe accountant mistakenly places a revenue account balance in the balance soa Column instead of the income statement credit column of the worksheet. the works! columns wil stil balance. NL Entering the adjustments in the adjustments column of a worksheel makes it unnecessary 10 Tecord and post adjusting enities. ; Alony B. land tl only C. Wand it only D. Landi ‘At what step in the accounting cycle is GAAP typically applied? ; A. Jounaizing B. Posting ©. Triatbalance preperation D. All of these In the equation, “Assets + Expenses = Licbilities + Revenve + Capital", the ‘expenses and revenues are 4: Contra osse! anc contra libity accounts, respectively, that assist cnalysis of the financial Progress of the firm. &. Ineareety slated because their signs ore reversed’ e., both are contra items that should have Negative signs in the formula, ©: Adjustments to capital that are postponed unti the end of « specific accounting period to determine their net etfect on copital for that period 3. Incorectly included in the formula because “Asse!S = Libifties + Capital” Which of the following statements s not c reason for preparing end-ot-petiod adjusting entties @ 4. Some transaction extend beyond one accounting period. 8, They help to properly measure the period's net Income or net loss C. Mixed accounts should be spi into their real and nomincl elements ©. Eon dicovered at the end of the period should be corrected in ordet to generate more reliable financial reports 2 Alofine accounts of a specitic business enterprise ore referred lovee ledger 8. Closing the books is no! part of the accounting process & _tkea bolance sheet, the post-closing tio! balance contains ony real eccounts. D. The fact that an expense is recognized on the income stalemen Indicates ‘on equivolent outlay of cash has been made in the same period 8. Aperiocic adjusting entry aifecis both c balance shee! and reeme statement accounts , or in only income statement accounis. Selecting and analyzing accountable events ore part of the recording phase ot the ‘@ccounting cycle ©. Adjusting entries are part of the recording phase of ‘accounting An uncierstatement in reported ne! income may result from talure to tecord A. Amortization of discount on bonds payable. Prepaid expense 8. Anacemed liabiity D. Adefered revenue C3 Food Hous purchased an equipment for-P280,000. I {Paid cosh as down payment ond issued a P 60,000 note payable (without i {eresi] in 60 days. Which one of the folowing statementets ner A. Total iabilties iricreased by P60,000 B. Total assets increased by 280,000 C.The transaction did not immediately afte. ‘ct the owner's equity in the business D. From thé viewpoint of a short-term crecit 'or, the transaction made the business less solvent, Which of the errors listed below would c -ause the unodjusted trial balance to be out of balance? A. Foture to record an agiusting entry 8. Overstating a lability balance by P100 and expense balance by the same amount, &: Posting only the debit portion of & journel entry © _ interest on a 60-6% note payable for Pe DOO ness re Expense of Pé00 and a crecit to Cath of P60, SET B ‘corded and posted as a debit to Interestsancti tetameneen——— ¢ CRO-ACE: First Pre-board Exarnination May 2014 Baten 47. The following six adjusting entries were re NC end of the fiscal year: just e recorded by RNQ Corp. af the end 0! 5 r i Sti m \ ice charge experse N# 1 ork en ase mwene se Gogespoyooe {2) Uneamed rent ~ (5) Insurance: expense xx ie Rent revenue ~ Prepaid insurance co {3) Bod debts expense ~ (6) mrepgicl wr me 7 jowonc os x ent expense va 2 fap uel jotely reversed. which of the itthe fim reverses ail adjusting journal entries which should be OPPropr six adjusting journal entries would be reverse? ‘A. (3). (4) ond (6) 8 (1). (2) ond (5) c. (4), (6) ©. Allsix adjustments should be reversed Joer 31. 2013 was paid in full on ‘account, The appropriate the prepaid assel account .c1 expiring on Decem ited to 0 prepaid asset 1009. The balance in 43, Therental payments of a five-year lease contro Jonvery 1, 2007. The original payment was debi journal eniry has been recorded on December 31. 2 ‘on December 31, 2009 shovid be A. Tero. tthe tame as it would hove been i oFiginal payment had been debited inlay toon expense account C. The some as the origina! payment 5. Higher then f the orginc! payment had been debited initiaty to on expense account 49... Which two of he following ore cited as fundamental quofties of financial accounting information under the revised Conceptual Framework of 20108 ee golevence ond Follhiul Representation —_C,_Understandabilty and Comparability B. Relevance and Refiabilty ©. Relevance ond Materioity 50. Which of the following is net an enhancing avoiitative characteristic of usetul financial information? A. Vetifiabiity —-, Comparability ¢. 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