FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #6
1. Undistributed share dividends shall be reported as
a. A current liability
b. An addition to share capital outstanding
c. A reduction to total shareholders’ equity
d. A note to the financial statements
2. Which of the following items will not appear in the
retained earnings?
a. Net loss
b. Prior period adjustments
c. Change in accounting principle, net of taxes
d. Dividends
3. It is a debit balance in the retained earnings account.
a. Unappropriated
b. Appropriated
c. Deficit
d. Treasury stock
4. Which of not embraced in the term reserves as
currently understood?
a. Share premium
b. Revaluation surplus
c. Accumulated translation adjustment
d. Retained earnings unappropriated
5. Which is an operating activity that is presented in
the face of a statement of cash flows?
a. Cash receipts and cash payments of an
insurance entity for premiums and claims,
annuities and other policy benefits
b. Cash receipts from repayment of advances and
loans made to other parties (other than
advances and loans of a financial institution)
c. Cash payments by a lessee for the reduction of
the outstanding liability relating to a finance
lease
d. Cash proceeds from issuing debentures, loans,
notes, bonds, mortgages and other short or
long-term borrowings
6. Which of the following is an inflow of cash?
a. Funds spent in normal business operations
b. The purchase of a new factory
c. The sale of the firm’s bond
d. The retirement of the firm’s bond
7. Which of the following would represent a use of
funds and indirectly a reduction in cash balance?
a. An increase in inventory
b. A decrease in marketable securities
c. An increase in accounts payable
d. The sale of new bonds by the firm
8. How many of the following transactions would
appear on the statement of cash flows or in its
subschedules?
I. Sold and issued new shares of common
stock, P30,000.
II. Purchased a new machine and paid for it in
full by issuing company’s own common
stock
III. Purchased land for cash, P20,000
IV. Sales revenue, P500,000.
a. One
b. Two
c. Three
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d. Four
9. In statement of cash flows:
a. Net cash flow from operating activities is always
the same as net income
b. Net cash flow from operating activities must be
the same as net increase in cash during the
period
c. Net cash flow from operating activities may be
less than or greater than net income
d. Net cash flow from operating activities is always
greater than net income
10. Which of the following would least likely be shown in
one of the three activity sections of the statement of
cash flows?
a. Refinancing a bond issue currently due with a
new bond issue
b. An increase in trade accounts receivable over
the period
c. Purchase of a subsidiary corporation
d. A decrease in long-term notes payable over the
period
11. Which of the following is included in the adjustment
if net income to obtain cash flow from operating
activities?
a. Depreciation expense for the period
b. The change in deferred taxes
c. The amount by which equity income recognized
exceeds cash received
d. All of the above
12. Which of the following is true for gains and losses
from capital asset sales?
a. They do not affect cash and are excluded from
the statement of cash flows
b. They are included in cash flows from operating
activities
c. They are included in cash flows from investing
activities
d. They are included in cash flows from financing
activities
13. Dividends are usually distributed in the form of
cash payments to stockholders. The declaration of
such dividend, for accounting purposes, results in
a. A liability of the firm for the dividends
b. A decrease in the cash balance of the firm
c. An increase of stockholders’ equity
d. An issuance of dividends checks to stockholders
of record
14. If the stock for a compensatory stock plan is issued
before some or all of the services are performed, a
part of the consideration recorded for the stock
issued is unearned compensation and should be
shown on the balance sheet as a line item in
a. Noncurrent liabilities
b. Stockholders’ equity
c. Current assets
d. Noncurrent assets
15. Which is incorrect regarding appropriation of
retained earnings?
a. Reflect funds set aside for a designated
purpose, such as plant expansion
 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #6
b. Do not change the total amount of
shareholders’ equity
c. Can be made at the discretion of the board of
directors
d. Can be made as a result of contractual
requirements
16. Which of the following rights is mostly enhanced in
an issue of preference shares?
a. To vote for the board of directors
b. To maintain one’s proportional interest in the
corporation
c. To receive a full cash dividend before dividends
are paid to other classes of share capital
d. To vote on major corporate issues
17. Shares received in lieu of cash dividend are recorded
as
a. Income at fair value of the shares received
b. Income at par value of the shares received
c. Income at the cash received that would have
been received
d. Stock dividends
18. When a closely held corporation issued preferred
stock for land, the land should be recorded at the
a. Total par value of the stock issued
b. Total book value of the stock issued
c. Fair value of the land
d. Total liquidating value of the stock issued
19. Capital received by the entity from nonshareholders
and restricted for property and equipment additions
shall be recorded at fair value and directly credited
to
a. Share capital
b. Income
c. Liability
d. Deferred income
20. How is transaction cost of an equity transaction
accounted for?
a. Added from equity, net of related tax benefit
b. Deducted for equity, net of related tax benefit
c. Either added or deducted from equity, net of
related tax benefit
d. Ignored
21. If an entity’s share capital is retired, the share capital
is reduced by its par value. If the retirement results
in a loss, such is least likely debited to
a. Share premium from original issuance
b. Share premium from previous treasury share
transaction
c. Retained earnings
d. Share capital
22. The entity has issued a range of share options to
employees. What type of share-based payment
transaction does this represent?
a. Asset settled share based payment transaction
b. Equity settled share based payment
transaction
c. Cash settled share based payment transaction
d. Liability settled share based payment
transaction
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23. What is the date on which the fair value of the
equity instrument granted is measured?
a. Measurement date
b. Grant date
c. Exercise date
d. Balance sheet date
24. Treasury shares shall be recorded at cost irrespective
of whether these are acquired below or above par
value. The cost of treasury shares acquired for
noncash consideration is usually measured by
a. Fair value of the noncash consideration given
b. Carrying amount of the noncash asset
surrendered
c. Par value of the shares
d. Book value of the shares
25. Deposits od subscription to a proposed increase in
share capital shall be reported as
a. Part of liabilities
b. Part of shareholders’ equity
c. Memorandum only
d. Part of retained earnings
26. A redeemable preference share must be redeemed
at the option of
a. Issuer
b. Holder
c. Either issuer or holder
d. Neither issuer or holder
27. Dividend paid on redeemable preference share shall
be accounted for as
a. Direct deduction from retained earnings
b. Interest expense as component of finance cost
c. Component of other comprehensive income
d. Deduction from share premium
28. When collectability is reasonable assured, the excess
of the subscription price over the stated value of the
no-par subscribed share capital shall be recorded as
a. No par share capital
b. Share premium when the subscription is
recorded
c. Share premium when the subscription is
collected
d. Share premium when the share capital is issued
29. When the entity calls in all of its preference shares
for more than the original issue price, the excess
paid above the original issue price shall be
a. Accounted for as loss on exchange in the income
statement
b. Charged against share premium of ordinary
shares
c. Charged to a discount on preference shares
d. Charged against retained earnings
30. When preference shares are purchased and retired
by the issuing entity for less than original price,
proper accounting for the retirement
a. Increases the amount of dividends available to
ordinary shareholders
b. Increases the contributed capital of the
ordinary shareholders
c. Increases reported income for the period
 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #6
d. Increases the treasury shares held by the a. Black-scholes model
corporation b. Intrinsic value model
31. Discount on share capital c. Binomial model
a. May be recorded as either an asset or an d. Monte-carlo model
expense 39. What is the measurement date for a share-based
b. Shall be closed to income summary account payment to employees that is classified as a liability?
c. May be offset against share premium on the a. The service inception date
same class of share capital b. The grant date
d. None of the above may be done c. The settlement date
32. In accounting for shareholders’ equity, the d. The end of reporting period
accountant is primarily concerned with which of the 40. The effect of recording a 100% stock dividend would
following? be to
a. Determining the total amount of shareholders’ a. Decrease current ratio, decrease working capital
equity and decrease book value per share
b. Distinguishing between realized and unrealized b. Leave inventory turnover unaffected, increase
revenue earnings per share and increase book value per
c. Recording the source of each of the various share
elements of shareholders’ equity c. Leave working capital unaffected, decrease
d. Making sure that the directors do not declare earnings per share and decrease book value
dividends in excess of retained earnings per share
33. An entity shall measure a liability to distribute d. Leave working capital unaffected, decrease
noncash asset as dividend to its owners at earnings per share and decrease the debt to
a. Carrying amount of the asset distributed equity ratio
b. Fair value of the asset distributed 41. Which of the following features of preference share
c. Either a or b would most likely be opposed by ordinary
d. Neither a nor b shareholders?
34. The actual total amount of a cash dividend to be a. Convertible
paid is determined on the date of b. Callable
a. Record c. Redeemable
b. Declaration d. Participating
c. Declaration or date of record, whichever is 42. Which is required disclosure on the face of income
earlier statement in relation to earnings per share?
d. Payment a. Basic earnings per share only
35. Retained earnings appropriated account is created b. Diluted earnings per share only
for the purpose of c. Neither a nor b
a. Earmarking cash to be used for particular d. Both a and b
purposes 43. In computing basic earnings per share, an entity
b. Insuring the payment of dividends would include which of the following?
c. Protecting the working capital position a. Dividends on nonconvertible cumulative
d. Preventing losses from contingencies preference shares
36. The accounting for a quasi-reorganization usually b. Dividends on ordinary shares
includes c. Interest on convertible bonds
a. Writeup of assets and writedown of retained d. Number of nonconvertible cumulative
earnings preference shares
b. Writedown of both assets and retained earnings 44. In computing basic loss per share, the required
c. Writedown of assets and elimination of deficits annual preference dividend on cumulative
d. Writeup of assets and elimination of deficits preference dividend on cumulative preference
37. For transactions with employees and others shares shall be
providing similar services, the fair value of the equity a. Ignored
instrument granted is measured on b. Deducted from the net loss whether declared or
a. Exercise date not
b. Grant date c. Added to the net loss whether declared or not
c. End of reporting period d. Added to the net loss when declared
d. Beginning of the year of grant 45. Earnings per share shall be computed before the
38. Many shares and most share options are not traded accounting of which of the following items?
in an active market. Therefore, it is often difficult to a. Preference dividend for the period
arrive at a fair value of the equity instrument being b. Ordinary dividend
issued. Which of the following option valuation c. Taxation
techniques should not be used as a measure of fair d. Minority interest
value in the first instance?
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 FATHER SATURNINO URIOS UNIVERSITY
FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #6
46. If a bonus issue occurs between the year-end and
the date the financial statements are authorized for
issue
a. The EPS for both current and the previous year
are adjusted
b. The EPS for the current year only
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted
47. If a new issue of shares for cash is made between
the year-end and the date that the financial
statements are authorized for issue
a. The EPS for both the current and the previous
year are adjusted
b. The EPS for the current year only
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted
48. Earnings per share disclosures are required only for
a. Entities with complex capital structure
b. Entities that change their capital structure
during the period
c. Public entities
d. Private entities
49. What is the correct treatment of a stock dividend
issued in mid-year when computing the weighted
average number of ordinary shares outstanding for
earnings per share purposes?
a. The stock dividend should be weighted by the
length of time that the additional shares are
outstanding during the period
b. The stock dividend should be included in the
weighted average number of shares outstanding
only if the additional shares result in a decrease
of three percent or more in earnings per share
c. The stock dividend should be weighted as if the
additional shares were issued at the beginning
of the year
d. The stock dividend should be ignored since no
additional capital was received
50. Options and warrants are dilutive if
a. The exercise price is lower than the average
market price
b. The exercise price is higher than the average
market price
c. The exercise price is equal to the average
market price
d. The option shares represent 20% of the ordinary
shares actually outstanding
51. For employee share option, the exercise price shall
include
a. Fair value of the share options
b. Intrinsic value of the share options
c. Carrying amount of the share options
d. Par value of the share options
52. Earnings per share as reported in the income
statement shall be computed on the basis of
a. The number of shares outstanding at the end of
the year
b. A weighted average of the number of shares
outstanding during the year regardless of the
extent of fluctuations
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c. A weighted average of the number of shares
outstanding during the year except that minor
fluctuations on the number of shares may be
disregarded
d. The number of shares outstanding in the middle
of the year
53. The nature of diluted earnings per share involving
adjustment for share options can be described as
a. Historical because earnings are historical
b. Historical because it indicates an entity’s
valuation
c. Pro forma because it indicates potential
changes in number of shares
d. Pro forma because it indicates changes in
earnings
54. In determining diluted EPS, dividends on
nonconvertible cumulative preference shares should
be
a. Disregarded
b. Added back to net income whether declared or
not
c. Deducted from net income only if declared
d. Deducted from net income whether declared
or not
55. Under the accrual basis of accounting, cash receipts
and cash disbursements may
a. Precede, coincide with or follow the period in
which revenue and expenses are recognized
b. Precede or coincide with but never follow the
period in which revenue and expenses are
recognized
c. Coincide with or follow but never precede the
period in which revenue and expenses are
recognized
d. Only coincide with the period in which revenue
and expenses are recognized
56. Total net income over the life of an entity
a. Higher under the cash basis than under the
accrual basis
b. Lower under the cash basis than under the
accrual basis
c. The same under the cash basis as under the
accrual basis
d. Not susceptible to measurement
57. Compared to cash basis net income for the current
year, an entity’s accrual basis net income increased
when it
a. Declared a cash dividend in the prior year that it
paid in the current year
b. Wrote off more accounts receivable than it
reported as uncollectible accounts expense in
the current year
c. Had lower accrued expenses on December 31
of the current year than on January 1
d. Sold used equipment for cash at gain in the
current year
58. Compared to the accrual basis of accounting, the
cash basis understates income by the net decrease
during the accounting period of
a. Both accounts receivable and accrued expenses
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FINANCIAL ACCOUNTING AND REPORTING
REVIEW MATERIAL #6
b. Accrued expenses but not of accounts b. Cash on hand, demand deposits and cash
receivable equivalents
c. Neither accounts receivable nor if accrued c. Cash on hand and cash equivalents
expenses d. Demand deposits and cash equivalents
d. Accounts receivable but not of accrued 66. Alternatively, which of the following is classified as
expenses an operating cash flow
59. The current year-end physical inventory a. Interest received
appropriately included merchandise purchased on b. Interest paid
account that was not recorded in purchases until c. Dividend received
next year. What effect will this error have on the d. Dividend paid
current year-end, assets, liabilities, retained earnings 67. Which classification of the cash flow arising from the
and earnings for the year then ended, respectively? proceeds from an earthquake disaster settlement
a. Understate, no effect, overstate, overstate would be most appropriate?
b. No effect, overstate, understate, understate a. Cash flows from operating activities
c. No effect, understate, overstate, overstate b. Cash flows from investing activities
d. No effect, understate, understate, overstate c. Cash flows from financing activities
60. The overstatement of ending inventory in the d. Does not appear in the statement of cash flows
current year will cause 68. Which of the following is not added to the net
a. Retained earnings to be understated in the income as an adjustment to reconcile net income to
current year-end statement of financial position cash from operating activities in the statement of
b. Cost of goods sold to be understated in the cash flows?
income statement of next year a. Increase in an accrued liability
c. Cost of goods sold to be overstated in the b. Amortization of discount on bonds payable
income statement of the current year c. Loss on sale of operational asset
d. Statement of financial position not to be d. Increase in deferred tax asset
misstated in the next year 69. When preparing statement of cash flows using the
61. Which of the following is not an example of an direct method, amortization of goodwill is
accounting error? a. Shown as an increase in cash flows from
a. Misstatement of assets, liability or equity operating activities
b. Incorrect classification of an expenditure as b. Shown as a reduction in cash flows from
between expense and asset operating activities
c. Failure to recognize accrual and deferral c. Included with supplemental disclosure of
d. Recognition of gain on fully depreciated asset noncash transaction
62. Which of the following errors could result in an d. Not reported in the statement of cash flows or
overstatement of both current assets and related disclosure
shareholders’ equity? 70. How should gain on sale of an office building be
a. An understatement of accrued sales presented in a statement of cash flows?
commissions a. As an inflow in the investing activities section
b. Noncurrent note receivable principal is because it pertains to a long-term asset
misclassified as current asset b. As an inflow in the financing activities because
c. Annual depreciation on manufacturing the building was constructed with a long-term
machinery is understated loan from a bank that needs to be repaid from
d. Holiday pay expense for administrative the sale proceeds
employees is misclassified as manufacturing c. As a deduction from the net income in the
overhead operating activities section prepared under the
63. In statement of cash flows, interest payments to indirect method
lenders and other creditors shall be classified as d. Added to the sale proceeds and presented in
a. Operating activities the investing activities section
b. Borrowing activities
c. Lending activities
d. Financing activities
64. In a statement of cash flows, interest received and
dividend received may be classified alternatively as
cash flow from
a. Operating activities
b. Investing activities
c. Financing activities
d. Revenue activities
65. Cash comprises
a. Cash on hand and demand deposits
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