1st-year-Financial Accounting and Reporting PDF

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Departmental ExaminationFAR 1 (1st Year)Theory: Robbers stole from ABC Corporation 25 computers worth P 500,000. The value of the loss should be classified as a. An exchange. c. A cost. b. A casualty. d. A nonreciprocal transfer. The use of historical cost method in the preparation of financial stat...

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Departmental Examination FAR 1 (1st Year)

Theory: 1. Robbers stole from ABC Corporation 25 computers worth P 500,000. The value of the loss should be classified as a. An exchange. c. A cost. b. A casualty. d. A nonreciprocal transfer. 2. The use of historical cost method in the preparation of financial statements is justified by which of the following accounting theory? a. Conservatism. c. Relevance. b. Objectivity. d. Comparability. 3. Four types of money prices are used in measuring resources in financial accounting. This type which uses such concepts as present value, discounted cash flow, net realizable value, value in use, etc. is known as a. Price in a current purchase exchange. b. Price in past purchases of the enterprise.

c. d.

Price based on future exchanges. Price in a current sale of exchange.

4. Comparability of financial statements of a single enterprise for one date or period of time with those of other dates or for other periods would be more informative if the following conditions exist, except a. The presentations are in the same form. b. The contents of the statements are identical. c. Accounting principles are not changed at all. d. Change in circumstances or the nature of the underlying transactions are disclosed. 5. Gross decreases in assets or gross increases in liabilities recognized and measured in conformity with GAAP that result from those types of profit-directed activities of an enterprise that can change owners’ equity refer to a. Expenses. c. Revenue. b. Results of operations. d. Net income. 6. The principle which constitute the ground rules for financial reporting are termed “generally accepted accounting principles.” To qualify as “generally accepted,” an accounting principle must a. Usually guide corporate managers in preparing financial statements which will be understood by widely scattered stockholders. b. Guide corporate managers in preparing financial statements which will be used for collective bargaining agreements with trade unions. c. Guide an entrepreneur of the choice of an accounting entity like single proprietorship, partnership, or corporation. d. Receive substantial authoritative support.

7. The Generally Accepted Accounting Principles (GAAP) also apply to a. The Board of Accountancy. b. The Bureau of Internal Revenue. c. The Philippine Institute of CPAs. d. The Professional Regulation Commission 8. The issuing of accounting standards is the responsibility of the a. PICPA. b. Accounting Standards Council. c. ASCP Council. d. CPE Council. 9. One of the following is not a pervasive measurement principle. a. Initial recording of assets and liabilities. b. Associating cause and effect. c. Revaluation of assets. d. Systematic and rational allocation. 10. The use of percentage-of-completion method of accounting for long-term construction contracts is a measurement of revenue under the a. Objectivity principle. b. Monetary principle. c. Cost principle. d. Realization principle. 11. Current assets are arranged normally on the balance sheet in the order of a. The alphabet. c. Valuation. b. Liquidity. d. Materiality. 12. The basis for classifying assets as current or non-current is the period of time normally elapsed form the time the accounting entity expands cash to the time it converts a. Inventory back into cash, or 12 months, whichever is shorter. b. Receivables back into cash, or 12 months, whichever is longer. c. Tangible fixed assets back into cash, or 12 months, whichever is longer. d. A deposit on Machinery ordered, delivery of which will be made within six months. 13. Eloy Co. recorded a bad debt recovery using the allowance method of accounting for bad debts. Compare (X) the working capital before the recovery with (Y), the working capital after the recovery. a. X equals Y. c. S is less than Y. b. X is greater than Y. d. X is equal to or less than Y. 14. Which of the following should not be considered as a current asset in the balance sheet? a. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, its President.

b. Marketable securities purchased by the temporary investment of cash available for current operations. c. Prepaid taxes which cover assessments of the following operating cycle of the business. d. Installment notes receivable due over 18 months in accordance with normal trade practices. 15. In a period of declining prices, the inventory cost flow method that would result in the lowest inventory figure is a. FIFO c. Moving average. b. LIFO d. Weighted average. 16. An inventory method which is designed to approximate inventory valuation at the lower of cost or market a. First-in, first-out. c. Specific identification. b. Last-in, first-out. d. Retail method. 17. Subnormal or obsolete goods, either under the cost, or cost or market basis should be a. Taken up as an unrealized inventory loss. b. Valued at bona-fide selling price less direct cost of disposition. c. Valued by applying an inventory method by using a constant or nominal value for the “normal” inventory level. d. Adjusted in the cost of goods sold. 18. After being held for 30 days, a 90-day 12% note receivable is discounted at a discount rate of 15%. The proceeds received from the bank upon discounting would be the a. Maturity value less discount at the rate of 15% for 90 days. b. Maturity value less discount at the rate of 15% for 60 days. c. Face value less discount at 15% for 60 days. d. Face value less discount at 15% for 90 days. 19. Advances by officers from corporate funds are taken up under a. Capital stock. c. Cash dividends. b. Retained earnings. d. Loans. 20. One method of estimating uncollectible accounts expense is adjusting the valuation of account to a new balance equal to the estimated uncollectible portion of the existing accounts receivable. Another method is a. Estimating the percentage of probable expenses for each age group of accounts receivable. b. The balance sheet approach. c. The income statement approach. d. The aging of the accounts receivable approach 21. They consist of collectibles usually arising from sales of merchandise and are valued in the balance sheet at estimated realizable value. a. Cash.

c. Receivables. b. Inventories. d. Bank drafts 22. IOU’s and postage stamps found in the company’s cash drawers should be reported as a. Petty cash fund. b. Cash – because they represent the equivalent of money. c. Receivables and supplies. d. Investment. (rpcpa 5/87) 23. Which of the following is part of the cash account? a. Advances to employees. b. Cash received after the balance sheet date. c. Returned checks. d. Unreleased checks which were drawn before the balance sheet date but held for later delivery to creditors. (rpcpa 5/88) 24. At September 30, 1996, DEF Corporation had cash accounts at various banks. Its account balance at ABC Bank is segregated solely for an October 15, 1996 payment into a bond sinking fund. An account with WRS Bank, used for branch operations, is overdrawn. The account with KLM Bank, used for regular corporate operations, has a positive balance. How should DEF Corporation report these accounts in its September 30, 1996 classified balance sheets? a. The segregated and regular accounts should be reported as a current asset, and the overdraft should be reported as a current liability. b. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. c. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft. d. The segregated and regular accounts should be reported as current assets net of the overdraft. (rpcpa 10/96) 25. items: a. b. c. d. e. a. c. b. d.

Cash or cash on hand and in banks on the balance sheet may include the following Currency or cash items on hand. Deposits in foreign countries which are subject to foreign exchange restrictions. Short-term placements of excess cash which can be pre-terminated. Post-dated checks. Cash set aside for the acquisition or construction of non-current assets. a, b, and c only. a and c only. b, c, and e only. a only.

a. c. b. d.

26. Below are several items that may or may not be included in the cost of property, plant and equipment:  Delinquent property taxes on acquired property.  Interest paid on money borrowed to purchase new machine.  Expansion of storeroom space needed because of the increased output of the new machine.  Cost of training employees who will operate the new machine.  Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered.  Cost of raw material spoiled during the testing and breaking-in period of the new machine.  Cost of tearing down old building (already owned) in preparation for new construction.  Insurance premium paid during first year of operation of new machine.  Safety devices added to machine to comply with collective bargaining agreement with employees’ union.  Service contract paid in full covering first two years operations of the machine. How many of the items listed above should be included in the cost of property, plant and equipment? Less than four items. Six to seven items. Four to five items. More than seven items

27. Which type of expenditure occurs when a company constructs an annex to its office building? a. Rearrangement. c. Betterment. b. Addition. d. Repair and maintenance. 28. An air-conditioning unit was installed in the ambulance used by a hospital. This type of expenditure is a (an) a. Ordinary repair and maintenance. c. Betterment. b. Addition. d. Replacement. 29. Improvements are a. Revenue expenditures. b. Debited to an appropriate asset account when they increase useful life. c. Debited to an appropriate asset account when they do not increase useful life. d. Debited to accumulated depreciation when they do not increase useful life. Questions 1 thru 3 are based on the following information.

Lazer Company had the following bank reconciliation on June 30, 2004: Balance per bank statement, June 30, 2004 3,000,000 Add: Deposit in transit 400,000 Total 3,400,000 Less: Outstanding checks 900,000 Balance per book, June 30 2,500,000 The bank statement for the month of July 2004 showed the following: Deposits (including P 200,000 note collected for Lazer) 9,000,000 Disbursement (including P 140,000 NSF check and P 10,000 service charge) 7,000,000 All reconciling items on June 30, 2004 cleared through the bank in July. The outstanding checks totaled P 600,000 and the deposits in transit amounted to P 1,000,000 on July 31, 2004. 30. What is the cash balance per book on July 31, 2004? (M) A 5,400,000 C. 5,550,000 B. 5,350,000 D. 4,500,000 Answer: Balance per bank – June 30 3,000,000 July bank deposits 9,000,000 July bank disbursements (7,000,000) Balance per bank – July 31 5,000,000 July deposit in transit 1,000,000 July outstanding checks ( 600,000) Adjusted bank balance 5,400,000 5,350,000 Balance per book – July 31 (SQUEEZED) Note collected by bank in July 200,000 NSF check in July ( 140,000) Service charge in July ( 10,000) Adjusted book balance 5,400,000 The balance per book on July 31 is “squeezed” by working back from the adjusted balance. 31. A. C. B. D.

What is the amount of cash receipts per book in July 2004? (M) 9,400,000 8,600,000 9,600,000 9,800,000

32. What is the amount of cash disbursement per book in July (M) A. 6,550,000 C. 7,300,000 B. 6,700,000 D. 6,850,000 Answer: Deposits per bank statement for July

9,000,000

Note collected by bank Deposit in transit – June 30, 2004 Deposit in transit – July 31 Cash receipt per book for July

( 200,000) ( 400,000) 1,000,000 9,400,000

Disbursement per bank statement for July NSF check in July Service charge in July Outstanding checks – June 30 Outstanding checks – July 31 Cash disbursement per book for July

7,000,000 ( 140,000) ( 10,000) ( 900,000) 600,000 6,550,000

Proof of the cash balance – July 31 Balance per book – June 30 Book receipts for July Book disbursement for July Balance per book – July 31

2,500,000 9,400,000 (6,550,000) 5,350,000

33. The following information pertains to Lucerne Corp as of December 31, 2004: Cash balance per general ledger 258,500 Cash balance per bank statement 270,500 Checks outstanding 35,000 Bank service charge shown on December bank statement 1,000 Error made by Lucerne in recording a check that cleared that bank in December (check was drawn in December for P 14,500 but recorded at P 18,500) 4,000 Deposit in transit 26,000 The correct cash balance as of December 31, 2004 is A. P 249,500 C. P 264,500 B. P 261,500 D.

P 273,500

Cash balance per bank statement

270,500

DIT

26,000

OC

-35,000

Correct cash balance

261,500

Secrets Inc. was incorporated on January 1, 2021. The following items relate to Secrets, Inc.’s property, plant and equipment: Cost of land, which included an old apartment building Delinquent property taxes assumed by Secrets, Inc. Payments to tenants to vacate the apartment building Cost of razing the apartment building Architects fee for new building Building permit for new construction Fee for title search Survey costs Excavation before construction of new building Payment to building contractor Assessment by city for drainage project Cost of grading and leveling Temporary quarters for construction crew Temporary building to house tools and materials Cost of changes during construction to make new building more energy efficient Interest cost on specific borrowing incurred during construction Payment of medical bills of employees injured while inspecting building construction Cost of paving driveway and parking lot Cost of installing lights in parking lot Premium for insurance on building during construction Cost of open house party to celebrate opening of new building Cost of windows broken by vandals distracted by the celebration

A . B . C . D .

34. What is the cost of land? 5,960,000 6,440,000 6,540,000 6,410,000

35. What is the cost of building? A 21,740,000 . B 21,750,000 . C 21,790,000 . D 21,720,000

6,160,000 60,000 40,000 80,000 120,000 80,000 50,000 40,000 200,000 20,000,000 30,000 100,000 160,000 100,000 180,000 720,000 36,000 120,000 24,000 60,000 100,000 24,000

.

On January 1, 2022, Romania Company purchased a specialized factory equipment for cash at a purchase price of P 700,000. The company incurred P 20,000 freight cost and handling costs of P 10,000. The company expects that it will incur dismantling cost amounting to P 80,000 at the end of the equipment’s 5-year useful life. The prevailing market interest rate during the transaction date was 6%. Present value factory of 1 at 6% for five periods Present value factory of annuity at 6% for five periods A . B . C . D .

0.747 4.212

How much is the initial cost of the equipment? 730,000 810,000 789,760 1,066,960

San Andreas Mercantile Inc., through no fault of its own, lost an entire warehouse due to an earthquake on April 13, 2003. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2003, P 365,000; sales and purchases from January 1, 2003, to April 13, 2003, P 1,300,000 and P 875,000, respectively. San Andreas consistently reports a 30% gross profit. The estimated inventory on April 13, 2003, is: A. P237,500. C. P390,000. B. P330,000. D.

P295,000.

Beginning inventory Plus: Net purchases Goods available for sale Less: Cost of goods sold: Net sales Less: Estimated gross profit

$365,000 875,000 1,240,000 $1,300,000 (390,000

Estimated cost of goods sold (910,000) Estimated ending inventory $330,000

Little's Lumberyard suffered a fire loss on November 20, 2003. The company's last physical inventory was taken on September 30, 2003, at which time the inventory totaled $220,000. Sales from September 30 to November 20 were $625,000 and purchases during that time were $480,000. Little's consistently reports a 40% gross profit. The estimated inventory loss is: A. $450,000. C. $133,000. B. $238,000. D.

$325,000.

Beginning inventory Plus: Net purchases Goods available for sale Less: Cost of goods sold: Net sales Less: Estimated gross profit Estimated cost of goods sold Estimated ending inventory

$220,000 480,000 700,000 $625,000 (250,000) (375,000) $325,000

In an annual audit of Tristan John Company, you find that a physical inventory on December 31, 2004, showed merchandise with a cost of P 440,000 was on hand at that date. You also find the following transactions near the dosing date. 1. A special machine, fabricated to order for a customer casting 15,000, was finished and specifically segregated in the back part of the shipping room on December 31, 2004. The customer was billed on that date and the machine excluded from inventory although it was shipped on January 4, 2006. 2. Merchandise costing P 3,000 was received on January 3, 2005, and the related purchase invoice recorded January 5. The invoice showed the equipment was made on December 29, 2004, f.o.b. destination. 3. A packing case containing a product costing P 34,000 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked "hold for shipping instructions". Your investigation revealed that the customer's order was dated December 18, 2004 but that the case was shipped and the customer billed on January 10, 2005. 4. Merchandise received on January 6, 2005, costing P 6,000 was entered in the purchase journal on January 3, 2005. The invoice showed shipment was made f.o.b. supplier warehouse on December 31, 2004. 5. Merchandise costing P 7,000 was received on December 28, 2004, and the invoice was not recorded. You located it in the hands of the purchasing agent and it was marked on consignment. The amount of inventory that should appear on the balance sheet at December 31, 2004 is A. 480,000 C. 487,000 B. 495,000

D.

502,000 Per Physical count 440,000 Excluded inventory in shipping room 34,000 Merchandise shipped FOB supplier warehouse 6,000 Correct inventory, December 31, 2004 480,000

40. Jensen Company uses a perpetual inventory system. The following purchases and sales were made during the month of May: Date Activity Description May 1 Balance 100 units at $10 per unit May 9 Purchase 200 units at $10 per unit May Sale 190 units 16 May Purchase 150 units at $12 per unit 21 May Sale 120 units 29 If Jensen Company uses the first-in, first-out (FIFO) method of inventory valuation, the May 31 inventory would be A. $1,400 C. $1,493 B. $1,460 D.

$1,680

Answer (D) is correct. The FIFO assumption is that the first units purchased are the first sold, so the ending inventory consists of the most recent units purchased. Thus, ending inventory consists of 140 units (100 beginning balance + 200 purchased - 190 sold + 150 purchased - 120 sold) from the May 21 purchase of 150 units. Its value is $1,680 ($12 x 140). Under FIFO, the inventory value is the same regardless of whether the inventory system is perpetual or periodic. Answer (A) is incorrect because $1,400 is the value under periodic LIFO. Answer (B) is incorrect because $1,460 is the value under perpetual LIFO. Answer (C) is incorrect because $1,493 is the value under the weighted-average method. 41. Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J during the month of March is presented below. Date Balance or Transaction Units Unit Cost Unit Sales Price March 1 Inventory 3,20 $64.30 $86.50 0 4 Purchase 3,40 64.75 87.00 0 14 Sales 3,60 87.25

0 3,50 66.00 87.25 0 28 Sales 3,45 88.00 0 If Thomas uses a first-in, first-out perpetual inventory system, the total cost of the inve...