Fourth exam reviewer acc 124 PDF

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ACC 124 Theory Questions An accounting principles that states that similar items should receive similar accounting treatment. Answer: Periodicity Comprehensive income includes Answer: Both profit or loss and other comprehensive income Comprehensive income includes all of the following except: Answer...

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ACC 124 Theory Questions

1. An accounting principles that states that similar items should receive similar accounting treatment. Answer: Periodicity 2. Comprehensive income includes Answer: Both profit or loss and other comprehensive income 3. Comprehensive income includes all of the following except: Answer: Investment by owners 4. It is the total of income less expenses, excluding the components of other comprehensive income. Answer: Profit of loss 5. Means that there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process. Answer: Free from error 6. Other comprehensive income includes all of the following except Answer: Share premium 7. Refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities. Answer: Consistency 8. What is the purpose of information presented in notes to the financial Statements? Answer: To provide disclosure required by generally accepted accounting principles 9. Which of the following is an enhancing qualitative characteristic according to the IASB Conceptual Framework? Answer: Materiality 10. Why is it necessary that Neutrality should be integrated in making financial information? To prevent biases 11. A bank reconciliation is A schedule that accounts for the differences between an entity’s cash balance as shown on its bank statement and the cash balance shown in its general ledger. 12. A compensating balance Which is legally restricted and related to a short term loan is classified separately as current asset 13. As contemplated in accounting, cash includes Money and any negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit 14. Bank statement provide information about all of the following except Error made by the depositor 15. If the cash balance shown on entitys accounting records is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be Deposits credited by the bank but not yet recorded by the entity

16. In preparing a bank reconciliation, interest paid by the bank on the account is Added to the book balance 17. The following statement pertain to accounting for petty cash fund. Which statement is false? At any time, the sum of the cash in the petty cash fund and the total of petty cash vouchers should equal the amount for which the imprest petty cash fund was established. 18. The following statement pertain to the cash short or over account. Which statement is true? The entry to account for daily cash sales for which a small amount of cash shortage existed would include a debit to cash short or over account. 19. The internal control feature that is specific to petty cash is Imprest system 20. Unreleased checks (checks drawn before the end of reporting period but held for later delivery to creditors) Shall be treated as outstanding checks if they are ultimately encashed 21. When a petty cash fund is in use, which of the following is true? The reimbursement of the petty cash fund should be credited to the cash account 22. Which of the following is false? A certified check is one drawn by a bank upon itself A certified check is a liability of the bank certifying it. A certified check should not be included in the outstanding checks. A certified check will be accepted by many persons who would not otherwise accept a personal check 23. Which of the following is not a basic characteristic of a system of cash control? Combined responsibility for handling and recording cash Use of a voucher system Internal audits at irregular intervals Daily deposit of all cash received 24. Which of the following is usually considered cash? Checking accounts 25. Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with adjusted cash balance? Note receivable collected by bank in favor of the depositor and credited to the account of the depositor 26. Which will not require an adjusting entry on the depositors books? Deposit of another entity is credited to the account of the depositor Check in payment of account payable amounting to 50,000 is recorded by the depositor as 5,000 NSF check from customer Bank service charge 27. A method of estimating bad debts that focuses on the income statement is the allowance method based on Credit Sales 28. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on Aging of Accounts Receivable

29. Accounts Receivable should normally be reported at Expected amount to be received 30. All of the following are problems associated with the measurements of accounts receivable except Cash discounts under the net method 31. Is a four column Bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursements. Proof of Cash 32. It means that ownership of the goods purchased is vested in the buyer upon receipt thereof. FOB Destination 33. It refers to claims arising from a sale of merchandise or services in the ordinary course of business. Trade Receivables 34. It refers to claims arising from sources other than the sale of merchandise or services in the ordinary course of business. Nontrade Receivable 35. Refer to all items credited to the depositors account Bank credits 36. Refer to all items debited to the account of the depositor which include checks paid by bank and debit memos Bank debits 37. Refer to cash disbursements or all items credited to the cash in bank account Book credits 38. Refer to Cash receipts or all items debited to cash in bank account Book debits 39. The advantages of relating the bad debt experiences to accounts receivables is that this approach Gives us reasonably correct measurement of accounts receivables in the statement of financial position 40. The change in the uncollectible account provision from year to year is posted to the bad debt expense account in the Income Statement 41. When the allowance method is used, the entry to record the write off of a specific account would Decrease both Accounts Receivable and the allowance 42. Which is not permitted in accounting for uncollectible accounts receivable Direct write off method 43. Accounting for the interest in a non interest bearing note receivable is an example of what aspect of accounting theory? Substance over form 44. When a promissory note matures and is not paid, it is said to be a: C) Dishonored note 45. When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days. False

46. . A note is dishonored when it is not fully paid at maturity. True 47. The face value of a note refers to the amount Borrowed plus interest received at maturity from the maker. 48. Initial measurement of loans receivable Fair value plus transaction cost 49. All of the following are problems associated with the measurement of accounts receivable, except ANSWER: Cash discounts under the net method 50. An entity uses the allowance method for recognizing doubtful accounts. The journal entry to record the write off of a specific uncollectible account ANSWER: Affects neither net income nor working capital 51. Credit balances in accounts receivable arising from customer’s advances should be classified as ANSWER: Current liabilities 52. A method of estimating doubtful accounts that emphasizes asset valuation rather than income measurement is the allowance method based on ANSWER: discounted value or Aging the receivables 53. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash ANSWER: Within one year, the length of the operating cycle no withstanding. 54. Receivable balances should be valued at ANSWER: Face amount minus allowance for doubtful accounts and for any anticipate adjustments which in the normal course of events will reduce the amount receivable to estimated realizable value 55. . Receivables from subsidiaries shall be classified as ANSWER: Either as current assets or noncurrent depending on the realization period whether one year or over one year. 56. The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made when ANSWER: A previously defaulted customer pays the outstanding balance 57. The ideal measure of short-term receivables is the discounted value of the cash to be received in the future. Failure to follow this practice usually does not make the statement misleading because ANSWER: The amount of the discount is not material. 58. . Trade receivables are classified as current assets if they are reasonably expected to be collected ANSWER: Within one year or within the operating cycle, whichever is longer. 59. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would ANSWER: Have no effect on net income 60. Trade discounts are a.

not recorded in the accounts; rather they are a means of computing a price. b. c.

used to avoid frequent changes in catalogues. used to quote different prices for different quantities purchased.

d. all of the above. 61. Refer to Cash receipts or all items debited to cash in bank account a. Book debits b. Book Credits c. Bank debits d. Bank Credits 62. If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as a. a deduction from sales in the income statement. b. an item of "other expense" in the income statement. c. a deduction from accounts receivable in determining the net realizable value of accounts receivable. d. sales discounts forfeited in the cost of goods sold section of the income statement. 63. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because a. most short-term receivables are not interest-bearing. b. the allowance for uncollectible accounts includes a discount element. c. the amount of the discount is not material. d. most receivables can be sold to a bank or factor. 64. Which of the following methods of determining bad debt expense does not properly match expense and revenue? a. Charging bad debts with a percentage of sales under the allowance method. b. Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method. c. Charging bad debts with an amount derived from aging accounts receivable under the allowance method. d. Charging bad debts as accounts are written off as uncollectible. 65. It refers to claims arising from sources other than the sale of merchandise or services in the ordinary course of business. a. Notes Receivable b. Trade Receivables c. Nontrade Receivable d. Accounts Receivable 66. Which of the following methods of determining annual bad debt expense best achieves the matching concept? a. Percentage of sales b. Percentage of ending accounts receivable c. Percentage of average accounts receivable d.

Direct write-off

67. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? a. A percentage of sales adjusted for the balance in the allowance b. A percentage of sales not adjusted for the balance in the allowance c. A percentage of accounts receivable not adjusted for the balance in the allowance d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance 68. The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach a. gives a reasonably correct statement of receivables in the balance sheet. b. best relates bad debt expense to the period of sale. c. is the only generally accepted method for valuing accounts receivable. d. makes estimates of uncollectible accounts unnecessary. 69. Is a four column Bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursements. a. Adjusted Balance Method b. Bank to Book Method c. Book to Bank Method d. Proof of Cash

70. It refers to claims arising from a sale of merchandise or services in the ordinary course of business. a. FOB Destination b. Notes Receivables c. Trade Receivables d. Freight Collect 71. . When the allowance method of recognizing doubtful accounts is used, the entry to record the write-off of a specific account would ANSWER: Decrease both accounts receivable and the allowance for doubtful accounts 72. . When the direct write-off method of recognizing bad debt expense is used, the journal entry to write off a specific customer account would ANSWER: Decrease accounts receivable and decrease net income 73. Which accounting principle primarily supports the use of allowance for doubtful accounts? ANSWER: Matching principle 74. . Which method of recording bad debt loss is consistent with accrual accounting?

ANSWER: Allowance method 75. Which of the following should be recorded in accounts receivable? ANSWER: Sales on account 76. Which of the following transactions is not a common source of receivables? ANSWER: Casualty damage, not covered by insurance 77. . Credit balances in accounts receivable shall be classified as ANSWER: Current liabilities 78. Refer to all items credited to the depositor’s account ANSWER: Bank Credits 79. Accounts Receivable should normally be reported at ANSWER: Expected amount to be received 80. Which method of recording bad debt loss is consistent with accrual accounting ANSWER: Allowance method 81. The advantages of relating the bad debt experiences to accounts receivables is that this approach ANSWER: Gives us reasonably correct measurement of accounts receivables in the statement of financial position 82. What is imputed interest? ANSWER: B. Interest based on the implicit interest rate 83. Accounting for the interest in a noninterest bearing note receivable is an example of what accounting theory? ANSWER: C. Substance over form 84. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. The interest receivable account would show a balance on ANSWER: B. December 31 but not July 1 85. Subsequent to initial recognition, a loan receivable shall be measured at ANSWER: C. Amortized cost using effective interest method 86. In calculating the carrying amount of the loan receivable, the lender adds to the principal I.

Direct origination cost

II.

Indirect origination cost

III. Origination fee charged to borrower ANSWER: a. I only 87. Which of the following is not an objective evidence of impairment of a financial asset? ANSWER: B. A decline in the fair value of the financial asset below the previous carrying amount

88. If there is evidence that an impairment loss on loan receivable has been incurred, the loss is equal to the ANSWER: A. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the loan 89. At initial recognition, an entity shall measure a loan receivable at ANSWER: D. Fair value plus transaction cost that are directly attributable to of the asset

the acquisition

CASH AND CASH EQUIVALENTS Vewee Nice Company had the following account balances on December 31, 2016: Cash in bank – current account

5,000,000

Cash in bank – payroll account

1,000,000

Cash on hand

500,000

Cash in bank – restricted account for building Construction expected to be disbursed in 2017

3,000,000

Time deposit, purchases December 15, 2016 and Due March 15, 2017

2,000,000

The cash on hand included a P200,000 check payable to Vewee Nice dated January 15, 2017. What total amount should be reported as “cash and cash equivalents” on December 31, 2016? Solution: Cash in bank – current account

5,000,000

Cash in bank – payroll account

1,000,000

Cash on hand (500,000 -200,000)

300,000

Time deposit

2,000,000

Total cash and cash equivalents

8,300,000

Jeanette Company provided the following information with respect to cash and cash equivalents on December 31, 2016 Checking account at First bank

(200,000)

Checking account at Second bank

3,500,000

Treasury bonds

1,000,000

Payroll account

500,000

Value added tax account

400,000

Foreign bank account – restricted (in equivalent pesos)

2,000,000

Postage stamps

50,000

Employee’s postdated check

300,000

IOU from president’s brother

750,000

Credit memo from a vendor for a purchase return

80,000

Traveler’s check

300,000

Not sufficient fund check

150,000

Petty cash fund (20,000 in currency and expense receipts P30,000)

50,000

Money order

180,000

What amount should be reported as unrestricted cash on December 31, 2016? Solution: Checking account at second bank

3,500,000

Payroll account

500,000

Value added tax account

400,000

Travelers check

300,000

Petty cash fund

20,000

Money order

180,000

Total unrestricted cash

4,900,000

Diosa Company provided the following information on December 31, 2016: Petty cash fund Current account – 1st bank Current account – 2nd bank

50,000 4,000,000 (250,000)

Money market placement – 3rd bank

1,000,000

Time deposit – 4th bank

2,000,000

The petty cash fund included unreplenished December 2016 petty cash expense vouchers for P15,000 and an employee check for P5,000 dated January 31, 2017 A check for P100,000 was drawn against 1st bank current account dated and recorded December 29, 2016 but delivered to payee on January 15, 2017. -

The 4th bank time deposit is set aside for land acquisition in early January 2017.

What total amount should be reported as cash and cash equivalents on December 31, 2016? Solution: Petty cash fund (50,000 – 15,000 – 5,000)

30,000

Current account – 1st bank (4,000,000 + 100,000)

4,100,000

Money market placement

1,000,000

Total cash and cash equivalents

5,130,000

Bank reconciliation/Proof of Cash In preparing the bank reconciliation on December 31, 2016, Cutie Koh Company provided for the following data: Balance per bank statement

3,800,000

Deposit in transit

520,000

Amount erroneously credited by bank to Cutie Koh’s account Bank service charge for December

40,000 5,000

Outstanding checks

675,000

What is the adjusted cash in bank on December 31, 2016? _____________ Solution: Per bank statement Deposit in transit

3,800,000 520,000

Outstanding checks

(675,000)

Bank error

(40,000)

Adjusted bank balance

3,605,000

Dinsay Company had the following bank reconciliation on March 31 of the current year: Balance per bank statement, March 31

4,650,000