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1 st Semester A. 2016-POLYTECHNIC UNIVERSITY OF THE PHILIPPINESCollege of Accountancy and Finance ACCO 3016: Financial Accounting and Reporting Part 1 Midterm Departmental Examination August 14, 2016General Instructions: Faith is the confidence that what we hope for will actually happen; it gives us...

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES College of Accountancy and Finance ACCO 3016: Financial Accounting and Reporting Part 1 Midterm Departmental Examination August 14, 2016 General Instructions: Faith is the confidence that what we hope for will actually happen; it gives us assurance about things we cannot see. Have faith and always bear in your mind that you can answer everything to the best that you can. You must shade the scannable answer sheet properly and show your computations in a separate worksheet. Always observe HONESTY during the examination. GODBLESS! THEORIES (30%) 1.

The Conceptual Framework A. is the PFRS. B. overrides all other PFRS requirements. C. does not define standards for any particular measurement or disclosure issue. D. is in the hierarchy that management must, in the absence of a specific PFRS requirement, apply in developing an accounting policy that results in information that is relevant.

2.

The objective of general purpose financial reporting is A. to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. B. to meet all the information needs of all the users of an entity’s financial statements C. to inform economic decision-making by a broad range of users. D. to support the entity’s tax return.

3.

Statement 1: A financial concept of capital should be used if the users of the financial statements are mostly concerned with the maintenance or the purchasing power of their invested capital. Statement 2: A physical concept of capital should be used if the users of the financial statements are mostly concerned with the operating capacity of the entity, and current value accounting. A. Only statement 1 is correct C. Both statements are correct B. Only statement 2 is correct D. Both statements are incorrect

4.

Under the conceptual framework, an entity’s gain may result from a/an A. decrease in a liability from primary operations. B. increase in a liability from primary operations. C. decrease on asset from primary operations. D. increase in an asset from peripheral or incidental transactions.

5.

The conceptual framework identifies two recognition criteria for the recognition of financial statement elements. Which of the following is (are) included in the said criteria? I. It is probable that there is an inflow or outflow of economic benefits; and II. The element has cost or value that could not be reliably measured. A. I only B. II only C. I & II D. Neither I nor II

6.

What is the basic requirement for “cash and cash equivalent”? A. Deposited in the bank B. Set aside for the liquidation of long-term debt C. Unrestricted in use for current operations D. Available for purchase of property, plant and equipment

7.

What is the major purpose of an impress petty cash fund? A. To effectively plan cash inflow and outflows B. To ease the payment of cash to vendors C. To determine the honesty of the petty cashier D. To effectively control cash disbursements

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8.

Which of the following manipulations of cash transactions would understate the cash balance? A. Understatement of outstanding checks C. Overstatement of deposit in transit B. Overstatement of outstanding checks D. Understatement of bank service charge

9.

Which of the following statements is true? A. Window dressing is a practice of closing the books of accounts at the end of the accounting period for a better financial position and performance. B. Lapping is a transfer of cash from one bank to another bank. C. Kiting consists of misappropriating a collection from one customer and concealing this defalcation when collection is made from another customer. D. The imprest system required that all cash receipts should be deposited intact and all cash payments should be made by means of check.

10.

Following are reconciling items in an enterprise’s bank reconciliation: I. Deposit in transit. II. Company check for P62,500 recorded in the books for P26,500. III. Check of another company erroneously charged by the bank in the company’s account. IV. Deposit of another company erroneously credited by the bank to the company’s account. V. Bank service charge VI. No sufficient fund check charged by the bank VII. Company’s deposit for P37,500 recorded in the books for P73,500 Which of these adjustments would be shown as deduction from the balance per books in order to arrive at the correct cash balance? A. II, V & VI B. V, VI & VII C. II, V, VI & VII D. II, IV, V, VI & VII

11.

Which of the following situation will least likely to happen? A. An entry to record replenishment of check should include a credit to Cash in Bank. B. An debit balance in Cash Short or Over account at the end of period should be reported as miscellaneous income. C. An entry to record a bank service charge may include a debit to Miscellaneous Expenses. D. A bank overdraft may be offset against a positive balance in another bank account with the same bank if a right of offset exists between the bank and the depositor.

12.

Statement 1: In accordance with PAS 1, an entity shall classify an asset as current when the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. Statement 2: Petty cash disbursements should be replenished only by means of checks and not from undeposited cash collections. A. Only statement 1 is correct C. Both statements are correct B. Only statement 2 is correct D. Both statements are incorrect

13.

Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash A. Within normal operating cycle. B. Within one year or within the normal operating cycle, whichever is shorter. C. Within one year or within the normal operating cycle, whichever is longer. D. Within one year, the length of the operating cycle is notwithstanding.

14.

If the accounts receivable is hypothecated against borrowings, the amount of accounts receivable hypothecated should be A. excluded from the total receivables with disclosure. B. excluded from the total receivables without disclosure. C. included from the total receivables with disclosure. D. included from the total receivables without disclosure.

15.

On July 1, 2016, an entity obtained a two-year 8% note receivable for services rendered. At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of interest are due on the date of maturity. Interest receivable on December 31, 2016 was A. 5% of the face amount of the note C. 5% of the present value of the note B. 4% of the face amount of the note D. 4% of the present value of the note

16.

Which statement is true regarding the two methods of accounting for uncollectible accounts? Statement 1: The percentage-of-sales emphasizes the cash realizable value of the accounts receivable.

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Statement 2: The percentage-of-receivables emphasizes basis the expense recognition (matching) principle. A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2 17.

Genesis Company factored its receivables without recourse with Revelation Bank. Genesis received cash as a result of the transaction which best described as a A. loan from Revelation Bank collateralized by Genesis’ accounts receivable. B. loan from Revelation Bank to be repaid by the proceeds from Genesis’ accounts receivable. C. sale of Genesis’ account receivable to Revelation Bank with the risk of uncollectible accounts retained by Genesis. D. sale of Genesis’ account receivable to Revelation bank with the risk of uncollectible accounts transferred to Revelation Bank.

18.

Statement 1: The entity shall measure the impairment loss on individual receivables as the excess of the receivable’s carrying amount (net of allowance for uncollectible account) over the present value of the estimated future cash flows discounted at the historical or original effective interest rate. Statement 2: Receivables denominated in foreign currency should be translated in the statement of financial position using the exchange rate at the beginning of the reporting period. A. Only statement 1 is correct C. Both statements are correct B. Only statement 2 is correct D. Both statements are incorrect

19.

Leviticus Inc., a VAT-registered business, received a three-year, non-interest bearing note for P56,000 on January 1, 2016. The current interest rate at that time was 13% for similar notes. Leviticus recorded the receipt of the note as follows: Notes Receivable 56,000 Output tax 6,000 Sales 50,000 The effect of this accounting for note receivable on Leviticus’ profit for the years 2016, 2017 and 2018 and its retained earnings at the end of 2018, respectively shall be A. overstate, understate, understate, no effect B. overstate, overstate, understate, no effect C. overstate, understate, understate, understate D. no effect on any of these

20.

Inventories encompasses all of the following, except A. finished goods produced B. land and other property not held for sale C. merchandise purchased by a retailer D. materials and supplies awaiting to be used in production process

21.

When using a perpetual inventory system A. purchases account is used. C. two journal entries are required to record a sale. B. cost of goods sold account is not used. D. a physical count is required at the year-end.

22.

The gross profit method of estimating inventory would not be useful when A. a periodic system is use and inventories are required for interim statements. B. inventories have been destroyed or lost by fire, theft or other casualty, and the specific data required for inventory valuation are not available. C. preparing year-end financial reports. D. the relationship between gross profit and sales remains stable over time.

23.

A company using a periodic inventory system neglected to record purchase of merchandise on account at year-end, 2016. This merchandise, however, was correctly included in the year-end physical count. How will these errors affect inventory at the year-end and cost of goods sold for the year? Inventory Cost of Goods Sold No effect Understate A. B. No effect Overstate Understate Understate C. Understate No effect D.

24.

In a period of rising prices, the use of which of the following inventory cost flow method would result in the highest reported net profit?

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A. First-in, first-out method B. Last-in, first-out method

C. Weighted average method D. Moving average method

25.

A disclosure in the notes to financial statements is required for a purchase contract subject to revision or cancellation if A. A future loss is possible C. The amount can be reasonably estimated B. The amount is material D. Payment is unusual

26.

Which of the following statement(s) is/are true? I. Inventories are presented in the balance sheet at the lower of cost and net realizable value. II. Inventories are usually written down to net realizable value to each class of inventory. III. Under allowance method, both the beginning and ending inventories are measured at cost in the computation of the cost of goods sold. IV. The retail method requires the maintenance of records of purchases at both cost & selling price. V. The method prescribed by IAS 2 is the method that considers both the gross markups and net markdowns in the computation of the cost ratio. A. I, II, III B. I, III, IV C. I, II, IV, V D. I, III, V

27.

Generally speaking, biological assets relating to agricultural activity shall be measured using A. Historical cost C. Historical cost less depreciation less impairment B. A fair value approach D. Net realizable value

28.

All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial statement except A. The entity controls the asset as a result of past event. B. It is probable that future economic benefits relating to the asset will flow to the entity. C. An active market for the asset exists. D. The fair value or cost of the asset can be measured reliably.

29.

An unconditional government grant related to a biological asset that has been measured at fair value less cost of disposal shall be recognized as A. Income when the grant becomes receivable B. A deferred credit when the grant becomes receivable. C. Income when the grant application has been submitted. D. A deferred credit when the grant has been approved.

30.

Statement 1: A bearer plant is a living plant that: (a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than one period; and (c) has a remote likelihood of being sold as agricultural produce except for incidental scrap sales. Statement 2: When an animal is born, the newborn is classified as biological asset. The entry to record such transaction shall include a credit to an income account with the amount based on fair value less cost to sell. A. Only statement 1 is correct C. Both statements are correct B. Only statement 2 is correct D. Both statements are incorrect

PROBLEMS (70%) 31.

Below are items pertinent to Joshua Company’s cash and cash equivalent:  Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at BPI Bank.  Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction).  A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt.  Petty cash fund of P10,000.  An I.O.U. from a company officer in the amount of P40,000.  A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank.  The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days.  Joshua has received a check dated January 2, 2017 in the amount of P150,000.  Joshua has agreed to maintain a cash balance of P200,000 at all times at BPI Bank to ensure future credit availability.  Currency and coin on hand amounted to P15,000.

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How much will be reported as cash and cash equivalent at December 31, 2016? A. P3,025,000 B. P2,575,000 C. P2,825,000 D. P5,025,000 32.

In connection with your observation of Judges Corporation for the year ended December 31, 2016, you gathered the following: Current account at Philippians Bank P2,000,000 Current account at Colossians Bank (600,000) Payroll account 500,000 10,000 IOU from controller’s sister Credit memo from a vendor for a purchase return 16,000 50,000 Traveler’s check Not-sufficient-funds check 12,000 Money order 30,000 Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000 Treasury bills, due 2/28/17 (purchased 11/31/16) 200,000 Treasury bills, due 3/31/17 (purchased 3/1/16) 300,000 Foreign bank account (in USD) 25,000 USD to PHP conversion rates are as follows: Average- P41; Closing – P40. Based on the above information, compute for the cash and cash equivalent that would be reported on the December 31, 2016 balance sheet. A. P2,704,000 B. P2,790,000 C. P3,084,000 D. P3,784,000

33.

The petty cash fund is established in the amount of P5,000 and contains P4,000 in cash and P950 in receipts for disbursement when it is replenished. The journal entry to record the replenishment shall include credit/s to the following account/ as A. Petty cash, P750 C. Cash in bank, P950; Cash short & over P50 B. Petty cash, P1,000 D. Cash in bank, P1,000

34.

The accountant of Ruth Company gathered the following information: 1. The Nov. 30 bank statement balance included the bank service charges of P2,000. 2. The Nov. 30 cash balance in the ledger was P244,500. 3. Outstanding checks on Nov. 30 were P63,000 while undeposited receipts were P36,000. 4. The bank charges as shown on the bank statement totaled P3,000. 5. The Dec. 31 cash balance in the general ledger was P319,750, which was recognized P482,750 for December receipts and P405,500 for checks written during December. In transit to the bank were receipts of P28,750. Checks of P15,000 written prior to December and checks of P60,500 written in December had not yet cleared the bank. What is the adjusted cash balance on December 31? A. P316,750 B. P363,500 C. P322,750 D. P366,500

35.

Samuel reported a balance of P43,000 in its cash account at the end of the month. There were P20,000 deposits in transit and P15,000 outstanding checks. The balance per bank statement showed a balance of P50,000, service charge of P6,000 and the proceeds of note collected by the bank for the company. The face value of the note is P15,000. How much is the interest on the note collected by the bank? A. P12,000 B. P9,000 C. P6,000 D. P3,000

36.

Kings Company checkbook balance at December 31, 2016 was P100,000. In addition, Kings held the following items in its safe on that date.  P10,000 worth of check payable to Kings, deposited on December 15 and included in December 31 checkbook balance but returned by the bank on December 30 stamped “NSF”. The check was redeposited on January 2, 2017 and cleared on January 9, 2017.  P40,000 check payable dated January 2, 2017 in payment of a sale made in December 2016, not included in December 31 checkbook balance.  Check drawn on Kings’ account amounting to P6,000, payable to a vendor, dated and recorded in King’s books on December 31, but not mailed until January 10, 2017. What is the amount of cash in Kings’ December 31, 2016 statement of financial position? A. P136,000 B. P104,000 C. P100,000 D. P96,000

37.

The cash account of the Chronicles Corporation as of December 31, 2016 consists of the following: On deposit in current account with Real Bank P 900,000 Cash collection not yet deposited to the bank 350,000 A customer’s check returned by the bank for insufficient fund 150,000

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A check drawn by the Vice-President of the Corporation dated January 15, 2017 A check drawn by a supplier dated December 28, 2016 for goods returned by the Corporation A check dated May 31, 2016 drawn by the Corporation against the Ezra Bank in payment of customs duties. Since the importation did not materialize, the check was returned by the customs broker. This check was an outstanding check in the reconciliation of the Ezra Bank account Petty Cash fund of which P5,000 is in currency; P3,600 in form of employees’ I.O.U.; and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2016

70,000 60,000 410,000

10,000

Total P1,950,000 Less: Overdraft with Ezra Bank secured by a Chattel mortgage on the inventories 300,000 Balance per ledger P1,650,000 At what amount will the account “Cash” appear on the December 31, 2016 balance sheet? A. P 1,315,000 B. P 1,425,000 C. P 1,495,000...