Test Bank - FAR 3 CPAR PDF

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Test Bank – Financial Acctg 3 (fr. dean)Cash & Cash equivalent1 of the following should not be considered cash for financial reporting purposes? A. Petty cash funds and change funds B. Money orders, certified checks and personal checks C. Coin, currency and available funds D. Postdated check...

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Test Bank – Financial Acctg 3 (fr. dean)

Cash & Cash equivalent 1.Which of the following should not be considered cash for financial reporting purposes? A. Petty cash funds and change funds B. Money orders, certified checks and personal checks C. Coin, currency and available funds D. Postdated checks and IOUs 2. Which of the following should be considered cash? A. Certificates of deposits B. Money market checking accounts C. Money market savings certificates D. Postdated checks 3. The following statements relate to cash. Which statement is true? A. The term “cash equivalent” refers to demand credit instruments such as money order and bank drafts. B. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all normal operating expenses for a period of time. C. Classification of a restricted cash balance as current or non-current should parallel the classification of the related obligation for which the cash was restricted. D. Compensating balances required by a bank should always be excluded from “cash and cash equivalent”. 4. Compensating balance agreement (choose the incorrect one) A. Reduces the amount of cash available to the borrower. B. Always involves legal restriction on the compensating cash balance. C. Increases the effective interest rate to the borrower. D. Should be disclosed in the notes to financial statements. 5. Compensating balance agreement that does not legally restrict the amount of compensating cash balance should be reported A. As current assets B. As noncurrent investment C. As other asset D. In the notes to financial statements 6. Cash equivalents are A. Short-term and highly liquid investments that are readily convertible into cash. B. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of three months.

C. Short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they represent insignificant risk of changes in value because of changes in interest rates.. D. Short-term and highly liquid marketable equity securities. 7. Bank overdraft, if material, should be A. Reported as a deduction from the current asset section. B. Reported as a deduction from cash. C. Netted against cash and a net cash amount reported. D. Reported as a current liability. 8. All cash receipts are deposited intact and all cash disbursements are made by means of check. This internal control is known as A. Administrative control B. Imprest system C. Accounting control D. Auditing control. 9. Cash control systems are the methods and procedures used to ensure A. That the current obligations are met. B. That excess cash does not exist. C. The safeguarding of cash. D. That unused cash is invested. 10. Entries to record the replenishment of petty cash fund result in a debit to various expense accounts and a credit to cash in bank. This accounting procedure typically exemplifies the A. Imprest petty cash system. B. Fluctuating petty cash system. C. Internal control. D. Administrative control. 11. What is the major purpose of an imprest petty cash fund? A. To effectively plan cash inflows and outflows B. To ease the payment of cash to vendors C. To determine honesty of the employees. D. To effectively control cash disbursements. 12. A cash over or short account A. Is generally not accepted B. Is debited when the petty cash fund proves out over. C. Is debited when the petty cash fund proves out short. D. Is a contra account to cash. 13. The payments of accounts payable made subsequent to the close of the accounting period are recorded as if they were made at the end of the current period. A. Window dressing

B. Lapping C. Kiting D. Imprest system 14. Bank reconciliation A. Is the process of transferring money in or out of a bank account. B. Requires that every transaction which will result in a cash payment be verified, approved and recorded before a bank check is prepared. C. Is an analysis that reflects the bank transactions made by a depositor. D. Explains the difference between the bank balance and the balance shown in the depositor’s records. 15. If the cash balance shown in a company’s accounting records is more than the correct cash balance and neither the company nor the bank has made any errors, there must be A. Deposits credited by the bank but not yet recorded by the company. B. Deposits in transit. C. Outstanding checks. D. Bank charges not yet recorded by the company. 16. If the cash balance in a company’s bank statement is more than the correct cash balance and neither the company nor the bank has made any errors, there must be A. Deposits credited by the bank but not yet recorded by the company. B. Outstanding checks C. Bank charges not yet recorded by the company. D. Deposits in transit. 17. The journal entries for a bank reconciliation A. Are taken from the balance per bank only B. May include a debit to office expense for a bank service charges. C. May include a credit to accounts receivable for an NSF check. D. May include a debit to accounts payable for an NSF check. 18. When preparing a bank reconciliation, bank credits are A. Added to the bank statement balance B. Deducted from the bank statement balance C. Added to the balance per book D. Deducted from the balance per book 19. Which of the following is a key element of internal control over a cash payments? A. Authorizing and verifying that all cash received is recorded daily. B. Requiring that all petty cash vouchers are approved by two persons. C. Making daily bank deposits. D. Periodically reconciling the cash account balance per book with the statement balance.

Accounts Receivable 20. Accounts receivable should be recognized initially at A. Face value B. Present value C. Maturity value D. Net realizable value 21. Subsequent to initial recognition, accounts receivable should be carried at A. Face value B. Net realizable value C. Maturity value D. Present value 22. Long-term notes receivable which nominally bear no interest or an interest which is unreasonably low should be recognized initially at A. Face value B. Present value C. Maturity value D. Net realizable value 23. Loans and receivable are nonderivative financial assets A. With fixed or determinable payments that are not quoted in an active market. B. With fixed or determinable payments that are quoted in an active market. C. Without fixed or determinable payments that are not quoted in an active market. D. Without fixed or determinable payments that are quoted in an active market. 24. Initially, loans and receivables are measured at A. Fair value B. Fair value plus transaction costs that are directly attributable to the acquisition. C. Maturity value. D. Maturity value plus transaction costs that are directly attributable to the acquisition. 25. Subsequent to initial recognition, loans and receivables are measured at A. Cost B. Amortized cost using straight line method C. Amortized cost using effective interest method D. Fair value 26. Receivables denominated in a foreign currency should be A. Translated to local currency using the exchange rate at the time the receivable arise. B. Shown at face value of the foreign currency. C. Translated to local currency using the exchange rate at the balance sheet date. D. Translated to local currency using the exchange rate when the balance sheet is issued.

27. Trade receivables are classified as current assets when they are reasonably expected to be realized in cash A. Within one year B. Within the normal operating cycle. C. Within one year or within the normal operating cycle whichever is shorter. D. Within one year or within the normal operating cycle whichever is longer. 28. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash A. Within one year or within the normal operating cycle whichever is shorter. B. Within the normal operating cycle. C. Within one year or within the normal operating cycle whichever is longer. D. Within one year, the length of the operating cycle notwithstanding. 29. Receivables from subsidiaries and affiliates, if significant should be classified as A. Current assets B. Noncurrent assets C. Either as noncurrent or current depending on the expectation of realizing them within one year or over one year D. Intangible assets 30. If a company employs the gross method of recording accounts receivable from customers, the sales discount taken should be reported as A. Deduction from sales in the income statement B. Other expense in the income statement C. Deduction from accounts receivable in determining the net realizable value of accounts receivable. D. Sales discount forfeited in the cost of goods sold section of the income statement. 31. Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of 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 noninterest 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. 32. Credit balances in accounts receivable should be classified as A. Current liability B. Part of accounts payable C. Noncurrent liability D. Deduction from accounts receivable 33. A method of estimating doubtful accounts that focuses on the income statement rather the balance sheet is the allowance method based on A. Direct writeoff

B. Aging of trade accounts receivable C. Credit sales D. Balance of accounts receivable 34. A method of estimating doubtful accounts that focuses on the income statement rather the balance sheet is the allowance method based on A. Aging of receivables B. Direct writeoff C. Gross sales D. Credit sales less sales returns and allowances 35. A company uses the allowance method of recognizing doubtful accounts. The entry to record the writeoff of a specific uncollectible account A. Affects neither net income nor working capital B. Affects neither net income nor accounts receivable C. Decreases both net income and working capital D. Decreases both net income and accounts receivable. 36. When a specific customer’s account receivable is written off as uncollectible, what will be the effect on net income under each of the following methods of recognizing bad debts expense? Allowance Direct writeoff A. None Decrease B. Decrease None C. Decrease Decrease D. None None 37. 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 A. Disclosed in the notes B. Excluded from the total receivables, with disclosure C. Excluded from the total receivables, with no disclosures D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowings. 38. If receivables are hypothecated against borrowings, the amount of receivables involved should be A. Disclosed in the notes B. Excluded from the total receivables, with disclosure C. Excluded from the total receivables, with no disclosures D. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowings. 39. It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other special adjustments. A. Equity in assigned accounts B. Service charge C. Commission

D. Factor’s holdback 40. Which of the following is true when accounts receivable are factored without recourse? A. The transaction may be accounted for either as secured borrowing or sale. B. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. C. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables. D. The financing cost should be recognized ratably over the collection period of the receivables. 41. Notes receivable discounted with recourse should be A. Included in total receivables with disclosure of contingent liability. B. Included in total receivables without disclosure of contingent liability. C. Excluded in total receivables with disclosure of contingent liability. D. Excluded in total receivables without disclosure of contingent liability. 42. Which of the following statements is correct? A. The net realizable value of the total amount of accounts receivable is defined as the gross amount billed to customers less any cash and trade discounts. B. When a specified uncollectible account which has already been written off is later collected sales revenue is increased by the amount of the recovery. C. The primary accounting principle supporting use of the allowance for doubtful account is the cost principle. D. An estimate of doubtful accounts expense based upon credit sales rather than total sales will likely be more in conformity with the matching principle. 44. Which of the following statement is true? A. Trade accounts receivable are the only asset on which doubtful accounts expense can be incurred. B. The sole justification for providing for doubtful accounts is conservatism. C. Methods of estimating doubtful accounts expense based upon the collectability of accounts receivable emphasize the income statement rather than the balance sheet. D. Provision for bad debt losses on trade receivable is usually included in computing the balance of “allowance for doubtful accounts”. 45. Which of the accounting principles primarily supports the use of allowance for doubtful accounts? A. Continuity principle B. Full-disclosure principle C. Matching principle D. Cost principle 46. The allowance method of recognizing bed debt expense can be applied is more than one way. What two conditions must be met before the allowance method can be used? A. Bad debts must be expected and material. B. Bad debts must be relevant and reliable C. Bad debts must be probable and estimable

D. Bad debts must be consistent over time and the method used to estimate them must be consistently applied. CASH & CASH EQUIVALENT

47. In connection with your audit of Mags Corporation for the year ended, December 31, 2010, you gathered the following: 1. Current account at Metrobank 2. Current account at BPI 3. Payroll account 4. Foreign bank account – restricted (in equivalent pesos) 5. Postage stamps 6. Employee’s postdated checks 7. IOU from controller’s sister 8. Credit memo from a vendor for a purchase return 9. Traveler’s check 10. NSF check 11. Money order 12. Petty cash fund ( P4,000 in currency and expense receipts for P6,000) 13. Treasury bills, due 3/3/11 (purchased 12/29/09) 14. Treasury bills, due 1/31/11 (purchased 2/1/10)

P2,000,000 ( 100,000) 500,000 1,000,000 1,000 4,000 10,000 20,000 50,000 15,000 30,000 10,000 200,000 300,000

Based on the above information and the result of your audit, compute for the cash and cash equivalent that would be reported in the December 31, 2010 balance sheet. A. P2,784,000 B. P3,084,000 C. P2,790,000 D. P2,704,000 48. In the course of your audit of the Autumn Corporation, its controller is attempting to determine the amount of cash to be reported on its December 31, 2010 balance sheet. The following information is provided: 1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank. 2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction). 3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term debt. 4. Petty cash fund of P10,000. 5. An IOU from a company officer in the amount of P40,000. 6. 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.

7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days. 8. Autumn has received a check dated January 2, 2011 in the amount of P150,000. 9. Autumn has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit availability. 10. Currency and coin on hand amounted to P15,000. How much will be reported as cash and cash equivalent at December 31, 2010? A. P3,025,000 B. P2,825,000 C. P2,575,000 D. P5,025,000 49. The cash account of MDG Corporation as of December 31, 2010 consists of the following: On deposit in current account with Real Bank Cash collection not yet deposited to the bank A customer’s check returned by the bank for insufficient fund A check drawn by the Vice-President of the Corporation dated January 15,2011 A check drawn by a supplier dated December 28, 2010 for goods returned by the corporation A check dated May 31, 2010 drawn by the Corporation against the Nominal Bank in payment of custom 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 Nominal Bank account. Petty cash fund of which P5,000 is in currency; P3,600 in the form of employees’ IOUs and P1,400 is supported by approved petty cash vouchers for expenses all dated prior to closing of the books on December 31, 2010. Total Less: Overdraft with Nominal Bank secured by a chattel Mortgage on the inventories Balance per ledger

P 900,000 350,000 150,000 70,000 60,000

410,000

10,000 P1,950,000 300,000 P1,650,000

At what amount will the account “Cash” appear on the December 31, 2010 balance sheet? A. P1,315,000 B. P1,425,000 C. P1,495,000 D. P1,725,000

50. You noted in the following composition of King Baker Company’s “cash account” as of December 31, 2010 in connection with your audit: Demand deposit account Time deposit – 30 days NSF check of customer Money market placement (due June 30, 2011) Savings deposit in a closed bank IOU from employee Pension fund Petty cash fund Customer’s check dated January 1, 2011 Customer’s check outstanding for 18 months Total

P2,000,000 1,000,000 40,000 1,500,000 100,000 20,000 3,000,000 10,000 50,000 40,000 P7,760,000

Additional information follows: a. Check of P200,000 in payment of accounts payable was recorded on December 31, 2010 but mailed to suppliers on January 5,2011. b. Check of P100,000 dated January 15, 2011 in payment of accounts payable was recorded and mailed on December 31, 2010. c. The company uses the calendar year. The cash receipts journal was held open until January 15, 2011, during which time P400,000 was collected and recorded on December 31, 2010. The cash and cash equivalents to be shown on the December 31, 2010 balance sheet is: A. P3,310,000 B. P1,910,000 C. P2,910,000 D. P4,410,000 Questions 51 to 54: You were able to gather the following from the December 31, 2010 trial balance of Jg Corporation in connection with your audit of the company: Cash on hand Petty cash fund BPI current account Security Bank current account No. 01 Security Bank current account No. 02 PNB savings account PNB time deposit

P 500,000 10,000 1,000,000 1,080,000 ( 80,000) 1,200,000 500,000

Cash on hand includes the following items: a. Customer’s check for P40,000 returned by bank on December 26, 2010 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2011. b. Customer’s check for P20,000 dated January 2, 2011 received on December 29,2010.

c. Postal money orders received from customers, P30,000. The Petty cash fund consisted of the following items as of December 31, 2010: Currency and coins P 2,000 Employees’ vales 1,600 Currency in an envelope marked “collections for charity” with names attached 1,200 Unreplenished petty cash vouchers 1,300 Check drawn by Jg Corporation, payable to the petty cashier 4,000 P10,100 Included among the checks drawn by Jg Corporation against the BPI current account and recorded in December 2010 are the following: a. Check written and dated December 29, 2010 and delivered to payee on January 2, 2011, P80,000. b. Check written on December 27, 2010, dat...