Test-Bank Intermediate Financial Accounting By Zeus Vernon Millan PDF

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TEST BANKIntermediateFinancialAccountingPart 1AZEUS VERNON B. MILLANALL RIGHTS RESERVED2015No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means - electronic or mechanical, including photocopying – without the written permission of the author.ISBN...

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TEST BANK Intermediate

Financial Accounting Part 1A

ZEUS VERNON B. MILLAN

ALL RIGHTS RESERVED 2015

No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means electronic or mechanical, including photocopying – without the written permission of the author.

ISBN 978-621-95096-0-2

Published by:

BANDOLIN ENTERPRISE No. 100 Montebello Village, Bakakeng Sur, Baguio City 2600, Philippines

TABLE OF CONTENTS CHAPTER 1 OVERVIEW OF ACCOUNTING.................................................................1 CHAPTER 1: THEORY OF ACCOUNTS REVIEWER.................................................1 CHAPTER 1 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS..........27

CHAPTER 2 THE ACCOUNTING PROCESS...............................................................28 CHAPTER 2: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 28 CHAPTER 2: THEORY OF ACCOUNTS REVIEWER..............................................31 CHAPTER 2 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS..........45

CHAPTER 3 THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING.......46 CHAPTER 3: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 46 CHAPTER 3: THEORY OF ACCOUNTS REVIEWER..............................................47 CHAPTER 3 - SUGGESTED ANSWERS TO REVIEW THEORY QUESTIONS..................71

CHAPTER 4 CASH & CASH EQUIVALENTS...............................................................72 CHAPTER 4: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 72 CHAPTER 4: THEORY OF ACCOUNTS REVIEWER..............................................76 CHAPTER 4 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS..........87

CHAPTER 5 RECEIVABLES (PART 1)....................................................................... 88 CHAPTER 5: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 88 CHAPTER 5: THEORY OF ACCOUNTS REVIEWER..............................................92 CHAPTER 5 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS........100

CHAPTER 6 RECEIVABLES (PART 2).....................................................................101 CHAPTER 6: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 101 CHAPTER 6: THEORY OF ACCOUNTS REVIEWER............................................105 CHAPTER 6 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS........110

CHAPTER 7 RECEIVABLES (PART 3).....................................................................111 CHAPTER 7: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 111 CHAPTER 7: THEORY OF ACCOUNTS REVIEWER............................................114 CHAPTER 7 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS........125

CHAPTER 8 INVENTORIES..................................................................................... 126 CHAPTER 8: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 126 CHAPTER 8: THEORY OF ACCOUNTS REVIEWER............................................132 CHAPTER 8 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS........149

CHAPTER 9 INVESTMENTS (PART 1)....................................................................150 CHAPTER 9: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES) 150 CHAPTER 9: THEORY OF ACCOUNTS REVIEWER............................................153 CHAPTER 9 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS........168

CHAPTER 10 INVESTMENTS (PART 2)....................................................................169 CHAPTER 10: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)169 CHAPTER 10: THEORY OF ACCOUNTS REVIEWER..........................................175

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CHAPTER 10 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS......185

CHAPTER 11 INVESTMENTS (PART 3)....................................................................186 CHAPTER 11: MULTIPLE CHOICE – COMPUTATIONAL (SET B) – (FOR CLASSROOM INSTRUCTION PURPOSES)186 CHAPTER 11: THEORY OF ACCOUNTS REVIEWER..........................................187 CHAPTER 11 - SUGGESTED ANSWERS TO THEORY OF ACCOUNTS QUESTIONS......188

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Chapter 1 Overview of Accounting Chapter 1: Theory of Accounts Reviewer Definition of Accounting 1. Accounting has been given various definitions, which of the following is not one of those definitions a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part of at least, of a financial character and interpreting the results thereof. c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users. d. Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. 2. It is the first process used in accounting. It refers to the identification of events as to whether they are recognized or not in the financial statements. a. Identifying b. Measuring c. Communicating d. Auditing 3. The following statements correctly refer to the accounting process. I. Measuring is the accounting process of analyzing business activities as to whether or not they will be recognized in the books. II. Recognition refers to the process of including the effects of an event in the totals of the statement of financial position or the statement of profit or loss and other comprehensive income through memo entries. III. Disclosure of events in the notes to financial statement without including in the totals of the statement of financial position or statement of profit or loss and other comprehensive income is not an application of the recognition principle. IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its effect can be measured reliably. V. Sociological and psychological matters are within the scope of accounting. a. I, II, III, IV, V b. I, II, III, IV c. IV d. III, IV Types of Events 4. These events involve changes in the economic resources or obligations of entities involving other entities but do not involve transfers of resources or obligations a. External events c. External events other than transfers b. Non-reciprocal transfers d. Internal events 5. Events involving an entity and an external party. a. External events c. External events other than transfers b. Non-reciprocal transfers d. Internal events 6. Events in which an entity transfers (or receives) economic resources to (from) another entity without directly receiving (or giving) value in exchange. a. External events c. External events other than transfers

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b. Non-reciprocal transfers

d. Internal events

7. These events result to a sudden or unanticipated loss from fortuitous events. a. Internal events c. External events other than transfers b. Non-reciprocal transfers d. Casualty 8. Which of the following statements is true? I. Loss from theft should be classified as a nonreciprocal transfer II. Internal events are changes in economic resources by actions of other entities that do not involve transfers of enterprise resources and obligations III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an entity to other entities or from other entities to the entity. IV. Internal events are sudden, substantial, unanticipated reductions in enterprise resources not caused by other entities V. Fire, earthquake and flood are examples of accountable events classified as internal events. a. I, II, III, V b. I, III, V c. II, III, IV, V d. I, III, IV, V 9. All of the following are events considered as exchange or reciprocal transfer, except a. purchase of investment in equity securities b. sale of equipment for non-interest bearing note c. subscription on the entity’s own equity instrument d. exchange of a note payable for an account payable e. borrowing of money from a bank 10.All of the following are events considered as nonreciprocal transfer, except a. declaration of cash dividends c. payment of accounts payable b. declaration of stock dividends d. imposition of fines 11.All of the following are events considered as external events other than transfers, except a. obsolescence c. imposition of fines b. inflation d. vandalism 12.All of the following are events considered as internal events, except a. Transfer of goods from work-in-process to finished goods inventory b. flood, earthquake, fire and other “Acts of God” c. transformation of biological assets from immature to mature d. vandalism committed by the entity’s employees 13.Which of the following events is considered an internal event? a. sale of inventory on account b. provision of capital by owners c. borrowing of money d. conversion of raw materials into finished goods 14.Which of the following events is considered an external event? a. production c. payment of taxes b. casualty loss d. growth of biological assets 15.Which of the following events is considered an internal event? a. theft c. vandalism b. contributions by owners d. degeneration of biological assets

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16.Which of the following correctly relates to accountable events? I. An obsolete asset which has no use was received in exchange of an existing asset. This transaction may be classified as an exchange. II. An entity exchanges a non-cash asset for another non-cash asset in an exchange transaction with commercial substance. This is a reciprocal transfer. III. An entity issues its shares of stocks in exchange for a non-cash asset. This is a reciprocal transfer. a. I b. II c. II, III d. I, II, III 17.An example of income derived from a nonreciprocal transfer is a. compensation received as damages in a successful lawsuit b. appreciation of property c. land acquired from a stockholder as donation d. settlement of a liability at less than its book value (RPCPA) Measuring 18.Asset measurements in conventional financial statements a. are confined to historical cost b. are confined to historical cost and current cost c. reflect several financial attributes d. do not reflect output values (RPCPA) 19.Financial statements are said to be a mixture of fact and opinion. Which of the following items is factual? a. cost of goods sold c. discount on capital stock b. retained earnings d. patent amortization expense (Adapted) 20.On December 31, 200A, Annod Co. decided to end its operations and dispose its assets within three months. At December 31, 200A, the carrying amount of an investment property was less than both its fair value and net realizable value. The fair value is greater than the net realizable value. What is the appropriate measurement basis for the investment property in Annod’s December 31, 200A statement of financial position? a. Historical cost c. Net realizable value b. Fair value d. Current replacement cost Communicating 21.These are the principal means through which an entity communicates its financial information to those outside it. a. managerial reports c. segment reports b. financial statements d. directors’ statements 22.The analytical phase of accounting which significantly portrays the liquidity, solvency, profitability of a business a. interpreting c. summarizing b. recording d. classification (RPCPA) Basic purpose 23.The basic purpose of accounting is a. to provide information useful in making economic decisions b. to provide information useful only for investors

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c. to provide information regarding the economic resources controlled by an entity d. to provide business owners, politicians, and other government officials an opportunity to evade taxes 24.One objective of financial reporting is to provide information useful in assessing the amounts, timing, and uncertainty of future cash flows. In regards to this objective, which of the following is (are) correct? I. The emphasis on “assessing cash flow prospects” means that the cash basis is preferred over the accrual basis of accounting. II. Information based on accrual accounting generally better indicates an entity’s present and continuing ability to generate favorable cash flows than does information limited to the financial effects of cash receipts and payments. a. I only b. II only c. I and II d. neither I nor II 25.The primary objective of financial reporting is to provide information: a. About a firm's financing and investing activities b. About a firm's economic resources and obligations c. About a firm's products and services d. Useful in predicting cash flows (Adapted) 26.Financial accounting applies to which of the following: a. Businesses c. Governments b. Non-profit organizations d. All of these (Adapted) 27.Stewardship reporting focuses on: a. Showing investors what sales revenues were b. Showing the financial statement reader just how the resources entrusted to the management's care were managed c. Showing employees how high their raises will be d. Showing the financial statement reader how many shop stewards are employed (AICPA) 28.The function of measuring and reporting information to absentee investors is called the: a. Accounting function c. Auditing function b. Stewardship function d. Management function (AICPA) 29.The following relate to financial reporting. Choose the correct statement(s). I. Since financial statements are historical, they are of little use in making decisions about the future. II. Financial accounting is based on the presumption that all statement users need the same information. III. Financial accounting is expressly designed to measure directly the value of a business enterprise. a. I, III b. II, III c. II only d. None (RPCPA) 30.Financial reporting should provide all of the following information, except a. Information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

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b. Information that helps present and potential investors, creditors, and other users assess the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. c. Information that is comprehensible only to accountants and auditors who have reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. d. Information that clearly portrays the economic resources of an enterprise, the claims to those resources and the effects of transactions, events, and circumstances that change its resources and claims to those resources. 31.Apart from the monetary impact, factors of decision making include: a. personal taste c. environmental factors b. social factors d. all of these (Adapted) 32.For the purpose of decision making: a. accounting information provides information about future events b. accounting information provides information about the outcomes of past decisions c. the future is used as a guide to past estimates d. the accountant never becomes involved in the budgeting process. (Adapted) Economic entities and activities 33.A business that operates to support a cause or interest is known as a a. not-for-profit organization c. career goal b. sports franchise d. private entity 34.The most common form of business organization is a a. corporation c. sole proprietorship b. partnership d. cell phone stand (Adapted) 35.Which of the following statements are correct? I. The economic activities of a business enterprise increase or decrease its assets and liabilities but never its equity. II. An internal event involves a transfer or exchange between two or more entities. III. Exchange is an economic activity which involves trading resources and obligations for other resources or obligations. IV. Income recognition is a basic economic activity which involves the process of allocating rights to the use of outputs among individuals and groups in society. V. An event generally is the source or cause of changes in assets, liabilities, and equity. VI. Investment is the process of using current inputs to increase the stock of resources available for future output as opposed to immediately consumable output. a. III, IV, V b. I, II, III, V, VI c. III, V, VI d. II, III, VI (RPCPA) 36.Which of the following statements correctly refer to the basic economic activities?

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I.

Production is the process of converting economic resources into outputs of goods and services that are intended to have greater utility than the required inputs. II. Exchange is the process of trading resources or obligations for other resources or obligations. III. Consumption is the process of allocating rights to the use of output among individuals and groups in society. IV. Income distribution is the process of using the final output of the production process. V. Savings is the process of using current inputs to increase the stock of resources available for output as opposed to immediately consumable output. VI. Investment is the process by which individuals and groups set aside rights to present consumption in exchange for rights to future consumption. a. I, II c. I, II, V, VI b. I, II, III, IV d. I, II, III, IV, V, VI (RPCPA) 37.Whether a business is successful and thrives is determined by a. markets. b. free enterprise. c. competition d. all of these (AICPA) 38.An effective capital allocation process a. promotes productivity. b. encourages innovation. c. provides an efficient market for buying and selling securities. d. all of these. (AICPA) 39.A business that operates to earn money for its owners is called a(n) a. economic entity c. professional organization b. for-profit business d. owner financed business (Adapted) 40.A free enterprise system allows businesses to a. have their government choose their products b. produce the goods and services they choose c. buy goods at a discount d. operate at a profit (Adapted) 41. One of the disadvantages of a sole proprietorship is a. all the profits go to the owner c. the owner has all the risks b. there are no lunch breaks d. there are few regulations to follow (Adapted) 42.A corporation is a business organization that is recognized by law to a. pay no tax c. have an active social life b. have a life of its own d. have at least 3 owners (Adapted) 43.Those who transform ideas for products or services into real-world businesses are known as a. profit takers b. accountants c. entrepreneurs d. organizers (Adapted)

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44.A business owned by two or more people is called a. a corporation c. a partnership b. looking for trouble d. venture capital (Adapted) 45.A merchandising business a. buys raw materials and transforms them into finished products b. buys finished products and resells them c. provides a service for a fee d. all of the above (Adapted) 46.Economic resources are the scarce means available for carrying on economic activities. The economic resources of a business enterprises are: a. productive resources b. products c. money d. all of these (RPCPA) 47.Which of the following is not among the economic resources of a business enterprise? a. money b. products or output of the enterprise c. obligations to pay money d. ownership interest in other enterprises (RPCPA) 48.It does not truly describe “economic value” as an element of economic resources a. value in exchange c. utility b. over supply of resources d. scarcity (RPCPA) Accounting information 49.Which of the following statements is correct? I. Accounting provides qualitative information, financial information...