INTERNATIONAL SCHOOL OF ASIA AND THE PACIFIC

PEñABLANCA, CAGAYAN
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY
PRELIM EXAM IN INTEGRATED ACCOUNTING, PART 2
NAME: _______________________________________________________

SCORE: ______/50

General Instructions: Answer the following questions correctly. Write your
answers on the space provided. All form of erasing, altering or tampering
of answer or the answer sheet will render no point. Use ink pens only. God
bless!

Test 1: MORSE TYPE. Please refer to the table below for your answers.
ANSWER
A
B
C
D
E
F
G
H

S1
TRUE
TRUE
TRUE
FALSE
FALSE
FALSE
FALSE
TRUE

S2
TRUE
TRUE
FALSE
FALSE
FALSE
TRUE
TRUE
FALSE

S3
TRUE
FALSE
FALSE
FALSE
TRUE
TRUE
FALSE
TRUE

1.
S1: The two groups identified as the principal users of external financial information are investors
and creditors.
S2: External financial information is generally more highly summarized than the information
reported internally.
S3: The auditor's report that accompanies the financial statements is based on evidence gathered
by the auditor from the detailed records and documents maintained by the company and from a review of
the controls over the accounting system.
2.
S1: The Securities and Exchange Commission recommends, but does not require, that all
nationally registered companies have an annual independent audit as protection for the shareholders.
S2: The standard three-paragraph auditor's report deemphasizes the separate responsibilities of
management and the auditors for the accounting system and the information in the financial statements.
S3: The Financial Accounting Standards Board is an independent organization consisting of
seven part-time board members who are permitted to retain limited connections with their firms or
institutions after assuming membership on the Board.
3.
S1: Following the research of a major project by a task force, the FASB issues a Discussion
Memorandum that identifies the principal issues involved.
S2: The primary responsibilities of the Emerging Issues Task Force are to identify new accounting
issues for which no authoritative statements exist and to discuss alternative approaches to the issues and
arrive at a consensus statement that provides guidance until such time as they may be addressed by the
FASB.

Page 1 of 6

" 6. rendering services. S3: The long-term rights and privileges of a physical nature acquired for use in business operations are often reported under the heading "Intangible assets. S3: Costs of collection. or other activities that constitute the entity's major operations. S3: The completed-contract method was developed to relate recognition of revenue on long-term construction-type contracts to the activities of a firm in fulfilling these contracts. savings. losses from natural catastrophes. S1: Sinking fund assets consisting of cash and securities held for the redemption of bonds or stocks are normally classified as investments. S2: The proportional performance method has been developed to reflect revenue earned on service contracts under which many acts of service are to be performed before the contract is completed. S3: In a bank reconciliation statement. and losses from disposition of investments are examples of expenses that are directly related to revenues for the period. and possible product warranty costs are examples of expenses that are directly related to revenues for the period. S1: A bank reconciliation should be prepared by the individual responsible for cash receipts and disbursements. S2: Plant rearrangement costs and developmental and improvement costs are frequently reported as land. S2: When a bond issue classified as a long-term obligation becomes payable within a year. S1: Any obligation that is due on demand or will become due on demand within one year from the balance sheet date should be classified as current." S2: The cost recovery method of revenue recognition is often used for certain precious metals and agricultural products that are supported by government price guarantees. S1: Revenues and gains are generally recognized when they are realized or realizable and they have been earned through substantial completion of the activities involved in the earnings process.S3: Generally accepted accounting principles have. 13. 9. S2: A contingent liability is a definite obligation with only the amount of the obligation in question and subject to estimation at the balance sheet date.. the amount of a not-sufficient-funds check must be added to the depositor's cash balance in determining the correct cash balance. 10. eliminated the need for accountants to exercise professional judgment in interpreting and applying accounting standards. S1: Under generally accepted accounting principles. S1: In current practice. S2: In a bank reconciliation statement. S3: A trade discount is offered by some companies to encourage customers to pay bills promptly. S3: Most administrative costs. the most common revenue recognition point is "point-of-sale. 7. and money market deposit accounts. S2: Revenues and gains are generally recognized when they are realized or realizable and they have been earned through substantial completion of the activities involved in the earnings process. S1: Losses are decreases in equity from incidental transactions of an entity and from all other transactions and events affecting the entity except those that result from expenses or distributions to owners. revenue recognition normally occurs when cash is received. bad debt losses from uncollectible receivables. 4. S3. S2: Demand deposits would include amounts in checking. in most cases. S3: Gains are inflows or other enhancements of assets of an entity or settlement of its liabilities from delivering or producing goods. buildings. Page 2 of 6 . S1: Certificates of deposit and money market savings certificates are examples of time deposits. such as salaries and utilities. 5. S3: Current assets are normally listed on the balance sheet in the order of their dollar value. and equipment. are recognized as periodic expenses. All current assets are reported at their estimated realizable values. S1: Short-term obligations expected to be refinanced with long-term debt are normally classified as long-term debt. an outstanding check must be subtracted from the bank statement balance in determining the correct cash balance. 12. 8. S3: Deposits in foreign banks are always reported as receivables. it should normally be reclassified and presented as a current liability. S2: Most losses such as losses from the sale of used equipment. 11 S1: A cash overdraft should be reported as a current liability. S2: Compensating balance requirements as a result of short-term financing arrangements are reported separately in the investment section of the balance sheet.

the balance in Construction in Progress will be exactly equal to the amount in Progress Billings on Construction Contracts when using the percentage-ofcompletion method. S1: A change in the percentage used in determining uncollectible accounts receivable is a change in accounting principle. S2: Pro forma statements should be prepared for a change in accounting estimate. 16. MULTIPLE CHOICES. 15. change in principle. 18. an adjustment is made by the investor to the income reported by the investee in applying the equity method. theft. d. The gross profit method of estimating inventory would not be useful when a. the amount of gross profit is the same as in prior years. S3: When the purchase price of stock is greater than the underlying book value of the investee's net assets as a result of a difference between the fair values and book values of depreciable assets. b. S2: If analysis of construction contracts indicates that there will be an overall loss on the contract. 17. The use of the gross profit method assumes a. as defined in APB Opinion No. Answer the question correctly. 22. 23.14. S1: The three main categories of accounting changes are change in estimate. S1: Under the cost method. S1: At the conclusion of a construction contract. the investment account is periodically adjusted to reflect changes in the underlying net assets of the investee. sales and cost of goods sold have not changed from previous years. S3: As a general rule. 20. S1: The cost method of accounting should always be used when the investor does not exercise significant influence over the investee. S2: A change from a principle that is not generally accepted to one that is generally accepted is considered to be a correction of an error. the relationship between selling price and cost of goods sold is similar to prior years. S3: Accounting practice allows companies not to consolidate certain majority-owned subsidiaries if these subsidiaries have "nonhomogeneous" operations. consolidated financial statements should be prepared only when the parent corporation owns 80 percent or more of the outstanding common stock of the subsidiary. but circumstances dictate a change to the cost method. S3: As construction contract estimates change. c. b. inventory values have not increased from previous years. 19. inventories have been destroyed or lost by fire. S3: Changes in accounting estimates are considered to be part of the normal accounting process and not corrections or changes of past periods. the relationship between gross profit and sales remains stable over time. there is a significant change in the mix of products being sold. d. retroactive application of the cost method is required. 20. S1: An investment in stock is initially recorded at cost and all commissions. retroactive adjustments are required if the amount is material. consolidated financial statements are appropriate even though the parent company owns less than 50 percent of the voting stock of the subsidiary. c. a large minority interest. 21. S2: When an investment in equity securities has been accounted for under the equity method. or a foreign location. the tax laws eliminated the use of the completedcontract method. there is substantial increase in the quantity of inventory during the year. S2: Under some circumstances. and correction of prior period errors. Page 3 of 6 . S3: A change in accounting principle. S1: Beginning with the Tax Reform Act of 1986. or other casualty. and the specific data required for inventory valuation are not available. S3: Estimates of architects and engineers of percentage-of-completion are not acceptable under generally accepted accounting principles. the loss should immediately be recognized in full under the completed-contract method and the percentage-of-completion method. TEST 2. a periodic system is in use and inventories are required for interim statements. The gross profit method of inventory valuation is invalid when a. under both the cost and equity methods. includes the initial adoption of an accounting principle as a result of transactions or events that had not occurred in previous periods. taxes. S2: The most popular input measure under percentage-of-completion accounting is the cost-tocost method. and other fees are expensed as incurred. S2: The equity method may not be appropriate in some cases even though the investor owns more than 20 percent of the voting stock of the investee.

b.000. d. the recording of sales at cost. will be overstated. correctly stated. 27. If the ending inventory balance is understated. Decrease Decrease Page 4 of 6 . c. 32. the next year's income is overstated. b. If ending inventory on December 31. b. Which of the following will result if the current year's ending inventory amount is understated in the cost of goods sold calculation? a. d. c. 26. d. It may not be used for internal estimates of inventory. None None b. a. The answer cannot be determined from the information given. the reporting of year-end inventory at retail in the financial statements. b. The allowance method is less exact but it better illustrates the matching principle. The answer cannot be determined from the information given. It may not be used to estimate inventories for interim statements. net realizable value of accounts receivable.b. Which statement is true about the gross profit method? a. 28. b. will be understated. d. 2004. An overstatement of ending inventory in Period 1 would result in income of Period 2 being a. c. The retail inventory method is characterized by a. Cost of goods sold will be overstated. the recording of purchases at selling price. the entry to record the write-off of a specific uncollectible account would decrease a. what is the effect on net income for 2005? a. is overstated by $30. c. Net income is overstated by $30. cannot be determined from the above information. net income of the same period a. overstated.000. c. the current year's net income is overstated. there is substantial increase in the cost of inventory during the year. When comparing the allowance method of accounting for bad debts with the direct write-off method. d. the gross margin percentage changes significantly during the year. It may not be used by insurers of inventory. d. 31. all ending inventory is destroyed by fire before it can be counted. d. 29. d. Net income is understated by $30. The direct write-off method is exact and also better illustrates the matching principle. b. Net income will be overstated. the effect on net income and the net realizable value of the accounts receivable is Net Realizable Value Net Income of Accounts Receivable a. c. will be unaffected. When the allowance method of recognizing bad debt expense is used. d. 33. the current year's total assets are understated. 30. d. c. 24. 25. c. Net income is overstated by $60. The direct write-off method is theoretically superior. b. the current year's cost of goods sold is overstated. c. When the current year's ending inventory amount is overstated. allowance for doubtful accounts. b. Both a and c. net income. understated.000. working capital. c. Total assets will be overstated. which of the following is true? a. b. The direct write-off method requires two separate entries to write off an uncollectible account. It may not be used to estimate inventories for annual statements. the recording of markups at retail and markdowns at cost. When a specific customer's account is written off by a company using the allowance method.000.

c. estimated uncollectible receivables are too low. Issuance of bonds b. A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on a. Personal checks b. the entries at the time of collection of a small account previously written off would a. Increase Decrease Increase None 34. Page 5 of 6 . Travelers' checks c. Which of the following would not be classified as cash? a. d. a customer defaults on its account. Accounts receivable turnover and 365 days d. Average accounts receivable and cost of goods sold 40. Inventory turnover and 365 days b. which of the following sets of factors would be used? a. c. b. What is the accounting principle underlying the recognition of an estimated liability for warranties in the period of product sale? a. d. Postdated checks 41. aging the trade receivable accounts. Average accounts receivable and net credit sales d. credit sales. Payment of dividends 43. a. d. When the allowance method of recognizing bad debt expense is used. In a statement of cash flows. Cashiers' checks d. Materiality c. increase net income. Which of the following would not be classified as an operating activity? Interest income Income tax expense Dividend income Payment of dividends 42. xxx 37. Conservatism 38. b. d. increase the allowance for doubtful accounts. Net credit sales and average stockholders' equity 39. b. Which of the following factors are used to compute the number of days' sales in accounts receivable? a. Average accounts receivable and average total assets c. lending activities. In calculating a company's accounts receivable turnover. Net sales and average inventory c. Issuance of common stock c. operating activities. a customer pays its account balance b. b. direct write-off. The entry Accounts Receivable xxx Allowance for Uncollectible Accounts would be made when a. c. Net income and average accounts receivable b. c. Matching b. Full Disclosure d.c. decrease the allowance for doubtful accounts. Cash flows from investing activities would be decreased by which of the following? a. payments to acquire bonds or mortgages of other entities should be classified as cash outflows for a. 35. specific accounts determined to be uncollectible. decrease net income. d. a previously defaulted customer pays its outstanding balance. 36. Purchase of long-term investments d.

c. Sale of plant assets 48. In a statement of cash flows. Treasury bill. Loss on sale of machinery and equipment 47. b.Miriam Defensor-Santiago Page 6 of 6 . 46. 45. interest payments to lenders and other creditors should be classified as cash outflows for a. an inflow and outflow of cash. d.END OF PRELIM EXAM -------------------------------------------------Those who like me. Those who don’t. Issuance of long-term bonds b. Which of the following would be subtracted from net income when using the indirect method to derive net cash flows from operating activities? a. Gain on sale of equipment 50. d. Collection of a note receivable b. d. Decrease in accounts payable c. be treated as an outflow from operating activities. Payment of cash dividends d. Which of the following would be an addition to net income when using the indirect method to derive net cash flows from operating activities? a. a deduction from net income from continuing operations. have no effect. b. In a statement of cash flows (indirect method). financing activities. Patriot Corporation purchased a 3-month U. borrowing activities. Issuance of common stock c. be treated as an outflow from financing activities. c. In preparing Patriot's statement of cash flows. In a statement of cash flows. Decrease in salaries and wages payable b. Increase in merchandise inventory d. financing activities. c. raise your STANDARDS. investing activities. Loss on sale of investments c. an addition to net income. raise your hands. an increase in inventories should be presented as a. --. Depreciation expense -------------------------------------------------. Dividends received from investments c. 49. an inflow of cash. investing activities. Which of the following would be an example of an investing activity? a. b. operating activities. this purchase would a. be treated as an outflow from investing activities. 44. which of the following would increase reported cash flows from operating activities using the direct method? a. c. Payment of cash dividends b. Decrease in net accounts receivable d. Gain on purchase of treasury stock d.S. d.