Professional Documents
Culture Documents
TOA-PB. Sample Preboard Exam PDF
TOA-PB. Sample Preboard Exam PDF
SAMPLE PREBOARD
FINANCIAL ACCOUNTING THEORY
MUTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer
sheet provided. Make the mark CLEAR but do not use too much pressure. ERASURES ARE
STRICTLY NOT ALLOWED.
1st PB-TA
PAGE 2
10. When economic benefits are expected to arise over several accounting periods and the
association with income can only broadly or indirectly determined, expenses are recognized on
the basis of
a. Strict matching
b. Systematic and rational allocation
c. Immediate recognition
d. Realization
11. An entity shall present a statement of changes in equity showing all of the following, except
a. Profit or loss for the period
b. Each item of income or expense recognized directly in equity as required by the standard
c. Retained earnings balance and changes therein
d. Changes in cash and cash equivalents during the period.
12. The recording phase of financial accounting covers the following steps, except which of the
following?
a. Business documents are received and prepared
b. Transactions are journalized
c. Transactions are posted to the ledger
d. Financial statements are prepared
13. Which of the following generally is considered as a limitation of the statement of financial
position?
a. The statement of financial position reflects the current value of the entity.
b. The statement of financial position reflects the instability of the peso.
c. Statement of financial position formats and classifications do not vary to reflect industry
differences.
d. Due to measurement problems, some entity resources and obligations are not reported on
the statement of financial position.
1st PB-TA
PAGE 3
18. In relation to a set of 2016 financial statements, an event after the reporting period event is one
that
a. Occurs before the 2016 financial statements are issued.
b. Involves uncertainty as to possible gain or loss that will ultimately be resolved in 2014 or
later.
c. Occurs after the 2016 financial statements are issued.
d. Requires an appropriate adjusting entry to be made as of the end of 2016.
19. Nonadjusting events after statement of financial position date are accounted for by
a. Adjusting the amounts recognized in the financial statements.
b. Not adjusting the amounts in the financial statements without disclosure.
c. Not adjusting the amounts in the financial statements but with appropriate disclosure.
d. Recognizing the events directly in equity.
20. Which of the following approaches to income measurement underlies financial accounting and
reporting?
a. Transaction approach
b. Economic approach
c. Valuation approach
d. Physical capital maintenance approach
22. In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?
a. The requirement and guidance in the standard or interpretation dealing with similar and
related issue.
b. The definition, recognition criteria and measurement of asset, liability, income and
expense in the conceptual framework.
c. Most recent pronouncement of other standard-setting body.
d. Accounting literature and accepted industry practice.
25. A significant industry segment is one, which meets any of the three criteria relating to revenue,
earnings and identifiable assets. Which of the following is the percentage used to measure
each of these criteria.
a. 15 percent
b. 10 percent
c. 5 percent
d. 1 percent
1st PB-TA
PAGE 4
26. The sum of there portable segments sales must be at least equal to what percentage of total
company sales?
a. 100 percent
b. 75 percent
c. 65 percent
d. 50 percent
27. An entity identified four industry segments as reportable out of a total eight business
components based on identifiable asset criterion. The total company sales excluding
intersegment sales amounted to P20 million for the year, and the sum of the sales for the four
identified reportable segments is P13 million. Given these facts, the company
a. Is not required to report on a segmental basis.
b. Must disclose only the four reportable segments.
c. Must identify one or more additional segments for segmental disclosure purposes.
d. Treat all business components as reportable.
28. A chemical entity has no overseas sales. The entity produces different products from the
process. The entity sells its product to small businesses, larger national businesses and
multinational entities. The management of the entity proposed to disclose just one business
segment. Can the entity disclose just one business segment because it sells all of its products
nationally?
a. Yes, the Standard will allow the entity to disclose a single business segment.
b. No, the entity can identify three different sets of customers and should therefore disclose
information on that basis.
c. Yes, even though there are three different groups of customers, they all present the same
risks to the entity.
d. PFRS 8 on segment reporting is silent on this matter.
29. An entity is in the entertainment industry and organizers outdoor concerts in four different areas
of the world: Europe, North America, Australia, and Japan. The entity reports to the board of
directors on the basis of each of the four regions. The records show the profitability for each of
the four regions. The concerts are of two types: popular music and classical music. What is
the appropriate basis for segment reporting in this entity?
a. The segments should be reported by class of business, that is popular and classical music.
b. The segments should be reported by region, so Australia and Japan would be combined.
c. The segment information should be reported as North America and the rest of the world.
d. Segment information should be reported for each of the four different regions.
1st PB-TA
PAGE 5
33. Cash control systems are the methods and procedures used to ensure
a. That current obligations are met.
b. That excess cash does not exist.
c. The safeguarding of cash.
d. That unused cash is invested.
34. Which of the following is not a basic characteristic of a system of cash control?
a. Use of a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals
36. Which of the following is a key element of internal control over cash payments?
a. Authorizing and verifying that all cash received is recorded daily.
b. Requiring that two persons approve all petty cash vouchers.
c. Making daily bank deposits.
d. Periodically reconciling the cash account balance per book with the bank statement
balance.
37. Which of the following would be added to the book balance in bank reconciliation?
a. Outstanding checks
b. A check written for P50,000 entered as P5,000 in the accounting records
c. Interest paid by the bank
d. Deposits in transit
39. A discount given to a customer for purchasing a large volume of merchandise is typically
referred to as
a. Quantity discount
b. Cash discount
c. Trade discount
d. Size discount
1st PB-TA
PAGE 6
44. The allocation of fixed production overhead to the cost of conversion is based on
a. Normal capacity of production facilities
b. Actual use of production facilities
c. Either the normal capacity or actual use of production facilities
d. Relative sales value method
45. When manufacturing inventory, what is the accounting treatment for abnormal freight in costs?
a. Charge to expense for the period.
b. Charged to finished goods inventory.
c. Charged to raw materials inventory.
d. Allocate to raw materials, work in process and finished goods.
46. Which of the following costs of conversion cannot be included in cost of inventory?
a. Cost of direct labor.
b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building with factory).
d. Factory overhead based on normal capacity.
47. If goods shipped FOB destination is in transit at the end of the year, the goods should be
included in the inventory balance if the
a. Seller
b. Common carrier
c. Buyer
d. Bank
48. Merchandise shipped FOB shipping point on the last day of the year should be ordinarily
included in
a. The buyers inventory balance.
b. The sellers inventory balance.
c. Neither the buyers nor the sellers inventory balance.
d. Both the buyers and the sellers inventory balance.
49. When using the periodic system, which of the following generally would not be separately
accounted for in the computation of cost goods sold?
a. Trade discounts applicable to purchases during the period.
b. Cash discounts taken during the period.
c. Purchase returns and allowances.
d. Cost of transportation in for merchandise purchases.
50. An entry debiting inventory and crediting cost of goods sold would be made when
a. Merchandise is sold and the periodic system is used.
b. Merchandise is sold and the perpetual system is used.
c. Merchandise is returned and the perpetual system is used.
d. Merchandise is returned and the periodic system is used.
51. When the current years ending inventory is understated, net income of the same period
a. Would be overstated.
b. Would be understated.
c. Would not be affected
d. Cannot be determined from the information.
1st PB-TA
PAGE 7
53. An overstatement of ending inventory in Period 1 would result in income of Period 2 being
a. Overstated.
b. Understated.
c. Correctly stated.
d. The answer cannot be determined from the information given.
54. Revenue from sale of goods shall be recognized when all of he following conditions have been
satisfied, except
a. The entity has transferred to the buyer the significant risks and regards of ownership of the
goods.
b. The entity retains either continuing managerial involvement or effective control over the
goods sold.
c. The amount of revenue can be measured reliably.
d. It is probable that economic benefits will flow to the entity.
55. The gross profit method of estimating inventory would not be useful when
a. A periodic system is in use and inventories are required for interim statements.
b. Inventories have been destroyed or lost by fire, theft or other casualty.
c. There is a significant change in the mix of products being sold.
d. The relationship between gross profit and sales remains stable over time.
56. The lower of cost of NRV for inventories may be applied to total inventory, to groups of similar
items or to each item. Which application generally results in the lowest inventory amount?
a. Separately to each item
b. Total inventory
c. Groups of similar item
d. All applications result in the same amount
58. An inventory method which is designed to approximate inventory valuation at the lower of cost
or market is
a. Last-in, first-out.
b. First-in, first-out.
c. Conventional retail method.
d. Specific identification.
59. When an item of property, plant and equipment is acquired by issuing equity securities, which
is the best basis for establishing the historical cost of the acquired asset?
a. Face value of the bonds issued
b. Historical cost of the asset to the seller
c. Fair value of the asset received
d. Fair value of the bond issued
60. Under the general rule of revenue recognition, revenue is recognized when
a. Marketability and market price are assured.
b. A contractual agreement exists, and cash collection is assured.
c. The earnings process is complete, and a valid promise of payment has been received.
d. All related expenses have been incurred.
1st PB-TA
PAGE 8
62. In calculating a company's accounts receivable turnover, which of the following sets of factors
would be used?
a. Net income and average accounts receivable
b. Average accounts receivable and average total assets
c. Average accounts receivable and net credit sales
d. Net credit sales and average stockholders' equity
63. Which of the following is true regarding the International Accounting Standards Board revenue
recognition principles?
a. The international standards do not address the issue of substantial completion of the
earnings process.
b. The international standards do not address the issue of revenue being realized or
realizable.
c. The international standards do not address the peculiarities of revenue recognition in
specific industries.
d. The international standards do not address the measurability of revenue prior to
recognition.
65. In accounting for sales on consignment, sales revenue and the related cost of goods sold
should be recognized by the
a. Consignor when the goods are shipped to the consignee.
b. Consignee when the goods are shipped to the third party.
c. Consignor when notification is received the consignee has sold the goods.
d. Consignee when cash is received from the customer.
66. On July 1, 2016, an entity paid a P600,000 premium for a three-year property insurance policy.
Insurance expense was debited in full for P600,000. The adjusting entry on December 31,
2016 is
a. Debit prepaid insurance and credit insurance expense for P100,000.
b. Debit prepaid insurance and credit insurance expense for P500,000
c. Debit insurance expense and credit prepaid insurance for P100,000.
d. Debit insurance expense and credit prepaid insurance for P500,000.
67. An entity reported P234,000 wages expense in the 2016 income statement. The wages
payable on January 1, 2016 amounted to P18,000. An analysis of the payroll records showed
wage payments during the current year of P216,000. If a reversing entry was made on January
1, 2016, The December 31, 2016 adjusting entry was
a. Debit wages expense and credit wages payable for P18,000.
b. Debit wages expense and credit wages payable for P36,000.
c. Debit wages payable and credit wages expense for P18,000.
d. Debit wages payable and credit wages expense for P36,000.
68. Hot Company transferred financial assets to Cold Company. The transfer meets the conditions
to be accounted for as a sale. As the transferor, Hot Company should do each of the following,
except
a. Remove all assets from the statement of financial position
b. Measure all the assets received and liabilities incurred at cost
c. Recognize any gain or loss from the sale
d. Record all assets received and liabilities incurred as proceeds from the sale
1st PB-TA
PAGE 9
69. If there is objective evidence that the available for sale security is impaired, the cumulative loss
that had been recognized directly in equity
a. Shall not removed from equity but amortized over a reasonable period.
b. Shall not be removed from equity.
c. Shall be removed from equity and recognized in profit or loss.
d. Shall be removed from equity and recognized as an adjustment of the beginning balance
of retained.
70. When an entity reduces its interest in an investment in equity securities accounted for by the
equity method and changes in to the fair value method. What is the initial measurement of the
investment for purposes of subsequent changes in market value?
a. Carrying amount at the date of change
b. Original cost
c. Market value at the date of change
d. Market value at the date of acquisition
71. When an entity increases its interest in an investment in equity securities accounted for by the
fair value method and changes to the equity method. What is the initial carrying amount for
purposes of subsequent application of the equity method?
a. Carrying amount at the date of change
b. Market value at the date of change
c. The amount that would be reflected in the investment account had the equity method
been in use continually since the purchase of the securities.
d. Original cost of the investment
72. Which statement is true concerning stock dividends and stock rights from the viewpoint of the
investor?
a. A stock dividend received on an investment increased the per share cost of the
investment
b. The number of shares held which have been subject to a stock dividend should be more
than it was before the dividend.
c. When stock rights are received on investment shares, only a memorandum entry is made
d. From the date stock rights are issued until the date they expire, shares of stock of the
issuing corporation are said to be selling right-on
73. It is defined as property held for use in the production or supply of goods or services or for
administrative purposes; or sale in the ordinary course of business.
a. Owner-occupied property
b. Investment property
c. Business property
d. Rental property
74. An issuer of bonds is required by its bond indenture agreement to use a sinking fund for the
retirement of the bonds. Cash was transferred to the sinking fund. The sinking fund cash was
then used to purchase investments. The sinking fund
a. Increases when the investments are purchased
b. Decreases when the investments are purchased
c. Increases when revenue is earned on the investments
d. Is not affected by revenue earned on the investments
75. If the cost of ordinary repairs is capitalized as an addition to the building account during the
current year
a. Net income for the current year will be understated
b. Shareholders equity at the end of the current year will be understated.
c. Total assets at the end of the current year will not be affected.
d. Total liabilities at the end of the current year will not be affected.
76. Which of the following best describes the proper treatment of cash discounts on acquired
machinery?
a. The historical cost of the machinery is the invoice price and the discount is ignored.
b. The historical cost of the machinery is net of the discount amount regardless of whether
the discount is actually taken.
c. The historical cost of the machinery is the net discount amount only of the discount is
actually taken.
d. The historical cost of the machine is the invoice price plus the discount.
1st PB-TA
PAGE 10
78. Which of the following is not used by an entity as a basis for the fair value of a biological asset
when an active market does not exist?
a. Market prices for similar assets with adjustment to reflect differences
b. Price in a binding sale contract
c. The most recent market transaction price, provided that there has not been a significant
change in economic circumstances between the date of that transaction and the end of the
reporting period.
d. Sector benchmarks
79. If the qualifying asset is financed by general borrowings, the capitalizable borrowing cost is
equal to
a. Actual borrowing cost incurred.
b. Total expenditures on the asset multiplied by a capitalization rate.
c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing
cost incurred, whichever is lower.
d. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing
cost incurred, whichever is higher.
81. As a benchmark treatment, the revaluation of property, plant and equipment should be based
on
a. Fair value, which is usually the market value determined by appraisal undertaken by
professionally qualified appraisers.
b. Current replacement cost.
c. Current reproduction cost..
d. Depreciated replacement cost
82. A company using the group depreciation method for its delivery trucks retired one of the trucks
after the average service life of the group was reached. Cash proceeds were received from a
salvage company. The net carrying amount of these group asset accounts would be decreased
by the
a. Original cost of the truck.
b. Original cost of the truck less the cash proceeds.
c. Cash proceeds received.
d. Cash proceeds received and original cost of the truck.
83. In recording the trade of one asset for another, which of the following accounts is usually
debited?
a. Accumulated Depreciation-Old Asset
b. Cash
c. Gain on Exchange of Asset
d. None of the above
1st PB-TA
PAGE 11
85. Under GAAP, intangible assets acquired in a basket purchase which represents the acquisition
of an entire business should be
a. Valued by allocating the total purchase price according to the relative fair values of all
assets acquired, regardless of whether the assets are separately tradeable or contract
based.
b. Valued by allocating the total purchase price according to the relative fair values only of
intangible assets that are separately tradable or contract based.
c. Valued by recording separately traded and contract based intangible assets at their
individual fair values with any unallocated purchase price being recognized as goodwill.
d. Valued by recording separately traded and contract based intangible assets at their
individual fair values with any unallocated purchase price being expensed in the year of
acquisition.
89. The cost of purchasing a patent for a product that might otherwise have seriously competed
with the purchasers patented product should be
a. Expensed in the current period.
b. Amortized over the legal life of the purchased patent
c. Added to factory overhead and allocated to production of the purchasers product.
d. Amortized over the remaining useful life of the patent for the product whose market would
have been impaired by competition from the newly patented product.
90. Which of the following does not meet the definition of a liability?
a. The signing of a three-year employment contract at a fixed annual salary.
b. An obligation to provide goods or services in the future.
c. A note payable with no specified maturity date.
d. An obligation that is estimated amount.
91. Estimated liabilities are disclosed in financial statements by
a. A footnote to the statements
b. Showing the amount among the liabilities but not extending it to the liability total
c. An appropriation of retained earnings
d. Appropriately classifying them as regular liabilities in the statement of financial position.
1st PB-TA
PAGE 12
93. The issue price of the bonds does not depend on the
a. Face value of the bonds.
b. Riskiness of the bond.
c. Method used to amortize the bond discount or premium.
d. Effective interest rate.
94. Bonds usually sell at a discount when
a. Investors are willing to invest in the bonds at the stated interest rate.
b. Investors are willing to invest in the bonds at rates that are lower than the stated
interest rate.
c. Investors are willing to invest in the bonds only at rates that are higher than the stated
interest rate.
d. A capital gain is expected.
95. Accrued interest on bonds that are sold between interest dates
a. Is ignored by both the seller and the buyer.
b. Increases the amount a buyer must pay to acquire the bonds.
c. Is recorded as a loss on the sale of the bonds.
d. Decreases the amount a buyer must pay to acquire the bonds.
96. Adelle Company neglected to amortize the discount on outstanding ten-year bonds payable.
What is the effect of the failure to record discount amortization on interest expense and bond
carrying value, respectively?
a. Understate; overstate
b. Overstate; overstate
c. Understate; understate
d. Overstate; understate
98. At the inception of a finance lease, the guaranteed residual value should be
a. Included as part of minimum lease payments at present value
b. Included as part of minimum lease payments at future value
c. Excluded from minimum lease payments
d. Included as part of minimum lease payments to the extent that the guaranteed residual
value is expected to exceed the estimated residual value