Balucan, Luigi E.
Must always be presented separately in financial
Answer the following Problems.
1. The components of the financial statement
include all of the following, except
a. Statement of financial position
b. Income Statement
c. Statement of cash flows
d. Statement of retained earnings
2. Which of the following best describes
“financial position”?
a. The income, the expenses and net income or loss
for a period.
b. The assets, liabilities and equity at a particular
moment in time.
c. The financial assets minus financial liabilities.
d. The total assets of an entity.
3. Statement of financial position is useful for all
of the following, except
a. Assessing risk
b. Evaluating liquidity
c. Evaluating financial flexibility
d. Determining free cash flows
4. The statement of financial position
a. Omits many items are financial value.
b. Makes very limited use of judgement and
estimate.
c. Uses fair value for most assets and liabilities.
d. All of these are correct regarding the statement of
financial position
5. One criticism not normally aimed at a
statement of financial position is
a. Failure to reflect current value information
b. The extensive use of separate classification.
c. The extensive use of estimate.
d. Failure to include items of financial value that
cannot be recorded objectively.
6. An entity shall present
a. The statement of cash flows more prominently
than other statements.
b. The statement of financial position more
prominently than other statements.
c. The statement of comprehensive income more
prominently than other statement.
d. Each financial statement with equal prominence.
7. Items of dissimilar nature of function
a.
statements.
b. Must not be presented separately in financial
statements.
c. Must be presented separately in financial
statement if material.
d. Must be presented separately in financial
statement even if immaterial.
8. The basis of classifying assets as current or
noncurrent is the period of time normally required
top convert cash invested in
a. Inventory back into cash, or 12 months, w/c ever
is shorter.
b. Receivables back into cash, or 12 months, w/c
ever is longer.
c. Tangibles fixed assets back into cash, or 12
months w/c ever is longer.
d. Inventory back into cash, or 12 months, w/c ever
is longer.
9. Under the IFRS the correct order to present
current assets is
a. Cash, accounts receivable, prepaid expenses,
inventories.
b. Inventories, accounts receivable, prepaid
expenses, cash.
c. Cash, inventories, accounts receivable, prepaid
items.
d. Inventories, prepaid items, accounts receivable,
cash.
10. The entity shall classify a liability as current
under all of the following conditions, except
a. The entity expects to settle the liability w/in
normal operating cycle.
b. The entity holds the liability primarily for the
purpose of trading.
c. The liability is due to be settled w/in 12 months
after the reporting period
d. The entity has a unconditional rights to defer
settlement of the liability for at least 12 months after
the reporting period.
11. The presentation and classification of items
shall be retained from one period to the next.
a. Consistency of presentation
b. Materiality
c. Aggregation
d. Comparability
 12. In presenting statement of financial position,
an entity
a. Must make the current and noncurrent
presentation
b. Must present assets and liabilities in order of
liquidity
c. Must choose either the current and noncurrent or
the liquidity presentation
d. Must make the current and noncurrent
presentation except when a presentation based on
liquidity provides information that is reliable and
more relevant.
13. Current and noncurrent presentation
provides useful information when the entity
a. Supplies goods or services w/in a clearly
identifiable operating cycle
b. Is a financial information
c. Is a public utility
d. Is a non-profit organization
14. A presentation of assets and liabilities in
increasing or decreasing order of liquidity
provides information that is reliable and more
relevant than a current and noncurrent
information.
a. Financial institution
b. Public utility
c. Government-owned entity
d. Service provider
15. When there is much variability, the
operating cycle is measured at
a. Six months
b. The median value
c. 12 months
d. Less than 12 months
16. Under the International Financial Reporting
Standard, notes to financial statements
a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the main
body of the FS
d. All of the choices are correct regarding notes to
FS.
17. What is the first item presented in the Notes
to FS?
a. Statement of compliance w/ PFRS
b. Summary of significant accounting policies
c. Supporting information for items presented in the
FS
d. Other disclosures, including contingent liabilities,
unrecognized contractual commitments and
nonfinancial disclosures
18. The presentation of notes to FS in a
systematic manner
a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry
19. W/c of the following is not a method of
disclosing pertinent information?
a. Supporting schedule
b. Parenthetical explanation
c. Cross reference and contra items
d. All of these are the methods of disclosing
pertinent information
20. Adjusting events are those that
a. Provide evidence or conditions that existed at the
end of the reporting period.
b. Are indicative of conditions that arose after the
end of the reporting period.
c. Are indicative of conditions that arose before the
end of the reporting period.
d. Provide evidence or conditions that existed after
the date the FS were issued.
21. W/c of the following events after reporting
period would require adjustment?
a. Loss of plant as a result of fire
b. Decline in the value of investment
c. Loss on inventory due to major flood loss
d. Loss on lawsuit the outcome of which was
deemed uncertain at year-end.
22. All of the following fall w/in the definition of
an entity’s related party, except
a. Joint venture in w/c the entity is a venturer.
b. A postemployment benefit plan for the benefit of
the employees of the entity.
c. An executive director of the entity.
d. The partner of a key manager is major supplier
of the entity.
23. Which of the following would not be
considered key management personnel
compensation?
a. Short-term benefits
 b. Share-based payments
c. Termination benefits
d. Reimbursement of “out of pocket” expenses
24. Close family members of an individual
include all of the following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s
spouse
d. Brother or sister of the individual
25. All of the following events after the reporting
period should be classified as nonadjusting,
except
a. The entity announced the discontinuance of
assembly operation.
b. The entity entered into an agreement to purchase
the leased building.
c. Destruction of a major production plant by fire.
d. A mistake in the calculation of allowance for
uncollectible accounts receivable.
26. “Fair presentation” requires an entity
(choose the incorrect one)
a. To comply with applicable PFRS.
b. To present information, including accounting
policies, in a manner that provides relevant, reliable,
comparable and understandable information.
c. To provide additional disclosures when
compliance with the specific requirements in PFRS
is insufficient to enable users to understand the
impact of particular transactions, other events anr1
conditions on the entity’s financial position and
financial performance.
d. To rectify inappropriate accounting policies used
either by disclosure or by note or explanator
material.
27. Items of dissimilar nature or function
a. Must always be presented separately in financial
statements
b. Must not be presented separately in financial
statements
c. Must be presented separately in financial
statements if those items are material
d. Must be presented separately in financial
statements even if those items are immaterial
28. Which statement is incorrect concerning the
rule on “offsetting”?
a. An entity shall not offset assets and liabilities,
and income and expenses, unless required or
permitted by PFRS.
b. Measuring assets net of valuation allowance is
offsetting.
c. Gains and losses on disposal of noncurrent assets
are reported by deducting from the proceeds on
disposal the carrying amount of the asset and related
selling expenses.
e. Gains and losses arising from a group of similar
transactions are reported on a net basis, for
example, foreign exchange gains and losses arising
from financial instruments held for trading
29. An entity shall present a complete set of
financial statements, including comparative
information, at least annually. When an entity
changes the end of its reporting period longer or
shorter than one year, an entity shall disclose all
of the following, except
a. Period covered by the financial statements.
b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial
statements are not entirely comparable.
d. The fact that similar entities in the geographical
area in which the entity operates have done so in the
current year.
30. An entity must disclose comparative
information for
a. The previous comparable period for all amounts
reported.
b. The previous comparable period for all amounts
reported and for all narrative and descriptive
information,
c. The previous comparable period for all amounts
reported, and for all narrative and descriptive
information when it is relevant to an understanding
of the current period’s financial statements.
d. The previous two comparable periods for all
amounts reported
Exercises/Assignments b. solvency.
Answer the following Problems. c. profitability. d. financial flexibility.
Problem 1 Indicate the proper classification or
presentation of the items below. Use the following 3. Balance sheet information is useful for all of
classifications: the following except to
a. compute rates of return
A. Current Assets B. Noncurrent Assets C. Current b. analyze cash inflows and outflows for the period
Liabilities D. Noncurrent Liabilities E. Equity F. c. evaluate capital structure
Notes to financial statements d. assess future cash flows

Items 4. Balance sheet information is useful for all of

A 1. Financial assets held for trading
B 2. Investment in associates
C 3. Estimated warranty liability
A 4. Sinking fund for the payment of bond
payable due next year
A 5. Instalments accounts receivable, average
normal collection period, 18 months
B 6. Leasehold improvement
E 7. Reserves
E 8. Share premium
E 9. Stock dividend payable
B 10. Trademark
the following except
a. assessing a company's risk
b. evaluating a company's liquidity
c. evaluating a company's financial flexibility
d. determining free cash flows.
5. A limitation of the balance sheet that is not
also a limitation of the income statement is
a. the use of judgments and estimates
b. omitted items
c. the numbers are affected by the accounting
methods employed
d. valuation of items at historical cost

Problem 4 True or False. 6. The balance sheet contributes to financial

reporting by providing a basis for all of the
1. FALSE following except
2. TRUE a. computing rates of return.
3. TRUE b. evaluating the capital structure of the enterprise.
4. TRUE c. determining the increase in cash due to
5. FALSE operations.
6. FALSE d. assessing the liquidity and financial flexibility of
7. TRUE the enterprise.
8. FALSE
9. FALSE 7. One criticism not normally aimed at a balance
10. TRUE sheet prepared using current accounting and
reporting standards is
Problem 5 Multiple Choice. a. failure to reflect current value information.
Choose the letter of the correct answer. b. the extensive use of separate classifications.
c. an extensive use of estimates.
1.Which of the following is a limitation of the d. failure to include items of financial value that
balance sheet? cannot be recorded objectively.
a. Many items that are of financial value are
omitted. 8. The amount of time that is expected to elapse
b. Judgments and estimates are used. until an asset is realized or otherwise converted
c. Current fair value is not reported. into cash is referred to as
d. All of these a. solvency.
b. financial flexibility.
2. The balance sheet is useful for analyzing all of c. liquidity.
the following except d. exchangeability.
a. liquidity.
 9. The net assets of a business are equal to
a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders' equity.
d. none of these.
10. The correct order to present current assets is
a. cash, accounts receivable, prepaid items, and
inventories.
b. cash, accounts receivable, inventories, prepaid
items.
c. cash, inventories, accounts receivable, prepaid
items.
d. cash, inventories, prepaid items, accounts
receivable.
11. The basis for classifying assets as current or
noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is
shorter.
b. the operating cycle or one year, whichever is
longer.
c. the accounting cycle or one year, whichever is
longer.
d. the operating cycle or one year, whichever is
shorter.
12. The basis for classifying assets as current or
noncurrent is the period of time normally required
by the accounting entity to convert cash invested in
a. inventory back into cash, or 12 months,
whichever is shorter.
b. receivables back into cash, or 12 months,
whichever is longer.
c. tangible fixed assets back into cash, or 12
months, whichever is longer.
d. inventory back into cash, or 12 months,
whichever is longer.
13. The current assets section of the balance
sheet should include
a. machinery.
b. patents.
c. goodwill.
d. inventory.
14. Which of the following is a current asset?
a. Cash surrender value of a life insurance policy of
which the company is the bene-ficiary.
b. Investment in equity securities for the purpose of
controlling the issuing company.
c. Cash designated for the purchase of tangible fixed
assets.
d. Trade installment receivables normally
collectible in 18 months.
15. Which of the following should not be
considered as a current asset in the balance sheet?
a. Installment notes receivable due over 18 months
in accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the
following operating cycle of the business.
c. Equity or debt securities purchased with cash
available for current operations.
d. The cash surrender value of a life insurance
policy carried by a corporation, the beneficiary, on
its president.
16. Equity or debt securities held to finance future
construction of additional plants should be
classified on a balance sheet as
a. current assets.
b. property, plant, and equipment.
c. intangible assets.
d. long-term investments.
17. When a portion of inventories has been pledged
as security on a loan,
a. the value of the portion pledged should be
subtracted from the debt.
b. an equal amount of retained earnings should be
appropriated.
c. the fact should be disclosed but the amount of
current assets should not be affected.
d. the cost of the pledged inventories should be
transferred from current assets to noncurrent assets.
18. Which of the following is not a long-term
investment?
a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund
19. A generally accepted method of valuation is
1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
a. 1 b. 2 c. 3 d. 1 and 2
20. Which item below is not a current liability?
a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable
21. Working capital is
a. capital which has been reinvested in the business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.
22. An example of an item which is not an element
of working capital is
a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.
23. Long-term liabilities include
a. obligations not expected to be liquidated within
the operating cycle.
b. obligations payable at some date beyond the
operating cycle.
c. deferred income taxes and most lease obligations.
d. all of these.
24. Which of the following should be excluded from
long-term liabilities?
a. Obligations payable at some date beyond the
operating cycle
b. Most pension obligations
c. Long-term liabilities that mature within the
operating cycle and will be paid from a sinking fund
d. None of these
27. Which of the following would be classified in a
different major section of a balance sheet from the
others?
a. Capital stock
b. Common stock subscribed
c. Stock dividend distributable
d. Stock investment in affiliate
28. The stockholders' equity section is usually
divided into what three parts?
a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained
earnings
c. Capital stock, additional paid-in capital, retained
earnings
d. Capital stock, appropriated retained earnings,
unappropriated retained earnings
29. Which of the following is not an acceptable
major asset classification?
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges
30.Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation
31. Fulton Company owns the following
investments: Trading securities (fair value) P60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Fulton will report investments in its current assets
section of

25. Treasury stock should be reported as a(n)

a. current asset. a. P0.
b. investment. b. exactly P60,000.
c. other asset. c. P60,000 or an amount greater than P60,000,
d. reduction of stockholders' equity. depending on the circumstances.
d. exactly P95,000.
26. Which of the following should be reported for
capital stock?
a. The shares authorized 32. For Grimmett Company, the following
b. The shares issued information is available: Capitalized leases
c. The shares outstanding P200,000 Trademarks 65,000 Long-term
d. All of these receivables 75,000 In Grimmett’s balance sheet,
intangible assets should be reported at
a. P65,000. b. P75,000. c. P265,000. d. P275,000.
33. Houghton Company has the following items:
common stock, P720,000; treasury stock, P85,000;
deferred taxes, P100,000 and retained earnings,
P313,000. What total amount should Houghton
Company report as stockholders’ equity?
a. P848,000.
b. P948,000
c. P1,048,000.
d. P1,118,000.
Solution: 720,000+313,000-85,000= 948,000
34. Kohler Company owns the following
investments: Trading securities (fair value) P 60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Kohler will report securities in its long-term
investments section of
a. exactly P95,000.
b. exactly P107,000.
c. exactly P142,000.
d. P82,000 or an amount less than P82,000,
depending on the circumstances.
35. For Randolph Company, the following
information is available: Capitalized leases
P280,000 Trademarks 90,000 Long-term
receivables 105,000 In Randolph’s balance sheet,
intangible assets should be reported at
a. P90,000. b. P105,000. c. P370,000. d. P385,000.
36. Olmsted Company has the following items:
common stock, P720,000; treasury stock, P85,000;
deferred taxes, P100,000 and retained earnings,
P363,000. What total amount should Olmsted
Company report as stockholders’ equity?
a. P898,000.
b. P998,000.
c. P1,098,000.
d. P1,198,000.
37. Presented below are data for Antwerp Corp.
2020 2021 2022 Assets, January 1 P2,800
P3,360 ? Liabilities, January 1 1,680 ? $2,016
Stockholders' Equity, Jan. 1 ? ? 2,100 Dividends
560 420 476 Common Stock 504 448 500
Stockholders' Equity, Dec. 31 ? ? 1,596 Net Income
560 448 ? Stockholders' Equity at January 1, 2020 is
a. P 504. b. P 560. c. P1,120. d. P1,624.
38. Presented below are data for Bandkok Corp.
2020 2021 2022 Assets, January 1 P5,400
P6,480 ? Liabilities, January 1 3,240 ? $3,888
Stockholders' Equity, Jan. 1 ? ? 4,050 Dividends
1,080 810 918 Common Stock 972 864 920
Stockholders' Equity, Dec. 31 ? ? 3,078 Net Income
1,080 864 ? Stockholders' Equity at January 1, 2021
is
a. P1,890. b. P1,998. c. P3,132. d. P3,186.
39. Stine Corp.'s trial balance reflected the
following account balances at December 31, 2020:
Accounts receivable (net) P24,000 Trading
securities 6,000 Accumulated depreciation on
equipment and furniture 15,000 Cash 11,000
Inventory 30,000 Equipment 25,000 Patent 4,000
Prepaid expenses 2,000 Land held for future
business site 18,000 In Stine's December 31, 2010
balance sheet, the current assets total is
a. P90,000. b. P82,000. c. P77,000. d. P73,000.
40. On January 4, 2020, Kiley Co. leased a building
to Dodd Corp. for a ten-year term at an annual
rental of P75,000. At inception of the lease, Dodd
received P300,000 covering the first two years' rent
of P150,000 and a security deposit of P150,000.
This deposit will not be returned to Dodd upon
expiration of the lease but will be applied to
payment of rent for the last two years of the lease.
What portion of the P300,000 should be shown as a
current and long-term liability in Kiley's December
31, 2020 balance sheet? Current Liability Long-
term Liability
a. P0 P300,000
b. P75,000 P150,000
c. P150,000 P150,000
d. P150,000 P75,000