BS ACCOUNTING TECHNOLOGY PRELIM EXAMS: QUESTIONNAIRE

Financial Reporting and Accounting Part III 1st Semester, AY 2017-2018

NAME: _____________________________________ SECTION: _______________________

GENERAL INSTRUCTIONS:
I. Write your FINAL ANSWERS on the Answer Sheet provided.
II. Necessary computations must be shown on separate yellow paper/s.
III. Use of ERASABLE INK is STRICTLY PROHIBITED.
IV. Talking to your seatmate will constitute cheating.
V. No borrowing of calculators; use of cellular phones as calculator is not allowed.

I. MULTIPLE CHOICE THEORIES: Choose the letter that corresponds to your answer. Use UPPER CASE LETTER.
STRICTLY NO ERASURES. (2 points per item, 50 points total)

1. First Statement: A change in accounting principle is a change that occurs as the result of new information or
additional experience.
Second Statement: Errors in financial statements result from mathematical mistakes or oversight or misuse of
facts that existed when preparing the financial statements.
A. Only the First Statement is correct.
B. Only the Second Statement is correct.
C. Both Statements are correct.
D. Both Statements are incorrect.

2. First Statement: Retrospective application refers to the application of a different accounting principle to recast
previously issued financial statements—as if the new principle had always been used.
Second Statement: When a company changes an accounting principle, it should report the change by reporting
the cumulative effect of the change in the current year’s income statement.
A. Only the First Statement is correct.
B. Only the Second Statement is correct.
C. Both Statements are correct.
D. Both Statements are incorrect.

3. First Statement: Retrospective application is considered impracticable if a company cannot determine the prior
period effects using every reasonable effort to do so.
Second Statement: Companies report changes in accounting estimates retrospectively.
A. Only the First Statement is correct.
B. Only the Second Statement is correct.
C. Both Statements are correct.
D. Both Statements are incorrect.

4. First Statement: Companies account for a change in depreciation methods as a change in accounting principle.
Second Statement: For counterbalancing errors, restatement of comparative financial statements is necessary
even if a correcting entry is not required.
A. Only the First Statement is correct.
B. Only the Second Statement is correct.
C. Both Statements are correct.
D. Both Statements are incorrect.

5. On December 31, 2016, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs
were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in
the December 31, 2016 balance sheet?
Accrued Liabilities Retained Earnings
A. No effect No effect
B. No effect Overstated
C. Understated No effect
D. Understated Overstated

6. Which of the following should be reported as a prior period adjustment?

Change in Change from
 Estimated Lives Unaccepted Principle
of Depreciable Assets to Accepted Principle
A. Yes Yes
B. No Yes
C. Yes No
D. No No

7. If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also
erroneously did not record the purchase of these goods in its accounting records, these errors would cause
A. the ending inventory and retained earnings to be understated.
B. the ending inventory, cost of goods sold, and retained earnings to be understated.
C. no effect on net income, working capital, and retained earnings.
D. cost of goods sold and net income to be understated.

8. A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year
end. This merchandise was omitted from the year-end physical count. How will these errors affect assets,
liabilities, and stockholders' equity at year end and net income for the year?
Assets Liabilities Stockholders' Equity Net Income
A. No effect Understate Overstate Overstate.
B. No effect Overstate Understate Understate.
C. Understate Understate No effect No effect.
D. Understate No effect Understate Understate.

9. An example of a correction of an error in previously issued financial statements is a change

A. from the FIFO method of inventory valuation to the LIFO method.
B. in the service life of plant assets, based on changes in the economic environment.
C. from the cash basis of accounting to the accrual basis of accounting.
D. in the tax assessment related to a prior period.

10. The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has
been revised to a remaining life of 10 years. Based on this information, the accountant should
A. continue to depreciate the building over the original 50-year life.
B. depreciate the remaining book value over the remaining life of the asset.
C. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life,
and then depreciate the adjusted book value as though the estimated life had always been 40 years.
D. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year
life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

11. Which type of accounting change should always be accounted for in current and future periods?
A. Change in accounting principle
B. Change in reporting entity
C. Change in accounting estimate
D. Correction of an error

12. Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change
does this represent?
A. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
B. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be presented as previously reported.
C. A change in accounting estimate for which the financial statements for prior periods included for
comparative purposes should be restated.
D. A change in accounting principle for which the financial statements for prior periods included for
comparative purposes should be restated.

13. A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar
to the method used for tax purposes. The entry to record this change should include a
A. credit to Accumulated Depreciation.
B. debit to Retained Earnings in the amount of the difference on prior years.
C. debit to Deferred Tax Asset.
D. credit to Deferred Tax Liability.

14. Accounting changes are often made and the monetary impact is reflected in the financial statements of a
company even though, in theory, this may be a violation of the accounting concept of
A. materiality.
B. consistency.
C. conservatism.
D. objectivity.

15. Which of the following is not a retrospective-type accounting change?

A. Completed-contract method to the percentage-of-completion method for long-term contracts
B. LIFO method to the FIFO method for inventory valuation
C. Sum-of-the-years'-digits method to the straight-line method
 D. "Full cost" method to another method in the extractive industry

16. Which is incorrect regarding an income statement?

A. An entity may present the components of profit or loss as part of a single statement of comprehensive
income.
B. An entity may present the components of profit or loss in a separate income statement.
C. When prepared, an income statement must be immediately before the statement of comprehensive
income.
D. When a separate income statement is prepared, it is not considered a part of a complete set of financial
statements.

17. A financial review by management that describes and explain the main features of the entity’s financial
performance and financial position, and the principal uncertainties it faces
A. Is not part of the complete set of FS
B. Is part of the complete set of FS
C. Is within the scope of PAS 1
D. Must be included in notes to the FS

18. S1. An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of
such compliance in the notes to financial statements.

S2. An entity shall not describe financial statements as complying with PFRSs unless they comply with
substantially all of the requirements of PFRS.

S3. An entity can rectify inappropriate accounting policies either by disclosure of the accounting policies used or
by notes or explanatory material.

A. False, False, True

B. True, False, False
C. False, True, False
D. False, False, False

19. Which of the basic financial statements is not prepared using the accrual basis of accounting?
A. None
B. Statement of financial position
C. Statement of cash flows
D. Statement of comprehensive income

20. General-purpose financial statements are the product of

A. financial accounting.
B. managerial accounting.
C. both financial and managerial accounting.
D. neither financial nor managerial accounting.

21. Which of the following statements is not an objective of financial reporting?

A. Provide information that is useful in investment and credit decisions.
B. Provide information about enterprise resources, claims to those resources, and changes to them.
C. Provide information on the liquidation value of an enterprise.
D. Provide information that is useful in assessing cash flow prospects.

22. Financial statements

A. Are a structured representation of the financial position and financial performance of an entity.
B. Provide information about the financial position, financial performance and cash flows of an entity that is
useful to a wide range of users in making economic decisions.
C. Show results of the management’s stewardship of the resources entrusted to it.
D. All of the above.

23. A complete set of financial statements comprises:

I. Statement of Financial Position
II. Statement of Profit or Loss and Other Comprehensive Income
III. Statement of Change in Equity
IV. Statement of Cash Flows
V. Notes to the Financial Statements
A. I, II and III
B. I and II
C. I, II, III and IV
D. I, II, III, IV and V

24. An entity shall present:

A. The statement of cash flows more prominently than the other statements.
B. The statement of financial position more prominently than the other statements.
 C. The statement of comprehensive income more prominently than the other statements.
D. Each financial statement with equal prominence.

25. Which of the following statements about financial statements is (are) correct?
A. They show the results of the stewardship of management of the resources entrusted to it by the capital
providers.
B. They are the primary responsibility of both management and the external auditor after audit.
C. They are prepared at least annually and are directed to the common information needs of a wide range of
statement users.
D. All of the above.

II. MULTIPLE CHOICE-SHORT PROBLEMS: Using a separate sheet of paper, present your solution in good
form, then, choose among the choices provided that corresponds to your answer. BOX YOUR FINAL
ANSWER per solution sheet. No solution, no points. (3 points each, 60 total)

PROBLEM1. The following information relates to the AAA Corporation:

Sales Revenue P9,000,000
Net Assets, end of the year 500,000
Net Assets, beg. of the year 300,000
Additional Investment 100,000
Profit for the year 200,000
Other comprehensive income 50,000
Compute for the amount of dividends paid during the year:
A. 220,000 C. 150,000
B. 550,000 D. 50,000

PROBLEM2. The company’s accounting records show that changes in ledger account balances occurred
during 2016 as follows:
INCREASE DECREASE
Cash 800,000
Accounts Receivable(net) 40,000
Inventories 300,000
Equipment(net) 360,000
Building(net) 600,000
Loans Payable 1,000,000
Accounts Payable 300,000
Share Capital, 10 par 600,000
Share Premium 200,000

Assuming that there were no transactions affecting retained earnings other than the 250,000 cash dividends,
compute the net income for 2016.
A. 770,000 C. 2,170,000
B. 520,000 D. 270,000

PROBLEM3. The income statement of CCC Corporation for 2016 included the following items:

Interest Income 95,500

Salaries expense 75,000
Insurance expense 12,600

The following balances have been excerpted from CCC Corporation’s balance sheets:
12/31/2016 12/31/2015
Accrued interest receivable 9,100 7,500
Accrued salaries payable 8,900 4,200
Prepaid insurance 1,100 1,500

1. The cash received for interest during 2016 was

A. 86,400 C. 93,900
B. 95,500 D. 97,100
2. The cash paid for salaries during 2016 was
A. 79,700 C. 70,300
B. 70,800 D. 83,900
3. The cash paid for insurance premiums during 2016 was
A. 11,500 C. 11,100
B. 13,000 D. 12,200

PROBLEM4. On January 1, 2015, DDD Corporation acquired equipment at a cost of 600,000. DDD adopted
the double-declining balance method of depreciation for this equipment and had been recording depreciation
over an estimated life of eight years, with no residual value. At the beginning of 2018, a decision was made to
change to the straight-line method of depreciation for this equipment. Assuming a 30% tax rate, the cumulative
effect of this accounting change on beginning retained earnings, net of tax, is
A. 121,875
B. 0
C. 78,750
D. 77,109

PROBLEM5. EEE Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/18
and 12/31/19 contained the following errors:

2018 2019
Ending inventory 15,000 overstatement 24,000 understatement
Depreciation expense 6,000 understatement 12,000 overstatement

1. Assume that the 2018 errors were not corrected and that no errors occurred in 2017. By what amount will
2018 income before income taxes be overstated or understated?
A. 21,000 overstatement
B. 9,000 overstatement
C. 21,000 understatement
D. 9,000 understatement

2. Assume that no correcting entries were made at 12/31/18, or 12/31/19. Ignoring income taxes, by how much
will retained earnings at 12/31/19 be overstated or understated?
A. 24,000 overstatement
B. 21,000 overstatement
C. 30,000 understatement
D. 9,000 understatement

PROBLEM6. FFF Co. began operations on January 1, 2017. Financial statements for 2017 and 2018
contained the following errors:
Dec. 31, 2017 Dec. 31, 2018
Ending inventory 132,000 too high 156,000 too low
Depreciation expense 84,000 too high —
Insurance expense 60,000 too low 60,000 too high
Prepaid insurance 60,000 too high —

In addition, on December 31, 2018 fully depreciated equipment was sold for 28,800, but the sale was not
recorded until 2019. No corrections have been made for any of the errors. Ignore income tax considerations.

1. The total effect of the errors on FFF's 2018 net income is

A. understated by 376,800
B. understated by 244,800
C. overstated by 115,200
D. overstated by 199,200

2. The total effect of the errors on the balance of FFF's retained earnings at December 31, 2018 is understated
by
A. 328,800
B. 268,800
C. 184,800
D. 136,800

3. The total effect of the errors on the amount of FFF's working capital at December 31, 2018 is understated by
A. 400,800
B. 316,800
C. 184,800
D. 124,800

PROBLEM7. GGG Co. purchased machinery that cost 810,000 on January 4, 2016. The entire cost was
recorded as an expense. The machinery has a nine-year life and a 54,000 residual value. The error was
discovered on December 20, 2018. Ignore income tax considerations.

1. GGG's income statement for the year ended December 31, 2018, should show the cumulative effect of this
error in the amount of
A. 726,000
B. 642,000
C. 558,000
D. 0
2. Before the correction was made, and before the books were closed on December 31, 2018, retained
earnings was understated by
A. 810,000
B. 726,000
C. 642,000
D. 558,000

PROBLEM8. HHH Company reported a retained earnings balance of P5,000,000 at January 1, 2016. In
August 2016, HHH determined that insurance premiums of P600,000 for the three-year period beginning
January 1, 2015, had been paid and fully expensed in 2015. HHH has a 35% income tax rate. What amount
should HHH report as adjusted beginning retained earnings in 2016?
A. 5,260,000 C. 4,740,000
B. 5,390,000 D. 5,130,000

PROBLEM9. Equipment was purchased at the beginning of 2015 for 204,000. At the time of its purchase, the
equipment was estimated to have a useful life of six years and a salvage value of 24,000. The equipment was
depreciated using the straight-line method of depreciation through 2018. At the beginning of 2018, the estimate
of useful life was revised to a total life of eight years and the expected salvage value was changed to 15,000.
The amount to be recorded for depreciation for 2018, reflecting these changes in estimates, is
A. 12,375
B. 19,800
C. 22,800
D. 23,625

PROBLEM10. On December 31, 2018, JJJ, Inc. appropriately changed its inventory valuation method to FIFO
cost from weighted-average cost for financial statement and income tax purposes. The change will result in a
1,500,000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The
cumulative effect of this accounting change on beginning retained earnings is
A. 0
B. 450,000
C. 1,050,000
D. 1,500,000

PROBLEM11. On January 1, 2015, KKK Co. purchased a patent for 595,000. The patent is being amortized
over its remaining legal life of 15 years expiring on January 1, 2030. During 2018, KKK determined that the
economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount
should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31,
2018?
A. 357,000
B. 408,000
C. 420,000
D. 436,375

PROBLEM12. LLL Co. was organized on January 1, 2013. In preparing the financial statements for the year
ended December 31, 2015, the entity used the following original cost and useful life for property, plant and
equipment.
Original Cost Useful Life
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years

On January 2 2016, the entity decided to review the useful life of the property, plant and equipment. On such
date, the remaining useful life is 10 years for the building, 7 years for the machinery and 5 years for the
furniture. The entity used the straight line method of depreciation with no residual value.

What is the total depreciation for 2016?

A. 2,650,000
B. 3,700,000
C. 2,550,000
D. 3,500,000

PROBLEM13. The general ledger trial balance of MMM Corporation includes the following statement
of financial position accounts at December 31, 2016:

Inventory (including inventory expected in the ordinary

Course of operations to be sold beyond 12 mos
 Amounting to P70,000) 110,000
Trade Receivables 120,000
Prepaid Insurance 8,000
Listed investment held for trading at FV 20,000
Available for sale investments 80,000
Cash and Cash Equivalents 30,000
Deferred Tax Asset 15,000
Bank Overdraft 25,000

The amount that should be reported as current assets on MMM statement of financial position is
A. 218,000 C. 288,000
B. 368,000 D. 298,000

PROBLEM14. The liability section of the financial position of NNN Co. on December 31, 2016
showed:
Share dividends declared but not yet distributed 50,000
Dividends in arrears on preference shares 25,000
Income tax withheld 1,500
Deferred income tax payable 10,000
Accounts payable, net of 5,000 debit balance 55,000
Bank overdraft with MetroBank 12,000
Mortgage loans incurred in 2016 payable in
Ten annual installments starting July 1, 2017 500,000
At what amount should the total current liabilities be shown?
A. 18,500 C. 173,500
B. 123,500 D. 653,500

III. LONG PROBLEMS: Using a separate sheet of paper, present your solution in good form. BOX YOUR
FINAL ANSWER per solution sheet. No solution, no points. (5 points each, 60 total)

LONGPROBLEM1.The following data are obtained from the single entry records kept by YEHEY
Merchandising for 2016:
December 31 January 1
Cash 1,600,000 1,200,000
Accounts receivable 2,000,000 1,600,000
Notes receivable 1,200,000 400,000
Equipment 960,000 1,600,000
Notes payable 1,120,000 1,200,000
Accounts Payable 480,000 720,000
Accounts Payable 1,040,000 1,200,000
Accrued Interest Payable 40,000 80,000
Unearned rent Income 40,000 120,000

The cashbook shows the following information:

Balance, January 1 1,200,000

Receipts:
Accounts Receivable (after discounts of P100,000) 3,000,000
Notes receivable 960,000
Cash Sales 800,000
Rent Income 80,000
Sale of equipment costing P200,000 120,000
and book value of P100,000
Additional cash investment by the owner 600,000 5,560,000

Payments:
Accounts Payable 1,520,000
Notes payable 1,280,000
Cash purchases 600,000
Interest Expense 160,000
Expenses 800,000
Equipment 400,000
Withdrawals by owner 400,000 5,160,000
Balance, December 31 P1,600,000
Additional Notes:
 Accounts receivable of P120,000 was written off as uncollectible.
 Returns of P320,000 were on merchandise sales.
 Allowances for P80,000 were received in merchandise purchases.

DETERMINE THE FOLLOWING:

1. Net Sales
2. Net Purchases
3. Cost of Sales
4. Rent Income
5. Interest expense
6. Depreciation expense
7. Net Income

LONGPROBLEM2. The income statement of TAPOSNA Inc. showed the following net income:
2015 P1,750,000
2016 2,000,000
An examination of the accounting records for the year ended December 31,2016 revealed that several errors
were made. The following errors were discovered:
a. Salary accrued at year end and were consistently omitted:
2015 P100,000
2016 140,000
b. The footings and extensions showed that the inventory on December 31,2015 was overstated by
P190,000.
c. Prepaid insurance of P120,000 applicable to 2017 was expensed in 2016.
d. Interest receivable of P20,000 was not recorded on December 31,2016.
e. On December 26,2016 an equipment costing P400,000 was sold for P220,000. At the date of sale, the
equipment had an accumulated depreciation of P240,000. The cash received was recorded as
miscellaneous income in 2016.
f. A building which had a fair value of P1,200,000 was accepted form the city government as a donation on
January 1, 2015. The building that was estimated to be useful for another 10 years and was to be used as
factory site as a condition on the grant. Legal fees incurred in relation to the donation was at P100,000 and
was charged to 2015 operating expenses. Another P200,000 was incurred to remodel and renovate the
building prior to use. The building was capitalized at P200,000 (renovation cost) and was depreciated over
remaining life using straight line.

DETERMINE THE FOLLOWING:

1. Correct net income in 2015.
2. Correct net income in 2016.
3. What is the retroactive adjustment to the 2017 beginning retained earnings ?
4. What is the net effect of errors to the 2016 working capital?
5. What is the correct carrying value of the building as of December 31,2016?

END OF EXAMINATION
PREPARED BY:

MR. MARK ANTHONY V. BERMILLO

Instructor

EVALUATED BY: APPROVED BY:

MR. EDZEL SINGIAN, CPA MRS. AMOR I. BARBA, MM

Program Coordinator, BSAT Dean

 BS ACCOUNTING TECHNOLOGY PRELIM EXAMS: ANSWER SHEET
Financial Reporting and Accounting Part III 1st Semester, AY 2017-2018
NAME: _____________________________________ SECTION: _______________________
PART I. MULTIPLE CHOICE THEORIES PART II. MULTIPLE CHOICE SHORT PROBLEMS

1.   PROBLE
2.   M1  
PROBLE
3.  
M2  
4.   PROBLE 1
5.   M3 .  
6.   PART III. LONG PROBLEMS 2
7.   .  
LONG PROBLEM1 3
8.  
1.   .  
9.  
2.   PROBLE
10.   M4  
3.  
11.   PROBLE 1
4.  
12.   M5 .  
5.  
13.   2
6.   .  
14.  
7.   PROBLE 1
15.  
M6 .  
16.   2
17.   LONG PROBLEM2 .  
18.   3
1.  
19.   .  
2.   PROBLE 1
20.  
3.   M7 .  
21.  
4.   2
22.   .  
5.  
23.   PROBLE
24.   M8  
25.   PROBLE
M9  
PROBLEM10  
PROBLEM11  
PROBLEM12  
PROBLEM13  
PROBLEM14