Seeds of the Nations

FEUSONS Midterm Review

c. To assist accountants and others in

I. Multiple Choice selecting among alternative accounting
and reporting methods
1. According to the conceptual framework, which of d. To assist the FRSC in the standard- setting
the following is an ingredient of reliability? process
a. Predictive value 6. Which of the following is an internal user of a
b. Materiality company’s financial information?
c. Understandability
d. Verifiability a. Board of directors
b. Long-term creditors of an enterprise
2. A firm does not know exactly how long its c. Shareholders of the company
equipment will last. The firm decides to use shorter d. Regulatory agency
rather than longer useful lives for depreciating the
equipment. This is an example of 7. Financial accounting is said to be concerned with

a. Reliability a. Recording financial transaction

b. Conservatism b. Summarizing and presenting the financial
c. Materiality information on financial reports
d. Matching Principle c. Analyzing financial reports
d. All of the above
3. The environmental assumptions of accounting
include all of the following except 8. The assumed continuation of a business entity in
the absence to the contrary is an example of
a. Prudence accounting concept of
b. Separate entity
c. Periodicity a. Accrual
d. Continuity b. Consistency
c. Comparability
4. A company reports only its total accounts d. Going Concern
receivable balance sheet as opposed to a complete
listings of its individuals. This is an example of 9. When an entity pays employees for their services,
the effect is an increase in
a. Consistency
b. Timeliness a. Expenses
c. Cost/benefit b. Assets
d. Conservatism c. Income
d. Liabilities
5. Which of the following is not a purpose of the
Framework for the Preparation and presentations of 10. A current asset which includes coins, currencies
Financial Statements? and bank deposits is called

a. To provide definition of key terms and a. Cash equivalents

fundamental concepts b. Notes receivable
b. To provide specific guidelines for c. Accounts receivable
resolving situations not covered by d. Cash
existing accounting standards
11. Decrease in asset may
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 a. Decrease in another asset 2. Which statement is incorrect concerning the
b. Decrease liability Framework?
c. Increase capital
d. Increase liability A. The Framework is not a PFRS and therefore does not
define standard for any particular measurement or
12. When the proprietor withdraws cash or other disclosure issue.
assets, the withdrawal account is
B. The Framework is concerned with general purpose
a. Debited
financial statements including consolidated financial
b. Credited
c. Debited and credited statements.
d. No effect
C. In cases of conflict, the requirements of the
13. Amounts owed by the business Framework prevail over those of the relevant PFRS.

a. Assets D. The Framework applies to the financial statements of

b. Liabilities all commercial, industrial and business reporting
c. Equity entities, whether in public or private sector.
d. Capital
3. What is the basic purpose of the Framework?
14. Which of the following is correct?
I. To assist FRSC in developing accounting standards
Assets Liabilities Equity those represent GAAP in the Philippines.

II. To assist FRSC in reviewing and adopting existing

a. 7850 1250 6000
international accounting standards.
b. 8200 3000 7000
c. 10550 6550 4000 III. To assist preparers of financial statements in
d. 5420 10000 4580
applying accounting standards and in dealing with
15. All of the following affect the equity’s account topics those have yet to form the subject of accounting
except standards.

a. Original investment A. I and II only

b. Payment of a liability B. I and III only
c. Withdrawal by the owner C. II and III only
d. Original investment D. I, II and III
Additional Theories:

1. Philippine Financial Reporting Standards include all
of the following, except
A. Philippine Financial Reporting Standards equivalent
to IFRS issued by IASB.
B. Philippine Accounting Standards equivalent to IAS
issued by IASC.
4. Which is not within the scope of the Framework?
A. Generally accepted accounting principles
B. Objective of financial statements
C. Qualitative characteristics of financial statements
D. Recognition and measurement of basic elements

C. Philippine Interpretations equivalent to IFRIC and SIC
Interpretations, and Interpretations developed by PIC.
D. Framework for the Preparation and Presentation
of Financial Statements.
5. These users are interested in information about the
continuance of an entity, especially when they have a
long-term involvement with or are dependent on the
entity.
A. Customers
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B. Employees C. The information must be neutral, that is, free from
bias.
C. Trade unions
D. The information must be complete within the bounds
D. Suppliers of materiality and cost.
6. Which statement is true in relation to the objective of 9. The exercise of prudence allows which of the
financial statements? following?
I. Financial statements meet the common and specific A. The creation of hidden reserves or excessive
needs of most users. provisions.
II. Financial statements provide all of the information B. The deliberate understatement of assets and income.
that users may need to make economic decisions since
they largely portray the financial effects of past events C. The deliberate overstatement of liabilities and
and do not necessarily provide nonfinancial expenses.
information.
D. Selecting an accounting alternative that has the
III. Financial statements show the results of the least favorable impact on owner’s equity.
stewardship of management or the accountability of
management for the resources entrusted to it. 10. Which statement is incorrect concerning
constraints on relevant and reliable information?
A. I and II only
B. I and III only A. In achieving a balance between relevance and
C. II and III only reliability, the overriding consideration is how best to
D. III only satisfy the economic decision-making needs of users.

7. Information has the quality of relevance when
I. It influences the economic decisions of users by
helping them evaluate past, present or future events or
confirming or correcting their past evaluations.
B. The balance between benefit and cost is a pervasive
constraint rather than a qualitative characteristic.
C. The cost of providing information should exceed
the benefits derived from the information.

II. It is free from bias and error and can be depended D. To provide information on a timely basis, it may often
upon by users to represent faithfully that which it either be necessary to report before all aspects of transaction
purports to represent or could reasonably be expected or event are known, thus impairing reliability.
to represent.
11. Which statement is incorrect concerning
A. I only materiality?
B. II only
A. Information is material if its omission or
C. Both I and II
misstatement could influence the economic decision of
D. Neither I nor II
users taken on the basis of the financial statements.
8. To be reliable (choose the correct one)
B. Materiality depends on the absolute size of the
A. The information must represent faithfully the item or error judged in the particular circumstances
transactions it purports to represent. of its omission or misstatement.

B. Transactions are accounted for in accordance C. Materiality provides a threshold or cutoff point for
with their legal from and not with their substance useful information rather than being a primary
and economic reality. qualitative characteristic.

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D. Materiality of items depends on their individual or variety of different names including sales, interest,
collective influence on the economic decision of users. dividends, royalties and rent.

12. Which of the following statements is true in relation A. Income

to the term “understandability”?
B. Gain
I. An essential quality of information provided in
financial statements is that it is readily understandable C. Profit
by users.
D. Revenue
II. Information about complex matters even if relevant
16. Current cost is the
should be excluded from financial statements merely on
the grounds that it may be too difficult for certain users A. Amount of cash or cash equivalent paid or the fair
to understand. value of the consideration given at the time of
acquisition.
A. I only
B. II only B. Amount of cash or cash equivalent that would
C. Both I and II have to be paid if the same or an equivalent asset
D. Neither I nor II was acquired currently.

13. An important implication of this qualitative
characteristic is that users are informed of the
accounting policies employed, changes in those policies
and the effects of such changes.
A. Consistency
B. Comparability
C. Full disclosure
D. Materiality
14. Which of the following statements in relation to
“comparability” is true?
I. The need for comparability should not be confused
with where uniformity and should not be allowed to
become an impediment to the introduction of improved
accounting standards.
C. Amount of cash or cash equivalent that could
currently be obtained by selling the asset in an orderly
disposal.
D. Discounted value of the future net cash inflows that
an item is expected to generate in the normal course of
business.
17. Which is the correct sequence for recording
transactions and preparing financial statements?
A. Journal, ledger, trial balance, financial statements
B. Ledger, trial balance, journal, financial statements
C. Financial statements, trial balance, ledger, journal
D. Ledger, journal, trial balance, financial statements
18. Which financial statement covers a period of time?

II. It is appropriate for an entity to leave its accounting A. Statement of financial position
policies unchanged when more relevant and reliable
B. Income statement
alternatives exist.
C. Statement of cash flows
A. I only
B. II only D. Both income statement and statement of cash
C. Both I and II flows
D. Neither I nor II
19. It is the accounting device that is used to store the
15.Technically, this arises in the course of the ordinary recorded monetary information from the entity’s
regular activities of an entity and is referred to by a transactions and events.
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A. Account 24. What function do accounting journals serve in the
accounting process?
B. Journal
A. Recording
C. Ledger
B. Classifying
D. Source document
C. Summarizing
20. Accumulated depreciation is an example of
D. Interpreting
A. Nominal and adjunct account
25. What function do general ledgers serve in the
B. Real and adjunct account accounting process?
C. Nominal and contra account A. Reporting
D. Real and contra account B. Summarizing
21. Which an example of a nominal and contra account? C. Classifying
A. Freight in D. Recording
B. Sales discount 26. Transposition is an
C. Purchases A. Error of interchanging the figures
D. Allowance for doubtful accounts B. Error of placing the decimal point
22. The debit and credit analysis of a transaction C. Error of not recording the transaction
normally takes place
D. Error, which if not detected, is automatically
A. Before an entity is recorded in a journal. compensated or corrected in the next accounting
period.
B. When the entry is posted to the ledger.
27. The error of posting P100, 000 as P10,000 can be
C. When the trial balance is prepared.
detected by
D. At some other point in the accounting cycle.
A. Dividing the out-of-balance amount by 2.
23. Double entry system means
B. Totaling each account’s balance in the ledger.
A. Only two accounts are affected by each transactions
C. Dividing the out-of-balance amount by 9.
recording.
D. Examining the chart of accounts.
B. A transaction is recorded twice, once in the journal
and the other in the ledger. 28. Which of the following would not be a correct form
for an adjusting entry?
C. For every asset increased, a revenue or liability must
also be increased. A. A debit to revenue and a credit to liability
D. At least two accounts are affected by each B. A debit to an expense and a credit to a liability
transaction recording.
C. A debit to a liability and a credit to revenue

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D. A debit to an asset and a credit to a liability

29. Which of the following best defines an accrual?

A. Adjusting entries where cash flows precedes revenue

or expense recognition

B. Adjusting entries where revenue or expense

recognition precedes cash flow

C. Adjusting entries where cash flow and revenue or

expense recognition are simultaneous

D. Adjusting entries where revenue and expenses are

recognized in the absence of cash flow

II. True or False

1. Payment of a liability will not affect total
assets but will cause total liabilities to
decrease.==False
2. Accounts receivable is considered an
asset.==True
3. Business transactions are expressed in terms
of money.==True
4. For every transaction, there is at least one
account affected.==False
5. Business transactions are expressed in terms
of money.==True