Financial Accounting and Reporting

COVID – 19 PROJECT FOR ACCOUNTANTS

FINANCIAL ACCOUNTING AND REPORTING

INTERIM REPORTING

MULTIPLE CHOICE QUESTIONS

PROBLEM SOLVING
1. The following transactions for AIM Enterprises occurred during the second quarter of
2020:
 Sales amounted to P5,000,000 and related cost of goods sold was P3,000,000
 Selling expenses for the given period was P250,000
 Depreciation is usually recorded by AIM at annual amount of P1,200,000.
 Real property taxes for the year in the amount of P600,000 were paid on April 1,
2020.
 An inventory loss arising from a temporary market decline of P400,000 had
occurred on June 30, 2020.

Ignoring income taxes, what is the net income for the second quarter ending June 30,
2020?
A. 1,150,000
B. 1,300,000
C. 900,000
D. 750,000

2. BELIEVE Company had the following transactions during the quarter ended March
31 2020:
Loss from hurricane P 500,000
Payment of the fire insurance premium for the year 2020 400,000

What total amount of expenses should be included in the income statement for the
quarter ended March 31, 2020?
A. 900,000
B. 633,333
C. 600,000
D. 525,000

3. CLAIM Company’s P4,000,000 net income for the quarter ended September 30,
2020 included the following after-tax items:
 A P1,200,000 gain realized on April 30, 2020 was allocated equally to the
second, third and fourth quarters of 2020.
 A P200,000 cumulative effect loss resulting from a change in inventory valuation
method was recognized on August 31, 2020.
 A casualty loss suffered by the Company on September 11, 2020 in the amount
of P600,000 was allocated to the last two quarters of the calendar year.
 CLAIM paid P400,000 on February 1, 2020, for 2020 calendar-year real property
tax. Of this amount, P100,000 was allocated to the third quarter of 2020.

On December 31, 2020, CLAIM paid its employees year-end bonuses totaling
P2,000,000. From this amount, none was recorded in computing for the 3rd quarter
net income. What is CLAIM Company’s correct net income for the quarter ended
September 30, 2020?
A. 3,000,000
B. 3,100,000
C. 4,000,000
D. 4,200,000

4. CPA Company has historically reported bad debts expense of 5% of sales in each
quarter. For the current year, the company allowed the same procedure in the three
quarters of the year. However, in the fourth quarter, the company, in consultation with
its auditor, determined that bad debt expense for the year should be P4,500,000.
Sales in each quarter of the year were as follows: first quarter, P20,000,000; second

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Financial Accounting and Reporting
quarter, P15,000,000; third quarter, P25,000,00; fourth quarter, P40,000,000. How
much bad debts expense should be recognized for the fourth quarter?
A. 4,000,000
B. 3,000,000
C. 2,000,000
D. 1,500,000

5. CPA Company has estimated that total depreciation expense for the year ended
December 31, 2020 will amount to P500,000, and that the 2020 year-end bonuses to
employees will total P1,200,000. In CPA’s interim income statement for six months
ended June 30, 2020, what is the total amount of expense relating to these two items
that should be reported?
A. 425,000
B. 850,000
C. 1,100,000
D. 1,700,000

THEORETICAL CONCEPTS
6. Interim financial reports shall be published
A. Once a year at any time in that year.
B. Within a month of the half year-end.
C. On a quarterly basis as required by PAS 34 and SEC
D. Whenever the entity wishes because there is no requirement for the frequency of
interim reports in PAS 34

7. Publicly traded entities are encouraged to provide interim financial reports

A. on a quarterly basis.
B. whenever the entity wishes.
C. within a month of the half year-end.
D. at least at the end of half year and within 60 days of the end of interim period.

8. Conceptually, interim financial statements can be described as emphasizing

A. comparability over neutrality
B. reliability over understandability
C. relevance over comparability
D. timeliness over reliability

9. Interim financial reports should include as a minimum

A. A complete set of financial statements.
B. A condensed set of financial statements and selected notes
C. A statement of financial position and income statement only.
D. A condensed statement of financial position, income statement and statement of
cash flows only.

10. An entity owns a number of farms that harvest produce seasonally. What is the
disclosure suggestion if the business is highly seasonal?
A. Additional notes should be written in the interim reports about the seasonal
nature.
B. Disclosure of financial information for the latest and comparative 12-month period
in addition to the interim report.
C. Additional disclosure in the accounting policy note.
D. No additional disclosure.

11. For interim financial reporting, an expropriation gain occurring in the second quarter
should be
A. Recognized ratably over the last three quarters
B. Recognized ratably over all four quarters with the first quarter being restated
C. Recognized in the second quarter
D. Disclosed by footnote in the second quarter

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Financial Accounting and Reporting
12. Interim financial reporting should be viewed primarily in which of the following
ways?
A. As useful only if activity is spread evenly throughout the year.
B. As if the interim period were an annual accounting period.
C. As reporting under a comprehensive basis of accounting other than GAAP.
D. As reporting for an integral part of an annual period.

13. Which of the following is not true regarding standards for interim reporting?
A. Declines in inventory value should be deferred to future interim periods.
B. Use of the gross margin method for computing cost of goods sold must be
disclosed.
C. Costs and expenses not directly associated with interim revenue must be
allocated to interim periods on a reasonable basis
D. Gains and losses that arise in an interim period should be recognized in the
interim period in which they arise if they would not normally be deferred at year-
end.

14. How is the income tax expense for the third quarter interim period computed?
A. The annual rate multiplied by the third quarter pretax earnings.
B. The estimated tax for the first three quarters based on an annual rate, less a
similar estimate for the first two quarters.
C. The rate applicable during the third quarter multiplied by four times the third
quarter pretax earnings.
D. One-half of the difference between the total estimated annual income tax
expense and the income tax for the first two quarters.

15. The following statements are based on PAS 34 (Interim Financial Reporting):
Statement 1: Interim financial report means a financial report containing either a
complete set of financial statements or a set of condensed financial statements for
an interim period.
Statement 2: An entity shall apply different accounting policies in its interim financial
statements and in its annual financial statements.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

END OF HANDOUT

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