SET A

FINANCIAL ACCOUNTING 2
Final Examination

THEORY OF ACCOUNTS

1. For a liability to exist b. Warranty Liability

a. The exact amount must be known c. Unearned warranty revenue
b. The identity of the party owed must be known d. Warranty revenue
c. A past transaction or event must have occurred
d. The obligation to pay cash in the future must exist. 9. Unearned rent revenue would normally appear in the
statement of financial position as
2. Which of the following represents a liability? a. Plant asset
a. The obligation to pay for goods that an entity b. Current Asset
expects to order from suppliers next year. c. Current Liability
b. The obligation to pay interest on a five-year note d. Noncurrent Liability
payable that was issued the last day of the current
year. 10. Under a royalty agreement, an entity will receive
c. The obligation to distribute an entity’s own shares royalties from the assignment of a patent for four years.
next year as a result of a stock dividend declared The royalties received in advance should be recognized
near the end of the current year. as revenue
d. The obligation to provide goods that customers a. In the period received
have ordered and paid for during the current year. b. In the period earned
c. Evenly over the life of the royalty agreement
3. Conceptually, a short-term note payable with no stated d. At the date of the royalty agreement

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rate of interest should be
a. Discounted to its present value 11. At the end of the current year, an entity received an

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b. Recorded at maturity value eH w advance payment of 60% of the sales price for special
c. Recorded at the face amount order goods to be manufactured and delivered within five
d. Reported separately from other short-term notes months. At the same time, the entity subcontracted for

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payable. production of the special order goods at a price equal to
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40% of the main contract price. What liabilities should be
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4. Which of the following is not an acceptable presentation reported in the year-end statement of financial position?
of current liabilities? a. None
a. Listing current liabilities in the order of maturity. b. Deferred revenue equal to 60% of the main contract
b. Listing current liabilities according to amount. price and no payable to subcontractor
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c. Offsetting current liabilities against assets that are c. Deferred revenue equal to 60% of the main contract
to be applied to their liquidation. price and payable to subcontractor equal to 40% of
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d. Showing current liabilities in the order of liquidation the main contract price.
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preference. d. No deferred revenue but payable to subcontractor is

reported at 40% of the main contract price.
5. What is the relationship between present value and the
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concept of a liability? 12. A contingent liability

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a. Present value is used to measure all liabilities. a. Definitely exists as a liability but the amount and due
b. Present value is not used to measure liabilities. date are indeterminable.
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c. Present value is used to measure certain liabilities b. Is accrued even though not reasonably estimated.
d. Present value is only used to measure noncurrent c. Is not recognized in the financial statements
liabilities. d. Is the result of a loss contingency
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6. Which of the following statements best describes the 13. Pending litigation would generally be considered
term “liability”? a. Nonmonetary liability
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a. An excess of equity over current assets b. Current liability

b. Resources to meet financial commitments as they c. Contingent liability
fall due. d. Estimated Liability
c. The residual interest in the assets of the entity after
deducting all of its liabilities. 14. Provisions are contingent liabilities which are accrued
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d. A present obligation of the entity arising from past because the likelihood of an unfavorable outcome is
events. a. Possible
b. At least 75%
7. How would the proceeds received from the advance sale c. Greater than 50%
of nonrefundable tickets for a theatrical performance be d. Virtually certain
reported in the statement of financial position before the
performance? 15. It is the abusive practice of manipulation and creative
a. Revenue for the entire proceeds accounting by dumping all kinds of provisions under the
b. Revenue to the extent of related costs expanded banner of provision for restructuring.
c. Unearned revenue for the entire proceeds a. Creative accounting
d. Unearned revenue to the extent of related costs b. Cookie jar
expended. c. Big bath provision
d. General reserve
8. Which of the following is a characteristic of the accrual
of warranty but not the sale of warranty? 16. Bonds payable not designated at fair value through profit
a. Warranty Expense or loss shall be measure initially at

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 SET A
a. Fair Value a. Share premium – share warrants
b. Fair value minus bond issue cost b. Share premium – ordinary
c. Fair value plus bond issue cost’ c. Retained Earnings
d. Face amount d. Liability Account

17. Bonds that mature on a single date are called
a. Serial Bonds
b. Callable Bonds
c. Simple Bonds
d. Term Bonds
18. The proceeds from the sale of bonds
a. Will always be equal to the face amount.
b. Will always be less than the face amount
c. Will always be more than the face amount.
d. May be equal, more or less than the face amount
depending on market interest rate.
19. An entity neglected to amortize the discount on
outstanding bonds payable. What is the effect of the
failure to record discount amortization on interest
expense and bond carrying amount, respectively?
a. Understate and overstate
b. Understate and understate
c. Overstate and understate
d. Overstate and overstate
27. Under the fair value option, an entity shall measure the
note payable initially at
a. Face amount
b. Fair value plus transaction cost
c. Fair value minus transaction cost
d. Fair value
28. The discount resulting from the determination of the
present value of a note payable should be reported in
the statement of financial position as
a. Deferred credit separate from the note
b. Deferred charge separate from the note
c. Direct deduction from the face amount of the note.
d. Addition to the face amount of the note.
29. On October 1, 2013, an entity borrowed cash and signed
a three-year interest bearing note in which both the
principal and interest are payable on October 1, 2016.
On December 31, 2013, accrued interest should
a. Be reported as current liability.
b. Be reported as noncurrent liability
c. Be reported as part of the note payable

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20. When interest expense for the current year is more than d. Not to be reported

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interest paid, the bonds were issued at
a. A discount 30. Under a debt restructuring involving a substantial

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b. A premium
c. Face Value
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new terms should be discounted using

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d. Cannot be determined a. Market rate of interest
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b. Prime interest rate
21. When interest expense for the current year is less than c. Original effective interest rate
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interest paid, the bonds were issued at d. Interest rate under the new terms
a. A discount
b. A premium 31. There is substantial modification of terms of an old
c. Face Value financial liability if the gain or loss on extinguishment is
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d. Cannot be determined a. At least 10% of the new liability

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b. Less than 10% of the new liability

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22. If bonds are issued at a premium, this indicates that c. At least 10% of the carrying amount of the old
a. The yield rate exceeds the nominal rate liability
b. The nominal rate exceeds the yield rate d. Less than 10% of the carrying amount of the old
c. The yield and nominal rates coincide liability
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d. No necessary relationship exists between the two

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rates 32. The difference between the carrying amount of a

financial liability extinguished and the consideration
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23. Under international accounting standard, the valuation given shall

method used for bond payable is a. Not be recognized
a. Historical cost b. Be recognized in profit or loss
b. Discounted cash flow valuation at current yield rate c. Be included in equity
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c. Maturity amount d. Be included in retained earnings

d. Discounted cash flow valuation at yield rate at
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issuance 33. Which statement characterizes an operating lease?

a. The lessor records depreciation and lease revenue.
24. When the entity issued bonds payable that can be b. The lessee records depreciation and interest
converted into ordinary shares, what will be the effect on c. The lessee records the lease obligation related to
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liabilities and equity, respectively? the leased asset

a. Increase and No Effect d. The lessor transfers title of the leased property to
b. No effect and Increase the lessee for the duration of the lease term.
c. Increase and Increase
d. Decrease and Increase 34. A twenty-year operating lease provides for a 10%
increase in annual payments every five years. In the
25. An entity issued bonds payable with nondetachable sixth year compared to the fifth year, what could be the
share warrants. In computing interest expense for the effect on the entity’s expenses?
first year, the effective interest rate is multiplied by the a. No increase in both rent and interest expense.
a. Fair value of the bonds only b. Rent and interest expense will both increase.
b. Face value of the bonds c. Interest expense will increase but not rent expense
c. Proceeds received from sale of the bonds d. Rent expense will increase but not interest expense
d. Share warrants outstanding
35. The appropriate valuation of an operating lease in the
26. When the cash proceeds from bonds issued with share statement of financial position of the lessee is
warrants exceed the fair value of the bonds without the a. Zero
warrants, the excess should be credited to b. The absolute sum of the lease payments

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 SET A
c. The present value of the sum of the lease payments a. Deferred tax benefit
discounted at an appropriate rate b. Deferred tax expense
d. The market value of the asset at the inception of the c. Current tax expense
lease. d. Total income tax expense

36. Which of the following would be considered an executory 45. It is the amount attributable to an asset or liability for tax
cost? purposes.
a. Maintenance cost a. Carrying amount
b. Minimum lease payment b. Tax base
c. Interest expense incurred c. Measurement base
d. Bargain Purchase Option d. Taxable amount

37. A lease contains a bargain purchase option. In 46. Justification for the method of determining periodic
determining the lessee’s capitalizable cost at the deferred tax expense is based on the concept of
beginning g of the lease term, the payment called for the a. Matching of periodic expense to periodic revenue.
bargain purchase option would be b. Objectivity in the calculation of periodic expense
a. Subtracted at its exercise price c. Consistency of tax expense measurement with
b. Subtracted at its present value actual tax planning strategies.
c. Added at its exercise value d. Recognition of assets and liabilities.
d. Added at its present value.
47. Recognizing tax benefits in a loss year due to a loss
38. The lessee’s carrying amount of an asset from the carryforward requires
capitalization of a lease would be periodically reduced a. Only a footnote disclosure
by b. Creating a new carryforward for the next year
a. Total minimum lease payment c. Creating a deferred tax liability
b. Depreciation of the asset d. Creating a deferred tax asset
c. Portion of the minimum lease payment allocable to

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the interest 48. In computing the change in deferred tax asset or liability,

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d. Portion of the minimum lease payment allocable to which of the following tax rate is used?
reduction of the lease liability. a. Past years’ tax rate

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39. Net investment in a direct financing lease is equal to
b. Enacted future tax rate
c. Estimated future tax rate

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a. Cost of the asset d. Current tax rate
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b. Cost of the asset plus initial direct cost paid by the
lessor 49. Which of the following components should not be
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c. Cost of the asset minus guaranteed residual value included in the calculation of net pension cost
d. Cost of the asset plus unguaranteed residual value. recognized for a period by an employer sponsoring a
defined benefit plan?
40. Lessors shall recognize asset held under a finance lease a. Benefit paid
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as a receivable at an amount equal to the b. Net interest

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a. Gross investment in the lease c. Past service cost

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b. Net investment in the lease d. Current service cost

c. Gross rentals
d. Residual value, whether guaranteed or 50. Retirement benefit plan investments shall be carried at
unguaranteed a. Value in use
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b. Amortized cost
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41. Under a direct financing lease, the excess of aggregate c. Historical cost
rentals over the cost of leased property shall be d. Fair value
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recognized as income of the lessor

a. In increasing amounts during the term of the lease 51. Financial actuarial assumptions include all of the
b. In constant amounts during the term of the lease following, except
c. In decreasing amounts during the term of the lease a. Future salary
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d. After the cost of leased property has been fully b. Future medical cost
recovered through rentals. c. Tax payable by the plan
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d. Claim rate under medical plan

42. If the sale and leaseback transaction results in an
operating lease and the sale price is above fair value, 52. The components of defined benefit cost include all of the
the excess of the sale price over fair value is following, except
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a. Not recognized a. Service cost

b. Recognized immediately in profit or loss b. Net interest
c. Recognized in other comprehensive income c. Contribution to the plan
d. Deferred and amortized over the period for which d. Remeasurements
the asset is expected to be used.
53. What are compensated absences?
43. Deferred tax assets are the amount of income taxes a. Paid time off
recoverable in future periods in respect of b. A form of healthcare
a. Carryforward of unused tax losses only c. Payroll deductions
b. Permanent differences d. Unpaid time off
c. Taxable temporary differences and carryforward of
unused tax losses 54. These are compensated or paid absences that are
d. Deductible temporary differences and carryforward carried forward and can be used in future periods and
of unused tax losses. the employees are entitled to a cash payment for unused
entitlement on leaving the entity.
44. It is the amount of income tax payable in respect of a. Accumulating and vesting
taxable profit. b. Accumulating and nonvesting

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 SET A
c. Nonaccumulating and vesting a. Share dividend
d. Nonaccumulating and nonvesting b. Cash dividend
c. Property dividend
55. Share warrants outstanding account shall be reported as d. Liquidating dividend
a. Share Premium
b. Share Capital 66. An entry is not made on
c. Reduction of share premium a. Date of declaration
d. Liability b. Date of payment
c. Date of record
56. When the total shareholder’s equity is smaller than the d. An entry is made on all of these dates
amount of contributed capital, this deficiency is called
a. A net loss 67. Cash dividends are pain on the basis of the number of
b. A dividend shares
c. A liability a. Authorized
d. A deficit b. Issued
c. Outstanding
57. A “secret reserve” will be created if d. Outstanding less the number of treasury shares
a. Liability is understated
b. Shareholder’s equity is overstated 68. Liquidating dividends
c. Inadequate depreciation is charged to income a. Reduce amounts paid in by shareholders
d. A capital expenditure is charged to expense b. Require a credit to share capital
c. Are prohibited under PFRS
58. Which of the following is issued to shareholders of a d. All of the choices are correct
corporation to acquire its unissued shares within a
specified time at a specified price? 69. The retained earnings appropriated account is created
a. Share subscription for the purpose of
b. Share appreciation right a. Earmarking cash to be used for particular purposes
c. Share warrant

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b. Protecting the working capital position

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d. Share option c. Insuring the payment of dividends
d. Preventing losses from contingencies

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59. The residual interest in a corporation belongs to the
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a. Management 70. The primary purpose of quasi-reorganization is to give
b. Ordinary shareholders

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an entity the opportunity to
c. Creditors
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a. Obtain relief from creditors
d. Preference shareholders b. Revalue understated assets to fair value
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c. Eliminate a deficit in retained earnings

60. How would a share split affect each of the following? d. Form a new corporation
Asset Shareholder’s Equity
a. No Effect No Effect 71. How would the declaration and subsequent issuance of
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b. Increase Increase a 10% share dividend by the issuer affect each of the
c. No Effect Increase
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following when the fair value of the shares exceeds the

d. Increase No Effect
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par value of the shares?

Share capital Share Premium
61. Deposit on subscription to a proposed increase in share a. No effect No effect
capital may be classified as b. No effect Increase
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a. Current Liability c. Increase No effect

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b. Noncurrent liability d. Increase Increase

c. Part of shareholder’s equity
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d. Note to financial statement 72. The actual total amount of a cash dividend to be paid is
determined on the date of
62. Under international accounting requirements, which of a. Payment
the following equity reserves is part of distributable b. Record
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equity? c. Declaration
a. Par value of shares d. Declaration or record, whichever is earlier
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b. Retained earnings
c. Revaluation reserve 73. A dividend which is a return to shareholders of a portion
d. Capital redemption reserve of their original investment is
a. Patronage dividend
63. When an entity goes through a quasi-reorganization, the
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b. Liquidating dividend
carrying amounts in the statement of financial position c. Liability dividend
are stated at d. Participating dividend
a. Original Cost
b. Replacement cost 74. It is the date on which the entity and another party agree
c. Fair value to a share-based payment arrangement, being when the
d. Original book value entity and the counterparty have a mutual understanding
of the terms and conditions of the arrangement.
64. Which of the following would not affect retained a. Grant date
earnings? b. Measurement date
a. Conversion of preference share into ordinary share c. Exercise date
b. Stock dividend d. End of reporting period
c. Share split
d. Treasury share transaction 75. What is the date on which the fair value of the equity
instrument granted is measured?
65. If an entity wishes to capitalize part of the earnings, it a. Measurement date
may issue a b. Grant date

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 SET A
c. Exercise date 85. The Philippine term for rights issue is
d. End of reporting period a. Stock right
b. Right of preemption
76. For transactions with employees and others providing c. Share Option
similar services, the fair value of the equity instrument d. Share Warrant
granted is measured on
a. Exercise date 86. The features most frequently associated with preference
b. Grant date shares include all of the following, except
c. End of reporting period a. Callable at the option of the shareholder
d. Beginning of reporting period b. Convertible into ordinary shares
c. Nonvoting
77. Many shares and most share options are not traded in d. Preference as to assets in the event of liquidation
an active market. Therefore, it is often difficult to arrive
at a fair value of the equity instrument being issued. 87. Earnings per share disclosures are required only for
Which of the following option valuation techniques a. Public entities
should not be used as a measure of fair value in the first b. Private entities
instance? c. Entities with complex capital structure
a. Intrinsic Value d. Entities that change their capital structure during the
b. Black-Scholes Model reporting period.
c. Binomial Model
d. Monte-Carlo Model 88. Where in the financial statements should basic and
diluted EPS for income from continuing operations be
78. What is the measurement date for share-based payment reported?
to employees that is classified as liability? a. In the statement of cash flows
a. The settlement date b. In the income statement
b. The grant date c. In the accompanying notes
c. The service inception date d. In management’s discussion and analysis\

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d. The end of reporting period

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89. Earnings per share shall be reported for all of the
79. A cash-settled share-based payment transaction will following, except

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increase which of the following?
a. A current asset
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b. Net Income

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b. A noncurrent asset c. Discontinued Operations
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c. A liability d. Cash flow from operating activities
d. Equity
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90. Ordinary shares issued as part of a business

80. If the entity has the choice of settlement in a “cash and combination are included in the EPS calculation from
share alternative”, the entity shall account for the
instrument initially as a. The beginning of the accounting period
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a. Equity only b. The date of acquisition

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b. Liability only c. The end of the accounting period

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c. Partly equity and party liability d. The midpoint of the accounting year.
d. Either equity or liability but not both
91. The EPS Computation that is forward-looking and based
81. For cash settled share-based payment transactions, on assumptions about future transactions is
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until the liability is settled, the entity is required to a. Basic EPS

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remeasure the fair value of the liability at each reporting b. Diluted EPS
date and at the date of settlement and any changes in c. Continuing operations EPS
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fair value are d. Extraordinary EPS

a. Include in profit or loss
b. Included in retained earnings 92. When computing diluted EPS, the treasury share
c. Treated as component of other comprehensive method can be used for which of the following?
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income a. Rights issue

d. Not recognized b. Share option
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c. Convertible bond payable

82. Total shareholder’s equity divided by the number of d. Convertible preference share
shares outstanding represents the
a. Return on equity 93. In computing diluted EPS, interest expense on
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b. Stated value per share convertible bond payable shall be

c. Book value per share a. Added back to net income at gross
d. Price-earnings ratio b. Deducted back to net income net of tax
c. Ignored
83. Which of the following features of preference share d. Added back to net income net of tax
would most likely be opposed by ordinary shareholders?
a. Redeemable 94. Options and warrants are dilutive if
b. Participating a. The exercise price is lower than the average market
c. Convertible price.
d. Callable b. The exercise price is higher than the average
market price.
84. It is the amount which the preference shareholders c. The exercise price is equal to the average market
normally receive upon liquidation of the entity. price.
a. Par value d. The option shares represent 20% of the ordinary
b. Book Value shares actually outstanding
c. Fair Value
d. Liquidation Value

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 SET A
95. In computing diluted EPS, dividends on convertible
cumulative preference shares shall be
a. Ignored
b. Deducted from net income, whether declared or not
c. Deducted from net income only when declared
d. Added to net income net of tax

96. What is PAS 12?

a. Leases
b. Income Taxes
c. Earnings per share
d. Share-based payment

97. What is PFRS 2?

a. Statement of cash flows
b. Share-based payment
c. Income taxes
d. Leases

98. What is PAS 17?

a. Leases
b. Share-based payment
c. Statement of cash flows
d. Interim Financial Reporting

99. What is PAS 19?

a. Leases

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b. Share-based payment

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c. Interim Financial Reporting
d. Employee Benefits

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100. What is PAS 33?
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a. Leases
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b. Income Taxes
c. Earnings per share
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d. Share-based payment
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+++ END OF EXAM +++

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