COLLEGE OF BUSINESS EDUCATION AND ACCOUNTANCY

MIDTERM EXAMINATION
ACCTG. 3B
INSTRUCTION:
 Submit the picture of the summary of answers to my messenger account.
1. Current liabilities are
a. due, but not receivable for more than one year
b. due, but not payable for more than one year
c. due and receivable within one year
d. due and payable within one year
2. Notes may be issued
a. when assets are purchased
b. to creditor's to temporarily satisfy an account payable created earlier
c. when borrowing money
d. all of the above
3. A business borrowed P40,000 on March 1 of the current year by signing a 30 day, 6% interest bearing note.
When the note is paid on March 31, the entry to record the payment should include a
a. debit to Interest Payable P200
b. debit to Interest Expense P200
c. credit to Cash for P40,000
d. credit to Cash for P42400
4. The interest deducted from the maturity value of a note is called
a. proceeds
b. discount
c. face value
d. maturity value
5. The maturity value of an interest-bearing note payable is the
a. face value plus the interest
b. face value minus the interest
c. interest
d. face value
6. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing
account payable would be
a. debit Cash; credit Accounts Payable
b. debit Accounts, Payable; credit Cash
c. debit Cash; credit Notes Payable
d. debit Accounts Payable; credit Notes Payable
7. The journal entry a company uses to record the issuance of a note for the purpose of borrowing funds for the
business is
a. debit Accounts Payable; credit Notes Payable
b. debit Cash; credit Notes Payable
c. debit Notes Payable; credit Cash
d. debit Cash and Interest Expense; credit Notes Payable
8. As interest is recorded on an interest-bearing note, the Interest Expense account is
 a. decreased; the Interest Payable account is increased.
b. increased; the Interest Payable account is increased.
c. increased; the Notes Payable account is decreased.
d. increased; the Notes Payable account is increased.
9. Which of the following would most likely be classified as a current liability?
a. Two-year notes payable.
b. Bonds Payable.
c. Mortgage payable.
d. Unearned Rent.
10. The current portion of long-term debt should
a. be classified as a long-term liability.
b. not be separated from the long-term portion of debt.
c. be paid immediately.
d. be reclassified as a current liability.
11. A pension plan which requires the employer to make annual pension contributions, with no promise to
employees regarding future pension payments, is termed
a. funded
b. unfunded
c. defined benefit
d. defined contribution
12. A pension plan which promises employees a fixed annual pension benefit, based on years of service and
compensation, is called a(n)
a. defined contribution plan
 b. defined benefit plan
c. unfunded plan
d. funded plan
13. Vacation pay payable is reported on the balance sheet as
a. current liability or long-term liability, depending upon when the vacations will be taken by employees
b. current liability
c. stockholders’equity
d. long-term liabilities
14. An unfunded pension liability is reported on the balance sheet as
a. current liability
b. stockholders’ equity
c. long-term liability
d. current liability or long-term liability, depending upon when the pension liability is to be paid
15. The journal entry a company uses to record accrued vacation privileges for its employees at the end of the
year is
a. debit Vacation Pay Expense; credit Vacation Pay Payable
b. debit Vacation Pay Payable; credit Vacation Pay Expense
c. debit Salary Expense; credit Cash
d. debit Salary Expense; credit Salaries Payable
16. The journal entry a company uses to record fully funded pension rights for its salaried employees at the end
of the year is
a. debit Salary Expense; credit Cash
b. debit Pension Expense; credit Unfunded Pension Liability
c. debit Pension Expense; credit Unfunded Pension Liability and Cash
d. debit Pension Expense; credit Cash
17. The journal entry a company uses to record partially funded pension rights for its salaried employees, at the
end of the year is
a. debit Salary Expense; credit Cash
b. debit Pension Expense; credit Unfunded Pension Liability
c. debit Pension Expense; credit Unfunded Pension Liability and Cash
d. debit Pension Expense; credit Cash
18. The journal entry a company uses to record pension rights that have not been funded for its salaried
employees, at the end of the year is
a. debit Salary Expense; credit Cash
b. debit Pension Expense; credit Unfunded Pension Liability
c. debit Pension Expense; credit Unfunded Pension Liability and Cash
d. debit Pension Expense; credit Cash
19. Estimating and recording product warranty expense in the period of the sale best follows which of the
following accounting concepts?
a. Cost concept
b. Business entity concept
c. Matching Concept
d. Materiality concept
20. For a debt restructuring involving substantial modification of terms, it is appropriate for a debtor to
recognize a gain when the carrying amount of the debt
a. Exceeds the total future cash payments specified by the new terms.
b. Is less than the total future cash payments specified by the new terms.
c. Exceeds the present value of the future cash payments specified by the new terms.
d. Is less than the present value of the future cash payments specified by the new terms.
21. Under a debt restructuring involving substantial modification of terms, the future cash flows under the new
terms shall be discounted using
a. Original effective interest rate
b. Interest rate under the new terms
c. Market rate of interest
d. Prime interest rate
22. There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is
a. At least 10% of the old liability
b. Less than 10% of the old liability
c. At least 10% of the new liability
d. Less than 10% of the new liability
23. The difference between the carrying amount of a financial liability extinguished and the consideration given
shall
a. Be recognized in profit or loss
b. Be included in equity
c. Be included in retained earnings
d. Not be recognized
24. An entity shall initially measure equity instruments issued to extinguish all or part of a financial liability at
a. Fair value of the equity instruments issued
b. Fair value of the liability extinguished
c. Par value of the equity instruments issued
d. Carrying amount of the liability extinguished
25. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments issued
to extinguish a financial liability shall be measured at
a. Fair value of the liability extinguished
b. Par value of the equity instruments issued
c. Carrying amount of the liability extinguished
d. Book value of the equity instruments issued
26. If both the fair value of the equity instruments issued and the fair value of the financial liability extinguished
cannot be measured reliably, the equity instruments issued shall me measured at
a. Carrying amount of the liability extinguished
b. Par value of the equity instruments issued
c. Book value of the equity instruments issued
d. Value assigned by the Board of Directors
27. The difference between the carrying amount of the financial liability extinguished and the fair value of
equity instruments issued or fair value of liability extinguished in the absence of the fair value of equity
instruments issued shall be recognized in
a. Profit or loss
b. Other comprehensive income
c. Retained earnings
d. General reserve
28. The gain or loss from extinguishment of a financial liability by issuing equity instruments shall be presented
in the statement of comprehensive income as
a. Other income or other expense
b. Separate line item in profit or loss
c. Component of other comprehensive income
d. Component of finance cost
29. An outflow of resources embodying economic benefits is regarded as “probable” when
a. The probability that the event will occur is greater than the probability that the event will not occur.
b. The probability that the event will not occur is greater than the probability that the event will occur.
c. The probability that the event will occur is the same as the probability that the event will not occur.
d. The probability that the vent will occur is 90% likely.
30. This is defined as “a structured program that is planned and controlled by the management that materially
changes either the scope of a business of an entity or the manner in which the business is conducted”.
a. Restructuring
b. Liquidation
c. Recapitalization
d. Corporate revamp
31. Examples of events that qualify as a restructuring include all of the following, except
a. Sale or termination of business
b. Closure of business location in a region or relocation of business from one location to another
c. Change in management structure such as elimination of a layer of management
d. Fundamental reorganization of an entity that has an immaterial and insignificant impact on its operations
32. Which is a cost of restructuring?
a. Cost of retraining or relocating continuing staff
b. Marketing or advertising cost
 c. Investment in new system and distribution network
d. Cost of relocating business activities from one location to another
33. It is the abusive practice of manipulation and creative accounting by dumping all kinds of provisions under
the banner of provision for restructuring.
a. Big bath provision
b. Creative accounting
c. Cookie jar
d. General reserve
34. A provision for restructuring is required when
I. The entity has detailed plan for restructuring.
II. The entity has raised valid expectation in the minds of those affected that the entity will carry out the
restructuring by announcing its main features to those affected by it.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
35. A present obligation that is probable and for which the amount can be reliably measured shall
a. Not be accrued but shall be disclosed in the notes of the financial statements.
b. Be accrued by debiting an appropriated retained earnings account and crediting a liability account.
c. Be accrued by debiting an expense account and crediting an appropriated retained earnings account
d. Be accrued by debiting an expense account and crediting a liability account.
36. An item that is not a contingent liability is
a. Premium offer to costumers for labels or box tops
b. Accommodation endorsement on costumer note
c. Additional compensation that may be payable on a dispute now being arbitrated
d. Pending lawsuit
37. An entity has self-insurance plan. Each year, the entity appropriated retained earnings for contingencies in
an amount equal to insurance premiums saved less recognized losses from lawsuit in which it will probably
have to pay measurable amount of damages. What are the effects of this lawsuit’s probable outcome on the
entity’s financial statements for the current year?
a. An increase in expenses and no effect on liabilities
b. An increase in both expenses and liabilities
c. No effect on expenses and an increase in liabilities
d. No effect on either expenses or liabilities
38. Contingent assets are usually recognized when
a. Realized
b. Occurrence is reasonably possible and the amount can be reliably measured
c. Occurrence is probable and the amount can be reliably measured
d. The amount can be reliably measured
39. Which of the following is the proper accounting treatment of a contingent asset?
a. An accrued account
b. Deferred earnings
c. An account receivable with an additional disclosure explaining the nature of the transaction
d. A disclosure only
40. When the occurrence of a contingent asset is probable and its amount can be reliably measured, the
contingent asset shall be
a. Recognized in the statement of financial position and
Disclosed.
b. Classified as an appropriation of retained earnings.
c. Disclosed but not recognized in the statement of financial position.
d. Neither recognized in the statement of financial position nor disclosed.

41. An entity operates a plant in a foreign country. It isprobable that the plant will be expropriated. However,
the foreign government has indicated that the entity will receive a definite amount of compensation for the
plant. The amount of compensation is less than the fair value but exceeds the carrying amount of the plant.
The contingent asset shall be reported
a. As a valuation allowance as apartof shareholders’equity
b. As a fixed asset valuation allowance account
c. In the notes to the financial statements
 d. In the statement of financial position
42. At year-end, an entity was suing a competitor for patent infringement. The award from the probable
favorable outcome could be reliably measured. The entity’s financial statements shall report the expected
award as
a. Receivable and revenue
b. Receivable and reduction of patent
c. Receivable and deferred revenue
d. Disclosure only
43. An employer sponsoring a defined benefit pension plan must report a liability in the statement of financial
position equal to
a. The current year pension cost that was not funded.
b. The difference between the fair value of plan assets and the accumulated benefit obligation.
c. The difference between the accumulated benefit obligation and the projected benefit obligation.
d. The difference between the fair value of plan assets and the projected benefit obligation.
44. Which statement characterizes defined contribution plans?
a. They are more complex in construction than defined benefit plans.
b. The employer’s obligation is satisfied by making the appropriate amount of periodic contribution.
c. The investment risk is borne by the employer.
d. Contributions are made in equal amounts by employer and employees.
45. Which of the following components should not be included in the calculation of net pension cost recognized
for a period by an employer sponsoring a defined benefit plan?
a. Expected return on plan assets
b, Amortization of unrecognized past service cost
c. Interest cost
d. Contribution to the fund.
46. Unrecognized past service cost can be amortized based on which of the following methods?
a. Straight line method using any systematic and rational approach
b. Straight line method based on the average remaining service period of the qualified employees
c. Interest method using the actuary’s discount rate
d. Service method based on the average remaining service period of the qualified employees
47. If the actual return on plan assets exceeds the expected return for the period, the difference is
a. A deferred loss
b. A deferred gain
c. Recognized as a loss in the current period
d. recognized as a gain in the current period
48. The components of net periodic pension expense that involve delayed recognition are
a. Interest cost, past service cost, transition cost and expected return on plan assets
b. Service cost, transition cost, and gains and losses
c. Gains and losses, transition cost and past service cost
d. Transition cost, past service cost and expected return on plan assets
49. The projected benefit obligation is the measure of obligation that
a. Can no longer be used under GAAP as an estimate for reporting the service cost component of pension
expense.
b. Is not an allowable estimate for reporting the service cost component of pension expense for defined
benefit plan.
c. Is one of several allowable estimates for reporting the service cost component of pension expense.
d. Is the only allowable estimate for reporting the service cost component of pension expense.
50. The conclusion relating to the computation of the service cost component of pension expense is that
a. The projected benefit obligation computed using future salary levels provides a reasonable measure of
present pension obligation and expense.
b. The projected benefit obligation computed using present salary levels provides a reasonable measure of
present pension obligation and expense.
c. The projected benefit obligation computed using present salary levels provides a reasonable measure of
future pension obligation and expense.
d. The projected benefit obligation computed using future salary levels provides a reasonable measure of
future pension obligation and expense.
51. Which of the following criteria is not required for the recognition of a liability for compensated absences?
a. The amount of the obligation must be estimable.
b. Payment of the obligation must be probable.
c. Payment of the obligation will require the use of current assets.
d. The compensation either vests with the employee or can be carried forward to subsequent years.
52. An employer’s obligations for postretirement health benefits that are expected to be provided to an
employee must be fully accrued by the date the
a. Employee is fully eligible for benefits
b. Employee retires
c. Benefits are utilized
d. Benefits are paid.
53. If bonds are issued at a premium, this indicates that
a. The yield rate of interest exceeds the nominal rate
b. The nominal rate of interest exceeds the yield rate
c. The yield and nominal rate coincides
d. No necessary relationship exist between the two rates
54. Which of the following is true for a bond maturing on a single date when the effective interest method of
amortizing bond discount is used?
a. Interest expense as a percentage of the bond’s carrying amount varies from period to period
b. Interest expense increases each six-month period
c. Interest expense remains constant each six-month period
d. Nominal interest rate exceeds effective interest rate
55. How would the amortization of premium on bonds payable affect each of the following
Carrying amount of bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease increase
56. How would the amortization of discount on bonds payable affect each of the following?
Carrying amount of bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease increase
57. The proceeds from a bond issued with non-detachable share warrants shall be accounted for
a. Entirely as bonds payable
b. Entirely as shareholder’s equity
c. Partly unearned revenue and partly as bonds payable
d. Partly as bonds payable and partly as shareholder’s equity
58. A 20-year bond was issued at premium with a call provision to retire the bond. When the bond issuer
exercised the call provision on an interest date, the call price exceeded the carrying amount of the bond. The
amount of bond liability removed from the accounts should have equaled the
a. Cash paid c. Call price plus unamortized premium
b. Face amount plus unamortized premium d. Current market price
59. A 10-year bond was issued at discount with a call provision to retire the bond. When the bond issuer
exercised the call provision on an interest date, the carrying amount of the bond was less than the call price.
The amount of bond liability removed from the accounts should have equaled the
a. Call price c. Face amount less unamortized discount
b. Call price less unamortized premium d. Face amount plus unamortized discount
60. A five-year term bond was issued on January 1, 2010 at a premium. The carrying amount of the bond at
December 31, 2011 would be
a. The same as the carrying amount at January 1, 2010
b. Higher than the carrying amount at January 1, 2010
c. Higher than the carrying amount at December 31, 2012
d. Lower than the carrying amount at December 31, 2012
61. A five-year term bond was issued on January 1, 2010 at a discount. The carrying amount of the bond at
December 31,2011 would be
a. Higher than the carrying amount at December 31, 2010
b. Lower than the carrying amount at December 31, 2010
c. The same with the carrying amount at December 31, 2010
d. Higher than the carrying amount at December 31, 2012
62. On January 1,2010, an entity issued bonds at a discount. The bonds mature on December 31, 2014. The
entity incorrectly used the straight line method instead of effective interest method to amortize the discount.
How is carrying amount of the bonds affected by error?
At December 31, 2010 At December 31, 2014
a. Overstated Understated
b. Overstated No effect
 c. Understated Overstated
d. Understated No effect
63. If bonds are initially sold at a discount and the straight line method of amortization is used, interest expense
in the earlier years
a. Will exceed what it would have been had the effective interest method of amortization been used
b. Will be less than what it would have been had the effective interest method of amortization been used
c. Will be the same as what it would have been had the effective interest method of amortization been
used
d. Will be less than the coupon rate of interest
64. At the beginning of the current year, an entity issued bonds at a discount. The entity incorrectly used the
straight line method instead of the effective interest method to amortize the discount. How were the
following amounts at the current year-end affected by the error?
Bond carrying amount Retained earnings
a. Overstated Overstated
b. Understated Understated
c. Overstated Understated
d. Understated Overstated
65. Gain contingencies that are remote and can be reliably measured
a. Must be disclosed in a note to the financial statements.
b. May be disclosed in a note to the financial statements.
c. Must be reported in the body of the financial statements.
d. Should not be reported or disclosed.
66. A contingent liability
a. Has a most probable value of zero but may require a payment if a given future event occurs.
b. Definitely exist as a liability but its amount or due date is indeterminate.
c. Is commonly associated with loss carry-forward.
d. Is not disclosed in the financial statements.
67. Which of the following should be disclosed in the financial statements as a contingent liability?
a. The entity has accepted liability prior to the year-end for unfair dismissal of an employee and is to pay
damages.
b. The entity has received a letter from a supplier complaining about an old unpaid invoice.
c. The entity is involved in a legal case which it may possibly lose, although this is not probable.
d. The entity has not yet paid certain claims under sales warranties.
68. A retail store received cash and issued gift certificates that are redeemable in merchandise. The gift
certificates lapse one year after they are issued. How would the deferred revenue account be affected by
each of the following transaction?
Redemption of certificates Lapse of certificates
a. Decrease No effect
b. Decrease Decrease
c. No effect No effect
d. No effect Decrease
69. A retail store receives cash and issued a gift certificate that is redeemable in merchandise. When the gift
certificate was issued, a
a. Deferred revenue account should be decreased
b. Deferred revenue account should be increased
c. Revenue account should be decreased
d. Revenue account should be increased
70. Magazine subscriptions collected in advance are treated as
a. A contra account to magazine subscription receivable
b. Deferred revenue in the liability section
c. Deferred revenue in the equity section
d. Magazine subscription refunds in the income statement in the period collected

71. An entity received in advance payment for special order goods that are to be manufactured and delivered
within six months. The advance payment shall be reported in the entity’ statement of financial position as a
a. Deferred charge
b. Contra asset account
c. Current liability
d. Noncurrent liability
72. An entity is a retailer of home appliances and offers a service contract on each appliance sold. The entity
sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale.
Collections received for service contracts shall be recorded as an increase in a
a. Deferred revenue account c. Shareholders’ equity valuation account
b. Sales contracts receivable valuation d. Service revenue account
account
73. Under a royalty agreement with another entity, an entity will receive royalties from the assignment of a
patent for four years. The royalties received in advance shall be reported as revenue
a. In the period received c. Evenly over the life of the royalty agreement
b. In the period earned d. At the date of royalty agreement
74. In June of the current year, an entity sold refundable merchandise coupons. The entity received a certain
amount for each coupon redeemable from July 1 to December 31 of the current year, for merchandise with a
certain retail price. At June 30 of the current year, how should the entity report these coupon transactions?
a. Unearned revenue at the merchandise’s retail price
b. Unearned revenue at the cash received
c. Revenue at the merchandise’s retail price
d. Revenue at the cash received
75. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium shall be
a. Charged to retained earnings when the bonds are issued
b. Expensed in the year in which incurred
c. Capitalized as origination cost
d. Reported in the statement of financial position as a deduction from bonds payable and amortized over the
ten-year bond term.

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