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QUESTION 19-12 Multiple choice (IAA)

1. Which of the following should not be considered cash?

d. IOUS

2. Which of the following is usually considered cash?

b. Checking account

3. A cash equvalent is a short-term, highly liquid investment that is readily convertible into known
amount of cash and

d. Is so near maturity that it presents insignificant risk of change in interest rate.

4. All of the following can be classified as cash and cash equivalents, except

c. Equity investments

5. Bank overdraft generally should be

d. Reported as a current liability.

6. Deposits in foreign bank which are subject to foreign exchange restriction should be classified

b. Separately as noncurrent asset with appropriate disclosure.

7. What is a compensating balance?

d. Minimum deposit required to be maintained in

connection with a borrowing arrangement

8. A compensating balance

c. Which is legally restricted and related to a short-term loan is classified separately as current asset.

QUESTION 19-13 Multiple choice (IAA)

1. Which of the following should not be considered "cash"

d. Postdated check

2. All of the following may be included in "cash", except

b. Money market instrument

3. Deposits held as compensating balance

d. None of these

4. Which of the föllowing is not considered as a cash equivalent?

b. A three-year treasury note maturing on January 31 of the next year purchased by the entity on
October 1 of the current year

5. At the end of the current year, an entity had cash accounts at three different banks. One account is
segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is
overdrawn. How should these accounts be reported?

a. The segregated account should be reported as a noncurrent asset, the regular account should be

reported as a current asset, and the overdraft should be reported as a current liability

QUESTION 19-14 Multiple choice (IAA)

1. Petty cash fund is

b. Money kept on hand for making minor disbursements of coin and currency rather than by writing
checks

2. The internal control feature specific to petty cash is

d. Imprest system

3. What is the major purpose of an imprest petty cash fund?

d. To effectively control cash disbursements

4. The petty cash fund account under the imprest fund system is debited

c. When the fund is created and when the size of the fund is increased.

5. A Cash Over and Short account

c. Is debited when the petty cash fund proves out short.

6. Which statement in relation to an imprest petty cash is incorrect?

c. The petty cash account is debited when the fund is replenished

7. When an imprest petty cash fund is used, which statement is true?

c. The reimbursement of the petty cash fund should be credited to the cash account.

should be recorded at the time the payments from the petty cash fund are made.

8. Which statement in relation to petty caşh fund is false?

d. With the establishment of an imprest cash fund.

QUESTION 19-15 Multiple choice (IAA)

1. Which of the following items must be added to the cash balance per ledger in preparing a bank
reconciliation which ends with adjusted cash balance?

a. Note receivable- collected by bank in favor of the depositor and credited to the account of the
depositor

2. In preparing a bank reconciliation, interest paid by the bank on the combined current and saving
account is

c. Added to the book balance

3. Which of the following would be added to the balance per bank statement to arrive at the correct
cash balance?

c. Deposit in transit

4. Which of the following must be deducted from the bank statement balance in preparing a bank
reconciliation which ends with adjusted cash balance?

b. Outstanding check

5. If the balance shown in the bank statement is less than the correct cash balance and neither the entity
nor the bank has made any errors, there must be

c. Deposits in transit

6. If the cash balance shown in the accounting records is less than the correct cash balance and neither
the entity nor the bank has made any errors, there must be

a. Deposits credited by the bank but not yet recorded by the entity
7. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the
depositor's records and to identify bank errors. Adjustments on the part of the depositor should be
recorded for

b. All items except bank errors, outstanding checks and deposits in transit.

8. Bank statements provide information about all of the following, except

d. Errors made by the depositor

9. Which statement in relation to a certified check is false?

c. A certified.check is one drawn by a bạnk upon itself.

10. Which statement in relation to bank reconciliation is true?

a. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank
all other things being equal.

QUESTION 20-11 Multiple choice (IAA)

1. Trade receivables are classified as current assets if these are reasonably expected to be collected

d. Within one year or within the operating cycle,

whichever is longer.

2. Nontrade receivables are classified as current assets only if these are reasonably expected to be
realized in cash

d. Within one year, the length of the operating cycle notwithstanding

3. Which statement is true in relation to presentation of receivables in the statement of financial

position?
d. Trade receivables and nontrade receivableş which are currently collectible may be presented as one
line item called "trade and other receivables"

4. Credit balances in accounts receivable are classified as

a. Current liabilities

5. Receivabes from subsidiaries are classified as

c. Either a s current or noncurrent depending on the expectation of realizing them within one year or
over one year

6. Where the operating cycle extends beyond one year because of normal credit terms as in the case of
installment sales of household appliances

a. It is proper to classify the entire receivables as current assets with disclosure of the amount not
realizable within one year, if material.

7. In the case of long-term installments receivable as in real estate installment sales where a major
portion is collected beyond the normal operating cycle

C. Only the portion currently due is shown as current and the balance as noncurrent.

QUESTION 20-12 Multiple choice (AICPA Adapted)

1. Which method of recording bad debt loss is consistent with accrual accounting?

a. Allowance method

2. A method of estimating bad debts that focuses on the income statement rather than the statement of
financial position is the allowance method based on
c. Credit sales

3. A method of estimating uncollectible accounts that emphasizes asset valuation rather than income
measurement is the allowance method based on

a. Aging of accounts receivable

4. The advantage of relating the bad debt experience to accounts receivable is that this approach

a. Gives a reasonably accurate measurement of

receivables in the statement of financial position.

5. When a specific customer account receivable is written off as uncollectible

c. No effect under allowance method and decrease under direct writeoff method

6. When the allowance method of recognizing uncollectible "accounts is used, the entry to record the
writeoff of a specific account would

a. Decrease both accounts receivable and the allowance for uncollectible accounts.

7. When an entity uses the allowance method for recognizing uncollectible accounts, the entry to record
the writeoff of a specific uncollectible account

a. Affects neither net income nor working capital

8. When the allowance method of recognizing bad debt expense is used, the entries at the time of
collection of an account previously written off would

d. Have no effect on net income

9. An entity uses the allowance method to recognize doubtful accounts expense. What is the effect of a
collection of an account previously written off?

c. Increase in allowance for doubtful accounts and no effect on doubtful accounts expense

10. When an accounts receivable aging schedule is prepared, a series of computations is made to
determine the estimated uncollectible accounts. The resulting amount from this aging schedule

d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year-
end

QUESTION 20-13 Multiple choice (IAA)

1. Which method of determining bad debt expense does not match expense and revenue

d. Charging bad debts as accounts are written off as uncollectible

2. Which method of determining bad debt expense most closely matches expense tò revenue?

b. Charging ba'd debts with a percentage of sales for that period.

3. Which concept relates to the allowance method in accounting for uncollectible accounts receivable?

a. Bad debt expense is an estimate based on historical and prospective information.

4. Why is the allowance method preferred over the direct writeoff method of accounting for bad debts?

d. Improved matching of bad debt expense with revenue is achieved.

5. Which of the following is not acceptable. in estimating uncollectible accounts receivable?

d. No estimate of uncollectible accounts is made but accounts are written off when it is determined that
the accounts cannot be collected.

6. The estimate of uncollectible accounts receivable based on a percentage of sales

b. Emphasizes measurement of bad debt expense.

7. The entry debiting accounts receivable and crediting allowance for doubtful accounts would be made
when

c. A previously defaulted customer pays the outstanding balance.

8. A debit balance in the allowance for doubtful accounts.

C. May occur before the end-of-period adjustment for uncollectible accounts.

9. Which is not permitted in accounting for uncollectible accounts receivable?

c. Direct writeoff method

10. When the direct writeoff method of recognizing bad debt expense is used, the entry to write off a
specific customer account would

d. Decrease both accounts receivable and net income

QUESTION 20-14 Multiple choice (IAA)

1. What is the theoretically correct method of recording cash discounts related to accounts receivable?

a. Net method

2. All of the following are problems associated with the measurement of accounts receivable, except

c. Cash discounts under the net method

3. When the allowance method of recognizing bad debt expense is used, the allowance for doubtful
accounts would decrease when

d. Specific uncollectible account is written off

4. Which item should be included in accounts receivable?

c. Allowance for doubtful accounts

QUESTION 21-6 Multiple choice (AICPA Adapted)

1. On October 1 of the current year, an entity received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount 'of the interest are due on
September 30 of next year. The interest receivable on December 31 of the current year would consist of
an amount representing

a. Three months of accrued interest income

2. On July 1 of the current year, an entity obtained a two-year 8% note receivable for services rendered.
At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of
interest are due on the date 'of maturity. Interest receivable on December 31 of the current year is

b. 4% of the face amount of the note

3. An entity uses the installment method to recognize revenue from installment sales. Customers pay the
installment notes in 24 equal monthly amounts which include 12% interest. What is the installment
notes receivable balance six months after the sale?

c. The present value of the remaining monthly payments discounted at 12%.

4. What is imputed interest?

b. Interest based on the implicit interest rate

5. Accounting for the interest in a noninterest bearing note theory?

c. Substance over form

6. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the interest are due in
one year. The interest receivable

account would show a balance on

b. December 31 but not July 1

7. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the

merest are due in one year. When the note receivable was recorded on July 1

d. Neither interest receivable nor unearned discount on note receivable

8. On August 15, an entity sold goods for which it received a note bearing the market rate of interest on
that date. The four-month note was dated July 15. Note principal, together with all interest, is due
November 15. When the note was recorded on August 15, which of the following accounts

increased?

b. Interest receivable

9. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of

the interest are due on June 30 of next year. On December 31 of the current year, the entity should
report in the statement of financial position

d. Interest receivable for the interest accruing in the current year

10. An entity received a seven-year zero interest-bearing note on February 1, 2018 in exchange for
property sold. There was no established exchange price for the property and the note has no ready
market. The prevailing rate of interest for a note of this type was 7% on February 1, 2018, 6% on
December 31, 2018, 8% on February 1, 2019, and 9% on December 31, 2019. What interest rate should
be used to

calculate the interest revenue from the transaction for the years ended December 31, 2018 and 2019,
respectively?

b. 7% and 7%

QUESTION 22-10 Multiple.choice (IAA)

1. Why would an entity sell accounts receivable to another entity?

c. To accelerate access to amount collected

2. Which of the following is a method to generate cash from accounts receivable?

c. Assignment and factoring

3. The practice of realizing cash from trade receivables prior to maturity date is widespread. Which term
is not associated with this practice?

c. Defalcation

4. When the accounts receivable are sold outright, the accounts receivable have been

c. Factored

5. It is a predetermined amount withheld by a factor as a protection against customer returns,

allowances and other.

special adjustments.

c. Factor's holdback

6. If a note receivable is discounted with recourse

b. Note receivable discounted is credited.

7. The note receivable discounted account is reported as

b. Contra asset account for the face amount of the note

8. If a note receivable is discounted without recourse

c. Note receivable is credited

9. Note receivable discounted with recourse should be

b. Excluded from total receivables with disclosure of contingent liability

QUESTION 22-11 Multiple choice (AICPA Adapted)

1. When an entity factored accounte receivable without recourse with a bank, the transaction is best
described as

d. Sale of the accounts receivable to the bank, with the risk of uncollectible accounts transferred to the
bank.

2. Which statement is true when accounts receivable are factored without recourse?

c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts
receivable.

3. All but one of the following are required before a transfer of accounts receivable can be recorded as a
sale.

C. The transferor maintains continuing involvement.

4. If financial assets are exchanged for cash and other consideration but the transfer does not meet the
criteria for a sale, the transaction should be accounted for as

c. Both secured borrowing and pledge of collateral

5. Which of the following is used to account for probable sales discounts, sales returns and sales
allowances?

a. Due from factor

6. After being held for 40 days, a 120-day 12% interest- bearing note receivable was discounted at a bank
at 15%. The net proceeds from discounting are equal to

b. Maturity value less the discount at 15%

7. A note receivable bearing a reasonable interest rate is sold to a bank with recourse. At the date of the
discounting transaction, the note receivable discounted account should be

c. Increased by the face amount of the note

8. If receivables are hypothecated against borrowings, the amount of receivables involved should be

a. Disclosed in the notes

QUESTION 29-17 Multiple choice (PFRS 9)

1. Depending on the business model for managing financial assets, an entity shall classity financial assets
subsequent to initial recognition at

d. All of these are used in measuring inancial assets

2. How does the standard distinguish between the

measurement methods to be used?

b. By reviewing the business model and the contratual cash flow characterstics of the instrument.

3. Which of the following is not a characteristic of a financial asset held for trading?

d. It is a derivative that is designated as an effectivehedging instrument.

4. All of the following financial as8ets shall be measured at fair value through profit or loss, except

d. Financial assets at amortized cost

5. A debt investment shall be measured subsequently at amortized cost

d. When the business modei is to collect contractual cash flows that are solely payments of principal and
interest

6. The irrevocable election to present subsequent changes in fair value in other comprehensie income is
applicable only to

a. Investment in equity instrument that is not held for trading.

7. A debt investment shall be measured at fair value through other comprehensive incomne

When the debt investment is held for trading.

d. When the business model is to collect contractual cash flows that are solely payments of principal and
interest and also to sell the financial asset

QUESTION 29-18 Multiple choice (LAA)

1. Under IFRS, the presumption is that equity

investments are

c. Held for trading and held to protit from price changes

2. Entities are required t0 measure financial asset based on all of the folowing, except

b. Whether the financial asset is a debt or an equity

3. Debt investments that meet the business model and contractual cash flow tests are reported at

C. Amortized cost
4. Debt investments not held for collection are reported at

b. Fair value

5. Debt investments reported at amortized cost are

C. Held for collection debt investments

6. Equity investments irrevocablv accounted for at fair value Equity through other comprehensive
income are

a. Nontrading inves tments of less than 20%

7. What financial assets are assessed for impairment?

d. Debt investments at amortized cost and debt

investments at FVOCI

8. Impairments of debt investments are

d. Evaluated at each reporting date for every held for collection investment.

9. An impairment loss is the excess of the carrying amount of the investment over the

b. Present value of the expected cash flows

QUESTION 29-19 Multiple choice (IFRS)

1 Reclassifications of 1nvestments bettween categories accounted for,

b. Prospectively, at the beginning of the period after the change in the business model.

2. Transfers of investments between categories

Result in omitting recognition of fair value in the year of the transfer.

b. Are accounted for at fair value for all transfers.

3. When a debt investment at amortized cost is

reclassified to FVPL, the difference between the

previous carrying amount and fair value at reclassification date is

a. Recognized in profit or loss

4. When a debt investment at FVPL is reclassified to amortized cost, what is the new carrying amount at
amortized cost?

a. Fair value at reclassification date

5. Which statement ist true when a debt investment at amortized cost is reclassified to FVOCI?

d. All of these statements are true.

6. Which statement is true when a debt investment at FVOCI is reclassified to amortized cost

d. All of these statemente are true.

7. When a financial asset at FVPL is reclassified to FVOCI, the new carrying amount is equal to

à. Fair value at reclassification date

8. Which statement is true when a financial asset at FVOCI is reclassified to FVPL?

d. All of these statements are true.

QUESTION 29-20 ultiple choice (PFRS 15

1. Fair value of an asset should be based upon

b. The price that would be received to sell the asset at the measurement date.

2. Which of the following describes a principal market for establishing fair value of an asset?

a. The market that has the greatest volume and level of activity for the asset

3. Which statement is true for measuring an asset at fair value?

d. The price should be adjusted for cost to transport the asset to the principal market.

4. Which of the following is an assumption used in fair value measurement?

d. The asset is in the highest and best used

5. Which of following would mcet the qualifications as market participants?

c. An independent entity that 1s knowledgeable about the asset.

6. The fair value at initial recognition is

a. The price paid to acquire the asset.

7. Which of the following is not a valuation technique used in fair value measurement?

b. Residual value approach

8. Valuation techniques for fair value that include the Black-Scholes formula, a binomial model, or
discounted cash flow are examples of which valuation technique?

a. Income approach
9. The market approach for measuring fair value requires which of the following?

b. Prices and other relevant information of transactions from identical or comparable assets

10. Which of the following would be considered a Level 2 input for fair value measurement?

b.Quoted market price available from a business broker for a similar asset

QUESTION 29-21 Multiple choice (ACP)

1. It is the date on which the stock and transfer book of the entity is closed for registration. Only those
shareholders registered as of this date are entitled to receive dividends.

b. Date of record

2. At which of the following dates has the shareholder theoretically realized income from dividend?

a. The date the dividend is declared

3. Property dividends are recorded

b. As dividend income at fair value of the property

4. Liquidating dividends are credited to

C. Investment account

5. What is the effect of share dividend of the same class

c. No effect on investment account but decrease in cost per share

6. When share dividends of diferent class are received

d. A new investment account is debited and the original investment account is credited

7. Shares received in lieu of cash dividend are recorded as

a. Income at fair value of the shares received

8. Cash received in lieu of share dividends is accounted for as

d. If the share dividends are received and subsequently sold at the cash received and gain or ioss is
recognized

9 What is the effect of share split up?

c. Increase in number of shares and decrease in cost per

10. An investor owns 10% of the ordinary shares of an investee throughout the year. The investee has no
preference shares outstanding. What is the right of the investor?

C. To receive dividend equal to 10% of the total dividend paid by the investee for the year to
shareholders

QUESTION 30-14 Multiple choice (PAS 28)

1. It is an entity over which the. investor has significant influence.

a. Associate

2. Which statement best describes "significant influence"

C. The power to participate in the financial and

operating policy decisions of an entity

3 Which statement is true concerning significant influence?

a. If an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it is
presuméd that the investor does not have significant influence, unless such influence can be clearly
demonstrated.

b. If an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it is
presumed that the investor does have significant intluence, unless it can be clearly demonstrated that
this is not the casse.

C. A substantial or majority ownership by another

investor does not necessarily preclude an investor

fron having significant influence.

d. All of these statements are true about significance influence.

4. Goodwill arising from an investment in associate is

b. included in the carrying amount of the investment and not amortized.

5. When an ity holds between 20% and 50% of the voting which statement is true?

b. The investor shoula use the equity method unless circumstances indicate that it is unable to exercise
signiicant intluence over the investee

6. Which statement is incorrect concerning the equity method?

d. Distributions received from the investee are

accounted for as dividend income.

7. If an associate has outstanding cumulative preference shares held by outside interests, the investor
computes share of profit or loss

d. After adjusting for the preference dividends, whether or not the dividends have been declared.

8. An investor shall discontinue the equity method when

a. The investor ceases to have significant influence over the associate.

9. When an investment ceases to be an associate and is accounted for in accordance with IFRS 9, the fair
value of the investment at the date when it ceases to be an associate

b. Is regarded as its fair value on initial recognition as a financial asset.

10. On the loss of significant influence, the investor shall recognize in proit or loss any difference
between

d. The fair value of any retained investment, any

proceeds from disposing of the part interest and the carrying amount of the investment at the date

significant influence is lost.

QUESTION 30-15 Multiple choice (IFRS)

1. The equity method is not required when the associate has been acquired and held with a view to
disposal within what time period?

c. Twelve months from date ot classification as held for sale

2. How is the impairment test carried out for an investment in associate?

b. The entire carrying amount OL the investment is tested for impairment by comparing the recoverable
amount with carrying amount.

3. The excess of the investor's share of the net fair value of the associate's net assets over tlhe cost of
the investment is

c. Recognized as income in the determınation of the investor's share of the associate's profit or loss.

4. What should happen when the financial statements of an associate are not prepared as of the same
date as the financial statements of the investor?

a. The associate shall prepare financial statements at the same date as that of the investor.
QUESTION 30-16 Multiple choice (AICPA Adapted)

1. After the date of acquisition, the investment account using the equity method would

d. Be increased by the share of the earnings of the investee and decreased by the share of the losses of
the investee

2. Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the

d. Barnings are reported by the investee

3. When an investor uses the equity method to account for investment in ordinary shares, the
investment account is increased when the investor recognizes

a. A proportionate interest in the. net income of the investee

4. When an investor uses the equity method to account for investment in ordinary shares, cash dividends
received by the investor from the investee shall be recorded as

c. A deduction irom the investment account

5. An investor uses the equity method to account for investment in ordinary shares. The purchase price
implies a fair value of the investee's depreciable assets in excess of the investee's net asset carrying
amount. The investor's amortization of the excess

a. Decreases the investment account

6. An investor uses the equity method to account for the purchase of another entity's ordinary shares.
On the date of acquisition, the fair value of the investee's inventory and land excecded their carrying
amount. How do these excesses of fair value over carrying amount affect the investor's equity in
earnings of the investee for the

current year?

b. Decrease
No effect

7. When an investor purchases sufficient ordinary sharesto gain significant influence over the investee,
what is the proper accounting treatment of any excess of cost over the carrying amount of the net assets
acquired?

c. The excess is amortized over the time period that is reasonable in the light of the underlying cause of
the excess

8. An investor uses the equity method of accounting for a 30% ownership in an investee. At year-end, the
investor has a receivable from the investee. How should the receivable be reported in the investor's
financial statements for the current year?

C. The total receivable should be disclosed separately.

QUESTION 30-17 Multiple choice AICPA Adapted)

1. When investment in ardinary shares, cash dividends received by the investor from the investee should
be recorded as

a. Dividend income

2. An investor uses the cost method to account for an investment in ordinary shares. A portion of the
dividends received this year were n excess of the investor's share of investee's earnings subsequent to
the date of investment.

The amount of dividend revenue that should be reported in the investor's income statement for this year
would be

b. The total amount of dividends received this year

3. An investor uses the cost method to account for investment in ordinary shares. Dividends received in
excess of the investor's share of investee's earnings subsequent to the date of investment

d. Increase dividend revenue

4. An investor uses the. cost method to, account for a 15% ownership in an investee. At year-end, the
investor has receivable from the investee. How should the receivable be reported?

b. The total receivable should be included as part of the investment, without separate disclosure.

5. On January 1 of the current year, an entity purchased 10% of another entity's, ordinary shares. The
entity purchased additional shares bringing the ownership up to 40% of the investee's ordinary shares
outstanding on August 1 of the current year. During October of the current year, the investee declared
and paid a cash dividend on all of the outstanding ordinary shares. How

much income from the investment should be reported for the year?

b. 40% of investee's income from August 1 to December 31 only

QUESTION 31-12 Multiple choice (IAA

1. Trading bond investments are reported at

c. Fair value

2. Which statement is correct in regard to trading bond investments?

a. Trading bond investments are held with the intention of selling them in a short period of time.

b. Unrealized gains and losses are reported as part of net income.

c. Any discount or premium is not amortized.

d. All of these statements are correct.

3. Transaction costs on trading bond investments are

b Expensed immediately

4. Trading bond investments are

b. Not held for collection

5. A gain or loss on sale of trading bond investment is thedifference between

a. Sale price and carrying amount

QUESTI 31-13 Multiple choice (LAA)

1. Accrued interest on bonds that are purchased between interest dates

b. Increases the amount a buyer must pay.

2. When an investor purchased a bond between interest dates at a premium, the cash paid to the seller
is

c. More than the face amount of the bond

3. The interest income for the year would be higher if the bond was purchased at

C. A discount

4. The interest income for the year would be lower if a bond is purchased at

d. A premium

QUESTION 31-14 Multiple choice (LAA)

1. The actual interest earned by the bondholder is

d. Effective rate, yield rate or market rate

2 The interest rate written on the face of bond is known as

d. Nominal rate, coupon rate or stated rate

3. To compute the price to pay for a bond, what present value concept is used?
c. The present value of 1 and present value of an ordinary annuity of 1

4. Bonds usually sell at a discount when investors are wiling to invest in bonds

C. At rate higher than the stated interest rate.

5. Bonds usually sell at a premium

b. When stated rate is greater than market rate.

6. The effective interest method of amortizing discount provides for

a. Increasing amortization and increasing interest income

7. The effective interest method of amortizing premium provides for

b. Increasing amortization and decreasing interest income

8. When the interest payment dates of a bond are May 1 and November 1, and a bond is purchased on
June 1, the amount of cash paid by the investor would be

d. Increased by accrued interest from May 1 to June 1.

QUESTION 31-15 Multiple choice (IFRS)

1. Which statement is true about the interest method?

d. The interest method applies the effective interest rate to the beginning carrying amount.

2. The fair value option

c. Reports all gains and losses in income.

3. The fair value option allows an entity to

a. Record income when the fair value increases.

4. Under what condition can an entity classify financial asset that meets the amortized cost criteria at
FVPL?

d. If doing so eliminates or reduces an accounting

mismatch

QUESTION 23-14 Multiple choice (PAS 2)

1. Inventories include all of the following assets, except

d. Held for use in the production or supply of goods or services.

2. The cost of inventory is the sum of

C.Cost of purchase, cost of coonversion and other cosst incurred in bringing the inventory to the present
location and condition.

3. The cost of purchase of inventory does not include

d. Trade discounts, rebates and other similar items

4 The costs of conversion of inventory include all of the following, except

d. Systematic allocation of administrative overhead

5. The allocation of fixed factory overhead to the cost of conversi1on is based on

a. Normal capacity or the production facilities

6. How should unallocated fixed overhead be treated?

C. Recognized as an expense in the period incurred.

7. Variable production overheads are allocated to each unit of production on the basis of

b. Actual use of the production facilities

8. The inventory of a service provider is described as work in progress and includes which of the
following?

a. Labor and other cost of personnel directly engaged in providing the service.

b. Compensation of supervisor directly engaged in providing the service.

C. Attributable overhead incurred in providing the

service.

d. All of these are included.

QUESTION 23-15 Multiple choice (IFRS)

1. Which of the following should not be taken into account when determining the cost of inventory?

c. Recoverable purchase taxes

2. The cost of inventory does not include

C. Abnormal amount of wasted matèrials.

3. Which of the following costs of conversion cannot be included in cost of inventory?

C. Salaries of sales staff

4. Which of the following should be taken into account when determining the cost of inventory?

a. Storage cost of part-finished goods

5. Costs incurred in bringing the inventory to the present location and condition include

a. Cost of designing product for specific customers

6. Inventories encompass all of the following, except

c. Land and other property not held for sale

7. A property developer must classify properties that it holds for sale in the ordinary course of business
as

a. Inventory

8 Consumable storés or supplies to be consumed in the production process are reported as

a. Inventory

9. Which of the following should not be reported as inventory?

d. Machinery acquired by a manufacturing entity for use in the production process

QUESTION 23-16 Multiple choice (AICPA Adapted)

1. Theoretically, cash discounts permitted on purchased raw materials should be

c. Deducted from inventory, whether taken or not

2. Which of the follówing generally would not be separately accounted for in the computation of cost of
goods sold?

a. Trade discounts applicable to purchases

3. What is the treatment for abnormal freight in?

a. Charge to expense for the period

4 The use of purchase discount account impies that the recorded cost of a purchased inventory is

a. Invoice price

5. The use of a discount lost account implies that cost of a purchased inventory is

D. Invoice price less the purchase discount allow able whether or not taken

6. The valuation of inventory on a prime cost basis

b. Would exclude all overhead from nventory cost

7. Which is not acceptable for valuation of inventory?

c. Prime cost

8 An entity paid the in-transit insurance premium for consignment goods shipped to a consignee. In
addition, the entity advanced part of the commission that will be due when the consignee sells the
goods. What amount should be included by the entity as part of inventory cost?

a. Insurance premium

9. A consignee paid the freight cost for goods shipped from a consignor. The freight cost is to be
deducted from the consignee's payment to the consignor when the consigned goods are sold. Until the
consignee sells the goods, the

freight cost should be included in the consignee's

d. Accounts receivable

QUESTION 23-17 Multiple choice (LAA)

1. Which of the following describes the flow of product costs through the inventory accounts of a
manufacturer?

b. Raw materials, goods in process, finished goods

2. Which of the following should be. included in inventory at the end of reporting period?

a. Goods in transit which were purchased FOB shipping point

3. Which of the following inventories carried by a

manufacturer is similar to the merchandise inventory of a retailer?

C. Finished goods

4. When determining the cost of an inventory, which of the following should not be included?

a. Interest on loan obtained to purchase the inventory

QUESTION 23-18 Multiple choice (LAA)

1. Why is inventory included in the computation of net income?

a. To determine cost of goods sold

2. Which of the following 1s a characteristic of a perpetual inventory system?

C. Cost of goods sold is recorded with each sale.

8. Which of the following is incorrect about the perpetual inventory method?

d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and
allowances.

4. An entry debiting inventory and crediting cost of goods sold would be made when
c. Merchandise is returned and the perpetual inventory method is used.

5. A discount given to a customer for purchasing a large volume of merchandise is typically referred to as

a. Trade discount

6. In a periodic system, the beginning inventory is

C. Total goods available for sale minus net purchases

7. Entities must allocate the cost of all goods available for sale between

C. The income statement and the statement of financial

8. An exception to the general rule that costs should be charged to expense in the period incurred is

a. Factory overhead costs incurred on a product

manufactured but not sold during the current period.

Multiple choice (LAA)

QUESTION 23-19

1. What is consigned inventory?

Goods that are shippea and title trans fers

c. Goods that are shipped but title remains with the consignor

2. How is a significant amount of consignment inventory reported?

a. Reported separately by the consignor.

3. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee
are

C. Inventoriable by the consignor

4. Valuation of inventory requires the determination of all of the following, except

C. The cost of goods held on consignment.

QUESTION 23-20 Multiple choice (LAA)

1. Sales where the goods are delivered only when the buyer makes final payment are called

d. Layaway sales

2. Sales in which the buyer is not yett ready to take delivery but does take title are known as

b. Bill and hold sales

3. When activities involve production through natural growth or aging of biologiçal assets, revenue is
recognized as the plant or living animal grows. This is known as what approach?

C. Accretion approach

4. For which of the following products is it appropriate to recognize revenue at the completion of
production even though no sale has been made?

d. Precious metal

QUESTION 24-8 Multiple choice (AICPA Adapted)

1. Which of the following inventory method reports most closely the current cost of inventory?

a. FIFO
2. Which inventory cost flow assumption would consistently result in the highest income in a period of
sustained inflation?

a. FIFO

3. In a period of falling prices, the use of which inventory cost flow method would typically result in the
highest cost of goods sold?

a. FIFO

4. In a period of rising prices, the invertory cost allocation method that tends to result in the highest
reported net income is

b. FIFO

5. Which method of inventory pricing best approximates specific identification ui the actual flow of costs
and units?

b. FIFO

6. During periods of rising prices, when the FIFO inventory cost flow method is used, a perpetual
inventory system would

c. Result in the same ending inventory as a periodic inventory system

7. Cost of goods sold is the same under a periodic system and a perpetual syste when an entity uses

a. FIF0

8. Which inventory cost flow assumption provides the best measure of earnings, where "best means
most appropriate for predicting future earnings, when prices have been declining?

C. LIFO
9. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods
sold computed using the FIFO method exceeds cost of goods sold using

the average cost method?

a. Prices decreased

10. The cost of ending inventory was lower using FIFO than LIFO. If there is no beginning inventory, what
direction did the cost of purchases move during the period?

b. Down

STION 24-9 Multiple choice (IAA

1. IFRS prohibits which of the following cost flow

assumptions?

a. LIFO

2. What is the inventory pricing procedure in which the oldest costs rarely have an effect on the ending
inventory?

a. FIFO

3. In a period of falling prices which inventory method generally provides the lowest amount of, ending
inventory?

b FIFO

4. In a period of falling prices which inventory method generally provides the lowest amount of net
income?

C. FIFO

5. The costing of inventory must be deferred until the end reporting period under which of the following
method or inventory valuation?
b. Weighted average

6. The cost of inventories that are not ordinarily

are not ordinarily interchange able and goods or services produced and segregated for speciic projects
shall be measured using

d. Specific identification

7. Which is the reason why the specific identification method may be considered ideal for assignng cost
to inventory and cost of goods sold?

C. The cost flow matches the physical flow.

8. IFRS requires the specific identification method in certain circumstances. Which of the following is
likely to be a circumstance where the specific identification method can be used?

b. Inventory turnover is low.

9. Which of the following cost flow assumptions is used for inventory when an entity builds townhouses?

b. Specific identification

QUESTION 25-10 Multiple choice (PAS 2)

1. Inventories shall be measured at

C. Lower of cost and net realizable value

2. The cost of inventory shall be measured using

d. Either FIFO or average method

3. Net realizable value is

d. Estimated selling price less estimated cost to complete and estimated cost of disposal
4. Inventories are usually written down to net realizable value

a. Item by item

5. The amount of any writedown of inventory to net realizable value and all losses of inventory shall be

C. Recognized as component of cost of goods sold.

QUESTION 25-11 Multiple

1. How should trade discounts be dealt with when valuing at the lower of Cost and net realizable value
inventories at

d. Deducted in arriving at cost

2. How should prompt payment discount be dealt with when valuing inventories at the lower of cost and
net realizable value?

b. Ignored

3. How should sales staff commission be dealt with when valuing inventóries at the lower of cost and net
realizable value?

C. Deducted in arrįving at NRV

4. How should import duties be de alt with when valuing inventories at LCNRV?

a. Added to cost

QUESTION 25-12 Multiple choice (LAA)

1. Which statement is incorrect regarding LCNRV?

b. In most situations, entities measure inventory on a total inventory basis.

2. Which statement is true regarding inventory writedown and reversal of writedown?

b. Separate reporting of reversal of inventory writedown is required.

3. Lower of cost and net realizable value

c. Results in the lowest valuation if applied to individual item of inventory.

4. LCNRV of inventory

a. Is always either the net realizable value or cost.

5. Lower of cost and net realizable value of inventory valuation is best describe as the

a. Reporting of a loss when there is a decrease in the future utility below the original cost

6. what is the reason for the inventory measurement at lower of cost and net realizable value?

C. To report a loss when there is a decrease in the future utility below the original cost.

7. Which method may be used to record a loss on inventory writedewn to NRV?

d. Loss method and cost of goods sold method

8. When the cost of goods sold method is used to record inventory at net realizable value

d. The net realizable value for ending inventory is

substituted for cost and the loss is buried in cost of goods sold.

QUESTION 25-13 Multiple choice (IAA)

1. The credit balance that arises when a loss on a purchase commitment is recognized should be
a. Presented as a current liability

2. If a material amount of inventory has been ordered through a formal purchase contract at the end of
reporting period for future delivery at firm prices

a. This fact nust be disclosed.

3. When a portion of inventory has been pledged as security for a loan

C. The fact should be disclosed but the amount of current assets should not be affected.

4. An example of an inventory accounting policy that should be disclosed is

d. Method used for inventory costing.

QUESTION 26-7 Multiple choice (LAA)

1. The gross margin method ot estimating ending inventory may be used for all of the following, except

b. Internal as wel as external year-end reports

2. The gross profit method assumes that

d. The relationship between selling price and cost of goods sold is similar to prior years.

3. The gross proit method of estimating inventory would not be useful when

C. There is a significant change in the mix of products being sold.

4. The gross profit method of inventory valuation is not vaid when

C. The gross margin percentage changes significantly during the year.

5. The gross profit method is invalid when

d. The gross profit percentage applicable to the goods in ending inventory is different trom the
percentage applicable to goods sold during the period.

6. Which statement is not valid about the gross profit method?

d. It may be used to estimate inventory for annual

statements.

7. Which is not a basic assumption of the gross profit method?

d. The amount of purchases and the amount of sales remain relatively unchanged from the previous
period.

8. How is the gross profit method used in relation to inventory valuation?

a. To verify the accuracy of the perpetual inventory record

26-8 Multiple choice (AICPA Adapted)

1. An advantage of the retail inventory method is that it permits entities to avoid taking an annual
physical

D. Provides a method for inventory control and facilitates determination of the periodic inventory.

2. To produce an inventory valuation 'which approximates the lower of cost and NRV using the retail
method, the computation of the ratio of cost to retail should

a.Include markups but not markdowns

3. When the conventional retail inventory method is used, markdowns are commonly ignored in the
computation of cost to retail ratio because

b. This tends to give a better approximation of the lower of average cost and net re alizable value.
4. The retail inventory method would include which of the following in the calculation of the goods
available for sale at both cost and retail?

b. Purchase returns

5. With regard to the retail inventory method, which is the most accurate statement?

C. The retail method results in a lower ending inventory if net markups are included but net markdowns
are excluded in computing the cost ratio.

6. The conventional retail method produces 'an ending inventory that approximates

A. Lower of average cost and net realizable value

7. The retail method is based on the assumption that

a. Final inventory and the total goods available for sale contain the same proportion of high cost and low
cost ratio goods.

8. Which of the following is not a reason why the retail inventory method is used widely?

d. To defer income tax liability

QUESTION 26-9 Multiple choice (LAA)

1. Which of the following 1s not required when using the retail inventory method?

a. All inventory items must be categorized according to the retail markup percentage

2. What condition is not nece ssary when using the retail inventory method?

A. Total cost of goods sold for the period

3. What is the effect of freight in on the cost-retail ratio when using the çonservative retail method?
a. Increases the cost-retail ratio

4. What is the effect of net markup on the cost-retail ratio when using the conservative retail method?

d. Decreases the cost-retail ratio

5. Which of the following would cause a decrease in the cost ratio used in the retail inventory method?

a. Higher retail prices

UESTION 34-16 Multiple choice (PAS 16)

1. Property, plant and equipment are defined as

d.Tangible assets held for use in the production or

supply of goods or services, for rental to others, or for dministrative purposes and expected to be used
during more than one reporting period.

2. Which of the following is not a characteristic of property, plant and equipment?

d. The property; plant and equipment are subject to depreciation.

3. Spare parts and servicing equipment that can be used only in connection with an item of property,
plant and equipment are accounted for as property, plant and equipment and depreciated over

d. Their useful life or the useful life of the related asset whichever is shorter

4.What valuation model should an entity use to measure property, plant and equip ment?

b. The cost model or the revaluation model

5. The cost of property, plant and equipment comprises of the following, except
d. Initial estimate of the cost of dismantling the asset for which the entity has no present obligation.

6. Costs directly attributable to bring the asset to the location and condition for the intended use include
all, except

a. Cost of employee benefit not arising directly from the acquisition of property, plant and equipment

7. Which cost should be exxpensed immediately?

a. Cost of opening a new facility

b. Cost of introducing a new product or service, including cost of advertising and promotional activities

C. Cost of conducting business in a new location

d. All of these are expensed immediately

8. Which cost should be expensed immediately?

a. Administrative overhead

b. Initial operating loss

C. Cost of relocating or reorganizing part or all of an entity's operation

d. All of these are expensed immediately

QUESTION 34-17 Multiple choice (LAA)

1. A nonmonetary exchange ls recognized at fair value of the asset exchanged unless

b. Fair vaiue is not determinable

2. In an exchange with commercial substance

a. Gain or loss is recognized entirely.

3. The cost of property, plant and equipment acquired in an exchange is measured at the
a. Fair value of the asset given plus cash payment.

4. Which exchange has commercial substance?

Exchange of assets with no difference in future cash flows.

C. Exchange of assets with difference in future cash flows.

5. For a nonmonetary exchange, the configuration of cash tlows includes which of the following?

B. The risk, timing and amount of cash flows of the assets

6. If an entity is able to determine reliably the fair value of the asset received and the fair value of the
asset given in an exchange transaction, the cost is measured at

A. Fair value of asset given

7. Which statement is true concerning acquisition of property, plant and equipment by self-construction?

a. The cost of self-constructed asset is determined using the same principles as for an acquired asset

B. Any internal profit is eliminated in arriving at the cost of self-constructed asset.

C The cost of abnormal amount of wasted material is not included in the cost of the asset

d. All of the statements are true.

8. The carrying anount of property, plant and equipment shall be derecognized

d. On disposal and when no future economic benefits are expected from the use of the asset.

9. Entities are encouraged to disclose all of the following in relation to property, plant and equipment,
except

d. The fair value of property, plant and equipment that is not materially different from carrying amount
when the Cost model is used.
QUESTION 34-18 Multiple choice (IFRS)

1. Which of the following is not capitalized into the cost of property, plant and equipment?

A. Cost of excess materials from a purchasing error

2. An entity purchased a machinery that it does not have to pay until after three years. The total
payment on maturity will include both principal and interest. The cost of the machine would be the total
payment multiplied by what time value of money concept

b. Present value of 1

3. The iniial operating loss should be

b. Expensed and charged to the income statement.

4. An entity imported machinery to be installed in the new factory premises before year-end. What is the
proper treatment of freight and interest on the loan to fund the cost of machinery?

C. Freight is capitalized but interest cannot be capitalized.

QUESTION 34-19 Multiple choice (AICPA apted)

1. The cost of property, plant and equipment comprises the purchase price and

D. All directly attributable costs necessary to bring the asset to the location and condition for the
intended use

2. When property is acquired by issuing equity shares, which of the following is the best basis for
establishing the historical cost of the acquired asset?

C. Fair value of the asset received

3. When a plant asset is acquired by deferred payment, which condition generally does not indicate the
need to consider the imputation of interest?
d. The face amount of the deferred obligation is equal to the fair value of the plant asset exchanged.

4. If the present value of a note issued in exchange for a plant asset is less than the face amount, the
difference is'

b. Amortized as interest expense over the life of the note

5. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay
P10,000 per year for five years. The plant asset is initially measured at

C. Present value of P10,000 annuity for five years at an imputed interest

6. An entity purchased a plant asset under a deferred payment contract. The agreement was to pay
P10,000 at the time of purchase and P10,000 at the end of each of the next five years. The plant asset is
measured initially at

b. P60,000

7. Which of the following is the most appropriate policy as regards the allocation of joint overhead cost
to plant and equipment constructed by the entity for own use?

D. Assign a proportionate share of overhead to the construction on the same basis as that used for the
assignment to normal production.

8. A donated plant asset for which the fair value has been determined, and for which directly
attributable costs were incurred, shall be recorded at an amount equal to

B. Fair value and directly attributable costs incurred.

QUESTION 34-20 Multiple choice (AICPA AJ. pted)

1. Vik Auto and King Clothier exchanged goods, held for sale with equal fair value. The retail price of the
car that Vik gave up is less than the retail price of the clothes received. What profit should Vik recognize
for the nonmonetary exchange?

d. A profit equal to the difference between the fair value and the carrying amount of the car

2. Scott Company exchanged nonınonetary assets with Dale Company. No cash was exchanged. The
carrying amount of the asset surrendered by Scott exceeded both the fair value

of the asset received and Dale's carrying amount of that asset. Scott should recognize the difference
between the carrying amount of the asset it surrendered and

A. The fair value of the asset it received as a loss

3. Solen Company and Nolse Company exchanged truck with fair value in excess of carrying amount. In
addition, Solen

paid Nolse to compensate for the difference in truck fair value. As a consequence of the exchange, Solen
shall recogize

A. A gain equal to the difference between the fair value and carrying amount of the truck given

4. Slate Company and Talse Company exchanged plots ot land with fair value in excess of carrying
amount. In for the exchange, Slate shall recognize

for the difference in land value. As a result of the

addition, Slate received cash from Talse to compensate

a. A gain equal to the difference Between the fair value and the carrying amount of the land given

QUESTION 36-10 Multiple choice (PAS 23)

1. Borrowing costs are defined as
d. Interest and other costs that an entity incurs in connection with borrowing of funds.

2. Which statement is true concerning capitalization of borrowing cost?

I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to be
capitalized as cost of the asset.
II. If the borrowing is not directly attributable to a qualifying asset the borrowing cost shall be expensed
as incurred.
c. Both. I and II
3. Borrowing costs can be capitalized as cost of the asset when
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefit
to the entity and the costs measured reliably.

4. If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to
c. actual borrowing cost incurred up to completion of asset minus any investment

5. Which of the following assets could be treated as qualifying asset for the purpose of capitalizing borrowing
costs?
a. Investment property

6. If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal
c. Average expenditures on the asset multiplied by a capitalization rate or actual borrowing cost incurred,
whichever is lower

7. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a
qualifying asset?
c. the interest rate is equal

8, Capitalization of borrowing cost

d Shall be suspended only during extended period of delay in which active development is delayed.

9. The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for the intended use.

10. Which is not a disclosure requirement in relation to borrowing cost?

c. Segregation of qualifying asset from other assets

2. Assets that qualify for interest capitalization include

a. Asset under construction for an entity's use

3. Which of the following costs may not be eligible for capitalization as borrowing cost?
c. Imputed cost of equity.

6. When computing the amount of interest cost to be capitalized, the concept of “avoidable interest” refers to
c. That portion of total interest cost which would not have been incurred if expenditures for asset construction had
not been made.

7. An entity can commence capitalization of borrowing cost on a new construction project when
c Expenditures on the project start to be incurred.

8. Interest revenue earned on specific borrowing for qualifying asset

a. . Reduces the cost of the qualifying asset

QUESTION. 37-9 Multiple choice

1. The cost of land usually includes all of the following , except
b. Property tax after date of acquisition

2. The cost of land typically includes all, except

c. Private driveway and parking lot
3. Fence and parking lot are reported as
b. Land improvements

4. The cost of building usually includes all of the following, Except

c. Expenditure for movable equipment and fixture

1. The single cost of acquiring land and usable old building

c. Allocated between land and building based on relativ e fair value

2. The single cost of acquiring land and an unusable old building is

a. Charged to the land only

3. The cost of demolishing an old building to make room for the construction of a new building should be
c. Charged to the new building

4. The carrying amount of an existing old building demolished to make room for the construction of a
new building should be
a. Accounted for as loss

2. If an entity purchased a lot and an old building and demolished the old building to make room for the
construction of a new building, the proper accounting treatment of the carrying amount of the old building would
depend on
d. The intention of management for the property when the new building was constructed
3. An entity purchased land to be used as an investment property. Timber was cut from the site so development of
the land could begin. The proceeds from
c. deducted from cost of land

4. An entity purchased land and. a hotel with the plan to tear down the hotel and build a new hotel. The
cost of the old hotel should be
b. Written off as loss in the year the hotel is torn down

5. An entity’s forest land was condemned for use as a national park. Compensation for the condemnation exceeded
the forestland’s carrying amount. The entity purchased similar, hut larger, replacement forest land for an amount
greater than the condemnation award. As a result of the condemnation and
replacement, what is the net effect on the carrying amount of forest land reported in the statement of financial
position?
a. The amount is increased by the excess of the replacement forest lands cost over the condemned lands carrying
amount