KALINGA STATE UNIVERSITY

College of Business Administration and Accountancy

Bachelor of Science in Accountancy

INTERMEDIATE ACCOUNTING 2
EVALUATION EXAM

Choose the best answer among the choice. Encircle. No erasures.

1. Which of the following are not considered as current liabilities when declared?
a. Stock dividend c. Scrip dividends
b. Property dividends d. Cash dividends
2. Current liabilities are obligations whose liquidation is reasonably expected to require the use of expected to the use of existing
current assets or the creation of other current liabilities within
a. One year or operating cycle, whichever is c. One year or operating cycle, whichever is
longer shorter
b. One year d. An operating cycle
3. Which is not a characteristic of a liability?
a. There will be a probable future transfer or use of assets
b. There is little or no discretion to avoid the future sacrifice
c. The obligating transaction or event must have already happened
d. A legally enforceable claim must be present.
4. S1; All open market or mandatory reacquisition of debt securities to meet sinking fund requirements results in extraordinary items.
S2: Gains and losses from the most categories of extinguishments of debt are classified as ordinary items. S3: Losses from
troubled debt restructure are reported as extraordinary items.
a. True, True, False c. True, False, True
b. False, True, False d. All statements are true
5. On the balance sheet, liabilities are generally classified as
a. Current or long-term c. Material or immaterial
b. Legal or non-legal d. Probable or estimated
6. For a liability to exist
a. A past transaction or event must have occurred
b. The exact amount must be known
c. The identity of party owed must be known
d. An obligation to pay cash in the future must exist
7. Liabilities whose amounts must be estimated are disclosed in financial statements by
a. Including details in the footnotes
b. Describing the estimated liabilities among the liabilities on the balance sheet but not including the amounts in the
liability totals
c. An appropriation of retained earnings
d. Including the amounts in the liability totals
8. Which of the following would not be acceptable method of presenting current liabilities on the balance sheet?
a. Alphabetically c. In order of their liquidation preference
b. In order of their average time to maturity d. In order of their amount ( largest to smallest)
9. S1: Receiving payment prior to delivering goods or services causes a current liability to be incurred. S2: for a current liability to
exist, the following two tests must be met. The liability must be due usually within a year and must be paid out of current assets.
a. True, true c. False, true
b. False, false d. True, false
10. S1: all long-term liabilities eventually become current liabilities. S2: the borrower is the one who issues a note payable to the
creditor. S3: the payee of a notes payable on its books.
a. True, true, true c. False, true, false
b. True, false, false d. True, true, false
11. Notes may be issued
a. When assets are purchased
b. To creditor’s to temporarily satisfy an account payable credited earlier
c. When borrowing money
d. All of the above
12. The maturity value of an interest bearing note payable is the
a. Face value plus the interest c. Interest
b. Face value minus the interest d. Face value
13. 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
14. Which of the following is a financial liability?
a. Deferred revenue d. An obligation to deliver own shares worth a
b. Warranty obligation fixed amount of cash
c. Construction obligation
15. PFRS 9 provides that after initial recognition, an entity shall measure a financial liability. S1: at amortized cost, using the effective
interest method. S2: Fair Value to be presented at statement of comprehensive income.
a. True, true c. True, false
b. False, false d. False, true
16. S1: PFRS 9, paragraph 4.2.2, provides that at initial recognition, an entity may irrevocably designate a financial liability at fair
value through profit or loss when doing so results in more relevant information. S2: PFRS 9 provides that at initial recognition, an
entity may irrevocably designate a financial liability at fair value through OCI when doing results in more relevant information.
a. True, false c. False, false
b. False, true d. True, true
17. S1: Conceptually, all liabilities are initially measured a present value and subsequently measured at cost. S2: However, in practice,
current liabilities are not discounted anymore but measured and reported at their face amount.
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a. False, false b. True, true

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 c. False, true d. True, false
18. The settlement of the liability requires an inflow of resource embodying economic benefits. This tis the very heart of the definition of
an accounting liability. The obligation must be to pay cash, transfer noncash assets or provide service at some future date.
a. True c. Sometimes true
b. False d. Not discussed at all
19. Transaction cost directly attributable to the issue of a financial liability include all of the following, except
a. Fees and commissions paid to agents c. Transfer taxes and duties
b. Levies by regulatory agencies d. Financing cost
20. Which of the following is not considered as a characteristic of a liability?
a. Present obligation
b. Arises from past events
c. Result in an outflow of resources
d. None of the above.

21. Gain contingencies are usually recognized on the income statement of the period when
a. Realized
b. Occurrence is reasonably possible and the amount can be reasonably estimated
c. Occurrence is probable and the amount can be reasonably estimated
d. The amount can be reasonably estimated
e. None of the above
22. A retailer 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
transactions?
I. Redemption of certificates
II. Lapse of certificates
a. Decrease, no effect c. no effect, Decrease
b. Decrease, Decrease d. no effect, no effect
23. A manufacturer of household appliances has potential costs due to the discovery of a possible defect in one of its
products. The occurrence of the loss is reasonably possible, and the costs can be reasonably estimated. This loss
should be 1 (Accrued), (2) Disclosed
a. Yes, No c. Yes, Yes
b. No, Yes d. No, No
24. Information available prior to the issuance of the financial statements indicate that it is probable that, at the date of
the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the
loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be
a. Accrued
b. Disclosed but not accrued
c. Neither Accrued nor Disclosed
d. Classified as an appropriation of retained earnings
e. None of the above.
25. Which of the following is correct regarding liabilities?
I. If inventory is sold in Year 1 and is returned and replaced under warranty in year 2, “Product Warranty Expense”
should be recorded in year 2.
II. Potential vacation pay should be accounted for as a contingent liability or as a provision depending on whether
the liability recognition criteria are met.
a. I only b. II only c. I and II d. Neither I
26. Disclosure
I. Reconciliation for each class of provision
II. Comparative information is required
a. I only c. I and II
b. II only d. Neither I or II
27. Which statement/s is (are) true?
I. Past obligation results from present event which either fives rise to a legal or a constructive obligation.
II. Provisions are presented separately from other liabilities.
a. I only c. I and II
b. II only d. Neither I or I
28. Which of the following would appear on the balance sheet as a current liability?
a. A loss from an anticipated strike by employees
b. Potential damages from possible explosions in a fireworks factory
c. Premium offers in cereal boxes
d. The possible loss from a lawsuit
e. None of the above
29. Which of the following statements regarding contingents is true?
a. Contingencies that are probable and not estimable appear on the balance sheet
b. Contingencies that are probable and not estimable are disclose in the notes to the financial statements
c. Contingencies that are remote but estimable are disclose in the notes to the financial statements
d. Contingencies assets are recorded on the balance sheet, but not in the notes to the financial statements
30. Which of the following statements regarding contingencies is true?
a. Contingencies that are probable and estimable must be recorded before the outcome of future events
b. Contingent, assets, if possible and estimable, are treated in much the same way as contingent liabilities
c. The accounting principle that determines whether contingent asset is recorded is that of materiality
d. Contingencies that are not estimable should not be disclosed even if probable

31. What is a postemployment plan under Philippine law?

a. Social Security System (Defined contribution plan)
b. R.A
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 c. A only
d. B only
32. The discount rate used in making actuarial assumptions shall be determined by reference to
a. Stated rate on high quality bonds
b. Stated rate on government bonds
c. Market yield at the end of reporting period on high quality bonds
d. Market yield at the beginning of reporting period on high quality bonds
33. The report of a defined benefit plan shall contain
I. A statement of net assets available for benefits
II. A description of the funding policy
a. I only b. II only c. Both I and II d. Neither I nor II
34. An entity shall not recognized the expected cost of profit sharing and bonus plan when
I. The entity has no present legal or constructive obligation to make such payment as a result of past event
II. A reliable estimate of the obligation can be made
a. I only b. II only c. Both I and II d. Either I or II
35. Which of the following statements best describes “other-long-term employee benefits”?
a. Benefits that are expected to be settled wholly within 12 months at the end of the reporting period in which the
service is rendered.
b. Benefits that are not expected to be settled wholly within 12 months at the end of the reporting period in which
the service is rendered.
c. Benefits payable as a result of an entity’s decision to terminate an employee’s employment before the normal
retirement date.
d. Benefits which are payable after completion of employment
36. What is a postemployment plan under Philippine law?
a. Social Security System (Defined contribution plan)
b. R.A 6741 (Defined benefit plan)
c. A only
d. B only
37. The discount rate used in making actuarial assumptions shall be determined by reference to
a. Stated rate on high quality bonds
b. Stated rate on government bonds
c. Market yield at the end of reporting period on high quality bonds
d. Market yield at the beginning of reporting period on high quality bonds
38. The report of a defined benefit plan shall contain
I. A statement of net assets available for benefits
II. A description of the funding policy
a. I only b. II only c. Both I and II d. Neither I nor II
39. An entity shall not recognized the expected cost of profit sharing and bonus plan when
I. The entity has no present legal or constructive obligation to make such payment as a result of past event
II. A reliable estimate of the obligation can be made
a. I only b. II only c. Both I and II d. Either I or II
40. Which of the following statements best describes “other-long-term employee benefits”?
a. Benefits that are expected to be settled wholly within 12 months at the end of the reporting period in which the
service is rendered.
b. Benefits that are not expected to be settled wholly within 12 months at the end of the reporting period in which
the service is rendered.
c. Benefits payable as a result of an entity’s decision to terminate an employee’s employment before the normal
retirement date.
d. Benefits which are payable after completion of employment
41. Service cost comprises the following except
a. Current service cost c. Gain on plan settlement
b. Interest expense d, past service cost
42. Current service cost is:
a. The future value of the increase in employee’s entitlement to retirement benefits due to services rendered by
the employee during the current period
b. a. The future value of the increase in employee’s entitlement to retirement benefits due to services rendered by
the employee plus any unamortized past service cost and interest computed during the current period.
c. The present value of the increase in employee’s entitlement to retirement benefits due to services rendered by
the employee during the current period
d. The present value of the increase in employee’s entitlement to retirement benefits due to services rendered by
the employee plus any unamortized past service cost and interest computed during the current period
43. The components of defined benefit cost include all except
a. Service cost c. Re-measurements
b. Net Interest d. Plan Contribution
44. Financial actuarial assumptions include all of the following, except
a. Future salary c. Tax payable by the plan
b. Future medical cost d. Claim rate under medical plan
45. What are compensated absences?
a. Paid time off
b. A form of healthcare
c. Payroll deductions
d. Unpaid time off

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c. bargain purchase option
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51. If there is a reasonable certainty that the lease will obtain ownership by the end of the lease term, the depreciation of
the leased asset is based on the
a. useful life of the asset c. shorter of a or b
b. lease term d. longer of a or b
52. It is that portion of the residual value of the leased asset, the realization of which by the lessor is guaranteed solely by
a party related to the lessor.”
a. residual value c. guaranteed residual value
b. unguaranteed residual value d. none of the above
53. It is that ‘part of the residual value that is guaranteed by the lessee or a party related to the lessee, the amount of
guarantee being the maximum amount that could any event become payable.
a. residual value c. guaranteed residual value
b. unguaranteed residual value d. none of the above
54. A cancellable lease is deemed noncancelable when(choose the incorrect one)
a. the lease can be cancelled only upon the occurrence of a remote contingency.
b. the lease can be cancelled w/0 the permission of the lessor. '
c. the lessee, upon cancelation, enters into a new lease for the same or an equivalent asset with the same lessor.
d. the lease can be cancelled only upon payment of penalty of such magnitude that the lessee shall be
discouraged from cancelling the lease.
55. The inception of the lease is the
a. date of the lease agreement
b. date of commitment by the parties to the principal provisions of the lease.
c. earlier of the date of the lease agreement or date of commitment by the parties to the principal provisions of the
lease.
d. later of the date of the lease agreement or date of commitment by the parties to the principal provisions of the
lease.

56. Which of the following is not a source of support for the realization of a deferred tax asset?
a. future deductible temporary differences
b. future deductible temporary differences
c. future taxable income
d. future expiration of temporary tax exemptions
57. A deferred tax may arise if there is a change in tax rates prior to the reversal of a recognized deferred tax asset or deferred tax
liability. The resulting deferred tax is
a. recognized in profit or loss, except to the extent that it relates to items previously recognized in other comprehensive income
b. recognized as a direct adjustment to the beginning balance of retained earnings
c. amortized to profit or loss over the remaining period up to the reversal date of the deferred tax
d. not accounted for
58. Which of the following could never be subject to interperiod tax allocation?
a. rent revenue
. b. depreciation expense on operational assets
c. estimated warranty expense
d. interest revenue on government bonds
59. Are the following statements true or false, according to PAS 12 Income Taxes?
I. Development costs have been capitalized and will be amortized, but were deducted in determining taxable profit in the
period in which they were incurred. This will give rise to a deferred tax asset.
lI. The tax base for a machine for tax purposes is greater than the carrying amount in the financial statements up to the end of
the reporting period.
This will give rise to a deferred tax asset.
a. false,false b. false,true c. true,false d. true,true
60. Which of the following does not help explain why income tax expense is different from the product of pretax income and the current
tax rate?
a. permanent differences
b. temporary differences
c. the fact that future and current tax rates are different
d. a change in the valuation allowance account for the deferred tax asset
61. Justification for the method of determining periodic deferred tax expense is based on the concept of
a. matching of periodic expense to periodic revenue
b. consistency of tax expense measurement with actual tax planning-strategies
c. objectivity in the calculation of periodic expense
d. recognition of assets and liabilities
62. A temporary difference that results to financial income that is greater than taxable income gives rise to a
a. taxable temporary difference c. no difference, whatsoever
b. deductible temporary difference d. a or b
63. Taxable temporary difference multiplied by the tax rate results to
a. deferred tax liability c. deferred tax expense
b. deferred
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64. A temporary difference that results to financial income that is less than taxable income gives rise to

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 a taxable temporary difference c. permanent difference
b. deductible temporary difference d. a or b
65. Deductible temporary difference multiplied by the tax rate results to
a. deferred tax liability c. deferred tax expense
b. deferred tax asset d. deferred tax benefit
66. An entity shall offset deferred tax asset and deferred tax liability when
I. The deferred tax asset and deferred tax liability relate to income taxes levied by the same taxing authority.
II. The entity has a legal enforceable righto offset a current tax asset against a current tax liability
a. I only b. II only c. both I and II d. Neither I nor II
67. Under current GAAP, which approach is used to determine income tax expense?
a. Asset and liability approach c. Net of tax approach
b. A “with and without” approach d. Periodic expense approach
68. Which of the following statements is correct regarding the provision for income taxes in the financial statements of a sole
proprietorship?
a. The provision for income taxes should be based on business income using individual tax rate.
b. The provision for income taxes should be based on the business income using corporate income tax.
c. The provision for income taxes should be based on the proprietor's total taxable income, allocated to the proprietorship at
the percentage that business income that bears to the proprietor's total income.
d. provision for income taxes is required.
69. Deferred tax liability is not recognized when taxable temporary difference arises from the following, except
a. Goodwill from business combination.
b. Initial recognition of an asset or liability in a transaction that is not a business combination.
c. Instalment sales account to be collected in future periods.
d. Undistributed profit of subsidiary, associate or joint venture when the parent, investor or venture is able to control the timing
of the reversal of the temporary difference and when it is probable that such difference will not reverse in the foreseeable
future
70. In computing the change in deferred tax asset or liability, which tax rate is used?
a. Current tax rate c. Enacted future tax rate
b. Estimated future tax rate d. Prior tax rate
71. All of the following must be disclosed separately, except
a. Tax bases of major items on which deferred tax asset has been calculated.
b. Amount of deductible temporary differences for which no deferred tax asset 15 recognized.
c. Amount of taxable temporary differences associated with investments in subsidiaries for which no deferred tax liability is
recognized.
d. Amount of income tax relating to each component of other comprehensive income.
72. It is the amount attributable to an asset or liability for tax purposes.
a. Carrying amount c. Measurement base
b. Tax base d. Taxable amount
73. The purpose of interperiod tax allocation is to
a. Allow reporting entities to fully utilize tax losses carried forward from a previous year.
b. Allow reporting entities whose tax liabilities vary significantly from year to year to smooth payments to taxing agencies.
c. Recognize an asset or liability for the tax consequences of temporary differences that exist at the end of the reporting
period.
d. Amortize the deferred tax liability shown in the statement of financial position.
74. The deferred tax expense is equal to
a. Increase in deferred tax asset less the increase in deferred tax liability
b. increase in deferred tax liability less the increase in deferred tax asset
c. increase in deferred tax asset
d. Increase in deferred tax liability
75. This is the standard for income taxes
a. PAS 17
b. PAS 12
c. PAS 14
d. PAS 15

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