FINACCT MOCK EXAM 1

MULTIPLE CHOICES
1. What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework takes priority over other accounting standards
b. In the absence of the standard or an interpretation that specifically applies to a
transaction, the Conceptual Framework shall be followed
c. The Conceptual Framework applies only when the IASB develops new standards
d. In the absence of the standard or the interpretation that specifically applies to a
transaction, management shall consider the applicability of the Conceptual
Framework in developing and applying an accounting policy that results in
information that is relevant and faithfully represented.

2. The underlying theme of the Conceptual Framework is

a. Understandability
b. Standard Setting
c. Decision Usefulness
d. Comparability

3. The primary focus of financial reporting is meeting the needs of which of the following
groups?
a. Managers
b. National taxing authorities
c. Investors and creditors
d. Authoritative bodies of CPAs

4. Accounting information is considered relevant when it

a. Can be depended on to represent the economic conditions and events that it is
intended to represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral

5. In the conflict between the economic substance of the transaction and the legal form, the
economic substance shall prevail
a. Form over substance
b. Neutrality
c. Conservatism
d. Substance over form
6. Allowing entities to estimate rather than to physically count inventory at interim periods
is an example of a tradeoff between
a. Verifiability and comparability
b. Timeliness and comparability
c. Timeliness and verifiability
d. Relevance and verifiability

7. Which statement is not false about materiality?

a. A transaction is material only when the size or amount affects the decision of users
b. Transactions that are material in nature should not always be disclosed
c. The Conceptual Framework specifies a quantitative threshold for materiality
d. An item is material if its omission or misstatement would influence the judgement of
primary users

8. Which of the following is the most precise sense means the process of converting
noncash resources and rights into cash and claims to cash?
a. Realization
b. Recognition of Gains
c. Collection
d. Receiving Cash

9. Which accounting principle is being observed when an accountant charges to expense a

cost that contributed to revenue during a period?
a. Revenue realization
b. Matching
c. Monetary unit
d. Conservatism

10. When should an expenditure be recorded as an asset rather than an expense?

a. Never
b. Always
c. If the amount is material
d. When future benefit exists

11. The elements directly related to the measurement of financial position are:
a. Asset, liability and equity
b. Asset and liability
c. Income and expense
d. Asset, liability, equity, income and expense
12. The elements directly related to the measurement of financial performance are:
a. Income and expense
b. Asset, liability and equity
c. Asset and liability
d. Income, expense and equity

13. It is a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity
a. asset
b. liability
c. equity
d. income

14. It is a present obligation of an entity arising from past events the settlement of which is
expected to result in an outflow from the entity of resources embodying economic
benefits
a. asset
b. liability
c. equity
d. expense

15. Financial statements portray the financial effects of transactions and other events by
grouping them into broad classes according to their economic characteristics. These
broad classes are termed as:
a. audit reports
b. financial reports
c. notes to financial statements
d. elements of financial statements

16. An expense is recognized immediately

a. when an expenditure produces no future economic benefit
b. when cost incurred ceases to qualify as an asset
c. when an expenditure produces future economic benefit
d. when an expenditure produces no future economic benefit and when cost incurred
ceases to qualify as an asset

17. Which of the following measurement attributes is not currently used in practice?
a. present value
b. net realizable value
c. current replacement cost
d. inflation-adjusted cost
18. Revenue from the sale of goods shall be recognized when all of the ff conditions have
been satisfied, except
a. the entity has transferred to the buyer the significant risks and rewards of ownership of
the goods
b. the entity retains either continuing managerial involvement or effective control over
the goods sold
c. the amount of revenue can be measured reliably
d. it is probable that economic benefits will flow to the entity

19. An ordinary share is subscribed above par value with a down payment, then defaulted,
and subsequently paid by the highest bidder within the reportable period will result to:
a. An increase in assets, retained earnings, ordinary share capital, and share premium
b. An increase in assets and contributed capital
c. No effect
d. A decrease in assets and increase in shareholder’s equity

20. In corporation, who is deemed the highest bidder?

a. One with a prestigious name in the stock exchange
b. One who is willing to pay the subscription defaults and the expense related it sales
with the lowest no. of shares
c. One who is willing to pay a higher amount than the subscription default and the
expense related to its sale with the highest no. of shares
d. One who is related to the defaulting subscribers

21. Lavender Corp. issued 20,000 ordinary shares, par value P15 in exchange for equipment
acquired a year before by the trading partner, the equipment’s fair value at the date of
acquisition is P425,000. At the date of exchange, the shares are selling at P20. How will
the exchange be recorded?
a. Equipment 425,000
Ordinary share capital 425,000

b. Equipment 300,000
Ordinary share capital 300,000

c. Equipment 425,000
Ordinary share capital 300,000
Share premium – ordinary 125,000

d. Equipment 400,000
Ordinary share capital 300,000
Share premium – ordinary 100,000
22. The shareholder’s equity of Cecille Corp. revealed the following on June 30, 2022:
Preference share, P100 par value P230,000
Preference shares premium 80,500
Ordinary share, P15 par value 525,000
Ordinary share premium 275,000
Ordinary shares subscribed 5,000
Retained Earnings 190,000
Notes payable 400,000
Subscription receivable 40,000

How much is the legal capital of the corporation?

a. 755,000
b. 760,000
c. 1,115,500
d. 1,305,500
23. Using the information in 22, how much is the additional paid-in capital?
a. 355,500
b. 360,500
c. 400,500
d. 545,500
24. Using the information in 22, how much the total shareholder’s equity, assuming the
subscription receivable will be collected 14 months after the reporting date?
a. 1,265,500
b. 1,305,500
c. 1,700,500
d. 1,705,500
25. Using the information in 22, how much is the contributed capital?
a. 760,000
b. 355,500
c. 1,115,500
d. 1,305,500
PROBLEM SOLVING
Statement of Financial Position:
Bro Company provided the following information for the purpose of presenting the statement of
financial position on December 31, 2022:
Cash P400,000
Accounts receivable 800,000
Allowance for doubtful accounts 50,000
Inventories 1,000,000
Land 500,000
Building 5,000,000
Accumulated depreciation – building 2,000,000
Machinery 3,000,000
Accumulated depreciation - machinery 1,200,000
Equipment 400,000
Accumulated depreciation - equipment 100,000
Investment in associate 1,300,000
Prepaid expenses 100,000
Notes payable 750,000
Accounts payable 350,000
Income tax payable 50,000
Accrued expenses 60,000
Mortgage note payable in quarterly installments of 100,000 2,000,000
Estimated liability for damages 140,000
Retained earnings appropriated for plant expansion 1,000,000
Retained earnings appropriated for contingencies 100,000
Share capital 3,000,000
Share Premium 300,000
Retained earnings unappropriated 1,250,000
Trademark 150,000
Secret processes and formulas 200,000
Bank loans payable, due on June 30 2024 500,000

a. Determine current assets

b. Determine current liabilities
c. Determine non-current assets
d. Determine non-current liabilities
e. Determine shareholder’s equity
Statement of comprehensive income:
Yow Company had sales during 2022 of P895,000. Yow gross profit percentage is 55%.
Purchases of inventory during the year totaled 466,250 and a count on inventory on hand at the
end of the year totaled P189,500. Selling expenses are 18% of sales and general and administrative
expenses are equal to 80% of selling expenses.
Income tax rate applicable is 30%.
a. Prepare the statement of comprehensive income
Corporation:
The capital accounts of Bleng Co. on January 1, 2022 are as follows:
5% Preference share capital, P100 par P5,000,000
Preference Share Premium 250,000
Ordinary Share Capital, P20 par 3,000,000
Retained Earnings 1,500,000
During the year, the following transaction occurred:
1) Reacquired 5,000 ordinary shares at P16
2) Issued 500 ordinary shares in settlement of a liability of P12,500
3) The ordinary shares were split two for one
4) Declared dividends on preference shares and P1 per ordinary shares
5) Reissued 3,500 treasury shares in exchange for land valued at P50,000
6) The ordinary shares were split one for two
7) Reported profit of P200,000 for the year
Determine the following:
a. Share Capital
b. Paid-in Capital
c. Outstanding ordinary shares
d. Unrestricted Retained Earnings
e. Shareholder’s Equity