• Financial information is capable of making a difference in decisions

Both statements are correct.

If it provides feedback about (confirms or changes) previous evaluations.
If it can be used as an input to processes employed by users to predict future
outcomes.
Neither statements are correct.
• Which statement is correct regarding enhancing qualitative characteristics?
The enhancing qualitative characteristics, either individually or as a group,
cannot make information useful if that information is irrelevant or not faithfully
represented.
All the statements are correct.
Applying the enhancing qualitative characteristics is an iterative process that
does not follow a prescribed order.
Sometimes, one enhancing qualitative characteristic may have to be
diminished to maximize another qualitative characteristic.
• The users of financial statements who are interested in information that
enables them to determine whether the amounts owing to them will be paid
when due
Suppliers and other trade creditors
Investors
Customers
Lenders

• The future economic benefit embodied in an asset is the potential to contribute,

directly or indirectly, to the flow of cash and cash equivalents to the entity. The
potential may
Any of the above.
Take the form of convertibility into cash or cash equivalents
Be a productive one that is part of the operating activities of the entity
Take the form of a capability to reduce cash outflows, such as when an
alternative manufacturing process lowers the costs of production
 • The settlement of a present obligation usually involves the entity giving up
resources embodying economic benefits in order to satisfy the claim of the
other party. Settlement of a present obligation may occur in a number of ways,
for example, by:

I. Payment of cash.

II. Transfer of other assets.

III. Provision of services.

IV. Replacement of that obligation with another obligation.

V. Conversion of the obligation to equity.

VI. A creditor waiving or forfeiting its rights.

I, II, III, IV, V and VI

I, II, III, V and VI only
I, II and III only
I, II, III, IV and VI only

• Which is not a specific purpose of the Conceptual Framework?

To assist FRSC in the development of future Philippine Financial Reporting
Standards (PFRSs) and in its review of existing PFRSs.
To assist users of financial statements in interpreting the information contained
in financial statements.
Provide those who are interested in the work of FRSC with information about its
approach to the formulation of PFRSs.
To assist the Board of Accountancy in promulgating rules and regulations
affecting the practice of accountancy in the Philippines.
Which statement is incorrect regarding ‘assets’ in accordance with the Conceptual
Framework?

Assets are presented in the statement of financial position either as current or

noncurrent.
Assets are resources controlled by the entity as a result of past events and from
which future economic benefits are expected to flow to the entity.
Assets are required to be measured at fair value.
Assets are recognized in the statement of financial position if it is probable that
the future economic benefits will flow to the entity and the item has a cost or
value that can be measured reliably.
• Which statement is incorrect regarding the new definition of an asset?

It clarified that an asset is the economic resource, not the ultimate inflow of
economic benefits.
It needs to be certain or likely that economic benefits will arise.
An economic resource is a right that has the potential to produce economic
benefits.
An asset is a present economic resource controlled by the entity as a result of past
events.
• Under this concept, a profit is earned only if the financial (money) amount of
the net assets at the end of the period exceeds the financial (money) amount
of net assets at the beginning of the period, after excluding any distributions to,
and contributions from, owners during the period.

Neither physical nor financial capital

Physical capital
Both physical and financial capital
Financial capital
• What is the objective of financial reporting as indicated in the conceptual
framework?

Provide information that is useful to those making investing and credit decisions.
All of the above.
Provide information about those investing in the entity.
Provide information that is useful to management.
• Information is neutral if it

Provides benefits which are at least equal to the costs of its preparation
Would have no impact on a decision maker
Is free from bias toward a predetermined result
Can be compared with similar information about an enterprise at other points in
time
• To be a faithful representation as described in the Conceptual Framework,
information must be all of the following, except:

Complete.
Confirmatory.
Neutral.
Free from error.
• Which of the following helps users make good decisions?
 Neither statements are helpful.
An unfaithful representation of a relevant phenomenon.
A faithful representation of an irrelevant phenomenon.
Both statements are helpful.
• Which statement is incorrect regarding materiality?

Information is material if omitting it or misstating it could influence decisions that

users make on the basis of financial information about a specific reporting entity.
The IASB does not specify a uniform quantitative threshold for materiality or
predetermine what could be material in a particular situation.
None of the statements are incorrect.

Materiality is based on the nature or magnitude, or both, of the items to which the
information relates in the context of an individual entity’s financial report.

• Effective communication of information in financial statements does not

require:

Aggregating information in such a way that it is not obscured either by

unnecessary detail or by excessive aggregation.
Focusing on presentation and disclosure objectives and principles rather than
focusing on rules.
Classifying information in a manner that groups similar items and separates
dissimilar items.
Disregarding costs constraints.
• The fundamental qualitative characteristics are

Understandability and comparability

Timeliness and verifiability
Relevance and reliability
Relevance and faithful representation
• The following measurement bases provide information updated to reflect
conditions at the measurement date, except

Current cost
Value in use
Amortized cost
Fair value
Question 18
Which statement is incorrect regarding a liability?
 An essential characteristic of a liability is that the entity has a present obligation.
A decision by the management of an entity to acquire assets in the future gives
rise to a present obligation.
A liability may arise from normal business practice, custom and a desire to
maintain good business relations or act in an equitable manner.
A liability may be legally enforceable as a consequence of a binding contract or
statutory requirement.
Question 19
Factors to consider in selecting a measurement basis include

I.Characteristics of the asset or liability

II.Contribution to future cash flows

III.Measurement inconsistency

IV.Measurement uncertainty

I, II and III only

I and II only
I, II and IV only
I, II, III and IV
Question 20
Under this concept, a profit is earned only if the physical productive capacity (or
operating capability) of the enterprise (or the resources or funds needed to achieve
that capacity) at the end of the period exceeds the physical productive capacity at the
beginning of the period, after excluding any distributions to, and contributions from,
owners during the period.

Physical capital
Financial capital
Neither physical nor financial capital
Both physical and financial capital
Question 21
The new Conceptual Framework defines recognition as

The process of capturing for inclusion in the statement of financial position or the
statement(s) of financial performance an item that meets the definition of an asset,
a liability, equity, income or expenses.
The process of incorporating in the balance sheet or income statement an item
that meets the definition of an element and satisfies the criteria for recognition.
 The process of determining the monetary amounts at which the elements of the
financial statements are to be recognized and carried in the balance sheet and
income statement.

The removal of a previously recognized asset or liability from an entity’s statement

of financial position.

Question 22
Which of the following is the foundation of the Conceptual Framework?

The elements of financial statements.

The qualitative characteristics of, and the constraint on, useful financial
information.
A reporting entity concept.
The objective of general purpose financial reporting.
Question 23
Which statement relates to comparability?

Information is available to decision-makers in time to be capable of influencing

their decisions.
Financial reports are prepared for users who have a reasonable knowledge of
business and economic activities and who review and analyze the information with
diligence.
Different knowledgeable and independent observers could reach consensus,
although not necessarily complete agreement, that a particular depiction is a
faithful representation.
Enables users to identify and understand similarities in, and differences among,
items.
Question 24
Which concept of capital should be adopted by an entity if the users of financial
statements are primarily concerned with the maintenance of nominal invested capital
or the purchasing power of invested capital?

Physical concept
Neither financial nor physical concept
Financial concept
Either financial concept and physical concept
Question 25
What is an entity-specific aspect of relevance?

Confirmatory value
Timeliness
 Predictive value
Materiality
Question 26
All of the following represent costs of providing financial information except

Auditing.
Accessing capital.
Preparing.
Disseminating.
Question 27
The 2018 Conceptual Framework explicitly referred to

I.Prudence

II.Substance over form

III.Stewardship

I and II only
I and III only
I, II and III
I only
Question 28
Information about income and expenses is

Just as important as information about assets and liabilities.

More important as information about assets and liabilities.
Not important.
Less important as information about assets and liabilities.
Question 29
General purpose financial statements

Are those intended to meet the needs of users who are not in a position to require
an entity to prepare reports tailored to their particular information needs.
All of the statements are correct.
Are designed to show the value of a reporting entity since they provide information
to help existing and potential investors, lenders and other creditors to estimate the
value of the reporting entity.

Provide all of the information that financial statements’ users need.

Question 30
The primary users of financial information include

I.Existing and potential investors

II.Existing and potential lenders and other creditors

III.User group such as employees, customers, government and their agencies, and
the public

I and III only

I and II only
I only
I, II and III
Question 31
Which statement is incorrect regarding a reporting entity?

A reporting entity does not comprise an arbitrary or incomplete collection of assets,

liabilities, equity, income and expenses.
A reporting entity is an entity that is required, or chooses, to prepare financial
statements
A reporting entity should be a legal entity.
A reporting entity could be a portion of an entity or comprise more than one entity.
Question 32
Which statement is incorrect regarding concepts of capital?

Under a financial concept of capital, such as invested money or invested

purchasing power, capital is synonymous with the net assets or equity of the
entity.
The selection of the appropriate concept of capital by an entity should be based
on the needs of the users of its financial statements.
A physical concept of capital is adopted by most entities in preparing their
financial statements.
Under a physical concept of capital, such as operating capability, capital is
regarded as the productive capacity of the entity based on, for example, units of
output per day.
Question 33
In the Conceptual Framework, qualitative characteristics

Are attributes that make the information provided in financial statements useful to
users.
Are considered either fundamental or enhancing.
 All of the choices are correct.
Distinguish better information from inferior information for decision-making
purposes.
Question 34
Which statement is incorrect regarding prudence?

Prudence does not allow for overstatement of assets, liabilities, income or

expenses.
Prudence is the exercise of caution when making judgments under conditions of
uncertainty.
Neutrality is supported by the exercise of prudence.
Prudence allows for understatement of assets, liabilities, income or expenses.
Question 35
Accounting information is considered to be relevant when it

Is understandable by reasonably informed users of accounting information.

Is capable of making a difference in a decision.
Can be depended on to represent the economic conditions and events that it is
intended to represent.
Is verifiable and neutral.
Question 36
Which statement is incorrect regarding recognition of the elements of financial
statements?

None of these.
Only items that meet the definition of an asset, a liability or equity are recognized
in the statement of financial position.
All items that meet the definition of one of those elements are recognized.
Only items that meet the definition of income or expenses are recognized in the
statement of financial performance.
Question 37
Which statement is incorrect regarding the Conceptual Framework for Financial
Reporting?

Serves as a guide in developing future PFRSs and as a guide to resolving

accounting issues that are not addressed directly in existing PFRSs.
Prevails in cases where there is conflict with a PFRS.
Describes the objective of, and the concepts for, general purpose financial
reporting.
Is not a PFRS and hence does not define standards for any particular
measurement or disclosure issue.
Question 38
Which statement is incorrect regarding the elements of financial statements?

The elements directly related to the measurement of financial position are assets,
liabilities and equity.
None of the above.
The elements directly related to the measurement of financial performance are
revenues and gains.
These are the grouping, into broad classes, of the financial effects of transactions
and other events according to economic characteristics.
Question 39
In accordance with the 2018 Conceptual Framework, income is defined as

Increases in assets, or decreases in liabilities, that result in increases in equity,

other than those relating to contributions from holders of equity claims.
Decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions from equity participants.
Decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to holders of equity claims.
Increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
Question 40
The IASB revised the Conceptual Framework because the previous version is

No longer useful.
No longer relevant.
None of the above.
Useful, but incomplete and needed improvements.
Question 41
The conceptual framework includes a cost-benefit constraint. Which of the following
best describes the cost-benefit constraint?

Financial information should be free from cost to users of the information.

All of the choices are correct.
Costs of providing financial information are not always evident or measurable, but
must be considered.
The benefits of the information must be greater than the costs of providing it.
Question 42
Decision makers vary widely in the types of decisions they make, the methods of
decision making they employ, the information they already possess or can obtain
from other sources, and their ability to process information. Consequently, for
information to be useful there must be a linkage between these users and the
decisions they make. This link is

Reliability.
Understandability.
Relevance.
Materiality.
Question 43
Revisions of the Conceptual Framework

Are expected every three to five years.

Will not automatically lead to changes to the Standards.
Are no longer expected after the release of the new Conceptual Framework.
Will automatically lead to changes to the Standards.
Question 44
How is the Conceptual Framework useful to auditors?

By assisting in promoting harmonization of regulations, accounting standards and

procedures relating to the presentation of financial statements by providing a basis
for reducing the number of alternative accounting treatments permitted by PFRSs.
By assisting in interpreting the information contained in financial statements
prepared in conformity with PFRSs.
By assisting in applying the accounting standards.
By assisting in forming an opinion as to whether financial statements conform to
PFRSs.
Question 45
Comparability of financial information depends on

Consistency
Neither consistency and regular reporting periods
Consistency and regular reporting periods
Regular reporting periods
Question 46
Which statement is incorrect regarding equity?

Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
The amount at which equity is shown in the balance sheet is dependent on the
measurement of assets and liabilities.
Equity may be sub-classified in the balance sheet.
 None, all the statements are correct.
Question 47
Which statement is incorrect regarding the new criteria for recognition of the elements
of financial statements?

The new criteria are intended develop a more coherent set of concepts, not to
increase or decrease the range of assets and liabilities recognized.
Both statements are correct.
Neither statements are correct.
The revised recognition criteria refer explicitly to the qualitative characteristics of
useful information.
Question 48
The objective of financial statements is to provide financial information about the
reporting entity’s assets, liabilities, equity, income and expenses that is useful to
users of financial statements in assessing

Neither statements are correct.

Both statements are correct.

Management’s stewardship of the entity’s economic resources.

The prospects for future net cash inflows to the reporting entity.
Question 49
According to the Conceptual Framework, which of the following, is the underlying
assumption relating to financial statements?

The business is expected to continue in operation for the foreseeable future

Users are assumed to have sufficient knowledge to be able to understand the
financial statements
The accounts have been prepared on an accruals basis
The information is free from material error or bias
Question 50
Which of the following is (are) essential to the existence of an asset?

Legal right
Legal right and Physical form
Neither legal right nor physical form
Physical form
Question 51
In accordance with the 2018 Conceptual Framework, historical cost
 Reflects the current amount that would be paid to acquire an equivalent asset or
received to take on an equivalent liability.
Reflects entity-specific current expectations about the amount, timing and
uncertainty of future cash flows.
Provides information derived, at least in part, from the price of the transaction or
other event that gave rise to the item being measured.
Is the price that would be received to sell an asset, or paid to transfer a liability, in
an orderly transaction between market participants at the measurement date.
Question 52
Which statement is incorrect regarding the new definition of a liability?

A liability is a present obligation of the entity to transfer an economic resource as a

result of past events.
It clarified that a liability is the obligation to transfer the economic resource, not the
ultimate outflow of economic benefits.
An obligation is a duty or responsibility that the entity has no practical ability to
avoid.

Retained the ‘expected flow’ criterion.

CASH AND CASH EQUIVALENTS

1. The “cash” account in Massaionni Company’s ledger on December 31, 2019

showed a balance of P 5,250,000 which included the following:

Petty Cash Fund 50,000

Undeposited receipts, including a post-dated customer check of
P200,000 1,300,000
Cash in Bank 2,500,000
Cash in Sinking Fund 1,000,000
Expenses paid out of collections, not yet recorded 250,000
IOUs signed by employees 150,000
5,250,000
At what amount should Massaionni Company report as “cash” in the December 31,
2019 statement of financial position?

Answer: 3,650,000

Question 2
Petty cash fund is
 Set aside for the payment of payroll

Restricted cash

Separately classified as current asset

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

Question 3

1. Leesudnani Incorporated established a petty cash fund of 50,000 for

incidental expenses on January 1, 2021. At the end of the month, the count
of cash on hand indicated that 6,704 remained in the fund. A review of the
petty cash vouchers disclosed the following expenses had been incurred
during the month:

Office supplies 3,416

Transportation 13,214
Postage 7,800
Miscellaneous 8,376
Representation 10,000
What is the amount of cash shortage?

Answer: (490)
Question 4
Saionna Company had the following account balances on December 31, 2019

Cash in Bank- current account 4,000,000

Cash in Bank- payroll account 1,500,000
Cash on Hand 500,000
Cash in Bank- restricted for equipment acquisition on 2020 1,000,000
Treasury bill purchased November 1, 2019 to mature on February
1, 2020 2,000,000
The cash on hand includes a P200,000 customer check payable to Saionna Company,
dated January 15, 2020.
1. What should be reported as cash on December 31, 2019?
2. What should be reported as cash equivalent on December 31, 2019?
Answer for blank # 1: 5,800,000 (50 %)
Answer for blank # 2: 2,000,000 (50 %)

Question 5
 In your audit of the Easy Company as of December 31, 2020, you gather the
following:
Balance per books P100,000
Balance per bank 100,000
Bank charges 250
Outstanding checks 23,750
Deposit in transit 31,250
Customer’s note collected by bank 37,550
Interest on customer’s note 1,500
Customer’s check returned NSF 6,250
Depositor’s note charged to account 25,000
1. The correct amount of cash in bank to be reported at December 31, 2020?
2. The amount of cash overage or shortage, if any. enclose your answer in
parenthesis if shortage
Answer for blank # 1: 107,500 (50 %)
Answer for blank # 2: (50) (50 %)
Question 6
As of December 31 of the current year, an entity had various checks and papers in its
safe. Which item should not be in its cash account in the current year-end balance
sheet?

US$ 20,000 cash

Another entity’s P150,000 check payable to the entity dated December 15 of the
current year

Past due promissory note issued in favor of the entity by its President

The entity’s undelivered check payable to a supplier dated December 31 of the

current year

Question 7
If the cash balance shown on a company’s accounting records is less than the correct
cash balance and neither the company nor the bank has made any errors, there must
be

Deposits credited by the bank but not yet recorded by the company

Bank charges not yet recorded by the company

 Outstanding checks

Deposits in transit

Question 8
Which of the following should not be considered cash for financial reporting
purposes?

Petty cash funds and change funds

Coin, currency and available funds

Money orders, certified checks and personal checks

Post-dated checks and IOUs

Question 9
Which is false concerning valuation of cash and cash equivalents?

If a bank or financial institution holding the funds of the company is in bankruptcy

or financial difficulty, cash should be written down to estimated realizable value

Cash equivalent should be valued at maturity value, meaning face value plus
interest

Cash is valued at face value

Cash in foreign currency is valued at the current exchange rate

Question 10
On April 1, Cassaion Company established an imprest system petty cash fund for
P10,000 by writing a check drawn against the general checking account. On April 30,
the fund contained the following:

Currency and coins 3,000

Receipts for office supplies 4,000
Receipts for postage still unused 2,000
Receipts for transportation 600
On April 30, the entity wrote a check to replenish the fund.
1. What is the amount of replenishment under the imprest fund system?
2. What is the amount of cash overage (shortage), if shortage enclose in parenthesis
the amount of your answer.
Answer for blank # 1: 7,000 (50 %)
Answer for blank # 2: (400) (50 %)
Question 11
1. The cash in bank account of S-mart, Inc. for April showed an ending
balance of P129,298. Deposits in transit on April 30 was
P18,200. Outstanding checks as of April 30, were P59,435, including a
P5,000 check which the bank had certified on April 27. During the month of
April, the bank charged back NSF checks in the amount of P3,435 of which
P1,835 had been redeposited by April 20. On April 23, the bank charged S-
Mart’s account for a P2,200 items which should have been charged against K-
mart, Inc., the error was not detected by the bank. During April, the proceeds
from notes collected by the bank for S-Mart, Inc. was P7,548 and bank charges
for this services was P18.
How much is the cash balance per bank statement on April 30?

Answer: 169,263
Question 12
Cash equivalents are

Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three months.

Short-term and highly liquid marketable equity securities.

Short-term and highly liquid investments that are readily convertible into cash.

Short-term and highly liquid investments that are readily convertible into cash and
acquired three months before maturity.

Question 13
In preparing its bank reconciliation for the month of December 2020, Saionra
Company has made available the following information:

Balance per bank statement, 12/31/20 36,050

Deposit in transit, 12/31/20 6,250
Outstanding checks, 12/31/20 5,750
Erroneous bank credit made on 12/20/20 250
Bank service charge for December 50
1.What should be the correct balance of cash at December 31, 2020?
 2.What is the amount of unadjusted cash in bank per books as at December 31,
2020?

Answer for blank # 1: 36,300 (50 %)

Answer for blank # 2: 36,350 (50 %)
Question 14
Which of the following must be deducted from the bank statement balance in
preparing a bank reconciliation which ends with adjusted cash balance?

Deposit in transit

Certified check

Outstanding check

Reduction of loan charged to the account of the depositor

Question 15
Which of the following is not a basic characteristic of a system of cash control?

Segregated responsibility for handling and recording cash

Weekly deposit of all cash received

Use of a voucher system

Internal audits at irregular intervals

Leesudnani Incorporated petty cash custodian's box at the end of the year contained
the following:

currencies and coins 2,000

Paid vouchers 3,000
employee's check marked NSF 1,000
check drawn to the order of the petty cash
custodian 4,000
envelope containing cash contributed by
employees for donation 5,000
What amount of petty cash fund should be reported in the balance sheet at year
end?

Answer: 6,000
 CASH

As of June 30, the bank statement of Considerate Co. had an ending balance of
373,612. The following data were assembled in the course of reconciling the bank
balance:
o The bank erroneously credited Considerate Co. for 2,150 on June 22.
o During the month, the bank charged back NSF checks amounting to 2,340
of which 800 had been redeposited by the 25th of June.
o Collection for June 30 totalling 10,330 was deposited the following month.
o Checks outstanding as of June 30 were 30,205.
o Notes collected by the bank for Considerate Co. were 8,150 and the
corresponding bank charges were 50.

The adjusted cash in bank balance on June 30 is

Answer: (351,587)
Question 2
The Gracious Co.’s ledger showed a balance in its cash account at December 31, 2020
of P341,125 which was determined to consist of the following:
Petty cash fund P 1,800
Cash per bank statement with a check for P3,000 still outstanding 168,375
Notes receivable in the possession of a collecting agency 12,500
Undeposited receipts, including postdated check for P5,250 and 89,000
traveler’s check for P5,000
Bond sinking fund – cash 63,750
IOUs signed by employees 2,475
Paid vouchers not yet recorded 3,225
Total P341,125

At what amount should “Cash on hand and in bank” be reported on Gracious’ balance
sheet?

Answer: (250,925)
Question 3
Confident Co. kept all cash in a checking account. The bank statement at the end of
December showed a balance of 4,235,000.
A deposit of 475,000 placed in the bank’s depository machine on December 30 does
not appear on the bank statement.
Outstanding checks on December 31 amounts to 135,000.
The bank statement showed that on December 26 the bank credited the company’s
account for 467,500, including interest of 67,500 for the proceeds of note collected.
Confident also discovered that a check issued in December for 183,000 in payment of
an account had been recorded as 138,000.
Received with the bank statement was an NSF check for 125,000 that Confident
deposited on December 26.
The bank statement showed a 7,500 service charge for December.

1. What is the adjusted cash in bank on December 31?

2. What is the unadjusted balance per books on December 31?

Answer: (4,575,000)
Answer: (4,285,000)
Question 4
The petty cash fund of Responsive Co. on December 31, 2020 is composed of the
following:
Coins and currencies 14,000
Petty cash vouchers:
Gasoline 3,000
Supplies 4,000
Cash advances to employees 2,000
Employee’s check returned by bank marked NSF 5,000
Check drawn by the company payable to the order of the petty cash
custodian, representing her salary 20,000
A sheet of paper with names of employees together with contribution
for a birthday gift of a co-employee in the amount of 5,000
Total 53,000
The petty cash ledger account has an imprest balance of P50,000.

1. What is the correct amount of petty cash on December 31, 2020?

2. How much is the amount of cash shortage on the petty cash fund?
3. How much is the amount of replenishment if the fund is replenished on December
31, 2020?

Answer: (14,000)
Answer: (22,000)
Answer: (36,000)

Question 5
The following items were included as cash in the books of Dependable Co.:
Checking account at Security Bank (1,200)
Checking account at BPI 5,335
Checking account at BDO used for payment of salaries 5,500
Postage stamps 107
Employee’s post-dated check 2,300
I.O.U. from an employee 200
A check marked “DAIF” 1,250
Postal money order 500
Petty cash fund (P324 in expense receipts) 500
Certificate of time deposit with BPI 5,000
A gold ring surrendered as security by a customer who lost his 1,500
wallet (at fair value)

The correct amount that should be reported as cash is

Answer: (11,511)
Question 6
The information below is from the books of the Cheerful Co. on June 30:
Balance per bank statement P11,164
Receipts recorded but not yet deposited in the bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160
1. Assuming no errors were made, compute the cash balance per books on June
30 before any reconciliation adjustments.
2. At what amount should the cash in bank be reported on June 30?

Answer: (10,460)
Answer: (11,404)
Question 7
Reliable Co.'s checkbook balance on December 31, 2020, was 8,000,000. In addition,
Reliable held the following items in its safe on December 31:
Check payable to Reliable Co., dated January 2, 2021, not included
500,000
in December 31 checkbook balance
Check payable to Reliable Co., deposited December 26, and included
in December 31 checkbook balance, but returned by bank on
400,000
December 29, stamped "DAIF." The check was redeposited
January 2, 2021, and cleared January 4
Check drawn on Reliable Co.'s account, payable to a vendor, dated
100,000
and recorded December 31, but not mailed until January 15, 2021
The proper amount to be shown as cash on December 31, 2020 is
Answer: (7,700,000)
Question 8
The “cash” account in Optimistic Co.’s ledger on December 31, 2020 showed a balance
of P 5,250,000 which included the following:
Petty Cash Fund 50,000
Undeposited receipts, including a post-dated customer check of
P200,000 1,300,000
Cash in Bank per bank statement, with a check for 250,000 still
outstanding 2,500,000
Deposit in a bank closed by the Bangko Sentral ng Pilipinas 1,000,000
Vouchers paid out of collections, not yet recorded 250,000
IOUs signed by employees, taken from collections 50,000
5,250,000
At what amount should Optimistic Co. report as “cash” on December 31, 2020?

Answer: (3,400,000)
Question 9
In preparing the bank reconciliation of Competent Co. on December 31, 2020, the
following data are gathered:
Balance per book 4,000,000
Bank charges 10,000
Outstanding checks 950,000
Deposit in transit 1,200,000
Customer note collected by bank 1,500,000
Interest on customer note 60,000
Customer check returned NSF 250,000
Depositor's note charged to account 1,000,000

1. What is the correct cash balance?

2. What is the amount of cash per bank statement?

Answer:(4,300,000)
Answer: (4,050,000)
Question 10
As defined in PAS 7, cash excludes

Six-month maturity time deposit

Cash on hand
Money orders
Demand deposits

Question 11
As of December 31 of the current year, an entity had various checks and papers in its
safe. Which item should not be in its cash account in the current year-end balance
sheet.

US$ 20,000 cash

Another entity's P150,000 check payable to the entity dated December 15 of the
current year

Past due promissory note issued in favor of the entity by its President

The entity's undelivered check payable to a supplier dated December 31 of the

current year

Question 12
A bank reconciliation is

A statement send by the bank to depositor on a monthly basis

A merger of two banks that previously where competitors

A schedule that accounts for the differences between an enterprise's cash

balance as shown on its bank statement and the cash balance shown in its
general ledger

A formal financial statement that lists all of the bank account balances of an
enterprise
Question 13
Petty cash fund is

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

Restricted cash
Set aside for the payment of payroll
Separately classified as current asset

Question 14
The internal control feature that is specific to petty cash is
 Assignment of responsibility
Separation of duties
Imprest system
Proper authorization
Question 15
Compensating balance

Provides a source of funds to the lender as partial compensation for the credit
extended.
Constitutes support for existing borrowing arrangements.
All of these.
Is a minimum or average balance on deposit with a bank.
Question 16
Which of the following is true regarding the imprest petty cash system?

The Petty Cash account is debited when the fund is replenished.

All of these are not true.
The imprest petty cash system in effect adheres to the rule of disbursement by
check.
Entries are made to the Petty Cash account only to increase or decrease the
size of the fund.
Question 17
If petty cashier pays a certain amount for transportation out of an imprest petty cash,
the journal entry should include

debit to transportation expense

credit to cash in bank
credit to petty cash
no journal entry is made
Question 18
In reimbursing the petty cash fund, which of the following is true?

Petty cash is debited

Petty cash is credited

Expense accounts are debited

Cash is debited
Question 19
The following statements relate to cash. Which statements is true?

The term cash equivalent refers to demand credit instruments such as money
order and bank drafts

Classification of a restricted cash balance as current or noncurrent should

parallel the classification of the related obligation for which cash was restricted

Compensating balance required by a bank should always be excluded from cash

and cash equivalents

The purpose of establishing a petty cash fund is to keep enough cash on hand
to cover all normal operating expenses for a period of time
Question 20
A cash over or short account

Is debited when the petty cash fund proves out over

Is not generally accepted
Is a contra account to cash
Is debited when the petty cash fund proves out short
Question 21
Which of the following statements is false?

Undelivered or unreleased checks should be treated as outstanding checks

Undelivered or unreleased checks should be restored to the cash balance

Post-dated checks that are delivered should be restored to the cash balance

Stale checks should be restored to the cash balance

Question 22
What happens when a petty cash is in use?

Most small amounts are paid from cash receipts before they are deposited
 Petty cash is debited when the fund is replenished

Expenses paid with petty cash are recorded when the fund is replenished

Petty cash is credited when the fund is replenished

Question 23
Which statement is correct regarding presentation of compensating balances?

Deposits held as compensating balances that are not "legally restricted" are not
shown separately. However, footnote disclosure is necessary.

Neither statements are correct.

"Legally restricted" deposits held as compensating balances should be

segregated and reported separately.

Both statements are correct.

Question 24
Which of the following statements is false pertaining to accounting for petty cash
fund?

At any time, the sum of the cash in the petty cash fund and the total of petty
cash vouchers should equal the amount for which the imprest petty cash fund
was established
Each disbursement from petty cash should be supported by a petty cash
voucher
With the establishment of an imprest petty cash fund, one person is given the
authority and responsibility for issuing checks to cover minor disbursements
The creation of a petty cash fund requires a journal entry to reflect the transfer of
fund out of the general cash account
Question 25
Which of the following statements is (are) true regarding the imprest fund system?

Statement 1 – Petty cash expenses are immediately recorded

Statement 2 – The amount of replenishment is normally equal to the petty cash

disbursements

Statement 2 only
 Both statements

Statement 1 only

None of the statements

Question 26
Which of the following should not be considered cash for financial reporting
purposes?

Money orders, certified checks and personal checks

Petty cash funds and change funds

Post-dated checks and IOUs

Coin, currency and available funds

Question 27
At December 31 of the current year, an entity had cash accounts at three different
banks.

One account balance is segregated solely for payment into a bond sinking fund.

A second account, used for branch operations, is overdrawn.

The third account, used for regular corporate operations, has a positive balance.

How should these accounts be reported in the December 31 classified balance

sheet?

The segregated and regular accounts should be reported as current assets, and
the overdraft should be reported as a current liability

The segregated account should be reported as a non-current asset and the

regular account should be reported as a current asset net of the overdraft

The segregated account should be reported as a non-current asset, the regular

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

The segregated and regular accounts should be reported as current assets net
of the overdraft
Question 28
Which statement is true?

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

The cash amount shown in the balance sheet must be the balance reported in
the bank statement

Outstanding checks will cause the cash balance per ledger to be greater than
the balance reported by the bank, all other things being equal

An error made by the bank by charging an amount to the depositor's account

requires a correcting entry in the depositor's own records

Question 29
The following data pertaining to the cash transactions and bank account of Courteous
Co. for the month of May are available to you:
Cash balance, per records, May 31 P17,194
Cash balance, per bank statement, May 31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank 125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank until June 1 4,880
Proceeds of a bank loan of May 30, net of interest of 300 5,700
Proceeds from a customer's promissory note, including interest of 100 8,100
Check No. 2772 issued to a supplier entered in the accounting records
at 2,100 but deducted in the bank statement at an erroneous amount 1,200
of
Stolen check lacking an authorized signature, deducted from
Courteous' account by the bank in error 800
Customer's check returned by the bank marked NSF; no entry has
been made in the accounting records to record the returned check 760
What is the correct cash balance at May 31?

Answer: (30,000)
Question 30
On December 31, 2020, the cash account of Affectionate Co. has a debit balance of
3,500,000. An analysis of the cash account shows the following details:

Undeposited collections P 60,000

Cash in bank-PCIB checking account 500,000
Cash in bank-PNB (overdraft) (50,000)
 Undeposited NSF check received from a customer, dated December 15,000
1, 2020
Undeposited check from a customer, dated January 15, 2021 25,000
Cash in bank-PCIB (fund for payroll) 150,000
Cash in bank-PCIB (savings deposit) 100,000
Cash in bank-PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed stock held as temporary investment 120,000
P3,500,000

1. What is the amount of cash on Affectionate’s December 31, 2020 statement of

financial position?
2. What amount of cash equivalent should be reported on December 31, 2020?

Answer: (810,000)
Answer: (2,000,000)
Question 31
Hardworking Co. had the following account balances on December 31, 2020:
Cash in bank 4,000,000
Cash in bank- payroll account 1,500,000
Cash on hand 500,000
Cash in bank- restricted for equipment acquisition on 2021 1,000,000
Time deposit made on February 1, 2020 to mature on February
1, 2021 2,000,000
The cash on hand includes a 300,000 customer check payable to Hardworking Co.,
dated January 15, 2021. Cash in bank included 500,000 of compensating balance,
which is legally restricted as to withdrawal, against short-term loan agreements.
1. What should be reported as cash on December 31, 2020?
2. How much is cash equivalent on December 31, 2020?

Answer:(5,200,000)
Answer: (0)

Question 32
On December 31, 2020, Passionate Co. had the following cash balances:
Cash in Bank 5,000,000
Petty Cash Fund 50,000
90-day Time Deposit due March 31, 2021 1,000,000
Saving Deposit 500,000
A check of P 100,000 dated December 15, 2020 in payment of accounts payable was
recorded but was mailed only on January 2, 2021.

1. What should be reported as cash on December 31, 2020?

2. How much is cash equivalent on December 31, 2020?

Answer: (5,650,000)
Answer: (1,000,000)

RECIEVABLES

New Corp has the following data relating to accounts receivable at the end of the
current year:

Accounts receivable P1,880,000

Allowance for doubtful 94,000
accounts
Allowance for sales discounts 10,000
Allowance for sales returns 15,000
Allowance for freight 3,000

What is the net realizable value?

Answer: (1,758,000)
Question 2
Tyson, Inc. reported the following balances (after adjustment) at the end of 2016 and
2015.

12/31/16 12/31/15
Total accounts
receivable P105,000 P96,000
Net accounts
receivable 102,000 94,500

During 2016, Tyson wrote off customer accounts totaling P3,200 and collected
P800 on accounts written off in previous years. Tyson's doubtful accounts
expense for the year ending December 31, 2016 is

Answer: (3,900)
Question 3
North Co. uses the aging of accounts receivable method. The following information
comes from its accounting records:
What is the amount of the bad debt expense for North?

Answer: (14,000)
Question 4
Samuel, Inc has Accounts Receivable of $200,000 and an Allowance for Doubtful
Accounts of $10,000. If it writes-off a $1,000 account, its net accounts receivable is:

(190,000)
Question 5
A method of estimating doubtful accounts that focuses on the income statement
rather than the statement of financial position is the allowance method based on

Balance of accounts receivable

Direct write off
Credit sales
Aging of trade accounts receivable
Question 6
Nontrade receivables are classified as current assets only if they are reasonably
expected to be realized in cash

Within one year or the normal operating cycle, whichever is longer

Within one year or normal operating cycle, whichever is shorter
Within one year, the length of the operating cycle notwithstanding
Within the normal operating cycle
Question 7
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

Have no effect in the allowance for doubtful accounts

Increase net income
Decrease the allowance for doubtful accounts
Have no effect of net income
Question 8
Which of the following methods of determining annual bad debt expense best
achieves the objective of properly valuing the receivables in the statement of financial
position?
 Percentage of sales
Direct write off
Percentage of average accounts receivable
Percentage of ending accounts receivable
Question 9
Trade receivables are classified as current assets when they are reasonably
expected to be collected

Within one year or within the normal operating cycle, whichever is longer
Within one year
Within the normal operating cycle
Within one year or within the normal operating cycle, whichever is shorter
Question 10
An entity uses the allowance method for recognizing doubtful accounts. The entry to
record the writeoff of a specific uncollectible account

Decreases both net income and accounts receivable

Affects neither net income nor accounts receivable
Decreases both net income and working capital
Affects neither net income nor working capital
Question 11
Which of the following is used to account for probable sales discounts, sales returns
and sales allowances in relation to factoring of accounts receivable?

Neither factor's holdback nor recourse liability

Both factor's holdback and recourse liability

Factor's holdback

Recourse liability
Question 12
Which of the following is true when accounts receivable are factored without
recourse?

The transaction may be accounted either as a secured borrowing or as sale

The factor assumes the risk of collectability and absorbs any credit losses in
collecting the accounts receivable
 The financing cost should be recognized ratably over the collection period of the
receivables.
The receivables are used as collateral for a promissory note used to the factor
Question 13
It is a predetermined amount withheld by a factor as a protection against customer
returns, allowances and other special adjustments

Factor's holdback or due from factoR

Service charge
Equity in assigned accounts
Commission
Question 14
Which of the following is not permitted for accounting for material amount of
uncollectible accounts receivable?

Direct write-off method.

Percentage of accounts receivable using allowance method.
All of the choices are acceptable.
Percentage of sales using allowance method.
Question 15
When the allowance method of recognizing uncollectible account is used, the entry to
record the writeoff of a specific account would

Decrease both accounts receivable and the allowance for uncollectible accounts
Decrease accounts receivable and increase the allowance for uncollectable
accounts
Decrease both accounts receivable and net income
Increase the allowance for uncollectable accounts and decrease net income.
Question 16
Credit balances in accounts receivables should be classified as

Noncurrent liability
Deduction from accounts receivable
Part of accounts payable
Current liability
Question 17
A method of estimating doubtful accounts that emphasizes asset valuation rather
than income measurement is the allowance method based on
 Direct writeoff
Aging of accounts receivable
Credit sales less sales returns and allowances
Gross sales
Question 18
Why would a company sell receivables to another company?

To accelerate access to amounts collected.

To limit its legal liability.
To improve the quality of its credit granting process.
To comply with customer agreements.
Question 19
Which of the following should be recorded in accounts receivable?

Receivable from officers

Dividends receivable
None of these
Receivables from subsidiaries
Question 20
Sleeping Corporation factored P600,000 of accounts receivable to Beauty Finance
Co. Control was surrendered by Sleeping. Beauty accepted the receivables subject
to recourse for nonpayment. Beauty assessed a fee of 3% and retains a holdback
equal to 5% of the accounts receivable. In addition, Beauty charged 15% interest
annually computed on a weighted-average time to maturity of the receivables of 54
days (use 365 days in a year). The fair value of the recourse obligation is P9,000.
(round off answers to nearest peso)

1. Sleeping will receive and record cash of

2. Assuming all receivables are collected, Sleeping’s cost of factoring the receivables
would be
Answer: (538,685)
Answer: (31,315)
Question 21
XYZ Corp. uses the percentage of credit sales method in determining its bad debt
expense. The following information comes from the accounting records of XYZ Corp.:

What is the bad debt expense for the year?

Answer: (29,000)
Question 22
On December 1, Caoayan Company assigned on a nonnotification basis accounts
receivable of P5,000,000 to a bank in consideration for a loan of 90% of the
receivables less a 5% service fee on the accounts assigned. Caoayan signed a note
for the bank loan. On December 31, Caoayan collected assigned accounts of
P3,000,000 less discount of P200,000. Caoayan remitted the collections to the bank
in partial payment for the loan. The bank applied first the collection to the interest
and the balance to the principal. The agreed interest is 1% per month on the loan
balance.

1. In its December 31 statement of financial position, Caoayan should report note

payable as a current liability at?

2. As at December 31 how much is Caoayan's Equity in accounts receivable

assigned

Answer: (1,745,000)
Answer: (255,000)
Question 23
1. On June 9, Seller Corp. sold merchandise with a list price of P5,000 to Buyer
on account. Seller allowed trade discounts of 30% and 20%. Credit terms
were 2/15, n/40 and the sale was made FOB shipping point. Seller prepaid
P200 of delivery costs for Buyer as an accommodation. On June 25, Seller
received from Buyer a remittance in full payment amounting to

Answer: (3,000)