wo PROBLEMS PROBLEM 1: TRUE OR FALSE 1, 10. All events and transactions of an entity are recognized the books of accounts. The accounting process of assigning numbers, commonly in monetary terms, to the economic transactions and events is referred to as classifying. The basic purpose of accounting is to provide information about economic activities intended to be useful in making economic decisions. Financial accounting is the branch of accounting that focuses on general purpose reports of financial position and operating results known as the financial statements. General purpose financial statements are those statements that cater to the common and specific needs of a wide range of external users. The financial statements are the only source of information when making economic decisions. All information presented in the financial statements are sourced from the accounting records of the entity. Entity A’s accounting period starts on July 1 and ends on June 30 of the following year. Entity A uses a fiscal year period. Once promulgated, accounting standards are never changed. The entity's management is responsible for the selection of appropriate accounting policies, not the accountant. PROBLEM 2: MULTIPLE CHOICE 1. The concept of recognition is applied in which of the following instances? a. An entity includes the effects of an event in the financial statements through a journal entry. b. An entity Temoves the effects of an event from the financial statements through a journal entry.w of Accounting 2 c. Anentity discloses only an event in the notes, rather than including the effects of the event in the monetary totals in the financial statements. d, Anentity records an event through a memorandum entry. Which of the following events is not considered an exchange or reciprocal transfer? a. purchase of inventory on account b. lending money to another entity c. payment of a loan payable d. payment of taxes Which of the following events is considered a nonreciprocal transfer? a. sale of anasset c. loss from a calamity b. donation d. production of finished goods To be useful, accounting information should be presented using a. monetary amounts. c. historical costs. b. acommon denominator. d. fair values. Which of the following violates the historical cost concept? Recording purchases of merchandise inventory at the purchase price. b. Recording a building at the total construction costs. Measuring inventories at net realizable value. equipment acquired in an installment a. c d. Recording an purchase at the cash price equivalent. Entity A values its fixed assets at their historical costs and does not restate them for changes in the purchasing power of the Philippine pesos due to inflation. Entity A is applying which of the following accounting concepts? cc. stable monetary unit a. prudence d..time period b. accrual basisBO A 10. Entity A engages in importing and exporting seu At the end of the period, Entity A has assets an liabiliteg denominated in foreign currencies. When preparing its financial statements, Entity A translates these assets ang liabilities to pesos. Entity A is most likely to be applying which of the following accounting concepts? a, double entry c. stable monetary unit b. accrual basis d. time period Preparing financial statements at least annually is an application of which of the following accounting concepts? a. historical cost c. stable monetary unit b. accrual basis d. time period Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the inventory as asset rather than an outright expense. When the inventory is subsequently sold, Entity A recognizes the cost of the inventory sold as expense, in the same period the sale revenue is recognized. This is an application of which of the following accounting concepts? a. stable monetary unit c. matching b. materiality d. proprietary On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day 30. Entity A recognizes sales ° revenue on Day 1 rather than on Day 30. This is an application of which of the following accounting concepts? a. prudence ¢. consistency b. accrual basis d, materiality31 of Accounting pROBLEM 3: MULTIPLE CHOICE 1 All of the following are considered internal events, except a. transfer of goods from work-in-process to finished goods inventory b. losses from flood, earthquake, fire and other calamities transformation of biological assets from immature to mature d, vandalism committed by the entity's employees Which of the following is considered an internal user of Entity A's financial reports? a. Entity B, a bank, requires Entity A to submit audited financial statements in conjunction to a loan being applied for by Entity A. b. Mr. Lis deciding whether to invest in Entity A. Mr. I uses Entity A’s financial statements in making its investment decision. Ms. §, a shareholder of Entity A, is deciding whether to hold or sell her shareholdings in Entity A. Ms. S uses Entity A’s financial statements in making its “hold or sell” decision. d. Mr. X, a member of Entity A’s board of directors, uses financial reports to make decisions regarding the financial and operational affairs of Entity A. When resolving accounting problems not specifically addressed by current standards, an entity shall be guided by the hierarchy of financial reporting standards. The ‘correct sequence of the hierarchy of financial reporting standards in the Philippines is PASs, PFRSs and Interpretations Conceptual Framework. Judgment Pronouncement of other standard-setting bodies a. 1, I, Hf and [V c. LIV, Mand OLFs b. LIL Wand Ill d.I, If, land Iv j 4. The proper application of accounting principles is Most dependent upon the c. auditor. a. management. ] b. accountant. d. chief executive officer. j 5. Which of the following statements is correct? a. Accounting provides quantitative information only, b. Accounting is considered an art because it requires the use of creative skills and judgment. c. The only acceptable measurement basis in accounting jg historical cost. d. Qualitative information can be found only in the notes to the financial statements. 6. Which of the following statements is correct? a, All quantitative information are also financial in nature. b. The accounting process of assigning peso amounts to economic transactions and events is measuring. c. The economic activity that involves using current inputs to imerease the stock of resources available for output is called savings. d. The economic activity of using the final output of the production process is called income distribytion. 7. Which of the following statements is incorrect regarding accounting concepts? a. Under the Accrual Basis of accounting, revenues ale recognized when earned and expenses are recognized when incurred, not when cash is received and disbursed. b. Under the Going concern concept, the business entity is assumed to carry on its operations for an indefinite period of time. ae |Overview of Accounting 33 10. c. Under the Business entity/ Separate entity/ Entity/ Accounting entity Concept, the business is treated separately from its owners, d. Under the Time Period/ Periodicity/ Accounting Period concept, the life of the business is divided into series of reporting periods. e. Under the Cost-benefit concept, the cost of processing and communicating information should exceed the benefits derived from it. Which of the following statements is incorrect? a. Financial reporting standards may at times be influenced by legal, political, business and social environments. b. General-purpose financial statements must be prepared by a Certified Public Accountant. c. General purpose financial statements are prepared primarily for the use of external users. d. The PFRSs ‘are issued by the Financial Reporting Standards Council. Mr. John Doe, CPA, is a professor in a’university where he teaches mainly home economics, music and physical education. Those subjects require that the teacher must be awesome. Mr. Doe is also frequently invited as a judge in beauty pageants and singing contests and as a referee in mixed martial arts competitions. Mr. Doe is considered to be practicing accountancy in which of the following sectors? c. Commerce and industry a, Academe d. None of these b. Public accounting Changes to reporting standards are primarily made in response to a. government regulations. b, users’ needs. c. global modernization. d. all of theseer PROBLEM 4: FOR CLASSROOM DISCUSSION Events 1, Entity A buys bananas and The conversion of bananas 1n| a. non-accountable event . b. external event. converts them into banana chips to banana chips is a (an) c. non-reciprocal transfer, | d. internal event. j | Valuation by fact or opinion | 2. Which of the following is considered valued by fact rather | than by opinion? a. Depreciation b. Cost of goods sold cc. Discount on share capital d. Retained earnings Measurement Bases 3. Which of the following is not one of the several measurement bases used in accounting? a. historical cost b. fair value c. present value d. all of these are used Accounting Concepts 4. Entity Ais owned by Mr. X and Ms. Y. Which of the following transactions does not violate the separate entity concept and therefore is appropriately recorded in the accounting records of Entity A? a. Mr. X purchases groceries for his home consumption. b. Mr. X gives Ms. Y chocolate and flowers on Valentine's Day. c. Ms. ¥ provides capital to Entity A. d. Ms. Y provides capital to Entity B, another business entity. 5. Mr. A is assessing the ability of Entity A to generate future cash and cash equivalents. In making the assessment, Mr. A uses not only the statement of cash flows but also the other components of a complete set of financial statements. This is because of which of the following concepts? fTateleeOverview of Accounting - Se a. Going concern c. Intercalation b. Time period d. Articulation 6. Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an asset to be subsequently depreciated, Entity A immediately charges it as expense. This is an application of which of the following concepts? a. Prudence c. Cost-benefit b. Materiality d.bandc Common branches of accounting 7. What type of users’ needs is catered by general purpose financial statements? a. common needs c.aandb b. specific needs, d. neither a nor b Four sectors in the practice of accountancy 8. Which of the following is not among the Four Sectors in the practice of accountancy as enumerated in R.A. 9298 also known as the “Philippine Accountancy Act of 2004”? a. Practice in Commerce and Industry b. Practice in the Government ¢. Practice in Education/Academe d. Practice of Private Accountancy Accounting standards 9. The Philippine Financial Reporting Standards (PERSs) comprise: I. __ Philippine Financial Reporting Standards Il. Philippine Accounting Standards Tl. Interpretations IV. Accounting Practice Statements and Implementation Guidance a. 1, Hand Ml b. LIL Uland IV c. Land IE di land OF36 ae 10. Which of the following statements is incorrect Tegarding the PERSs? a. The PFRSs are based on the IFRSs , b. The financial reporting standards used in the Philippine, are the same as those used globally. c. The PFRSs have higher authority than the PASs an, 4 Interpretations. d. The PFRSs are accompanied by guidance. The use of such guidance is sometimes mandatory and sometimes optional.