AFAR Test Bank

1. Which of the following procedures is not a necessary step affecting a dissolution of partnership?

a. Revaluing partnership assets

b. Recognizing undistributed profit or loss share of partner at dissolution date
c. Closing of partnership books
d. Revising partners’ equity

2. In case of general partnership liquidation, which of the following credits shall be settled first by the
liquidating partner?

a. Those owing for partner’s capital contribution

b. Those owing to third persons
c. Those owing for the share in partnership profits
d. Those owing to partners for their advances to partnership

3. Which of the following transactions will not affect the total equity of a partnership?

a. Recognition of impairment loss in case of admission of a new partner by investment

b. Withdrawal by a partner
c. Admission of a new partner by purchase of existing partner’s interest below its book value
d. Retirement of an existing partner with payment of above the book value of such interest

4. A partner was admitted in an existing partnership through investment of cash equivalent to ¼ of the new
Capitalization. If the capital balance of the old partners increases, what is the most valid reason
Philippine GAAP?

a. Asset revaluation of existing partnership’s assets

b. Impairment loss of existing partnership assets
c. recognition of goodwill of existing partnership
d. Receipt of bonus from the new partner

5. Which of the following transactions will increase the normal balance of home office account in the
separate statement of the financial position of the branch?

a. Collection by the home office of branch’s receivable

b. Debit memo received from the home office
c. Credit memo issued by the home office
d. Payment by the branch of home office’s loans payable

6. In translating the financial statements of an entity from its functional currency to its different
presentation currency, which of the following statements is incorrect?

a. Income and expense accounts shall be translated at exchange rates at the dates of the
transactions.
b. Resulting exchange gain or loss arising from translation shall be recognized in profit or loss.
c. Equity accounts other than retained earnings shall be translated using exchange rates at the dates
of the transactions.
d. Assets and liabilities, whether monetary or nonmonetary, shall be translated at the closing rate of
the statement of financial position.

7. When the results and financial position of an entity whose functional currency is the currency of a
hyperinflationary economy, what is the rate to be used when translating income and expense accounts
into a different currency?

a. At the closing rate at the date of the most recent statement of financial position
 b. At the exchange rates at the dates of the transactions
c. At the average rate during the year
d. At the exchange rate at the beginning of the year

8. In June 2017, Ralph hospital purchased medicines from winner Pharmaceutical Co. at a cost of P5000.
Winner notified Ralph that the invoice was being cancelled, and the medicines were being donated to
Ralph. Ralph should record this donation of medicines as

a. A memorandum entry only

b. Other operating revenue of P5,000
c. A P5,000 credit to operating expenses
d. A P5,000 credit to non-operating expenses

9. Which of the following shall be properly classified as unrestricted net asset in the statement of financial
position of the non-profit educational institution?

a. Fund whose principal is require to be invested indefinitely

b. Fund designated by the board for construction of building
c. Fund which is restricted by the donor to be non-expendable for until 2020
d. Fund which is held in trust by the institution for the benefit of the different school organization

10. SUPLEX Inc. enters into an arrangement under which it will build and operate a toll bridge. Company B
is entitled to charge users for driving over the toll bridge for the period from the completion of
construction until 1 million cars have driven across the bridge, at which point the concession
arrangement will end. SUPLEX Inc. incurred a total cost of P1B for the construction of the toll bridge.
How shall SUPLEX Inc. account for its infrastructure asset?

a. It shall be classified and treated as financial asset

b. It shall be bifurcated into intangible asset and financial asset
c. It shall be classified and treated as intangible asset to be amortized using straight line method of
presumed life of 10 years.
d. It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit
method of 1 million cars.

11. Under PAS 39, all of the following are characteristics of a derivative except

a. Its value changes in response to the change in a specified underlying (e.g., interest rate, financial
instrument price, commodity price, foreign exchange rate, etc.).
b. It requires no initial investment or an initial net investment that is smaller than would be required
for other types of contracts that would be expected to have a similar response to changes in
market factors.
c. It is settled at a future date.
d. It is required or incurred by the entity for the purpose of generating a profit from short-term
fluctuations in market factors.

12. Which statement is correct regarding forward contracts?

a. The party that sells the underlying asset in the contracts is said to have a long position.
b. The party that buys the underlying asset in the contract pays the seller a fee to compensate the
seller for the risk of payments.
c. These contracts are generic exchange-traded
d. Settlement is at maturity by actual delivery of the item specified in the contract, or by a net cash
settlement

13. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the following conditions
exist, except

a. Its parent prepares consolidated financial statements that comply with IFRS
 b. It has one class of stock
c. It does not have any debt or equity instruments publicly traded
d. It is wholly owned as its owners do not object to non-consolidation

14. A not-for profit entity has all of the following characteristics except that it will

a. Have positive fund balance

b. Not possess ownership interests like a corporation
c. Operate for purposes other than to provide goods or services
d. Receive significant contributions from providers who do not expect returns

15. A not-for-profit entity has all of the following characteristics except that it will

a. Have positive fund balance

b. Not possess ownership interests like a corporation
c. Operate for purposes other than to provide goods or service
d. Receive significant contributions from providers who do not expect returns

16. Under IFRS a parent may exclude a subsidiary from consolidation only if all of the following conditions
exist, except

a. Its parent prepares consolidated financial statements that comply with IFRS
b. It has one class of stock
c. It does not have any debt or equity instruments publicly traded
d. It is wholly owned as its owners do not object to no consolidation

17. JUMBO Corp. uses the percentage-of-completion method of revenue recognition in accounting for its
long-term construction contracts. JUMBO Corp.’s progress billings account is a

a. Revenue account
b. Non-current liability account
c. Contra current asset account
d. Contra non-current asset account

18. It is generally presumed that an entity is a variable interest entity subject to consolidation if its equity is

a. Less than 10% of total liabilities

b. Less than 50% of total assets
c. Less than 10% of total liabilities
d. Less than 25% of total assets

19. Sagip Kapatid Charities, a not-for-profit agency, receives free electricity on a continuous basis from a
local utility company. The utility company’s contribution is made subject to cancellation by the donor.
Sagip Kapatid Charities should account for this contribution as a(n)

a. Restricted revenue only.

b. Restricted revenue and an expense.
c. Unrestricted revenue only.
d. Unrestricted revenue and an expense.

20. A partnership in liquidation has converted all assets into cash and paid all liabilities. The order of
payment

a. Will have amounts owed by partners other than for capital and profits take precedence over
amounts due to partners with respect to their capital accounts.
b. Will be by any manner that is both reasonable and rational for the partnership.
c. will be according to the partners’ residual profit and loss sharing ratios.
d. Will have amounts due to partners with respect to their capital accounts take precedence over
amounts owed by partners other than for capital and profits.

21. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s interest
exceeded Mill’s capital balance. Under the bonus method, the excess
 a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

22. Franchise fees are properly recognized as revenue

a. when received in cash.

b. when a contractual agreement has been signed.
c. after the franchise business has begun operations.
d. after the franchiser has substantially performed its service.

23. A silent partner in a general partnership

a. Helps manage the partnership without letting those outside the partnership know this.
b. Retains unlimited liability for the debts of the partnership.
c. Both of the above is correct.
d. None of the above is correct.

24. If the Alaska Museum, a not-for-profit organization, received a contribution of historical artifacts, it
need not recognize the contribution if the artifacts are to be sold and the proceeds used to

a. Support general museum activities.

b. Acquire other items for collections.
c. Repair existing collections.
d. Purchase buildings to house collections.

25. A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an
unrecognized firm commitment, is classified as a

a. Fair value hedge.

b. Cash flow hedge.
c. Foreign currency hedge.
d. Underlying.

26. In general, an acquirer measures and accounts for assets acquired and liabilities assumed or incurred in a
business combination after the business combination has been completed in accordance with other
applicable IFRSs. However, which of the following that the International Financial Reporting Standards
3 Business Combinations (IFRS 3) specifically provides accounting requirements?

a. reacquired rights
b. contingent liabilities
c. contingent consideration
d. insurance contracts.

27. To determine whether it controls an investee an investor shall assess whether it has all the following,
except:

a. the purpose and design of the investor

b. exposure, or rights, to variable returns from its involvement with the investee
c. the ability to use its power over the investee to affect the amount of the investor's returns
d. power over the investee.

28. Which of the following is true?

a. In a joint arrangement, a single party controls the arrangement on its own.

b. An arrangement can be a joint arrangement when all of its parties have joint control of the
arrangement.
c. An entity that is a party to an arrangement shall assess whether the contractual arrangement
gives all the parties, or a group of the parties, control of the arrangement individually.
 d. A party with joint control of an arrangement can prevent any of the other parties, or a group
of the parties, from controlling the arrangement.

29. IFRS 4 Insurance Contracts applies to the following except:

a. Insurance contracts
b. Product warranties issued directly by a manufacturer, dealer or retailer
c. Financial instruments that it issues with a discretionary participation feature
d. Reinsurance contracts.

30. FASB favors consolidation of two entities when

a. One acquires less than 20% equity ownership of the other.

b. One company’s ownership interest in another gives it control of the acquired company, yet the
acquiring company does not have a majority ownership in the acquired. Typically, this is in the
20%-50% interest range.
c. One acquires two thirds equity ownership in the other.
d. One gains control over the entity, irrespective of the equity percentage owned.

31. Michangelo Co. paid $100,000 in fees to its accountants and lawyers in acquiring Florence Company.
Michangelo will treat the $100,000 as

a. An expense for the current year.

b. A prior period adjustment to retained earnings.
c. Additional cost to investment of Florence on the consolidated balance sheet.
d. A reduction in paid-in capital.

32. Picasso Co. issued 10,000 shares of its $1 par common stock, valued at $400,000, to acquire shares of
Bull Company in an all-stock transaction. Picasso paid the investment bankers $35,000. Picasso will
treat the investment banker fee as:

a. An expense for the current year.

b. A prior period adjustment to retained earnings.
c. Additional goodwill the consolidated balance sheet.
d. A reduction in paid-in capital.

33. Durer Inc acquired Sea Corporation in a business combination and Sea Corp went out of existence. Sea
Corp developed a patent listed as an asset on Sea Corp’s books at the patent office filing cost. In
recording the combination:

a. Fair value is not assigned to the patent because the research and development costs have been
expensed by Sea Corp.
b. Sea Corp’s prior expenses to develop the patent are recorded as an asset by Durrer at purchase.
c. The patent is recorded as an asset at fair market value.
d. The patent’s market value increases goodwill.

34. According to FASB Statement 141, which one of the following items may not be accounted for as an
intangible asset apart from goodwill?

a. A production backlogs.
b. A talented employee workforce.
c. Non-contractual customer relationships.
d. Employment contracts.

35. Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as

a. Advances to the partnership for which interest shall be paid from the date of the advance.
b. Advances to the partnership that are carried in the partner’s capital accounts.
c. Accounts payable of the partnership for which interest is paid.
d. Advances to the partnership for which interest does not have to be paid.

36. A partner assigned his partnership interest to a third party. Which statement best describes the legal
ramifications to the assignee?
 a. The assignment of the partnership interest does not entitle the assignee to partnership assets upon
a liquidation.
b. The assignment dissolves the partnership.
c. The assignee has the right to share in the management of the partnership.
d. The assignee does not become a partner but has the right to share in future partnership profits and
to receive the proper share of partnership assets upon liquidation.

37. In the Uniform Partnership Act, partners have

I. mutual agency.
II. unlimited liability.

a. I only.
b. II only.
c. I and II.
d. Neither I nor II.

38. Partnerships

a. are required to prepare annual reports.

b. are required to file income tax returns but do not pay Federal taxes.
c. are required to file income tax returns and pay Federal income taxes.
d. are not required to file income tax returns or pay Federal income taxes.

39. Langley invests his delivery van in a computer repair partnership with McCurdy. What amount should
the van be credited to Langley’s partnership capital?

a. The tax basis.

b. The fair value at the date of contribution.
c. Langley’s original cost.
d. The assessed valuation for property tax purposes.

40. A not-for-profit entity has all of the following characteristics except that it will

a. operate for purposes other than to provide goods or service at a profit.

b. have a positive fund balance.
c. not possess ownership interests like a corporation.
d. receive significant contributions from providers who do not expect returns.

41. A governmental not-for-profit entity has which of the following characteristics?

a. It must have a positive fund balance.

b. It must only operate on US soil.
c. A government can void tax regulations for the entity.
d. A government can unilaterally dissolve the entity.

42. In accounting for private, not-for-profit organizations, revenues and expenses are reported at _________
amounts and most gains and losses are reported at ___________ amounts.

a. net, gross
b. gross, net
c. gross, gross
d. net, net

43. When the temporary-use restriction on a charitable donation is satisfied, which of the following is not
reported?

a. Net assets released from restrictions in changes in temporarily restricted net assets.
b. Net assets released from restrictions on the statement of cash flows.
c. Expenses as changes in unrestricted net assets.
d. Net assets released from restrictions in changes in unrestricted net assets.

44. Under FASB not-for-profit accounting guidance, an unconditional transfer of cash or other assets to an
entity, or a settlement or cancellation of its liabilities in a voluntary, non-reciprocal transfer, is called a(n)

a. unconditional promise to give.

 b. Contribution.
c. conditional promise to give.
d. residual equity transfer.

45. Which of the following statements is false?

a. The preparation of combined statements necessitates the elimination of reciprocal accounts

b. The recording of reported branch net income on the home office books represents a home office
closing entry.
c. The procedures in recording the home office and branch income accounts are essentially the
same as that of the bank reconciliation statement
d. While the branch financial statements may be prepared for internal reporting purposes, external
accounting reports reflects the activities and practices of the company as a whole.

46. At the time of liquidation of general partnership, which of the ff credits should be settled first by the
liquidating partner?

a. Liabilities of the partnership to the co-partners.

b. Liabilities of the partnership to the third person.
c. Liabilities of the partnership to the partnership.
d. Liabilities of the partnership to the family.

47. Under PFRS 15, when shall the consignor recognizes the revenue from consignment sales arrangement?

a. From the moment of the remittance of the consignee.

b. From the moment of the collection of the consignee of the sales of the products
c. From the moments the consignor delivers the goods to the consignee.
d. From the moment the consignee sells the goods to the final customer.

48. Under PFRS 15, what is the criteria before entity may recognize the incremental costs of obtaining the
contract?

a. If the entity expects to recover those costs.

b. If the entity receives the costs from the customer.
c. If the customer signs the contract with the entity.
d. If the customer violates the contract with the entity.

49. Under PFRS 15, what is the proper measurement of revenue from contract with customers if the entity
received a non-cash consideration?

a. Book value of the consideration received.

b. Historical cost of the consideration received
c. Fair value of the consideration received
d. Stand-alone selling price

50. What is the reason for the understatement of the net income reported by the branch in its separate income
statement?

A. Overstatement of cost of goods sold reported by the branch due to goods acquired from the home
office.
B. Overstatement of cost of goods sold reported by the branch due to goods acquired from the branch.
C. Overstatement of ending inventory reported by the branch due to goods acquired from the home
office.
D. Overstatement of purchases reported by the branch due to goods acquired from the home office.

51. Which of the following will increase the COGS for the year ended?

a. Increase in Raw Materials inventory during the year

b. Increase in WIP inventory during the year
c. Decrease in Raw Materials inventory during the year
 d. Decrease in WIP inventory during the year

52. What is the accounting treatment of material over application or under application of factory overhead in
normal costing?

a. It shall be closed to COGS only

b. It shall be closed to expenses
c. It shall be expense when incurred.
d. It shall be closed proportionately to work in process ending inventory, finished goods inventory and
COGS.

53. A credit balance in the materials price variance indicates

a. Actual price exceeds standard price.

b. Standard price exceeds the actual price
c. Actual quantity exceeds the standard quantity.
d. Standard quantity exceeds the actual quantity

54. Which of the following method should be used if the company ends all processing at the split off point
and wants to use joint allocation method that considers the revenue-producing-ability of each product?

a. Replacement cost method

b. Approximated NRV method
c. Relative sales value method
d. Physical units method

55. What is the difference between the Weighted Average EUP and First in-First out EUP?

a. Completed proportion of WIP Beginning

b. Completed portion of WIP beginning
c. Uncompleted portion of WIP Beginning
d. Uncompleted portion of WIP ending

56. Which of the ff costs will be properly classified as prime costs?

a. Factory overhead costs and direct material costs

b. Factory overhead costs and direct labor costs
c. Direct material and direct labor costs
d. Indirect labor costs and indirect material costs

57. Which of the ff transactions will result to credit in home office account in the book of Pasig Branch?

a. Reported net loss of the Pasig branch

b. Payment by Pasig branch of home office’s liability
c. Return by Pasig branch to home office of merchandise
d. Collection by Pasig branch of Pasay branch receivable.

58. What is the accounting treatment of material net realizable value of by-product?

a. Deduction from cost of sales of main products

b. Addition to sales revenue of main products
c. Presented as other income
d. Deduction form total joint cost

59. Which of the following is a reason why a company would expand through a combination, rather than by
building new facilities?

a. A combination might provide cost advantages.

 b. A combination might provide fewer operating delays
c. A combination might provide easier access to intangible assets.
d. All of the above are possible reasons that a company might choose a combination

60. A business combination in which a new corporation is created and two or more existing corporations are
combined into the newly created corporation is called a

a. Merger
b. Purchase transaction
c. Pooling-of-interest
d. Consolidation

61. A business combination occurs when a company acquires an equity interest in another entity and has

a. at least 20% ownership in the entity

b. more than 50% ownership in the entity.
c. 100% ownership in the entity
d. control over the entity, irrespective of the percentage owned

62. In a merger, which of the following will occur?

a. A merger occurs when one corporation takes over the operations of another business entity, and
the acquired entity is dissolved
b. None of the business entities will be dissolved.
c. The acquired assets will be recorded at book value by the acquiring entity
d. None of the above is correct

63. Which of the following conditions would not indicate that two business segments should be classified as a
single operating segment?

a. They have similar amounts of intersegment revenues or expenses.

b. They have a similar distribution of products.
c. They have similar production processes
d. They have similar products or services

64. An enterprise uses a branch accounting system in which it establishes separate formal accounting systems
for its home office operations and its branch office operations. Which of the following statements about
this arrangement is false?

a. The home office account on the books of a branch office represents the equity interest of the home
office in the net assets of the branch.
b. The branch office account on the books of the home office represents the equity interest of the
branch office in the net assets of the home office.
c. The home office and branch office accounts are reciprocal accounts that must be eliminated in the
preparation of the enterprise’s financial statements that are presented in accordance with GAAP.
d. Unrealized profit from internal transfers between the home office and a branch must be eliminated
in the preparation of the enterprise’s financial statements that are presented in accordance with
GAAP.

65. VERDI, Inc. has several branches. Goods costing P10,000 were transferred by the head office to Cebu
Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized Cebu Branch
to transfer the goods to Davao Branch for which the latter was billed for the P10,000 cost of the goods and
freight charge of P200 for the transfer. If the head office had shipped the goods directly to Davao Branch,
the freight charge would have been P700. The P100 difference in freight cost would be disposed of as
follows:

a. Considered as savings.
b. Charged to Davao Branch.
c. Charged to Cebu Branch.
 d. Charged to the Head Office.

66. The partnership agreement is an express contract among the partners (the owners of the business). Such an
agreement generally does not include

a. A limitation on a partner’s liability to creditors.

b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution.

67. A partnership records a partner’s investment of assets in the business at

a. The market value of the assets invested.

b. A special value set by the partners.
c. The partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement

68. When property other than cash is invested in a partnership, at what amount should the noncash property
be credited to the contributing partner’s capital account?

a. Fair value at the date of recognition.

b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis

69. When property other than cash is invested in a partnership, at what amount should the noncash property
be credited to the contributing partner’s capital account?

a. Fair value at the date of contribution.

b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

70. Four individuals who were previously sole proprietors form a partnership. Each partner contributes
inventory and equipment for use by the partnership. What basis should the partnership use to record the
contributed assets?

a. Inventory at the lower of FIFO cost or market.

b. Inventory at the lower of weighted-average cost or market.
c. Equipment at each proprietor’s carrying amount.
d. Equipment at fair value.

71. The goodwill and bonus methods are two means of adjusting for differences between the net book value
and the fair value of partnerships when new partners are admitted. Which of the following statement about
these methods is correct?

a. The bonus method does not revalue assets to market values.

b. The bonus method revalues assets to market values.
c. Both methods result in the same balances in partner capital accounts.
d. Both methods result in the same total value of partner capital accounts, but the individual capital
accounts vary.

72. In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1,
respectively. The bonus method was used to record Colter’s admittance as a new partner. What ratio
would be used to allocate, to Adel and Brick, the excess of Colter’s contribution over the amount credited
to Colter’s capital account?

a. Adel and Brick’s new relative capital ratio.

b. Adel and Brick’s new relative profit and loss ratio.
c. Adel and Brick’s old capital ratio.
 d. Adel and Brick’s old profit and loss ratio.

73. If the partnership agreement does not specify how income is to be allocated, profits should be allocated

a. Equally.
b. In proportion to the weighted-average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of the
partnership
d. In accordance with an established ratio

74. The result of acquiring control of one or more enterprises by another enterprise or the uniting of interest
of two or more enterprises.

a. Business combinations.
b. Merger.
c. Business consolidation.
d. Pooling of interests.

75. Financial reporting by nonbusiness organizations should provide information useful in

a. Making resource allocation decisions.

b. Assessing services and the ability to continue to provide services.
c. Assessing management stewardship and performance.
d. All of the answers are correct.

76. Stockholders of one company give up their stock in exchange for the stock of the other company, they
continue to be stockholders, but now in the expanded entity.

a. None of these.
b. Leverage of trading on equity.
c. Acquisition method of recording a combination.
d. Pooling of interests.

77. A business combination accounted for by the pooling of interest method

a. Records direct acquisition costs as part of the cost of investment.

b. Reports results of operations only for the period in which the combination occurs.
c. After the combination, carries the balance sheet amounts at fair market value.
d. Reports results of operations for the period in which the combination occurs as though the
enterprises had been combined at the beginning of the period

78. For the past several years, Mozza Co. has invested in the common stock of Chedd Co. Mozza currently
owns approximately 13% of the total of Chedd’s outstanding voting common stock. Recently,
managements of the two companies have discussed a possible combination of the two entities. If they do
decide to combine, the resulting combination should be accounted for as a

a. Pooling of interests.
b. Part purchase, part pooling.
c. Purchase.
d. Joint venture.

79. PDC Corp. acquired 100% of the outstanding common stock of Sea Corp. in a purchase transaction. The
cost of the acquisition exceeded the fair value of the identifiable assets and assumed liabilities. The
general guidelines for assigning amounts to the inventories acquired provide for

a. Raw materials to be valued at original cost.

b. Work in process to be valued at the estimated selling prices of finished goods, less both costs to
complete and costs to disposal.
c. Finished goods to be valued at replacement cost.
 d. Finished goods to be valued at estimated selling prices, less both costs of disposal and a reasonable
profit allowance.

80. Which of the following most accurately describes the position taken by current generally accepted
accounting principles?

a. Both pooling of interests and the purchase method are still permitted under certain circumstances.
b. The purchase method results in the assets of the acquired company being recognized on the
acquiring company's balance sheet at their fair value at the date of acquisition.
c. Goodwill may arise as a result of a business acquisition accounted for as a pooling of interests. S,
S&S
d. The purchase method requires a business acquisition transaction to be structured to meet twelve
very specific criteria required by generally accepted accounting principles

81. On January 1, 2019, Prim, Inc. acquired all the outstanding common shares of Scarp, Inc. for cash equal
to the book value of the stock. The carrying amounts of Scarp’s assets and liabilities approximated their
fair values, except that the carrying amount of its building was more than fair value. In preparing Prim’s
2019 consolidated income statement, which of the following adjustments would be made?

a. Depreciation expense would be decreased and goodwill amortization would be recognized.

b. Depreciation expense would be increased and goodwill amortization would be recognized.
c. Depreciation expense would be decreased and no goodwill amortization would be recognized.
d. Depreciation expense would be increased and no goodwill amortization would be recognized.

82. Goodwill arising from a business combination should

a. Be expensed in the year of acquisition.

b. Not be amortized as it is an asset.
c. Be amortized over its economic life.
d. Be written off after 40 years.

83. On January 1 of this year, Ent Co. acquired Idiary Co. in a business combination accounted for as a
purchase. Idiary sponsors a single-employer defined benefit pension plan. At the date of the combination,
the following data were available:

Projected benefit obligation P5,000,000

Fair value of plan assets 4,000,000
Accumulated benefit obligation 4,500,000
Unrecognized net transition obligation 600,0000
Unrecognized prior service cost 200,000
Prepaid pension cost 100,000

The allocation of the purchase price should be based on which of the following?

a. The only allocation related to the pension plan will be P100,000 for prepaid pension cost.
b. An allocation must be made to liabilities for the transition net obligation, prior service cost, and
net loss.
c. A liability must be recognized for the excess of the projected benefit obligation over plan assets.
d. A liability must be recognized for the excess of the accumulated benefit obligation over plan
assets.

84. Under PFRS 15, what account will be presented by the entity in its statement of financial position where a
customer has paid an amount of consideration prior to the entity performing by transferring the related
good or service to the customer?

a. Contract asset
b. Contract receivable
c. Contract liability
d. Contract revenue
85. PFRS 15 provides that where a contract with a customer has multiple performance obligations, an entity
will allocate the transaction price to the performance obligations in the contract by reference to their
relative standalone selling prices. However, if a standalone selling price is not directly observable, the
entity will need to estimate it. PFRS 15 suggests the following various methods to estimate the standalone
selling price of each performance obligation, except

a. Net Realizable Value Approach

b. Adjusted Market Assessment Approach
c. Expected Cost Plus A Margin Approach
d. Residual Approach

86. Under Installment Method of recognition of gross profit from Installment Sales, what is the proper
classification of deferred gross profit in the entity’s statement of financial position?

a. Deferred Revenue Account

b. Deferred Cost Account
c. Unearned Revenue Account
d. Contra-Installment Receivable Account

87. What method shall be employed by a franchisor in the recognition of gross profit from initial franchise fee
when its payment is deferred but the probability of its collection is reasonably assured?

a. Installment basis
b. Cost recovery basis
c. Accrual basis
d. Zero profit basis

88. Which of the following will decrease the cost of goods sold during the period?

a. Increase in finished goods inventory during the period

b. Decrease in work-in-process during the period
c. Increase in total manufacturing cost during the period
d. Decrease in raw materials inventory during the period

89. In a statement of affairs, assets pledged for partially secured creditors are

a. Included with assets pledged for fully secured creditors

b. Offset against partially secured creditors
c. Included with free assets
d. Disregarded

90. On a statement of financial affairs, a company’s assets should be valued at

a. Historical cost
b. Net realizable value, if lower than historical cost
c. Net realizable value, I higher than historical cost
d. Net realizable value, whether higher or lower than historical cost

91. In a statement of financial affairs, assets are classified

a. According to whether they are pledged with particular creditors

b. As current or noncurrent
c. As monetary or nonmonetary
d. As operating or nonoperating

92. It is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets and obligations for the liabilities relating to the arrangement

a. Joint asset
 b. Joint entity
c. Joint operation
d. Joint venture

93. It is the joint arrangement that involves the establishment of a corporation in which each party has an
equity interest in the net assets of the corporation

a. Joint venture
b. Joint operation
c. Either joint venture or joint operation
d. Neither joint venture or joint operation

94. The installment method of recognizing profit for accounting purposes is acceptable if

a. Collections in the year of sale do not exceed 30% of the total sales price
b. An unrealized profit account is credited
c. Collection of the sales price is not reasonably assured
d. The method is consistently used for all sales of similar merchandise

95. Under the cost-recovery method, no revenue is recognized until

a. Collections are equal to the amount of cost of goods sold

b. Collections are less than the cost of goods sold
c. The selling price is collected
d. All of the above