San Beda College Alabang

Midterm Examination 1st Sem AY2021-2022

ACEINT1 Intermediate Accounting 1 – Prof. M. Cullano

Accountancy Department

Name: _______________________________________ Date: __________ Section:________

INSTRUCTION: Encircle the letter of the correct answer in each of the given question.

THEORIES (1 pt. each)

1. A cash equivalent is a short-term highly liquid investment that is readily convertible into known
amount of cash and
A. Is acceptable as a means to pay current liabilities
B. Has a current market value that is greater than the original cost.
C. Bears an interest rate that is at least equal to the prime interest rate at the date of
liquidation.
D. Is so near maturity that it presents insignificant risk of change in interest rate.

2. At the end of the current year, an entity had various checks and papers in the safe. Which of the
following should not be included in “cash” in the current year-end statement of financial
position?
A. US $20,000 cash
B. Past due promissory note issued in favor of the entity by the President.
C. Another entity’s P150,000 check payable to the entity dated December 15 of the current
year.
D. The entity’s undelivered check payable to a supplier dated December 31 of the current year.

3. Under which classification is cash restricted for plant expansion reported?

A. Current assets
B. Noncurrent assets
C. Current liabilities
D. Equity

4. In reimbursing the petty cash fund, which of the following is true?

A. Cash is debited
B. Petty cash is debited
C. Petty cash is credited
D. Expense accounts are debited
5. A bank reconciliation is
A. A formal financial statement that lists all of the bank account balances of an entity.
B. A merger of two banks that previously were competitors.
C. A statement sent by the bank to depositor on a monthly basis.
D. A schedule that accounts for the differences between an entity’s cash balance as shown in
the bank statement and the cash balance shown in the general ledger.

6. Which of the following information is not provided in a bank statement?

A. Checks cleared during the period
B. Errors made by the company
C. NSF checks
D. Bank charges for the period

7. Which of the following characterizes a financial instrument?

A. It results to a financial asset for one party and a financial liability or equity for another.
B. It must be payable at a later date.
C. It must be signed by the issuer and countersigned by the holder.
D. It must have a maturity date.

8. Which of the following is considered cash?

A. 30-day certificate of deposit
B. Customer’s post dated checks
C. Money market checking accounts
D. 6-month money market savings certificates

9. In most situations, the petty cash fund is reimbursed just prior to the year-end and an adjusting
entry is made to avoid
A. The overstatement of cash and the understatement of expenses.
B. The understatement of cash and the overstatement of expenses.
C. The misstatement of revenues.
D. The understatement of cash with the appropriate statement of expenses.

10. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed
in the depositor’s records and to identify bank errors. Adjustments should be recorded for
A. Bank errors, outstanding checks, and deposits in transit.
B. All items except bank errors, outstanding checks, and deposits in transit.
C. Book errors, bank errors, deposits in transit, and outstanding checks.
D. Outstanding checks and deposits in transit.

11. What is the basic requirement for cash and cash equivalent?
A. Unrestricted in use for current operations
B. Available for the purchase of property, plant and equipment
C. Set aside for the liquidation of long-term debt
 D. Deposited in bank

12. A bank overdraft, should be

A. Reported as a deduction from the current asset section.
B. Reported as a deduction from cash.
C. Netted against cash and a net cash amount reported.
D. Reported as a current liability, when there is no valid basis for offsetting against another
bank account.

13. On October 31, 2019, Aqua, Inc. had cash accounts at three different banks. One account
balance is segregated solely for a November 15, 2019 payment of equipment ordered. 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 Aqua’s
October 31, 2019 classified statement of financial position?
A. 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.
B. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current liability.
C. 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.
D. The segregated and regular accounts should be reported as current assets net of the
overdraft.

14. Petty cash fund is

A. Separately classified as current asset
B. Money kept on hand for making minor disbursements of coin and currency rather than by
writing checks
C. Set aside for the payment of payroll.
D. Restricted cash

15. A Cash Short and Over account is

A. Not generally accepted.
B. Debited when the petty cash fund proves out over.
C. Debited when the petty cash fund proves out short.
D. A contra account to Cash.

16. Which of the following is not a valid basis for using trade discounts as adjustment to list price?
A. To avoid frequent changes in price catalogs.
B. To encourage collection of account within a specified period.
C. To make price differentials among different classes of customers.
D. To encourage customers to buy in big quantities.
17. If a company employs the gross method of recording accounts receivable from customers, then
sales discounts taken should be reported as
A. A deduction from sales in the statement of comprehensive income.
B. An item of “other expense” in the statement of comprehensive income.
C. A deduction from accounts receivable in determining the net realizable value of accounts
receivable.
D. A deduction from the cost of goods sold in the statement of comprehensive income.

18. How would you describe the total amount determined by an entity in this series of
computations based on an aging schedule of accounts receivable: 2% of the total peso balance
of accounts from 1-60 days past due, plus 5% of the total peso balance of accounts from 61-120
days past due and so on?
A. It is the amount of uncollectible accounts expense reported in the statement of
comprehensive income.
B. It is the amount of the adjusting entry for the allowance for uncollectible accounts at year-
end.
C. It is the required credit balance of the allowance for uncollectible accounts at year-end.
D. This amount plus the total amount of accounts written off during the year is the amount of
uncollectible accounts expense.

19. Which of the following shall be taken into consideration when measuring and recognizing
impairment loss on receivables?
I. Past experiences on the collectability of the receivables
II. Present condition of the debtor, including the present economic environment.
III. Future expectations based on information that are available without undue cost and effort.

A. I only
B. II only
C. I and II
D. I, II and III

20. A 120-day, 6% interest-bearing note receivable is discounted to a bank at 8% after being held for
45 days. The proceeds received from the bank upon discounting would be the
A. Maturity value less the discount at 8% for 120 days.
B. Maturity value less the discount at 8% for 45 days.
C. Maturity value less the discount at 8% for 75 days.
D. Maturity value less the discount at 6% for 75 days.

21. Which of the following items should be included in accounts receivable reported in the
statement of financial position?
A. Notes receivable
B. Interest receivable
 C. Allowance for doubtful accounts
D. Advances to related parties

22. When the direct writeoff method is used, the entry to write off a specific customer account
would
A. Increase net income
B. Have no effect on net income
C. Increase both accounts receivable and net income
D. Decrease both accounts receivable and net income

23. Which of the following is treated as a sale of accounts receivable?

A. Factoring without recourse in exchange for cash
B. Pledging accounts receivable in exchange for a loan
C. Assignment of accounts receivable
D. Discounting without recourse

24. Receivable from officers, employees, or affiliated companies should be reported in the
statement of financial position as
A. Current assets, if collectible within twelve months.
B. Non-current assets only.
C. Trade notes and accounts receivable if they otherwise qualify as current assets.
D. Offsets to capital.

25. An entity uses the allowance method of accounting for uncollectible accounts. What is the effect
on profit and amortized cost of accounts receivable of the entry to write off a customer’s
account?
Profit Amortized Cost of Accounts Receivable
A. None None
B. Decrease Decrease
C. Increase Increase
D. Decrease None

26. What is the initial recognition basis of a non-interest bearing note received in exchange for
property?
A. At fair value of the property or note
B. At maturity value of the note.
C. At face value of the note.
D. At the carrying amount of the property.

27. Which of the following is not a required disclosure for loans and receivables?
A. The names of the debtors who defaulted on the payment of their loans or accounts
 B. The criteria for recognition and basis of measurement applied
C. Material items of income and expense and gains and losses resulting from receivables
D. The nature and amount of impairment loss recognized in profit or loss

28. A company writes off as uncollectible an account receivable from a bankrupt customer. The
company has an adequate amount in its Allowance for Bad debts. This transaction will
A. Decrease profit for the period.
B. Decrease total current assets.
C. Decrease the amount of owners’ equity.
D. Have no effect on total current assets.

29. Under the allowance method of recording cash discounts, sales discounts are recorded
A. When offered at the date of sale.
B. When the account is collected within the discount period.
C. Only when not taken within the discount period.
D. When the customer pays beyond the discount period.

30. If a company employs the net method of recording accounts receivable from customers, then
sales discounts not taken should be reported as
A. A deduction from sales in the statement of comprehensive income.
B. An item of other expense in the statement of comprehensive income.
C. An item of other income in the statement of comprehensive income.
D. A deduction from the gross accounts receivable to arrive at amortized cost.

31. Which of the following items should be excluded from a company’s inventory at the balance
sheet date?
a. Goods lost while in transit, which were purchased FOB shipping point.
b. Goods held by customers on approval or on trial
c. Goods out on consignment
d. Goods purchased FOB destination

32. The cost of inventories shall comprise all costs of purchase, cost of conversion and other costs
incurred in bringing the inventories to their present location and condition. Which of the
following cost shall be included in the cost of inventories?
a. Import duties and other taxes, transport, handling and other costs directly attributable to the
acquisition of finished goods, materials and services
b. Abnormal amounts of wasted materials, labor or other production costs.
c. Storage costs unnecessary in its production process.
d. Administrative overheads that do not contribute to brining inventories to their present
location and condition.
33. Technically, the weighted average inventory cost flow method is applicable to which of the
following inventory system?
 I. Perpetual II. Periodic
a. Both I and II b. I onlyc. II only d. Neither I nor II

34. Inventories are assets

I. held for sale in the ordinary course of business
II. in the process of production for such sale
III. in the form of materials or supplies to be consumed in the production process or in the
rendering of services
a. I and II only b. I only c. I, II and III d. II and III only

35. Net realizable value is

a. estimated selling price in the ordinary course of business
b. estimated selling price in the ordinary course of business less the estimated costs of
completion in the case of finished goods and estimated costs necessary to make the sale in the
case of work in process
c. estimated selling price in the ordinary course of business less the estimated costs of
completion in the and estimated costs necessary to make the sale.
d. is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.

PROBLEMS (1 pts. each)

36. The Ruby Company’s ledger showed a balance in its cash account at December 31, 2019 of
682,250, which was determined to consist of the following:
Petty cash fund 3,600
Checking account in Metrobank (check of P6,000 is still outstanding) 336,750
Notes receivable in the possession of a collecting agency 25,000
Undeposited receipts, including a postdated check for P10,500 and
traveler’s check for P10,000 178,000
Bond sinking fund – cash 127,500
IOUs signed by employees 4,950
Paid vouchers, not yet recorded 6,450
Total 682,250

At what amount should “Cash on hand and in bank” be reported on Ruby Company’s statement
of financial position?
A. 501,850 C. 629,350
B. 507,850 D. 662,250

37. Ellen Company reported a balance of P43,000 in its Cash account at the end of the month. There
were P20,000 deposits in transit and P15,000 of outstanding checks. The bank statement
showed a balance of P50,000, service charges of P6,000 and the proceeds of note collected by
the bank for the company. The note had a face value of P15,000.
 The interest on the note collected by the bank was?
A. 12,000 C. 6,000
B. 9,000 D. 3,000

38. The cash account shows a balance of P450,000 before reconciliation. The bank statement does
not include a deposit of P23,000 made on the last day of the month. The bank statement shows
a collection by the bank of P10,000 and a customer’s check for P3,200 was returned because it
was NSF. A customer’s check for P4,500 was recorded on the books at P5,400, and a check
written for P790 was recorded as P970.

The correct balance in the cash account was?

A. 455,120 C. 457,280
B. 455,480 D. 456,080

39. While checking the cash account of the ABC Company on December 31, 2019, you find the
following information:

Balance per books P6,776,000

Balance per bank statement 6,532,000
Deposit in bank closed by Bangko Sentral ng Pilipinas 1,600,000
Outstanding checks 987,000
Deposit in transit 1,234,000
Currency and coins counted 950,000
Petty cash fund (of which P10,000 is in the form of paid vouchers) 50,000
Bank charges not yet taken up in the books 6,000
Receivables from employees 70,000
Bond sinking fund cash 1,000,000
Error in recording a check in the book. The correct amount as paid by
the bank is P89,000 instead of P98,000 as recorded in the book, or the
difference of 9,000

The correct cash in bank balance for ABC Company on December 31, 2019 is
A. 6,535,000 C. P7,769,000
B. P6,779,000 D. P8,379,000

40. Use the same information given in number 34, what is the correct cash on hand balance for ABC
Company on December 31, 2019?
A. 990,000 C. 850,000
B. 950,000 D. 900,000

41. An entity provided the following information for 2019:

Accounts receivable – January 1 2,000,000
Credit sales 10,000,000
Collection from customers, excluding recovery of accounts written off 8,000,000
Accounts written off as worthless 100,000
Collection of accounts written off in prior years 50,000
 Estimaeted uncollectible accounts on December 31 per aging 300,000

At December 31, 2019, the entity’s accounts receivable before allowance for uncollectible
accounts, should be
A. 3,550,000 C. 3,900,000
B. 3,750,000 D. 3,300,000

42. Vanessa Company recorded uncollectible accounts expense of P20,000 during 2019. The
allowance for uncollectible accounts had a balance of P17,500 on December 31, 2018. During
the year 2019, Vanessa wrote off P30,500 of uncollectible receivables and recovered P8,050 of
uncollectible accounts written off in prior years.

How much will be the allowance for uncollectible accounts at December 31, 2019?
A. 7,000 C. 19,050
B. 15,050 D. 45,550

43. Star Company received from a customer a one-year, P500,000 note bearing annual interest of
8%. After holding the note for six months, Star discounted the note with recourse at Regional
Bank at a discount rate of 10%.

At the date of discounting, Star would receive cash of

A. 504,000 C. 513,000
B. 540,000 D. 522,000

44. Jessie Company sold a tract of land with carrying amount of P3,000,000 to Gucci Company on
July 1, 2019. P1,200,000 was collected on the date of sale, and the balance of P2,800,000 is
collectible in four equal annual installments of P902,500, consisting of principal and 11%
interest on the unpaid balance. The first annual installment is due on July 1, 2020.

What amount related to the notes receivable shall be classified as current assets on December
31, 2020?
A. 781,198 C. 659,895
B. 594,500 D. 902,500

45. Use the same information given in number 39, how much is interest income for the year ended
December 31, 2020?
A. 121,303 C. 275,303
B. 154,000 D. 308,000

46. Ming Company had the following items of inventory at reporting date:

Item Quantity Cost/unit P NRV/unit

Refrigerators 10 100 95
Stoves 20 80 85
The adjustment necessary at reporting date is:

a. DR Inventory P 50; c. CR Inventory P 50;

b. DR Inventory P100; d. CR Inventory P0.

47. Good Luck Company produces gaskets. From the cost accounting, the following information is
available: Direct material and labour cost per unit: 100; indirect material and labour cost per
unit: 20; production overheads per unit: 15; general administration overheads per unit: 10;
selling costs per unit: 20. Determine the cost of inventory per unit according to IAS 2,
Inventories
a. 100 b. 120 c. 135 d. 165

48. You are a manufacturer whose finished product normally sells for 100. It costs you 150 to build
plus 20 to make the sale. For purposes of inventory definitions under IAS 2, which amount
would you account for?
a. 80 b. 100 c. 150 d. 120

49. Hole Company uses a perpetual inventory system. The company’s beginning inventory of a
particular style of large screen TVs and its purchases during the month of January were as
follows:

Quantity Unit Cost Total Cost

Beginning inventory (Jan. 1) 40 P200 P 8,000

Purchase (Jan. 12) 20 221 4,420

Purchase (Jan. 28) 10 158 1,580

Total 70 P14,000

On January 15, Hole Company held its annual large screen TV Sale Day. On this day, 55 of these TVs
were sold. The remaining 15 units above remain in inventory at January 31.

Assuming that Hole uses the FIFO flow assumption, the cost of goods sold to be recorded at January
15 is:
a P11,420 b P11,000 c P11,315 d P11,460

50. Use the same information given in number 49. Assuming that Hole uses the average cost flow
assumption, the cost of goods sold to be recorded at January 15 is:
a P11,385 b P11,450 c P11,315 d P11,460