SET A
Name Student Number
Professor
Name
Section
I. True or False
1. Significant influence is the power to
control. F
2. Disclosure of relationships
between parents and subsidiaries
is optional. F
3. If an entity declares dividends
after the reporting period, the
entity shall not recognise those
dividends as a liability at the end
of the reporting period. T
4. Companies must disclose the date
when the financial statements
were authorised for issue and
who gave that authorisation. T
5. Retrospective application refers
to the application of a different
accounting principle to recast
previously issued financial
statements—as if the new
principle had always been used. F
6. A change in accounting principle
is a change that occurs as the
result of new information or
additional experience. F
7. Both merchandising and
manufacturing companies
normally have multiple inventory
accounts. F
8. A manufacturing concern would
report the cost of units only
Date of
Examination
Schedule
(Time/Day)
partially processed as inventory in
the balance sheet. T
9. Generally speaking, cash flows
from operating activities include
the elements of net income
reported on a cash basis. T
10. Amounts held in cash equivalent
investments must be reported
separately from amounts held as
cash on the statement of cash
flows.. F
II. Multiple Choice: Shade the circle
of the letter of your
corresponding answer
11. Which one of the following
financial statements does not
report amounts primarily on an
accrual basis?
a. Income statement.
b. Balance sheet.
c. Statement of cash flows.
d. Statement of shareholders' equity
12. Which of the following causes a change in cash?
a. Payment of a cash dividend
declared in the previous fiscal year.
b. Write-off of an uncollectible
account.
c. Recording of depreciation expense.
d. Accrual of interest payable
13. Which of the following is reported as a financing
activity on the statement of cash flows?
a. The sale of securities classified as
fair value through other
comprehensive income
b. The acquisition of stock for the
purpose of retiring it.
c. The payment of interest on bonds
payable.
d. The receipt of dividend revenue
14. Which of the following is reported as a
financing activity on the statement of
cash flows?
a. The amortization of a patent.
b. The exchange of common stock for a
building.
c. The acquisition of long-term
investments.
d. The repayment of bonds issued at par
15. Adjusting events are events that
a. Provide evidence of conditions that
existed at the end of the reporting
period
b. Are favorable and indicative of
conditions that arose after the end of
the reporting period
c. Are unfavorable and indicative of
conditions that arose after the end of
the reporting period
d. Provide of conditions that existed after
the date the financial statements were
authorized for issue
16. All of the following events would be
classified as non-adjusting events after
reporting period, except
a. A mistake was discovered in the
calculation of the allowance for
uncollectible accounts receivable
b. The entity announced the
discontinuance of the assembly
operation
c. The entity entered into an agreement to
purchase the currently leased office
building
d. Destruction of a major production plant
by fire
17. Jessy Company changed its method of
pricing inventories from FIFO to LIFO.
What type of accounting change does
this represent?
a. A change in accounting estimate for
which the financial statements for prior
periods included for comparative
purposes should be presented as
previously reported.
b. A change in accounting principle for
which the financial statements for
prior periods included for comparative
purposes should be presented as
previously reported.
c. A change in accounting estimate for
which the financial statements for prior
periods included for comparative
purposes should be restated.
d. A change in accounting principle for
which the financial statements for prior
periods included for comparative
purposes should be restated
18. Which type of accounting change should
always be accounted for in current and
future periods?
a. Change in accounting principle
b. Change in reporting entity
c. Change in accounting estimate
d. Correction of error a. Goods have distinct use-by dates and
the goods must be sold earliest
19. Why are inventories included in the b. The entity carries stock of raw
computation of net income? materials work in progress and
a. To determine cost of goods sold. finished goods
b. To determine sales revenue c. Dissimilar products are stored in
c. To determine merchandise returns separate locations
d. Inventories are not included in the d. Homogeneous products are mixed
computation of net income together
20. manufacturing company has which three 24. Costs which are inventoriable include all
basic sides of inventory? of the following except
a. Finished good work-in-progress and a. costs that are directly connected with
ready-to-sell merchandise the bringing of goods to the place of
b. Raw materials work-in-progress and business of the buyer
finished goods b. costs that are directly connected with
c. Specific identification FIFO and the converting of goods to a salable
average cost condition
d. Perpetual periodic and estimated c. buying costs of a purchasing
21. Which of the following is not considered department.
as inventory under PAS 2 d. selling costs of a sales department
a. Land and other property purchased and 25. Why are inventories stated at lower-of-
held for resale cost-or-market?
b. Supplies and materials awaiting to use a. To report a loss when there is a
in the production process decrease in the future utility
c. Abnormal amounts of wasted b. To be conservative
materials, labor and other production c. To report a loss when there is a
cost decrease in the future utility below
d. Cost of service for which a service the original cost
provider has not yet recognized the d. To permit future profits to be
related revenue recognized.
22. An inventory pricing procedure in which 26. Net realizable value is
the oldest costs incurred rarely have an a. acquisition cost plus costs to complete
effect on the ending inventory valuation and sell
is b. selling price
a. FIFO c. selling price plus costs to complete and
b. LIFO sell.
c. base stock. d. selling price less costs to complete
d. weighted-average and sell
23. The weighted average inventory costing 27. When inventory declines in value below
method is particularly suitable to original (historical) cost, and this decline
inventory where? is considered other than temporary,
 what is the maximum amount that the 31. In a statement of cash flows, payments
inventory can be valued at? to acquire debt instruments of other
a. Sales price entities (other than cash equivalents)
b. Net realizable value should be classified as cash outflows for
c. Historical cost a. operating activities
d. Net realizable value reduced by a b. investing activities
normal profit margin c. Financing activities
28. Information in the income statement d. Lending activities
helps users to 32. In preparing a statement of cash flows,
a. evaluate the past performance of the which of the following transactions
enterprise would be considered an investing
b. provide a basis for predicting future activity?
performance a. Sale of equipment at book value
c. help assess the risk or uncertainty of b. Sale of merchandise on credit
achieving future cash flows. c. Declaration of a cash dividend
d. all of these d. Issuance of bonds payable at a
29. Which of the following would represent discount
the least likely use of an income 33. If ordinary share was issued to acquire
statement prepared for a business an P8,000 machine, how would the
enterprise? transaction appear on the statement of
a. Use by customers to determine a cash flows?
company's ability to provide a. It would depend on whether you
needed goods and services. are using the direct or the indirect
b. Use by labor unions to examine method
earnings closely as a basis for b. It would be a positive P8,000 in the
salary discussions. financing section and a negative
c. Use by government agencies to $8,000 in the investing section
formulate tax and economic c. It would be a negative P8,000 in
policy. the financing section and a positive
d. Use by investors interested in $8,000 in the investing section
the financial position of the d. It would not appear on the
entity statement of cash flows but
30. The income statement reveals rather on a schedule of noncash
a. resources and equities of a firm at a investing and financing activities
point in time 34. Which of the following transactions
b. resources and equities of a firm for a most likely would be a related party
period of time transaction requiring disclosure
c. net earnings (net income) of a firm at a a. The entity borrowed P1,000,000
point in time from Southwest Bank issuing a
d. net earnings (net income) of a firm for non-interest bearing note
a period of time b. The entity borrowed P2,000,000
from Northwest Bank at rate
 significantly above the prevailing
market rate
c. The entity borrowed P500,000
from Eastwest Bank with no
scheduled terms for how or when
funds will be repaid
d. All of these would be disclosed as
related party transactions
35. Which of the following is a related party
transaction?
a. Sold a car to the uncle of the
entity’s finance director
b. Sold goods to another entity
owned by the daughter of the
entity’s managing director
c. Took out a huge bank loan
d. All of these are related party
terminations
36. Which of the following is not a related
party of an entity?
a. The son of the chief executive
officer of the entity
b. A bank providing loan to the entity
c. An associate of the entity
d. Director of the entity
37. An entity that entered into related
party transactions would be required to
disclose all, except
a. Nature of the relationship between
the parties
b. Nature of any future transaction
planned between the parties and
the terms involved
c. Peso amount of the transaction
d. Amount due from or to related
parties
38. The following are adjusting event,
except
a. The determination after the
reporting period of the cost of
assets purchased or the proceeds
from assets sold before the end of
the reporting period
b. Sale of inventories after the
reporting period. Selling price is
lower than the recorded values of
the inventories sold
c. Major purchase and disposal of
asset or expropriation of major
asset by government
d. The discovery of fraud or errors
that show the financial statements
were incorrect
39. Where should raw materials be classified
on the balance sheet?
a. Prepaid expenses
b. Inventory.
c. Equipment
d. Not on the balance sheet
40. A related party transaction is a transfer
a. Between related parties,
regardless of whether a price is
charged
b. Between related parties when a
price is charged
c. Between unrelated parties when
price is charged
d. Between unrelated parties,
regardless whether a price is
charged