All in Theories Quiz

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ALL IN Theories - Quiz
Accountancy (Western Philippines University)
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FINANCIAL ACCOUNTING & REPORTING 2
ALL IN - THEORIES
1) Which of the following is not considered a characteristic of a liability?

A. Present obligation
B. Arises from past events
C. Result in an outflow of resources
D. Liquidation is reasonably expected to require use of existing resources classified as current asset
2) Which of the following is not considered when evaluating whether or not to record a liability for pending litigation?
A. Time period in which the underlying cause of action occurred.
B. The type of litigation involved.
C. The probability of an unfavorable outcome.
D. The ability to make reasonable estimate of the amount of the loss.
3) Which of the following is not acceptable for the presentation of current liabilities?
A. Listing current liabilities in order of maturity
B. Listing current liabilities according to amount
C. Offsetting current liabilities against asset that are to be applied to their liquidation
D. Showing current liabilities in order of liquidation preference
4) Which of the following describes a liability?

Statement I – It is a present obligation of an entity arising from past transactions.
Statement II – The settlement of a liability is expected to result in an outflow of resources embodying economic benefits.
A. I only C. Both I and II
B. II only D. Neither I nor II
5) Which one of the following items is not a liability?

A. Dividends payable in shares C. Advances from customers on contracts
B. Accrued estimated warranty D. Maturing portion of long-term debt
6) Which of the following should not be included in the current liabilities section of the balance sheet?
A. Trade notes payable C. Trade accrued expenses
B. Deferred tax liability D. Short-term non-interest bearing notes payable
7) Under PAS 37, liabilities are present obligations which represent

A. Legal obligations only C. Both legal and constructive obligations
B. Constructive obligations only D. Neither legal nor constructive obligations
8) It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to
settle the obligation.
A. Contingent event C. Events after the balance sheet date
B. Adjusting event D. Obligating event
9) A present obligation that is probable and for which the amount can be reasonably estimated shall
A. Not be accrued but shall be disclosed in the notes to the financial statements
B. Be accrued by debiting an appropriated retained earnings account and crediting a liability account
C. Be accrued by debiting an expense account and crediting an appropriated retained earnings account
D. Be accrued by debiting an expense account and crediting a provision account.
10) Under PAS 37, provisions are liabilities of

A. Certain timing or amount C. Uncertain timing but certain amount
B. Uncertain timing or amount D. Uncertain timing and amount
11) An outflow of resources embodying economic benefits is deemed as ‘probable’ when the probability that
A The event will occur is greater than the probability that the event will not occur
B The event will not occur is greater than the probability that the vent will not occur.
C The vent will occur is the same as the probability that the event will not occur
D The event will occur is at least 90% likely.
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12) Management can estimate the amount of loss that will occur if a foreign government expropriates some company
assets. If expropriation is reasonably possible, a loss contingency should be
A. Disclosed and accrued as a liability C. Accrued as a liability but not disclosed
B. Disclosed but not accrued as a liability D. Neither accrued as a liability nor disclosed
13) A contingent liability

A. Has a most probable value of zero but may require payment if a given future event occurs
B. Definitely exists as a liability but its amount or due date is indeterminate
C. Is commonly associated with operating loss carry-forward
D. Is not disclosed in the financial statements
14) What statistical method is used when the provision is estimated by weighting all possible outcomes by their associated
probabilities given that provision being measured involves a large population of items?
A. Expected value C. Interpolation
B. Realizable value D. Normal distribution
15) When an entity breaches an undertaking under a long-term loan agreement on or before the balance date with the
effect that the liability becomes payable on demand, the liability is:
Statement – I: Current, event if the lender agreed after the reporting period and before the authorization of financial
statements for issue not to demand payment.
Statement – II: Non current if the lender agreed by the end of the repotting period to provide a grace period for at least
12 months after the balance sheet date within which the entity can rectify the breach.
A. Only statement I C. Both statement are true

B. Only statement II D. Both statements are false
16) Which of the following transactions would not result to a transfer of liability to revenue account?
A. Redemption of gift certificates
B. Return of customer’s deposit on returnable containers
C. Redemption of points in a customer loyalty program
D. Realization of revenue from service contract
17) A liability shall be classified as current when it satisfies any of the following criteria, except
A. It is expected to be settled in the entity’s normal operating cycle
B. It is held primarily for the purpose of being traded
C. Is is due to be settle within twelve months after the balance sheet date
D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance
sheet date
18) A department store received cash and issued a gift certificate that is redeemable in merchandise. When the gift
certificate was issued
A. Deferred revenue account should be decreased C. Revenue account should be decreased
B. Deferred revenue account should be increased D. Revenue account should be increased
19) Where the provision being measured involves a large population of items, the obligation estimated by weighting all
possible outcomes by their associated probabilities. This statistical method of estimation is called
A. Expected value C. Interpolation
B. Bifurcation D. Normal distribution
20) Liabilities are

A. Any accounts having credit balances after closing entries are made.
B. Deferred credits.
C. Obligations to transfer ownership shares to other entities in the future.
D. Present obligations arising from past events and result in an outflow of resources.
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21) Which of the following should not be classified as a current liability?
A. Current maturities of long-term debt
B. Value added taxes payable
C. Short-term obligations refinanced at the end of reporting period
D. Unearned revenue
22) What is the relationship between current liabilities and an entity’s operating cycle?
A. Liquidation of current liabilities is reasonably expected within the operating cycle or one year, whichever is longer.
B. Current liabilities are the result of operating transactions.
C. Current liabilities cannot exceed the amount incurred in one operating cycle.
D. There is no relationship between the two.
23) Which of the following best describes the accrual method of accounting for warranty costs?
A. Expensed when paid C. Expensed based on estimate in year of sale
B. Expensed when warranty claims are certain D. Expensed when incurred
24) what condition is necessary to recognize an environmental liability?

A. The entity has an existing legal obligation and can reasonably estimate the liability.
B. The entity can reasonably estimate the amount of the liability.
C. The entity has an existing legal obligation.
D. Obligation event as occurred.
25) Under IFRS, a provision is

A. An event which is not recognized C. An event which is probable, possible, or remote and measurable
B. An event which is probable and measurable D. An event which is probable but not measurable
26) A contingency is described as

A. An estimated liability
B. An event which is not recognized because it is not probable that an outflow will be required or the amount cannot
be reasonably estimated
C. A potentially small liability
D. A potentially large liability
27) Reserves for contingencies for general or unspecified risks should

A. Be accrued in the financial statements and disclosed in the notes.
B. Not be accrued in the financial statements and need not be disclosed in the notes.
C. Not be accrued in the financial statements bit should be disclosed in the notes.
D. Be accrued in the financial statements but need not be disclosed in the notes.
28) If a long-term debt becomes callable due to the violation of a loan covenant
A. The debt may continue to be classified as noncurrent if the entity believes the covenant can be renegotiated. B.
The debt must be reclassified as current.
C. Cash must be reserved to pay the debt.
D. Retained earnings must be restricted in the amount of the debt.
29) Which statement is incorrect regarding a liability?

A. An essential characteristic of a liability is that the entity has a present obligation.
B. A liability may be legally enforceable as a consequence of a binding contract or statutory requirement.
C. A liability may arise from normal business practice, custom and a desire to maintain good business relations or act
in an equitable manner.
D. A decision by the management of an entity to acquire assets in the future gives rise to a present obligation.

30) 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 right.
A. I, II, III, IV, V and VI C. I, II, II, V, and VI only

B. I, II, III, IV and VI only D. I,II and III only
31) Premium on bonds payable is a(n)

A. Valuation account C. Accumulation account
B. Contra account D. Adjunct account
32) The rate of interest that is used to discount the future cash payments on a debit to the cash equivalent is least likely to
be described by which of the following terms
A. Effective interest rate C. Stated interest rate
B. Yield interest rate D. Prevailing interest rate
33) If a bond was sold at 105, then the stated rate of interest was:
A. Equal to market rate C. Higher than market rate
B. Not related to market rate D. Lower than market rate
34) The bond interest expense for a period is more than interest paid when bonds are sold at
A. A premium C. A discount
B. Par D. A yield
35) The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate
of interest
A. Less than present value of all future interest payments at the market (effective) rate of interest
B. Less than present value of all future interest payments at the rate of interest stated on the bond
C. Plus the present value of all future interest payments at the market (effective) rate of interest
D. Plus the present value of all future interest payments at the rate of interest stated on the bond
36) For bonds payable, the cash interest paid in each interest period is:
A. The same amount regardless of whether the bonds were sold at a discount or a premium
B. Not the same amount when the stated and yield interest rates are different
C. Dependent on the initial amount of accrued interest
D. Different depending upon the date of sale
37) Costs incurred in issuing ten-year bonds which sold at a slight premium should be
A. Capitalized as organization cost
B. Expensed in the year in which incurred
C. Charged to retained earnings when the bonds are issued
D. Reported on the balance sheet as a deduction from bonds payable and amortized over the bond term
38) When interest payment dates of a bond are May 1 and November 1, and a bond issue is sold June 1, the amount of
cash received by the issue will be
A. Decreased by accrued interest from June 1 to November 1
B. Increased by accrued interest from June 1 to November 1
C. Decreased by accrued interest from May 1 to June 1
D. Increased by accrued interest from May 1 to June 1
39) The proceeds from a bond issued with detachable share warrants should be accounted for
A. Entirely as equity C. Partially as equity and partially as bonds payable
B. Entirely as bonds payable D. Partially as unearned revenue and partially as bonds payable

40) Which of the following is incorrect about bonds sold at a discount?
A. The carrying amount of the bond increases each year
B. The discount on bonds payable account decreases each year
C. At maturity, the face value and carrying amount of the bonds will be equal
D. The balance of the bonds payable account increases each year
41) When all mature on a single date, they are called

A. Term bond C. Debenture bond
B. Serial bond D. Callable bond
42) A compound financial instrument shall be accounted for as

A. Financial liability only C. Partly financial liability and partly equity
B. Equity only D. Neither financial liability nor equity
43) How would the carrying value of a bond payable be affected by amortization of each of the following?
Discount Premium Discount Premium
A. No effect No effect C. Increase Decrease
B. Increase No effect D. Decrease Increase
44) Under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal to
A. The stated rate of interest multiplied by the face value of bonds
B. The effective rate of interest multiplied by the face value of the bonds
C. The stated rate multiplied by the beginning of the period carrying amount of the bonds
D. The effective rate multiplied by the beginning of the period carrying amount of the bonds
45) What is the market arte of interest for a bond issue that sells for more than its face value?
A. Lower than the rate stated on the bond C. Higher than the rate stated on the bond
B. Equal to the rate stated on the bond D. Independent of the rate of the bond
46) Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable semiannually on March 1 and
September 1 were issued on July 1. The total proceeds from the issue amounted to P5,200,000. The best explanation
for the excess amount received over the par is
A. The bonds were sold at a premium
B. The bonds were sold at a higher effective interest rate
C. The bonds were issued at par value plus accrued interest
D. No explanation is possible without knowing the maturity date of the bond issue
47) The periodic amortization of a bond discount

A. Is increasing as the bond nears maturity C. Remains the same throughout the life of the bond
B. Is decreasing as the bonds nears maturity D. Is higher than the interest paid during the period
48) Which of the following is not true about bonds being sold at a premium?
A. The interest expense gets larger each year
B. The premium on bonds payable account get smaller each year
C. At maturity, the face value and carrying amount will be equal
D. The periodic amortization of bond premium increases each year
49) What is the market rate of interest for a bond issue that sells for more than its face value?
A. Higher than the rate stated on the bond C. Independent of the rate of the bond
B. Equal to rate stated on the bond D. None of the above
50) Upon retirement of the bonds, any resulting gain on retirement of the bonds should be reported in income statement
when
A. Retirement price is less than the carrying value of the bonds
B. Retirement price is greater than the carrying value of the bonds
C. Retirement price is equal to the carrying amount of the bonds
D. None of the above

51) If the bonds were issued at a premium, this indicates that
A. The effective yield or market rate of the interest exceeded the stated rate.
B. The nominal rate of interest exceeded the market rate.
C. The market and nominal rates coincided.
D. No necessary relationship exists between the two rates.
52) Bond issuance cost should be

A. Expensed in the period when the bond payable is issued.
B. Recorded as a reduction in the carrying amount of bond payable.
C. Accumulated in a deferred charge account and amortized over the life of the bond.
D. Reported as an expense in the period the bond matures or its retired.
53) If bonds are issued between interest dates, the entry of the issuing entity could include a
A. Debit in interest payable C. Credit to increased expense
B. Credit to interest receivable D. Credit to unearned interest
54) The amortization of a premium on bonds payable

A. Decreases the balance of the bond payable C. Decreased the carrying amount of the bond payable
B. Increases the cash payment to bondholders D. Increased the amount of interest expense reported
55) The market price of a bond issued at a discount is the present value of the principal amount at market rate of interest
A. Less the present value of all future interest payments at the market rate
B. Less the present value of all future interest payments at the stated rate
C. Plus the present value of all future interest payments at the market rate
D. Plus the present value of all future interest payments at the stated rate
56) What method may be used to report the bonds payable at year-end
A. Amortized cost
B. Fair value through other comprehensive income
C. Amortized cost and fair value through other comprehensive income
D. Amortized cost and fair value through profit or loss
57) What is the accounting for issued convertible debts?

A. The instrument should be presented solely as debt.
B. The instrument should be presented between debt and equity
C. The instrument should be presented solely as equity
D. The instrument should be presented as part debt and part equity
58) An entity issued bonds with a 5% stated rate. If the market rate for comparable bonds is 6%, which of the following is
correct?
A. The issuer will collect a premium C. The issuer will sell the bonds at face amount
B. The issue will have to sell the bonds at a discount D. The amount of interest paid is based on the market
59) Which statement is true bout the fair value option for measuring bonds payable?
A. The effective interest method of amortization must be used to calculate interest expense.
B. Discount or premium is disclosed in the notes to the financial statements.
C. The fair value of the bond and the principal obligation value must be disclosed.
D. If the fair value option is elected, it must be applied to all bonds.
60) A troubled debt restructuring will generally result in a

A. Loss by both the debtor and the creditor C. Loss by the debtor and a gain by the creditor
B. Gain by both the debtor and the creditor D. Gain by the debtor and a loss by the creditor
61) Under PAS 39, the difference between the carrying amount of a financial liability extinguished and the consideration
given shall
A. Be recognized in profit or loss C. Be included in retained earnings
B. Be included in equity D. Not be recognized

62) In a debt settlement in which the debt is continued with modified terms, a gain should be recognized at the date of
settlement whenever the
A. Carrying amount of the debt is less than the total future cash flows.
B. Carrying amount of the debt is greater than the present value of the future cash flows.
C. Present value of the debt is less than the present value of the future cash flows.
D. Present value of the debt is greater than the present value of the future cash flow.
63) There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is
A. At least 10% of the new liability C. At least 10% of the carrying amount of the old liability
B. Less than 10% of the new liability D. Less than 10% of the carrying amount of the old liability
64) Which of the following is not a characteristic of a corporation

A. Limited liability of shareholders C. Flexible ownership
B. Separate legal entity D. Nontaxable entity
65) The residual interest in a corporation belongs to the

A. Management C. Ordinary shareholders
B. Creditors D. Preference shareholders
66) Categories of equity include all of the following, except

A. Noncontrolling interest C. Liquidating dividends
B. Cumulative other comprehensive income D. Treasury shares
67) Shares that have a fixed per-share amount printed on each share certificate are called
A. Stated value shares C. Uniform value shares
B. Fixed value shares D. Par value shares
68) What is a primary element that distinguishes accounting for corporation from accounting for other legal form of business
organization (e.g., partnership)?
A. The corporation draws sharper distinction in accounting for sources of capital
B. The entity theory relates primarily to the other forms of business organization
C. In corporation, retained earnings may be reduced only by the declaration of dividends
D. GAAP apply to corporations but have only little applicability to other forms of organization
69) Which of the following is not among the basic rights of a shareholders?
A. To share in corporate earnings
B. To vote in the election of directors
C. To subscribe for additional share issues
D. To represent himself in the name of the corporation
70) The par value of an ordinary share represents

A. the book value of the share
B. the liquidation value of the share
C. the legal nominal value assigned to the share
D. the amount received by the corporation when the share was originally issued
71) When shares are sold at an amount higher than par value, the excess over par shall be credited to
A. Share premium C. Share options
B. Share warrants D. Retained earnings
72) Any direct costs incurred to issue shares above par value (i.e., share issue cost) shall be debited to
A. Expense C. Organization cost
B. Share premium D. Retained earnings
73) Share issued for noncash consideration such as property, plant and equipment shall be measured at
A. Par value of the share issued C. Fair value of the non cash consideration received
B. Fair value of the shares issued D. Carrying amount of the noncash consideration received
74) Shares issued to extinguish financial liability shall be measured initially at

A. Fair value of liability extinguish C. Far value of instrument issued
B. Par value of equity instrument issued D. Carrying amount of liability extinguish

75) Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a
specific time at a specific price?
A. Share option C. Share dividend
B. Share warrants D. Share split
76) An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. share
premium would be recorded when the rights
A. Are issued C. Are exercisable
B. Are exercised D. Are not exercised
77) Treasury shares are recorded at

A. Par value of the shares reacquired
B. Cost only if acquired below par value
C. Cost only if acquired above par value
D. Cost regardless of whether they are acquired above or below par value
78) The purchase (acquisition) of treasury shares

A. Decreases shares outstanding C. Decreases share issued
B. Increases share outstanding D. Increases share issued
79) How should a corporation reflect treasury shares on its balance sheet?
A. As part of current assets C. As a deduction form retained earnings
B. As part of noncurrent assets D. As a deduction from shareholders’ equity
80) The ‘gain’ on sale (re-issuance) of treasury shares is

A. Credited to retained earnings C. Disclosed in the notes to the financial statements
B. Credited to share premium D. Considered in the computation of profit or loss
81) The ‘loss’ on sale (re-issuance) of treasury shares is

A. Considered in the computation of profit or loss
B. Disclosed in the notes to the financial statements
C. Debited to retained earnings even when share premium is sufficient to absorb the loss D.
Debited to retained earnings only when share premium is insufficient to absorb the loss
82) A restriction of retained earnings is most likely to be required by the

A. Purchase of treasury stock
B. Amortization of past service cost
C. Payment of last maturing series of a serial bond issue
D. Exhaustion of potential benefits of the investment credit
83) A retained earnings appropriation is used to

A. Smooth periodic income
B. Restrict earnings available for dividends
C. Absorb a fire loss when a company is self-insured
D. Provide for a contingent loss that is probable and measurable
84) Which dividend when declared does not create a liability?

A. Cash dividend C. Scrip dividend
B. Share dividend D. Property dividend
85) Dividend paid out of preference shares with mandatory redemption (i.e., financial liability) are
A. Not recorded C. Charged against retained earnings
B. Charged as expense D. Charged against related financial liability
86) When dividends are declared and paid in shares of stock

A. Current ratio increases C. Total shareholders’ equity decreases
B. Working capital decreases D. Total shareholders’ equity does not change

87) At what amount per share should retained earnings be reduced for a 20% stock dividend?
A. Zero C. Market value at the date of declaration
B. Par value D. Market value at the date of issuance
88) If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?
A. Par value of the shares C. Fair value of the shares on the date of issuance
B. Fair value of the shares on the date of record D. Fair value of the shares on the date of declaration
89) Dividends in arrears are

A. Dividends on common stock that have not been declared
B. Dividends on preferred stock that have been declared but not paid
C. Cumulative preferred dividends that have not been declared for a given period of time
D. Noncumulative preferred dividends that has not been declared for a given period of time
90) When the total shareholders’ equity is smaller than the contributed capital, this deficiency is called
A. A net loss C. A liability
B. A dividend D. A deficit
91) The primary purpose of a quasi-reorganization is to give the entity the opportunity to
A. Obtain relief from its creditors
B. Eliminate a deficit in retained earnings
C. Revalue understated assets to their fair value
D. Distribute shares of a newly created subsidiary to shareholders
92) When an entity goes through a quasi-reorganization, the balance sheet carrying amounts are stated at
A. Original cost C. Replacement value
B. Original book value D. Fair value
93) Immediately after the quasi-reorganization, the retained earnings account

A. Has a zero balance
B. Remains the same as it was before the quasi-reorganization
C. Has a debit balance equal to the write-down of the assets which were overstated
D. Is appropriated to the full amount until the company shows sign of financial recovery
94) The accounting for quasi-reorganization usually involves

A. Write-up of assets and write-down of retained earnings
B. Write-up of both assets and retained earnings
C. Write-down of assets and elimination of a deficit
D. Write-up of assets and elimination of deficit
95) A company mate effect a stock split in order to

A. Lower the market price per share C. Decrease the number of shares outstanding
B. Raise the unit market price of its share D. Narrow down distribution of its hares to shareholders
96) Choose the most correct statement regarding a 2-for-1 share split and a 100% share dividend.
A. Neither affect par value
B. Both double the number of share outstanding
C. Both cause the same reduction in retained earnings
D. Both cause significant increase in the ordinary shares account
97) Which of the following items does not affect the retained earnings of a corporation?
A. Transfer of cumulative balance of unrealized gain on investment at fair value through other comprehensive income
upon sale.
B. Transfer of revaluation surplus of PPE upon disposal.
C. Write-down of assets and elimination of deficit during quasi-reorganization
D. Dividends paid to holders of equity instrument classified as financial liability

98) Which of the following transactions would not lead to the recognition of a share premium?
A. Donation of land by a shareholder
B. Gain on sale of shares as a result of exercise of stock rights
C. Issuance of convertible bonds
D. Appropriation of retained earnings for treasury share
99) When treasury shares are purchased for more than the par value of the shares and the cost method is used to account
for treasury shares, what account should be debited?
A. Treasury shares for the par value and share premium for the excess of the purchase price over the par value.
B. Share premium for the purchase price
C. Treasury shares for the purchase price
D. Treasury shares for the par value and retained earnings for the excess of the purchase price over the par value.
100) Share premium could not arise from

A. Donated capital C. Distribution of “large” bonus issue
B. resale of treasury stock D. Distribution of “small” bonus issue
101) What is the corporation’s legal capital?

A. It is the portion of the paid-in capital arising from the issuance of capital stock that cannot be returned to the
stockholders in any form during the lifetime of the corporation.
B. In case of par value stock, legal capital is the aggregate par value of all shares issued and subscribed.
C. In case of no-par value stock, legal capital is the aggregate stated value of shares issued and subscribed plus any
excess over stated value.
D. All of the above statements would describe the concept of legal capital.
102) The retained earnings account represents the cumulative balance of periodic net income, dividend distribution,
retroactive adjustments and other capital adjustments. One of the following refers to appropriated retained earnings:
A. This is known as a debit balance in the retained earnings.
B. This results when the deficit exceeds the total of all the stockholders’ equity account.
C. This represents that portion that is free and can be declared as dividends to stockholders.
D. This represents that portion that is restricted and hence cannot be declared as dividends.
103) Which of the following is an invalid approach of recording various dividends?

A. Property dividend as liability C. Stock dividend distributable as liability
B. Property dividend at market value D. Stock dividend distributable as equity
104) It is defined as the issuance by an entity of its own ordinary shares to its ordinary shareholders without considerations
and under conditions indicating that such action is prompted mainly by a desire to increase the number of shares
outstanding for the purpose of effecting a reduction in their unit market price
A. Share split C. Share option
B. Rights issue D. Share appreciation rights
105) Motherhood Company declared a 10% stock dividend. The declaration

A. Would decrease both retained earnings and total stockholders’ equity
B. Would decrease retained earnings but would have no effect on total stockholders’ equity
C. Would have no effect on retained earnings but would decrease total stockholders’ equity
D. Would have no effect both retained earnings and total stockholders’ equity
106) Unlike a share split, a bonus issue requires a formal journal entry in the financial accounting records because
A. Bonus issue increase the book value of an individual’s shareholdings
B. Bonus issue increase the shareholders’ equity in the issuing firm
C. Bonus issue is payable on the date they are declared
D. Bonus issue represents a transfer from retained earnings to share capital
107) The retirement of the treasury shares

A. Decreases share outstanding C. Decreases shares issued
B. Decreases shares authorized D. Has no effect on shares issued

108) Dividends paid out of a financial liability (e.g., preference shares with mandatory redemption) are
A. Not recorded C. Charged against retained earnings
B. Charged as expense D. Charged against related financial liability
109) The retained earnings balance is nil after a company undergoes

A. Corporate reorganization C. Equity swap
B. Modification of terms D. Asset swap
110) Which feature of preference shares makes the security more like debt than an equity instrument?
A. Participating C. Redeemable
B. Voting D. Noncumulative
111) When preference shares ratably with the ordinary shareholders in any profit distribution beyond the prescribed rate
this is known as the
A. Cumulative feature C. Callable feature
B. Participating feature D. Redeemable feature
112) Which dividends do not reduce equity?

A. Cash dividend C. Property dividends
B. Share dividend D. Liquidating dividends
113) An entity makes only a memorandum entry when

A. Entities give warrants to executives and employees as a form of compensation
B. Entities include warrants to make a security more attractive
C. Entities issue rights to existing shareholders.
D. All of the choices are correct
114) The distribution of share rights to existing shareholders would increase share premium at
A. Date of issuance of rights C. Date of expiration of rights
B. Date of exercise of rights D. All of these are correct choices
115) When bonds are issued with detachable warrants, the amount to be recorded as share premium is preferably
A. Zero
B. Calculated as the excess of the proceeds over the face amount of the bonds.
C. Equal to the market value of the warrants.
D. Calculated as the excess of the proceeds over the fair value of the bonds.
116) The major difference between convertible debt and share warrants is that upon exercise of the warrants
A. The shares are held by the entity for a definite period of time before they are issued to the warrant holder. B.
The holder has to pay a certain amount of cash to obtain the shares.
C. The share involved are restricted and can only be sold by the recipient after a certain period.
D. No share premium can be a part of the transactions
117) When convertible debt is not converted at maturity

A. A gain or loss is recorded for the difference between the carrying amount of the debt and the present value of the
cash flows.
B. The amount originally allocated to equity is recorded as a gain on retirement,
C. The amount allocated to the equity component at the issuance date is recorded as a loss on retirement. D.
The carrying amount of the bond equals face amount and it is removed from the books.
118) The conversion of preference shares into ordinary shares requires than any excess of the par value of the ordinary
shares issued over the carrying amount of the preference shares converted should be
A. Reflected currently in income C. Treated as a prior period adjustment
B. Reflected currently in OCI D. Treated as a direct reduction of retained earnings
119) When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par
ordinary shares subscribed should be recorded as
A. No par ordinary share
B. Additional paid-in capital when the subscription is recorded
C. Additional paid-in capital when the subscription is collected

D. Additional paid-in capital when the ordinary shares are issued
120) Which statement is incorrect regarding equity

A. Equity is the residual interest in the assets of the equity after deducting all its liabilities.
B. Equity may be sub-classified in the balance sheet.
C. The amount at which equity is shown in the balance is depended on the measurement of assets and liabilities.
D. All the statement are correct.
121) The components of equity generally recognized by companies in the Statement of Financial Position are:
I. Provisions
II. Debentures
III. Share capital
IV. Other reserves
V. Retained earnings
A. I, II and III only C. II, III and V only

B. I, III, IV and V only D. III, IV and V only
122) Which statement is true concerning share capital transactions?

A. Deposits on subscription to a proposed increase in share capital should be reported as part of shareholders’ equity.
B. Subscription receivable from sale of share capital not currently collectible should be reflected as deduction from the
related subscripted share capital.
C. Discount on share capital should be shown as deduction from total shareholders’ equity.
D. All of these statements are true concerning share capital transactions.
123) Earnings per share (EPS) disclosures are strictly required for
A. Small and medium entities (SMEs) C. Both SMEs and PAEs
B. Public accountable entities (PAEs) D. Neither SMEs and PAEs
124) Which of the following EPS should be disclosed on the face of income statement?
A. Basic EPS only C. Both basic and diluted EPS
B. Diluted EPS only D. Neither basic nor diluted EPS
125) In computing the basic EPS, the numerator used is the

A Income before interests and taxes
B Income available to ordinary shares
C Income available to ordinary and preference shares
D Income after interests and taxes but before preference share dividends
126) In computing the basic EPS, the denominator used is the

A. Ordinary shares outstanding at the end of the year
B. Ordinary shares outstanding at the beginning of the year
C. Weighted average ordinary shares outstanding during the year
D. Weighted average ordinary and preference shares outstanding during the year
127) For the purpose of computing the weighted average number of shares outstanding during the year, a midyear event
that must be treated as occurring at the beginning of the year is the
A. Issuance of share warrants C. Sale of additional ordinary shares
B. Purchase of treasury shares D. Declaration and payment of share dividend
128) To compute basic EPS, the amount of preferred dividends on noncumulative preferred stock should be
A. Deducted from net income, only when declared C. Deducted from net income, whether declared or not
B. Added to net income, only when declared D. Disregarded
129) To compute basic loss per share, the annual preferred dividend on cumulative preferred stock is
A. Deducted from net income, only when declared C. Added from net income, whether declared or not
B. Added to net income, only when declared D. Disregarded

130) It is a financial instrument or other contract that may entitle its holder to ordinary shares
A. Ordinary shares C. Treasury share
B. Preference share D. Potential ordinary share
131) Which of the following is not an example of a potential ordinary share (i.e., diluters)?
A. Treasury shares C. Financial liabilities that are convertible to ordinary share
B. Options and warrants D. Equity instruments that are convertible to ordinary share
132) It is the reduction in EPS or increase in loss per share resulting from the assumption that potential ordinary shares will
materialize (e.g., warrants are exercised; convertibles are converted).
A. Diminution C. Dilution
B. Demolition D. Delusion
133) In computing diluted EPS, dividends on non-convertible cumulative preferred stock should be
A. Deducted form net income only when declared C. Deducted form net income whether declared or not
B. Added to net income, net of related tax D. Ignored
134) In computing diluted EPS, dividends on convertible cumulative preferred stock should be
A. Deducted form net income only when declared C. Deducted form net income whether declared or not
B. Added to net income, net of related tax D. Ignored
135) What is the inherent justification underlying the concept of potential ordinary shares (diluters) in EPS computation?
A. Cost benefit C. Materiality
B. Substance over form D. Timeliness
136) Options and warrants are dilutive if

A. The options price is lower than the average market price
B. The option price is higher than the average market price
C. The option price is equal to the average market price
D. The option shares represent 50% of the outstanding shares
137) Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per
share is the security with the
A. Greater earnings adjustment C. Greater earnings adjustment per share adjustment
B. Smaller earnings adjustment D. Smaller earnings adjustment per share adjustment
138) In computing the diluted earnings per share, convertible securities are assumed converted at the
A. Beginning of the year in all cases
B. End of the year in all cases
C. Beginning of the earliest period or at the time of issuance whichever comes later
D. Beginning of the earliest period or at the time of issuance whichever comes earlier
139) The following statements are based on PAS 33 Earnings Per Share:
Statement 1: Convertible preference shares are dilutive whenever the amount of the dividend on such shares declared
for the current period per ordinary share obtainable on conversion exceeds basic earnings per share.
Statement 2: Options and warrants are dilutive when they would result in the issue of ordinary shares for less than the
average market price of ordinary shares during the period.
Statement 3: Convertible debt is dilutive whenever its interest (net of tax) per ordinary share obtainable on conversion
exceeds basic earnings per share.
A. Only statement 1 is false C. Only statement 3 is false

B. Only statement 2 is true D. All of the statement are true
140) Under PAS 33, Earnings per share applies to

A. All public and non-public enterprises
B. Entities whose ordinary shares or potential shares are publicly traded or in the process of issuing shares in the
public markets
C. Entities whose ordinary shares or potential ordinary shares are publicly traded
D. Entities who issue ordinary shares and potential ordinary shares

141) In computing weighted average number of shares outstanding, when a bonus issue or share split occurs the
additional shares are
A. Weighted by the number of days outstanding
B. Weighted by the number of months outstanding
C. Considered outstanding at the beginning of the year
D. Considered outstanding at the beginning of the earliest year or at the date the issuance of the related shares,
whichever comes later
142) In applying the treasury share method to determine the dilutive effect of share options and warrants, the proceeds
assumed to be received upon exercise of the options and warrants
A. Are used to calculate the number of ordinary shares repurchased at the average market price, when computing
diluted earnings per share.
B. Are added, net of tax, to the numerator of the calculation for diluted earnings per share.
C. Are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less
than the average market price of ordinary shares.
D. Are completely disregarded,
143) The earnings per share computation is not required for

A. Net income C. Income from continuing operations
B. Discontinued operations D. Income from operations
144) In determining earnings per share, interest expense net of income tax, on dilutive convertible debt should be
A. Added back to weighted-average shares outstanding for diluted earnings per share.
B. Added back to net income for diluted earnings per share.
C. Deducted from net income for diluted earnings per share.
D. Deducted from weighted-average shares outstanding for diluted earnings per share.
145) An entity has outstanding both ordinary shares and nonparticipating, noncumulative preference shares. The
liquidation value of the preference shares is equal to the par value. The book value per share of the ordinary shares is
unaffected by
A. The declaration of a share dividend on preference payable in preference shares when the market price of the
preference is equal to the par value.
B. The declaration of a share dividend on ordinary shares payable in ordinary shares when the market price of the
ordinary shares is equal to the par value.
C. The payment of a previously declared cash dividend on the ordinary shares.
D. A 2-for-1 split of the ordinary shares.
146) Liability may be recognized

A. Only if the entity to which the obligation is owed is specifically identified.
B. Even if the entity to which the obligation is owed is not specifically identified so long as the liability is probable and
can be measured.
C. On legal obligation arising from future events which are probable of occurrence.
D. Any of these
147) Deferred tax liabilities are

A. Always presented as noncurrent when an entity presents a classified statement of financial position.
B. Presented as noncurrent only when the reversal date extends beyond 12 months from the end of reporting period.
C. Always presented as current when an entity presents a classified statement of financial position
D. Always presented as non current when the deferred tax liabilities are required under the standards to be recognized
directly in equity.
148) Share dividends payable

A. Are always presented as non current liabilities.
B. May or may not be presented as current liabilities depending on their expected dates of settlement.
C. Are not liabilities but rather presented as part of equity as a deduction to share capital.
D. Are not liabilities but rather presented as part of equity as a addition to share capital.

149) A currently maturing obligation is presented as current. Which of the following instances would a currently maturing
obligation is nonetheless presented as non current?
A. Refinancing is completed as of the end of reporting period.
B. Refinancing made after the end of reporting period but before authorization of financial statement for issue is at the
discretion of the entity.
C. Grace period is received as of end of reporting period to rectify breach of loan agreement ending at least 12 months
after the end of reporting period.
D. In any of these situations.
150) Bulbasaur, Inc., had a P4,000,000 note payable due on March 15, 2012. On January 28, 2012 before the issuance
of its 2011 financial statements, Bulbasaur issued long term bonds in the amount of P4,500,000. Proceeds from the
bonds were used to repay the note when it came due. How should Bulbasaur classify the note in its December 31,
2011, financial position?
A. As a current liability, with separate disclosure of the note refinancing.
B. As a current liability, with no separate disclosure of the note refinancing.
C. As a non current liability, with separate disclosure of the note refinancing.
D. As a non current liability, no with separate disclosure of the note refinancing.
151) Liabilities are

A. Any accounts having credit balances after closing entries are made.
B. Deferred credit that are recognized and measured in conformity with generally accepted accounting principles.
C. Obligations to transfer ownership shares to other entities in the future.
D. Obligations arising from past transactions and payable in assets or services in the future.
152) Which of the following is not one of the essential characteristics for an item to be reported as a liability on the balance
sheet?
A. It is a present obligation of a particular entity C. It involves a future sacrifice of economic benefits
B. Is is payable to specifically identifiable payees D. It is reasonably measureable in terms of money
153) Which of the following liabilities is a financial liability?

A. Deferred revenue.
B. A warranty obligation.
C. A constructive obligation.
D. An obligation to deliver own shares worth a fixed amount of cash.
154) Goku Corporation does not elect the fair value option for recording its financial liabilities. The discount resulting from
determination of a note payable’s present value should be reported on its balance sheet as an/a
A. Addition to the face amount of the note C. Deferred credit separate from the note
B. Deferred charge separate from the note D. Direct deduction from the face amount of the note
155) In which of the following may an entity not incur any obligation?
A. Using a credit card to purchase merchandise C. Replacing an accounts payable with note payable
B. Using a debit card to purchase merchandise D. Breaching a loan agreement
156) Which of the following statements concerning dividends is untrue?

A. Once declared, a cash dividend on ordinary shares becomes a liability of the corporation.
B. Since a dividend is generally paid within a month or so, it usually is classified as current.
C. Preference dividends in arrears should not be accrued as a liability.
D. Preference dividend declared but not yet paid should be disclosed only in the notes.
157) Which of the following is an accrued liability?

A. Cash dividend payable C. Rent revenue collected one month in advance
B. Wages payable D. Portion of long term debt payable
158) An automobile dealer sells service contracts. The contract stipulate that the dealer will perform specific repaid on
covered vehicles. The contracts vary in length from 12 to 36 months. Do the following increase when service contracts
are sold?
Deferred revenue Service revenue Deferred revenue Service revenue
A. Yes No C. No Yes
B. No No D. Yes No

159) Which of the following statement is incorrect?
A. A contract to purchase goods in the near future does not require the recording of a current liability.
B. The receipt of a grace period from a lender by the reporting period to rectify a breach loan covenant ending at least
12 months from reporting period may warrant a non current classification of a debt that would otherwise be
presented as current.
C. Unearned revenue arises from the acceptance of payment in advance for a service to be performed.
D. The actual replacement of a short term obligation with another short term obligation after the reporting period but
before the financial statements are authorized for issue is sufficient to demonstrate an entity’s ability to refinance the
short term obligation on a long term basis.
160) Liability may be recognized (choose the incorrect statement)

A. Even if the entity to which the obligation is owed is not specifically identified for as long as the liability is probable
and can be measured reliability.
B. Even if the goods purchased under FOB shipping point have not yet been received; provided that, the delivery to
the carrier has already been made by the seller.
C. If the entity has present obligation arising from past events and the obligation is probable and measure reliably.
D. If the entity has a present obligation which is probable and can be measured reliably; provided, the payee of the
obligation has been specifically identified.
161) A liability shall be recognized

A. If the entity incurs a present obligation that is both probable and reliably measurable; provided the other party to
which the obligation owed is specifically identified.
B. If the entity incurs a future obligation that is both probable and reliably measurable.
C. If the entity incurs a present obligation with improbable outflow of resources embodying economic benefits.
D. If the entity incurs a present obligation that is both probable and reliably measureable, even if the other party to
which the obligation is owed is not specifically identified.
162) How will the annual interest or dividend affect total liabilities each year?
A. Accrued interest due periodically is a current liability each year until paid.
B. Cumulative preferred dividends in arrears are a current liability each year until paid.
C. Both interest and cumulative preference dividends in arrears are noncurrent liabilities each year until paid.
D. Interest and cumulative preference dividends in arrears are current liabilities each year until paid.
163) Which of the following is true about accounts payable?

I Accounts payable are normally not discounted to their present value except when their payment is deferred
beyond the normal operating cycle and the effect of time value of money is material
II When account payable are recorded at the net amount, a “Purchase Discount” account will be used.
III When accounts payable are recorded at the gross amount, a “Purchase Discount Lost” account will be used.
A. I only B. II only C. III only D. I, II and III
164) A liability is classified as current if (choose the incorrect statement)

A. It is expected to be settled within the normal operating cycle
B. It is held primarily for the purpose of trading
C. It is to be settled within one year
D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting
period.
165) Deferred tax liabilities

I May be presented as current when they are expected to reverse within 12 months from the end of reporting
period.
II Are always presented as noncurrent when an entity presents a classified statement of financial position.
A. I or II B. I C. II D. None
166) A currently maturing obligation is normally presented as current. In which of the following instances may a currently
maturing obligation be presented as non current?
A. Refinancing is completed as of end of reporting period.

B. Refinancing after the end of reporting period but before authorization of financial statements for issue is at the
discretion of the entity.
C. Grace period is received as of the end of reporting period to rectify a breach of loan agreement ending at least 12
months after the end of reporting period.
D. In any of these instances.
167) Determine the correct classification of the following liabilities:

I Financial liability measured at fair value through profit or loss
II Liability refinanced with long term debt between the balance sheet date and date of issuance of balance sheet.
III Liability which will be refinanced on a long term basis between the balance sheet date and date of issuance of
balance sheet through an irrevocable agreement signed by debtor.
IV Liability paid between the balance sheet date and date of issuance of balance sheet with cash the cash is
replenished with proceeds from long term debt also between the balance sheet date and date of issuance
of balance sheet.
A. All are current liabilities C. Only IV is a current liability

B. All are long term liabilities D. Only I is a long term liability
168) Which of the following statements is true?

A. A short term deferred venue should be classified as a current liability.
B. A current liability may be classified as a ling term liability if the entity has the intention to refinance it after the balance
sheet date.
C. Liability must be due within 12 months of the current balance sheet to be classified as current liabilities.
D. Deposit taken from customers by public utilities should always be reported as current liability by the utility.
169) Determine the correct classification of the following liabilities:

I Liability with a due date which can be accelerated to within one year of the balance sheet date; a reasonable
probability exists that the due date will be accelerated.
II Liability due on demand by creditor; probability of the creditor calling in the liability within one year from end of
reporting period is remote.
III Liability due on demand by creditor; probability of the creditor calling in the liability within one year of the balance
sheet date is reasonable but not likely.
A. Only I and III are long term liabilities C. Only I is long term liability
B. All are long term liabilities D. All are current liabilities
170) Which of the following items would be excluded from current liabilities?
A. A long term liability callable or due on demand by the creditor but the creditor has given no indication that the debt
will be called.
B. Normal accounts payable which had been assigned by the creditor to a finance company.
C. Long term debt callable within one year or less because the debtor violated a debt provision.
D. A short term debt which at the discretion of the entity can be rolled over at least 12 months after the balance sheet
date.
171) Which of the following statements is correct?

A. A company may exclude a short term obligation from current liabilities if the firm intends to refinance the obligation
on a long term basis.
B. A company may exclude a short term obligation rom current liabilities of the firm can demonstrate an ability to
consummate a refinancing short of discretion to roll over the liability for at least 12 months after the reporting
period.
C. A company my exclude a short term obligation from current liabilities if it is paid off after the balance sheet date and
subsequently replaced by long term debt before the balance sheet is issued.
D. A company may exclude a short term obligation from current liabilities if the firm has consummated and completed
a long term refinancing as of reporting period.
172) An entity wants to exclude short term debt from its current liabilities to improve its current ratio. Which of the
following would help the entity accomplish its goal?
A. Refinance the debt before the end of the reporting period.
B. Pay the debt after the end of the reporting period and replenish the cash used to pay the debt with the proceeds
from long term debt issued before issuance of the statement of financial position.

C. Enter into a refinancing agreement before the end of the reporting period which permits the refinancing of the debt
with other debt due 8 months after the end of the reporting period.
D. Plan not to pay the debt until after the end of the next reporting period.
173) Which of the following is not a current liability?

A. Income tax payable
B. One year magazine subscription received in advance
C. Discount related to a noninterest bearing long term note payable
D. Estimated warranty liability
174) A currently maturing obligation expected to be refinanced:

A. May be classified as noncurrent if refinancing arrangements are made and signed as of the end of the reporting
period.
B. May be classified as noncurrent if there is an intention to refinance.
C. Must always be reported as a current liability.
D. May be classified as non current if off balance sheet financing is to be obtained after the end of the reporting period
but before the financial statements are authorized for issue.
175) Which of the following statements is correct?

A. A company may exclude a short term obligation from current liabilities if the firm intends to refinance the obligation
on a long term basis.
B. A company may exclude a short term obligation from current liabilities if the company can demonstrate an ability to
consummate a refinancing even if refinancing is not under an existing loan facility.
C. A company may exclude a short term obligation from current liabilities if it paid off after the balance sheet date and
subsequently replaced by long term debt before the balance sheet is issued.
D. None of these.
176) Which of the following should not be included in the current liabilities section of the balance sheet?
A. Trade notes payable C. The discount on short term notes payable
B. Short term zero interest bearing notes payable D. All of these are included
177) Which of the following is a current liability?

A. Preferred dividends in arrears C. A cash dividend payable to preferred stockholders
B. A dividend payable in the form of additional share D. None of these
178) Of the following items, the only one which should not be classified as a current liability is
A. Currently maturing long term debt C. Deferred tax liabilities
B. Sales taxes payable D. Unearned revenue
179) Which of the following may be a current liability?

A. Withheld income taxes C. Unearned revenue
B. Deposits received from customers D. All of these
180) Which of the following items is a current liability?

A. Bonds (for which there is an adequate sinking fund properly classified as a long term investment) due in 3 years.
B. Bonds (for which there is no sinking fund set up) due in 13 months.
C. Bonds (for which there is an adequate appropriation of retained earnings) due in 11 years.
D. Bonds (for which there is an adequate sinking fund set up) due in 11 months.
181) Which of the following statement is false?

A. An entity may exclude a short term obligation from current liabilities if refinancing is at the discretion of the entity
under an existing loan facility.
B. Cash dividends should be recorded as a liability when they are declared by the board of directors.
C. Under the cash basis method, warranty costs are charged to expense as they are paid.
D. Income taxes withheld from employees payroll checks should never be recorded as a liability since the employer will
eventually remit the amounts withheld to the appropriate taxing authority.

A. If ability to refinance a currently maturing obligation is present, but no arrangements are made as of the balance
sheet date, the obligation should be classified as non current debt.

B. If no reasonable estimate can be made of the minimum amount expected to be available for future refinancing, the
entire outstanding short term obligation must be disclosed as a non current.
C. Obligation that are due on demand should be classified as an current liability even though liquidation of the liability is
not expected with the next year or operating cycle, whichever is longer.
D. If a refinancing is soon to be accomplished by issuing ordinary shares, a currently maturing short term obligation
should be included in shareholder’s equity on the current balance sheet.
183) Which of the following statements is incorrect regarding PAS 37?

A. A provision is a liability of certain timing or amount.
B. A provision is recognized if there is present obligation requiring outflow of resources embodying economic benefits
that is both probable and measured reliably.
C. Provisions necessarily requires estimates.
D. Provisions are presented separately from other liabilities.
184) Which of the following statements are correctly stated?

I Note payable include short term indebtedness supported by drafts drawn by the supplier on the purchase of
goods.
II Liabilities may also be measured by estimates of a definitive character when then amount of liability cannot be
measured more precisely.
III When realization of a gain is virtually certain, such gain is not a contingency, and accrual of the gain is appropriate.
IV In general, liabilities are recorded when the corresponding assets, expense or losses are recognized.
V Adequate disclosure shall be made f contingencies that might result in gains, but care should be exercised to avoid
misleading implications as to the likelihood of realization.
A. I, II, III, IV and V B. II, III, IV and V C. III, IV and V D. II and IV
185) An example of an item which is not a liability is

A. Dividends payable in stock C. Accrued estimated warranty costs
B. Advances from customers on contracts D. The portion of long term debt due within one year
186) Which of the following should be classified as a current liability?

A. Customers’ unredeemed gift certificates
B. The difference between the present value and the face amount of a one year note payable
C. Stock dividend payable
D. Overdrawn account with City Bank in which a second account with a positive balance is also maintained.
187) Which of the following statements is not correct?

A. Conceptually, liabilities should be valued at the present value of all cash to be paid in the future.
B. All liabilities must have a definite amount owed and must not be contingent on a future event.
C. If a note payable is secured, disclosures must specify what assets are pledged.
D. Long term debts should be reported at their present values computed on the basis of both principal and interest.
188) Which of the following statements is incorrect regarding PAS 37?

A. When measuring a provision, an entity uses best estimate, expected value, or mid-point value, whichever is the
most appropriate in a given circumstance.
B. Where details of a proposed new law have yet to be finalized, an obligation arises only when the legislation is
virtually certain to be enacted as drafted.
C. Gains from the expected disposal of assets hall not be taken into account in measuring a provision.
D. Reimbursements are considered only when their receipt is probable.
189) Vegetta Company is finalizing its annual financial statements. According to PAS 37, which of the following should be
disclosed in the financial statements as a contingent liability?
A. The company has accepted liability prior to the year end for unfair dismissal of an employee and is to pay damages.
B. The company has received a letter from a supplier complaining about an old unpaid invoice.
C. The company is involved in a legal case which it may possibly lose, although this is not probable.
D. The company has not yet paid certain claims under sales warranties.
190) Which of the following statements is not true?

A. No loss contingencies shall be disclosed if there is just a remote possibility of a loss.

B. Indirect guarantees should normally be disclosed by note, not by accrual.
C. In the case of loss contingencies, accrual can be made even if the exact payee and payment date are not known.
D. Losses should be accrued for unasserted claims and other potential unfiled lawsuits.
191) According to PAS 37, a contingent liability is

A. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or
non occurrence of one or more uncertain future events not wholly within the control of the entity.
B. A present obligation that arises from past events but is not recognized because it is not probable that an outflow of
resources embodying economic benefits will be required to settle the obligation.
C. A present obligation that arises from past events but is not measured with sufficient reliability.
D. Any of these.
192) Which of the following does not imply the existence of a contingent liability?
A. A dividend declared but not yet paid C. Potential liability from a lawsuit
B. Discounted notes receivable D. A disputed additional tax assessment
193) Which of the following statements is correct regarding liabilities?

A. Sales tax payable is an example of estimated liability.
B. Because accounting measures should be verifiable, liabilities should not be estimated.
C. Warranties fall under the category of definitely determinable liabilities.
D. It is not important that the party whom an obligation is owed to is specifically identifiable before a liability is
recognized.
194) Which of the following is correct regarding liabilities?

I If inventory is sold in year 1 and is returned and replace under warranty in year 2, warranty expense should be
recorded in year 2.
II Potential vacation pay should be accounted for as contingent liability or as provision depending on whether the
liability recognition criteria are met.
A. I only B. II only C. I and II D. Neither
195) One of these is not a contingent liability:

A. Notes receivable discounted C. Pending civil case in the court
B. Pending income tax assessment in dispute D. Real property tax assessment for 1 year
196) An estimated loss from contingency that is probable and for which the amount of the loss can be reasonably
estimated should
A. Not be accrued but should be disclosed on the notes to the financial statements.
B. Be accrued by debiting an appropriated retained earnings account and reciting a liability account or an asset
account.
C. Be accrued by debiting an expense account and crediting an appropriated retained earnings account.
D. Be accrued by debiting an expense account and crediting a liability account or an asset account.
197) When can a “provision” be recognized in accordance with PAS 37?

A. When there is a legal obligation arising from a past event, the probability of the outflow of resources is more that
remote (but les than probable), and a reliable estimated can be made of the amount of the obligation.
B. When there is a constructive obligation as a result of a past event, the outflow of resources is probable, and a
reliable estimate can be made of the amount of obligation.
C. When there is possible obligation arising from a past event, the outflow of resources is probable, and an
appropriate amount can be set aside toward the obligation.
D. When management decides that it is essential that a provision be made for unforeseen circumstances and keeping
in mind this year the profit were enough but next year there may be losses.
198) In calculating present value in a situation with a range of possible outcomes all discounted using the same interest
rate, the expected present value would be
A. The most likely outcome C. The minimum outcome
B. The maximum outcome D. The sum probability weighted present values
199) If a contingent loss is probable and can be reasonably estimated to be within a given range, but no amount within the
range is a better estimated than any other amount within the range, the amount to be accrued should be

A. Zero C. The lower limit of the range
B. The upper limit of the range D. The mid point value
200) Bulma Company is being sued for illness caused to local residents as a result of negligence on the company’s part in
permitting the local residents to be exposed to highly toxic chemicals from its plant. Bulma’s lawyer stated that it is
probable that Bulma will lose the suit and be found liable for a judgment costing Bulma anywhere from P500,000 to
P2,500,000. However the lawyer states that the more probable cost is P1,000,000. As a result of the above facts,
Bulma should accrue
A. A loss contingency of P500,000 and disclose an additional contingency of up to P2,000,000.
B. A loss contingency of P1,000,000 and disclose an additional contingency of up to P1,500,000.
C. A loss contingency of P1,000,000 but not disclose any additional contingency.
D. No loss contingency but disclose a contingency of P500,000 to P2,500,000.
201) Trunks Company sells appliances that include a three year warranty. Service calls under the warranty are performed
by an independent mechanic under a contract with Trunks. Based on experience, warranty costs are estimated at P30
for each machine sold. When should Trunks recognize these warranty costs?
A. Evenly over the life of the warranty C. When payment are made to the mechanic
B. When the service calls are performed D. When the machines are sold
202) When the occurrence of a gain contingency is reasonably possible and its amount can be reasonably estimated, the
gain contingency
A. Should be included in profit or loss and disclosed
B. Should be included as appropriation of retained earnings
C. Should be disclosed but not included in profit or loss
D. Should not be included in profit or loss and need not be disclosed
203) When the occurrence of a gain contingency is probable and its amount can be reasonable estimated, the gain
contingency should be
A. Disclosed but not recognized in the income statement.
B. Recognized in the income statement and disclosed.
C. Neither recognized in the income statement nor disclosed.
D. Classified as an appropriation of retained earnings.
204) Unamortized bond discount should be reported on the financial statements of the issuer as a
A. Deferred charge C. Direct deduction from the present value of the bond
B. Part of the issue costs D. Direct deduction from the face amount of the bond
205) Straight line amortization of bond premium or discount:

A. Can be used as an optional method of amortization in all situations.
B. Provides the same total amount of interest expense and interest revenue as at he effective interest method over the
life of the bonds.
C. Provides the same amount of interest expense and interest revenue each interest period as the effective interest
method.
D. Is appropriate when the bond term is especially long.
206) For a bond issue which sells fro less than its face amount, the market rate of interest is
A. Dependent on the rate stated on the bond C. Less than the rate stated on the bond
B. Equal to rate stated on the bond D. Higher than the rate stated on the bond
207) The market price of a bond issued at a discount is the present value of its principal amount at the market rate of
interest
A. Less the present value of all future interest payments at the market rate of interest
B. Less the prevent value of all interest payments at the rate of interest stated on the bond.
C. Plus the present value of all future interest payments at the market rate of interest.
D. Plus the present value of all interest payments at the rate of interest stated on the bond.
208) The issue price of a bond is equal to the present value of the future cash flows for interest and principal when the
bond is issued: (1) at face (2) at a discount (3) at a premium
A. Yes; no; yes B. Yes; no; no C. No; yes; yes D. Yes; yes; yes

209) Costs incurred in connection with the issuance of ten year bonds which sold at a slight premium should be
A. Charged to retained earnings when the bonds issued
B. Expenses in the year in which incurred
C. Capitalized as organization cost
D. Reported on the balance sheet as a deduction from bonds payable and amortized over the 10 year bond term.
210) Bulba Company issued bonds with detachable share warrants. Both the warrants and the bonds have separate
identifiable fair values. The sum of the fair value of the warrants and face amount of the bonds exceeds the cash
proceeds but the proceeds assigned to the bonds are less than the face amount of the bonds. The excess of the face
amount over the assigned proceeds to the bonds is reported as
A. Discount on the bonds C. Share premium in excess of par
B. Premium on the bonds D. None of these
211) On January 1 of the current year, Ivy Company issued bonds at a discount. Ivy incorrectly used the straight line
method instead of the effective interest method to amortize the discount. How were the following amounts, as of
December 31 of the current year, affected by the errors? (1) Bond carrying amount; (2) Net income.
A. Overstated, overstated C. Overstated, understated
B. Understated, understated D. Understated, overstated
212) When an entity retires bonds with an unamortized discount at a premium, there is
A. Gain B. Loss C. Either gain or loss D. Neither gain or oss
213) Use of the effective-interest method in amortizing bond premiums and discount result in
A. A greater amount of interest expense over the life of the bond issue than would result from the use of the straight
line method.
B. A varying amount being recorded as interest expense from period to period.
C. A variable effective rate on the bond issue from period to period over life of the bonds.
D. A smaller amount of interest expense over the life of the bond issue than would result from use of the straight line
method.
214) When an entity retires bonds with an unamortized discount at a premium

A. The unamortized discount decreases loss on retirement.
B. The unamortized discount increases loss on retirement.
C. The unamortized discount increases gain on retirement.
D. The unamortized discount decreases gain on retirement.
215) An entity uses the effective interest method in amortizing bond discount, which of the following is incorrect regarding
the bond discount amortization?
A. Periodic interest expense increase over the life of the bonds.
B. Periodic interest expense is greater than periodic interest payments.
C. The carrying amount of the bonds increases over the life of the bonds.
D. Amortization decreases over the life of the bonds.
216) An entity uses the effective interest method in amortizing bond discount, which of the following is incorrect regarding
the bond premium amortization?
A. Periodic interest expense increase over the life of the bonds.
B. Periodic interest expense is greater than periodic interest payments.
C. The carrying amount of the bonds increases over the life of the bonds.
D. Amortization decreases over the life of the bonds.
217) Which of the following is true for a bond maturing on a single date when the effective interest method of amortizing
bond discount is used?
A. Interest expense as a percentage of the bond’s carrying amount varies from period to period. B.
Interest expense increases each six month period
C. Interest expense remains constant each six month period
D. Nominal interest rate exceeds effective interest rate.
218) The term used for bonds that are unsecured as to principal is
A. Junk bonds B. Indenture bonds C. Debenture bonds D. Callable bonds

219) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the
earlier years will
A. Exceed what it would have been had the effective interest method of amortization been used.
B. Be less than what it would have been had the effective interest method of amortization been used.
C. Be the same as what it would have been had the effective interest method of amortization been used.
D. Be less than the stated rate of interest.
220) On January 2, 2010, Squire Co. issued 8% bonds with a face amount of P1,000,000 that mature on January 2,
2016. The bonds were issued to yield 12%, resulting in a discount of P150,000. Squire incorrectly used the straight line
method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds
affected by the errors? (1) at December 31, 2010, (2) at January 2, 2016:
A. Overstated; understated C. Understated; overstated
B. Overstated; no effect D. Understated; no effect
221) A bond issued on June 1, 2011, has interest payment dates of April 1 and October 1. Bond interest expense for the
year ended December 31, 2011 is for a period of:
A. 3 months B. 4 months C. 6 months D. 7 months
222) If a company issued bonds at a discount, the discount is amortized over the life of the bonds and:
A. Decreases the periodic interest payment below the interest expense charged.
B. Increases the periodic interest expense charged above the interest payment made.
C. Increases the periodic interest payment made above the interest expense charged.
D. Decreases the periodic interest expense charged below the interest payment made.

A. Bond premium (or discount) may be amortized by using the straight line method and is especially appropriate for
very ling term bonds and when the stated and market rates are markedly different.
B. Bonds market prices fluctuates inversely with the changes in the market rate of interest.
C. Bonds purchased at a premium have a higher rate of interest than the effective rate.
D. A bond premium results when the effective rate is less than the stated rate; part of the periodic cash receipts for
interest, in effect, will be treated as a reduction of the premium paid and not as interest revenue.
224) Which of the following statements is incorrect?

A. If the cash proceeds obtained from issuing a bond payable is less than the face amount, there is discount.
B. If the cash proceeds obtained from issuing a bond payable is more than the face amount, there is premium.
C. If the face amount of bonds issued is less than the cash proceeds from issuance, there is discount.
D. If the cash paid to acquire an investment in bonds is less than the face amount, there is discount.
225) Which of the following statements provides evidence of the existence of a discount on a financial instrument?
A. The effective interest rate is less than the nominal rate.
B. The nominal rate is greater than the effective rate.
C. The interest expense recognized during a period is greater than the interest paid.
D. The interest expense recognized during a period is less than the interest paid.
226) What is the principle of accounting for a compound instrument?

A. The issuer shall classify a compound instrument as either a liability or equity based on an evaluation of the
predominant characteristics of the contractual arrangement.
B. The issuer shall classify the liability and equity components of the compound instrument separately as financial
liabilities, financial assets, or equity instruments.
C. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity, unless the
equity component is detachable and separately transferable, in which case the liability and equity components shall
be presented separately.
D. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity.
227) How are the proceeds from issuing a compound instrument allocated between the liability and equity components?
A. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the
equity component (with and without method).

B. First, the equity component is measured at fair value, and then the remainder of the proceeds is allocated to the
liability component (with and without method).
C. First, the fair values of both equity component and the liability component and are estimated. The the proceeds are
allocated to the liability and equity component based on the relation between the estimated fair value (relative fair
value method).
D. The equity component is measured at its instrinsic value. The liability component is measured at the face amount
less the intrinsic value of the equity component.
228) When share warrants attached to a bond issue are exercised

A. The bonds are extinguished
B. The equity component initially allocated from the issue price is transferred to profit or loss.
C. The equity component initially allocated from the issue price is transferred directly to retained earnings.
D. The equity component initially allocated from the issue price is transferred within equity.
229) Which of the following statements correct?

A. The present value of a bond is determined by adding the discounted value of the payment at maturity to the
discount value of a series of fixed interest payments.
B. When a bond premium is amortized, the bond interest expense recorded is greater than the cash paid.
C. When bonds are issued at a discount, the total interest cost to the issuing corporation equals the interest payments
minus the bond discount.
D. When bonds are converted into shares, the conversion is a discontinued operation.
230) Which of the following statement is incorrect?

A. When bonds are retired, all of the premium or discount associated with the bonds must be canceled.
B. When convertible bonds are retired before they are converted, a gain or loss may be recorded.
C. When convertible bonds are retired before they are converted, the retirement price must be allocated to both the
debt component and equity feature of the convertible bonds.
D. At the date of retirement of convertible bonds which were not converted, the excess of the retirement price over the
fair value of the convertible bonds without the equity features measured on initial recognition is recognized as gain
or loss on extinguishment of debt.
231) Which of the following is incorrect regarding a compound financial instrument?

A. A compound financial instrument is a financial instrument that, from the issuer’s perspective, contains both a liability
and an equity elements.
B. The issuer accounts for the elements of a compound financial instrument separately.
C. Convertible bonds and bonds with detachable share warrants are examples of compound financial instruments.
D. The issues price of a compound financial instrument is allocated to the liability and equity components based on
their relative fair values.
232) Which of the following may be used to determine the amount to be assigned to the equity component of a
compound financial instrument?
A. Cash proceeds from issuance of the compound instrument minus the fair value of the liability component without
the equity feature.
B. Cash proceeds multiplied by the fair value of the equity component over the sum of the fair values of the liability and
equity component.
C. Present value of future cash flows from the liability component discounted using an effective interest rate.
D. Cash proceeds divided by two.
233) Which of the following statements is incorrect regarding the subsequent accounting for compound financial
instrument?
A. Upon the conversion of convertible bonds, the equity component recognized on initial recognition of the convertible
bonds is recognized in profit or loss.
B. Upon the conversion of convertible bonds, the equity component recognized on initial recognized of the convertible
bonds is transferred within equity.
C. Upon the conversion of convertible bonds, any conversion costs incurred is deducted directly in equity.
D. Share capital is credited only when the convertible bonds are actually converted.
234) Which of the following statements is incorrect regarding the subsequent accounting for compound financial
instruments?

A. Upon the retirement of convertible bonds, the retirement price is allocated to both the liability and equity
components, similar to the allocation of issue price.
B. Upon the retirement of convertible bonds, the difference between the carrying amount of the bonds retired and the
retirement price allocated to the bonds is recognized in profit or loss.
C. Upon the retirement of convertible bonds, the balance of the equity component allocated from the issue price after
deduction of allocated retirement price is closed to the share premium account.
D. Upon the retirement of convertible bonds, the equity component recognized on initial recognition of the convertible
bonds is recognized in profit or loss.
235) Which of the following statements is correct regarding the accounting for compound financial instruments?
A. Whether the equity feature is exercised (converted) or not, the equity component allocated from the issue price of
compound financial instrument remains in equity.
B. The issuer of a compound instrument shall classify the instrument either as a financial liability or own equity
depending on the substance of the instrument.
C. Upon the retirement of convertible bonds, the difference between the carrying amount of the bonds retired and the
allocated retirement price is recognized direct in equity.
D. Upon the conversion of convertible bonds, any conversion costs incurred is allocated to the bonds converted and
the equity feature exercised.
236) Flogras Co. neglected to amortize the premium on outstanding ten year bonds payable. What is the effect of the
failure to record premium amortization on interest expense and bond carrying amount, respectively?
A. Understate; understate C. Overstate; overstate
B. Understate; overstate D. Overstate; understate
237) The equity component of a compound financial instrument is determined

A. By allocating the issue price to the liability and equity components based on their relative fair values.
B. By allocating the equity component its fair value
C. By deducting the fair value of the liability component without the equity feature from the net proceeds from the
issuance of the compound instrument
D. None of these
238) Upon conversion of convertible bonds,

A. No gain or loss recognized
B. Any share premium recognized on the conversion feature is transferred directly to retained earnings
C. Any unamortized discount is derecognized by a debit
D. A and B
239) Upon retirement of convertible bonds,

A. No gain or loss is recognized
B. Gain or loss is recognized as the difference between the retirement price and the carrying amount of the liability
component.
C. Any share premium recognized on the conversion feature is recognized in profit or loss
D. Gain or loss is recognized as the difference between the retirement price allocated to the liability component and
the carrying amount of the liability component.
240) The share premium recognized on a convertible bond

A. Remains in equity only if the bonds are actually converted
B. Reclassified out of equity to profit or loss if the bonds are not converted
C. Remains in equity whether the bonds are actually converted or not converted
D. A and B
241) When the equity feature of a compound instrument is exercised, the related share premium is
A. Transferred directly to retained earnings C. Transferred with equity
B. Transferred to profit or loss D. A and B
242) When debt is issued at a discount, interest expense over the term of the debt equals the cash interest paid:
A. Minus discount C. Plus discount
B. Minus discount minus face amount D. Plus discount plus face amount

A. A noninterest bearing note sometimes is called discounted note because the cash received is more than the face
amount of the note.
B. A debtor’s December 31, 2011 statement of financial position is to be published on March 31, 2012. An obligation
with a due date of December 31, 2016 is also due on demand by the creditor. At December 31, 2011, there is no
indication that the creditor intends to call in the debt. The obligation is a current liability.
C. The market rate of interest is the interest rate used to determine the amount of cash interest that will be paid on the
principal.
D. A debtor’s December 31, 2011 statement of financial position is to be published on March 31, 2012. An obligation
due December 31, 2016 has a due date which can be accelerated by the creditor to the present date if the current
ratio falls below 2:1. The current ration on December 31, 2011, is 2.2:1. The obligation is a current liability.
244) Interest expense are

A. incurred only on interest bearing obligations
B. incurred due to passage of time
C. not incurred on redeemable preference shares issued
D. incurred only when the effective interest rate is stated in the instrument.
245) Which of the following is not true about the discount on short term notes payable?
A. The discount on notes payable account has a debit balance.
B. The discount on notes payable account should be reported as an asset on the balance sheet.
C. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.
D. All of these are true.

A. The principal amount of a debt is the cash or cash equivalent amount borrowed.
B. When a non cash asset is acquired and the stated rate of interest is different from the current market rate of
interest, the cost of the asset is the present value of the future cash payments discounted at the current market rate
of interest rather than at the stated interest rate.
C. A company that receives cash in an amount less than the face amount of a noninterest bearing note payable should
record the note at its discounted present value.
D. The carrying amount of a non interest bearing note payable due in lump sum will decrease as time goes by.
247) Which of the following statements about non interest bearing notes is false?
A. The face amount of a non interest bearing note may include both the principal and interest as a single amount to be
paid back at maturity date.
B. The principal amount of a non interest bearing note is its future cash flows discounted at its effective interest rate.
C. The effective rate on a short term non interest bearing note, with a specified term, cannot be determined unless it is
given on the face of the note.
D. Noninterest bearing is not a descriptive designation for this type of note because such note do bear interest.
248) Discount on notes payable is charged to interest expense

A. Equally over the life of the note C. Using the effective interest method
B. Only in the year the note is issued D. Only in the year the note matures
249) A company borrowed P10,000 on a bank note for ninety days at 12 percent interest. The interest was included in the
face of the note. The entry to record this transaction on the company’s books would include a
A. Debit to cash for P10,000 C. Credit to note payable for P9,700
B. Debit to discount on note payable P300 D. Credit to discount interest expense for P300
250) When accounting for a note whose interest is included in the face amount, the account discount on notes payable
eventually is converted into
A. Interest receivable B. Interest expense C. Interest payable D. Interest income
251) On September 1, 2011, a company borrowed cash and signed a one year interest bearing note on which both the
principal and interest are payable on September 1, 2012. How will the note payable and the related interest be
classified on the December 31, 2011, balance sheet?
Note payable Accrued interest
A. Current liability Non current liability

B. Non current liability Current liability
C. Current liability Current liability
D. Non current liability No entry
252) The discount resulting from the determination of a note payable’s present value should be reported on the balance
sheet as a (an):
A. Addition to the face amount of the note C. Deferred credit separate from the note
B. Deferred charge separate from the note D. Direct reduction from the face amount of the note

A. The account “discount on notes payable” is normally associated with notes whose interest rate is stated separately
on the face of the note.
B. A disadvantage of issuing long term debt is the increased risk of default.
C. Theoretically, the carrying amount of an outstanding note payable at any given point of time is equal to the present
value of future cash flows on the note discounted at the note’s original effective interest rate over the remaining
period to the note’s maturity date.
D. When a note payable is issued for a noncash consideration, the note payable’s fair value as of initial recognition is
equal to the cash price equivalent of the non cash consideration received.
254) Contingent liability will or will not become actual liabilities depending on
A. The degree of uncertainty C. The present condition suggesting a liability
B. The outcome of future events D. Whether they are probable and estimable
255) Contingent liability will or will not be recognized as provision depending on

A. The degree of uncertainty C. The present condition suggesting a liability
B. The outcome of future events D. Whether they are probable and estimable
256) If the market rate of interest is lower than the face interest rate on the date of issuance, the bonds will
A. Sell at face value
B. Sell at a discount
C. Sell at a premium
D. Not sell until the face interest is adjusted
257) Under the effective interest method, as a discount is amortized each period, the
A. Amount amortized decreases C. Interest expense recorded increases
B. Bonds’ carrying amount decreases D. Interest paid on bondholder increases
258) Gain or losses from the early extinguishment of debt, if material, should be
A. Amortized over the life of the new issue.
B. Amortized over the remaining life of the extinguished issue
C. Recognized in income before taxes in the period of extinguishment
D. Recognized as an extraordinary item in the period of extinguishment
259) Freeza Company has a loan due for repayment in 6 month time, but it has discretion to refinance for repayment 15
months later. Freeza exercised its discretion by entering into refinancing agreement that was signed after the balance
sheet date but before financial statements were authorized for issue. Based on the foregoing facts, in which section of
the statement of financial position should this loan be presented?
A. Current asset C. Non current assets
B. Current liabilities D. Non current liabilities
260) The following statements relates to discount on notes payable, which of the following statements is correct?
I The discount on note payable is an adjunct liability account which is shown as a deduction from note payable.
II The discount on note payable represents interest charges applicable to future periods.
A. Both B. I only C. II only D. Neither
261) On the part of debtor, debt restructuring generally will result in

A. Gain on exchange B. Loss on exchange C. Gain on restructuring D. Loss on restructuring
262) A bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is

A. A compound financial instrument C. A primary financial instrument
B. A derivate financial instrument D. An equity instrument
263) What is the principle of accounting for a compound instrument?

A. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity.
B. The issuer shall classify the liability and equity components of a compound instrument separately as financial
liability, financial assets or equity instrument.
C. The issuer shall classify a compound instrument as either a liability or equity based on an evaluation of the
predominant characteristics of the contractual arrangement.
D. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity, unless the
equity component shall be presented separately.
264) Under current GAAP, which approach is used to bifurcate compound financial liability instruments?
A. Residual approach C. Net of tax approach
B. Asset and liability approach D. Periodic expense approach
265) Debentures are

A. Unsecured bonds B. Secured bonds C. Ordinary bonds D. Serial bonds
266) Callable bonds

A. Can be redeemed by the issuer at some time at a pre specified price.
B. Can be converted to share capital.
C. Mature in series of payments.
D. None of the above.
267) The effective interest rate on bonds is higher than the stated rate when bonds sell
A. At face value B. Above face value C. Below face value D. At maturity value
268) Bonds usually sell at a premium

A. When the market rate of interest is greater than the stated rate of interest on the bonds.
B. When the stated rate of interest on the bonds is greater than the market rate of interest.
C. When the price of the bonds is greater than their maturity value.
D. In none of the above cases.
269) To compute the price to pay for a bond, what present value concept is used?
A. Only the present value of P1 concept.
B. Only the present value of annuity of P1 concept.
C. Both the present value of P1 concept and present value of an annuity of P1 concept.
D. Neither the present value of P1 concept and present value of an annuity of P1 concept.
270) When interest expense is calculated using the effective interest amortization method, interest expense (assuming that
interest is paid annually) always equals the
A. Actual amount of interest paid.
B. Carrying amount of the bonds multiplied by the stated rate.
C. Carrying amount of the bonds multiplied by the effective rate.
D. Maturity value bonds multiplied by the effective rate.
271) Which of the following is true of accrued interest on bonds that are sold between interest dates?
A. It is computed at the effective market rate C. It will be paid to the seller when the bonds mature
B. It is extra income to the buyer D. None of the above
272) The issuer of a 10 year bond sold at par three years ago with interest payable February 1 and August 1 each year
should be reported in its December 31 statement of financial position.
A. Liability for accrued interest C. Increase in deferred charge
B. An addition to bond payable D. Contingent liability
273) In January 2016, Popo Co. gives a guarantee on a loan of Kame Corporation amounting to P3,000,000. During the
year, the financial condition of Popo deteriorates and at year end, Popo files a petition for bankruptcy. In its year end
financial statement, Kame should
A. Disclose the possible loss of P3,000,000 C. Not accrue and need not disclose the guarantee

B. Accrued a provision for liability of P3,000,000 D. Accrue and disclose the provision of P3,000,000
274) Current liabilities are normally recorded at the amount that the entity expects to pay rather than at their present value.
This practice can be supported according to the concept of:
A. Matching B. Consistency C. Materiality D. Conservatism
275) What is the relationship between present value and the concept of a liability?
A. Present values are not used to measure liabilities.
B. Present values are used to measure all liabilities.
C. Present values are only used to measure non current liabilities.
D. Present values are used to measure certain liabilities.
276) Shenron Corporation is a wine distiller, with five year normal wine fermentation period. The following are found in the
trial balance of Shenron Corporation at December 31, 2014:
I Trade notes payable due on March 31, 2016
II Long term notes payable, due March 31, 2015. (Shenron already completed negotiation on December 31, 2014 for
refinancing of the note on a long term basis)
III Bonds payable due June 30, 2017
IV Bonds payable due June 30, 2016, settlement is expected to be financed by a sinking fund.
Which of the foregoing shall be classified as non current liabilities at December 31, 2014?
A. I, II, III and IV B. II, III and IV C. III only D. III and IV
277) Bonds maturing on a single date are called

A. Callable bonds B. Debenture bonds C. Serial bonds D. Term bonds
278) Bonds payable should be initially recognized at

A. Issue price C. Issue price minus transaction costs incurred
B. Issue rice plus accrued interest D. Face value
279) For accounting purposes, the interest expense recognized on bonds payable should be based on the
A. Effective interest rate, considering the issue price and transaction costs.
B. Nominal interest rate.
C. Rate stated on the face of the bonds.
D. Market rate of interest on the reporting date.
280) How should the issue price of bonds with non detachable share warrants be accounted for?
A. The proceeds are fully assigned to bonds.
B. The proceeds shall be assigned first to the warrants, at their market value and the remainder to the bonds.
C. The proceeds shall be assigned first to the bonds, at their market value if sold without the warrants; then the
remainder of the issue price is assigned to the warrants as part of equity.
D. The proceeds shall be allocated to the bonds and to the warrants based on relative fair values.
281) The proceeds from a bond issued with detachable share warrants should be account for
A. Entirely as bond payable
B. Entirely as shareholders equity
C. Partly as unearned revenue and partly as bonds payable
D. Partly as liability for the bonds payable and party as shareholders equity for the warrants
282) Bonds with face value of P5,000,000 carrying a stated interest rate of 12% payable semi annually on March 1 and
September 1 were issued on July 1. The total proceeds from the issue amounted to P5,200,000. The best explanation
for the excess amount received over the face value is that
A. The bonds were sold at a premium
B. The bonds bear an interest rate lower than the market rate of interest at the date of bond issuance
C. The bonds were issued at face value plus accrued interest
D. The bonds were sold at a discount plus accrued interest
283) In theory, the proceeds from the sale of a bond will equal to the
A. Face amount of the bond.

B. Present value of the principal amount due at the end of the life of the bond plus the present value of the interest
payments made during the life of the bond.
C. Face amount of the bond plus the present value of the interest payments during the life of the bond.
D. Sum of the face amount of the bond and the periodic interest payment.
284) When a corporation issues a callable bond, this means that the
A. Investor may convert bonds held to cash at his or her option.
B. Issuer may retire the bonds paying a specified call price during a specified period.
C. Issuer may retire the bonds by paying a specified market price at the open market at any point in the life of the
bond.
D. Issuer may convert the bonds to some form of equity security during a specified period.
285) Under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal
to the
A. Stated rate of interest multiplied by the face value of bonds.
B. Effective rate of interest multiplied by the face value of the bonds.
C. Stated rate multiplied by the beginning of period carrying amount of the bonds. D.
Effective rate multiplied by the beginning of period carrying amount of the bonds.
286) Yamcha Company failed to amortize discount on outstanding 10 year bonds payable. What is the effect of the failure
to record amortization on interest expense, profit and bond carrying amount respectively?
A. Understated, overstate, understate C. Understate, overstate, overstate
B. Overstate, understate, overstate D. Overstate, understate, understate
287) The market price of a bond issued at a premium is the present value of the principal amount at the effective rate of
interest.
A. Plus the present value of all future interest payments at the effective rate of interest.
B. Plus the present value of all future interest payments at the stated rate of interest on the bond.
C. Minus the present value of all future interest payments at the effective rate of interest.
D. Plus the total amount of all future interest payments.
288) The gain or loss on the retirement of bonds prior to maturity should be
A. Recognized in profit or loss during the period of retirement.
B. Credited or debited to share premium.
C. Amortized over the remaining term of the bond.
D. Ignored.
289) Which of the following is incorrect about bonds sold at a discount?

A. Carrying amount of the bond increases each year.
B. The discount on bonds payable account decreases each year.
C. At maturity date, the face value and carrying amount of the bonds will be equal
D. The balance of bonds payable account increases each year.
290) Bond premium should be reported in the statement of financial position

A. At the present value of the future reduction in bond interest expense due to the premium.
B. As a deferred credit.
C. Along with other premium accounts such as those resulting from share capital
transaction. D. As a direct addition to the face amount of the bonds.
291) If bonds are held to maturity, any premium or discount on bonds payable
A. Should be written off directly to a bond retirement account as the bond will be redeemed.
B. Are carried forward and written off in the same manner as the used prior to the maturity date.
C. Will be fully amortized as their amortization period is designed to coincide with the life of the bond issue.
D. Should be used to calculate the gain or loss resulting from the maturity of the bonds.
292) Which of the following bonds pay no interest until maturity?

A. Zero coupon bonds B. Registered bonds C. Serial bonds D. Debenture bonds

A. A bond sold at a discount will incur interest expense and yield interest revenue at a rate that is higher than the
stated rate.
B. A bond sold at a discount has a present value at the date of sale/purchase less than its face amount.
C. A bond sold at a premium will reduce the effective interest expense for the issuer below what it would have been
had the bond sold at par.
D. Bond premium equates the stated interest rate on a bond to a higher effective rate related to the bond.

A. The yield or effective interest rate on a bond is equal to the stated rate if the bond premium or discount is amortized
by using the straight line method.
B. The terms, “yield rate”, “stated rate”, and “market rate” are generally interchangeable when referring to interest on
bonds.
C. Interest revenue and expense related to bonds are always computed using the stated rate of
interest. D. If a bond is sold at its face amount, the stated and effective interest rates are the same.

A. Bond premium (or discount) may be amortized by using the straight line method and is especially appropriate for
very long term bonds and when the stated and market rates are markedly different.
B. Bond market prices fluctuate inversely with changes in the market rate of interest.
C. Bonds purchased at a premium have a higher stated rate of interest than the effective rate.
D. A bond premium result when the effective rate is less than the stated rate; part of the periodic cash receipts for
interest, in effect, will be treated as a reduction of the premium paid and not as interest revenue.
296) Contingent liabilities are

A B C D
Not liabilities at the present Yes No Yes No
May or may not become liabilities in the future Yes No No Yes
297) When a loss contingency exists the likelihood that the future event or events will or will not occur can be expressed
by the range of outcome. The area within the range that the future event are likely to occur is identified as
A. Probable B. Remote C. Highly possible D. Reasonable probable
298) Loss contingencies may arise from all of the following, except:
A. Collectability of receivable C. Risk of loss of enterprise property by fire or explosion
B. Obligations related to product warranties D. Cumulative, preferred stock dividend in arrears
299) A loss on contingency for which the amount of loss can be reasonably estimated should be accrued when the
occurrence of the loss is
Reasonably possible Remote Reasonably possible Remote
A. Yes No C. No No
B. Yes Yes D. No Yes
300) Do not share this reviewer

A. Yes B. Of course C. Either A or B D. All of the choice
 END OF ALL-IN THEORIES 


All in Theories Quiz

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ALL IN Theories - Quiz

Accountancy (Western Philippines University)

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1) Which of the following is not considered a characteristic of a liability?

4) Which of the following describes a liability?

5) Which one of the following items is not a liability?

7) Under PAS 37, liabilities are present obligations which represent

10) Under PAS 37, provisions are liabilities of

13) A contingent liability

A. Only statement I C. Both statement are true

20) Liabilities are

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24) what condition is necessary to recognize an environmental liability?

25) Under IFRS, a provision is

26) A contingency is described as

27) Reserves for contingencies for general or unspecified risks should

29) Which statement is incorrect regarding a liability?

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A. I, II, III, IV, V and VI C. I, II, II, V, and VI only

31) Premium on bonds payable is a(n)

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41) When all mature on a single date, they are called

42) A compound financial instrument shall be accounted for as

47) The periodic amortization of a bond discount

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52) Bond issuance cost should be

54) The amortization of a premium on bonds payable

57) What is the accounting for issued convertible debts?

60) A troubled debt restructuring will generally result in a

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64) Which of the following is not a characteristic of a corporation

65) The residual interest in a corporation belongs to the

66) Categories of equity include all of the following, except

70) The par value of an ordinary share represents

74) Shares issued to extinguish financial liability shall be measured initially at

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77) Treasury shares are recorded at

78) The purchase (acquisition) of treasury shares

80) The ‘gain’ on sale (re-issuance) of treasury shares is

81) The ‘loss’ on sale (re-issuance) of treasury shares is

82) A restriction of retained earnings is most likely to be required by the

83) A retained earnings appropriation is used to

84) Which dividend when declared does not create a liability?

86) When dividends are declared and paid in shares of stock

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89) Dividends in arrears are

93) Immediately after the quasi-reorganization, the retained earnings account

94) The accounting for quasi-reorganization usually involves

95) A company mate effect a stock split in order to

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100) Share premium could not arise from

101) What is the corporation’s legal capital?

103) Which of the following is an invalid approach of recording various dividends?

105) Motherhood Company declared a 10% stock dividend. The declaration

107) The retirement of the treasury shares

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109) The retained earnings balance is nil after a company undergoes

112) Which dividends do not reduce equity?

113) An entity makes only a memorandum entry when

117) When convertible debt is not converted at maturity

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