Theory No. 1 10.

Bank statements provide information about all of the

1. Which of the following should not be considered cash? following except
a. Petty cash fund b. Money order a. Checks cleared during the period
b. coin and currency d. IOU b. NSF checks
c. Bank charges for the period
2. Which of the following is usually considered cash? d. Errors made by the depositor
a. Certificate of deposit c. money market certificate
b. Checking account d. postdated check 11. Trade receivables are classified as current assets if
reasonably expected to be collected
3. Restricted deposits in foreign bank are classified as a. Within one year
a. Current asset with appropriate disclosure b. Within the normal operating cycle
b. Noncurrent asset with appropriate disclosure c. Within one year or within the operating cycle,
c. Be written off as loss whichever is shorter
d. As part of cash and cash equivalents d. Within one year or within the operating cycle,
whichever is longer
4. Highly liquid investments are cash equivalents if the 12. Nontrade receivables are classified as current assets only if
maturity is 90 days or less reasonably expected to be realized in cash
a. From the date the investments are acquired a. Within one year or within the operating cycle,
b. From the end of reporting period whichever is shorter
c. For the date of issue of financial statements b. Within one year or within the operating cycle,
d. From the beginning of reporting period whichever is longer
c. Within the normal operating cycle
5. All of the following can be classified as cash and cash d. Within one year, the length of the operating cycle
equivalents, except notwithstanding
a. Redeemable preference shares due in 60 days
b. Commercial papers due for repayment in 90 days 13. Credit balances in accounts receivable are classified as
c. Equity investments a. Current liabilities
d. A bank overdraft b. Part of accounts payable
c. Long term liabilities
6. The internal control feature specific to petty cash is d. Deduction from accounts receivable
a. Separation of duties
b. Assignment of responsibility 14. Which accounting principle primarily supports the use of
c. Proper authorization allowance for doubtful accounts?
d. Imprest system a. Continuity principle
b. Full disclosure principle
7. Which of the following would be added to the balance per c. Matching principle
bank statement to arrive at the correct cash balance? d. Conservatism
a. Outstanding check
b. Bank service charge 15. Why is the allowance method preferred over the direct
c. Deposit in transit write off method of accounting for bad debts?
d. A customer note collected by the bank on behalf of the a. Allowance method is used for tax purposes
depositor b. Estimates are used
c. Determining worthless accounts under direct write off
8. If the balance shown in the bank statement is less than the method is difficult to do
correct cash balance and neither the entity nor the bank has d. Improved matching of bad debt expense with revenue
made any errors, there must be
a. Deposits credited by the bank but not yet recorded by Theory No.2
the depositor 1. It is any contract that gives rise to both a financial asset of
b. Outstanding checks one entity and a financial liability or equity instrument of
c. Deposits in transit another entity.
d. Bank charges not yet recorded by the depositor a. Financial instrument c. debt instrument
b. Equity instrument d. derivative instrument
9. If the balance shown in the accounting record is less than
the correct cash balance and neither the entity nor the bank 2. Which of the following cannot be considered a financial
has made any errors, there must be asset?
a. Deposits credited by the bank but not yet recorded by a. Cash
the depositor b. A contractual right to receive cash or another financial
b. Outstanding checks asset from another entity
c. Deposits in transit c. A contractual right to exchange financial instruments
d. Bank charges not yet recorded by the depositor with another entity under conditions that are
potentially unfavorable
d. An equity instrument of another entity
3. Financial assets include all of the following, except 12. Statement I Unrealized gains and losses on financial
a. prepaid expenses c. trade accounts receivable assets held for trading shall be included in profit or loss
b. cash in bank d. loans receivable Statement II Unrealized gains and losses on financial
assets measured at amortized cost shall be included as
4. Financial liabilities include all of the following, except component of other comprehensive income
a. Trade accounts payable c. bonds payable a. Only statement I is true
b. Notes payable d. income tax payable b. Only statement II is true
c. Both statements are true
5. Which of the following is not classified as a financial d. Bothe statements are false
instrument?
a. Convertible bond c. warranty provision 13. On derecognition of a financial asset, the difference
b. Foreign currency contract d. loan receivable between the consideration received and the carrying
amount of the financial asset shall be
6. Which instrument is best described as a contract that a. Recognized in profit or loss only for financial asset
evidences a residual interest in the assets of an entity after measured at fair value
deducting the liabilities? b. Recognized in profit or loss only for financial asset
a. Financial liability b. Guarantee measured at amortized cost
c. equity d. financial asset c. Recognized in profit or loss for both financial asset
measured at fair value and financial asset at amortized
7. All of the following is not a category of financial assets? cost
a. Financial assets at fair value through profit or loss d. Recognized in other comprehensive income for
b. Financial assets at fair value through other financial asset at amortized cost and profit or loss for
comprehensive income financial asset at fair value
c. Financial assets at amortized cost
d. Financial assets held for sale 14. When an entity reclassifies a financial asset at amortized
cost to financial asset at fair value, the fair value is
8. All of the following financial assets shall be measured at determined at the reclassification date, and the difference
fair value through profit or loss, except between the previous carrying amount and fair value
a. Financial assets held for trading a. Is included in profit or loss
b. Financial assets designated on initial recognition as at b. Is included in other comprehensive income
fair value through profit or loss c. Is included in retained earnings
c. Investments in quoted equity instruments d. Is not recognized
d. Financial assets at amortized cost
15. Which of the following is incorrect in regard to trading
9. As a rule, transaction costs that are directly attributable to investments?
the acquisition of a financial asset shall be a. Trading investments are held with the intention of
a. Capitalized as cost of the financial asset selling them in a short period of time
b. Expensed when incurred b. Unrealized gains and losses are reported as part of net
c. Charged to retained earnings income
d. Included as a component of other comprehensive c. Any discount or premium is not amortized
income d. All of the statements are correct

10. If the financial asset is held for trading or if the financial
asset is measured at fair value through profit or loss,
transaction costs directly attributable to the acquisition
shall be
a. Capitalized as cost of the financial asset
b. Expensed immediately when incurred
c. Deferred and amortized over a reasonable period
d. Included as component of other comprehensive
income
11. The usual factors considered in classifying investments in
securities as short-term are
a. Type of investment only
b. Ready marketability only
c. Ready marketability and type of investment
d. Ready marketability and management intentions
16. Debt investments that meet the business model and
contractual cash flow tests are reported at
a. Net realizable value c. amortized cost
b. Fair value d. the lower of amortized cost and fair
value
17. At which of the following dates has the shareholder
theoretically realized income from dividend?
a. The date the dividend is declared
b. The date of record
c. The date the dividend check is mailed by the entity
d. The date the dividend check is received by the
shareholder
18. Property dividends are recorded
a. As dividend income at carrying amount of the property
b. As dividend income at fair value of the property
c. As return of investment and therefore credited to
investment account
d. By means of memorandum only

19. What is the effect of stock dividend of the same class?
a. Increase in investment account and increase in cost per
share
b. Decrease in investment account and decrease in cost
per share
c. No effect in investment account and decrease in cost
per share
d. No effect in investment account and increase in cost
per share
20. Shares in lieu of cash dividend are recorded as
a. Income at fair value of the shares received
b. Income at par value of the shares received
c. Income at the cash dividend that would have been
received
d. Stock dividends
21. What is the effect of share split up?
a. Increase in number of shares and increase in cost per
share
b. Decrease in number of shares and decrease in cost per
share
c. Increase in number of shares and decrease in cost per
share
d. Decrease in number of shares and increase in cost per
share
22. An investor owns 10% of the ordinary shares of an investee
throughout the year. The investee has no preference shares
outstanding. The investor’s interest gives the right to
a. Be paid 10% of the investee’s profits in cash each year.
b. Receive dividend equal to 10% of the par value each
year
c. Received dividends equal to 10% of the total dividend
paid by the investee for the year to shareholders
d. Keep investee from issuing any additional shares
unless the investor is willing to buy 10% of the newly
issued shares.
23. It is an entity over which the investor has significant
influence
a. Associate c. venture capital organization
b. Investee d. mutual fund
24. Which of the following statements is incorrect concerning
the equity method?
a. The investment in associate is initially recorded at cost
b. The investment in associate is increased or decreased
by the investor’s share of the profit or loss of the
investee after the date of acquisition
c. The investor’s share of the profit or loss of the investee
is not recognized in the investor’s profit or loss
d. Distributions received from the investee reduce the
carrying amount of the investment
25. Goodwill arising from an investment in associate is
a. Included in the carrying amount of the investment and
amortized over the useful life
b. Included in the carrying amount of the investment is
not amortized
c. Excluded in the carrying amount of the investment but
charged to retained earnings
d. Excluded in the carrying amount of the investment but
charged to retained earnings
26. When the investor discontinues the use of the equity
method because significant influence is lost, the investment
in associate retained by the investor shall be measured at
a. Fair value c. amortized cost
b. Carrying amount d. original cost
27. Which of the following statements best describes the term
“significant influence”?
a. The holding of a significant proportion of the share
capital in another entity
b. The contractually agreed sharing of control over an
economic entity
c. The power to participate in the financial and operating
policy decisions of an entity
d. The mutual sharing in the risks and benefits of a
combined entity
28. When an investor uses the equity method to account for
investment in ordinary shares, cash dividends received by
the investor from the investee shall be recorded as
a. Dividend income
b. A deduction from the investor’s share of the investee’s
profits
c. A deduction from the investment account
d. A deduction from the shareholders’ equity account,
dividends to shareholder.
29. An investor uses the equity method to account for an
investment in ordinary shares. After the date of acquisition,
the investment account of the investor would
a. Not be affected by its share of the earnings or losses of
the investee
b. Not be affected by its share of the earnings of the
investee, but be decreased by its share of the losses of
the investee.
c. Be increased by its share of the earnings of the
investee, but not be affected by its share of the losses
of the investee.
d. Be increased by its share of the earnings of the
investee and decreased by its share of the losses of the
investee.
30. An investor uses the cost method to account for investment
in ordinary shares. Dividends received in excess of the
investor’s share of investee’s earnings subsequent to the
date of investment
a. Increase other comprehensive income
b. Decrease in the investment account
c. Increase in the investment account
d. Increase dividend revenue
31. Accrued interest on bonds that are purchased between
interest dates
a. Is ignored by both the seller and the buyer
b. Increases the amount a buyer must pay to acquire the
bonds
c. Is recorded as a loss on the sale of the bonds
d. Decreases the amount a buyer must pay to acquire the
bonds
 Theory No. 3
32. The effective interest method of amortizing bond discount 1. Which accounting process is the recognition or non-
provides for recognition of business activities as accountable events?
a. Increasing discount amortization and increasing a. Communicating c. measuring
interest income b. Identifying d. recording
b. Increasing discount amortization and decreasing
interest income 2. Which one of these is not among the criterial to consider an
c. Decreasing discount amortization and increasing event as accountable?
interest income a. It must have already happened
d. Decreasing discount amortization and decreasing b. Its amount can be measured reliably
interest income c. It must increase or decrease an element of the financial
statements
33. The effective interest rate on bonds is lower than the stated d. It must be classified as an external event rather than an
rate when bonds sell internal event.
a. At maturity value c. below face value
b. Above face value d. at face value 3. The recording phase of financial accounting covers the
following steps, except
34. The effective interest rate on bonds is higher than the stated a. Transactions are journalized
rate when bonds sell b. Financial statements are prepared
a. At face value c. below face value c. Transactions are posted to the ledger
b. Above face value d. at maturity value d. Business documents are received/prepared.

35. An investor purchased a bond as a long-term investment on 4. A voucher system is usually used for transactions involving
January 1. Annual interest was received on December 31. a. Cash disbursements c. cash receipts and
The investor’s interest income for the year would be lower disbursements
if the bond was purchased at b. Cash receipts d. purchases on account
a. A discount c. par
b. A premium d. face value 5. FOB shipping point and freight prepaid means
a. The seller actually paid the freight charges but is not
36. A bond purchased on June 1 of the current year has interest responsible for the same
payment dates of April 1 and October 1. Bond interest b. The buyer actually paid the freight charges but is not
income for the current year ended December 31 is for responsible for the same
a. 3 months c. 6 months c. The seller actually paid the freight charges and is
b. 4 months d. 7 months responsible for the same
d. The buyer actually paid the freight charges and is
37. Which of the following is an investment property? responsible for the same
a. Property being constructed or developed on behalf of
third parties 6. Cash purchases are generally recorded in the
b. Property that is being constructed and developed as a. Purchase journal
investment property b. Cash disbursement journal
c. Property held for future development and subsequent c. Purchase and cash disbursement journal
use as owner-occupied property d. General journal, even if special journal are in use
d. Owner-occupied property awaiting disposal.
7. Adjusting entries are needed
38. An investment property shall be measured initially at a. Whenever expenses are not paid in cash
a. Cost b. Whenever revenues are not received in cash
b. Cost less accumulated impairment loss c. Primarily to correct errors in the initial recording of
c. Depreciable cost less accumulated impairment losses business transactions
d. Fair value less accumulated impairment losses d. Whenever transactions affect the revenues or expenses
of more than one accounting period.
39. In an exchange with commercial substance
a. Gain or loss is recognized entirely 8. Recording the adjusting entry for depreciation has the same
b. A gain or loss is computed by comparing the fair value effect as recording the adjusting entry for
of the asset received with the fair value of the asset a. Prepaid expense c. an accrued income
given up b. An accrued expense d. an unearned revenue
c. Only gain should be recognized
d. Only loss should be recognized 9. Which of the following adjusting entries cannot be subject
to reversing entries?
40. Which of the following terms best describes the removal of a. Accrual of income
an asset from the statement of financial position? b. Accrual of expense
a. Derecognition c. writeoff c. Deferral of expense under the asset method
b. Impairment d. depreciation d. Deferral of income under the income method
 b. Three to six months d. less than six months
10. The presence of “cost of sales” account in the income
statement signifies that an entity classifies expenses 19. All of the following can be classified as cash and cash
according to equivalents, except
a. Amounts c. nature of expense a. Bank drafts
b. Function d. object of expenditure b. Equity investments
c. Loan notes held due for repayment in 90 days
11. If the expense accounts in the income statement are not d. Redeemable preference shares acquired and due in 60
presented according to functions, they may be represented days
using
a. Account form c. natural presentation 20. Under which classification is “cash restricted for plant
b. Functional presentation d. report form expansion” reported?
a. Current assets c. current liabilities
12. What is the purpose of information presented as notes to b. Noncurrent assets d. equity
financial statements?
a. To present management’s responses to auditor 21. A cash short or over account is
comments a. A contra-cash account
b. To correct improper presentation in the financial b. Not an accountable account title
statements c. Credited when the petty cash fund proves over
c. To provide disclosures required by generally accepted d. Credited when the petty cash fund proves short
accounting principles
d. To provide recognition of amounts not included in the 22. A bank reconciliation is prepared monthly in order for the
totals of the financial statements enterprise to
a. Arrive at the correct cash balance c. correct book
13. Which of the following should not be considered as a errors
current asset in the balance sheet? b. Correct bank errors d. unearth anu undetected cash
a. Prepaid taxes which cover assessments of the fraud
following operation cycle of the business
b. Installment notes receivable due over 18 months in 23. A bank statement provides information about all of the
accordance with normal trade practice following except
c. Trading securities purchased as a temporary a. Bank charges for the period
investment of cash available for current operation b. Check cleared during the period
d. The cash surrender value of a life insurance policy c. errors made by the company
carried by a corporation, the beneficiary, on its d. NSF checks
president
24. The term outstanding checks refers to
14. Which of the following is generally classified as a current a. Depositor checks which have not yet cleared the
liability on the balance sheet? banking system
a. Bank overdrafts c. postdated checks b. Checks that have been lost in the mail or for some
b. Customer NSF checks d. travel advances other reason have been misplaced.
c. Customer checks which have been returned by the
15. Which of the following is not a source of cash? bank because the customer’s bank would not honor
a. Depreciation expense them
b. Sale of operating asset for cash d. Depositor checks which have been processed by the
c. Collection of short-term receivable bank but have nit yet been recorded by the depositor
d. Cash borrowed on a short-term note
16. Cash control system are the methods and procedures used 25. For purposes of bank reconciliation, debit memos are
to ensure a. Added to the bank balance
a. That current obligations are met b. Added to the book balance
b. That excess cash does not exist c. Deducted from the bank balance
c. that unused cash is invested d. Deducted from the book balance
d. the safeguarding of cash
26. In reconciling the bank balance with book cash balance,
17. Which of the following is not considered cash for financial which of the following would not cause the bank balance
reporting purposes? shown in the bank statement to be lower than the
a. Bank charges for the period unadjusted book balance?
b. Errors made by the company a. Deposit in transit
c. petty cash funds and change funds b. Cash on hand at the company
d. postdated checks and IOUs c. Interest credited to the account by the bank
d. NSF checks from a customer as reported on the bank
18. In order to be classified as a cash equivalent, an investment statement
must have a maturity period of
a. Three months or less c. six months or less 27. Accounts receivable are classified as current assets
 a. Only if convertible into cash beyond one year
b. Only if convertible into cash within 60 days or sooner
c. Only if the allowance method is used to estimate the
uncollectible accounts
d. Whenever accounts receivable arise from “normal”
sales to customers
28. When individual customers’ accounts have credit balances
of material amounts, the amounts
a. Should be omitted from the balance sheet
b. Must be reported separately in the liability section of
the balance sheet
c. May be shown as “credit balances of customers’
accounts” in the current asset section
d. May be deducted from the debit balance in other
customers’ accounts in the asset section
29. Which of the following is an advantage of using the net
price method for recording cash discounts on credit sales?
a. It properly reflects current period sales revenue
b. It simplifies recording of sales returns and allowances
c. It eases communication with customers about their
balances
d. It requires less record-keeping efforts than the gross
method
30. The allowance method of recognizing bad debt expense is
generally considered a generally accepted accounting
principle. What two conditions must be met before the
allowance method can be used?
a. Bad debts must be relevant and reliable
b. Bad debts must be expected and material
c. Bad debts must be probable and measurable
d. Bad debts must be persistent over time and the method
used to estimate them is consistently applied.
31. ABC Co, uses the allowance method in recognizing
uncollectible accounts. Ignoring deferred taxes, the entry to
record the write-off of a specific uncollectible account
a. Affects neither net income now working capital
b. Decreases both net income and working capital
c. Affects neither net income nor accounts receivable
d. Decreases both net income and accounts receivable
32. A company, which has an adequate amount in its
Allowance for Doubtful Accounts writes off as
uncollectible an accounts receivable from a bankrupt
customer. This action will
a. Have no effect on total current assets
b. Reduce net income for the period
c. Reduce the amount of equity
d. Reduce total current assets
33. When accounts receivable are factored without recourse,
what account does the transferor credit?
a. Accounts receivable c. liability
b. Accounts receivable assigned d. sales
34. When accounts receivable are pledged, in addition to the
disclosures required, total receivables will
a. Increase c. remain the same
b. Decrease d. increase or decrease
depending on the circumstances
35. After being held for 60 days, a 120-day 8% interest-bearing
note receivable was discounted at a bank at 12%. The
amount received from the bank is equal to
a. Face value less discount rate of 8%
b. Face value less discount rate of 12%
c. Maturity value less discount rate of 8%
d. Maturity value less discount rate of 12%
36. All of the following would be regarded as financial
instruments, except
a. Bank overdraft c. equipment
b. Cash d. notes payable
37. Financial assets include all of the following except
a. Cash in bank c. inventories and prepaid items
b. Loans receivable d. trade accounts and notes
receivable
38. Which of the following is not a category of financial assets
defined in PAS 39?
a. Loans and receivables
b. Held-for-sale financial assets
c. Available-for-sale financial assets
d. Financial assets at fair value through profit or loss
39. At what amount is a financial asset or financial liability
measured on initial recognition?
a. zero
b.The consideration paid (received) for the financial asset
(financial liability)
c. acquisition costs, which is the consideration paid plus
any directly attributable costs
d. fair value. For items that are not measured at fair value
through profit or loss, transaction costs are also
included in the initial measurement
40. For investments in Trading Securities, which of the
following market value changes are recognized in
earnings?
a. Realized gains only
b. Realized losses only
c. Unrealized losses only
d. Realized and unrealized gains and losses
41. The investor’s interest income for a period would be lowest
if the bonds is purchased at
a. A discount c. at the face value of the bonds
b. A premium d. in between interest payment dates
42. The equity method of accounting is specifically required
for investment in
a. Associates c. held-to-maturity debt securities
b. Available-for-sale securities d, trading debt
securities
43. Which of the following is not a financial asset?
a. Cash
b. Prepaid expense
c. A contractual right to receive cash
d. An equity instrument of another entity
44. Which may be included as part of the cost of inventories
under PAS 2?
 a. Selling costs 52. During a period of steadily rising prices, which of the
b. Administrative costs following methods of measuring the costs of goods sold is
c. Costs of designing products for specific customers likely to result in reporting the highest gross profit?
d. Abnormal amounts of wasted materials, labor or other a. Average cost c. LIFO
production costs b. FIFO d. Specific identification

45. Under PAS 2, the fixed production overhead is allocated to 53. Inventory estimation will be required for all of the
the inventory units on the basis of the production facility is following except
a. Actual capacity c. normal capacity a. When interim financial statements are prepared
b. Ideal capacity d. theoretical capacity b. When inventory is destroyed by typhoon or flashfloods
c. As proof of reasonable accuracy of the physical
46. Which of the following conversion costs cannot be inventory
included in cost of inventory? d. In the determination of the ending inventory to be
a. Cost of direct labor shown in the balance sheet
b. Salaries of sales staff
c. Production rent and utilities 54. PAS 2, Inventories, requires that when inventories are
d. Factory overhead based on normal capacity written down to net realizable value, they are written down
a. On a class-by-class basis
47. Which of the following would not be included in the b. On an item-by-item basis
inventory amount reported on a company’s balance sheet? c. On the basis of industry segment
a. Items shipped out on consignment to another d. According the geographical segment within the entity
company.
b. Items shipped today FOB shipping point; invoice had 55. How should trade discounts be dealt with when valuing
been mailed to the customer. inventories at the lower of cost and net realizable value?
c. Items in the receiving department of the company, a. Ignored
retuned by the customer, invoice has been mailed. b. Added to cost
d. Items purchased from a supplier and en route directly c. Deducted from cost
to a customer of the company, the term is FOB d. Deducted in determining net realizable value
destination invoice received but not yet paid
56. Where the net realizable value of inventory falls below
48. Which of the following should be included in inventory? cost. PAS 2 requires that
a. Goods out on consignment a. The inventory be written down to net realizable value
b. Goods held on consignment b. The difference be added to the carrying amount of the
c. Goods held for pick-up by the buyer inventory
d. Goods in transit purchased FOB destination c. The inventory continue to be carried in the balance
sheet at cost
49. Inventory purchases are always recorded d. No adjustment be made but the difference between net
a. Gross of cash discount realizable value and cost be disclosed in the notes to
b. Gross of trade discount the financial statements.
c. net of cash discount
d. d. net of trade discount 57. When inventory declines in value below original cost, what
is the maximum amount that the inventory can be value?
50. In a perpetual inventory system, two entries are normally a. Sales price
made to record each sales transaction b. Historical cost
a. One entry records the purchase of merchandise and the c. net realizable value
other records the sale d. sales price reduced by estimated cost to sell
b. One entry updated the subsidiary ledger and the other
updates the general ledger 58. Which of the following items is not accounted for under
c. One entry recognizes sales revenue and the other PAS 41 (agriculture)?
recognizes cost of goods sold a. Milk c. vines
d. One entry records the cost of goods and the other b. Sugar d. wool
reduces the balance in the inventory account
59. Agricultural activity includes all of the following, except
51. The cost of inventories that are not interchangeable and a. Annual perennial cropping c. ocean fishing
segregated for specific projects, regardless of whether they b. Floriculture and aquaculture d. raising livestock
have been brought or produced shall be assigned by using
a. First-in, first-out method 60. Biological assets are measured at
b. Last-in, first-out method a. Cost c. lower of cost or net realizable
c. specific identification method value
d. weighted-average method b. Fair value less costs to sell d. net realizable
value
61. Under PAS 41, any gain arising from the initial recognition
of biological assets (e.g. when a calf is born) shall
a. Recognized in profit or loss
b. Recognized in the other comprehensive income
c. Not be recognized although note disclosure is required
d. Deferred and amortized over the life of the biological
asset
62. Agricultural produce is measured at
a. Fair value
b. Net realizable value
c. Net realizable value less normal profit margin
d. Fair value less costs to sell at the point of harvest
63. A property developer must classify properties that it holds
for sale in the ordinary course of business as
a. Financial asset c. investment property
b. Inventory d. property, plant and equipment
64. Which of the following items is an example of investment
property?
a. Property that is leased to another entity under a finance
lease
b. Property held for short-term sale in the ordinary course
of business
c. Property that is being constructed or developed on
behalf of third parties
d. Property that is being constructed or developed for
future use as investment property
65. Which of the following would not be reported as
investment property?
a. Real estate held for an undetermined future use
b. Property held by the entity and lease out under one or
more operating lease
c. Property owned by the entity and leased out under one
or more operating leases
d. Property owned by the entity and leased out to another
entity under a finance lease
66. A gain or loss arising from a change in the fair value of
investment property shall
a. Not be recognized in the accounts
b. Be recognized directly to equity in the period in which
it arises
c. Be recognized in the profit or loss for the period in
which it arises
d. Be recognized as an adjustment to retained earnings at
the beginning of the year
67. Transfers from investment property to property, plant and
equipment are appropriate
a. When there is change of use
b. Based on the entity’s discretion
c. Only when the entity adopts the fair value model under
IAS 38
d. The entity can never transfer property into another
classification on the balance sheet once it is classified
as investment property
68. The cost of land typically includes the purchase price and
all of the following costs, except
a. Private driveways and parking lots
b. Grading, filing, draining and clearing costs
c. Street lights, sewers, and drainage systems cost
d. Assumption of any liens or mortgages on the property
69. Land improvements
a. Are subject to depreciation
b. Should be included in the cost of land
c. Should be deducted from the cost of land
d. Should be charged as an expense in the year purchased
70. When the payment for item of property, plant and
equipment is deferred beyond norml credit terms, the
difference between the cash price and total payments is
a. Charged to Retained Earnings
b. Interest expense over the credit period
c. Capitalized as Property, Plant and Equipment
d. Interest expense over the useful life of the asset
71. When a closely held corporation issues equity shares in
exchange for land, the land should be recorded at the
a. Total par value of the shares issued
b. Current market value of the land
c. Total book value of the shares issued
d. Current market value of the shares issued
72. Which of the following expenditures subsequent to
property acquisition cannot be added to asset carrying
amount?
a. Costs of modification of an item of property that will
extend its useful life
b. Costs of upgrading parts to achieve substantial
improvements in quality of output
c. Costs of material repairs that did not increase the asset
life nor productive capacity
d. Costs of adopting new production processes that
enabled substantial reduction in operating costs
73. If a reporting entity chooses to switch from the cost model
to the revaluation model for property, plant and equipment
the periodic depreciation charge usually will
a. Decrease c. no longer be required
b. Increase d. not be affected
74. When the balance is carried in an “asset revaluation
surplus” account in relation to an asset that has been
derecognized, it is acceptable under PAS 16 to
a. Transfer the balance to retained earnings
b. Transfer the balance to share capital account
c. Transfer the balance to a provision account for future
asset revaluations
d. Recognize the balance in profit or loss of the period in
which the asset was derecognized.
75. When an entity chooses the revaluation model as its
accounting policy for measuring property, plant and
equipment, which of the following statements is correct?
a. Revaluation of property, plant and equipment must be
made at least every three years
b. When an asset is revalued, the entire class of property,
plan and equipment to which that asset belong must be
revalued
 c. Increases in asset’s carrying value as a result of the
first revaluation must be recognized as a component of
profit or loss
d. When an asset is revalued, individual assets within a
class of property, plant and equipment to which that
asset belong can be revalued.
76. Borrowing costs related to a qualifying asset shall be
a. Capitalized
b. Expensed in the period incurred
c. Neither capitalized nor expensed in the period incurred
d. Capitalized or expensed in the period incurred,
whichever is more convenient
77. A company constructed machinery for its own use. A bank
loan specifically financed this property both during and
after the construction. How much of the interest incurred
should be reported as interest expense?
a. All interest incurred
b. Interest incurred after completion
c. Interest incurred before completion
d. Zero
78. Under PAS 36, the impairment rules for long-lived assets
apply to all if the following except
a. Land
b. Financial instruments
c. building currently used in the business
d. minicomputers used to run a production process
79. Which of the following is not a capital expenditure?
a. An addition
b. A betterment
c. A replacement
d. Repair that maintains an asset in operating condition
80. Which of the following is not a major characteristics of the
an item of property, plant and equipment?
a. Acquired for resale c. long-term in nature
b. Acquired for use d. possesses physical substance
81. The cost of non-monetary asset acquired in exchange for
another non-monetary asset with commercial substance is
usually recorded at
a. Either the fair value of the asset given or the asset
received
b. The fair value of the asset given and a gain or loss is
recognized
c. The fair value of the asset given and a gain but not a
loss may be recognized
d. The fair value of the asset received if it is equally
reliable as the fair value of the asset given.
82. Accounting recognition should be given to the gain realized
on a non-monetary exchange of plant asset, except when
the exchange has
a. Commercial substance and additional cash is paid
b. No commercial substance and additional cash is paid
c. Commercial substance and additional cash is received
d. All of these cause recognition of a gain
e.
83. Which measurement model applies to exploration and
evaluation assets subsequent to initial recognition?
a. The cost model
b. The revaluation model
c. The recoverable amount model
d. Either the cost model or the revaluation model
84. Investment in trading debt investments are generally
reported at
a. Amortized cost c. fair value
b. Face value d. maturity value
85. Under the fair value option for debt instrument, entities
report all changes in fair value in
a. Equity c. other comprehensive income
b. Income d. income or other comprehensive
income
86. Under the equity method of accounting for investments, an
investor recognizes the share of the earnings in the period
in which the
a. Investee pays a dividend
b. Investor sells the investment
c. Investee declares a dividend
d. Earnings are reported by the investee in the financial
statements
87. What should happen when the financial statements of an
associate are not prepared at the same date as the financial
statements of the investor?
a. As long as the gap is not greater than three months,
there is no problem
b. The financial statements of the associate prepared up
to a different date is used as normal
c. The associate should prepare financial statements for
the use of the investor at the same date as that of the
investor
d. Any major transactions between the date of the
financial statements of the investor and that of the
associate should be accounted for
88. How will the receipt of dividends affect the investment
account under the fair value and equity method?
a. No effect under both fair value method and equity
method
b. Decrease under fair value method and no effect equity
method
c. Increase under fair value method and decrease equity
method
d. No effect under fair value method and decrease equity
method
89. Which of the following is a criterion that must be met in
order for an item to be recognized aas an intangible assets
other than goodwill?
a. The item’s fair value can be measured reliably
b. The item is identifiable and lacks physical substance
c. The item is expected to be used in the production or
supply of goods or services
d. The item is part of the entity’s activities aimed at
gaining new scientific or technical knowledge
90. Identify the specific intangible asset that is outside the
scope of PAS 38 on “Intangible Assets”
a. Goodwill
 b. Patent 98. Accounting is often called the "language of business"
c. Research and Development because
d. Trademark a. it is easy to understand.
b. it is fundamental to the communication of financial
91. Why do entities provide trade discounts? information.
a. To induce prompt payment c. all business owners have a good understanding of
b. To avoid frequent changes in catalogs accounting principles.
c. To easily alter prices for different customers d. accountants in many companies share financial
d. To avoid frequent changes in catalogs and to easily information.
alter prices for different customers
99. Who is responsible for the preparation and the fair
92. An entity must make adjusting entries presentation of an entity’s financial statements in
a. To account for accruals and deferrals accordance with the PFRSs?
b. Each time it prepares an income statement and a a. Any accountant
statement of financial position b. Certified Public Accountant
c. To ensure that the revenue recognition and expense
recognition principles are followed c. Auditor
d. All of the choices are correct regarding adjusting d. Management
entries
100.The Filipino adage “Aanhin mo pa ang damo pag patay na
93. A documents prepared to prove the equality of debits and ang kabayo” relates to which of the following qualitative
credits after all adjustments is the characteristics?
a. Adjusted financial statements a. Relevance
b. Adjusted statement of financial position b. Timeliness
c. Adjusted trial balance c. Faithful representation
d. Post-closing trial balance d. Comparability

94. Which of the following statements regarding reversing

entries is incorrect?
a. All accruals should be reversed
b. Adjusting entries for depreciation and bad debts are
never reversed
c. Deferrals entered in statement of financial position
accounts make reversing entries unnecessary
d. Reversing entries change amounts reported in the
statements of financial position for the previous
period.
95. Which statement best describes impairment loss?
a. The removal of an asset from the statement of financial
position.
b. The amount by which the carrying amount of an asset
exceeds the recoverable amount
c. The systematic allocation of cost of an asset less
residual value over the useful life.
d. The amount by which the recoverable amount of an
asset exceed the carrying amount.
96. What is the recoverable amount of an asset?
a. Fair value less cost of disposal
b. Value in use
c. Fair value less cost of disposal or value in use,
whichever is higher
d. Fair value less cost of disposal or value in use,
whichever is lower
97. Amortization of an intangible asset with a finite useful life
shall commence when
a. It is first recognized as an asset
b. It is probable that it will generate economic benefit
c. It is available for the intended use
d. The cost can be identified with reasonable certainty.
Theory No. 4
1. 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
2. Which of the following items would be excluded from
current liabilities?
a. Normal accounts payable which had been assigned by
the creditor to a finance company.
b. Long-term debt callable within one year or less
because the debtor violated a debt provision
c. A short-term debt which at the discretion of the entity
can be rolled over at least twelve months after the
balance sheet date
d. A long-term liability callable or due on demand by the
creditor even though the creditor have given no
indication that the debt will be called
3. Which of the following is most likely to be regarded as an
estimated liability that is subject to provision?
a. Current portion of long-term debt c. payroll
liabilities
b. Deferred revenues d. vacation pay liability
4. Ford Co. has a probable loss that can only be reasonably
estimated within a range of outcomes. No single amount
within the range is a better estimate than any other amount.
The loss accrual should be
a. Zero
b. The midpoint of the range
c. the minimum of the range
d. the expected value statistical method

5. Contingent liability will or will not become actual
liabilities depending on
a. The degree of uncertainty
b. The outcome of a future event
c. The present condition suggesting a liability
d. Whether they are probable and estimable
6. Contingent liability will or will not be recognized as a
provision (liability) depending on
a. The degree of uncertainty
b. The outcome of a future event
c. The present condition suggesting a liability
d. Whether they are probable and estimable
7. Which of the following is the proper way to report a
contingent asset when its realization is virtually certain?
a. ;As an asset c. disclose only
b. As unearned revenue d. research and development
8. How do you call a taxable temporary difference?
a. Current tax asset c. deferred tax asset
b. Current tax liability d. deferred tax liability
9. Current tax expense plus deferred tax expense is
a. Meaningless sum c. tax deductible expense
b. Income tax expense d. none of these
10. According to PAS 12, deferred tax assets and liabilities
should be reported in the balance sheet
a. As noncurrent asset and noncurrent liability
b. Always net noncurrent asset or net noncurrent liability
c. As current and noncurrent depending on the order of
liquidity or maturity
d. As current and noncurrent assets and liabilities
depending on the balance sheet classification of the
related tax basis of the temporary difference
11. 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 c. sell at a premium
b. Sell at a discount
c. sell at a premium
d. not sell until the face interest is adjusted
12. Under the effective interest method, as a discount is
amortized each period, the
a. Amount amortized decreases
b. Bond’s carrying value decreases
c. Interest expense recorded increases
d. Interest paid on bondholders increases
13. Adriel Co. has a loan due for repayment in 6-month time,
but it has discretion to refinance for repayment fifteen
months later. Adriel exercised its discretion by entering
into a 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 assets c. noncurrent assets
b. Current liabilities d. noncurrent liabilities
14. The accounting concept that is principally used to classify
leases into operating and finance is
a. Completeness c. prudence
b. Neutrality d. substance over form
15. The classification of a lease as either operating or finance
lease is based on
a. The length of the lease
b. The economic life of the asset
c. The transfer of risks and rewards of ownership
d. The minimum lease payments being at least 50% of
the fair value
16. At the inception of the lease contract, the lease term is
determined to be equivalent to 55% of the economic life of
the leased property but the lease contract contains a bargain
purchase option. The lessee should record the lease as
a. Asset and liability c. expense
b. Asset but not liability d. neither asset nor liability
17. The lessor must classify a sale and leaseback arrangement
as a(n)
a. Operating lease or a finance lease
b. Operating lease or a sales-type lease
c. Direct financing lease or an operating lease
d. Direct financing lease or a sales-type lease
18. Under PAS 19, which of the following terms best describes
benefits which are payable as a result of an entity’s
decision to end an employee’s employment before the
normal retirement date?
a. Defined benefit plans c. retrenchment
benefits
b. Post employment benefits d. termination benefits
19. Which of the following is not a component of benefit
(pension) expense?
a. Initial transition asset
b. Return on plan assets
c. Amortization of unrecognized gain or loss
d. Growth (or interest cost) in pension obligation since
the beginning of the period
20. The component of defined benefit cost include all of the
following, except
a. Plan contributions c. remeasurements
b. Net interest d. service cost
21. Under PAS 19, “service cost” companies
a. Current service cost only
b. Current service cost and past service cost
c. Current service cost and gain or loss on settlement
d. Current service cost, past service cost and any gain or
loss on settlement
22. One characteristics of a corporation is
a. Unlimited liability of its owners
b. Dissolution upon the death of an owner
c. The ease with which ownership is transferred
d. Shareholders acting as automatic corporate agents
23. Major factors contributing to the growth of corporation-
business includes all of the following, except
 a. The lack of government regulation
b. Limited liability of the shareholders 32. The bonus issue of shares has the following impact on the
c. Easy transferability of the share of ownership equity of a company
d. The facility to accumulated large amounts of resources a. Total equity increases
b. Total equity decreases
24. It is an equity instrument that is subordinate to all other c. Only the amount of issued share capital changes
classes of equity instrument d. One equity account increases and another equity
a. Options c. potential ordinary share account decreases by an equal amount
b. Ordinary share d. warrants
33. At what amount per share should retained earnings be
25. Capital stock is said to be watered when reduced for a 20% stock dividend?
a. Assets are overstated a. Zero c. market value at the date of issuance
b. Liabilities are overstated b. Par value d. market value at the date of declaration
c. It is issued for assets other than cash
d. It is sold at a price in excess of book value 34. The peso amount of total shareholders’ equity remains the
same when there is
26. When shares are issued for services received, the measure a. Declaration of a stock dividend
should be the b. Declaration of a cash dividend
a. Book value of the shares issued c. Issuance of preferred stock in exchange for convertible
b. Fair value of the shares issued debentures
c. Fair value of such services d. Issuance of nonconvertible bonds with detachable
d. par value of the shares issued stock purchase warrants

27. Ordinary shares issued would exceed ordinary shares 35. A corporation has issued only one type of stock and wants
outstanding as a result of to compute book value per share. It needs all of the
a. Declaration of a stock dividend information below, except
b. Declaration of a stock split a. Retained earnings
c. purchase of treasury stock b. Total contributed capital
d. payment in full of subscribed stock c. The current year’s dividends
d. Total shares outstanding and distributable
28. A gain or loss from one of the following transactions
should not be included in determining income. 36. A restriction of retained earnings is most likely to be
a. Sale of plant equipment c. sale of treasury shares required by the
b. Sale of products d. receipt of interest from bank a. Purchase of treasury stock
deposits b. Amortization of past service cost
c. Payment of last maturing series of a serial bond issue
29. Any loss incurred from the sale of treasury shares shall be d. Exhaustion of potential benefits of the investment
charged to credit
a. Loss on sale of treasury shares to be reported as other
expense 37. Earnings per share are calculated before accounting for
b. Retained earnings and then share premium from which of the following items?
treasury shares a. Minority interest c. preference dividend for the
c. Share premium from treasury shares and then retained period
earnings b. Ordinary dividend d. taxation
d. Share premium from original issuance, share premium
from treasury shares and then retained earnings 38. When EPS is computed, dividends on preference share are
a. Reported separately on the income statement
30. The purchase of treasury stock does not affect b. Ignored because they do not pertain to the ordinary
a. The amount of stock issued share
b. The amount of stock outstanding c. Added because they represent earnings to preference
c. total assets shareholders
d. total shareholders’ equity d. Subtracted because they represent earnings to
preference shareholders
31. Which of the following best describes the net effect on
retained earnings of the purchase and subsequent sale of 39. What is the accounting concept that is principally used in
treasury stock? computing diluted earnings per share?
a. Retained earnings may never be increased or decreased a. Completeness c. substance over form
b. Retained earnings may never be increased but b. Neutrality d. timeliness
sometimes decreased
c. Retained earnings may never be decreased but 40. Which of the following terms best describes financial
sometimes increased statements whose basis of accounting recognizes
d. Retained earnings is always affected unless the reissue transactions and other events when they occur?
price is exactly equal to cost a. Accrual basis of accounting
 b. Cash basis of accounting
c. Going concern basis of accounting
d. Invoice basis of accounting
41. Which of following basic accounting assumptions is
threatened by the existence of severe inflation in the
economy?
a. Economic entity assumption
b. Going concern assumption
c. monetary unit assumption
d. periodicity assumption
42. Why do entities provide trade discounts?
a. To induce prompt payment
b. To avoid frequent changes in catalogs
c. To easily alter prices for different customers
d. To avoid frequent changes in catalogs and to easily
alter prices for different customers
43. The failure to properly record an adjusting entry to accrue
an expense results in
a. Overstatement of expense and an understatement of asset
b. Understatement of expense and an overstatement of asset
c. Understatement of expense and an overstatement of
liability
d. Understatement of expense and an understatement of
liability
44. The failure to properly record an adjusting entry to accrue a
revenue results in
a. Overstatement of revenue and an overstatement of asset
b. Overstatement of revenue and an overstatement of
liability
c. Understatement of revenue and an understatement of
asset
d. Understatement of revenue and an understatement of
liability
45. A document prepared to prove the equality of debits and
credits after all adjustments is the
a. Adjusted financial statements
b. Adjusted statement of financial position
c. Adjusted trial balance
d. Post-closing trial balance
b. Matching d. recognition
50. Which item is not a current liability?
a. Unearned liability
b. Trade accounts payable
c. Stock dividend distributable
d. The currently maturing portion of long-term debt
51. The income statement would help which of the following?
a. Evaluate liquidity c. estimate future cash flows
b. Evaluate solvency d. estimate future financial
flexibility
52. The income statement provides information that is useful
for all of the following except
a. To evaluate future performance of the entity
b. To provide a basis for predicting future performance
c. To assess the risk and uncertainty of achieving future
cash flows
d. To predict the amount, timing and uncertainty of future
cash flows
53. Which method of income measurement is used in the
preparation of the income statement?
a. Capital maintenance approach
b. Cash flow approach
c. Income components approach
d. Transaction approach
54. The major elements of the income statements are
a. Revenue, expenses, gains and losses
b. Operating, investing and financing activities
c. Revenue, cost of goods sold, distribution costs and
general expenses
d. Operating, non-operating, discontinued operation and
cumulative effect
55. What is the purpose of the “notes to financial statements”?
a. To provide disclosures required by GAAP
b. To correct improper presentation in financial
statements
c. To present management response to auditor comments
d. To provide recognition of amounts nor included in the
total of the financial statements

46. Which of the following is a fundamental quality of useful 56. What is the purpose of reporting comprehensive income?
accounting information? a. To replace a net income with a better measure
a. Comparability c. materiality b. To report a measure of overall entity performance
b. Consistency d. relevance c. To report changes in equity due to transactions with
owners
47. Which of the following is not a qualitative characteristic of d. To combine income from continuing operations with
financial statements? income from discontinued operations.
a. Comparability c. relevance
b. materiality d. understandability 57. Financial accounting can be broadly defined as the area of
accounting that prepares
48. Which of the following is not a basic element of financial a. Financial statements to be used by investors only
statements? b. Financial statements to be used primarily by
a. Asset c. liability management
b. Equity d. statement of financial position c. General purpose financial statements to be used by
parties internal to the business enterprise only
49. The process of reporting an item in the financial statements d. General purpose financial statements to be used by
is parties both internal and external to the business
a. Allocation c. realization enterprise
 58. Preparation of consolidated FS when a parent-subsidiary
relationship exists is an example of the
a. Comparability characteristic c. neutrality characteristic
b. Economic entity assumption d. relevance
characteristics

59. Which term best describes information that influences the

economic decisions of users
a. Prospective c. reliable
b. Relevant d. understandable

60. If financial information that is presented in a balance sheet

or income statement is misstated, and it influences the
economic decisions of user, that information is described as
a. Faithful c. prudent
b. Material d. reliable

MAS

1. Expenses that require a series of payments over a long period of timesuch as long-term debt and lease rentals are frequently known as:
A. programmed fixed expenses
B. avoidable expenses
C. variable expenses
D. committed fixed expenses

2. When cost relationships are linear, total variable manufacturing costs will vary in proportion to changes in:
A. machine hours
B. direct labor hours
C. total overhead cost
D. volume of production

3. The term "relevant range" as used in cost accounting means the range over which:
A. relevant costs are incurred
B. cost relationships are valid
C. costs may fluctuate
D. sales volume fluctuates

4. The following relationships pertain to a year's budgeted activity for Buckeye Company:

High Low
Direct labor hours............................................................... 400,000 300,000
Total costs........................................................................... $154,000 $129,000

What are the budgeted fixed costs for the year?

A. $100,000
B. $25,000
C. $54,000
D. $75,000

5. Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records
disclosed the following costs and volume measures:

High Low
Cost per month................................................................... $39,200 $32,000
Machine hours.................................................................... 24,000 15,000

Using the high-low method of analysis, the estimated variable cost per machine hour is:
A. $12.50
B. $0.80
C. $0.08
 D. $1.25

6. A company allocates its variable factory overhead based on direct labor hours. During the past three months, the actual direct labor
hours and the total factory overhead allocated were as follows:

October November December

Direct labor hours..................................... 2,500 3,000 5,000
Total factory
overhead allocated............................ $80,000 $75,000 $100,000

Based upon this information, the estimated variable cost per direct labor hour was:
A. $.125
B. $12.50
C. $.08
D. $8

7. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following relationship was found:

y bar = $1,000 + $2 x bar

The y bar in the equation is an estimate of:

A. total factory overhead
B. total fixed costs
C. total machine costs
D. total variable costs

8. As a result of analyzing the relationship of total factory overhead to changes in machine hours, the following relationship was found:

y bar = $1,000 + $2 x bar

The $2 in the equation is an estimate of:

A. fixed costs per machine hour
B. total fixed costs
C. variable costs per machine hour
D. total variable costs

9. Short-range budgets must be considered in conjunction with long-range plans in order to:
A. find the best short-range budget
B. obtain systematic feedback
C. predict the future
D. coordinate risk and return evaluations

10. The procedure for setting profit objectives in which management specifies a given rate of return that it seeks to realize in the long run
by means of planning toward that end is the:
A. a priori method
B. ad hoc method
C. pragmatic method
D. theoretical method

11. A budget that contains summaries of the sales, manufacturing, and expense budgets is a:
A. budgeted cost of goods manufactured and sold statement
B. sales budget
C. factory overhead budget
D. budgeted income statement

12. The principal functions of the budget committee include all of the following except:
A. reviewing individual budget estimates
B. deciding on general policies
 C. enforcing budgeted standards
D. analyzing budget reports

13. A company that has inventory on hand at the beginning of a budget period and that has determined its desired sales and ending
inventory levels uses the following formula to figure the amount of production required:
A. Production = Beginning Inventory + Ending Inventory - Sales
B. Production = Sales - Beginning Inventory - Ending Inventory
C. Production = Sales - Beginning Inventory + Ending Inventory
D. Production = Sales - Beginning Inventory

14. A distinction between forecasting and planning:

A. is that forecasting relies exclusively on statistical techniques while planning does not
B. is not valid because they are synonymous
C. arises because they are based upon different assumptions about economic events
D. is that a plan can be prepared on the basis of a forecast

15. The plan that serves as a check on the accuracy of all other budgets is the:
A. budgeted balance sheet
B. treasurer's budget
C. sales budget
D. credit rating budget

16. The procedure for setting profit objectives in which the determination of profit objectives is subordinated to the planning, and the
objectives emerge as the product of the planning itself is the:
A. a priori method
B. pragmatic method
C. theoretical method
D. a posteriori method

17. The procedure for setting profit objectives in which management uses a profit standard that has been empirically tested and sanctioned
by experience is the:
A. a priori method
B. practical method
C. pragmatic method
D. theoretical method

18. The cost item least likely to appear in a performance report based on responsibility accounting techniques for the supervisor of an
assembly line in a large manufacturing situation is:
A. materials
B. repairs and maintenance
C. direct labor
D. supervisor's salary

19. Controllable costs are:

A. costs that fluctuate in total in response to small changes in the rate of capacity utilization
B. costs that will be unaffected by current managerial decisions
C. costs that management decides to incur in the current period to enable the company to achieve objectives other than
filling customers' orders
D. costs that are likely to respond to the amount of attention devoted to them by a specified manager

20. An accounting system in which the operations of the business are broken down into cost centers and the control function of a
supervisor or manager is emphasized is:
A. control accounting
B. budgetary accounting
C. absorption accounting
D. responsibility accounting

21. In a responsibility accounting system, costs are classified into categories on the basis of:
A. prime and overhead costs
 B. administrative and nonadministrative costs
C. controllable and noncontrollable costs
D. direct and indirect costs

22. The most desirable measure of departmental performance for evaluating the departmental manager is departmental:
A. contribution to indirect expenses
B. revenue less departmental variable expenses
C. revenue less departmental fixed expenses
D. revenue less controllable departmental expenses

23. Internal reports prepared under the responsibility accounting approach should be limited to which of the following costs?
A. only costs properly allocable to the cost center under generally accepted accounting principles
B. only variable costs of production
C. only conversion costs
D. only controllable costs

24. Of most relevance in deciding how or which costs should be assigned to the responsibility center is the degree of:
A. variability
B. controllability
C. avoidability
D. causality

25. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a fixed budget:
A. cannot be changed after the period begins; while a variable budget can be changed after the period begins
B. is a plan for a single level of sales (or other measure of activity); while a variable budget consists of several plans, one
for each of several levels of sales (or other measure of activity)
C. includes only fixed costs; while variable budget includes only variable costs
D. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned with expenses that vary
with sales

26. A flexible budget is:

A. appropriate for control of direct materials and direct labor but not for control of factory overhead
B. not appropriate when costs and expenses are affected by fluctuations in volume limits
C. appropriate for any relevant level of activity
D. appropriate for control of factory overhead but not for control of direct materials and direct labor

27. A flexible budget is appropriate for a:

Direct Labor Marketing
Budget Budget
A. yes no
B. yes yes
C. no no
D. no yes

28. If a company wishes to establish a factory overhead budget system in which estimated costs can be derived directly from estimates of
activity levels, it should prepare a:
A. discretionary budget
B. fixed budget
C. flexible budget
D. capital budget

29. Flexible budgeting is a reporting system wherein the:

A. statements included in the budget report vary from period to period
B. budget standards may be adjusted at will
C. planned level of activity is adjusted to the actual level of activity before the variance report is prepared
D. reporting dates vary according to the levels of activity reported upon
30. In analyzing factory overhead variances, an idle capacity variance is the difference between the:
A. master budget application rate and the flexible budget application rate times actual hours worked
B. budget allowance for actual units produced for the period and the amount of applied factory overhead
C. actual amount spent for factory overhead items during the period and the amount applied during the period
D. actual factory overhead incurred and the budget allowance estimated for the capacity used

31. Standard costs are used for all of the following except:
A. income determination
B. controlling costs
C. measuring efficiencies
D. forming a basis for price setting

32. Of the following variances, the one that is most useful in assessing the performance of the Purchasing Department is the:
A. idle capacity variance
B. overhead price variance
C. materials purchase price variance
D. labor rate variance

33. Materials and labor cost standards are generally based on:
A. expected actual conditions, anticipated prices, and desired efficiency levels
B. theoretical conditions, present price levels, and desired efficiency levels
C. capacity conditions, anticipated prices, and desired efficiency levels
D. normal conditions, present price levels, and desired efficiency levels

34. A purpose of standard costing is to:

A. allocate cost with more accuracy
B. eliminate the need for subjective decisions by management
C. determine the "break-even" production level
D. control costs

35. Which one of the following is true concerning standard costs?

A. If properly used, standards can help motivate employees.
B. Unfavorable variances, material in amount, should be investigated, but large favorable variances need not be
investigated.
C. Standard costs are difficult to use with a process costing system.
D. Standard costs are estimates of costs attainable only under the most ideal conditions, but rarely practicable.

36. When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity yields a:
A. price variance
B. volume variance
C. mix variance
D. yield variance

37. What type of direct material variances for price and usage will arise if the actual number of pounds of materials used was less than
standard pounds allowed but actual cost exceeds standard cost?

Usage Price
A. unfavorable favorable
B. favorable favorable
C. favorable unfavorable
D. unfavorable unfavorable

38. The direct labor standards for producing a unit of a product are two hours at $10 per hour. Budgeted production was 1,000 units.
Actual production was 900 units, and direct labor cost was $19,000 for 2,000 direct labor hours. The direct labor efficiency
variance was:
A. $1,000 favorable
B. $1,000 unfavorable
C. $2,000 favorable
D. $2,000 unfavorable
39. Under the two-variance method for analyzing factory overhead, the factory overhead applied to production is used in the computation
of the:

Controllable Volume
(Budget) Variance Variance
A. yes no
B. yes yes
C. no yes
D. no no

40. The costing procedure that treats fixed manufacturing costs as period costs is:
A. full costing
B. absorption costing
C. direct costing
D. conventional costing

41. When inventories increase from one period to the next and all other factors remain constant, income under direct costing:
A. will be irrelevant for decision making
B. will be smaller than under absorption costing
C. cannot be accurately computed
D. leads to smaller federal income tax payments

42. A basic tenet of direct costing is that period costs should be currently expensed. The rationale behind this procedure is that:
A. allocation of period costs is arbitrary at best and could lead to erroneous decisions by management
B. since period costs will occur whether or not production occurs, it is improper to allocate these costs to production and
defer a current cost of doing business
C. period costs are uncontrollable and should not be charged to a specific product
D. period costs are generally immaterial in amount and the cost of assigning the amounts to specific products would
outweigh the benefits

43. A term more descriptive of the type of cost accounting often called direct costing is:
A. relevant costing
B. prime costing
C. variable costing
D. out-of-pocket costing

44. Costs that are treated as product costs under variable (direct) costing are:
A. only variable production costs
B. all variable costs
C. all variable and fixed manufacturing costs
D. variable manufacturing costs and fixed general and administrative costs

45. Direct costing is not in accordance with generally accepted accounting principles because:
A. fixed manufacturing costs are assumed to be period costs
B. direct costing includes variable administrative costs in inventory
C. direct costing procedures are not well known in industry
D. net earnings are always overstated when using direct costing procedures

46. In an income statement prepared as an internal report using the direct costing method, fixed selling and administrative expenses would:
A. be used in the computation of the contribution margin
B. be inventoried
C. appear in the same section as variable selling and administrative expenses
D. be used in the computation of operating income but not in the computation of the contribution margin

47. In an income statement prepared as an internal report using the direct costing method, which of the following terms should appear?

Gross Profit
(Margin) Operating Income (Loss)
A. Yes Yes
B. Yes No
 C. No No
D. No Yes

48. A company manufactures 50,000 units of a product and sells 40,000 units. Total manufacturing cost per unit is $50 (variable
manufacturing cost, $10; fixed manufacturing cost, $40). Assuming no beginning inventory, the effect on net income if
absorption costing is used instead of variable costing is that:
A. net income is $400,000 lower
B. net income is $400,000 higher
C. net income is the same
D. net income is $200,000 higher

49. A company has the following cost data:

Fixed manufacturing costs.................................................................................................... $2,000

Fixed selling, general, and administrative costs.................................................................... 1,000
Variable selling costs per unit sold....................................................................................... 1
Variable manufacturing costs per unit.................................................................................. 2

Beginning inventory............................................................................. 0 units

Production........................................................................................... 100 units
Sales .................................................................................................. 90 units at $40 per unit

Variable and absorption-cost net incomes are:

A. $320 variable, $520 absorption
B. $330 variable, $530 absorption
C. $520 variable, $320 absorption
D. $530 variable, $330 absorption

50. All of the following statements related to the use of break-even analysis are true except:
A. a change in fixed costs changes the break-even point but not the contribution margin figure
B. a combined change in fixed and variable costs in the same direction causes a sharp change in the break-even point
C. a change in fixed costs changes the contribution margin figure but not the break-even point
D. a change in per-unit variable costs changes the contribution margin ratio

51. The break-even volume in units is found by dividing fixed expenses by the:
A. unit gross profit
B. total variable expenses
C. contribution margin ratio
D. unit contribution margin

52. Additional output that results in a positive difference between differential revenues and differential costs is beneficial to a company if
and only if:
A. other sales are affected
B. other sales are unaffected and other unit costs are unaffected
C. other unit costs are increased and idle capacity is decreased
D. other sales are unaffected but other unit costs are increased

53. The effect of discontinuing a department with a contribution to overhead of $30,000 and allocated overhead of $48,000, of which
$26,000 cannot be eliminated, would be to:
A. increase profit by $8,000
B. decrease profit by $26,000
C. decrease profit by $ 8,000
D. decrease profit by $22,000

54. The costing method used to determine the lowest price that could be quoted for a special order that would use idle capacity within a
production area is:
A. process
B. direct
C. standard
 D. absorption

Mojo Jojo Co. is calculating it’s ratios relating to debt-paying ability for the year ended Dec. 31, 2020. Below is the relevant information:
Sales revenue P325,000
Cost of goods sold and operating expenses 75,000
Interest Expense 20,000
Income Tax expense 6,000
Net Income 224,000
12-30-20 01-01-20
Cash 10,000 16,000
Accounts Receivable 25,000 15,000
Inventory 45,000 60,000
Accounts Payable 24,000 28,000
Taxes payable 11,000 13,000
The company uses 365 days in a year.

55. What is the amount of Mojo’s working capital at Dec. 31, 2020?
a. 41,000 c. 50,000
b. 45,000 d. 91,000

56. What is Mojo’s acid-test ratio at Dec. 31,2019

a. 0.672 to 1 c. 3.000 to 1
b. 0.756 to 1 d. 1.767 to 1

57. What is Mojo’s average collection period for accounts receivable in 2020?
a. 22.15 days c. 16.25 days
b. 22.46 days d. 13.00 days

58. What is Mojo’s inventory turnover in 2006?

a. 1.143 times c. 1.429 times
b. 1.250 times d. 1.667 times

59. What is Mojo’s times interest earned?

a. 12.50 c. 3.750
b. 16.25 d. 11.50

60. During 2010, Sheena Co. purchased P1,920,000 of inventory. The cost of goods sold for 2010 was P1,800,000 and the ending
inventory at December 31, 2010 was P360,000. What was the inventory turnover for 2010?
a. 5.0 b. 5.3 c. 6.0 d. 6.4

61. Jem Co’s net accounts receivable were P250,000 at December 31, 2009 and P300,000 at December 31, 2010. Net cash sales for
2010 were P100,000. The accounts receivable turnover for 2010 was 5.0. What were Jem’s total net sales for 2010?
a. 1,475,000 b. 1,500,000 c. 1,600,000 d. 2,750,000

62. Which of the following ratios is not a test of liquidity?

a. Current ratio c. equity ratio
b. Receivables turnover d. quick ratio

63. How are dividends per share for ordinary share used in the calculation of the following?
Dividend yield EPS
a. Denominator denominator
b. Denominator not used’
c. Numerator not used
d. Numerator numerator

64. If current asset exceed current liabilities, payments to creditors made on the last day of the month will
a. Decrease current ratio
b. Increase current ratio
c. Decrease net working capital
 d. Increase net working capital

65. In deciding whether to manufacture a part or buy it from an outside vendor, a cost that is irrelevant to the short-run decision is:
A. indirect materials
B. direct labor
C. variable factory overhead
D. fixed factory overhead that will continue even if the part is bought from an outside vendor

66. Faced with a long-run make-or-buy decision, the manager should do all of the following except:
A. compare the making of the parts with alternative uses that could be made of the firm's own facilities if the parts are
purchased
B. compare the cost of making the parts with the cost of buying them
C. use a cost study with only the differential costs and with no allocation of existing fixed overhead or profit
D. consider differences in the required capital investment and the timing of cash flows

67. An opportunity cost is:

A. a cost that may be saved by not adopting an alternative
B. a cost that may be shifted to the future with little or no effect on current operations
C. a cost that cannot be avoided because it has already been incurred
D. the profit foregone by selecting one alternative instead of another

68. The term "differential cost" refers to:

A. the profit foregone by selecting one alternative instead of another
B. a cost that does not entail any dollar outlay but that is relevant to the decision-making process
C. a cost that continues to be incurred even though there is no activity
D. the difference in total costs that results from selecting one alternative instead of another

69. In a make-or-buy decision:

A. fixed costs that can be avoided in the future are relevant
B. only variable costs are relevant
C. only prime costs are relevant
D. fixed costs that will continue regardless of the decision are relevant

70. The type of costs presented to management for a decision to replace equipment should be limited to:
A. controllable costs
B. conversion costs
C. historical costs
D. relevant costs

71. Depreciation is incorporated explicitly in the cash flow analysis of an investment proposal because it:
A. is a cost of operations that cannot be avoided
B. results in an annual cash outflow
C. is a cash inflow
D. reduces the cash outlay for income taxes

72. Maxwell Company has an opportunity to acquire a new machine to replace one of its present machines. The new machine would cost
$90,000, have a 5-year life, and no estimated salvage value. Variable operating costs would be $100,000 per year. The
present machine has a book value of $50,000 and a remaining life of 5 years. Its disposal value now is $5,000, but it would be
zero after 5 years. Variable operating costs would be $125,000 per year. Ignore income taxes. Considering the 5 years in
total, what would be the difference in profit before income taxes by acquiring the new machine as opposed to retaining the
present one?
A. $10,000 decrease
B. $15,000 decrease
C. $35,000 increase
D. $40,000 increase

73. Effective planning and control is important for effective administration of capital expenditure programbecause:
 A. the long-term commitment increases financial risk
B. the magnitude of expenditures is substantial and the economic penalties for unwise decisions are usually severe
C. decisions made in this area provide the structure for operation of the firm
D. all of the above

74. A number of evaluations of a single capital expenditure proposal may be necessary because of:
A. circumstances that change during the time span from the origin of the project idea to its completion
B. alternative solutions of the problem for which the project is designed
C. assumptions that vary as to the amount and timing of cash flows
D. all of the above

75. The net present value of a proposed project represents the:

A. cash flows less the original investment
B. present value of the cash flows plus the present value of the original investment less the original investment
C. present value of the cash flows less the original investment
D. present value of the cash flows less the cost of the old machine being replaced

76. If an initial investment outlay is $60,000 and the cash flows projected are $15,000, $20,000, $25,000, and $10,000 in each of the first
four years, respectively, the payback period in years would be:
A. 3.3
B. 3.0
C. 2.5
D. 4.0

77. The method of project selection that considers the time value of money in a capital budgeting decision computes the:
A. accounting rate of return on average investment
B. internal rate of return
C. payback period
D. return on investment

78. The net present value and the internal rate of return methods of decision making in capital budgeting are superior to the payback
method in that they:
A. consider the time value of money
B. are easier to implement
C. consider accrual-based accounting income
D. require less input

79. The capital budgeting method that assumes that funds are reinvested at the company's cost of capital is:
A. accounting rate of return
B. net present value
C. internal rate of return
D. return on investment

80. If income tax considerations are ignored, how is depreciation expense used in the following capital budgeting techniques?
Internal Rate of Return Payback
A. Excluded Included
B. Included Excluded
C. Included Included
D. Excluded Excluded