BSA PRE QUALIFYING EXAMINATION

(FOR SECOND YEAR)

NAME: _____________________________ DATE: _____________________ SCORE: ____________

INSTRUCTIONS: Write your final answer in the answer sheet. NO ERASURES ALLOWED.

1.

Which of the following statements about the ASC Conceptual Framework is false?
a. The framework is not a Statement of Financial Accounting Standards and hence does not define standards for any
particular measurement or disclosure issue.
b. The framework is concerned with general-purpose financial statements including consolidated financial
statements.
c. The framework applies to the financial statements of all commercial, industrial and business reporting
enterprises, whether in the public or private sectors.
d. In case of a conflict between a provision of the conceptual framework and that of a financial accounting
standard, the provision in the conceptual framework should prevail.

2. Which of the following should not be included in the current assets section in the balance sheet?
a. Assets which are held primarily for the purpose of being traded.
b. Cash funds restricted for the payment of salaries and wages, interest and taxes payable.
c. Assets which are expected to be realized, sold or consumed in the normal course of the operating cycle.
d. Available for sale securities which are not expected to be realized within one year from the balance sheet date.

3. Erudites Company has co-signed the mortgage note on the home of its president, guaranteeing the indebtedness in
the event that the president should default. Erudites Company considers the likelihood of default to be remote. How
should the guarantee be treated in Erudites financial statements?
a. Accrued and disclosed

b. Neither accrued nor disclosed

c. Accrued onlyd. Disclosed only

4. Which of the following information is normally not included in the notes to financial statements?
a. Supporting information for line items presented and aggregated
b. Statement of compliance with GAAP
c. Statement of measurement basis for financial statements and accounting policies
d. Statement of financial position and results of operation

5. As an alternative treatment, interest and dividends received may be classified in the cash flow statement as cash
provided by
a. Operating activities

b. Investing activities

c. Financing activities

d. Ordinary activities

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6. AAA Companys net income in 2015 was higher using the FIFO method than LIFO method. In what direction did the
cost of purchases move during 2015?
a. Increasing

b. Constant

c. Decreasing

d. Cannot be determined with the given information

7. As a benchmark treatment, the revaluation of property, plant and equipment should be based on
a.

Fair value which is usually the market value determined by appraisal undertaken by professionally qualified
appraisers.

b.

Current replacement cost.

c.

Current reproduction cost.

d.

Depreciated replacement cost.

8. The frequency of revaluation of property, plant and equipment depends upon the movement in the fair value of the
item of property, plant and equipment. If the property, plant and equipment experience insignificant movement in
fair value, revaluation may be sufficient if made every
a. Three to five years

b. Five years

c. Ten years

d. Five to ten years

9. Accounting constraints are the factors that may affect the relevance and reliability of financial accounting
information. The constraints enumerated in the conceptual framework are
a. Timeliness and materiality

c. Cost benefit and materiality

b. Cost benefit and timeliness

d. Timeliness, materiality and cost benefit

10. Which of the following methods of revenue recognition reflects the greatest degree of uncertainty about future
certain events?
a. Point of sale method applied to sales of a merchandising business
b. Production method for agricultural crops
c.

Cost recovery method applied to installment sales contracts

d. Percentage of completion on a construction contract

11. Extraordinary items of revenue and expenses arise from events and transaction of material effect that
a. Are clearly distinct from ordinary activities and infrequent in their occurrence.
b. Would not be reasonably expected to recur in the foreseeable future.
c. Possess a high degree of abnormality, are of a type clearly unrelated to, or are only incidentally related to the
ordinary and typical activities of the entity.
d. Are so significant in amount that their inclusion in ordinary income would distort the comparability of results of
operations.

12. Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of
currency are
a. Financial assets and liabilities

c. Nonmonetary items

b. Monetary items

d. Functional currency

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13. The existence of significant influence is not evidenced by

a. Participation in the policy making process, including participation in decisions about dividends or other
distributions.
b. Representation in the board of directors or equivalent governing body of the investee.
c. Power to cast the majority of votes at meetings of the board of directors or equivalent governing body
d. Provision of essential technical information

14. Which of the following events after the balance sheet would generally result in to an adjustment rather than
disclosure?
a. Announcing a plan to discontinue an operation, disposing of assets or setting liabilities attributable to a
discontinued operation or entering into binding agreements to sell such assets or settle such liabilities.
b. The destruction of a major production plant by fire after the balance sheet date.
c. Abnormally large changes after the balance sheet date in asset prices or foreign exchange rates.
d. Determination after the balance sheet date of the cost of assets purchased, or the proceeds from assets sold,
before the balance sheet date.

15. Depreciation of an asset begins when it is available for use, when it is in the location and condition necessary for it to
be capable of operating in the manner intended by management. Depreciation of an asset ceases when
a. the asset becomes idle.

c. . the asset is retired from active use and held for disposal.

b. the asset is derecognized.

d. the asset incurs major repairs and maintenance during the year.

16. The depreciable amount of an asset is the

a. the amount of cash and cash equivalent paid or the fair value of the other consideration given to acquire an asset
at the time of its acquisition or construction.
b. is the cost of an asset, or other amount substituted for cost, less its residual value.
c. is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated
impairment losses.
d. amount for which an asset could be exchanged between knowledgeable, willing parties in an arms length
transaction.

17. Which statement is incorrect concerning the situations that would lead to a lease being classified as a finance lease?
a. The lease transfers ownership of the asset to the lessee by the end of the lease term.
b. The lessee has the option to purchase the asset at a price that is sufficiently lower than the fair value at the date
of the inception of the lease.
c. The lease term is for the major part of the economic life of the asset even if the title is not transferred.
d. At the inception of the lease, the present value of the minimum lease payments amounts to at least substantially
all of the fair value of the leased asset.

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18. Which of the following is a characteristic of a change in accounting estimate?

a. It usually need not be disclosed.
b. It does not affect the financial statements of prior periods.
c. It should be reported through the restatement of financial statements.
d. It will affect all periods following the period of change.

19. An unguaranteed residual value of a leased asset is

a. that part of the residual value which is guaranteed by the lessee or a party related to the lessee, the amount of
the guarantee being the maximum amount that could in any event become payable
b. the fair value of the leased asset at the end of the lease term
c.

that portion of the residual value of the leased asset, the realization of which by the lessor is not assured or is
guaranteed solely by a party related to the lessor

d. that portion of the residual value of the leased asset, the realization of which by the lessor is not assured or is
guaranteed solely by a party related to the lessee

20. Which of the following information should be disclosed in the summary of significant accounting policies?
a. Future common share dividends are expected to approximate 60 percent of earnings.
b. Adequacy of pension plan assets.
c.

Property, plant and equipment are recorded at cost with depreciation computed principally by straight-line
method.

d. Guarantees of indebtedness of others.

21. What is the benchmark treatment of a change in accounting policy?

a. Retroactively, meaning, any resulting adjustment is reported as an adjustment to the opening balance of
retained earnings.
b. Prospectively, meaning, no adjustment is made to prior periods are made either to the opening balance of
retained earnings or in reporting the net income or loss for the current period because existing balances are not
recalculated.
c. Currently, meaning, any resulting adjustment is included in the determination of the net income or loss for the
period.
d. Retroactively, meaning, any resulting adjustment is included in equity.

22. Cash discounts permitted on purchased raw materials should be

a. added to other income, whether taken or not
b. deducted from inventory, whether taken or not

c. . added to other income, only if taken

d. deducted from inventory, only if taken

23. Virtually owned subsidiary is often to mean that the parent owns
a. 90% or more of the voting power.

c. 20% or more of the voting power.

b. 51% or more of the voting power.

d. 10% or more of the voting power.

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24. The following statements relate to cash. Which statement is false?

a. Cash equivalents are short-term highly liquid investments that are readily convertible into cash and so near their
maturity that they represent insignificant risk of changes in value because of changes in interest rates.
b. Redeemable preferred share may qualify as a cash equivalent if purchased three months before the specified
redemption date.
c. Legally restricted compensating balances are excluded from cash but are presented as current assets if the
related loan is less than one year.
d. A six-month BSP treasury bill with remaining maturity of three months on balance sheet date may be classified
as cash equivalent provided this is disclosed.

25. Which of the following is used for sales discounts, sales returns, sales allowances and defaults?
I. Due from factor
II. Recourse liability

a. I only.

b. II only.

c. Both I and II.

d. Neither I nor II

26. Hot Company transferred financial assets to Cold Company. The transfer meets the conditions to be accounted for as
a sale. As the transferor, Hot should do each of the following, except
a. remove all assets from the balance sheet.
b. measure all the assets received and liabilities incurred at cost.
c. recognize any gain or loss from the sale.
d. record all assets received and liabilities incurred as proceeds from the sale.

27. Financing activities are

a. the principal revenue producing activities of an enterprise.
b. the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.
c.

the activities that result in changes in the size and composition of the equity capital and borrowings of the
enterprise.

d. short-term highly investments that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in values.

28. Fog Company, cash basis taxpayer, prepares accrual basis financial statements. In its 2005 balance sheet, Fog
Companys deferred tax liabilities increased compared to 2004. Which of the following changes would cause this
increase in deferred tax liabilities?

a. I only.

I.

A decrease in rent receivable

II.

An increase in prepaid insurance

III.

An increase in warranty obligation

b. I and II only

c. II only.

d. II and III only.

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29. If the payment of employees compensation for future absences is probable, the amount can be reasonably estimated
and the obligation relates to rights that accumulate, the compensation should be
a. accrued it attributable to employees services not rendered.
b. accrued if attributable to employees services already rendered.
c. accrued if attributable to employees services whether rendered or not.
d. recognized only when paid.

30. Which of the following is not considered a research and development activity?
a. Laboratory research aimed at discovery of new knowledge.
b. Design, construction and operation of pilot plant.
c. Engineering follow-through in an early phase of commercial production.
d. Conceptual formulation and design of possible product or process.

31. When a debt security is transferred from IBODI (held to maturity) to available for sale, any unrealized gain or loss at
the date of transfer shall be
a. included in retained earnings.
b. reported as a component of stockholders equity.
c. included in earnings.
d. reported as a component of stockholders equity and subsequently amortized through interest income over the
remaining life of the debt security using the effective interest method of amortization

32. Which of the following is not one of the advantages of a double entry bookkeeping system?
a. Provides assurance that all clerical errors will be revealed and corrected.
b. The complete effect of all transactions is recorded.
c. Complete accounting permits fair presentation of financial accounting information.
d. Provides more effective internal control.

33. When an investor uses the equity method to account for investment in common stock, the investment account will
not be affected when the investor recognizes
a. A proportionate interest in the net income of the investee.
b. Periodic amortization of the goodwill related to the purchase.
c.

A stock dividend received from the investee.

d. Depreciation related to the excess of market value over the book value of the investees depreciable assets at the
date of purchase by the investor.

34. Mark Company issued bonds with detachable common stock warrants. Only the warrants had a known market value.
The sum of the fair value of the warrants and the face amount of the bonds is more than the cash proceeds. The
difference is reported as
a. discount on bonds payable.

c. common stock subscribed.

b. premium on bonds payable.

d. additional paid in capital.

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35. Which statement is incorrect concerning the treatment of residual value of the leased asset in the sales type lease?
a. The unearned finance income will be identical whether the residual value is guaranteed or unguaranteed.
b. The gross profit will be the same whether the residual value is guaranteed or unguaranteed.
c. The sales price includes the present value of the unguaranteed residual value.
d. The present value of the unguaranteed residual value is deducted to determine the cost of sales.

36. One of the elements of the financial statements is comprehensive income. Comprehensive income excludes changes
in equity resulting from which of the following?
a. Cash received from the issuance of common stock
b. Revaluation surplus
c. Unrealized gains and losses on available for sale securities
d. Cumulative translation adjustments

37. The currently reported net income is based on

a. Physical capital

c. Both physical and financial capital

b. Financial capital

d. Neither physical nor financial capital

38. Which does not require an adjusting entry on the depositors books?
a. Collection from a customer in the amount of P100,000 but recorded by the depositor only as P10,000
b. Deposit of another company is credited to the account of our enterprise
c. The cost of printed checks charged to the depositors account
d. Notification for Electronic Fund Transfers to the depositors account

39. Toddler Company uses the allowance method for recognizing uncollectible accounts. Ignoring deferred tax, the entry
to record the recovery and subsequent collection of a specific uncollectible account

a. Affects neither net income nor accounts receivable

b. Decreases both net income and accounts receivable
c. Decreases net income but not accounts receivable
d. Decreases accounts receivable but not net income

40. A note receivable bearing a reasonable interest rate is sold to a bank with recourse. At the date of discounting
transaction, trade and other receivables would be
a. Decreased by the proceeds from the discounting transaction
b. Increased by the proceeds from the discounting transaction
c. Increased by the face amount of the note
d. Decreased by the face amount of the note

41. If a company incorrectly includes consignment items as purchases and ending inventory during the current year. The
effect on next years net income and retained earnings is
a. Understated, understated

c. Overstated, understated

b. Understated, correctly stated

d. Overstated, correctly stated

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42. The gross margin method of estimating ending inventory may be used for all of the following except
a. Internal as well as external interim reports
b. Internal as well as external year-end reports
c. Estimate of inventory destroyed by fire of other casualty
d. Rough test of the validity of an inventory cost determined under periodic or perpetual system

43. When trading securities are transferred into available for sale securities, the unrealized gain or loss at the date of
transfer shall be
a. Included in stockholders equity

c. Included in additional paid in capital

b. Included as a component of income

d. Included in retained earnings

44. Coco Company has a portfolio of marketable debt securities which it intends to hold to maturity. How would Coco
report unrealized gains and losses from these securities?
a. As a component of income
b. As a component of stockholders equity
c. Not recognize in income nor stockholders equity
d. Not recognize temporary gains and losses but recognize realized losses as a component of income

45. Kart Corporations 2005 dividend income included only part of the dividend received from its Fey Corporation
investment. The dividend reduced Karts carrying amount for its Fey investment. This reflects that Kart accounts for
its investment by the
a. Equity method, and its carrying amount exceeded the proportionate share of Feys market value
b. Cost method, and only a portion of Feys 2005 dividend represents earnings before Karts acquisition
c.

Cost method, and only a portion of Feys 2005 dividend represents earnings after Karts acquisition

d. Cost method, and the 2005 dividend received by Kart was a return of its investment

46. Which statement is true concerning stock dividends and stock rights from the viewpoint of the investor?
a. A stock dividend received on an investment increased the per share cost of the investment
b. The number of shares held which have been subject to a subject to a stock dividend should be more than it was
before the dividend.
c. When stock rights are received on investment shares, only a memorandum entry is made
d. From the date stock rights are issued until the date they expire, shares of stock of the issuing corporation are said
to be selling right-on

47. It is defined as property held for use in the production or supply of goods or services or for administrative purposes;
or sale in the ordinary course of business.
a. Business property

c. Owner-occupied property

b. Investment property

d. Rental property

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48. A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher quality
materials. The cost and related accumulated depreciation of the damaged portion are identifiable. To account for
these events, the owner should (choose the incorrect one)
a. Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the
damaged portion of the building.
b. Remove the cost of the damaged portion and related accumulated depreciation.
c. Depreciate the cost of the refurbished portion of the building using its useful life or the useful life of the building,
whichever is shorter.
d. Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the
damaged portion of the building.

49. The cost of an item of property, plant and equipment that is acquired through the issuance of capital stock or bonds
payable is measured at
a. The fair value of the property received
b. The fair value of the capital stock or bonds payable issued
c. Par value of capital stock or face value of bonds payable issued
d. Cost of the asset to its owner

50. What is the benchmark presentation of grant related to income?

a. By setting the grant as deferred income.
b. By deducting the grant from the cost of the asset in arriving at the carrying amount.
c.

The grant is presented in the income statement, either separately or under the general heading other income.

d. The grant is deducted from related expense.

51. If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a
parking lot, the proper accounting treatment of the cost of the building would depend on
a. The significance of the cost allocated to the building in relation to the combined cost of the lot and building.
b. The length of time for which the building was held prior to the demolition.
c. The contemplated future use of the parking lot.
d. The intention of management for the property when the building was acquired.

52. The factors considered in determining the useful life of an asset include all of the following, except
a. Expected usage of an asset
c. Technical or commercial obsolescence

b. Expected physical wear and tear

d. Residual value

53. Which of the following statements is the assumption on which straight-line depreciation is based?
a. The operating efficiency of the asset decreases in later years
b. Service value declines as a function of time rather than use
c. Service value declines as a function of obsolescence rather than time
d. Physical wear and tear are more important than economic obsolescence

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54. The events and changes in circumstances that lead to impairment of assets may be classified as external and internal
sources of information. Which of the following is an external source?
a. Significant change in the technological, market, legal or economic environment of the business in which the
asset is employed.
b. Evidence of obsolescence or physical damage of an asset
c. Significant change in the manner or extent in which the asset is used with an adverse effect on the enterprise
d. Evidence that the economic performance of an asset will be worse than expected

55. The market price of a bond issued at a premium is the present value of its principal amount at the market rate of
interest
a. Plus the present value of all future interest payments at the market rate of interest.
b. Plus the present value of all future interest payments at rate of interest stated on the bond.
c. Less the present value of all future interest payments at the market rate of interest.
d. Less the present value of all future interest payments at rate of interest stated on the bond.

56. Which statement is incorrect concerning a finance lease on the part of the lessor?
a. Lessors shall recognize assets held under a finance lease in their balance sheets and present them as receivable at
an amount equal to the net investment in the lease.
b. The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the
lessors net investment in the finance lease.
c. Manufacturer or dealer lessors shall recognize selling profit or loss in the period, in accordance with the policy
followed by the entity for outright sales.
d. The sales revenue recognized at the commencement of the lease term by a manufacturer or dealer lessor is
equal to the fair value of the asset, or, if higher, the present value of the minimum lease payments.

57. Which of the following statements is true pertaining to sale and leaseback transaction?
a. If the sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying
amount should be immediately recognized as income.
b. If the sale and leaseback transaction results in a finance lease, any excess of carrying amount over the sales
proceeds should be immediately recognized as loss.
c. If the sale and leaseback transaction results in an operating lease, any excess of sales proceeds over the carrying
amount should not be immediately recognized as income.
d. If the sale and leaseback transaction results in an operating lease and the sales price is above fair value, the excess
over fair value is deferred and amortized over the life of the leased asset.

58. When treasury stock is purchased for more than the par value, what accounts should be debited?
a. Additional paid in capital for the purchase price
b. Treasury stock for the purchase price
c. Treasury stock for the par value and additional paid in capital for the excess of purchase price over the par value
d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value

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59. Which of the following statements is false?

a. No reference need be made to donated treasury stock since the acquisition of such stock does not restrict
retained earnings.
b. A loss from sale of treasury stock should be charged to additional paid in capital from treasury stock and then
retained earnings.
c. Treasury shares should be shown as a deduction, at cost, from total stockholders equity.
d. Treasury shares should be shown as a deduction, at cost from total stockholders equity, and the restriction on
retained earnings occasioned by their acquisition must also be stated.

60. If the stock dividend is less than twenty percent, it is considered as a small stock dividend and the market value of the
shares is debited to retained earnings. The resulting additional paid-in capital is credited on the
a. Date of record

b. Date of declaration c. Date of issuance

d. Date of payment

61. In computing diluted earnings per share, the method of recognizing the use of the proceeds that would be obtained
upon the exercise of options and warrants is the
a. Treasury stock method

c. Common share conversion method

b. Diluted method

d. Potential common share method

62. Earnings per share computation determines all of the following except
a. It is the basis of dividend policies of the company
b. It is a determinant of the market price of common stock, thus indicating the attractiveness of the common stock
as an investment.
c.

It is the amount that would be paid on each share assuming the company is liquidated and the amount available
to stockholders is exactly the amount reported as stockholders equity.

d. It is a measure of performance of management in conducting operations.

63. A company changed from an accounting principle that is not generally accepted to one that is generally accepted. The
proper treatment of the effect of the change should be
a.

A change in accounting policy and reported in the retained earnings statement as an adjustment of the opening
balance

b.

A prior period error and reported in the retained earnings statement as an adjustment of the opening balance.

c.

A change in accounting policy and reported in the income statement as component of income from continuing
operations

d.

A change in accounting estimate and treated currently and prospectively

64. The primary purpose of the cash flow statement is

a. To provide relevant information about cash receipts and cash payments of an enterprise during a period.
b. To help investors, creditors and other users to assess the enterprises ability to generate positive future net cash
flows
c. To disclose separately noncash investing and financing activities
d. To assess the ability of the enterprise to pay dividends to stockholders.

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65. An entity for which there are users who rely on the entitys general purpose financial statements for information that
will be useful to them for making decisions about the allocation of resources is known as
a. Subsidiary

b. Business combination

c. Parent

d. Reporting entity

66. The information provided by financial reporting pertains to

a. Individual business enterprises, rather than to industries or an economy as a whole or to members of society as
consumers.
b. Business industries, rather than to individual enterprises or an economy as a whole or to members of society as
consumers.
c.

Individual business enterprises, industries, and an economy as a whole, rather than to members of society as
consumers.

d. An economy as a whole and to members of society as consumers, rather than to individual enterprises or
Industries

67. The Financial Accounting Standards Board employs a "due process" system which
a. Is an efficient system for collecting dues from members.
b. Enables interested parties to express their views on issues under consideration.
c. Identifies the accounting issues that are the most important.
d. Requires that all accountants must receive a copy of financial standards.

68. The normative attitudes or ideas of the accounting profession as to what ought to represent good accounting
practice and which modify the application of accounting principles are known as
a. accounting postulates

b. accounting conventions

c. accounting procedures

d. accounting principles

69. The general guidelines used in accounting practice that are based on substantial authoritative support are called
a. Accounting postulates

b. accounting convention

c. accounting procedures

d. accounting principles

70. The specific methods used by accountants in carrying out t5he general guidelines provided by GAAP, including the
numerous rules specifying how financial data should be recorded, classified, summarized and reported are referred to
as
a. accounting postulates b. accounting conventions c. accounting procedures d. accounting principles

71. Accounting information is considered to be relevant when it

a. can be depended on to represent the economic conditions and events that it is intended to represent.
b. is capable of making a difference in a decision.
c. is understandable by reasonably informed users of accounting information.
d. is verifiable and neutral.

72. The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful
representation is
a. relevance.

b. reliability.

c. verifiability.

d. neutrality

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73. Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general
purpose financial reporting, statements prepared using historical costs are more
a. reliable.

c. indicative of the entity's purchasing power

b. relevant.

d. conservative.

74. Valuing assets at their liquidation values rather than their cost is inconsistent with the
a. periodicity assumption.

b. matching principle

c. materiality constraint.

d. historical cost principle.

75. Revenue is generally recognized when realized or realizable and earned. This statement describes the
a. consistency characteristic.

c. revenue recognition principle.

b. matching principle.

d. relevance characteristic.

76. The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the
purchaser's patented products should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the purchaser's product.
d. amortized over the remaining estimated life of the original patent covering the product whose market would
have been impaired by competition from the newly patented product.

77. 5Cs Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation
purchased on January 1, 2007 a patent on a competing product which was originally issued on January 10,
2003. Because of its unique plant, 5Cs Corporation does not feel the competing patent can be used in
producing a product. The cost of the competing patent should be
a. amortized over a maximum period of 20 years.

c. amortized over a maximum period of 11 years.

b. amortized over a maximum period of 16 years.

d. expensed in 2007.

78. The reason goodwill is sometimes referred to as a master valuation account is because
a. it represents the purchase price of a business that is about to be sold.
b. it is the difference between the fair market value of the net tangible and identifiable intangible
assets as compared with the purchase price of the acquired business.
c. the value of a business is computed without consideration of goodwill and then goodwill is added to
arrive at a master valuation.
d. it is the only account in the financial statements that is based on value, all other accounts are recorded at an
amount other than their value.
79. Ancient Company and Ancestral Company were combined in a purchase transaction. Ancient was able to
acquire Ancestral at a bargain price. The sum of the market or appraised values of identifiable assets acquired
less the fair value of liabilities assumed exceeded the cost to Ancient. After revaluing noncurrent assets to
zero, there was still some "negative goodwill." Proper accounting treatment by Ancient is to report the amount as
a. an extraordinary gain.

c. a deferred credit and amortize it

b. part of current income in the year of combination.

d. paid-in capital.

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80. Which of the following research and development related costs should be capitalized and amortized over current
and future periods?
a. Research and development general laboratory building which can be put to alternative uses in the
future
b. Inventory used for a specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another company to aid a particular research project currently in process
81. Which of the following most accurately reflects the concept of depreciation as used in accounting?
a. The process of charging the decline in value of an economic resource to income in the period in which the
benefit occurred.
b. The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those
periods expected to benefit from the use of the asset.
c. A method of allocating asset cost to an expense account in a manner which closely matches the physical
deterioration of the tangible asset involved.
d. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account
for the purpose of properly recording the fair market value of tangible assets
82. The major difference between the service life of an asset and its physical life is that
a. service life refers to the time an asset will be used by a company and physical life refers to how long
the asset will last.
b. physical life is the life of an asset without consideration of salvage value and service life requires the use of
salvage value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset.

83. Which of the following disclosures is not required in the financial statements regarding depreciation?
a. Accumulated depreciation, either by major classes of depreciable assets or in total.
b. Details demonstrating how depreciation was calculated.
c. Depreciation expense for the period.
d. Balances of major classes of depreciable assets, by nature and function.
84. The book value of a plant asset is
a. the fair market value of the asset at a balance sheet date.
b. the asset's acquisition cost less the total related depreciation recorded to date.
c. equal to the balance of the related accumulated depreciation account.
d. the assessed value of the asset for property tax purposes.
85. A general description of the depreciation methods applicable to major classes of depreciable assets
a. is not a current practice in financial reporting.
b. is not essential to a fair presentation of financial position.
c. is needed in financial reporting when company policy differs from income tax policy.
d. should be included in corporate financial statements or notes thereto.

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86. Plant assets purchased on long-term credit contracts should be accounted for at
a. the total value of the future payments.

c. the present value of the future payments.

b. the future amount of the future payments.

d. none of these.

87. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
a. par value

b. stated value

c. book value

d. market value.

88. When a closely held corporation issues preferred stock for land, the land should be recorded at the
a. total par value of the stock issued.

c. total liquidating value of the stock issued.

b. total book value of the stock issued.

d. fair market value of the land.

89. Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets
except when the exchange has
a. no commercial substance and additional cash is paid.
b. no commercial substance and additional cash is received.
c. commercial substance and additional cash is paid.
d. commercial substance and additional cash is received

90. Which of the following statements is true regarding capitalization of interest?

a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to
the land account and not to the building account.
b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.
c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest
earned should be offset against interest cost incurred when determining the amount of interest cost to be
capitalized.
d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate
by the amount of average accumulated expenditures on qualifying assets during the period.
91. 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 amortiza-tion been used.
d. be less than the stated (nominal) rate of interest.
92. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal
to
a. the stated (nominal) rate of interest multiplied by the face value of the bonds.
b. the market rate of interest multiplied by the face value of the bonds.
c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.
d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

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93. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will
a. increase if the bonds were issued at a discount.
b. decrease if the bonds were issued at a premium.
c. increase if the bonds were issued at a premium.
d. increase if the bonds were issued at either a discount or a premium.
94. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest
expense in the earlier years will be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.

c. same as if the straight-line method were used.

d. less than if the straight-line method were used.

95. The interest rate written in the terms of the bond indenture is known as the
a. coupon rate.

b. nominal rate.

c. stated rate d. coupon rate, nominal rate, or stated rate.

96. Liabilities are

a. any accounts having credit balances after closing entries are made.
b. deferred credits that are recognized and measured in conformity with GAAP
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.
97. Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund
b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue
c. A long-term debt maturing currently, which is to be converted into common stock
d. None of these
98. Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable
totaling $250,000 with the Madison National Bank. These are 90-day notes, renewable for another 90-day period.
These notes should be classified on the balance sheet of Lance Company as
a. current liabilities.

b. deferred charges.

c. long-term liabilities. d.intermediate debt.

99. 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.

100. Which of the following may be a current liability?

a. Withheld Income Taxes

b.Deposits Received from Customers

c. Deferred Revenue

d. All of these

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THEORY OF ACCOUNTS
1.

2.

3.

Which of the following is not a qualitative characteristic of financial reporting?

a. Reliability
c. Comparability
b. Going concern
d. Relevance

Which of the following statements about consistency is true?

a. The method of accounting can never be changed the entity has to follow the accounting method
consistently period after period.
b. The method of accounting can be changed however, if the method is changed, it must be highlighted in the
financial statement.
c. Method of accounting can be changed if standards require. No disclosure is required in the financial
statements.
d. Companies must sell the same product consistently from one period to the next.

An investment property should be measured initially at

a. Cost
b. Cost less accumulated impairment losses
c.

Depreciable cost less accumulated impairment losses

d. Fair value less accumulated impairment losses

4.

5.

An asset is impaired when the carrying amount is

a. Higher than fair value less costs to sell but lower than value in use.
b. Lower than fair value less costs to sell but higher than value in use.
c. Higher than fair value less costs to sell and value in use.
d. Lower than fair value less costs to sell and value in use.

When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an
entity should
a. treat the entire change as a change in estimate with appropriate disclosure
b. Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in accounting
policy and treat each one accordingly
c.

Treat the entire change as a change in accounting policy

d. Since this change is a mixture of two types of changes, it is best if it is ignored in the year of the change;
the entity should then wait for the following year to see how the change develops and then treat it
accordingly

6.

Interim financial reports should include as a minimum

a. A complete set of financial statements complying with PAS 1
b. A condensed set of financial statements and selected notes
c.

A balance sheet and income statement only

d. A condensed balance sheet, income statement, and cash flow statement only

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7.

XYZ Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and thus has
significant other property, plant, and equipment that it carries in its books. It decided to revalue its property,
plant, and equipment. The company's accountant has suggested the alternatives that follow. Which one of the
options should XYZ Inc. select in order to be in line with the provisions of PAS 16?
a. Revalue only one-half of each class of property, plant, and equipment, as that method is less cumbersome
and easy compared to revaluing all assets together
b. Revalue an entire class of property, plant, and equipment
c.

Revalue one ship at a time, as it is easier than revaluing all ships together

d. Since assets are being revalued regularly, there is no need to depreciate

8.

The following expenditures would qualify as an exploration and evaluation asset under PFRS 6
I.
Expenditure for acquisition of rights to explore
II.

Expenditure for exploratory drilling

III.

Expenditures related to the development of mineral resources

IV.

Expenditure for activities in relation to evaluating the technical feasibility and commercial viability of
extracting a mineral resource

a. I and II
b. III and IV

c. I, II and IV
d. I, II, III and IV

9.

Which statement is incorrect concerning internally generated intangible asset?

a. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity
classifies the generation of the asset into a research phase and a development phase.
b. The cost of an internally generated asset comprises all directly attributable costs necessary to create,
produce and prepare the asset for its intended use.
c. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance
shall be recognized as intangible assets.
d. Internally generated goodwill shall not be recognized as an intangible asset.

10.

Which of the following is true?

a. Trading securities can be classified as current or noncurrent depending on management's intent.
b. Held-to-maturity securities should not be classified as current under any circumstance.
c.

Trading securities should not be classified as current under any circumstance.

d. Available-for-sale securities can be classified as current or noncurrent depending on management's intent.

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