THEORY OF ACCOUNTS
Tony has
1. Which of the following equations is not true?
(a) Assets + Liabilities = Owners Equity
(b) Assets = Liabilities + Owners Equity
(c) Assets Owners Equity = Liabilities
(d) Assets Liabilities = Owners Equity
2. Dave started his own cheese factory on March 16,
2003. Which of the following transactions would not
be admissible in Daves accounting system for the
month of March?
(a) On March 18, Dave purchased a cow on account
for P3,000.
(b) On March 20, Dave sold his cow to a fast food
restaurant for P5,000.
(c) On March 21, Dave contracted with a local radio
station to run several one-minute advertising
spots during the month of April.
(d) All of the above transactions would be
admissible for Daves accounting system in the
month of March.
3. Jeff purchased a new register system for his grocery
store, paying P1,000 in cash and issuing a P6,000
note payable for the balance owed. As a result of
this transaction, Jeffs balance sheet would reflect:
(a) an increase in assets and an increase in
liabilities
(b) a decrease in assets and an increase in liabilities
(c) an increase in assets and a decrease in liabilities
(d) an increase in assets and an increase in owners
equity
4. The double-entry system of accounting means that
every transaction:
(a) is recorded initially on both the journal and the
general ledger
(b) increases one general ledger account while
decreasing another
(c) affects at least two general ledger accounts and
is recorded by an equal amount of debits and
credits
(d) results in changes in accounts on both sides of
the balance sheet
5. Which of the following statements is not correct?
(a) debits may increase assets
(b) credits may increase liabilities
(c) debits may increase liabilities
(d) credits may increase owners equity
6. Tony owns a store specializing in bags.
just completed a transaction that caused a P12,000
increase in total assets and a P12,000 increase in
liabilities. This transaction could have been:
(a) the investment in his business of P12,000 in
cash
(b) the purchase of store equipment, paying P9,000
in cash and issuing a P12,000 note payable for
the balance owed
(c) the purchase of bags for his inventory, paying
P4,000 in cash and issuing an P8,000 note
payable for the balance owed
(d) none of the above transactions would cause
total assets and total liabilities to increase by
P12,000
7. Dean has completed the posting process for the
month of June and has prepared a trial balance in
which the debits total P11,000 and the credits total
P11,100. Which of the following errors would be the
most likely candidate in causing the trial balance not
to balance by P100?
(a) a P100 debit was posted as a P100 credit
(b) a P100 debit was posted as a P100 credit and a
P100 credit was posted as a P100 debit
(c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never
posted to the general ledger
8. Increase in net assets may result from:
(a) revenues
(b) expenses
(c) withdrawals
(d) all of the above are correct
9. Which of the following statements is false?
(a) Increases to owners capital are recorded with
credits.
(b) Sales are recorded as debits.
(c) Expenses reduce owners capital.
(d) Expenses and dividends are both recorded as
debits.
10. Zinc Company recorded office supplies as an asset
account when the supplies were purchased. Failure
to make an adjusting entry reflecting the use of
these supplies will result in:
(a) an understatement of assets
(b) an overstatement of owners equity
(c) an understatement of liabilities
(d) an understatement of owners equity
11. Compared to its 2001 cash basis net income, Pry III. Deducted from Deducted from
Companys 2001 accrual basis net income increased IV. Deducted from Added to
when it:
I. declared a cash dividend in 2000 that it paid in
2001. 16. The premium on a three-year insurance policy
II. wrote off more accounts receivable balances
expiring on December 31, 2003 was paid in total on
that it reported as uncollectible accounts January 2, 2001. If the company has six-month
expense in 2001. operating cycle, then on December 31, 2001, the
III. had lower accrued expenses on December 31,
prepaid insurance reported as current asset would
2001 than on January 1, 2001. be for:
IV. sold used equipment for cash at a gain in 2001.
(a) 6 months
(c) 18 months
(b) 12 months
12. Before 2001, Druid Company used the cash basis of (d) 24 months
accounting. As of December 31, 2001, Druid
changed to the accrual basis. Druid cannot 17. The premium on a three-year insurance policy
determine the beginning balance of supplies expiring on December 31, 2003 was paid in total on
inventory. What is the effect of Druids inability to January 1, 2001. The original payment was initially
determine beginning supplies inventory on its debited to a prepaid asset account. The appropriate
accrual basis net income and December 31, 2001 journal entry had been recorded on December 31,
accrual basis owners equity? 2001. The balance in the prepaid asset account on
December 31, 2001 should be:
12/31/2001 I. zero.
2001 net income owners equity II. the same as it would have been if the original
I. No effect No effect
II. No effect Overstated
payment had been debited initially to an
III. Overstated No effect expense account.
IV. Overstated Overstated III. the same as the original payment.
C
IV. higher than if the original payment had been
13. Wide Company wants to convert its 2001 financial debited initially to an expense account.
statements from the accrual basis of accounting to
the cash basis. Both supplies inventory and office 18. The premium on a three-year insurance policy
salaries payable increased between January 1 and expiring on December 31, 2003 was paid in total on
December 31. To obtain 2001 cash basis net January 1, 2001. Assuming the original payment
income, how should these increases be added to or was recorded as a prepaid, how would the total
deducted from the accrual basis net income? assets and stockholders equity be affected during
Supplies inventory Office salaries payable 2001?
I. Deducted Deducted I. Total assets would decrease and stockholders
II. Deducted Added equity would increase.
III. Added Deducted
IV. Added Added II. Both total assets and stockholders equity would
decrease.
III. Both total assets and stockholders equity would
increase.
14. Compared to the accrual basis of accounting, the
IV. Neither total assets nor stockholders equity
cash basis of accounting understates income by the
would change.
net decrease during the accounting period of:
Accounts receivable Accrued expense
I. Yes Yes
II. Yes No 19. The premium on a four-year insurance policy
III. No No expiring on December 31, 2004 was paid in total on
IV. No Yes January 1, 2001. Assuming that the original
payment was recorded as a prepaid asset, the
balance in the prepaid asset account on December
15. Dees inventory and accounts payable balances at 31, 2002 would be:
December 21, 2001 increased over their December I. lower than the balance on December 31, 2001.
31, 2000 balances. Should these increases be II. lower than the balance on December 31, 2003.
added to or deducted from cash payments to III. the same as the balance on December 31, 2004.
supplier to arrive at 2001 cost of goods sold? IV. the same as the original payment.
Increase in inventory Increase in accounts
payable
I. Added to Deducted from
II. Added to Added to
20. On January 1, 2001, Style Company signed a 5-year
contract enabling it to use a patented manufacturing
process beginning in 2001. A royalty is payable for
each product produced, subject to a minimum
annual fee. Any royalties in excess of the minimum
will be paid annually. On the contract date, Style
prepaid a sum equal to two years minimum annual
fees. In 2001, only minimum fees were incurred.
The royalty prepayment should be reported in
Styles December 31, 2001 financial statement as:
I. as expense only.
II. (c) a current asset and noncurrent asset.
III. a current asset and an expense.
IV. (d) a noncurrent asset.
21. Cash or Cash on Hand and In Banks on the balance
sheet may include the following items:
(1) Currency or cash items on hand
(2) Deposits in foreign countries which are
subject to foreign exchange restrictions
(3) Short-term placements of excess cash which
can be preterminated
(4) Postdated checks
(5) Cash set aside for the acquisition or
construction of noncurrent assets
(a) 1, 2 and 3 only (c) 1 and 3 only
(b) 2, 3 and 5 only (d) not given
22. Balances representing cash, accounts receivable,
and payable denominated in other than the local
currency should be translated for consolidation at
the:
(a) historical rate
(c) forward rate
(b) spot rate
(d) current rate
23. The cash balance reported in the balance sheet
normally will not include:
(a) small amounts of cash (petty cash) kept on
hand in the office.
(b) checks received from customers and deposited
in the bank.
(c) money orders.
(d) temporary investments due in one year.
24. Which of the following is not considered cash for
financial reporting purposes?
(a) petty cash funds and change funds
(c) coin, currency and available funds
(b) money order and certified checks
(d) postdated checks and IOUs
25. Which of the following items in a cash drawer at
November 30 is not cash?
(a) money orders
(c) a customer check dated December 1
(b) coins and currency
(d) a customer check dated November 28
26. If a financial institution has cash funds in a
company, which is in bankruptcy, and the amount
recoverable is estimated to be lower than the face
amount, cash should be:
(a) eliminated from the balance sheet.
(b) written down to its discounted or present value.
(c) written down to estimated realizable value.
(d) stated at face amount.
27. If the deposit is legally restricted as to withdrawal,
the compensating balance related to a long-term
long is shown as:
(a) cash
(c) long-term investment
(b) other asset
(d) current liability
28. Each of the following measures strengthens internal
control over cash receipts except:
(a) the use of a voucher system.
(b) preparation of a daily listing of all checks
received through the mail.
(c) the deposit of cash receipts intact in the bank on
a daily basis.
(d) the use of cash registers.
29. Which of the following is not a basic characteristic of
a system of cash control?
(a) use of a voucher system
(b) combined responsibility for handling and
recording cash
(c) daily deposit of all cash received
(d) internal audits at irregular intervals
30. The following statements relate to the petty cash
fund. Which statement is true?
(a) The amount of coins and currency in the petty
cash fund is the same before the fund is
reimbursed as it is afterwards.
(b) Entries to record the replenishment of the
imprest petty cash fund result in debit to various
expense accounts and a credit to the petty cash
funds.
(c) At any time, the sum of the cash in the petty
cash fund and the total petty cash vouchers
should equal the amount for which the imprest
petty cash fund was established.
(d) Under the imprest petty cash system, it is not
necessary to adjust unreplenished petty cash
expenses at end of the year.

31. An enterprise should prepare a cash flow statement
and should present it as:
(a) supplementary financial statement.
(b) note to financial statement.
(c) supporting schedule for amount appearing as
cash and cash equivalent.
(d) integral part of the enterprises basic financial
statements.
32. Cash flows in the cash flow statement are:
(a) inflows of cash and cash equivalents.
(b) outflows of cash and cash equivalents.
(c) inflows and outflows of cash.
(d) inflows and outflows of cash and cash
equivalents.
33. Cash receipts from issuing shares and other equity
instruments are:
(a) cash inflows from investing activities.
(c) cash inflows from financing activities.
(b) cash outflows for investing activities.
(d) cash outflows for financing activities.
34. In a cash flow statement, interest payments to
lenders and other creditors should be classified as:
(a) operating activities.
(c) lending activities.
(b) borrowing activities.
(d) financing activities.
35. In a cash flow statement, alternatively interest
received and dividend received may be classified as
cash flow from:
(a) operating activities.
(c) financing activities.
(b) investing activities.
(d) revenue activities.
36. How should a gain from the sale of used equipment
for cash be reported in a cash flow statement using
the indirect method?
(a) in investment activities as a reduction of the
cash inflow from the sale
(b) in investment activities as a cash outflow
(c) in operating activities as a deduction from
income
(d) in operating activities as a addition to income
37. In a cash flow statement, which of the following
items is reported as a cash flow from financing
activities?
I. Payments to retire mortgage notes
II. Interest payments on mortgage notes
III. Dividend payments
(a) I, II and III
(c) I only
(b) II and III
(d) I and III
38. In a cash flow statement, if used equipment is sold
at a gain, the amount shown as a cash flow from
investing activities equals the carrying amount of the
equipment:
(a) plus the gain.
(b) plus the gain and less the amount of tax
attributable to the gain.
(c) plus both the gain and the amount of tax
attributable to the gain.
(d) with no addition or subtraction.
39. In a cash flow statement, which of the following
would increase reported cash flows from operating
activities using the direct method?
(a) dividends received from investments
(b) gain on sale of equipment
(c) gain on early retirement of bonds
(d) change from straight-line to accelerated
depreciation
40. ABC Companys accounts receivable decreased from
the beginning to the end of the year. In the
companys cash flow statement, the cash collected
from customers would be:
(a) sales revenue plus accounts receivable at the
beginning of the year.
(b) sales revenue plus the decrease in accounts
receivable from beginning to the end of the
year.
(c) sales revenue less the decrease in accounts
receivable from beginning to the end of the
year.
(d) the same as sales revenue.
41. The following statements relate to the financial
statements. Which is not?
(a) The purpose of financial statements is to
provide information about the financial position,
performance and cash flows of an enterprise
that is useful to management in making
economic decisions.
(b) Financial statements do not provide all the
information that users may need to make
economic decisions since they largely portray
the financial effects of past events and do not
necessarily provide nonfinancial information.
(c) Financial statements also show the results of
the stewardship of management, or the
 accountability of the management for the
resources entrusted to it,
(d) The management of an enterprise has the
primary responsibility for the preparation and
presentation of the financial statements of the
enterprise.
42. The following statements relate to the principles of
statement presentation, except:
(a) The financial statements should present fairly
the financial position, performance and cash
flows of an enterprise.
(b) The financial statements should be based on
historical cost rather than market value.
(c) A balance sheet should classify cash to
distinguish between cash on hand, petty cash
fund, cash in bank and cash equivalent.
(d) Offsetting of receivables and payable balances
with the same person is allowed if a right of
offset exists or if separate settlement of those
balances is expected.
43. Which of the following statements is correct about
the principles of statement presentation?
(a) Financial statements are prepared on a
liquidating concern with appropriate disclosure.
(b) Technically, offsetting applies to reporting of
assets net of valuation.
(c) An enterprise should prepare its financial
statements, except for cash flow information,
under the accrual basis of accounting.
(d) The financial statements should present fairly
only the financial position and performance of
an enterprise because, anyway, the cash flows
are not very significant in making decisions.
44. The overall principles of statement presentation
include (choose the incorrect one):
(a) The financial statements should present fairly
the financial position, performance and cash
flows of the enterprise.
(b) Management should select and apply accounting
policies that are in conformity with ASC
standards.
(c) An enterprise should prepare its financial
statements in accordance with the cash basis of
accounting.
(d) Financial statements should be prepared on a
going concern basis.
45. Interim financial statements are usually made for a
period of:
(a) one month
(c) six months
(b) three months
(d) twelve months
46. Financial statements must be prepared:
(a) monthly (c) semi-annually
(b) quarterly (d) yearly
47. Technically, offsetting in financial statements is
accomplished when:
(a) the allowance for doubtful accounts is deducted
from accounts receivable.
(b) the accumulated depreciation is deducted from
property, plant and equipment.
(c) the total liabilities are deducted from total assets
to arrive at net assets.
(d) gains or losses from disposal of noncurrent
assets are reported by deducting from the
proceeds the carrying amount of the assets and
the relating selling cost.
48. These portray the financial effects of transactions
and other events by grouping them into broad
classes according to their economic characteristics.
(a) financial reports (c) interim statements
(b) financial statements (d) audit reports
49. The basic components of the financial statements do
not include:
(a) balance sheet (c) statement of cash flows
(b) income statement (d) statement of cost of goods
sold
50. The basic components of financial statements
include (choose the incorrect one):
(a) statement of changes in equity (c) statement of
retained earnings
(b) statement of recognized gains and losses
(d) cash flow statement
51. The purpose of accounting is:
(a) to provide comprehensive financial information
about a business or other economic entity.
(b) to provide comprehensive reports on the debits
and credits.
(c) to interpret the results of operations of a
business entity.
(d) to classify the business transactions of a
business entity.
52. The principles, which constitute the ground rules for
financial reporting, are termed as generally accepted
accounting principles. To qualify as generally
accepted, an accounting principle:
(a) must guide corporate managers in the
preparation of financial statements which should
be understood by widely scattered stockholders.
(b) must guide corporate managers in the
preparation of financial statements which will be
used in making collective bargaining agreements
with trade unions.
 (c) must guide entrepreneurs in the choice of
investments.
(d) must receive substantial authoritative support
from the public and the members of the
profession.
53. The opinions and pronouncements of the ASC of
the PICPA provide the highest authoritative
pronouncements on accounting principles. The
authority of these opinions rests upon their:
(a) rules and regulations of the SEC
(c) integrity of the board
(b) management and their internal accounting staff.
(d) opinions of authors.
54. The basic assumptions or fundamental propositions
concerning the economic, political and sociological
environment in which accounting must operate are
called:
(a) accounting postulates
(c) accounting theories
(b) accounting principles
(d) accounting opinions
55. In accounting, those standards and practices that
have won acceptance because of their logic and
proven usefulness are referred to as:
(a) accounting dogmas
(c) accounting procedures
(b) accounting principles
(d) accounting theories
56. An accounting entity is created whenever there is a
need to understand the economic and financial
activities of:
(a) an economic unit
(c) a partnership
(b) a financial unit
(d) a single proprietorship
57. Strict adherence to the entity concept would not
allow:
(a) the use of the account form of the balance
sheet.
(b) the use of replacement cost as a basis of
valuation on the financial statements of
branches.
(c) the capitalization of certain construction costs
subsidiary companies.
(d) a parent company to take up in its books its
proportionate share in its subsidiarys profits and
losses.
58. Which of the following is the primary elements that
distinguishes accounting for corporations from
accounting for legal forms of business (such as
partnership)?
(a) The entity theory relates primarily to the other
forms of business organization.
(b) The corporation draws a sharper distinction in
accounting for sources of capital.
(c) In a corporation, retained earnings may be
reduced only by the declaration of dividends.
(d) Generally accepted accounting principles apply
to corporations but have relatively little
applicability to other forms of business
organizations.
59. The accounting period convention regards the life of
the entity as consisting of:
(a) a chain of one-year segments
(c) the remaining corporate life of the business
(b) the entire life of the venture
(d) the nature life of the owner(s)
60. This is an assumption by accountants that a
business will continue to operate indefinitely unless
specific evidences to the contrary exist, as for
example, an impending bankruptcy.
(a) matching principle (c) cost principle
(b) going concern principle (d) objectivity principle
61. In analyzing a companys financial statements,
which financial statement would a potential investor
primarily use to assess the companys profitability?
(a) balance sheet (c) statement of retained
earnings
(b) income statement (d) cash flow statement
62. As a minimum, information to be presented on the
face of the income statement are as follows, except:
(a) extraordinary items (c) net income or loss
for the period
(b) provisions (d) finance costs
63. This capital concept considers the all price changes
affecting assets and liabilities in the measurement of
net income. Accordingly, capital is equal to the net
assets of the enterprise valued at current cost,
rather than historical cost.
(a) physical capital (c) capital maintenance
approach
(b) financial capital (d) net assets approach
64. This method is simple to apply in many smaller
enterprises. Expenses are aggregated in the income
statement such as depreciation, purchases of
 materials, transportation costs, wages and salaries, 70. The net income or loss for the period comprises the
and advertising costs. following components, each of which should be
(a) functional analysis disclosed on the face of the income statement:
(c) cost of sales method I. Income or loss from ordinary activities
(b) nature of expense analysis II. Extraordinary items
(d) matching principles method IV. Fundamental errors

65. These are income or expenses that arise from
events or transactions that are clearly distinct from
the ordinary activities of the enterprise and
therefore are not expected to recur frequently or
regularly.
(a) extraordinary items
(c) changes in accounting estimates
(b) ordinary items
(d) changes in accounting policies
66. A transaction that is material in amount, unusual in
nature, but not infrequent in occurrence, should be
presented separately as:
(a) component of income from continuing
operations, but not net of applicable income tax.
(b) component of income from continuing
operations, net of applicable income tax.
(c) extraordinary item, net of applicable income tax.
(d) prior period adjustment, but not net of
applicable income tax.
67. The amounts of revenues, expenses and net income
or loss from ordinary activities attributable to a
discontinuing operation and the related income tax
expense are shown:
(a) as extraordinary items.
(b) as part of the continuing operation.
(c) separately in juxtaposition with the continuing
operation.
(d) as gain or loss from discontinuing operation.
(a) I and II
(b) I and III
(c) II and III
(d) I, II and III
71. A consideration in determining the useful life of an
intangible asset is not the:
(a) legal, regulatory or contractual provision
(b) initial acquisition
(c) expected action of competitors
(d) effect of obsolescence, demand, competition and
other economic factor
72. Indicate which one of these statements is true.
(a) Since intangible assets lack physical substance,
they need to be disclosed only in the notes to
the financial statements.
(b) Goodwill should be reported as a contra account
in the stockholders equity section.
(c) Totals of major classes of assets can be shown
in the balance sheet, with asset details disclosed
in the notes to the financial statements.
(d) Intangible assets are typically combined with
plant assets and natural resources and then
shown in property, plant and equipment section.

73. If a company reports goodwill as an intangible asset

68. These are errors discovered in the current period on its books, what is the one thing you know with
that such significance that the financial statements certainty?
of one or more prior periods can no longer be (a) The company is a valuable company worth
considered to have been reliable at the date of their investing in.
issue. (b) The company has a well-established brand
I.Fundamental errors name.
II.Prior period adjustments (c) The company purchased another company.
(a) I (b) II (d) The goodwill will generate a lot of positive
(c) I, II (d) not given business for the company for many years to
come.
69. These are specific principles, bases, conventions,
rules and practices adopted by an enterprise in
preparing and presenting financial statements.
(a) accounting principles (c)accounting estimates 74. Which is not an intangible asset?
(b) accounting assumptions (d) accounting policies (a) manufacturing licenses (c) secret processes and
formulaes
(b) noncompetition agreement (d) organizational
costs
75. Which is not unidentifiable intangible asset?
(a) patent
(c) copyright
(b) franchise
(d) goodwill
76. If the pattern in which the economic benefits from
the asset are consumed cannot be predicted reliably,
the method of amortization for an intangible asset
should be:
(a) straight line
(c) declining balance
(b) output method
(d) sum of years digit
77. Intangible assets should be carried (benchmark
treatment):
(a) gross cost
(b) fair value on balance sheet date
(c) revalued amount minus accumulated
amortization and accumulated impairment losses
(d) cost minus accumulated impairment losses and
accumulated amortization
78. Which of the following is not considered in
estimating the useful life of intangible assets?
(a) expected usage of the asset by the enterprise
(b) stability of the industry in which the intangible
asset operates
(c) salvage value of the asset
(d) level of maintenance expenditure required to
obtain the future economic benefit from the
asset
79. The cost of purchasing patent rights for a product
that might otherwise have seriously competed with
the purchasers patented product 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 purchasers product.
(d) amortized over the remaining useful life of the
patent for the product whose market would
have been impaired by competition from the
newly patented product.
80. A purchased patent has a remaining legal life of 15
years. It should be:
(a) expensed in the year of acquisition.
(b) amortized over 15 years regardless of the useful
life.
(c) amortized over its useful life if less than 15
years.
(d) amortized over 20 years.
81. The test of marketability must be met before
securities owned can be properly classified as:
(a) long-term investments. (c) current assets.
(b) debentures. (d) treasury stock.
82. A marketable equity security must have a ready
market in order to be classified as current and:
(a) be available to management for use in short run
operations.
(b) be traded on a recognized national exchange.
(c) have a current market value in excess of original
cost.
(d) have been owned less than one year.
83. When the market value of a companys current
marketable securities portfolio is lower than its cost,
the difference should be:
(a) accounted for as a liability.
(b) disclosed and described in footnote to the
financial statements but not accounted for.
(c) accounted for as a valuation allowance,
deducted from the asset to which it relates.
(d) accounted for separately in the shareholders
equity section of the balance sheet.
84. A security in a current marketable securities portfolio
is transferred to a noncurrent marketable securities
portfolio. The security should be transferred
between the corresponding portfolios at:
(a) the book value at date of transfer if higher than
the market value at date of transfer.
(b) the market value at date of transfer, regardless
of its cost.
(c) its cost, regardless of the market value at date
of transfer.
(d) the lower of its cost or market value at date of
transfer.
85. Cash dividends are usually declared on one date and
payable on another subsequent date to stockholders
of record on some other intermediate date. At
which of these dates has the investor-stockholders
theoretically realized income from the dividends?
(a) the date the dividend is declared
(b) the date of record
(c) the date the dividend check is mailed by the
corporation
(d) the date the dividend check is received by the
stockholder
86. The equity method of accounting for an investment
in the common stock of another company should be
used when the investment:
(a) is composed of common stock and it is the
investors intent to vote the common stock.
 (b) ensures a source of supply such as raw
materials.
(c) enables the investor to exercise significant
influence over the investee.
(d) is obtained by an exchange of stock for stock.
87. When an investor uses the equity method to account
for investments in common stock, the equity in the
earnings of the investee reported on the investors
income statement will be affected by which of the
following?
Cash dividends from investee Goodwill
amortization related to purchase
(a) No Yes
(b) No No
(c) Yes No
(d) Yes Yes
88. How should a gain from the sale of treasury stock be
reflected on the financial statements if the cost
method of recording treasury stock transactions is in
use?
(a) as an ordinary revenue, shown on the earnings
statement
(b) as paid in capital from treasury stock
transactions
(c) as an increase in the equity for common stock
(d) as an addition to retained earnings
89. Which of the following best describes a possible
result of treasury stock transactions of a
corporation?
(a) may directly decrease but not increase retained
earnings
(b) may affect stockholders equity if the cost
method is used instead of the par value method
(c) may increase but not decrease reported net
earnings
(d) may decrease but not increase reported net
earnings
90. How is an increase in the number of shares as a
result of a stock split recorded?
(a) The transaction may be recorded by a
memorandum notation in the general journal.
(b) The transaction may be recorded by a
memorandum notation in the common stock
account
(c) The transaction may be recorded by a
memorandum notation in the general journal
and in the common stock account.
(d) There will be a transfer from the retained
earnings account to the common stock account,
the amount of which is equal to the par value of
the new number of shares resulting from the
stock split.
91. An item of property, plant and equipment should be
recognized as an asset when:
I. It is probable that future economic
benefits associated with the asset
will flow to the enterprise.
II. The cost of the asset to the enterprise
can be measured reliably.
(a) I only
(c) both I and II
(b) II only
(d) neither I nor II
92. Which statement is false concerning recognition of
property, plant and equipment?
(a) Most spare parts and servicing equipment are
usually carried as inventory and recognized as
expense when consumed.
(b) If the spare parts and servicing equipment can
be used only in connection with an item of
property, plant and equipment and their use is
expected to be irregular, they are accounted for
as property, plant and equipment and are
depreciated over their useful life or useful life of
the related asset, whichever is longer.
(c) An aircraft and its engines need to be treated as
separate depreciable assets if they have
different useful lives.
(d) Property, plant and equipment may be acquired
for safety and environmental reasons in order
for the enterprise to obtain future economic
benefits from its other assets.
93. As a benchmark treatment, subsequent to initial
recognition as an asset, an item of property, plant
and equipment should be carried at:
(a) cost
(b) revalued amount
(c) cost less any accumulated depreciation and any
accumulated impairment loss
(d) revalued amount less any accumulated
depreciation and any accumulated impairment
loss
94. Directly attributable costs include all of the following
except:
(a) cost of site preparation, initial delivery, handling
and installation
(b) professional fees such as for architects and
engineers
(c) estimated cost of dismantling and removing the
asset and restoring the site, to the extent that it
is recognized as a provision
(d) initial operating losses incurred prior to an asset
achieving planned performance
 (a) carrying amount
95. When payment for item of property, plant and (b) net realizable value
equipment is deferred beyond normal credit terms, (c) carrying amount or net realizable value,
the difference between the cash price equivalent whichever is lower
and the total payments should be recognized as: (d) carrying amount or net realizable value,
(a) interest expense of the current year whichever is higher
(b) component of cost of the property, plant and
equipment 100. If a company purchases a lot and building and
(c) interest expense over the credit period subsequently tears down the building and uses the
(d) interest expense over the life of the asset 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
96. The cost of an item of property, plant and building in relation to the combined cost of the
equipment that is acquired in exchange or part lot and building
exchange for a dissimilar item of property, plant and (b) the length of time for which the building was
equipment is measured at the: held prior to its demolition
(a) fair value of the asset given up adjusted by the (c) the contemplated future use of the parking lot
amount of any cash or cash equivalent (d) the intention of the management for the
transferred property when the building was acquired
(b) fair value of the asset received adjusted by the
amount of any cash or cash equivalent
transferred
(c) book value of the asset given up adjusted by the
amount of any cash or cash equivalent
transferred
(d) book value of the asset received adjusted by the
amount of any cash or cash equivalent
transferred

97. The cost of an item of property, plant and

equipment acquired in a nonmonetary exchange for
a similar asset that has a similar use and similar fair
value is measured at the:
(a) carrying amount of the asset given up
(b) fair value of the asset given up
(c) carrying amount of the asset received
(d) fair value of the asset received

98. Gains and losses arising from the retirement or

disposal of an item of property, plant and equipment
should be determined as the difference between:
(a) gross disposal proceeds and the cost of the
asset
(b) gross disposal proceeds and the carrying
amount of the asset
(c) net disposal proceeds and the cost of the asset
(d) net disposal proceeds and the carrying amount
of the asset

99. An item of property, plant and equipment that is

retired from active use and held for disposal is
carried at its: