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THEORY OF ACCOUNTS 6. Tony owns a store specializing in bags.

Tony has
just completed a transaction that caused a P12,000
1. Which of the following equations is not true? increase in total assets and a P12,000 increase in
(a) Assets + Liabilities = Owners Equity liabilities. This transaction could have been:
(a) the investment in his business of P12,000 in
(b) Assets = Liabilities + Owners Equity cash
(b) the purchase of store equipment, paying P9,000
(c) Assets Owners Equity = Liabilities in cash and issuing a P12,000 note payable for
the balance owed
(d) Assets Liabilities = Owners Equity (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
2. Dave started his own cheese factory on March 16, total assets and total liabilities to increase by
2003. Which of the following transactions would not P12,000
be admissible in Daves accounting system for the
month of March?
(a) On March 18, Dave purchased a cow on account 7. Dean has completed the posting process for the
for P3,000. month of June and has prepared a trial balance in
(b) On March 20, Dave sold his cow to a fast food which the debits total P11,000 and the credits total
restaurant for P5,000. P11,100. Which of the following errors would be the
(c) On March 21, Dave contracted with a local radio most likely candidate in causing the trial balance not
station to run several one-minute advertising to balance by P100?
spots during the month of April. (a) a P100 debit was posted as a P100 credit
(d) All of the above transactions would be (b) a P100 debit was posted as a P100 credit and a
admissible for Daves accounting system in the P100 credit was posted as a P100 debit
month of March. (c) a P50 debit was posted as a P50 credit
(d) the purchase of supplies on account was never
posted to the general ledger
3. Jeff purchased a new register system for his grocery
store, paying P1,000 in cash and issuing a P6,000 8. Increase in net assets may result from:
note payable for the balance owed. As a result of (a) revenues
this transaction, Jeffs balance sheet would reflect: (b) expenses
(a) an increase in assets and an increase in (c) withdrawals
liabilities (d) all of the above are correct
(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 9. Which of the following statements is false?
(a) Increases to owners capital are recorded with
4. The double-entry system of accounting means that credits.
every transaction: (b) Sales are recorded as debits.
(a) is recorded initially on both the journal and the (c) Expenses reduce owners capital.
general ledger (d) Expenses and dividends are both recorded as
(b) increases one general ledger account while debits.
decreasing another
(c) affects at least two general ledger accounts and 10. Zinc Company recorded office supplies as an asset
is recorded by an equal amount of debits and account when the supplies were purchased. Failure
credits to make an adjusting entry reflecting the use of
(d) results in changes in accounts on both sides of these supplies will result in:
the balance sheet (a) an understatement of assets
(b) an overstatement of owners equity
5. Which of the following statements is not correct? (c) an understatement of liabilities
(a) debits may increase assets (d) an understatement of owners equity
(b) credits may increase liabilities
(c) debits may increase liabilities
(d) credits may increase 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.
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
III. Both total assets and stockholders equity would
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
I. Added to Deducted from
II. Added to Added to
20. On January 1, 2001, Style Company signed a 5-year (b) coins and currency
contract enabling it to use a patented manufacturing (d) a customer check dated November 28
process beginning in 2001. A royalty is payable for
each product produced, subject to a minimum 26. If a financial institution has cash funds in a
annual fee. Any royalties in excess of the minimum company, which is in bankruptcy, and the amount
will be paid annually. On the contract date, Style recoverable is estimated to be lower than the face
prepaid a sum equal to two years minimum annual amount, cash should be:
fees. In 2001, only minimum fees were incurred. (a) eliminated from the balance sheet.
The royalty prepayment should be reported in (b) written down to its discounted or present value.
Styles December 31, 2001 financial statement as: (c) written down to estimated realizable value.
I. as expense only. (d) stated at face amount.
II. (c) a current asset and noncurrent asset.
III. a current asset and an expense.
27. If the deposit is legally restricted as to withdrawal,
IV. (d) a noncurrent asset.
the compensating balance related to a long-term
long is shown as:
21. Cash or Cash on Hand and In Banks on the balance (a) cash
sheet may include the following items: (c) long-term investment
(1) Currency or cash items on hand (b) other asset
(2) Deposits in foreign countries which are (d) current liability
subject to foreign exchange restrictions
(3) Short-term placements of excess cash which 28. Each of the following measures strengthens internal
can be preterminated control over cash receipts except:
(4) Postdated checks
(a) the use of a voucher system.
(5) Cash set aside for the acquisition or
construction of noncurrent assets
(b) preparation of a daily listing of all checks
(a) 1, 2 and 3 only (c) 1 and 3 only received through the mail.
(b) 2, 3 and 5 only (d) not given (c) the deposit of cash receipts intact in the bank on
a daily basis.
(d) the use of cash registers.
22. Balances representing cash, accounts receivable,
and payable denominated in other than the local
currency should be translated for consolidation at
the: 29. Which of the following is not a basic characteristic of
(a) historical rate a system of cash control?
(c) forward rate (a) use of a voucher system
(b) spot rate (b) combined responsibility for handling and
(d) current rate recording cash
(c) daily deposit of all cash received
23. The cash balance reported in the balance sheet (d) internal audits at irregular intervals
normally will not include:
(a) small amounts of cash (petty cash) kept on
hand in the office.
(b) checks received from customers and deposited 30. The following statements relate to the petty cash
in the bank. fund. Which statement is true?
(c) money orders. (a) The amount of coins and currency in the petty
(d) temporary investments due in one year. cash fund is the same before the fund is
reimbursed as it is afterwards.
24. Which of the following is not considered cash for (b) Entries to record the replenishment of the
financial reporting purposes? imprest petty cash fund result in debit to various
(a) petty cash funds and change funds expense accounts and a credit to the petty cash
(c) coin, currency and available funds funds.
(b) money order and certified checks
(c) At any time, the sum of the cash in the petty
(d) postdated checks and IOUs
cash fund and the total petty cash vouchers
should equal the amount for which the imprest
petty cash fund was established.
25. Which of the following items in a cash drawer at
November 30 is not cash? (d) Under the imprest petty cash system, it is not
(a) money orders necessary to adjust unreplenished petty cash
(c) a customer check dated December 1 expenses at end of the year.
III. Dividend payments
(a) I, II and III
(c) I only
31. An enterprise should prepare a cash flow statement (b) II and III
and should present it as: (d) I and III
(a) supplementary financial statement.
(b) note to financial statement. 38. In a cash flow statement, if used equipment is sold
(c) supporting schedule for amount appearing as at a gain, the amount shown as a cash flow from
cash and cash equivalent. investing activities equals the carrying amount of the
(d) integral part of the enterprises basic financial equipment:
statements. (a) plus the gain.
(b) plus the gain and less the amount of tax
attributable to the gain.
32. Cash flows in the cash flow statement are: (c) plus both the gain and the amount of tax
(a) inflows of cash and cash equivalents. attributable to the gain.
(b) outflows of cash and cash equivalents. (d) with no addition or subtraction.
(c) inflows and outflows of cash.
(d) inflows and outflows of cash and cash
equivalents. 39. In a cash flow statement, which of the following
would increase reported cash flows from operating
activities using the direct method?
33. Cash receipts from issuing shares and other equity (a) dividends received from investments
instruments are:
(a) cash inflows from investing activities. (b) gain on sale of equipment
(c) cash inflows from financing activities. (c) gain on early retirement of bonds
(b) cash outflows for investing activities. (d) change from straight-line to accelerated
(d) cash outflows for financing activities. depreciation

34. In a cash flow statement, interest payments to

lenders and other creditors should be classified as: 40. ABC Companys accounts receivable decreased from
(a) operating activities. the beginning to the end of the year. In the
(c) lending activities. companys cash flow statement, the cash collected
(b) borrowing activities. from customers would be:
(d) financing activities. (a) sales revenue plus accounts receivable at the
beginning of the year.
35. In a cash flow statement, alternatively interest (b) sales revenue plus the decrease in accounts
received and dividend received may be classified as receivable from beginning to the end of the
cash flow from: year.
(a) operating activities. (c) sales revenue less the decrease in accounts
(c) financing activities. receivable from beginning to the end of the
(b) investing activities. year.
(d) revenue activities. (d) the same as sales revenue.

36. How should a gain from the sale of used equipment

for cash be reported in a cash flow statement using
the indirect method? 41. The following statements relate to the financial
(a) in investment activities as a reduction of the statements. Which is not?
cash inflow from the sale (a) The purpose of financial statements is to
(b) in investment activities as a cash outflow provide information about the financial position,
(c) in operating activities as a deduction from performance and cash flows of an enterprise
income that is useful to management in making
(d) in operating activities as a addition to income economic decisions.
(b) Financial statements do not provide all the
information that users may need to make
37. In a cash flow statement, which of the following economic decisions since they largely portray
items is reported as a cash flow from financing the financial effects of past events and do not
activities? necessarily provide nonfinancial information.
I. Payments to retire mortgage notes (c) Financial statements also show the results of
II. Interest payments on mortgage notes the stewardship of management, or the
accountability of the management for the 46. Financial statements must be prepared:
resources entrusted to it, (a) monthly (c) semi-annually
(d) The management of an enterprise has the (b) quarterly (d) yearly
primary responsibility for the preparation and
presentation of the financial statements of the 47. Technically, offsetting in financial statements is
enterprise. accomplished when:
(a) the allowance for doubtful accounts is deducted
42. The following statements relate to the principles of from accounts receivable.
statement presentation, except: (b) the accumulated depreciation is deducted from
(a) The financial statements should present fairly property, plant and equipment.
the financial position, performance and cash (c) the total liabilities are deducted from total assets
flows of an enterprise. to arrive at net assets.
(b) The financial statements should be based on (d) gains or losses from disposal of noncurrent
historical cost rather than market value. assets are reported by deducting from the
(c) A balance sheet should classify cash to proceeds the carrying amount of the assets and
distinguish between cash on hand, petty cash the relating selling cost.
fund, cash in bank and cash equivalent.
(d) Offsetting of receivables and payable balances 48. These portray the financial effects of transactions
with the same person is allowed if a right of and other events by grouping them into broad
offset exists or if separate settlement of those classes according to their economic characteristics.
balances is expected. (a) financial reports (c) interim statements
(b) financial statements (d) audit reports
43. Which of the following statements is correct about
the principles of statement presentation?
(a) Financial statements are prepared on a 49. The basic components of the financial statements do
liquidating concern with appropriate disclosure. not include:
(b) Technically, offsetting applies to reporting of (a) balance sheet (c) statement of cash flows
assets net of valuation. (b) income statement (d) statement of cost of goods
(c) An enterprise should prepare its financial sold
statements, except for cash flow information,
under the accrual basis of accounting. 50. The basic components of financial statements
(d) The financial statements should present fairly include (choose the incorrect one):
only the financial position and performance of (a) statement of changes in equity (c) statement of
an enterprise because, anyway, the cash flows retained earnings
are not very significant in making decisions. (b) statement of recognized gains and losses
(d) cash flow statement

44. The overall principles of statement presentation 51. The purpose of accounting is:
include (choose the incorrect one): (a) to provide comprehensive financial information
(a) The financial statements should present fairly about a business or other economic entity.
the financial position, performance and cash (b) to provide comprehensive reports on the debits
flows of the enterprise. and credits.
(b) Management should select and apply accounting (c) to interpret the results of operations of a
policies that are in conformity with ASC business entity.
standards. (d) to classify the business transactions of a
(c) An enterprise should prepare its financial business entity.
statements in accordance with the cash basis of
(d) Financial statements should be prepared on a 52. The principles, which constitute the ground rules for
going concern basis. financial reporting, are termed as generally accepted
accounting principles. To qualify as generally
45. Interim financial statements are usually made for a accepted, an accounting principle:
period of: (a) must guide corporate managers in the
(a) one month preparation of financial statements which should
(c) six months be understood by widely scattered stockholders.
(b) three months (b) must guide corporate managers in the
(d) twelve months preparation of financial statements which will be
used in making collective bargaining agreements
with trade unions.
(c) must guide entrepreneurs in the choice of accounting for legal forms of business (such as
investments. partnership)?
(d) must receive substantial authoritative support (a) The entity theory relates primarily to the other
from the public and the members of the forms of business organization.
profession. (b) The corporation draws a sharper distinction in
accounting for sources of capital.
(c) In a corporation, retained earnings may be
53. The opinions and pronouncements of the ASC of reduced only by the declaration of dividends.
the PICPA provide the highest authoritative (d) Generally accepted accounting principles apply
pronouncements on accounting principles. The to corporations but have relatively little
authority of these opinions rests upon their: applicability to other forms of business
(a) rules and regulations of the SEC organizations.
(c) integrity of the board
(b) management and their internal accounting staff.
(d) opinions of authors. 59. The accounting period convention regards the life of
the entity as consisting of:
54. The basic assumptions or fundamental propositions (a) a chain of one-year segments
concerning the economic, political and sociological (c) the remaining corporate life of the business
environment in which accounting must operate are (b) the entire life of the venture
called: (d) the nature life of the owner(s)
(a) accounting postulates
(c) accounting theories
(b) accounting principles 60. This is an assumption by accountants that a
(d) accounting opinions business will continue to operate indefinitely unless
specific evidences to the contrary exist, as for
55. In accounting, those standards and practices that example, an impending bankruptcy.
have won acceptance because of their logic and (a) matching principle (c) cost principle
proven usefulness are referred to as: (b) going concern principle (d) objectivity principle
(a) accounting dogmas
(c) accounting procedures
(b) accounting principles 61. In analyzing a companys financial statements,
(d) accounting theories which financial statement would a potential investor
primarily use to assess the companys profitability?
56. An accounting entity is created whenever there is a (a) balance sheet (c) statement of retained
need to understand the economic and financial earnings
activities of: (b) income statement (d) cash flow statement
(a) an economic unit
(c) a partnership
(b) a financial unit 62. As a minimum, information to be presented on the
(d) a single proprietorship 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
57. Strict adherence to the entity concept would not
(a) the use of the account form of the balance 63. This capital concept considers the all price changes
sheet. affecting assets and liabilities in the measurement of
(b) the use of replacement cost as a basis of net income. Accordingly, capital is equal to the net
valuation on the financial statements of assets of the enterprise valued at current cost,
branches. rather than historical cost.
(c) the capitalization of certain construction costs (a) physical capital (c) capital maintenance
subsidiary companies. approach
(d) a parent company to take up in its books its (b) financial capital (d) net assets approach
proportionate share in its subsidiarys profits and
64. This method is simple to apply in many smaller
58. Which of the following is the primary elements that enterprises. Expenses are aggregated in the income
distinguishes accounting for corporations from 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 (a) I and II
events or transactions that are clearly distinct from (b) I and III
the ordinary activities of the enterprise and (c) II and III
therefore are not expected to recur frequently or (d) I, II and III
(a) extraordinary items 71. A consideration in determining the useful life of an
(c) changes in accounting estimates intangible asset is not the:
(b) ordinary items (a) legal, regulatory or contractual provision
(d) changes in accounting policies (b) initial acquisition
(c) expected action of competitors
66. A transaction that is material in amount, unusual in (d) effect of obsolescence, demand, competition and
nature, but not infrequent in occurrence, should be other economic factor
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 72. Indicate which one of these statements is true.
applicable income tax. (a) Since intangible assets lack physical substance,
they need to be disclosed only in the notes to
67. The amounts of revenues, expenses and net income the financial statements.
or loss from ordinary activities attributable to a (b) Goodwill should be reported as a contra account
discontinuing operation and the related income tax in the stockholders equity section.
expense are shown: (c) Totals of major classes of assets can be shown
(a) as extraordinary items. in the balance sheet, with asset details disclosed
(b) as part of the continuing operation. in the notes to the financial statements.
(c) separately in juxtaposition with the continuing (d) Intangible assets are typically combined with
operation. plant assets and natural resources and then
(d) as gain or loss from discontinuing operation. 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
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
(b) noncompetition agreement (d) organizational
75. Which is not unidentifiable intangible asset?
(a) patent 81. The test of marketability must be met before
(c) copyright securities owned can be properly classified as:
(b) franchise (a) long-term investments. (c) current assets.
(d) goodwill (b) debentures. (d) treasury stock.

76. If the pattern in which the economic benefits from

the asset are consumed cannot be predicted reliably, 82. A marketable equity security must have a ready
the method of amortization for an intangible asset market in order to be classified as current and:
should be: (a) be available to management for use in short run
(a) straight line operations.
(c) declining balance (b) be traded on a recognized national exchange.
(b) output method (c) have a current market value in excess of original
(d) sum of years digit cost.
(d) have been owned less than one year.

77. Intangible assets should be carried (benchmark

treatment): 83. When the market value of a companys current
(a) gross cost marketable securities portfolio is lower than its cost,
the difference should be:
(b) fair value on balance sheet date (a) accounted for as a liability.
(c) revalued amount minus accumulated (b) disclosed and described in footnote to the
amortization and accumulated impairment losses financial statements but not accounted for.
(d) cost minus accumulated impairment losses and (c) accounted for as a valuation allowance,
accumulated amortization deducted from the asset to which it relates.
(d) accounted for separately in the shareholders
78. Which of the following is not considered in equity section of the balance sheet.
estimating the useful life of intangible assets?
(a) expected usage of the asset by the enterprise 84. A security in a current marketable securities portfolio
(b) stability of the industry in which the intangible is transferred to a noncurrent marketable securities
asset operates portfolio. The security should be transferred
(c) salvage value of the asset between the corresponding portfolios at:
(d) level of maintenance expenditure required to (a) the book value at date of transfer if higher than
obtain the future economic benefit from the the market value at date of transfer.
asset (b) the market value at date of transfer, regardless
of its cost.
79. The cost of purchasing patent rights for a product (c) its cost, regardless of the market value at date
that might otherwise have seriously competed with of transfer.
the purchasers patented product should be: (d) the lower of its cost or market value at date of
(a) charged off in the current period. transfer.
(b) amortized over the legal life of the purchased
patent. 85. Cash dividends are usually declared on one date and
(c) added to factory overhead and allocated to payable on another subsequent date to stockholders
production of the purchasers product. of record on some other intermediate date. At
(d) amortized over the remaining useful life of the which of these dates has the investor-stockholders
patent for the product whose market would theoretically realized income from the dividends?
have been impaired by competition from the (a) the date the dividend is declared
newly patented product. (b) the date of record
(c) the date the dividend check is mailed by the
80. A purchased patent has a remaining legal life of 15 corporation
years. It should be: (d) the date the dividend check is received by the
(a) expensed in the year of acquisition. stockholder
(b) amortized over 15 years regardless of the useful
life. 86. The equity method of accounting for an investment
(c) amortized over its useful life if less than 15 in the common stock of another company should be
years. used when the investment:
(d) amortized over 20 years. (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 stock split.
(c) enables the investor to exercise significant
influence over the investee. 91. An item of property, plant and equipment should be
(d) is obtained by an exchange of stock for stock. recognized as an asset when:
I. It is probable that future economic
benefits associated with the asset
87. When an investor uses the equity method to account will flow to the enterprise.
for investments in common stock, the equity in the II. The cost of the asset to the enterprise
earnings of the investee reported on the investors can be measured reliably.
income statement will be affected by which of the (a) I only
following? (c) both I and II
Cash dividends from investee Goodwill (b) II only
amortization related to purchase (d) neither I nor II
(a) No Yes
(b) No No 92. Which statement is false concerning recognition of
(c) Yes No property, plant and equipment?
(d) Yes Yes (a) Most spare parts and servicing equipment are
usually carried as inventory and recognized as
expense when consumed.
88. How should a gain from the sale of treasury stock be (b) If the spare parts and servicing equipment can
reflected on the financial statements if the cost be used only in connection with an item of
method of recording treasury stock transactions is in property, plant and equipment and their use is
use? expected to be irregular, they are accounted for
(a) as an ordinary revenue, shown on the earnings as property, plant and equipment and are
statement depreciated over their useful life or useful life of
(b) as paid in capital from treasury stock the related asset, whichever is longer.
transactions (c) An aircraft and its engines need to be treated as
(c) as an increase in the equity for common stock separate depreciable assets if they have
(d) as an addition to retained earnings different useful lives.
(d) Property, plant and equipment may be acquired
for safety and environmental reasons in order
89. Which of the following best describes a possible
for the enterprise to obtain future economic
result of treasury stock transactions of a
benefits from its other assets.
(a) may directly decrease but not increase retained
93. As a benchmark treatment, subsequent to initial
recognition as an asset, an item of property, plant
(b) may affect stockholders equity if the cost
and equipment should be carried at:
method is used instead of the par value method
(c) may increase but not decrease reported net
(a) cost
earnings (b) revalued amount
(d) may decrease but not increase reported net (c) cost less any accumulated depreciation and any
earnings accumulated impairment loss
(d) revalued amount less any accumulated
90. How is an increase in the number of shares as a depreciation and any accumulated impairment
result of a stock split recorded? loss
(a) The transaction may be recorded by a
memorandum notation in the general journal.
(b) The transaction may be recorded by a 94. Directly attributable costs include all of the following
memorandum notation in the common stock except:
account (a) cost of site preparation, initial delivery, handling
(c) The transaction may be recorded by a and installation
memorandum notation in the general journal (b) professional fees such as for architects and
and in the common stock account. engineers
(d) There will be a transfer from the retained (c) estimated cost of dismantling and removing the
earnings account to the common stock account, asset and restoring the site, to the extent that it
the amount of which is equal to the par value of is recognized as a provision
the new number of shares resulting from the (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
(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
(c) book value of the asset given up adjusted by the
amount of any cash or cash equivalent
(d) book value of the asset received adjusted by the
amount of any cash or cash equivalent

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
(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: