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1.

The financial statements most frequently provided include all of the following except the
a. Statement of retained earnings.
b. Statement of financial position.
c. Income statement.
d. Statement of cash flows.

2. General-purpose financial statements are the product of


a. Financial accounting.
b. Managerial accounting.
c. Both financial and managerial accounting.
d. Neither financial nor managerial accounting.

3. What is the objective of financial reporting as indicated in the conceptual framework?


a. Provide information that is useful to those making investing and credit decisions.
b. Provide information that is useful to management.
c. Provide information about those investing in the entity.
d. All of the above.

4. The enhancing qualitative characteristics of financial reporting are


a. Comparability, verifiability, timeliness, and understandability.
b. Relevance, reliability, and faithful representation.
c. Cost-benefit and materiality.
d. Completeness, neutrality, and freedom from error.

5. When manufacturing inventory, what is the accounting treatment for abnormal freight-in costs?
a. Charge to expense for the period.
b. Charge to the finished goods inventory.
c. Charge to raw materials inventory.
d. Allocate to raw materials, work in process, and finished goods.

6. Reporting inventory at the lower of cost or net realizable value is a departure from the accounting principle
of
a. Historical cost. c. Conservatism.
b. Consistency. d. Full disclosure.

7. Accrual accounting is used because


a. Cash flows are considered less important.
b. It provides a better indication of ability to generate cash flows than the cash basis.
c. It recognizes revenues when cash is received and expenses when cash is paid.
d. None of the above.

8. An investor shall discontinue the use of the equity method from the date that
I. The investor ceases to have significant influence over an associate
II. The associate operates under severe long-term restrictions that significantly impair its ability to transfer
fund to the investor.
a. I only c. Both I and II
b. II only d. Neither I and II

9. During periods of rising prices, a perpetual inventory system would result in the same peso amount of
ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
FIFO LIFO FIFO LIFO
a. Yes No b. No Yes
c. Yes Yes d. No No

10. The fundamental qualitative characteristic of faithful representation has the components of
a. Completeness, neutrality, and freedom from error.
b. Predictive value and confirmatory value.
c. Comparability, consistency, and confirmatory value.
d. Understandability, predictive value, and reliability.

11. Jel Co., a consignee, paid the freight costs for goods shipped from Dale Co., a consignor. These freight
costs are to be deducted from Jel’s payment to Dale when the consignment goods are sold. Until Jel sells
the goods, the freight costs should be included in Jel’s
a. Cost of goods sold. c. Selling expenses.
b. Freight-out costs. d. Accounts receivable.

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12. What is imputed interest?
a. Interest based on the coupon rate.
b. Interest based on the stated interest rate.
c. Interest based on the average interest rate.
d. Interest based on the implicit interest rate.

13. A company with a smaller number of very expensive inventory items may find which of the following
inventory costing methods most useful?
a. FIFO c. LIFO
b. Average Cost d. Specific Identification

14. Which is not a characteristic of a financial asset held for trading?


a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
b. On initial recognition, it is part of a portfolio of financial assets that are managed together and for which
there is evidence of a recent actual pattern of short-term profit taking.
c. It is a derivative that is not designated as an effective hedging instrument.
d. It is a derivative that is designated as an effective hedging instrument.

15. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the
amount of borrowing costs eligible for capitalization on that asset should be determined as:
a. The actual borrowing costs incurred on that borrowing during the period only.
b. The estimated borrowing costs incurred on that borrowing during the period only.
c. The estimated borrowing costs incurred on that borrowing during the period less any investment
income on the temporary investment of those borrowings.
d. The actual borrowing costs incurred on that borrowing during the period less any investment
income on the temporary investment of those borrowings.

16. Which statement is incorrect concerning the depreciation methods?


a. The straight line method is particularly appropriate where the asset is expected to decline in the
usefulness as function of time and the expected use pattern of the asset is fairly constant over time.
b. The sum of year’s digit method provides for a decreasing depreciation charge
c. First year depreciation under the double declining balance method is computed as: the cost times the
double of the straight line rate.
d. Under the output method, the cost of production is constant.

17. It is a financing arrangement whereby one party informally assigns its accounts receivable to another party
in as collateral for a loan.
a. Hypotication b. Hyphothecation c. Assignment d. Hypothecation

18. If a government entity provides an interest free loan to a company and the company accounts for the grant
using the deferred revenue approach,
a. No interest expense will be recorded.
b. The interest element is amortized to Discount on Notes Payable over the term of the loan.
c. No revenue from the grant will be recoded.
d. The interest element is initially recorded as Discount on Notes Payable.

19. Lynch Printing Company determines that a printing press used in its operations has suffered impairment in
value because of technological changes. An entry to record the impairment should
a. Recognize extra depreciation expense for the period.
b. Include a credit to the equipment account.
c. Not be made if the equipment is still being used.
d. Include a credit to the equipment accumulated depreciation account.

20. When cash is involved in an exchange having no commercial substance.


a. Only gains should be recognized.
b. Only losses should be recognized.
c. A gain or loss is computed by comparing the fair value of the asset received with the fair value of the
asset given up.
d. Gains or losses aren’t recognized in their entirety.

21. Companies often are reluctant to record the cost of intangible assets as assets because:
a. Management and investors generally are more skeptical on the value of assets that cannot be
seen and touched.
b. Outlays for intangible assets typically provide nothing of value to the company.

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c. Intangibles seldom have a useful life of more than one year.
d. Intangible assets are already incorporated in the market price of the stock and to record them
separately would include double counting.

22. What is the authoritative status of the Conceptual Framework?


a. The conceptual framework has the highest level of authority.
b. In the absence of a standard or an interpretation that specifically applies to a transaction, the
applicability of Conceptual Framework shall be considered in the selection and application of an
accounting policy.
c. In the presence of a standard or an interpretation that specifically applies to a transaction, management
shall consider the applicability of the Conceptual Framework in developing and applying an accounting
policy.
d. The Conceptual Framework applies only when the FRSC develops new or revised standards.

23. Which of the following items is not precluded from classification as financial asset at amortized cost?
a. An investment in an unquoted equity instrument.
b. An investment in a quoted equity instrument.
c. An investment in a quoted debt instrument.
d. A quoted derivative financial asset.

24. Which of the following is false?


a. The future value of a deferred annuity is the same as the future value of an annuity not deferred.
b. A deferred annuity is an annuity in which the rents begin after a specified number of periods.
c. To compute the present value of a deferred annuity, we compute the present value of an ordinary
annuity of 1 for the entire period and subtract the present value of the rents which were not received
during the deferral period.
d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is
deferred for six periods.

25. When the accounts receivable of an entity are sold outright to another entity which normally buys accounts
receivable, the accounts receivable have been
a. Factored b. Pledged c. Assigned d. Collateralized

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