Since 1977

THEORY OF ACCOUNTS
FINALS
1.

OCAMPO/CABARLES
MAY 2015

Which is correct concerning the FRSC?

a. The FRSC replaced the ASPC as the standard
setting body in the Philippines
b. The FRSC is composed of 15 members with a
Chairman including 10 representatives from PICPA.
c. The Chairman and members of the FRSC shall have
a term of 3 years renewable for another term.
d. Any member of the ASC shall be disqualified from
being appointed to the FRSC

2.

Due process for projects of FRSC normally includes the

following, except
a. Consideration of pronouncement of the IASB.
b. Formation of a task force, when deemed
necessary, to give advice to the FRSC.
c. Issuing for comment an exposure draft approved
by at least eight members of the Council; comment
period will be at least sixty days.
d. Approval of a standard or an interpretation by all
of the Council members.

3.

Which of the following statements is not an objective

of financial reporting?
a. Provide information that is useful in investment
and credit decisions
b. Provide information about enterprise resources,
claims to those resources, and changes in them
c. Provide information on the liquidation value of an
enterprise
d. Provide information to assess performance

4.

The role of the Philippine Interpretations Committee

(PIC) is principally to issue implementation guidance
on PFRSs.
Interpretations of PFRSs are intended to give
authoritative guidance on issues that are likely to
receive divergent or unacceptable treatment, in the
absence of such guidance.
a. True, True
b. True, False
c. False, False
d. False, True

5.

6.

Which statement is correct regarding the timing of

application of PFRS?
a. PFRSs apply six months from a date of publication
in the Official Gazette or in newspaper of general
circulation.
b. New or revised PFRSs set out transitional
provisions to be applied on their initial application.
c. Both a and b.
d. Neither a nor b.
Which statement is correct regarding the Philippine
Institute of Certified Public Accountants or PICPA?
a. The PICPA is the accounting standard setting body
in the Philippines.
b. PICPA is a registered stock corporation with
Geographical divisions, regions and chapters all
over the country.
c. Geographical Areas, Regions and Chapters have
juridical personality separate and distinct from
each other or from the national office.
d. Each region, sector and chapter has its own

Page 1 of 8

respective governing council.

7.

Which of the following is PICPA Geographical Area?

a. Middle East
c. Bicol
b. North America
d. Metro Manila

8.

Which of the following is not PICPA Region?

a. Metro Manila
c. Northern Mindanao
b. Southern Tagalog
d. Southern Visayas

9.

Which is incorrect regarding the IASB?

a. The objective is to develop a single set of high
quality, understandable, enforceable and globally
accepted financial reporting standards based upon
clearly articulated principles.
b. Composed of 16 Board Members, of whom one is
appointed as Chair and up to two as Vice-Chairs.
c. Up to five members may be part-time members.
d. IASB members are appointed for an initial term of
five years, renewable for a further three years. The
Chair and Vice-Chairs may serve second terms of
five years, subject to an overall maximum term of
ten years.

10. In the Conceptual Framework, an enhancing qualitative

characteristic is
a. Predictive value
c. Timeliness
b. Free from error
d. Confirmatory value
11. The information provided in financial statements
should be presented in a way that makes it
comprehensible by users who have a reasonable
knowledge of business and economic activities and
accounting and a willingness to study the information
with reasonable diligence describes which qualitative
characteristic?
a.
Comparability
b.
Relevance
c.
Reliability
d.
Understandability
12. Which of the following qualitative characteristics is
(are) still included in the updated Conceptual
Framework?
a.
Substance over form
b.
Prudence
c.
Verifiability
d.
All of the above
13. Which ONE of the following terms best describes
information in financial statements that is neutral?
a. Understandable
c. Relevant
b. Reliable
d. Unbiased
14. An obligation that is contingent on the occurrence of a
future event should be reported in the balance sheet
as a liability if
a. The future event is likely to occur
b. The amount of the obligation can be reasonably
estimated
c. The occurrence of the future event is at least
reasonably possible and the amount is known
d. The occurrence of the future event is probable and
the amount can be reasonably estimated

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

15. Increases in equity (net assets)
incidental transactions of an entity
a. Revenues
b. Comprehensive income

from peripheral or
are called:
c. Dividends
d. Gains

16. Under this concept, capital is regarded as the net

assets or equity of the entity
a. Financial concept
b. All-financial resources concept
c. Physical concept
d. All-inclusive concept
17. Under this concept, capital is regarded
productive capacity of the enterprise
a. Financial concept
b. All-financial resources concept
c. Physical concept
d. All-inclusive concept

as

the

18. Under a financial capital maintenance concept, a profit

is earned if
a. The financial amount of the net assets at the end
exceeds the financial amount of the net assets at
the beginning.
b. The financial amount of the net assets at the
beginning exceeds the financial amount of the
assets at the end.
c. The financial amount of the net assets at the end
exceeds the financial amount of the net assets at
the beginning after excluding any distribution and
contribution from owners.
d. The financial amount of net assets at the beginning
exceeds the financial amount of net assets at the
end
after
excluding
any
distribution
and
contribution from owners.
19. Which ONE of the following statements best describes
the term 'financial position'?
A The net income and expenses of an entity
B The net of financial assets less liabilities of an entity
C The potential to contribute to the flow of cash and
cash equivalents to the entity
D The assets, liabilities and equity of an entity
20. Which ONE of the following statements best describes
the term 'liability'?
A An excess of equity over current assets
B Resources to meet financial commitments as they
fall due
C The residual interest in the assets of the entity
after deducting all its liabilities
D A present obligation of the entity arising from past
events
21. Which ONE of the following terms best describes assets
recorded at the amount that represents the immediate
purchase cost of an equivalent asset?
a. Historical cost
c. Present value
b. Realizable value
d. Current cost
22. Which ONE of the following terms best describes the
amount of cash or cash equivalents that could currently
be obtained by selling an asset in an orderly disposal?
a. Fair value
c. Residual value
b. Realizable value
d. Value in use
23. According to PAS18 Revenue, which of the following is a
criterion that must be satisfied before revenue from the
sale of goods should be recognized in profit or loss?
a. Revenue is already collected
b. Managerial control over the goods sold has been
relinquished
c. Ownership has been transferred to the buyer

Page 2 of 8

d.

The outcome of the transaction is certain

24. According to PAS18 Revenue, which of the following

condition applies to the recognition of revenue for
transactions involving the rendering of services?
a. The amount of revenue cannot be measured reliably
b. The entity retains neither continuing managerial
involvement nor effective control over the
transaction
c. The significant risks and rewards of ownership have
been transferred to the buyer
d. The costs incurred for the transaction and the costs
to complete the transaction can be measured
reliably
25. Company XYZ Inc. manufacturers and sells standard
machinery. One of the conditions in the sale contract
is that installment of machinery will be undertaken by
XYZ Inc. During December of the current year, XYZ
received a special one-time contract from ABC Ltd. to
manufacturer, install, and maintain customized
machinery.
It is the first time XYZ Inc. will be
producing this kind of machinery, and it is expecting
numerous changes that would need to be made to the
machine after the installation is completed, which one
period is described in the contract of sale as the
"maintenance period." The total cost of making the
changes during the maintenance period cannot be
reasonably estimated at the time of the installation.
When should the revenue from sale of this special
machine be recognized?
a. When the machinery is produced
b. When the machinery is produced and delivered
c. When the installation is complete
d. When the maintenance period as per the contract
of sale expires.
26. An entity is acting as a principal when it has exposure
to the significant risks and rewards associated with the
sale of goods or the rendering of services. Which of the
following features indicates that an entity is not acting
as a principal ?
a. The entity has the primary responsibility for
providing the goods or services desired by the
goods or services desired by the customer or for
fulfilling the order, for example by being
responsible for the acceptability of the products or
services ordered or purchased by the customer.
b. The entity has inventory risk before or after the
customer order, during shipping or on return.
c. The entity has discretion in establishing prices
directly or indirectly, such as by providing
additional goods or services.
d. The entity does not have the credit risk.
27. One of the conditions that must be satisfied in order to
recognize revenue in a transaction involving the
rendering of services is that the stage of completion of
the transaction at the end of the reporting period can be
measured reliably. Which of the following methods for
determining the stage of completion of a contract
involving the rendering of services is (are) specifically
referred to in PAS18 Revenue, as being acceptable?
a. Costs incurred to date as a percentage of the
estimated total costs of the transaction
b. Advances received to date as a percentage of the
total amount receivable
c. Revenue to date divided by total contract revenue
d. All of the above.

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

28. Computers For You is a retailer specializing in selling
computers and related equipment. Which of the
following would not be reported in the merchandise
inventory account reported on the statement of
financial position for Computers For You at December
31?
a. Computer purchased for resale during November.
b. Shelving materials purchased during December.
c. Freight costs related to the computers purchased
in November.
d. All of the choices are included in the merchandise
inventory account at December 31.
29. How is a significant amount of consignment inventory
reported in the statement of financial position?
a. The inventory is reported separately on the
consignor's statement of financial position.
b. The inventory is combined with other inventory on
the consignor's statement of financial position.
c. The inventory is reported separately on the
consignee's statement of financial position.
d. The inventory is combined with other inventory on
the consignee's statement of financial position.
30. Under PAS 2 Inventories, items of inventory that are
used by business enterprise as components in a selfconstructed property asset are required to be:
a. Aggregated into the cost of goods sold expense in
the period in which the items are used.
b. Expensed directly into equity in the period in which
the items are used.
c. Capitalized and depreciated.
d. Added to a property construction provision
account.
31. If a company uses the periodic inventory system, what
is the impact on the current ratio of including goods in
transit f.o.b. shipping point in purchases, but not
ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on
the current ratio.
32. When inventory is misstated, its presentation lacks?
a. Relevance.
b. Faithful representation.
c. Comparability.
d. All of the choices are correct.
33. Costs which are inventoriable include all of the
following except
a. Costs that are directly connected with the bringing
of goods to the place of business of the buyer.
b. Costs that are directly connected with the
converting of goods to a salable condition.
c. Buying costs of a purchasing department.
d. Selling costs of a sales department.
34. Entity A had a plantation forest that is likely to be
harvested and sold in 30 years. The income should be
accounted for in the following way:
a. No income should be reported until first harvest
and sale in 30 years
b. Income should be measured annually and reported
using a fair value approach that recognizes and
measures biological growth
c. The eventual sale proceeds should be estimated
and matched to the profit and loss account over
the 30-year period

Page 3 of 8

d.

The plantation forest should be valued every 5

years and the increase in value should be shown in
the statement of recognized gains and losses

35. A gain or loss arising on the initial recognition of a

biological asset and from a change in the fair value
less estimated costs to sell of a biological asset should
be included in
a. The profit or loss for the period.
b. The statement of recognized gains and losses.
c. A separate revaluation reserve.
d. A capital reserve within equity.
36. In accordance with PIC Q&A 20012-2, 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 length of time for which the building was held
prior to its demolition.
b. The contemplated future use of the parking lot.
c. The intention of management for the property
when the building was acquired.
d. None of the above.
37. The cost of a non-monetary asset acquired in
exchange for another non-monetary asset and the
exchange has commercial substance is usually
recorded at
a. the fair value of the asset given up, and a gain or
loss is recognized.
b. the fair value of the asset given up, and a gain but
not a loss may be recognized.
c. the fair value of the asset received if it is equally
reliable as the fair value of the asset given up.
d. either the fair value of the asset given up or the
asset received, whichever one results in the largest
gain (smallest loss) to the company.
38. Ringler Corporation exchanges one plant asset for a
similar plant asset and gives cash in the exchange. The
exchange is not expected to cause a material change
in the future cash flows for either entity. If a gain on
the disposal of the old asset is indicated, the gain will
a. be reported in the Other income and expense
section of the income statement.
b. effectively reduce the amount to be recorded as
the cost of the new asset.
c. effectively increase the amount to be recorded as
the cost of the new asset.
d. be credited directly to the retained earnings
account.
39. When a closely held corporation issues preference
shares for land, the land should be recorded at the
a. total par value of the shares issued.
b. total book value of the shares issued.
c. total liquidating value of the shares issued.
d. fair value of the land.
40. Accounting recognition should be given to the gain
realized on a non-monetary exchange of plant assets
except when the exchange has
a. no commercial substance and additional cash is
paid.
b. commercial substance and additional cash is
received.
c. commercial substance and additional cash is paid.
d. All of these cause recognition of a gain.
41. For a non-monetary exchange of plant
accounting recognition should not be given to

www.prtc.com.ph

assets,

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

a.
b.
c.
d.

a loss when the exchange has no

substance.
a gain when the exchange has
substance.
a gain when the exchange has no
substance.
a loss when the exchange has
substance.

commercial
commercial
commercial
commercial

42. Which of the following is not a capital expenditure?

a. Repairs that maintain an asset in operating
condition
b. An addition
c. A betterment
d. A replacement
43. In accounting for plant assets, which of the following
outlays made subsequent to acquisition should be fully
expensed in the period the expenditure is made?
a. Expenditure made to increase the efficiency or
effectiveness of an existing asset
b. Expenditure made to extend the useful life of an
existing asset beyond the time frame originally
anticipated
c. Expenditure made to maintain an existing asset so
that it can function in the manner intended
d. Expenditure made to add new asset services
44. An expenditure made in connection with a machine
being used by a company should be
a. expensed immediately if it merely extends the
useful life but does not improve the quality.
b. expensed immediately if it merely improves the
quality but does not extend the useful life.
c. capitalized if it maintains the machine in normal
operating condition.
d. capitalized if it increases the quantity of units
produced by the machine.
45. The sale of a depreciable asset resulting in a loss
indicates that the proceeds from the sale were
a. less than current fair value.
b. greater than cost.
c. greater than book value.
d. less than book value.
46. Which of the following statements about involuntary
conversions is false?
a. An involuntary conversion may result from
condemnation or fire.
b. The gain or loss from an involuntary conversion is
reported in other income and expense on the
income statement.
c. The gain or loss from an involuntary conversion
should not be recognized when the company
reinvests in replacement assets.
d. All of these.
47. Which ONE of the following statements best describes
the carrying amount of an asset?
a. The cost (or an amount substituted for cost) of the
asset less its residual value
b. The amount at which the asset is recognised in the
statement of financial position after deducting any
accumulated
depreciation
and
accumulated
impairment losses
c. The higher of the asset's net selling price and its
value in use
d. The fair value of the asset at the date of a
revaluation less any subsequent accumulated
impairment losses

Page 4 of 8

48. Which ONE of the following statements best describes

'residual value'?
a. The estimated net amount currently obtainable if the
asset were at the end of its useful life
b. The present value of estimated future cash flows
expected to arise from the continuing use of the
asset and from its ultimate disposal
c. The amount at which the asset could be exchanged
between knowledgeable, willing parties in an arm's
length transaction
d. The amount of cash or cash equivalents that could
currently be obtained by selling the asset in an
orderly disposal
49. Which of the following is true of depreciation
accounting.
a. It is not a matter of valuation.
b. It is part of the matching of revenues and
expenses.
c. It retains funds by reducing income taxes and
dividends.
d. All of these.
50. Which of the following principles best describes the
conceptual rationale for the methods of matching
depreciation expense with revenues?
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
51. 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.
52. 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 residual value and service life
requires the use of residual value.
c. physical life is always longer than service life.
d. service life refers to the length of time an asset is
of use to its original owner, while physical life
refers to how long the asset will be used by all
owners.
53. Which of the following is not one of the basic questions
that must be answered before the amount of
depreciation charge can be computed?
a. What depreciable base is to be used for the asset?
b. What is the asset's useful life?
c. What method of cost apportionment is best for this
asset?
d. What product or service is the asset related to?

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

54. Which of the following is a realistic assumption of the
straight-line method of depreciation?
a. The asset's economic usefulness is the same each
year.
b. The repair and maintenance expense is essentially
the same each period.
c. The rate of return analysis is enhanced using the
straight-line method.
d. Depreciation is a function of time rather than a
function of usage.

a.

55. A graph is set up with "yearly depreciation expense" on

the vertical axis and "time" on the horizontal axis.
Assuming linear relationships, how would the graphs
for
straight-line
and
sum-of-the-years'-digits
depreciation, respectively, be drawn?
a. Vertically and sloping down to the right
b. Vertically and sloping up to the right
c. Horizontally and sloping down to the right
d. Horizontally and sloping up to the right

d.

56. When an entity allocates depreciation to the separate

parts of an asset and each part is accounted for
separately, the entity is using which of the following
approaches to depreciation?
a. Periodic depreciation;
b. Segment depreciation;
c. Replacement cost depreciation;
d. Components depreciation.
57. In relation to the financial statements, PAS 16
Property, Plant and Equipment, requires that the
following disclosures be made for each class of asset:
I.
The carrying amount at the beginning and end of
the reporting period.
II. Accumulated depreciation.
III. Total additions and disposals.
IV. The total of impairment losses.
V. Fair value at reporting date.
a.
b.

I, III and IV only;

I, II III and IV only;

c. I, II, IV and V only;

d. II, III, IV and V only.

58. Which of these disclosures is not required by PAS 20?

a. The accounting policy adopted for government
grants, including methods of presentation adopted
in the financial statements.
b. Unfulfilled conditions and other contingencies
attached to the government assistance.
c. The names of the government agencies that gave
the grants along with the dates of sanction of the
grants by these government agencies and the
dates when cash was received in the case of
monetary grants.
d. The nature and extent of government grants
recognized in the financial statements and an
indication of other forms of government assistance
from which the entity has directly benefited.
59. In accordance with PAS 41, an unconditional
government grant related to a biological asset that has
been measured at fair value less costs to sell should be
recognized as
a. Income when the grant becomes receivable.
b. A deferred credit when the grant becomes
receivable.
c. Income when the grant application has been
submitted.
d. A deferred credit when the grant has been
approved.
60. Which of the following statements is true regarding
capitalization of interest?

Page 5 of 8

b.
c.

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.
The amount of interest cost capitalized during the
period should not exceed the actual interest cost
incurred.
When excess borrowed funds not immediately
needed for construction are temporarily invested,
any interest earned should be recorded as interest
revenue.
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.

61. When funds are borrowed to pay for construction of

assets that qualify for capitalization of interest, the
excess funds not needed to pay for construction may
be temporarily invested in interest-bearing securities.
Interest earned on these temporary investments
should be
a. Offset against interest cost incurred during
construction.
b. Used to increase the cost of assets being
constructed.
c. Multiplied by an appropriate interest rate to
determine the amount of interest to be capitalized.
d. Recognized as revenue of the period.
62. After initial recognition, investment properties are
measured using
a. The value model.
b. The cost model.
c. Either a or b.
d. Neither a nor b.
63. In the case of property held under an operating lease
and classified as investment property
a. The entity has to account for the investment
property under the cost model only
b. The entity has to use the fair value model only
c. The entity has the choice between the cost model
and the fair value model
d. The entity needs only to disclose the fair value and
can use the cost model under PAS 16.
64. Which statement is incorrect concerning internally
generated intangible asset?
a. To assess whether an internally generated
intangible asset meets the criteria for recognition,
an enterprise classifies the generation of the asset
into a research phase and a development phase.
b. The cost of an internally generated asset comprises
all expenditure that can be directly attributed or
allocated on a reasonable and consistent basis to
creating, producing and preparing the asset for its
intended use.
c. Internally
generated
brands,
mastheads,
publishing titles, customer lists and items similar in
substance should not be recognized as intangible
assets.
d. Internally generated goodwill may be recognized
as an intangible asset.
65. Internally generated goodwill is prohibited from
recognition in the financial statements of an entity.
The reason for this treatment is that:
a. Goodwill is not identifiable.
b. Goodwill is not measurable.
c. It is not comparable to any other intangible assets.
d. It is not prudent to recognize intangible assets.

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

66. Which of the following expenditures would never
qualify as an exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral
resources
d. Expenditure for activities in relation to evaluating
the technical feasibility and commercial visibility of
extracting a mineral resources
67. Of the following costs related to the development of
mineral resources, which one is not a part of depletion
cost?
a. Acquisition cost of the mineral resource deposit
b. Exploration costs
c. Tangible
equipment
costs
associated
with
machinery used to extract the mineral resource
d. Intangible development costs such as drilling costs,
tunnels, and shafts
68. Depletion expense
a. Is usually part of cost of goods sold.
b. Includes tangible equipment costs in the depletion
base.
c. Excludes intangible development costs from the
depletion base.
d. Excludes restoration costs from the depletion base.
69. Which of the following impairment losses should never
be reversed?
a. Loss on property, plant, and equipment
b. Loss on goodwill
c. Loss on a business segment
d. Loss on inventory
70. Which of the following is not true regarding testing of
impairment of property, plant and equipment (PPE)
under PFRS?
a. PFRS uses cash-generating units for testing of
impairment.
b. PFRS allocates impairment losses first to PPE and
then to goodwill.
c. Reversal of impairment losses is allowed for PPE if
the recoverable amount increases.
d. Impairment tests are applied to both assets with
limited lives and those with unlimited lives.
71. The Mirror Company classified a non-current asset
accounted for under the cost model as held for sale on
31 December 2013. Because no offers were received at
an acceptable price, Mirror decided on 1 July 2014 not
to sell the asset, but to continue to use it.
In accordance with PFRS5 Non-current assets held for
sale and discontinued operations, the asset should be
measured on 1 July 2014 at
a. The lower of its carrying amount and its recoverable
amount
b. The higher of its carrying amount and its recoverable
amount
c. The lower of its carrying amount on the basis that it
had never been classified as held for sale and its
recoverable amount
d. The higher of its carrying amount on the basis that it
had never been classified as held for sale and its
recoverable amount

72. How should the assets and liabilities of a disposal

group classified as held for sale be shown in the
balance sheet?
a. The assets and liabilities should be offset and
presented as a single amount.
b. The assets of the disposal group should be shown
separately from other assets in the balance sheet,
and the liabilities of the disposal group should be
shown separately from other liabilities in the
balance sheet.
c. The assets and liabilities should be presented as a
single amount and as a deduction from equity.
d. There should be no separate disclosure of assets
and liabilities that form part of a disposal group.
73. Compensating balances represent:
a. Funds in a bank account that can't be spent.
b. Balances in a payroll checking account.
c. Accounts that are subject to bank service charges.
d. Accounts on which banks pay interest.
74. Cash that is restricted and not available for current
operations is reported in the balance sheet as:
a. Equity.
b. Investments.
c. Liabilities.
d. A separate section between liabilities and equity.
75. In preparing a monthly bank reconciliation, which of
the following items would be added to the balance
reported on the bank statement to arrive at the correct
cash balance?
a. Outstanding checks
b. Bank service charges
c. Deposit in transit
d. A customers note collected by the bank on behalf
of the depositor
76. Gershwin Wallcovering Inc. shipped the wrong shade of
paint to a customer. The customer agreed to keep the
paint upon being offered a 15% price reduction.
Gershwin would record this reduction by crediting
accounts receivable and debiting:
a. Sales.
b. Sales discounts.
c. Sales returns.
d. Sales allowances.
77. Memorex Disks sells computer disk drives with rightof-return privileges. Returns are material and
reasonably predictable. Memorex should:
a. Not record sales until the right to return has
expired.
b. Record an allowance for sales returns in the year of
the sale.
c. Debit sales returns in the period of the return.
d. Debit sales in the period of the return.
78. Collection of accounts receivable that previously have
been written off results in an increase in cash and an
increase in:
a. Accounts receivable.
b. Allowance for uncollectible accounts.
c. Bad debts expense.
d. Retained earnings.
79. Which of the following does not change the balance in
accounts receivable?
a. Returns on credit sales.
b. Collections from customers.
c. Bad debts expense adjusting entry.
d. Write-offs.

Page 6 of 8

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

80. When you use an aging schedule approach for
estimating uncollectible accounts:
a. Bad debts expense is measured indirectly, and the
allowance for uncollectible accounts balance is
measured directly.
b. Bad debts expense is measured indirectly, and the
allowance for uncollectible accounts balance is
measured indirectly.
c. Bad debts expense is measured directly, and the
allowance for uncollectible accounts balance is
measured directly.
d. Bad debts expense is measured directly, and the
allowance for uncollectible accounts balance is
measured indirectly.
81. Mary Quant Company prepares an accounts receivable
aging schedule with a series of computations as
follows: 2% of the total peso balance of accounts from
1-60 days past due, plus 5% of the total peso balance
of accounts from 61-120 days past due and so on.
How would you describe the total of the amounts
determined in this series of computations?
a. It is the amount of bad debts expense for the year.
b. It is the amount that should be added to the
allowance for doubtful accounts at year-end.
c. It is the amount of the desired credit balance of
the allowance for doubtful accounts to be reported
in the year-end financial statements.
d. When added to the total of accounts written off
during the year, this new sum is the described
credit balance of the allowance account.
82. When the accounts receivable of a company are sold
outright to a company that normally buys accounts
receivables of other companies without recourse, the
accounts receivable have been
a. transferred with recourse
b. factored
c. assigned
d. pledged
83. A 90-day, 15% interest-bearing note receivable was
immediately discounted at a bank at 12%.
The
proceeds received from the bank upon discounting
would be the
a. maturity value less the discount at 15%
b. maturity value less the discount at 12%
c. face value less the discount at 15%
d. face value less the discount at 12%
84. The investment category for which the investor's
"positive intent and ability to hold" is important is:
a. Securities reported under the equity method.
b. Trading securities.
c. Securities classified as held to maturity.
d. Securities available for sale.
85. Securities that are purchased with the intent of selling
them in the near future to take advantage of shortterm price changes are classified as:
a. Securities available for sale.
b. Consolidating securities.
c. Held-to-maturity securities.
d. Trading securities.

87. Both fair values and subsequent growth of the investee

are not as relevant for investments in which of the
following categories?
a. Securities reported under the equity method.
b. Trading securities.
c. Held-to-maturity securities.
d. Securities available for sale.
88. Which category completely excludes equity securities?
a. Securities available for sale.
b. Consolidating securities.
c. Held-to-maturity securities.
d. Trading securities.
89. Trading securities are most commonly found on the
books of:
a. Oil companies.
b. Manufacturing companies.
c. Banks.
d. Foreign subsidiaries.
90. When an equity security is appropriately carried and
reported as securities available for sale, a gain should
be reported in the income statement:
a. When the fair value of the security increases.
b. When the present value of the security increases.
c. Only when the Dow Jones Industrial Average
increases at least 100 points.
d. Only when the security is sold.
91. Sloan Company has owned an investment during 2015
that has increased in fair value.
After all closing
entries for 2015 are completed, the effect of the
increase in fair value on total shareholders' equity
would be:
a. higher under the available-for-sale approach than
under the trading-securities approach.
b. lower under the available-for-sale approach than
under the trading-securities approach.
c. the same amount under the available-for-sale and
trading-securities approaches.
d. not possible to identify whether the available-forsale or trading-securities approaches yield higher
shareholders' equity given this information.
92. When the interest payment dates of a bond are May 1
and November 1, and the bond is acquired on June 1,
the amount of interest income at December 31 of the
year of acquisition would be for
a. Two months.
b. Six months.
c. Seven months.
d. Eight months.
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.

86. Which of the following investment securities held by

Zoogle Inc. may be classified as held-to-maturity
securities in its balance sheet?
a. Long-term debenture bonds.
b. Common stock.
c. Callable preferred stock.
d. All of the above are correct.

Page 7 of 8

www.prtc.com.ph

ToA.Finals

EXCEL PROFESSIONAL SERVICES, INC.

94. If Ziggy Company concluded that an investment
originally classified as held to maturity would now
more appropriately be classified as available for sale,
Ziggy would:
a. not reclassify the investment, as original
classifications are irrevocable.
b. reclassify the investment as available for sale and
immediately recognize in net income any
unrealized gain or loss on the reclassification date.
c. reclassify the investment as available for sale and
immediately recognize in accumulated other
comprehensive income any unrealized gain or loss
on the reclassification date.
d. need to restate earnings, as the original
classification was in error.
95. If Dizbert Company concluded that an investment
originally classified as available for sale would now
more appropriately be classified as held to maturity,
Dizbert would:
a. not reclassify the investment, as original
classifications are irrevocable.
b. reclassify the investment as held to maturity and
immediately recognize in net income any
unrealized gain or loss on the reclassification date.
c. reclassify the investment as held to maturity and
treat the fair value as of the date of reclassification
as the investment's amortized cost basis for future
amortization.
d. need to restate earnings, as the original
classification was in error.
96. Which of the following increases the investment
account under the equity method of accounting?
a. Decreasing the market price of the investee's stock
b. Dividends paid by the investee that were declared
in the previous year
c. Net loss of the investee company
d. None of the above is correct.
97. A series of equal periodic payments that starts more
than one period after the agreement is called:
a. An annuity due.
c. A future annuity.
b. An ordinary annuity.
d. A deferred annuity.

98. Loan A has the same original principal, interest rate,

and payment amount as Loan B. However, Loan A is
structured as an annuity due, while Loan B is
structured as an ordinary annuity. The maturity date of
Loan A will be
a. Earlier than Loan B.
b. Later than Loan B.
c. The same as Loan B.
d. Indeterminate with respect to loan B.
99. Which statement is incorrect regarding impairment of
available for sale financial assets in accordance with
PAS 39?
a. When a decline in the fair value of an available-forsale financial asset has been recognized in other
comprehensive income and there is objective
evidence that the asset is impaired, the cumulative
loss that had been recognized in other
comprehensive income shall be reclassified from
equity to profit or loss as a reclassification
adjustment even though the financial asset has not
been derecognized.
b. The amount of the cumulative loss that is
reclassified from equity to profit or loss shall be the
difference between the acquisition cost (net of any
principal repayment and amortization) and current
fair value, less any impairment loss on that
financial asset previously recognized in profit or
loss.
c. Impairment losses recognized in profit or loss for
an investment in an equity instrument classified as
available for sale shall not be reversed through
profit or loss.
d. If, in a subsequent period, the fair value of a debt
instrument classified as available for sale increases
and the increase can be objectively related to an
event occurring after the impairment loss was
recognized in profit or loss, the impairment loss
shall be reversed, with the amount of the reversal
recognized in other comprehensive income.
100. Once a financial asset has been written down as a
result of an impairment loss, interest income is
thereafter recognized using the rate of interest
a. Used to discount the future cash flows for the
purpose of measuring the impairment loss.
b. Prevailing on the date of impairment.
c. Prevailing at the end of the reporting period.
d. Any of the above.

end

Page 8 of 8

www.prtc.com.ph

ToA.Finals