Financial Accounting and Reporting III

Preliminary Examination

Name: Date:
I – Indicate the proper classification or presentation of the items listed below. Use the following
classifications (write the abbreviation only before the number):
CA – Current Asset CL – Current Liability
NCL – Noncurrent Liability NCA – Noncurrent Asset
E – Equity N – Notes to financial statements
1. Advances to customers CA 11. Deferred tax liability NCL
2. Advances from customers CL 12. Retained Earnings E
3. Advances to suppliers CA 13. Additional paid-in capital E
4. Advances from suppliers CL 14. Trademark NCA
5. Advances to subsidiary NCA 15. Income tax payable CL
6. Accrued expenses CL 16. Bonds Payable, due 3 years NCL
7. Prepaid expenses CA 17.Investment in Associate NCA
8. Cash dividend Payable CL 18. Treasury bill purchased 2 years before maturity
NCA
9. Stock dividend Payable E 19. Accounts Receivable, average normal collection
period, 18 months CA
10. Deferred tax asset NCA 20. The entity is a defendant in a lawsuit for a
certain amount. The loss is reasonable possible N

II – Multiple Choice: Encircle the letter of the correct answer

1. Provide narrative description or disaggregation of items presented in the financial statements
and information about items that do not qualify for recognition.
a. Compliance with PFRS c. Financial Reports
b. Notes to financial statements d. Accounting Policies

2. Which of the following is NOT the purpose of notes to financial statements?

a. Present information about the basis of preparation of the financial statements and the specific
accounting policies used
b. Disclose the information required by Philippine Financial Reporting Standards that is not
presented in the financial statements
c. Provide additional information which is not presented in the financial statements but is relevant
to an understanding of the financial statements
d. Disclose the information required by Philippine Financial Reporting Standards that is presented
in the financial statements

3. What is the proper order of presenting the notes according to PA 1, paragraph 114?
A. Statement of compliance with PFRS
B. Summary of significant accounting policies
C. Supporting information or computation for line items presented in the financial statements
D. Other disclosures, such as contingent liabilities, unrecognized contractual commitments and
nonfinancial disclosures
a. A,B,C,D c. B,A,D,C
b. B,A,C,D d. C,A,B,D

4. The notes to financial statement should not be used to

a. Describe significant accounting policies
b. Describe depreciation methods employed
c. Describe principles and methods peculiar to the industry in which entity operates

5. The summary of significant accounting policies shall disclose

a. The composition of property , plant and equipment and depreciation method used
b. The composition of property , plant and equipment only
c. The depreciation method used only
d. Neither The composition of property , plant and equipment nor depreciation method used

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 Financial Accounting and Reporting III
Preliminary Examination

6. A party is related to an entity if the party, directly or indirectly through one or more
intermediaries
a. Controls, is controlled by or is under common control with the entity
b. Has an interest in the entity that gives it significant influence over the entity
c. Has joint control over the entity
d. All of these define a related party

7. It is the power over the investee or the power to govern the financial and operating policies of
an entity so as to obtain benefits.
a. Control c. Joint Control
b. Significant Influence d. Joint Influence

8. It is the power to participate in the financial and operating policy decision of an entity, but not
control of those policies.
a. Control c. Joint Control
b. Significant Influence d. Joint Influence

9. It is the contractually agreed sharing of control over an economic activity

a. Control c. Joint Control
b. Significant Influence d. Joint Influence

10. Related parties include all of the following, except

a. Affiliates
b. Associates
c. Individuals owning, directly or indirectly, an interest in the voting power of the reporting entity
that gives them significant influence over the entity
d. Providers of finance in the course of their normal dealings with an entity by virtue only of those
dealings
11. The primary responsibility for the preparation and presentation of the financial statements of an
entity is reposed in the
a. Management of the entity c. external auditor
b. Internal auditor d. audit staff

12. Which of the following is a going concern?

a. Management intends to liquidate the entity
b. Management intends to cease the entity’s operations
c. Management has no realistic alternative but to cease the entity’s operations
d. None of the above

13. A complete set of financial statements includes the following components, except
a. Statement of financial Position and Statement of cash flows
b. statement of Comprehensive income and changes in owner’s equity
c. Notes to financial statements
d. Reports and statements such as environmental reports and value added statements

14. Financial Statements must be prepared at least

a. Annually c. Semiannually
b. Quarterly d. Every two years

15. Under this principle, the expense is recognized when the revenue is already recognized
a. Cause and effect association
b. Systematic and rational allocation
c. Immediate recognition
d. Matching principle

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 Financial Accounting and Reporting III
Preliminary Examination

16. What amount should be reported as long-term investment?

Financial asset at FV through P/L P100,000
Financial asset at FV through OCI 300,000
Financial asset at Amortized Cost 1,000,000
Treasury bill with 2 years maturity from purchase 150,000

a. 1,000,000 c. 1,450,000

b. 1,300,000 d. 1,550,000

17. What amount of net assets should be reported at year-end?

James Company reported net assets totaling P8,750,000 at year end which included the
following:
Treasury shares of Mont Company at cost 250,000
Idle Machinery 100,000
Trade mark 150,000
Allowance for inventory write down 200,000

a. 8,500,000 c. 350,000
b. 8,700,000 d. 8,550,000

18. What amount should be reported as current liability on December 31, 2017?
Jane Company provided the following information on December 31, 2017:
Cash in bank , net of bank overdraft of P500,000 5,000,000
Petty cash, unreplenished petty cash expenses 10,000 50,000
Notes Receivable 4,000,000
Accounts Receivable, net of customers’ accounts with 6,000,000
credit balances of P1,500,000
Inventory 3,000,000
Bond sinking fund 3,000,000
Total current assets 21,050,000

Accounts payable, net of suppliers’ accounts with debit 7,000,000

balances of P1,000,000
Notes payable 4,000,000
Bond payable due June 30, 2018 3,000,000
Accrued expenses 2,000,000
Total current liabilities 16,000,000
a. 19,000,000 c. 17,000,000
b. 16,000,000 d. 17,500,000

19. What amount should be reported as total non-current liabilities?

Ian Company provided the following information on December 31, 2017:
Accounts payable , net of creditors’ debit balances 2,000,000
P200,000
Accrued expenses 800,000
Bonds payable due December 31, 2019 4,500,000
Premium on bonds payable 500,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividednd payable 600,000
Stock dividend payable 400,000
Note payable- 6% , due March 1, 2017 1,500,000
Note payable-8% , due October 1, 2017 1,000,000
The financial statements for 2017 were issued on march 31, 2018. On December 31, 2017, the 6% note payable was
refinanced on a long-term basis.
Under the loan agreement for the 8% note payable, the entity has the discretion to refinance the obligation for at
least 12 months after December 31, 2017.
a. 8,000,000 c. 7,000,000
b. 5,500,000 d. 7,500,000

20. What are the adjusting entries required in order to correct the account balances

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 Financial Accounting and Reporting III
Preliminary Examination

On December 31, 017, the current assets of Jenny Company revealed cash and cash equivalents of P700,000 ,
Accounts Receivable of 1,200,000 and inventory of P600,000. The examination of accounts receivable disclosed the
following:
Trade accounts 940,000
Allowance for doubtful accounts (30,000)
Claims against shipper for goods lost in transit 30,000
Selling price of unsold goods sent by Jenny on 260,000 (260,000/1.30)
consignment at 130% of cost and not included in ending
inventory
Total Accounts Receivable 1, 200,000
a. Sales 260,000
Accounts Receivable 260,000
Inventory 200,000
Cost of goods sold 200,000
b. Sales 200,000
Accounts Receivable 200,000
Inventory 260,000
Cost of goods sold 260,000
c. Accounts Receivable 260,000
Sales 260,000
Cost of goods sold 200,000
Inventory 200,000
d. Accounts Receivable 260,000
Sales 260,000
Inventory 200,000
Cost of goods sold 200,000

III – Financial Statement Preparation: Prepare in good form a properly classified statement of financial
position in accordance with Philippine financial Reporting Standards. ( 10 points)

EZ Company provided the following information on December31, 2017:

Accounts Payable 350,000
Accounts Receivable 450,000
Property, Plant and Equipment 5,600,000
Accumulated Depreciation 1,200,000
Mortgage Payable, due in 5 years 1,500,000
Share Capital, P100 par 4,000,000
Share Premium 500,000
Cash and Cash Equivalents 800,000
Accrued Expenses 100,000
Inventories 900,000
Long-term investments 950,000
Note payable, long-term debt 500,000
Note payable, short-term debt 200,000
Office Supplies Unused 50,000
Patent 800,000
Prepaid Rent 150,000
Retained Earnings 1,350,000