VARSITY OF FINANCIAL ACCOUNTING AND

REPORTING

Basic Module for November 2017

Multiple Choice

1. Plant assets purchased on long-term credit contracts should be accounted for at

a. the future amount of the future payments
b. the present value of the future payments
c. the total value of the future payments
d. none of these

2. Revenue from an artistic performance is recognized once

a. Cash has been received from the ticket sales,
b. The event takes place.
c. The tickets for the concert are sold
d. The audience register for the event online

3. An entity issues bonds that pay interest each March 1 and September 1, the entity's
December 31 adjusting entry may include
a. Credit to discount on bonds payable
b. Debit to cash
c. Debit to interest payable
d. Credit to interest expense

4. Under PAS 16, revaluation of property, plant and equipment to appraised value is an
acceptable alternative to historical cost provided certain requirements are complied with.
Which of the following is not one of the requirements?
a. the revaluation surplus should be presented in equity.
b. appropriate disclosures should be made in the financial statements.
c. the appraisal should be made by a competent and independent
specialist once a year at each end of reporting period.
d. depreciation to be charged to operations should be based on appraised
values or its equivalent.

5. PFRS 4 was introduced principally for what reason?

a. Because of pressure from the financial services authorities in several
countries.
b. To make limited improvements to the accounting for insurance
accounting.
c. To completely overhaul insurance accounting.
 d. As a response to recent scandals within the insurance industry.

6. The entity's current ratio is 4:1. Which of the following transactions would normally increase
current ratio?
a. Purchasing inventory on account
b. Collecting an account receivable.
c. Purchasing machinery for cash.
d. Selling inventory on account

7. How should repayment of a long-term loan comprising repayment of the principal amount
and interest due to date on the loan be treated in a cash flow statement?
a. The repayment of the principal portion of the loan is a cash flow belonging
in investing activities section; the interest payment should be netted
against interest received on bank deposits, and the net amount of interest
should be disclosed in the operating activities section.
b. The repayment of the principal portion of the loan is a cash flow belonging
in the investing activities section, the interest payment belongs either in the
operating activities section or the financing activities section.
c. The repayment of the principal portion of the loan is a cash flow belonging
in the investing activities section; the interest payment belongs in the
operating activities section because PAS 7 does not permit any
alternatives in case of interest payments.
d. The repayment of the principal portion of the loan is a cash flow belonging
in the investing section; the interest payment belongs either in the
operating activities section or the investing section.

8. Which of the following affects the total shareholders' equity?

a. Issue of warrants as evidence of preemptive rights
b. Declarations of share dividends
c. Issue of bonds with nondetachable share warrants
d. Issue of additional shares as a result of share split

9. A construction company signed a contract to build a theater over a period of 2 years, and
with this contract also signed a maintenance contract for 5 years. Both the contracts are
negotiated as a single package and are closely interrelated to each other. The two
contracts should be
a. Segmented and considered 2 separate contracts
b. Combined and treated as a single contract.
 c. Treated differently, the building contract under the completed contract
method and maintenance contract under the percentage of completion
method.
d. Recognized under the completed contracted method.

10. Which of the following assets do not qualify for capitalization of interest costs incurred
during construction of the assets?
a. Assets under construction for an enterprise's own use
b. Assets not currently undergoing the activities necessary to prepare them
for their intended use
c. Assets intended for sale or lease that are produced as discrete projects
d. Assets financed through the issuance of long-term debt

11. Which measurement model applies to exploration and evaluation assets subsequent to
initial recognition?
a. recoverable amount model
b. the revaluation model
c. the cost model
d. either the cost or revaluation model

12. Owen company has outstanding both common stock and non-participating, non-
cumulative preferred stock. The liquidation value of the preferred is equal to its par value.
The book value per share of the common stock is unaffected by:
a. the declaration of a stock dividend on preferred payable in preferred stock when the
market price of the preferred is equal to its par value
b. the declaration of a stock dividend on common stock payable in common stock
when the market price of the common is equal to its par value
c. the payment of a previously declared cash dividend on the common stock
d. a 2-for-1 split of the common stock

13. Which of the following statements is correct in relation to earnings per share?
a. If preference share is outstanding, dividend declared on the preference share is
always deducted from net income in calculating EPS
b. EPS can never be negative
c. If income from continuing operations is less than zero, potentially dilutive shares are
antidilutive.
d. All issues convertible to ordinary shares must be included in the calculation of diluted
EPS
14. Justin corporation has investment property that is held to earn rental income. Justin prepares
its financial statements in accordance with PFRS. Justin uses the fair value model for reporting
the investment property. Which of the following is true?
a. changes in fair value are reported as profit or loss in the current period
b. changes in fair value are reported as other comprehensive income for the period
c. changes in fair value are reported as extraordinary gain on the income statement
d. changes in fair value are reported as deferred revenue for the period

15. Which of the following transactions involving the issuance of shares does not come within
the definition of a “share- based” payment under PFRS 2?
a. employee share purchase plans
b. employee share option plans
c. share- based payment relating to an acquisition of a subsidiary
d. share appreciation rights

16. Victor Company, an entity listed on a recognized stock exchange, reports operating results
from its North American division to its chief operating decision maker. The segment
information for the current year is as follows:

Revenue 3,675,000
Profit 970,000
Assets 1,700,000
Number of
2,500
employees

Victor's results for all of its operating segments in total are:

Revenue 39,250,000
Profit 9,600,000
Assets 17,500,000
Number of
18,500
employees

Which piece of information determines for Victor that the North American division is a
reportable operating segment?
a. Revenue
b. Assets
 c. Profit
d. Number of Employees

17. On January 1, 2010, Jester Company decided to begin accumulating a fund for asset
replacement five years later. The company plans to make five annual deposits of 50,000 at
9% each December 31 beginning in 2010. What will be the balance in the fund, within P10,
on December 31, 2015 (one year after the last deposit)? The following 9% interest factors
may be used.

Present Value of Future Value of

Ordinary Ordinary
Annuity Annuity
4 periods 3.2397 4.5731
5 periods 3.8897 5.9847
6 periods 4.4859 7.5233

a. 326,166
b. 299,235
c. 272,500
d. 376,165

18. Milkjoy Inc. produces milk on its farms. As of January 1, 2016, the company has a stock of
1,050 cows (average age, 2 years old) and 150 heifers (average age, 1 year old), on July 1,
2016. Milkjoy Inc. purchased an additional of 375 heifers, average age 1 year old, on July 1,
2016. No animals were born or sold during the year. The unit values less estimated costs to
sell were

1-year old animal at December 31, 2016 P3,200

2-year old animal at December 31, 2016 4,500
1.5-year old animal at December 31, 2016 3,600
3-year old animal at December 31, 2016 5, 000
1-year old animal at January 1, 2016 and July 1, 2016 3, 000
2-year old animal at January 1, 2016 4, 000

The increase in value of biological assets in 2016 due to price changes is

 a. P1,500, 000
b. P630, 000
c. P555, 000
d. P460, 000

19. To save transportation costs, Barbie acquired its needed equipment in exchange of its
inventory located in the supplier’s business place. The equipment acquired has cash price
of P650, 000. The inventory of Barbie has cost of P550, 000 and Barbie paid P80,000 cash for
the difference in fair value of the two assets in exchange.

In the books of Barbie, the exchange is to be accounted as resulting to

a. Gain of P20, 000
b. Loss of P20, 000
c. Gain of P30, 000
d. Loss of P30, 000

20. On April1, 2016, Berona Company began offering a new product for sale under a one-year
warranty. Of the 5, 000 units inventory at April 1, 2016, 3, 000 had been sold by June30,
2016. Based on its experience with similar products, Berona estimated that the average
warranty cost per unit sold would be P80. Actual warranty cost incurred from April 1
through June30, 2016 wereP70, 000. At June 30, 2016, what amount should Berona report
as warranty liability, if based on experience, 90% of the units sold would need repair?
a. 240, 000
b. 170, 000
c. 160, 000
d. 146, 000

21. On December 31, 2015, Thor acquired an investment for P100, 000 plus a purchase
commission of P2, 000. The investment is classified as available-for-sale. On December 31,
2015, quoted market price of the investment is P100, 000. If the investment were sold a
commission of P3, 000 would be paid. On December 31, 2015, the entity should recognize
loss in other comprehensive income of
a. P2, 000
b. P3, 000
 c. P5, 000
d. P0

22. Stark Co. purchased equipment on January 2, 2014 for P50, 000. The equipment had an
estimated of 5-years service life. Stark’s policy for 5-year assets is to use the 200% double
declining balance depreciation method for the first two years of the asset’s life and then
switch to the straight-line depreciation method. In its December 31, 2016 balance sheet,
what amount should be reported as accumulated depreciation for equipment?
a. P30, 000
b. P38, 000
c. P39, 200
d. P42, 000
23. On January 1, 2016, Sprite Company purchased a uranium mine for P800, 000. On that
date, it was estimated that the mine contained 1, 000 tons of ore. At the end of the
productive years of the mine, the Company will be required to spend P4,200, 000 to clean
up the mine site. The appropriate discount rate is 8%, and it is estimated that it will take 14
years to mine all of the ore. The company uses the productive output method of
depreciation.

During 2016, Sprite Company extracted 100 tons of ore from the mine Compute the
amount of depletion for 2016.
a. P142,994
b. P80, 000
c. P222, 994
d. P500, 000

24. Vincent Company had 700,000 common stock authorized and 300,000 shares outstanding
at January 1, 2015. The following events occurred during 2015:

January 1 Declared 10% stock

dividends
June 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November Declared 2 for 1 stock split
30
 On December 31, 2015, how many commons shares outstanding?

a. 560,000
b. 600,000
c. 630,000
d. 660,000

25. Gordon reported the following items on its December 31, 2015 trial balance:
• Accounts Payable, P1, 089, 000
• Advances to officers and employees, P45, 000
• Unearned income, P288, 000
• Outstanding gift certificate issued, redeemable with merchandise, P258,
000
• Cash surrender value of life insurance, P75, 000
• Bonds payable, face value, P5,550, 000
• Discounts on bonds payable, P225, 000
• Accrued interest receivable, P39, 000
How much should be reported in the December 31, 2015 balance sheet as total
liabilities?
a. 7,210, 000
b. 7, 005, 000
c. 6,960, 000
d. 6,672, 000
ANSWERS

1.B
2.B
3.A
4.C
5.B
6.D
7.B
8.C
9.B
10.B
11.D
12.C
13.C
14.A
15.C
16.C
SOL
Revenue – 10% of 39,250,000 = 3,925,000 vs 3,675,000 (lower) = threshold not met
Profit – 10% of 9,600,000 = 960,000 vs 970,000 (greater) = threshold met
Assets – 10% of 17,500,00 = 1,750,000 vs 1,700,00 (lower) = threshold not met
Number of employees – Not a quantitative threshold

17.A
SOL

Annual Deposit 50,000

Multiply: Future value of an ordinary
annuity of 1 for 5 periods @ 9% 5.9847

Value @ Dec 31, 2014 299,235

Grow for another 1 year
using 9% 1.09

Value @ Dec 31, 2015 326,166

18.B
SOL
Price of 2-year old animal at December 31,
2016 4,500

Price of 2-year old animal at January 1, 2016 (4,000) 500

Multiply: Number of cows 1,050 525,000

Price of 1-year old animal at December 31,
2016 3,200

Price of 1-year old animal at July 1, 2016 (3,000) 200

Multiply: Number of heifers 525 105,000

Increase in value due to price change 630,000

19.A
SOL

Fair value of equipment acquired

650,000
Cash paid for the difference in fair values of the assets
exchanged (80,000)
Fair value of inventory exchanged
570,000
Cost of inventory exchanged
(550,000)

Gain on exchange
20,000

20.D
 SOL

Units Sold
3,000.00
Multiply: Estimated warranty cost per
unit 80.00 240,000
Multiply: Percentage of sales estimated to need
repairs 90%
Total Estimated Warranty Liability
216,000
Actual warranty cost
incurred (70,000)
Estimated Warranty Liability – June 30, 2016
146,000
21.A
SOL

Fair value @ Dec 31, 2015

100,000
Cost of available-for-sale security (100,000 + 2,000)
(102,000)
Loss recognized in other comprehensive income
(2,000)

22.B
SOL

% of depreciation -straight-line (50,000/5)/50,000 20%

Multiply by 2 2
% of depreciation – double declining
0.40

Depreciation – 2014 (50,000*40%)

20,000
Depreciation – 2015 (50,000-20,000)*40%
12,000
Depreciation – 2016 (50,000-20,000-12,000) /3
6,000
Accumulated Depreciation – Dec 31, 2016
38,000
23.C
SOL

Acquisition Cost
800,000.00
Restoration Costs discounted
(4,200,000/(1.08)14) 1,429,936
Cost of wasting asset
2,229,936
Divide: Estimated units available
1,000.00
Depletion rate per unit
2,229.94
Multiply: Number of units extracted
100.00
Depletion for 2016
222,994

24.A
SOL

Shares outstanding – Jan 1

300,000.00
Stock dividends declared (300,000*10%)
30,000.00
Shares reacquired
(100,000.00)
Treasury shares reissued
50,000.00 280,000.00
Multiply: 2 for 1 stock split 2

Common shares outstanding

560,000.00

25.C
SOL

Accounts payable
1,089,000.00
Unearned Income
288,000.00
Outstanding gift certificate issued, redeemable with
merchandise 258,000.00
Carrying amount of Bonds payable (5,550,000-225,000)
5,325,000.00
Total Liabilities
6,960,000.00

Prepared by: Checked by:

Mari Ryu M. Laviste Maria Ar-jane Ilagan

Associate for Academics Regional Vice President for Academics
NFJPIA – Region IV NFJPIA – Region IV