De Guzman,Michelle G.
Accounting Concepts
The branch of accounting concerned with the presentation of financial information primarily for use of third person outside of business enterprise. (CPA Diary)
a. Financial Accounting c. Government Accounting b. Management Accounting d. All of the above
The normative attitudes or ideas of the accounting profession as to what ought to represent good accounting practice and which modify the application of accounting principles are known as (CPA Diary)
a. accounting postulates c. accounting procedures
b. accounting conventions d. accounting principles
Conceptual Framework
On December 31, year 1, Brooks Co. decided to end operations and dispose of its assets within 3 months. At December 31, year 1, the net realizable value of the equipment was below historical cost. What appropriate measurement basis for equipment included in Brooks’s December 31, year 1 balance sheet? (CPAR)
a) Historical cost
b) Current reproduction cost
c) Net realizable value
d) Current replacement cost
The expected cash flow approach to measuring present value (CPAR) a) Uses a single set of estimated cash flows
b) Is limited to assets and liabilities with contractual cash flows
c) Encompasses all expectations about possible cash flows
d) Determines the single most likely amount or best estimate
Balance Sheet
In analyzing a company’s financial statements, which financial statement would a potential investor primarily use to assess the company’s liquidity and financial flexibility? (CPAR)
a) Balance sheet
b) Income statement
c) Statement of retained earnings d) Statement of cash flows
Current assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. Current assets most likely include. (CPAR)
b) Purchased goodwill c) Organization costs
d) Trading securities
Inventories
According to the net method, which of the following items should be included in the cost of inventory? (CPAR)
Freight Costs Purchase Discounts not taken
a) Yes No
b) Yes Yes c) No Yes d) No No
The following information applied to Fenn, Inc. for 2015: Merchandise purchased for resale P400,000 Freight-in 10,000 Freight-out 5,000 Purchase returns 2,000 Fenn’s 2015 inventoriable cost was (CPAR)
a) P400,000 b) P403,000
c) P408,000
d) P413,000
Lower of cost or market (LCM)
The lower-of-cost-or-market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application usually results in the lowest inventory amount (CPAR)
a) All applications result in the same amount b) Total inventory
c) Groups of similar items
d) Separately to each item
The original cost of an inventory item is below the NRV and above the net realizable value minus a normal profit margin. The inventory item’s replacement cost is below the net realizable value minus normal profit margin. Under the LCM method, the inventory item should be valued at (CPAR)
a) Original cost b) Replacement cost c) NRV
Gross Profit and Retail Method
Which of the following methods of inventory valuation is allowable at interim dates but not at year end? (CPAR)
a) Weighted average
b) Estimated gross profit
c) Retail method
d) Specific identification
The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale? (CPAR)
a) Purchase returns
b) Sales returns c) Net markups d) Freight-in
Income Statement
The effect of a material transaction that is infrequent in occurrence but not unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in a (CPAR)
Gain Loss a) Yes Yes b) Yes No c) No No d) No Yes
The correction of an error in the financial statements of a prior period should be reported, net of applicable income taxes, in the current (CPAR)
a) Retained earnings statement after net income but before dividends
b) Retained earnings statement as an adjustment of the opening balance
c) Income statement after income from continuing operations and before extraordinary items
d) Income statement after income from continuing operations and after extraordinary items
Discontinued operations
A non-current asset held for sale should be measured at:
a) The higher of the asset's carrying amount when originally classified as held for sale and its fair value less costs to sell
b) The asset's carrying amount when originally classified as held for sale, less any accumulated depreciation since that date
c) Fair value less costs to sell
d) The lower of the asset's carrying amount when originally classified as held for sale and its fair value less costs to sell
A non-current asset should be classified as held for sale only if:
a) Its carrying amount will be recovered principally through a sale transaction rather than through continuing use
b) Its carrying amount will be recovered wholly through a sale transaction rather than through continuing use
c) Its carrying amount will be recovered principally through continuing use rather than through a sale transaction
d) Its carrying amount will be recovered wholly through continuing use rather than through a sale transaction
Extraordinary items
A material loss should be presented separately as a component of income from continuing operations when it is (CPAR)
a) An extraordinary item
b) The cumulative effect of a change in accounting principle c) Unusual in nature and infrequent in occurrence
d) Not unusual in nature but infrequent in occurrence
A transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income (CPAR)
a) After cumulative effect of accounting changes and before discontinued operations of a component unit
b) After cumulative effect of accounting changes and after discontinued operations of a component unit
c) Before cumulative effect of accounting changes and before discontinued operations of a component unit
d) Before cumulative effect of accounting changes and after discontinued operations of a component unit.
How should the effect of a change in accounting estimate be accounted for? (CPAR) a) By restating amounts reported in financial statements of prior periods
b) B reporting pro forma amounts for prior periods
c) As a prior-period adjustments to beginning retained earnings
d) In the period of change and future periods if the change affects both
The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported (CPAR)
a) By restating amounts reported in financial statements of prior periods presented b) As a correction of an error
c) In the period of change and future periods if the change affects both
d) As a separate disclosure after income from continuing operations in the period of change and future periods if the change affects both
Segment reporting
In financial reporting for operating segments of a public business enterprise, the revenue of an operating segment must include (CPAR)
a) Intersegment billings for the cost of shared facilities
b) Intersegment sales or transfers
c) Equity in income from unconsolidated subsidiaries d) Extraordinary items
What information should a public company present about geographic areas, if practicable? (CPAR)
a) Disclose the revenues from external customers attributed to all foreign countries in total
b) Disclose as a combined amount sales to external customers and intersegment sales c) Disclose separately the amount of sales to each external customer in a foreign country d) No disclosure of revenues from foreign operations needs to be reported.
Interim reporting
Conceptually, interim financial statements can be described as emphasizing (CPAR)
a) Timeliness over reliability
b) Reliability over relevance c) Relevance over comparability d) Comparability over neutrality
For interim financial reporting an extraordinary gain occurring in the second quarter should be (CPAR)
a) Recognized ratably over the last three quarters
b) Recognized ratably over all four quarters with the first quarter being restarted
c) Recognized in the second quarter
d) Disclosed by footnote only in the second quarter
Assets, Liabilities and Equity
In which order are liabilities usually listed in the balance sheet
a) The order in which they were incurred
b) The order of smallest to largest c) Alphabetical order
d) The order in which they are expected to be repaid The income statement
a) is a summary of revenues and expenses.
b) is used to report the results of operations over a specific period of time.
c) explains, in part, how the company's financial position changed over a specific time period.
d) is all of the above.
Notes to financial statements
"Significant Accounting Policy" disclosures normally provide detailed information in relation to all of the following, except:
a) income taxes. b) employee benefits. c) depreciation methods. d) stock option plans.
Which of the following is not a topic that is likely to be discussed as a significant accounting policy?
b) Earnings per share of common stock calculation details. c) Inventory valuation method.
d) Method of consolidation of subsidiaries.
Cash and Cash equivalents
According to the accounting profession, which of the following would be considered a cash-flow item from an "investing" activity?
a) cash inflow from interest income. b) cash inflow from dividend income.
c) cash outflow to acquire fixed assets.
d) all of the above.
According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "financing" activity?
a) cash outflow to the government for taxes.
b) cash outflow to shareholders as dividends.
c) cash outflow to lenders as interest.
d) cash outflow to purchase bonds issued by another company.
Investments
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at (CPAR)
a) cost
b) amortized cost
c) fair value
d) lower of cost or market
A company should report the marketable equity securities that it has classified as trading at a) lower of cost or market with holding gains and losses included in earnings
b) lower of cost or market with holding gains included in earnings only to the extent of previously recognized holding losses
c) fair value with holdings gains included in earnings only to the extent of previously recognized holding losses
