Comprehensive Examination

Reviewer
Examination:
Financial Accounting and Reporting

1. Which of the following is not true?

a) Cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment of other purposes.
b) Entries are made to the Petty Cash account only to increase or decrease the
size of the fund or to adjust the balance if not replenished at year-end.
c) If the balance shown on an entity’s bank statement is less than the correct cash
balance and neither the entity nor the bank has made any errors, there must be
outstanding checks.
d) Proof of cash is used when there is suspected unauthorized receipts or
disbursements of cash.

Ans. (C) If the balance per bank is less than the correct cash balance and neither
the entity nor the bank has made any errors, then there must be deposit in
transit.

2. When the allowance method of recognizing bad debts expense is used, the
allowance method would decrease when
a) Account previously written off is collected
b) Account previously written off becomes collectible
c) Specific account receivable is collected
d) Specific uncollectible account is written off

Ans. (D) Entry: Allow. For Bad Debts (dr)

Accounts Receivable (cr)
Explanation: Allow. For Bad Debts has a normal credit balance. It is decreased
when debited.

3. A credit balance in the account Unrealized Gain/Loss – Equity Investment at

FVTOCI at the end of the year should be interpreted as
a) The net realized holding gain for that year
b) The net unrealized holding gain for that year
c) The net realized holding to date
d) The net unrealized holding to date

Ans. (B)

4. PAS 2 applies to all inventories except

a) Biological assets related to agricultural activity
b) Financial instruments
c) Work in progress arising under construction contracts, including direct related
service
contract
d) All of the above

Ans. (D) Refer to paragraph 2 of PAS 2. The standard does not apply to work in
progress arising
under construction contracts, including directly related service contracts, financial
instruments, and biological assets related to agricultural activity and agricultural
produce at the point of harvest.

5. Which of the following is true?

a) Internally generated brands, mastheads, publishing titles, customer lists, and
items similar in substance should be recognized as intangible assets.
b) In computing for impairment of intangible asset with indefinite life, future cash
flows are divided by the risk-adjusted discount rate to get the present value.
c) Intangible assets arising from insurance contracts issued by insurance
companies are not accounted for using PAS 38 Intangible Assets.
d) In website development, application and infrastructure, graphical design and
content development are always charged to expense.

Ans. (C) Refer to paragraph 3 of PAS 38. The standard does not apply to contracts
within the
scope of IFRS 17 Insurance Contracts
6. Which of the following may be qualifying assets?
I. Financial assets
II. Intangible assets
III. Biological assets
IV. Inventories
V. Manufacturing plants
VI. Power generation facilities
VII. Investment properties

a) II, III, IV
b) I, III
c) V, VI
d) II, IV, V, VI, VII

Ans. (D) Refer to paragraph 7 of PAS 23. The standard enumerates some items
that may be
considered as qualifying assets depending on the circumstances.
Qualifying Assets- assets that take substantial period of time to get ready for its
intended use or sale. Examples are: manufacturing plants, power generation
facilities, inventories and intangible assets that require a substantial period of
time to bring them to a saleable condition and intended use, and investment
properties.

7. Which of the following would create a permanent difference between the

pretax financial income and taxable income?
a) Recording interest revenue on government issued securities.
b) Using accelerated depreciation for tax purposes and straight-line depreciation
for accounting purposes.
c) Purchasing equipment previously leased with an operating list in prior year.
d) using the percentage of completion method on long term construction
contracts.

Ans. (A)
8. ABC company high school signed the mortgage note on the residential House of
its president guaranteeing the indebtedness in the event that the president
should default ABC considers the likelihood of default to be not likely. how should
their guaranty be treated in ABC's financial statements?
a) accrued only
b) disclosed only
c) accrued and disclosed
d) neither accrued nor disclosed

Ans. (D)

9. What accounting concept is principally applied to the accounting for leases?

a) Prudence
b) substance over form
c) completeness
d) neutrality

Ans. (B) The substance and form is used to classify a lease into an operating lease
and finance lease. This principle helps to classify the transaction and event with
more accuracy and integrity.

10. Which of the following is not true concerning a conceptual framework in

accounting?
a) It should allow practical problems to be solved more quickly by reference to it.
b) It should be a basis for standard-setting.
c) It should be based on fundamental truths that are derived from the laws of
nature.
d) All of these answer choices are true.

Ans. (C)

11. Which of the following is a constraint in presenting financial information?

a) Full disclosure
b) Consistency
c) Cost-benefit relationship
d) Relevance

Ans. (C)

12. A company has a warehouse that originally cost Php 300,000. The current fair
value of the warehouse is Php 3,000,000. The president would like to report the
difference as a gain. The write-up would represent a violation of which accounting
principle
a) Monetary Unit
b) Historical Cost
c) Going Concern
d) Revenue recognition

Ans. (B)

13. Preparation of consolidated financial statements when a parent-subsidiary

relationship exists is an example of the
a) Neutrality characteristic
b) Relevance characteristic
c) Economic entity characteristic
d) Comparability characteristic

Ans. (D)

14. Financial information establishes consistency when

a) A company applies the same accounting treatment to similar events, from
period to period.
b) A company changes its estimated of the residual value of a fixed asset.
c) Firms in the industry use different accounting methods to account for the same
type of transaction.
d) Extraordinary gains and losses are not included on the income statement.

Ans. (A)

15. To be relevant, information should have which of the following?

a) Verifiability
b) Understandability
c) Feedback value
d) Cost and Benefits

Ans. (C)

16. An entity used a periodic inventory system and failed to record a purchase of
merchandise on account at year-end. This merchandise was omitted from the
year-end physical count. How will these errors affect assets, liabilities, and
shareholders' equity at year-end and net earnings for the year?
a) Understate, Understate, No Effect, No Effect
b) Understate, No Effect, Understate, Understate
c) No Effect, Understate, Overstate, Overstate
d) No Effect, Overstate, Understate, Understate

Ans. (A)

17. Earnings per share should be computed based on the

a) number of shares outstanding at the beginning of the year
b) number of shares outstanding at the end of the year
c) average number of shares outstanding last year
d) average number of shares outstanding during the year

Ans. (D)

18. Under the concept of physical capital maintenance where capital is defined in
terms of nominal monetary units, increases in the prices of assets held over the
period, conventionally referred to as holding gains are conceptually
a) profit but they may not be recognized as such until the assets are disposed of in
an
exchange transaction
b) profits and they may be recognized as such during the period they arise
c) not profits but they may be recognized as such over the period until the assets
are
disposed in an exchange transaction
d) not profits but they may be recognized as profits only until the assets are
disposed in
an exchange transaction

Ans. (A)

19. According to the framework, certain assets or reported in financial statements

at the amount of cash or its equivalent that would have to be paid if the same or
equivalent assets were acquired currently. What is the name of the reporting
concept?
a) Historical cost
b) Net realizable value
c) Replacement cost
d) Current market value

Ans. (C)

20. Choose the incorrect statement

a) The IASB recognizes that governments, in particular, may specify different or
additional requirements for their own purposes. These requirements should not,
however, affect financial statements published for the benefit of other users
unless they also meet the needs of those other users.
b) Financial statements or most commonly prepared in accordance with an
accounting model based on recoverable historical cost and the nominal financial
capital maintenance concept.
c) Other models and concepts may be more appropriate in order to meet the
objectives of providing information that is useful for making economic decisions
although there is presently no consensus for change period the conceptual
framework has been developed so that it is applicable to a range of accounting
models and concepts of capital and capital maintenance.
d) When there are conflicts between the local legislation and IASB framework, the
framework and standards should prevail over the local legislation.
Ans. (D) [my idea: the local legislation should prevail over the framework and
standards)

21. The ledger of Shepherd Company showed a balance in its cash account at
December 31, 2021 of P682,250, which was determined to consist of the
following:

Petty cash fund - P3,600

Checking account in BDO (check of P6,000 is still outstanding) - 332,100
Notes receivable in the possession of a collecting agency - 35,000
Undeposited receipts (including a postdated check for P12,450
and traveler’s check for P15,000 ) - 178,000
Bond sinking fund – cash - 118,500
IOUs signed by employees - 9,850
Paid vouchers, not yet recorded - 5,200
Total - P682,250

At what amount should “Cash on hand and in bank” be reported on Shepherd

Company’s
statement of financial position?
a) P507,850
b) P501,250
c) P506,450
d) P513,700

Ans. (B) P501,250

Cash balance per ledger 682,250
Notes receivable in the possession of a collecting agency (35,000)
Post-dated check included in the undeposited receipts (12,450)
Bond sinking fund cash (118,500)
IOUs signed by employees (9,850)
Paid vouchers not yet recorded (5,200)
Correct cash on hand and in bank P 501,250
22. The following information is shown in the accounting records of Hometown
Cha Cha Cha Co.:
January 1 December 31
Cash P100,000 -
Accounts receivable 600,000 P595,000
Merchandise inventory 398,000 243,000
Accounts payable 175,000 105,000

Total sales and cost of goods sold for 2021 were P2,500,000 and P1,500,000,
respectively. All sales and purchases were made on credit. Various operating
expenses of P420,500 were paid in cash. Assume that there were no other
pertinent transactions. What is the cash balance on December 31, 2021 of
Hometown Cha Cha Cha Co.?
a) P429,500
b) P546,500
c) P780,500
d) P769,500

Ans. (D) P769,500

Cash balance, beginning 100,000

Collection of AR (Schedule 1) 2,505,000 2,605,000
Less: Total disbursements
Payment of AP (Schedule 2) 1,415,000
Payment of operating expenses 420,500 (1,835,500)
Cash balance, end 769,500

Schedule 1:
AR, beginning 600,000
Add: credit sales 2,500,000
Total 3,100,000
Less: AR, end (595,000)
collections 2,505,000

Schedule 2:
AP, beginning 175,000
Add: Purchases (Schedule 3) 1,345,000
Total 1,520,000
Less: AP, end (105,000)
Payments 1,415,000

Schedule 3:
COGS 1,500,000
Add: Merchandise inventory, end 243,000
Total 1,743,000
Less: Merchandise inventory, beginning (398,000)
Purchases 1,345,000

23. Vincenzo Co. shows a cash balance of P1,535,200 as of December 31, 2021.
During the period, the following transactions were recorded to arrive at cash
balance as of December 31, 2021.
a. The accountant recorded a cash sales transaction of P240,000 dated January 2,
2022, on the books of the company. Company’s book for year 2021 was left
opened until January 4, 2022.
b. A check of P121,500 was drawn and recorded by the cashier payable to Beneco
for the utilities consumed for the month of December, but still not delivered to
payee as of December 31, 2021.
c. A check dated January 10, 2022, was held by the cashier amounting P85,500.
Based on the Company’s experience all postdated checks are realized on the date
indicated on the check.
d. A customers check for P25,000 was deposited on December 26 but returned by
bank on December 31 as NSF.
e. The cashier maintained a cash account that is for use in the purchase of
company’s equipment which expected to be delivered in two years’ time,
P345,000.

What is the correct cash balance as of December 31, 2021?

a) P986,200
b) P864,700
c) P1,226,200
d) P961,200

Ans.

24. La La Land Corp, a production company, presented its trial balance at the end
of the
current year. A summary of the cash account is as follows:
Petty cash
P
15,000
Cash in bank – DBP (checking account)
P 263,000
Cash in Bank – PNB (peso savings account #1)
P 195,000
Cash in Bank – PNB (dollar savings account #2)
$
2,000
The following information pertains to the balances presented above:
a. The petty cash fund reported on the books represents the imprest balance
designated
by the entity. Upon examination, the receipts and documents for miscellaneous
general
expenses amounting to P10,550 were unreplenished as of December 31, 2021. In
addition, the actual currency (bills and coins) per count amounted to P2,800.
b. The bank statement for DBP showed a balance of P350,000. This does not
include
deposit in transit P52,000 and outstanding checks of P150,000. The statement
showed
deposit of P62,000 (not yet recognized in the company’s records) from one of the
company’s customers representing advance payment for services to be rendered
in
the future. A check that cleared the bank amounting to P70,000 was recognized in
the
company’s disbursement records at P7,000. The bank statement also showed a
disbursement of P10,000 which was related to a check issued by an unrelated
entity.
c. The PNB accounts are designated for donations and fund-raising activities
related a
building construction project. The closing rate for the year was $1 = P45 and the
average rate was $1 = P40. a. The accountant recorded a cash sales transaction of
P240,000 dated January 2,
2022, on the books of the company. Company’s book for year 2021 was left
opened until January 4, 2022.
b. A check of P121,500 was drawn and recorded by the cashier payable to Beneco
for the utilities consumed for the month of December, but still not delivered to
payee as of December 31, 2021.
c. A check dated January 10, 2022, was held by the cashier amounting P85,500.
Based on the Company’s experience all postdated checks are realized on the
date indicated on the check.
d. A customers check for P25,000 was deposited on December 26 but returned by
bank on December 31 as NSF.
e. The cashier maintained a cash account that is for use in the purchase of
company’s equipment which expected to be delivered in two years’ time,
P345,000.
What is the correct cash balance as of December 31, 2021?
a) P986,200
b) P864,700
c) P1,226,200
d) P961,200
24. La La Land Corp, a production company, presented its trial balance at the end
of the
current year. A summary of the cash account is as follows:
Petty cash
P
15,000
Cash in bank – DBP (checking account)
P 263,000
Cash in Bank – PNB (peso savings account #1)
P 195,000
Cash in Bank – PNB (dollar savings account #2)
$
2,000
The following information pertains to the balances presented above:
a. The petty cash fund reported on the books represents the imprest balance
designated
by the entity. Upon examination, the receipts and documents for miscellaneous
general
expenses amounting to P10,550 were unreplenished as of December 31, 2021. In
addition, the actual currency (bills and coins) per count amounted to P2,800.
b. The bank statement for DBP showed a balance of P350,000. This does not
include
deposit in transit P52,000 and outstanding checks of P150,000. The statement
showed
deposit of P62,000 (not yet recognized in the company’s records) from one of the
company’s customers representing advance payment for services to be rendered
in
the future. A check that cleared the bank amounting to P70,000 was recognized in
the
company’s disbursement records at P7,000. The bank statement also showed a
disbursement of P10,000 which was related to a check issued by an unrelated
entity.
c. The PNB accounts are designated for donations and fund-raising activities
related a
building construction project. The closing rate for the year was $1 = P45 and the
average rate was $1 = P40.