Toa - Preboard - May 2016

7/26/2019 Toa - Preboard - May 2016

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THEORY OF ACCOUNTS

1. What is the new government accounting system?a. Modified cash basis c. Accrual basis

b. Modified accrual basis d. Cash basis

2. No money shall be paid out of the National reasury e!cept in pursuance of an appropriation law. Conse"uently# a governmentofficial who disburses government funds beyond the approved budget may be charged with

a. $raft and corruption. c. Technical malversation.b. %rregular disbursement. d. %nsubordination.

&. Which is incorrect concerning constitutional provisions related to government budgeting?a. No law shall be passed authori'ing any transfer of appropriation.b. No money shall be appropriated for any sect# church or religious denomination.c. (iscretionary funds appropriated for particular officials shall be disbursed only for public purposes.

d. All money collected or any tax levied for a special purpose may bepaid for any public purpose.

). Which of the following statements about the A*C Conceptual +ramewor, is false?a. he framewor, is not a *tatement of +inancial Accounting *tandards and hence does not define standards for any

particular measurement or disclosure issue.

b. he framewor, is concerned with general-purpose financial statements including consolidated financial statements.c. he framewor, applies to the financial statements of all commercial# industrial and business reporting enterprises# whether

in the public or private sectors.

d. In case of a conflict between a provision of the conceptualframework and that of a financial accounting standard, the provisionin the conceptual framework should prevail.

. Which of the following should not be included in the current assets section in the balance sheet?a. Assets which are held primarily for the purpose of being traded.b. Cash funds restricted for the payment of salaries and wages# interest and ta!es payable.c. Assets which are e!pected to be reali'ed# sold or consumed in the normal course of the operating cycle.

d. Available for sale securities which are not expected to be realized

within one year from the balance sheet date./. 0ope Company has co-signed the mortgage note on the home of its president# guaranteeing the indebtedness in the event that

the president should default. 0ope Company considers the li,elihood of default to be remote. ow should the guarantee betreated in 0opes financial statements?a. Accrued and disclosed c. Accrued only

b. Neither accrued nor disclosed d. isclosed only

3. Which of the following information is normally not included in the notes to financial statements?a. *upporting information for line items presented and aggregatedb. *tatement of compliance with $AA0c. *tatement of measurement basis for financial statements and accounting policies

d. !tatement of financial position and results of operation

4. As an alternative treatment# interest and dividends received may be classified in the cash flow statement as cash provided bya. 5perating activities c. +inancing activities

b. Investing activities d. 5rdinary activities

6. AAA Companys net income in 277 was higher using the +%+5 method than 8%+5 method. %n what direction did the cost ofpurchases move during 277?

a. Increasingb. (ecreasingc. Constantd. Cannot be determined with the given information

17. As a benchmar, treatment# the revaluation of property# plant and e"uipment should be based on

a. "air value which is usually the market value determined by appraisalundertaken by professionally #ualified appraisers.

b. Current replacement cost.c. Current reproduction cost.d. (epreciated replacement cost.

11. he fre"uency of revaluation of property# plant and e"uipment depends upon the movement in the fair value of the item ofproperty# plant and e"uipment. %f the property# plant and e"uipment e!perience insignificant movement in fair value# revaluationmay be sufficient if made every

a. Three to five years c. en yearsb. +ive years d. +ive to ten years


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12. Accounting constraints are the factors that may affect the relevance and reliability of financial accounting information. heconstraints enumerated in the conceptual framewor, area. imeliness and materiality c. Cost benefit and materiality

b. $ost benefit and timeliness d. imeliness# materiality and cost benefit

1&. Which of the following methods of revenue recognition reflects the greatest degree of uncertainty about future certain events?a. 0oint of sale method applied to sales of a merchandising businessb. 0roduction method for agricultural crops

c. $ost recovery method applied to installment sales contractsd. 0ercentage of completion on a construction contract

1). 9!traordinary items of revenue and e!penses arise from events and transaction of material effect that

a. Are clearly distinct from ordinary activities and infre#uent in theiroccurrence.

b. Would not be reasonably e!pected to recur in the foreseeable future.c. 0ossess a high degree of abnormality# are of a type clearly unrelated to# or are only incidentally related to the ordinary and

typical activities of the entity.d. Are so significant in amount that their inclusion in ordinary income would distort the comparability of results of operations.

1. (eposits in foreign countries which are sub:ect to a foreign e!change restrictions shall be valued at

a. $urrent exchange rate and shown as a noncurrent assetb. Current e!change rate and shown as a current assetc. istorical e!change rate and shown as a noncurrent assetd. istorical e!change rate and shown as a current asset

1/. 5n the disposal of a foreign operation# the cumulative amount of the e!change differences deferred in the separate componentof e"uity relating to that foreign operation shall be recogni'eda. as additional paid in capital.b. as an ad:ustment to the beginning balance of retained earnings.

c. in profit or loss when the gain or loss on disposal is recognized.d. separately as income or loss from discontinuing operations.

13. ;nits of currency held and assets and liabilities to be received or paid in a fi!ed or determinable number of units of currency area. +inancial assets and liabilities c. Nonmonetary items

b. Monetary items d. +unctional currency

14. A parent need not present consolidated financial statements in certain instances. Which of the following is not one of thoseinstances?a. he parent is itself a wholly-owned subsidiary# or is a partially-owned subsidiary of another entity and its owners# including

those not otherwise entitled to vote# have been informed about# and do not ob:ect to# the parent not presentingconsolidated financial statements.

b. The parent%s debt or e#uity instruments are traded in a publicmarket.

c. he parent did not file# nor is it in the process of filing# its financial statements with the securities commission or otherregulatory organi'ation for the purpose of issuing any class of instruments in a public mar,et.

d. he ultimate or any intermediate parent produces consolidated financial statements available for public use that complywith 0hilippine +inancial


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c. the asset is derecognized.d. the asset incurs ma:or repairs and maintenance during the year.

22. he depreciable amount of an asset is thea. the amount of cash and cash e"uivalent paid or the fair value of the other consideration given to ac"uire an asset at the

time of its ac"uisition or construction.

b. is the cost of an asset, or other amount substituted for cost, less itsresidual value.

c. is the amount at which an asset is recogni'ed after deducting any accumulated depreciation and accumulated impairmentlosses.

d. amount for which an asset could be e!changed between ,nowledgeable# willing parties in an arms length transaction.

2&. Which statement is incorrect concerning the situations that would lead to a lease being classified as a finance lease?a. he lease transfers ownership of the asset to the lessee by the end of the lease term.

b. The lessee has the option to purchase the asset at a price that issufficiently lower than the fair value at the date of the inception ofthe lease.

c. he lease term is for the ma:or part of the economic life of the asset even if the title is not transferred.

d. At the inception of the lease# the present value of the minimum lease payments amounts to at least substantially all of thefair value of the leased asset.

2). Which of the following is a characteristic of a change in accounting estimate?a. %t usually need not be disclosed.

b. It does not affect the financial statements of prior periods.c. %t should be reported through the restatement of financial statements.d. %t will affect all periods following the period of change.

2. An unguaranteed residual value of a leased asset isa. that part of the residual value which is guaranteed by the lessee or a party related to the lessee# the amount of the

guarantee being the ma!imum amount that could in any event become payableb. the fair value of the leased asset at the end of the lease term

c. that portion of the residual value of the leased asset, the realizationof which by the lessor is not assured or is guaranteed solely by a

party related to the lessord. that portion of the residual value of the leased asset# the reali'ation of which by the lessor is not assured or is guaranteed

solely by a party related to the lessee

2/. Which of the following information should be disclosed in the summary of significant accounting policies?a. +uture common share dividends are e!pected to appro!imate /7 percent of earnings.b. Ade"uacy of pension plan assets.

c. &roperty, plant and e#uipment are recorded at cost with depreciationcomputed principally by straight)line method.

d. $uarantees of indebtedness of others.

23. What is the benchmar, treatment of a change in accounting policy?

a. *etroactively, meaning, any resulting ad'ustment is reported as anad'ustment to the opening balance of retained earnings.

b. 0rospectively# meaning# no ad:ustment is made to prior periods are made either to the opening balance of retainedearnings or in reporting the net income or loss for the current period because e!isting balances are not recalculated.

c. Currently# meaning# any resulting ad:ustment is included in the determination of the net income or loss for the period.d.


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&1. *egment revenue is revenue in the enterprises income statement that is directly attributable to a segment and the relevantportion of enterprise revenue that can be allocated on a reasonable basis to a segment# whether from sales to e!ternalcustomers or from transactions with other segments of the same enterprise. *egment revenue also includes which of thefollowing?a. 9!traordinary items.

b. !hare of income or losses of associates, 'oint ventures, or other

investment accounted for under the e#uity method only if thoseitems are included in consolidated or total enterprise revenue.

c. $ains on sales of investments or gains on e!tinguishment of debt unless the segments operations are primarily of afinancial nature.

d. %nterest or dividend income# including interest earned on advances or loans to other segments# unless the segmentsoperations are primarily of a financial nature.

&2. he following statements relate to cash. Which statement is false?a. Cash e"uivalents are short-term highly li"uid investments that are readily convertible into cash and so near their maturity

that they represent insignificant ris, of changes in value because of changes in interest rates.b.


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&6. Which of the following is not considered a research and development activity?a. 8aboratory research aimed at discovery of new ,nowledge.b. (esign# construction and operation of pilot plant.

c. 2ngineering follow)through in an early phase of commercialproduction.

d. Conceptual formulation and design of possible product or process.

)7. When a debt security is transferred from %@5(% held to maturityB to available for sale# any unreali'ed gain or loss at the date oftransfer shall bea. included in retained earnings.

b. reported as a component of stockholders% e#uity.c. included in earnings.d. reported as a component of stoc,holders e"uity and subse"uently amorti'ed through interest income over the remaining

life of the debt security using the effective interest method of amorti'ation.

)1. ow would you describe a fi!ed cost?

a. It may change in total where such change is unrelated to changes inproduction.

b. %t may change in total where such change is related to changes in production.

c. %t is constant per unit change in production.d. %t may change in total where such change depends on production within the relevant range.

)2. he valuation of inventories on a prime cost basisa. would achieve the same results as direct costing.

b. would exclude all overhead from reported inventory cost.c. %s always achieved when standard costing is adopted.d. %s always achieved when the +%+5 flow assumption is adopted.

)&. (eferred ta! assets appearing in the balance sheet shall be reduced by a valuation allowance if it isa. 0robable that some portion will be reali'ed.b.


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)6. 5n =anuary 1 of the current year# ent Company issued bonds at a premium. ent incorrectly used the effective interestmethod instead of the straight line method of amorti'ation. ow were the following amounts# as of (ecember &1 of the current

year affected by the error? 0456!@ond carrying amount


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6. A note receivable bearing a reasonable interest rate is sold to a ban, with recourse. At the date of discounting transaction#Dtrade and other receivablesE would bea. (ecreased by the proceeds from the discounting transactionb. %ncreased by the proceeds from the discounting transactionc. %ncreased by the face amount of the note

d. ecreased by the face amount of the note

/7. %f a company incorrectly includes consignment items as purchases and ending inventory during the current year. he effect onne!t years net income and retained earnings is

a. 6nderstated, understatedb. 5verstated# understatedc. ;nderstated# correctly statedd. 5verstated# correctly stated

/1. he gross margin method of estimating ending inventory may be used for all of the following e!cepta. %nternal as well as e!ternal interim reports

b. Internal as well as external year)end reportsc. 9stimate of inventory destroyed by fire of other casualtyd.


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a. Capitali'e the cost of refurbishing and record a loss in the current period e"ual to the carrying amount of the damagedportion of the building.

b.


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b. &ro'ections of cash outflows necessarily incurred to generate thecash inflows from the continuing use of the asset

c. +uture capital e!penditure that will improve the asset beyond the standard of performance originally assessedd. %ncome ta! receipts and payments

34. Which of the following should be e!pensed as incurred by the franchisee for a franchise with an estimated useful life of twenty

years?a. Amount paid to the franchisor for the franchiseb. 0ayment to a company# other than the franchisor# for that companys franchisec. 8egal fees to the franchisees lawyers to obtain the franchise

d. &eriodic payments to the franchisor based on the franchisee%srevenue

36. 5n (ecember &1# 277)# @ite Company had capitali'ed costs for a new computer software product with an economic life of fiveyears. *ales for 277 were 2 percent of e!pected total sales of the software. he pattern of future sales cannot be estimatedreliably. At (ecember &1# 277# the software had a net reali'able value e"ual to 67 of the capitali'ed cost. What percentageof amorti'ation e!pense should be recorded by @ite Company for 277?a. &7 b. 2 c. 27 d. 22

47. An outflow of resources embodying economic benefits is regarded as DprobableE whena. he probability that the event will not occur is greater than the probability that the event will occurb. he probability that the event will occur is e"ual to the probability that the event will not occur

c. The probability that the event will occur is greater than theprobability that the event will not occur

d. he probability the event will occur is 67 li,ely

41. he mar,et price of a bond issued at a premium is the present value of its principal amount at the mar,et rate of interest

a. &lus the present value of all future interest payments at the marketrate of interest.

b. 0lus the present value of all future interest payments at rate of interest stated on the bond.c. 8ess the present value of all future interest payments at the mar,et rate of interest.d. 8ess the present value of all future interest payments at rate of interest stated on the bond.

42. Which statement is incorrect concerning a finance lease on the part of the lessor?a. 8essors shall recogni'e assets held under a finance lease in their balance sheets and present them as receivable at an

amount e"ual to the net investment in the lease.b. he recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessors

net investment in the finance lease.c. Manufacturer or dealer lessors shall recogni'e selling profit or loss in the period# in accordance with the policy followed by

the entity for outright sales.

d. The sales revenue recognized at the commencement of the leaseterm by a manufacturer or dealer lessor is e#ual to the fair value ofthe asset, or, if higher, the present value of the minimum leasepayments.

4&. Which of the following statements is true pertaining to sale and leasebac, transaction?a. %f the sale and leasebac, transaction results in a finance lease# any e!cess of sales proceeds over the carrying amount

should be immediately recogni'ed as income.

b. If the sale and leaseback transaction results in a finance lease, anyexcess of carrying amount over the sales proceeds should beimmediately recognized as loss.

c. %f the sale and leasebac, transaction results in an operating lease# any e!cess of sales proceeds over the carrying amountshould not be immediately recogni'ed as income.

d. %f the sale and leasebac, transaction results in an operating lease and the sales price is above fair value# the e!cess overfair value is deferred and amorti'ed over the life of the leased asset.

4). Which is incorrect concerning the recognition and measurement of a defined benefit plan?a. he e!pense recogni'ed for a defined benefit plan is not necessarily the amount of contribution due for the period.

b. The defined benefit plan must be fully funded.c. Actuarial assumptions are re"uired to measure the obligation and e!pense and there is a possibility of actuarial gains and

losses.d. he obligation is measured on a discounted basis.

4. Which is correct concerning actuarial gains and losses?%. Actuarial gains and losses comprise of e!perience ad:ustments and the effects of changes in actuarial

assumptions.%%. Actuarial gains and losses are recogni'ed as an increase or decrease of benefit e!pense in full.


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%%%. Actuarial gains and losses may result from increases or decreases in either the present value of defined benefitobligation or the fair value of any related plan assets.

a. % and %% only. b. I and III only. c. %% and %%% only. d. %# %% and %%%.

4/. When treasury stoc, is purchased for more than the par value# what accounts should be debited?a. Additional paid in capital for the purchase price

b. Treasury stock for the purchase pricec. reasury stoc, for the par value and additional paid in capital for the e!cess of purchase price over the par valued. reasury stoc, for the par value and retained earnings for the e!cess of the purchase price over the par value

43. Which of the following statements is false?

a. No reference need be made to donated treasury stock since the acquisition of such stock does not

restrict retained earnings.b. A loss from sale of treasury stoc, should be charged to additional paid in capital from treasury stoc, and then retained

earnings.c. reasury shares should be shown as a deduction# at cost# from total stoc,holders e"uity.d. reasury shares should be shown as a deduction# at cost from total stoc,holders e"uity# and the restriction on retained

earnings occasioned by their ac"uisition must also be stated.

44. %f the stoc, dividend is less than twenty percent# it is considered as a small stoc, dividend and the mar,et value of the shares is

debited to retained earnings. he resulting Dadditional paid-in capitalE is credited on thea. (ate of record c. (ate of issuance

b. ate of declaration d. (ate of payment

46. %n computing diluted earnings per share# the method of recogni'ing the use of the proceeds that would be obtained upon thee!ercise of options and warrants is the

a. Treasury stock method c. Common share conversion methodb. (iluted method d. 0otential common share method

67. 9arnings per share computation determines all of the following e!cepta. %t is the basis of dividend policies of the companyb. %t is a determinant of the mar,et price of common stoc,# thus indicating the attractiveness of the common stoc, as an

investment.

c. It is the amount that would be paid on each share assuming thecompany is li#uidated and the amount available to stockholders isexactly the amount reported as stockholder%s e#uity.

d. %t is a measure of performance of management in conducting operations.

61. Compared to its 277 cash basis net income# 0aloma Companys 277 accrual basis net income decreased when ita. ad lower accrued e!penses on (ecember &1# 277 than on =anuary 1# 277.b. ad higher prepaid e!penses on (ecember &1# 277 than on =anuary 1# 277.c. ad lower unearned income on (ecember &1# 277 than on =anuary 1# 277.

d. @ad higher unearned income on ecember />, (--3 than on+anuary >, (--3

62. A company changed from an accounting principle that is not generally accepted to one that is generally accepted. he propertreatment of the effect of the change should bea. A change in accounting policy and reported in the retained earnings statement as an ad:ustment of the opening balance

b. A prior period error and reported in the retained earnings statementas an ad'ustment of the opening balance.

c. A change in accounting policy and reported in the income statement as component of income from continuing operationsd. A change in accounting estimate and treated currently and prospectively

6&. he primary purpose of the cash flow statement is

a. To provide relevant information about cash receipts and cashpayments of an enterprise during a period.

b. o help investors# creditors and other users to assess the enterprises ability to generate positive future net cash flows

c. o disclose separately noncash investing and financing activitiesd. o assess the ability of the enterprise to pay dividends to stoc,holders.

6). An entity for which there are users who rely on the entitys general purpose financial statements for information that will beuseful to them for ma,ing decisions about the allocation of resources is ,nown asa. *ubsidiary c. 0arent

b. @usiness combination d. *eporting entity

6. Costs directly attributable to a purchase business combination include

>-


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a. &rofessional fees paid to accountants, legal advisers, valuers andother consultants to effect the combination

b. Costs of arranging and issuing financial liabilities to effect a business combinationc. Costs of issuing e"uity securities to effect a business combinationd. $eneral administrative costs

6/. 9!change differences arising from translation of financial statements of a foreign operation that is integral to the operations ofthe reporting enterprise are accounted for as

a. $omponent of income from continuing operationsb. Component of income from discontinued operationc. Component of stoc,holders e"uityd. Component of retained earnings

63. What is the proper treatment by the lessor of the residual value of an asset when there is a transfer of title at the end of thelease item?a. he residual value is added to the total minimum lease payments to compute for gross investmentb. he present value of the residual value is added to the present value of the total minimum lease payments to compute for

the net investment in the lease

c. The residual value is ignored for gross investment and net

investment computationsd. he residual value is deducted from the cost of the asset to compute for the cost of sales

64. he percentage of completion method of accounting for long-term construction contract is preferable when

a. 2stimates of costs to complete and extent of progress towardcompletion are reasonably dependable

b. he collectibility of progress billings from the customer is reasonably assuredc. A contractor is involved in numerous pro:ectsd. he contract is of a relatively short duration

66. %n computing the current periods manufacturing cost per e"uivalent unit# the +%+5 method of process costing considers currentperiod costsa. 0lus cost of ending wor, in process

b. 8ess cost of beginning wor, in processc. &lus cost of beginning work in processd. 8ess cost of ending wor, in process

177.HIJ Company has a probable loss that can only be reasonable estimated within a range of outcome. No single amount withina range is a better estimate than any other amount. he loss accrual should be

a. Jero c. The midpoint of the rangeb. he ma!imum of the range d. he minimum of the range

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Toa - Preboard - May 2016