MULTIPLE CHOICE QUESTIONS-THEORY B.

Aging the trade accounts receivable

C. Credit sales
D. The balance in the trade accounts receivable

1. trade receivables are classified as current assets if they are 9. When the allowance method of recognizing uncollectible
reasonably expected to be collected accounts is used, the entry to record the write off of a
A. within one year special account would
B. within the normal operating cycle A. Decrease both accounts receivable and the
C. within one year or within normal operating cycle, allowance for uncollectible accounts.
whichever is lower B. Decrease accounts receivable and increase allowance
D. within one year or within normal operating cycle, for uncollectible accounts.
whichever is higher C. Increase the allowance for uncollectible accounts and
decrease net income.
2. Which of the following statement is true in relation to D. Decrease both accounts receivable and net income
presentation of receivables in statement of financial
position? 10. When an accounts receivable aging schedule is prepared, a
A. Trade receivables and nontrade receivables are shown series of computations is made to determine estimated
separately. uncollectible accounts. The resulting amount from this
B. Nontrade receivables are presented as noncurrent aging schedule
assets. A. When added to the total accounts written off during
C. Trade account receivables and trade notes receivable the year is the desired credit balance of the allowance
shall b presented separately. for doubtful accounts at year-end.
D. Trade receivable and nontrade receivable which B. Is the amount of doubtful accounts expense for the
are currently collectible shall be presented as one year
line item called “trade and other receivables” C. Is the amount that should be added to the beginning
allowance for doubtful accounts to get the doubtful
3. Accounts receivable shall be recognized initially at accounts expense for the year.
A. Face value D. Is the amount of desired credit balance of the
B. Discounted value allowance for doubtful accounts to be reported at
C. Maturity value year end.
D. Current value
11. When the allowance method of recognizing bad debt
4. Long-term notes receivables which normally bears interest expense is used, the allowance for doubtful accounts would
or an interest which is unreasonably low shall be decrease when
recognized initially at A. Specific account receivable is collected
A. Face value B. Account previously written off is collected
B. Discounted value C. Account previously written off becomes collectible
C. Maturity value D. Specific uncollectible account is written off
D. Current value
12. When comparing the allowance method of accounting for
5. Credit balances in accounts receivables shall be classified bad debts with the direct write off method, which of the
as following is true?
A. Current liabilities A. The direct write off method is exact and also better
B. Part of accounts payable illustrates the matching principle.
C. Long term liabilities B. The allowance method is less exact but it better
D. Deduction from accounts receivable illustrates the matching principle
C. The direct write off method is theoretically superior
6. In the case of long-term installments receivable(real estate D. The direct write off method requires two separate
installment sales) where a major portion of the receivables entries to write off an uncollectible account
will be collected beyond the normal operating cycle
A. The entire receivables are shown as current without 13. A debit balance in the allowance for doubtful accounts
disclosure of the amount not currently due. A. Should never occur
B. The entire receivables are shown as noncurrent. B. Is always the result of management not providing a
C. Only the portion currently due is shown as current large enough allowance in order to manage earnings
and the balance as noncurrent. C. May occur before the end of period adjustment for
D. The entire receivables are shown as current with uncollectible accounts.
disclosure of the amount not currently due. D. May exist even after the period of adjustment for
uncollectible accounts.
7. Which method of recording bad debt loss in consistent with
accrual accounting? 14. On October 1 of the current year, an entity received a one-
A. Allowance method year note receivable bearing interest at the market rate. The
B. Direct write-off method face amount of the note receivable and the entire amount of
C. Percent of sales method the interest are due on September 30 of next year. The
D. Percent of accounts receivable method interest receivable on December 31 of the current year
would consist of an amount representing
8. A method of estimating bad debts that focuses on the A. Three months of accrued interest income
income statement whether rather than the statement of B. Nine months of accrued interest income
financial position is the allowance method based on C. Twelve months of accrued interest income
A. Direct write-off method
 D. The excess on October 1 of the present value of the
note receivable over its fact amount
15. On July 1, 2012, an entity obtained a two-year 8% note
receivable for service rendered. At that time, the market
rate of interest are due on June 30, 2014. Interest receivable
on December 31, 2012 is
A. 5% of the face amount of the note
B. 4% of the face amount of the note
C. 5% of July 1, 2012 present value of the amount due
on June 30, 2014.
D. 4% of July 1, 2012 present value of the amount due on
June 30, 2014.
16. An entity uses the installment sales method to recognized
revenue. Customers pay installments notes in 24 equal
monthly amounts which include 12% interest. What is the
installment notes receivable six months after the sale?
A. 75% of the original sales price
B. Less than 75% of the original sales price
C. The present value of the remaining monthly
payments discounted at 12%
D. Less than the present value of the remaining monthly
payments discounted at 12%
17. The interest on a non interet bearing note is equal
A. The excess of the face value over the present value
B. The excess of the present value of over the face value
C. The excess of the market value over the present value
D. Zero
18. On July 1 of the current year, an entity received a one-year
note receivable bearing interest at the market rate. The
face amount of the note receivable and the entire amount of
the interest are due in one year. The interest receivable
account would show a balance on
A. July 1 but not December 31
B. December 31 but not July 1
C. July 1 and December 31
D. Neither July 1 nor December 31
19. In an entity’s April 30, 2012 statement of financial position a
note receivable was reported as a noncurrent asset and
accrued interest for eight months was reported as a current
asset. Which of the following terms would fit the entity’s
note receivable?
A. Both principal and interest are payable on August 31,
2012 and August31, 2013
B. Principal and interest are due December 31, 2012
C. Both principal and interest are payable on December 31,
2012 and December 31, 2013
D. Principal is due August 31, 2013, and interest is due
August 31, 2012 and August 31, 2013
20. The “amortized cost” of loan receivable is the amount of
which
A. The loan receivable is measured initially minus principal
repayment, plus or minus the cumulative amortization of
any difference between the initial amount recognized and the
principal maturity amount, minus reduction for impairment.
B. The loan receivable is measured initially minus principal
repayment, plus or minus amortization recognized and
the principal maturity amount.
C. The loan receivable is measured initially.
D. The loan receivable is measure initially minus principal
payment.
MULTIPLE CHOICE QUESTIONS – THEORY
1. Inventories are assets (choose the incorrect one)
A. Held for sale in the ordinary course of business.
B. In the process of production for sale.
C. In the form of materials or supplies to be
consumed in the production process or in the
rendering of services.
D. Held for use in the production or supply of goods
and services.
2. The costs of purchase of inventories comprise the purchase
price, import duties and other taxes (other than those
subsequently recoverable by the entity from the taxing
authorities), and transport, handling and other costs directly
attributable to the acquisition of finished goods, materials
and services. Trade discounts, rebates and other similar
items are deducted in determining the costs of purchase.
The costs of conversion of inventories include costs
directly related to the units of production such as direct
labor. They also include a systematic allocation of fixed
and variable production overheads that are incurred in
converting materials into finished goods.
A. True, False
C. False, True
B. True, True
D. False, False
3. The following are costs excluded from the cost of
inventories, except:
A. Abnormal amounts of wasted materials, labor or
other production costs;
B. Storage costs, unless those costs are necessary in
the production process before a further
production storage;
C. Administrative overheads that do not contribute
to bringing inventories to their present location
and condition; and
D. Import duties
4. Which statements are incorrect regarding formulas?
A. Specific identification of cost means that specific
costs are attributable to identified inventory.
B. The FIFO formula assumes that the items of
inventory that were purchased or produced last
are sold first, and consequently the items
remaining in inventory at the end of the period
are those earlier purchased or produced.
C. Under the weighted average cost formula, the
cost of each item is determined from weighted
average of the cost of similar items at the
 beginning of each period and the cost of similar
items purchased or produced during the period.
D. The average cost formula may be calculated on a
periodic basis, or as each additional shipment is
received, depending upon the circumstances of
the entity.
5. When using the moving average method of inventory
valuation, a new unit cost must be computed after each
A. purchase
B. issuance from inventory
C. purchase and issuance from inventory
D. month-end
6. The retail inventory method is characterized by
A. the recording of sales at cost.
B. the recording of purchase at selling price.
C. the reporting of year-end inventory at retail in the
financial statements.
D. the recording of mark-ups at retail and
markdowns at cost.
7. To determine an inventory valuation that using the retail
method under the average method, the computation of the
cost to retail percentage should
A. include markups but not markdowns
B. include markups and markdowns
C. include markdowns but not markups
D. exclude markups and markdowns
8. The gross profit method of estimating ending inventory
may be used for all of the following, except
A. Internal as well as external interim reports
B. Internal as well as external year-end reports
C. Estimate of inventory destroyed by fire or other
casualty
D. Rough test of validity of an inventory cost
determined under the periodic or perpetual
system
9. The use of the gross profit method assumes
A. the amount of gross profit is the same as in prior
years
B. sales and cost of goods sold have not changed
from previous years
C. inventory values have not increased from
previous years
D. the relationship between selling price and cost of
goods sold is similar to prior years.
10. Which of the following is not a basic assumption of the
gross profit method?
A. The beginning inventory plus the purchase equal
the total goods available for sale.
B. Goods not sold must be on hand.
C. If the sales, reduced to the cost basis, are
deducted from the sum of the operating inventory
plus purchases, the result is the amount of
inventory on hand.
D. The total amount of purchase and the total
amount of sales remain relatively unchanged
from the comparable previous period.
11. Which of the following represents the best justification for
valuing the inventories at lower of cost and net realizable
value?
A. It is easier to keep track of market value that it is
to keep track of cost as market value is available
from any supplier.
B. Cost loses its relevance for the determination of
cost of goods sold if the cost of inventory has
been incurred in an earlier accounting period.
C. The balance sheet valuation of inventory is most
important consideration in the preparation of
financial statements.
D. The practice of writing inventories below cost to
net realizable value is consistent with the view
that assets should not be carried in excess of
amount expected to be realizable from their sale
or value.
12. Net realizable value of inventories may fall below cost for a
number of reasons including:
I. Product obsolescence.
II. Physical deterioration of inventories.
III. An increase in the expected replacement costs of
the inventory.
IV. An increase in the estimated costs of completion,
A. I, II and IV only;
C. I, III and IV only;
B. II, III and IV only;
D. I and II only.
13. Lower of cost or net realizable value
A. is most conservative if applied to the total
inventory
B. is most conservative if applied to major
categories of inventory
C. is most conservative if applied to individual items
of inventory
D. must be applied to major categories for taxes
14. An example of an inventory accounting policy that should
be disclosed is the
A. effect of inventory profits caused by inflation.
B. classification of inventory into raw materials,
work in process, and finished goods.
C. identification of major suppliers.
D. method used for inventory costing.
15. When a portion of the inventories has been pledged to
secure the payment of indebtedness:
A. The fact of a portion having been pledge should
be disclosed in the notes of financial statements
B. The value of the portion pledged should be
deducted from the value of the inventories shown
in the current assets section of the balance sheet.
 C. The value of the portion pledged should be 23. Which of the following values is unlikely to be used in fair
transferred from current assets to noncurrent value measurement?
assets. A. Quoted market price in a market
D. The value of the inventories shown in the current B. The most recent market transaction price
assets section of the balance sheet remains the C. The present value of the expected net cash flows
same but the fact of having pledged a portion of from the assets
the inventories should be disclosed in the D. External independent valuation
financial statements or notes.
24. Biological assets during the period of growth, degeneration,
16. Which of the following is not dealt with by PAS 41 production and procreation are measured initial recognition
(Agriculture)? and every balance sheet at
A. The accounting for biological assets A. cost
B. The initial measurement of agricultural produce B. replacement cost
harvested from the entity’s biological assets C. fair value
C. The processing of agricultural produce after D. fair value less estimated point of sales
harvesting
D. The accounting treatment of government grants 25. Which of following costs are not included in point-of-sale
received in respect of biological assets costs?
A. Commissions to brokers and dealers
17. Where is a long aging or maturation process after harvest, B. Levies by regulatory agencies
the accounting for such products should be dealt with by C. Transfer taxes and duties
A. PAS 41 D. Transport and other costs necessary to get the
B. PAS 2, Inventories assets to a market
C. PAS 16, Property, Plant, and Equipment
D. PAS 40, Investment Property 26. A gain or loss arising on the initial recognition of a
biological asset and from a change in the fair value less
18. A biological asset is estimated point of sale costs of biological asset should be
A. Living animal only included in
B. Living plant only A. the net profit or loss for the period
C. Both a living animal and living plant B. the statement of recognized gains and losses
D. Nonexisting thing C. a separate revaluation reserve
D. a capital reserve within equity
19. The following are biological assets, except
A. Dairy cattle 27. Inventories comprising agricultural produce that an entity
C. Bushes has harvested from its biological assets are measured on
B. Cotton initial recognition at
D. Fruit Trees A. Fair value
B. Net realizable value
20. It is the management by an entity of the biological C. Fair value less estimated point-of-sale costs at the
transformation of living animals or plant for sale into point of harvest
agricultural produce or into additional biological assets D. Cost
A. Agricultural activity
C. Economic activity 28. Changes in fair value of a biological assets or an
B. Biological activity D. agricultural produce are
Development activity A. Ignored
B. Included in the determination of income of the
21. The following are agricultural produce harvested from current period
biological assets, except C. Included in equity
A. Grapes D. Included in retained earnings
C. Wool
B. Cotton 29. An unconditional government grant related to a biological
D. Lumber asset that has been measured at fair value less point-of-sale
costs should be recognized as
22. Generally speaking, biological assets relating to A. income when the grant becomes receivable
agricultural activity should be measured using B. a deferred credit when the grant becomes
A. Historical cost receivable
B. Historical cost less depreciation less impairment C. income when the grant application has been
C. A fair value approach submitted
D. Net realizable value D. deferred credit when the grant has been approved
30. Which of the following information should be disclosed
under PAS 41?
A. Separate disclosure of the gain or loss relating to
biological assets and agricultural produce.
B. The aggregate gain or loss arising on the initial
recognition of biological assets and agricultural
produce and the change in fair value less
estimated point-of-sale costs of biological assets.
C. The total gain or loss from biological assets,
agricultural produce, and from changes in fair
value less estimated point-of-sale costs of
biological assets.
D. There is no requirement in the Standard to
disclose separately any gains or losses

31. When there is a production cycle of more than one year,

PAS 41 encourages separate of the
A. Physical change only
B. Price change only
C. Total change in value
D. Physical change and price change