AE 221 Midterm Exams

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Multiple Choice Theory

Theory Questions - 20 points
Read carefully each item and answer correctly. You are required to answer all items in order to proceed to the next section.

Which of the following should be presented in the statement of changes in equity? *

1 point

Investments by owners
Distributions to owners
Change in ownership interest in subsidiary that does not result in a loss of control
All of these should be presented in the statement of changes in equity

Compared to cash basis net income for the current year, an entity's accrual basis net income
increased when it *
1 point

Declared a cash dividend in the prior year that it paid in the current year.
Wrote off more accounts receivable than it reported as uncollectible accounts expense in the current year.
Had lower accrued expenses at the end of the current year than at the beginning of year.
Sold used equipment for cash at a gain in the current year.

An entity shall classify an asset as current under all the following conditions, except *
1 point

The entity expects to realize the asset or intends to sell or consume it within the entity's normal operating cycle.
The entity holds the asset for the purpose of trading.
The entity expects to realize the asset within twelve months after the reporting period.
The asset is cash or a cash equivalent that is restricted to settle a liability for more than twelve months after the
reporting period.

The presentation of the notes to financial statements in a systematic manner *

1 point

Is voluntary
Is mandatory
Is mandatory, as far as practicable
Depends on the industry

When converting from cash basis to accrual basis of accounting, which of the following adjustments
should be made to cash collections from customers to determine accrual basis service revenue?  *
1 point

Subtract ending accounts receivable

Subtract beginning unearned service revenue
Add ending accounts receivable
Add cash sales
Under a strict transaction approach to income measurement, which of the following would not be
considered a transaction? *
1 point

Sale of goods at certain markup

Payment of salaries
Adjustment of inventory to lower of cost and net realizable value when net realizable value is below cost
Exchange of inventory valued at regular selling price for an equipment.

The summary of significant accounting policies should disclose *

1 point

Proforma effect of retroactive application of an accounting change

Basis of profit recognition on long term construction contracts
Adequacy of pension plan assets in relation to vested benefits
Future lease payments

Which of the following components of OCI should be reclassified to retained earnings? *

1 point

Revaluation surplus
Remeasurements of defined benefit plan
Gain or loss attributable to credit risk of a financial liability designated at fair value through profit or loss
All of these components of OCI should be reclassified to retained earnings

Which statement is true regarding events after the end of reporting period? *
1 point

Recognize a loss for all recognized and unrecognized subsequent events in the current year.
Recognized a gain or loss for any recognized subsequent event in the current year.
Recognize a loss for a recognized subsequent event in the financial statements in the year when the subsequent
event occurs.
Recognize a loss for a recognized subsequent event in the current year financial statements.

Which of the following would likely prepare the most accurate financial forecast for a corporate
entity based on empirical evidence? *
1 point

Investors using statistical models to generate forecasts

Corporate management
Financial analysts
Independent certified public accounts

Which event after the reporting period would require disclosure in the financial statements? *
1 point

Retirement of the president

Settlement of litigation when the event that gave rise to the litigation occurred prior to the end of reporting period
Strike of employees
Issue of a large amount of ordinary shares

Which is the first item in presenting the notes to financial statements? *

1 point

Statement of compliance with PFRS

Other disclosures, such as contingent liabilities, unrecognized contractual commitments and nonfinancial
disclosures
Supporting information for items presented on the face of the financial statements
Summary of significant accounting policies

Which of the following changes during a period is not a component of other comprehensive
income? *
1 point

Remeasurement of defined benefit plan

Treasury share, at cost
Foreign currency translation adjustment
Unrealized gain on equity instrument measured at fair value through other comprehensive income

Why is reclassification adjustment used when reporting other comprehensive income? *

1 point

To reclassify an item of comprehensive income as another item of comprehensive income

To avoid double counting of items
To make net income equal comprehensive income
To adjust the income tax effect

Which of the following would not be considered key management personnel compensation? *
1 point

Short-term benefits
Share-based payments
Termination benefits
Reimbursement of out-of-pocket expenses

In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash flow
from investing activities equals the carrying amount of the equipment *
1 point

Plus the gain

Plus the gain and less the amount of tax attributable to the gain
Plus both the gain and the amount of tax attributable to the gain
With no addition or subtraction

The effects of transactions and other events on the economic resources and claims are depicted in
the periods in which these effects occur even if the resulting cash receipts payments occur in a
different period. *
1 point

Accrual accounting
Cash accounting
Modified accrual accounting
Modified cash accounting

To meet the objective of providing information about financial position, financial performance and
cash flows of an entity, financial statements should provide information about all of the following,
except *
1 point
Assets, liabilities and equity
Income and expenses, including gains and losses
Contributions by and distribution to owners in their capacity as owners.
Nature of business activities

Which of the following is related party transaction? *

1 point

Sold a car to the uncle of the entity's finance director.

Sold goods to another entity owned by the daughter of the entity's managing director.
Took out a huge bank loan.
All of these are related party terminations.

Separate line items in an analysis of expenses by function include *

1 point

Purchases, transport costs, employee benefits, depreciation, extraordinary items

Purchases, distribution costs, administrative costs, employee benefits, depreciation, taxes
Depreciation, purchases, transport costs, employee benefits and advertising costs
Cost of goods sold, administrative and distribution costs

Multiple Choice Problems

MULTIPLE CHOICE - 20 points.
Instructions: Select the best answer for each of the following questions. CLICK only one answer for each item. No need to
present solutions.

Chev Inc. carried a provision of P 2,500,000 in its financial statements ended December 31, 2020 in
relation to an unresolved case. On January 31, 2021, when the financial statements of 2020 had
not yet been authorized for issue, the case was settled and the court decided that the company had
to pay total damages amounting to P 5,500,000. What should be the amount of adjustment on
December 31, 2020 in relation to this event? *
2 points

2,500,000
5,500,000
3,000,000
None of the above

The following information pertains to Burgos Company's 2021 cost of sales: Inventory, January 1, P
3, 000, 000; Inventory, December 31, P 900, 000; Purchases, P 9, 000, 000; Write-off of obsolete
inventory, P 1, 050, 000. What amount should the company report as cost of sales? *
2 points

P 10, 050, 000

P 10, 950, 000
P 11, 100, 000
P 12, 100, 000
The following information pertains to Flint Company during the current year. *
2 points

P 1,500,000
P 1,650,000
P 1,350,000
P 1,000,000

Dave, a lawyer, maintains his accounting records under the cash basis of accounting. During 2021,
Dave collected P 200,000 in fees from clients. At December 31, 2020, Dave has accounts
receivable of P 40,000. At December 31, 2021, Dave had accounts receivable of P 60,000 and
unearned fees of P 5,000. On accrual basis, what was Dave's service revenue for 2021? *
2 points

P 175,000
P 180,000
P 215,000
P 225,000

Lincoln Company provided the following account balances on December 31, 2021: Accounts
payable, P 125,000; Accrued taxes, P 50,000; Cash surrender value, P 30,000; Ordinary share
capital, P 1,000,000; Dividends-preference, P 150,000; Mortgage payable (P 200,000 due in six
months), P1, 200, 000; Notes payable-20%, due on January 2, 2022, P 1,500,000; Shares
premium, P 250,000; Preference share capital, P 450,000; Income summary-credit balance, P
500,000; Accumulated profits-December 31, 2021, P 550,000; Unearned rent income, P 25,000;
Dividends-ordinary, P 100,000. How much should Lincoln Company report as Shareholders' equity
on December 31, 2021? *
2 points

P 1, 450, 000
P 1, 650, 000
P 2, 250, 000
P 2, 500, 000
The following transactions were entered into by Keppel Corp. for the current year: Sold goods to
Shang Co. amounting to P 200,000. In the sales contract, there is a clause that the seller has an
obligation for unsatisfactory performance, which is not governed by normal warranty provisions;
Shipped machinery invoiced at P 300,000 to a destination specified by the buyer. A significant part
of the transaction involves installation that has not been fulfilled by Keppel Corp.; Sold at P 500,000
a machinery to Aboitiz Corp, where Aboitiz has the right to cancel the purchases for a reason not
specified in the contract of sale and the seller is uncertain about the outcome. How much should be
recognized by Keppel Corp as revenue from the above transactions? *
2 points

P 0
P 1, 000, 000
P 700, 000
P 500, 000

Vina Company's trial balance of income statement accounts for the year ended December 31,
2021, included the following: *
2 points

P 200,000
P 215,000
P 280,000
P 295,000

Using Vina's trial balance of income statement, what amount should Vina Company report as
income after income taxes? *
2 points

P 126,000
P 129,500
P 140,000
P 147,000

As of December 31, 2021, the current liabilities of Maze Company totaled P 1, 500,000 before any
year-end adjustment relating to the following: On December 19, 2021, a supplier authorized Maze
Company to return, for full credit, goods shipped and billed at P 45, 000 on December 9, 2021. The
returned credit memo was received and recorded by Maze Corporation on January 2, 2022; During
December 2021, Maze received P 75, 000 from a customer as an advance payment for a
merchandise which Maze will make according to the customers' specification. For this transaction,
Maze has a P 75, 000 credit balance in its accounts receivable from the said customer on
December 31, 2021; On December 28, 2021, the company wrote and recorded checks to creditors
totaling P 400, 000 which would cause an overdraft of P 100,000 in the company's bank account on
December 31, 2021. The checks were mailed on January 9, 2022. What amount should Maze
Company report as total current liabilities in its December 31, 2021 Statement of Financial
Position? *
2 points

P 1, 555, 000
P 1, 630, 000
P 1, 855, 000
P 1, 930, 000

Kerosene Company reported total purchases of P 2,500,000 in its cash basis financial statement on
December 31, 2021. Additional information revealed the following: Accounts payable, January 1,
2021 - P 600,000; Accounts payable, December 31, 2021 - P 800,000. Under the accrual basis of
measuring revenues and expenses, how much is the total purchases for the year ended December
31, 2021? *
2 points

2,300,000
2,500,000
2,700,000
3,900,000

Problem Solving
Problem Solving - 26 points.
Answer the following problems and write your final answer without any peso sign and comma. Example: If the required is cost
of machine and the answer is P1,356.83. Answer should be: 1356.83. One point per correct answer in google form quiz and 4
points in the attached Worksheet except the preparation of Statement of Changes in Equity which is 10 points. Columnar paper
computation to be uploaded once submitted and mark as done. Write the name of the Company in each problem to identify your
answers and encircle your final answer in your attached solution. If you don't submit your supporting computation then you will
not get the corresponding points. Good luck and God bless!
How much is the reserves on December 31, 2021? For the computation in your worksheet -
Prepare a Statement of Changes in Equity for the year ended December 31, 2021 for Goldlink
Corporation with the following columns - Share Capital, Reserves, Retained Earnings, Treasury
Shares, and Total. *
1 point

467,000

Your answer

On September 1, 2021, Windburn began a service proprietorship with an initial investment of P

400,000. Windburn provided P 800,000 of services during September. Collections were made
except for P 200,000 which were paid the following month. Expenses were incurred in the amount
of P 400,000, including P 100,000 which are to be paid next month. Windburn withdrew P 60,000
against capital amount. In September 30, 2021 financial statement, what amount of capital should
be reported under the cash basis accounting? *
1 point

640,000

Your answer

Mira Company was authorized by their board of directors to issue their financial statements on April
1, 2021 which shows a profit before tax for the year ended December 31, 2020 at P 9,500,000. A
fire occurred at one of their sites on February 15, 2021 with damages amounting to a total of
6,000,000. It was covered with an insurance but only at P 4,000,000. The said amount can only be
collected on May 1, 2021 when repairs will be paid. What amount will be disclosed on the
company's notes to financial statements? *
1 point

11,500,000
Your answer

What amount of comprehensive income should Real Corporation report on its Statement of
Comprehensive Income given the following net of tax figures that represent changes during the
period? *
1 point

Which of the following would not be considered key management personnel compensation? *
193,000