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PRACTICAL ACCOUNTING 2
Sunday, July 19, 2015 About Me

Accounting 2012
TOA3
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TOA
QUIZZER 3
Blog Archive
Multiple Choice
Identify the choice
that best completes the statement or answers the question. ▼ 
2015
(16)
▼ 

► 
September
(2)
► 

____          1.      Which entities are required to apply deferred tax accounting?
▼ 
July
(10)
▼ 

I.  Public entities

INSTALLMENT SALES
II.
Nonpublic entities
a I only c Both I and II LONG-TERM CONSTRUCTION
. . CONTRACTS
b II only d Neither I nor II TOA3
. . TOA2
TOA1

____          2.      It is the excess of taxable revenue over tax deductible expenses
and exemptions for STANDARD COSTING - Variance
Analysis
the year as defined by the Bureau of Internal Revenue.
a Taxable income c Accounting income ABC and STANDARD COSTING
. . subject to tax LINK: PROCESS COSTING, FOREX
b Accounting income per d Comprehensive income AND HEDGING, and MAS ...
. book . Joint Products Cost
Just In Time

____          3.      It is the net profit for a period before deducting tax expense. ► 
June
(4)
► 

a Accounting profit c Gross profit

. .
b Taxable profit d Net profit
. .

____          4.      This is a difference between the tax basis of an asset or

liability and its carrying
amount that will result in taxable or deductible
amounts in the future years when the
carrying amount of the asset or liability
is recovered or settled.
I.   Temporary difference
II.  Permanent difference
a I only c Both I and II
. .
b II only d Neither I nor II
. .

____          5.      Taxable temporary difference is the

I.    Temporary difference that will result in
future taxable amount in determining taxable
income of future periods when the
carrying amount of the asset or liability is recovered
or settled.
II.   Temporary difference that will result in
future deductible amount in determining taxable
income of future periods when
the carrying amount of the asset or liability is recovered
or settled.
a Both I and II c II only
. .
b I only d Neither I nor II
. .

____          6.      It is the deferred tax consequence attributable to a taxable

temporary difference.
a Deferred tax liability c Current tax liability
. .
b Deferred tax asset d Current tax asset
. .
____          7.      It is the deferred tax consequence attributable to a deductible
temporary difference
and operating loss carryforward.
a Deferred tax liability c Current tax liability
. .
b Deferred tax asset d Current tax asset
. .

____          8.      It is the amount of income tax paid or payable for the year as
determined in applying
the provisions of the enacted tax law to the taxable
income.
a Current tax expense c Deferred tax benefit
. .
b Deferred tax expense d Income tax expense
. .

____          9.      The deferred tax expense is equal to

a Increase in deferred tax asset less the increase in deferred tax
liability.
.
b Increase in deferred tax liability minus the increase in
deferred tax asset.
.
c Increase in deferred tax asset.
.
d Increase in deferred tax liability.
.

____          10.    It is the aggregate amount included in the determination of net

profit for the period in
respect of current tax and deferred tax.
a Tax expense c Deferred tax expense
. .
b Current tax expense d Deferred tax benefit
. .

____          11.    It is the amount attributable to an asset or liability for tax

purposes.
a Carrying amount c Measurement base
. .
b Tax base d Taxable amount
. .

____          12.    A deferred tax liability shall be recognized for all

a Permanent differences c Taxable temporary
. . differences
b Temporary differences d Deductible temporary
. . differences

____          13.    A deferred tax asset shall be recognized for all deductible
temporary differences and
operating loss carryforward when
a It is probable that
taxable income will be available against which the
. deferred tax asset can be
used
b It is probable that
accounting  income will be available
against which the
. deferred tax asset can be used
c It is possible that
taxable income will be available against which the
. deferred tax asset can be
used
d It is possible that
accounting income will be available against which the
. deferred tax asset can
be used

____          14.    Which statement is incorrect concerning tax assets and

liabilities?
a Deferred tax assets and
liabilities shall be discounted.
.
b Tax assets and
liabilities shall presented separately from other assets and
. liabilities in
the statement of financial position.
c Deferred tax assets and
liabilities shall be distinguished from current tax
. assets and liabilities.
d When an entity makes a
distinction between current and noncurrent
. assets and liabilities, it shall
not classify deferred tax assets and liabilities
as current.

____          15.    An entity shall offset a deferred tax asset and deferred tax
liability when
I.    The deferred tax asset and deferred tax
liability relate to income taxes levied by the
same taxing authority.
 II.  The entity has a legal enforceable right to
offset a current tax asset against a current tax
liability.
a I only c Both I and II
. .
b II only d Neither I nor II
. .

____          16.    The following statements relate to deferred tax assets or

liabilities. Which statement
is true?
I.    Deferred tax liabilities are the amounts of
income taxes payable in future periods in
respect of taxable temporary
differences.
II.  Deferred tax assets are the amounts of income
taxes recoverable in future periods in
respect of deductible permanent differences.
a I only c Both I and II
. .
b II only d Neither I nor II
. .

____          17.    Deferred tax assets are the amount of income taxes recoverable in
future periods in
respect of
a The carryforward of
unused tax losses only
.
b Taxable temporary
differences and carryforward of unused tax losses
.
c Deductible temporary
differences and carryforward of unused tax losses
.
d Permanent differences
.

____          18.    All of the following must be disclosed separately, except?

a The tax bases of major
items on which deferred tax has been calculated.
.
b The amount of deductible
temporary differences for which no deferred tax
. asset is recognized.
c The amount of taxable
temporary differences associated with investments
. in subsidiaries and
associates for which no deferred tax liability is
recognized.
d The amount of income tax
relating to each component of other
. comprehensive income.

____                  19.      The following statements relate to classification of items under

PAS 12. Which
statement is true?
I.    Interest expense accrued but included in
taxable profit on a cash basis shall be
classified  under deductible temporary differences.
II.  Where accumulated depreciation on an asset is
greater than accumulated tax
depreciation, the amount shall be classified under
deductible temporary differences.
a I only c Both I and II
. .
b II only d Neither I nor II
. .

____          20.    Which statement is true in accordance with PAS 12?

I.    Development costs have
been capitalized and will be amortized but were deducted in
determining taxable
profit in the period in which they were incurred. This will give rise to
a
deferred tax asset.
II.   The tax base for a
machine for tax purposes is greater than the carrying amount in the
financial
statements up to the end reporting period. This will give rise to a deferred
tax
asset.
a I only c Both I and II
. .
b II only d Neither I nor II
. .

____          21.    Justification for the method of determining periodic deferred tax
expense is based
on the concept of
a Matching of periodic expense to periodic revenue.
.
b Objectivity in the calculation of periodic expense.
.
c Recognition of assets and liabilities.
 .
d Consistency of tax expense measurement with actual tax planning
. strategies.

____          22.    Which of the following differences would result in future taxable
amount?
a Expenses or losses that
are deductible after they are recognized in
. accounting income.
b Revenues or gains that
are taxable before they are recognized in
. accounting income.
c Expenses or losses that
are deductible before they are recognized in
. accounting income.
d Revenues or gains that
are recognized in accounting income but are
. never included in taxable income.

____          23.    A temporary difference which would result in a deferred tax

liability is
a Interest revenue on municipal bonds.
.
b Accrual of warranty expense.
.
c Excess of tax depreciation over accounting depreciation.
.
d Subscription received in advance.
.

____          24.    A temporary difference which would result in a deferred tax asset
is
a Tax penalty or surcharge
.
b Dividend received on
share investment
.
c Excess tax depreciation
over accounting depreciation
.
d Rent received in advance
included in taxable income at the time of receipt
. but deferred for accounting
purposes

____          25.    An entity, cash basis taxpayer, prepares accrual basis financial
statements. In its
year-end statement of financial position, the entity’s
deferred income tax liabilities
increased compared to the prior year. Which of
the following changes would cause this
increase in deferred tax liabilities?
I.    
An increase in prepaid insurance
II.   
An increase in rent receivable
III.  
An increase in warranty obligation
a I only c II and III
. .
b I and II d III only
. .

____          26.    An entity reported deferred tax assets and deferred tax
liabilities at the end of the
prior year and at the end of the current year.
For the current year, the entity should
report deferred income tax expense or
benefit equal to the
a Decrease in the deferred
tax assets
.
b Increase in the deferred
tax liabilities
.
c Amount of the current
liability plus the sum of the net changes in deferred
. tax assets and deferred
tax liabilities
d Sum of the net changes
in deferred tax assets and deferred tax liabilities
.

____          27.    Because an entity uses different methods to depreciate equipment

for accounting
and income tax purposes, the entity has temporary differences
that will reverse during
the next year and add to taxable income. Deferred
income taxes that are based on
these temporary differences shall be classified
in the entity’s statement of financial
position as
a Contra account to
current assets
.
b Contra account to
noncurrent assets
.
c Current liability
.
d Noncurrent liability
 .

____                  28.      At the most recent year-end, an entity had a deferred tax
liability arising from
accelerated depreciation that exceeded a deferred asset
relating to rent received in
advance which is expected to reverse in the next
year. Which of the following shall be
reported in the entity’s most recent
year-end statement of financial position?
a The excess of the
deferred tax liability over the deferred tax asset as a
. noncurrent liability.
b The excess of the
deferred tax liability over the deferred tax asset as a
. current liability.
c The deferred tax
liability as a noncurrent liability.
.
d The deferred tax
liability as a current liability.
.

____                  29.      An entity’s financial reporting basis of its plant assets exceeded
the tax basis
because it uses a different method of  reporting depreciation for financial
reporting
purposes and tax purposes. If it has no other temporary differences,
the entity shall
report a
a Current tax asset c Deferred tax liability
. .
b Deferred tax asset d Current tax payable
. .

____          30.    A deferred tax liability is computed using

a Current tax law regardless of expected or enacted future tax
law.
.
b Expected future tax law regardless of whether enacted or not.
.
c Current tax law unless a future enacted tax law is different.
.
d Either current or expected future tax law regardless of whether
the
. expected future tax law is enacted or not.

____          31.    The purpose of interperiod tax allocation is to

a Allow reporting entities
to fully utilize tax losses carried forward from a
. previous year.
b Allow reporting entities
whose tax liabilities vary significantly from year to
. year to smooth payments
to taxing agencies.
c Recognize an asset or
liability for the tax consequences of temporary
. differences that exist at the
end of the reporting period.
d Amortize the deferred
tax liability shown in the statement of financial
. position.

____          32.    The result of interperiod tax allocation is that

a Wide fluctuations in an
entity’s tax liability payments are eliminated.
.
b Tax expense shown in the
income statement is equal to the deferred taxes
. shown in the statement of
financial position.
c Tax liability shown in
the statement of financial position is equal to the
. taxes shown in the
previous year’s statement of financial position plus the
income tax expense
shown in the income statement.
d Tax expense shown in the
income statement is equal to income taxes
. payable for the current year plus
or minus the change in the deferred tax
asset or liability balances for the
year.

____          33.    Which of the following is an example of a temporary difference

that would result in a
deferred tax liability?
a Use of straight line depreciation for accounting purposes and an
. accelerated rate for income tax purposes.
b Rent revenue collected in advance when included in taxable
income
. before it is included in pretax accounting income.
c Use of a shorter depreciation period for accounting purposes
than is used
. for income tax purposes.
d Investment losses recognized earlier for accounting purposes
than for tax
. purposes.

____          34.    Which of the following is the most likely item to result in a deferred
tax asset?
a Using accelerated depreciation for tax purposes but straight
line
 . depreciation for accounting purposes
b Using the cost recovery revenue method of recognizing construction
. revenue for tax purposes but using percentage of completion method for
financial reporting purposes
c Prepaid expense
.
d Unearned revenue
.

____          35.    An example of a “deductible temporary difference” occurs when

a The installment sales
method is used for tax purposes but the accrual
. method of recognizing sales
revenue is used for financial accounting
purposes.
b Accelerated depreciation
is used for tax puposes but straight line
. depreciation is used for accounting
purposes.
c Warranty expenses are
recognized on the accrual basis for financial
. accounting purposes but
recognized for tax purposes as the warranty
conditions are met.
d The cost recovery method
of recognizing construction revenue is used for
. tax purposes but the
percentage of completion method is used for
financial accounting purposes.

____          36.    A deferred tax liability arising from the use of an accelerated
method of depreciation
for tax purposes and the straight line method for
financial reporting purposes would be
classified in the statement of financial
position as
a A current liability
.
b A noncurrent liability
.
c A current liability for
the portion of the temporary difference reversing
. within a year and a noncurrent
liability for the remainder
d An offset to the
accumulated depreciation reported in the statement of
. financial position

____          37.    An item that would create a permanent difference in pretax

financial income and
taxable income would be
a Using accelerated
depreciation for tax purposes and straight line
. depreciation for book
purposes.
b Purchasing equipment
previously leased with an operating lease in prior
. years.
c Using the percentage of
completion method on long-term construction
. contracts.
d Paying fines for
violation of laws.
.

____          38.    Recognizing tax benefit in a loss year due to a loss carryforward
requires
a Only a footnote disclosure.
.
b Creating a new carryforward for the next year.
.
c Creating a deferred tax asset.
.
d Creating a deferred tax liability.
.

____          39.    Intraperiod tax allocation

a Involves the allocation of income taxes between current and
future
. periods.
b Associates tax effect with different items in the income
statement.
.
c Arises because certain revenue and expenses appear in the
financial
. statements either before or after they are included in the income
tax
return.
d Arises because different income statement items are taxed at
different
. rates.

____          40.    In computing the change in deferred tax asset or liability, which
tax rate is used?
a Current tax rate c Enacted future tax rate
. .
b Estimated future tax rate d Prior tax rate
 . .

____          41.    It is an existing liability of uncertain

timing or uncertain amount.

a Provision c Accrued liability

. .
b Contingent liability d Note payable
. .

____          42.    A provision shall be recognized as liability

when (choose the incorrect one)

a An entity has a present obligation as a result of a past event.

.
b It is probable that an outflow of resources embodying economic
benefits will be
. recquired to settle the obligation.
c It is possible that an outflow of resources embodying economic
benefits will be
. required to settle the obligation.
d The amount of the obligation can be measured reliably.
.

____          43.    A constructive obligation is an obligation

I.   Arising from contract,

legislation or operation of law.

II.  That is derived from an

entity’s action that the entity will accept certain responsibilities because
of
past practice, published policy or current statement and as a result, the
entity has created a
valid expectation in other parties that it will discharge
those responsibilities.

a I only c Both I and II

. .
b II only d Neither I nor II
. .

____          44.    It is an event that creates a legal or

constructive obligation because the entity has no other
realistic alternative
but to settle the obligation.

a Obligating event c Subsequent event

. .
b Past event d Current event
. .

____          45.    An outflow of resources embodying economic

benefits is regarded as “probable” when

a The probability that the event will occur is greater than the
probability that the
. event will not occur.
b The probability that the event will not occur is greater than
the probability that the
. event will occur.
c The probability that the event will occur is the same as the
probability that the
. event will not occur.
d The probability that the event will occur is 90% likely.
.

____          46.    Where there is a continuous range of

possible outcomes, and each point in that range is as
likely as any other, the
range to be used is the
a Minimum
.
b Maximum
.
c Midpoint
.
d Summation of the minimum and maximum
.

____          47.    Where the provision being measured involves

a large population of items, the obligation is
estimated by “weighting” all
possible outcomes by their associated probabilities. The name for
this
statistical method of estimation is

a Expected value c Current value

. .
 b Present value d Extrapolation
. .

____          48.    Which statement is incorrect in the

measurement of a provision?

a The risks and uncertainties that inevitably surround many events

and
. circumtances shall be taken into account in reaching the best estimate of
a
provision.
b Where te effect of the time value of money is material, the
amount of a provision
. shall be the present value of the expenditure expected
to settle the obligation.
c Future events that may affect the amount required to settle the
obligation shall be
. reflected in the amount of that the future events will occur.
d Gains from expected disposal of assets shall be taken into
account in measuring a
. provision.

____          49.    Which statement is incorrect where

some or all of the expenditure required to settle a
provision is expected to be
reimbursed by another party?

a The reimbursement shall be recognized only when it is virtually

certain that the
. reimbursement would be received if the entity settles the
obligation.
b The amount of the reimbursement shall not exceed the amount of
the provision.
.
c The amount of the reimbursement may exceed the amount of the
provision.
.
d In the income statement, the expense relating to the provision
may be presented
. net of the reimbursement.

____          50.    Which statement is incorrect concerning

recognition of a provision?

a Provisions shall be reviewed at each balance sheet date and

adjusted to reflect the
. current best estimate.
b A provision shall be used only for expenditures for which the
provision was
. originally recognized.
c Provisions shall be recognized for future operating losses.
.
d If an entity has an onerous contract, the present obligation
under the contract shall
. be recognized and measured as a provision.

____          51.    A legal obligation is an obligation that is

derived from all of the following, except

a Legislation
.
b A contract
.
c Other operation of law
.
d An established pattern of past practice
.

____          52.    For which of the following should a

provision be recognized?

a Future operating losses

.
b Obligations under insurance contracts
.
c Reductions in fair value of financial instruments
.
d Obligations for plant decommissioning costs
.

____          53.    Provisions shall be recognized for all of

the following, except

a Cleaning-up costs of contaminated land when an oil entity has a

published policy
. that it will undertake to clean up all contamination that it
causes.
b Restructing costs after a binding sale agreement has been
signed.
.
c Rectification costs relating to defective products already sold.
.
d Future refurbishment costs due to introduction of a new computer
system.
.
____          54.    An entity is closing one of its operating
divisions, and the conditions for making restructing
provision have been met.
The closure will happen in the first quarter of the next financial year.
At the
current year-end, the entity has announced the formal plan publicly and is
calculating the
restructing provision. Which of the following costs should be
included in the restructuring
provision?

a Retraining staff continuing to be employed

.
b Relocation costs relating to staff moving to other divisions
.
c Contractually required costs of retraining staff being made
redundant from the
. division being closed
d Future operating losses of the division being closed up to the
date of closure
.

____          55.    An entity operates chemical plants. Its

published policies include a commitment to making
good any damage caused to the
environment by its operations. It has always honored this
commitment. Which of
the following scenarios relating to the entity would give rise to an
environmental provision?

a On past experience it is likely that a chemical spill which

would result in having
. to pay fines and penalties will occur in the next
year.
b Recent research suggests there is a possibility that the
entity’s actions may
. damage surrounding wildlife.
c The government has outlined plans for a new law requiring all
environmental
. damage to be rectified.
d A chemical spill from one of the entity’s plants has caused harm
to the
. surrounding area and wildlife.

____          56.    When can a “provision” be recognized?

a When there is a legal obligation arising from a past obligating

event, the
. probability of the outflow of resources is more than remote but
less than probable,
and a reliable estimate can be made of the amount of the
obligation.
b When there is a constructive obligation as a result of a past
obligating event, the
. outflow of resources is probable, and a reliable
estimate can be made of the
amount of the obligation.
c When there is a possible obligation arisinf from the past event,
the outflow of
. resources is probable, and an approximate amount can be set
aside toward the
obligation.
d When management decides that it is essential that a provision be
made for
. unforeseen circumtances and keeping in mind this year the profits
were enough
but next year there may be losses.

____          57.    A competitor has sued an entity for

unauthorized use of its patented technology. The amount
that the entity may be
required to pay to the competitor if the competitor succeeds in the lawsuit
is
determinable with reliability, and according to the legal counsel it is less
than probable but
more than remote that an outflow of the resources would be
needed to meet the obligation. The
entity that was sued shall at year-end.

a Recognize a provision for this possible obligation.

.
b Make a disclosure of the possible obligation in footnotes to the
financial
. statements.
c Make no provision or disclosure and wait until the lawsuit is
finally decided and
. then expense the amount paid on settlement, if any.
d Set aside, as an appropriation, a contingency reserve, an amount
based on the best
. estimate of the possible liability.

____          58.    A factory owned by an entity was destroyed

by fire. The entity lodged an insurance claim for
the value of the factory
building and plant, and an amount equal to one year’s net profit. During
the
year, there were a number of meetings with representatives of the insurance
company.
Finally, before year-end, it was decided that the entity would receive
compensation for 90% of
its claim. The entity received a letter that the
settlement check for that amount had been mailed,
but it was not received before
year-end. How should the entity treat this in its financial
statements?
a Disclose the contingent asset in the footnotes.
.
b Wait until next year when the settlement check is actually
received and not
. recognize or disclose this receivable at all since at
year-end it is a contingent
 asset.
c Record 90% of the claim as a receivable as it is virtually
certain that the
. contingent asset will be received.
d Record 100% of the claim as a receivable at year-end as it is
virtually certain that
. the contingent asset will be received, and adjust the
10% next year when the
settlement check is actually received.

____          59.    The board of directors of an entity decided

on December 15 of the current year to wind up
internation operations in the Far
East and move them to Australia. The decision was based on a
detailed
formal plan of restructuring as required by PAS 37. This decision was conveyed
to all
workers and management personnel at the headquarters in Europe.
The cost of this
restructuring plan can be estimtaed reliably. How should the
entity treat this restructuring in its
financial statements for the year-end
December 31?

a Because the entity has not announced the restructuring to those

affected by the
. decision and thus has not raised an expectation that the
entity will actually caryy
out the restructuring and as no constructive
obligation has arisen, only disclose
the restructuring decision and the cost
of restructuring.
b Recognize a provision for restructuring since the board of
directors has approved
. it and it has been announced in the headquarters of
the entity in Europe.
c Mention the decision to restructure and the cost involved in the
chairman’s
. statement in the annual report since it is a decision of the board
of directors.
d Because the restructuring has not commenced before year-end,
based on
. prudence, wait until next year and do nothing in this year’s
financial statements.

____          60.    An entity has been served a legal notice at

year-end by the Department of Environment and
Natural Resources to fit smoke
detectors in its factory on or before middle of next year. The cost
of fitting
smoke detector can be measured reliably. How should the entity treat this in
its
financial statements at year-end?

a Recognize a provision for the current year equal to the

estimated amount.
.
b Recognize a provision for the current year equal to one-half
only of the estimated
. amount.
c No provision is recognized at year-end because there is no
present obligation for
. the future expenditure since the entity can avoid the
future expenditure by
changing the method of operations but disclosure is
required.
d Ignore this for purposes of the financial statements at
year-end.
.

____          61.    A contingent liability is a

I.   Possible obligation that arises from past

event and whose existence will be confirmed only by the
occurrence or
nonoccurrence of one or more uncertain future events not wholly within the
control of the entity.

II.  Present obligation that

arises from past event and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and the
amount of the
obligation and the amount of the obligation can be measured reliably.

a I only c Both I and II

. .
b II only d Neither I nor II
. .

____          62.    The present obligation is not a contingent

liability but shall be recognizede as a provision
when

a Amount is reasonably estimate and event occurs infrequently.

.
b Amount is reasonably estimable and occurrence of event is
probable.
.
c Event is unusual in nature and accurrence of event is probable.
.
d Event is unusual in nature and event occurs infrequently.
.

____          63.    Which statement is incorrect

concerning contingent liability?

a A contingent liability is not recognized in the fianncial

statements.
.
 b A contingent liability is disclosed only.
.
c If the contingent liability is remote, no disclosure is
required.
.
d A contingent liability is both probable and measurable.
.

____          64.    It is a possible asset that arises from past

event and whose existence will be confirmed only
by the occurence or
nonoccurrence of one or more uncertain future events not wholly within the
control of the entity.

a Contingent asset c Suspense account

. .
b Other asset d Current asset
. .

____          65.    Which statement is incorrect concerning

a contingent asset?

a A contingent asset is not recognized in the financial statements

because this may
. result to recognition of income that may never be realized.
b When the realization of income is virtually certain, the related
asset is no longer
. contingent asset and its recognition is appropriate.
c A contingent asset is only disclosed when the occurrence of the
future event is
. possible or remote.
d The related gain arising from the contingent asset is recognized
usually when it is
. realized.

____          66.    Which of the following should be disclosed

in the financial statements as a contingent
liability?

a The entity has accepted liability prior to the year-end for

unfair dismissal of an
. employee and is to pay damages.
b The entity has received a letter from a supplier complaining
about an old unpaid
. invoice.
c The entity is involved in a legal case which it may possibly
lose, although this is
. not probable.
d The entity has not yet paid certain claims under sales
warranties.
.

____          67.    Are the following statements in relation to

a contingent liability true or false?

Statement 1   An obligation

as a result of the entity creating a valid expectation that it will  discharge its
responsibilities is a
contingent liability.

Statement 2   A present

obligation that arises from past event but cannot be reliably measured is a
contingent
liability.
   
 Statement 1           Statement 2
a False                  
False
.
b False                  
True
.
c True                    False
.
d True                   
True
.

____          68.    The likelihood that the future event will or

will not occur can be expressed by a range of
outcome. Which range means that
the future event occurring is very slight?

a Probable
.
b Reasonably possible
.
c Certain
.
d Remote
.
____          69.    An entity did not record an accrual for a
present obligation but disclose the nature of the
obligation and the range of
the loss. How likely is the loss?

a Remote c Probable
. .
b Reasonably possible d Certain
. .

____          70.    A present obligation that is probable and

for which the amount can be reasonably estimated
shall
a Not be accrued but shall be disclosed in the notes to the
financial statements.
.
b Be accrued by debiting an appropriated retained earnings account
and crediting a
. liability account.
c Be accrued by debiting an expense account and crediting an
appropriated retained
. earnings account.
d Be accrued by debiting an expense account and crediting a
liability account.
.

____          71.    Contingent assets are usually recognized

when

a Realized
.
b Occurrence is reasonably possible and the amount can be
reasonably estimated
.
c Occurrence is probable and the amount can be reasonably
estimated
.
d The amount can be reasonably estimated
.

____          72.    Which of the following is the proper

accounting treatment of a contingent asset?

a An accrued account
.
b Deferred earnings
.
c An account receivable with an additional disclosure explaining
the nature of the
. transaction
d A disclosure only
.

____          73.    When the occurrence of a contingent asset is

probable and its amount can be reasonably
estimated, the contingent asset shall
be

a Recognized in the statement of financial position and disclosed.

.
b Classified as an appropriation of retained earnings.
.
c Disclosed but not recognized in the statement of financial
position.
.
d Neither recognized in the statement of financial position nor
disclosed.
.

____          74.    An entity operates a plant in a foreign

country. It is probable that the plant will be
expropriated. However the
foreign government has indicated that the entity will receive a
definite amount
of compensation for the plant. The amount of compensation is less than the fair
value but exceeds the carrying amount of the plant. The contingent asset shall
be reported

a As a valuation allowance as a part of shareholders’ equity.

.
b As a fixed asset valuation allowance account.
.
c In the notes to the finanical statements.
.
d In the statement of financial position.
.

____          75.    At year-end, an entity was a competitor for

patent infringement. The award from the
probable favorable outcome could be
reasonably estimated. The entity’s financial statements
shall report the
expected award as
 a Receivable and revenue
.
b Receivable and reduction of patent
.
c Receivable and deferred revenue
.
d Disclosure only
.

____          76.    Contingent liabilities will or will not

become actual liabilities depending on

a Whether they are probable and estimable .

.
b The degree of uncertainty.
.
c The present condition suggesting a liability.
.
d The outcome of a future event.
.

____          77.    A contingent liability shall be recorded

when

a Any lawsuit is actually filed against an entity.

.
b It is certain that funds are available to pay the amount of the
claim.
.
c It is probable that a liability has been incurred even though
the amount of the loss
. can be reasonably estimated.
d The amount of the loss can be reasonably estimated and it is
probable prior to
. issuance of financial statements that a liability has been
incurred.

____          78.    How should a contingent liability be

reported in the financial statements when it is
“reasonably possible” that the
entity will have to pay the liability at a future date?

a As a deferred liability
.
b As an accrued liability
.
c As a disclosure only
.
d As an account payable with an additional disclosure explaining
the nature of the
. transaction

____          79.    Disclosure usually is not required

for

a Contingent gains that are probable and can be reasonably

estimated.
.
b Contingent losses that are reasonably possible and cannot be
reasonably
. estimated.
c Contingent losses that are probable and cannot be reasonably
estimated.
.
d Contingent losses that are remote and can be reasonably
estimated.
.

____          80.    Which of the following liabilities is not

contingent?

a A liability to replace a specific defective television set

already returned to the
. manufacturer.
b A liability to pay pension benefits if a specific employee lives
to retirement.
.
c A liability to pay any adverse judgment for a product liability
case currently on
. appeal.
d A liability to pay for books received by a college bookstore
under terms that
. allow for the return for full refund of any books not sold.

____          81.    Gain contingencies that are remote and can

be reasonably estimated

a Must be disclosed in a note to the financial statements.

.
b May be disclosed in a note to the financial statements.
 .
c Must be reported in the body of the financial statements.
.
d Should not be reported or disclosed.
.

____          82.    A contingent liability

a Has a most probable value of zero but may require a payment if a

given future
. event occurs.
b Definitely exists as a liability but its amount or due date is
indeterminate.
.
c Is commonly associated with loss carry-forward.
.
d Is not disclosed in the financial statements.
.

____          83.    An item that is not a contingent liability

is

a Premium offer to customer for labels or box tops

.
b Acommodation endorsement on customer note
.
c Additional compensation that may be payable on a dispute now
being arbitrated
.
d Pending lawsuit
.

____          84.    An entity has a self-insurance plan. Each

year, the entity appropriated retained earnings for
contingencies in an amount
equal to insurance premiums saved less recognized losses from
lawsuits and
other claims. As a result of an accident in the current year, the entity is a
defendant
in a lawsuit in which it will probably have to pay measurable amount
of damages. What are the
effects of this lawsuit’s probable outcome on the
entity’s financial statements for the current
year?

a An increase in expenses and no effect on liabilities.

.
b An increase in both expenses and liabilities.
.
c No effect on expenses and an increase in liabilities.
.
d No effect on either expenses or liabilities.
.

____          85.    On January 31, 2009 an explosion occurred at

an entity’s plant causing extensive property
damage to area buildings. Although
no claims had yet been assertes against the entity by March
15,2010, the
entity’s management and counsel concluded that it is likely that claims will be
asserted and that it is reasonably possible the entity will be responsible for
damages. The
management believed that P1,250,000 would be reasonable estimate
of its liability. The entity’s
P5,000,000 comprehensive public liability policy
has a P250,000 deductible clause. In the
December 31, 2009 financial statements
which were issued on March 31, 2010, how should this
item be reported?

a As an accrued liability of P250,000

.
b As a footnote disclosure indicating the possible loss of
P250,000
.
c As a footnote disclosure indicating the possible loss of
P1,250,000
.
d No footnote disclosure or accrual is necessary
.

____          86.    A retail store received cash and issued gift

certificates that are redeemable in merchandise.
The gift certificates lapse
one year after they are issued. How would the deferred revenue
account be
affected by each of the following transactions?

a Premium offer to customers for labels or box tops

.
b Acommodation endorsement on customer note
.
c Additional compensation that may be payable on a dispute now
being arbitrated
 .
d Pending lawsuit
.

____          87.    A retail store received cash and issued a

gift certificate that is redeemable in merchandise.
When the gift certificate
was issued, a

a Deferred revenue account should be decreased

.
b Deferred revenue account should be increased
.
c Revenue account should be decreased
.
d Revenue account should be increased
.

____          88.    Magazine subscription collected in advance

are treated as

a A contra account to magazine subscription receivable

.
b Deferred revenue in the liability section
.
c Deferred revenue in the shareholders’ equity section
.
d Magazine subscription refunds in the income statement in the
period collected
.

____          89.    An entity receives an advance payment for

special order goods that are to be manufactured
and delivered within six
months. The advance payment shall be reported in the entity’s
statement of
financial position as a

a Deferred charge c Current liability

. .
b Contra asset account d Noncurrently liability
. .

____          90.    An entity is a retailer of home appliances

and offers service contract on each appliance sold.
The entity sells appliances
on installment contracts, but all service contracts must be paid in full
at the
time of sale. Collections received for service contracts shall be recorded as
an increases in
a

a Deferred revenue account

.
b Sales contracts receivable valuation account
.
c Shareholder’s equity valuation account
.
d Service revenue account
.

____          91.    Under a royalty agreement with another

entity, a entity will receive royalties from the
assignment of a patent for
four years. The royalties received in advance shall be reported as
revenue
a In the period received
.
b In the period earned
.
c Evenly over the life of the royalty agreement
.
d At the date of the royalty agreement
.

____          92.    In June of the current year, an entity sold

refundable merchandise coupons. The entity
received a certain amount for each
coupon redeemable from July 1 to December 31 of the
current year, for
merchandise with a certain retail price. At June 30 of the current year, how
should the entity report these coupon transactions?

a Unearned revenue at the merchandise’s retail price.

.
b Unearned revenue at the cash received
 .
c Revenue at the merchandise’s retail price
.
d Revenue at the cash received
.

____          93.    How would the proceeds received from the

advance sale of  nonrefundable tickets
for a
theatrical performance be reported in the seller’s financial statements
before the performance?

a Revenue for the entire proceeds

.
b Revenue to the next extent of related costs expended
.
c Unearned revenue to the extent of related costs expended
.
d Unearned revenue for the entire proceeds
.

____          94.    On March 31 of the current year, an entity

received an advance payment of 60% of the sales
price for special order goods
to be manufactured and delivered within five months. At the same
time, the
entity subcontracted for production of the special order goods at a price equal
to 40%
of the main contract price. What liabilities should be reported in the
entity’s March 31 statement
of financial position?

a None
.
b Deferred revenue equal to 60% of the main contract price and
payable to
. subcontractor equal to 40% of the main contract price.
c Deferred revenue equal to 60% of the main contract price and no
payable to
. subcontractor.
d No deferred revenue but payable to subcontractor is reported at
40% of the main
. contract price.

____          95.    An entity sells appliances that include a

three-year warranty. Service calls under the warranty
are performed by an
independent mechanic under a contract with the entity. Based on
experience,
warranty costs are expected to be incurred for each machine sold. When should
the
entity recognize these warranty costs?

a Evenly over the life of the warranty

.
b When the service calls are performed
.
c When payments are made to the mechanic
.
d When the machines are sold
.

TOA
QUIZZER 3
Answer
Section

MULTIPLE CHOICE

   1.        C

   2.        A

   3.        A

   4.        A

   5.        B

   6.        A

   7.        B

   8.        A

   9.        B
   10.      A

   11.      B

   12.      C

   13.      A

   14.      A

   15.      C

   16.      A

   17.      C

   18.      A

   19.      C

   20.      B

   21.      C

   22.      C

   23.      C

   24.      D

   25.      B

   26.      D

   27.      D

   28.      C

   29.      C

   30.      C

   31.      C

   32.      D

   33.      A

   34.      D

   35.      C

   36.      B

   37.      D

   38.      C

   39.      B

   40.      C

   41.      A

   42.      C

   43.      B

   44.      A

   45.      A

   46.      C

   47.      A
   48.      D

   49.      C

   50.      C

   51.      D

   52.      D

   53.      D

   54.      C

   55.      D

   56.      B

   57.      B

   58.      C

   59.      A

   60.      C

   61.      A

   62.      B

   63.      D

   64.      A

   65.      C

   66.      C

   67.      B

   68.      D

   69.      B

   70.      D

   71.      A

   72.      D

   73.      C

   74.      C

   75.      D

   76.      D

   77.      D

   78.      C

   79.      D

   80.      A

   81.      D

   82.      A

   83.      A

   84.      B

   85.      B
   86.      A

   87.      B

   88.      B

   89.      C

   90.      A

   91.      B

   92.      B

   93.      D

   94.      C

   95.      D

Posted by
Accounting 2012
at
1:08 PM

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