Michael Angelo G.

Aleman February 22, 2022

AU-1BSA-A ACC 103

Module: Activity 2
Page 28-30— PROBLEM 2: MULTIPLE CHOICE
1. The concept of recognition is applied in which of the following instances?

a. An entity includes the effects of an event in the financial statements through a journal
entry.
b. An entity removes the effects of an event from the financial statements through a
journal entry.
c. An entity discloses only an event in the notes, rather than including the effects of the
event in the monetary totals in the financial statements.
d. An entity records an event through a memorandum entry.

2. Which of the following events is not considered an exchange or reciprocal transfer?

a. purchase of inventory on account

b. lending money to another entity
c. payment of a loan payable
d. payment of taxes

3. Which of the following events is considered a nonreciprocal transfer?

a. sale of an asset
b. donation
c. loss from a calamity
d. production of finished goods

4 To be useful, accounting information should be presented using

a. monetary amounts.
b. a common denominator.
c. historical costs.
d. fair values.

5. Which of the following violates the historical cost concept?

a. Recording purchases of merchandise inventory at the purchase price.

b. Recording a building at the total construction costs.
c. Measuring inventories at net realizable value.
d. Recording an equipment acquired in an installment purchase at the cash price
equivalent.
6. Entity A values its fixed assets at their historical costs and does not restate them for
changes in the purchasing power of the Philippine pesos due to inflation. Entity A is
applying which of the following accounting concepts?

a. prudence
b. accrual basis
c. stable monetary unit
d. time period

7. Entity A engages in importing and exporting activities. At the end of the period, Entity
A has assets and liabilities denominated in foreign currencies. When preparing its
financial statements, Entity A translates these assets and liabilities to pesos. Entity A is most
likely to be applying which of the following accounting concepts?

a. double entry
b. accrual basis
c. stable monetary unit
d. time period

8. financial statements at least annually is an application of which of the following

accounting concepts?

a. historical cost
b. accrual basis
c. stable monetary unit
d. time period

9. Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of
the inventory as asset rather than an outright expense. When the inventory is
subsequently sold, Entity A recognizes the cost of the inventory sold as expense, in the
same period the sale revenue is recognized. This is an application of which of the
following accounting concepts?

a. stable monetary unit

b. materiality
c. matching
d. proprietary

10. On Day 1, a customer buys goods from Entity A and promises to pay the sale price on
Day 30. Entity A recognizes revenue on Day 1 rather than on Day 30. This is an of which
of the following accounting concepts? sales application

a. prudence
b. accrual basis
c. consistency
d. materiality
Page 93-94— PROBLEM 2: TRUE OR FALSE
False 1. The Conceptual Framework may be revised from time to time. Revisions in the
Conceptual Framework automatically result to changes in the Standards.

False 2. According to the revised Conceptual Framework, the asset is the right, while the
liability is the obligation, rather than the ultimate inflows or outflows of economic benefits
resulting from the asset or liability.

True 3. Legal enforceability of a right, for example ownership, is necessary for control over
an economic resource to exist.

False 4. According to the revised Conceptual Framework, an asset can exist even if the
probability that it will provide inflows of future economic benefits is low, and even if the
asset is subject to a high measurement uncertainty.

True 5. According to the revised Conceptual Framework, what the entity controls is the
right, and not the ultimate inflows of future economic benefits that the economic
resource may produce.

True 6. The Conceptual Framework defines income and expenses in terms of changes in
assets and liabilities.

False 7. Not all items that meet the definition of a financial statement element are
recognized; they are recognized only if recognizing them will also result in relevant and
faithfully represented information.

True 8. Measuring an asset at historical cost will always result in the same carrying amount
of the asset from period to period.

True 9. According to the Conceptual Framework, amortized cost measurement relates to

historical cost, rather than current value.

False 10. Although the use of a single measurement basis improves the understandability
of the financial statements, this may not always lead to useful information. Thus, the
Standards require different measurement bases for different assets, liabilities income and
expenses.