Besiño, Nikki Rose A.

BACC4A

PAS 1: Presentation of Financial Statement

THEORY
1. This is which information accumulated and processed in financial accounting is
periodically communicated to the users.
a. Financial Analysis
b. Financial Statements
c. Financial Position
d. Financial Performance

Financial Accounting 1by Valix-Chapter 2

2. What is the objective of financial statement?

a. To provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic
decisions.
b. To provide the information that the managers of an economic entity need to control
its operations
c. To measure the periodic income of economic entity
d. To provide information that the creditors of an economic entity can used in deciding
whether to make additional loans to the entity

Financial Accounting 1by Valix-Chapter 2

3. Financial statement comprises the following except

a. Statement of financial position
b. Income Statement
c. Statement of Cash Flows
d. Statement of Accounts

PAS 1- Par 10

4. An entity shall classify an asset as current when:

I. The entity expects to realize the asset within twelve months after the reporting
period.
II. The entity holds the asset primarily for the purpose of trading.
a. True, true c. False, false
b. True, false d. False, true

PAS 1-Paragraph 66

5. The following information shall displayed prominently in the financial statement except:
a. The name of reporting entity
 b. The date at the end of reporting period or the period covered by the set of financial
statements
c. The reason for using a longer or shorter period
d. Whether the financial statements cover the individual entity or a group of entities

RESA hand out

6. The entity shall classify a liability as current except:

a. The entity expects to settle the liability within the entity’s normal operating cycle
b. The entity holds the liability primarily for the purpose of trading
c. The entity is due to be settled within twelve months after the reporting period
d. The entity does have an unconditional right to defer the settlement of the liability for
at least twelve months after the reporting period

Paragraph 69 of revised PAS

7. This form represents the three major sections in a downward sequence of assets, liability
and equity.
a. Account Form
b. Report Form
c. Single Form
d. Account Form

Financial Accounting 1-Valix

8. This is the presentation that follows an account, meaning, the asset are shown on the left
side and the liabilities and equity on the right side of the statement of financial position.
a. Account Form
b. Report Form
c. Single Form
d. Account Form

Financial Accounting 1-Valix

Questions 9-41 (source-Financial Accounting 3 by Valix)

9. A complete set of financial statements includes the following components, except

a. Statement of financial position, statement of comprehensive income and statement of
cash flow
b. Statement of changes and equity
c. Notes, comprising a summary of significant accounting policies and other
explanatory notes
d. Reports and statements such as environmental reports and value added statements

10. Which statement is incorrect concerning fair presentation of financial statements?

 a. Fair presentation requires the faithful representation of the effect of the transactions
and other events.
b. Financial statement shall present fairly the financial position, financial performance
and cash flows of an entity.
c. An entity can rectify inappropriate accounting policies either by disclosures of the
accounting policies used or by notes or explanatory material.
d. In virtually all circumstances, a fair presentation is achieved by compliance with
applicable PFRS

11. Financial statement must be prepared at least

a. Annually
b. Quarterly
c. Semiannually
d. Every two years

12. The primary responsibility for the preparation and presentation of the financial
statements of an entity is reposed in the
a. Internal auditor
b. External auditor
c. Controller
d. Management of the entity

13. Which of the following is not a component of financial statements?

a. Statement of financial position
b. Statement of changes in equity
c. Board of directors’ report
d. Notes of financial statements

14. Which of the following included in a complete set of financial statements?

a. A statement by the board of directors of compliance of local legislations
b. A statement of changes in equity
c. Summarized statement of financial position for the last five years
d. Value added statemen

15. Financial statements include a statement of financial position, a statement of

comprehensive income, a statement of changes in equity and a statement of cash flows.
Which of the following is also included within the financial statements?
a. A statement of retained earnings
b. Accounting policies
c. The auditor’s report
d. A director’s report

16. Which statement is incorrect concerning fair presentation of financial statements?

a. Fair presentation requires the faithful representation of the effects of transactions
and other events.
 b. Financial statements shall present fairly he financial position, financial performance
and cash flows of an entity.
c. In virtually all circumstances, fair presentation is achieved by compliance with
applicable PFRS.
d. An entity whose financial statements comply with PFRS shall not make an implicit
and unreserved statement of such compliance in notes.

17. 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
a. Assets, liabilities and equity
b. Income and expense, including gains and losses
c. Contributions by and distribution to owners in their capacity as owners
d. Nature of the entity’s business activities

18. Which statement is correct concerning the objectives of financial statement?

I. Financial statements do not provide all the information that users may need to make
economic decisions since they largely portray the financial effects of past events and
do not necessarily provide nonfinancial information.
II. Financial statements show he results of the stewardship of management or the
accountability of the management for the resources entrusted to it.
a. I only
b. II only
c. Both I and II
d. Neither I and II

19. Each material class of similar items shall be presented separately and items of a
dissimilar nature or function shall be presented separately unless they are immaterial.
a. Materiality and aggregation
b. Accounting policy
c. Offsetting
d. Comparability

20. Which statement is correct concerning the preparation of financial statements?

I. An entity shall prepare financial statements on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has no
realistic alternative but to do so.
II. An entity shall prepare its financial statements except for cash inflow information
using the accrual basis of accounting.
a. I only
b. II only
c. Both I and II
d. Neither I and II

21. Which statement is incorrect concerning materiality and aggregation?

a. An entity shall present separately each material class of similar items
 b. An entity shall present separately material items of a dissimilar nature or function
c. If the line item is not individually material, it is aggregated with other items either in
the statements or in the notes
d. An entity shall provide a specific disclosure required by PFRS even if the information
is not material

22. Which statement is incorrect concerning the rule on offsetting?

a. Assets and liabilities, and income and expense, shall not be offset unless required or
permitted by a standard
b. Measuring assets net of valuation allowances offsetting
c. Gains and losses on disposal of noncurrent assets are reported by deducting from
the proceeds on disposal the carrying amount of the asset and related selling
expense
d. Gains and losses arising from a group of similar transactions are reported on a net
basis, for example, unrealized gains and losses arising on financial instruments held
for trading.

23. An entity shall present a complete set of financial statements, including comparative
information, at least annually. When an entity changes the end of its reporting period
longer or shorter than one year, an entity shall disclose all of the following, except
a. Period covered by the financial statements
b. The reason for using a longer or shorter period
c. The fact that the amounts presented in the financial statements are not entirely
comparable
d. The fact that the similar entities in the in the geographical area where the entity
operates have done so in the current period.

24. Which statement is correct concerning comparative information?

I. Except when a standard or an interpretation permits or requires otherwise, an
entity shall disclose comparative information in respect of the previous period for all
amounts reported in the current period’s financial statements.
II. An entity shall include comparative information for narrative and descriptive
information when it is relevant to an understanding of the current period’s of
financial statements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

25. The presentation and classification of items in the financial statements shall be retained
from one accounting period to the next
a. Consistency of presentation
b. Materiality
c. Aggregation
d. Comparability
26. A change in the presentation and classification of items in the financial statements is
allowed when
I. It is apparent, following a significant change in the nature of the entity’s operations
or a review of its financial statements, that another presentation or classification
would be more appropriate.
II. A PFRS requires a change in presentation.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

27. Which of the following information is not specifically a required disclosure of PAS 1?
a. Name of the reporting entity or other means of identification and any change in
that information from the previous year
b. Names of major shareholders of the entity
c. Level of rounding used in presenting the financial statements.
d. Whether the financial statements cover the individual entity or a group of entities.

28. Which statement is correct concerning the presentation of financial position?

I. An entity shall present current and noncurrent assets and liabilities as separate
classification on the face of the statement of financial position.
II. All assets and liabilities are presented broadly in the order of liquidity when such
presentation is faithfully represented and more relevant.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

29. Current and noncurrent presentation of assets and liabilities provides useful
information when the entity
a. Supplies goods and services within a clearly identifiable operating cycle
b. Is a financial institution
c. Is a public utility
d. Is a non-profit organization

30. A presentation of assets and liabilities in increasing or decreasing order of liquidity

provides information that is faithfully presented and more relevant than a current and
non-current presentation for
a. Financial institution
b. Public utility
c. Government-owned entity
d. Service provider

31. An entity shall classify an asset as current when (choose the incorrect one)
a. The entity expects to realize the assets or intends to sell or consume it within the
entity’s normal operating cycle.
 b. The entity holds the assets for the purpose of trading
c. The entity expects to realized the asset within twelve months after the reporting
period
d. The asset is cash or cash equivalent that is restricted to settle the liability for more
than twelve months after the reporting period.

32. An entity shall classify a liability as current when (choose the incorrect one)
a. The entity expects to settle the liability within the entity’s operating cycle
b. The entity holds the liability primarily for the purpose of trading
c. The liability is due to be settled within twelve months after the reporting period
d. The entity has an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.

33. A financial liability that is due to be settled within twelve months after the end of
reporting period is classified as noncurrent when
I. An agreement to refinance or reschedule payment on a long-term basis is completed
on or before the end of reporting period and before the financial statements are
authorized for issue.
II. The entity has the discretion to refinance or roll over the obligation for at least
twelve months after the end of the reporting period an existing loan facility.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

34. Which of the following best describes the term financial position?
a. The net income and expense of an entity
b. The financial assets less financial liabilities of an entity
c. The potential to contribute to the flow of cash and cash equivalents of the entity
d. The assets, liabilities and equity of an entity

35. In which section of the statement of financial position should cash that is restricted for
the settlement of the liability due 18 months after the reporting period be presented?
a. Current assets
b. Equity
c. Noncurrent liabilities
d. Noncurrent assets

36. Which of the following most be included in an entity’s statement of financial position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax
37. Which of the following must be included on the face of the an entity’s statement of
financial position?
a. Investment property
b. Number of shares authorized
c. Contingent liability
d. Shares in an entity owned by that entity

38. In analyzing an entity’s financial statements, which financial statement would a

potential investor primarily use to assess the entity’s liquidity and financial flexibility?
a. Statement of retained earnings
b. Income statement
c. Statement of changes in equity
d. Statement of financial position

39. Of the following items, which one should be classified as current assets?
a. Trade installment account receivable normally collectible in 18 months.
b. Cash designated for the redemption of callable preference share.
c. Cash surrender value of a life insurance policy.
d. A deposit on machinery ordered, delivery of which will be made within six months.

40. Which of the following should not be considered as a current asset?

a. Installment notes receivable due over 18 months in accordance with normal trade
practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the entity.
c. Trading securities purchased by the temporary investment of cash available for
current operations.
d. The cash surrender value of a life insurance policy carried by an entity, the
beneficiary, on its president.

41. The current section of a statement of financial position should never include
a. A receivable from a customer not collectible within one year
b. Current tax asset
c. Goodwill arising in a business combination
d. Premium paid on a bond investment

Questions 42-90 (source: Kieso)

42. Which of the following is a limitation of the balance sheet?

a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these

43. The balance sheet is useful for analyzing all of the following except
a. liquidity.
b. solvency.
 c. profitability.
d. financial flexibility.

44. Balance sheet information is useful for all of the following except to
a. compute rates of return
b. analyze cash inflows and outflows for the period
c. evaluate capital structure
d. assess future cash flows

45. Balance sheet information is useful for all of the following except
a. assessing a company's risk
b. evaluating a company's liquidity
c. evaluating a company's financial flexibility
d. determining free cash flows.

46. A limitation of the balance sheet that is not also a limitation of the income statement is
a. the use of judgments and estimates
b. omitted items
c. the numbers are affected by the accounting methods employed
d. valuation of items at historical cost

47. The balance sheet contributes to financial reporting by providing a basis for all of the
following except
a. computing rates of return.
b. evaluating the capital structure of the enterprise.
c. determining the increase in cash due to operations.
d. assessing the liquidity and financial flexibility of the enterprise.

48. One criticism not normally aimed at a balance sheet prepared using current accounting
and reporting standards is
a. failure to reflect current value information.
b. the extensive use of separate classifications.
c. an extensive use of estimates.
d. failure to include items of financial value that cannot be recorded objectively.

49. The amount of time that is expected to elapse until an asset is realized or otherwise
converted into cash is referred to as
a. solvency.
b. financial flexibility.
c. liquidity.
d. exchangeability.

50.The net assets of a business are equal to

a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders' equity.
 d. none of these.

51. . The correct order to present current assets is

a. cash, accounts receivable, prepaid items, inventories.
b. cash, accounts receivable, inventories, prepaid items.
c. cash, inventories, accounts receivable, prepaid items.
d. cash, inventories, prepaid items, accounts receivable.

52. The basis for classifying assets as current or noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is shorter.
b. the operating cycle or one year, whichever is longer.
c. the accounting cycle or one year, whichever is longer.
d. the operating cycle or one year, whichever is shorter.

53. The basis for classifying assets as current or noncurrent is the period of time normally
required by the accounting entity to convert cash invested in
a. inventory back into cash, or 12 months, whichever is shorter.
b. receivables back into cash, or 12 months, whichever is longer.
c. tangible fixed assets back into cash, or 12 months, whichever is longer.
d. inventory back into cash, or 12 months, whichever is longer.

54. The current assets section of the balance sheet should include
a. machinery.
b. patents.
c. goodwill.
d. inventory.

55. Which of the following is a current asset?

a. Cash surrender value of a life insurance policy of which the company is the
beneficiary.
b. Investment in equity securities for the purpose of controlling the issuing
company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.

56. Which of the following should not be considered as a current asset in the balance
sheet?
a. Installment notes receivable due over 18 months in accordance with normal
trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the
business.
c. Equity or debt securities purchased with cash available for current operations.
d. The cash surrender value of a life insurance policy carried by a corporation, the
beneficiary, on its president.
57. Equity or debt securities held to finance future construction of additional plants should
be classified on a balance sheet as
a. current assets.
b. property, plant, and equipment.
c. intangible assets.
d. long-term investments.

58. When a portion of inventories has been pledged as security on a loan,

a. the value of the portion pledged should be subtracted from the debt.
b. an equal amount of retained earnings should be appropriated.
c. the fact should be disclosed but the amount of current assets should not be
affected.
d. the cost of the pledged inventories should be transferred from current assets to
noncurrent assets.

59. Which of the following is not a long-term investment?

a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund

60. Which item below is not a current liability?

a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable

61. Working capital is

a. capital which has been reinvested in the business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.

62. An example of an item which is not an element of working capital is

a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.

63. Long-term liabilities include

a. obligations not expected to be liquidated within the operating cycle.
b. obligations payable at some date beyond the operating cycle.
c. deferred income taxes and most lease obligations.
d. all of these.
64. Which of the following should be excluded from long-term liabilities?
a. Obligations payable at some date beyond the operating cycle
b. Most pension obligations
c. Long-term liabilities that mature within the operating cycle and will be paid from
a sinking fund
d. None of these

65. Treasury stock should be reported as a(n)

a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders' equity.

66. Which of the following should be reported for capital stock?

a. The shares authorized
b. The shares issued
c. The shares outstanding
d. All of these

67. Which of the following would be classified in a different major section of a balance
sheet from the others?
a. Capital stock
b. Common stock subscribed
c. Stock dividend distributable
d. Stock investment in affiliate

68. The stockholders' equity section is usually divided into what three parts?
a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained earnings
c. Capital stock, additional paid-in capital, retained earnings
d. Capital stock, appropriated retained earnings, unappropriated retained earnings

69. Which of the following is not an acceptable major asset classification?

a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges

70. Which of the following is a contra account?

a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation

71. Which of the following balance sheet classifications would normally require the
greatest amount of supplementary disclosure?
 a. Current assets
b. Current liabilities
c. Plant assets
d. Long-term liabilities

72. The presentation of long-term liabilities in the balance sheet should disclose
a. maturity dates.
b. interest rates.
c. conversion rights.
d. All of the above.

73. Which of the following is not a required supplemental disclosure for the balance sheet?
a. Contingencies
b. Financial forecasts
c. Accounting policies
d. Contractual situations

74. Typical contractual situations that are disclosed in the notes to the balance sheet
include all of the following except
a. debt covenants
b. lease obligations
c. advertising contracts
d. pension obligations

75. Accounting policies disclosed in the notes to the financial statements typically include
all of the following except
a. the cost flow assumption used
b. the depreciation methods used
c. significant estimates made
d. significant inventory purchasing policies

76. Which of the following best exemplifies a contingency that is reported in the notes to
the financial statements?

a. Losses from potential future lawsuits

b. Loss from a lawsuit settled out of court prior to the end of the fiscal year
c. Warranty claims on future sales
d. Estimated loss from an ongoing lawsuit

77. Which of the following is not a method of disclosing pertinent information?

a. Supporting schedules
b. Parenthetical explanations
c. Cross reference and contra items
d. All of these are methods of disclosing pertinent information.
78. It is mandatory that the essential provisions of which of the following be clearly stated
in the notes to the financial statements?
a. Stock option plans
b. Pension obligations
c. Lease contracts
d. All of these

79. A generally accepted account title is

a. Prepaid Revenue.
b. Appropriation for Contingencies.
c Earned Surplus.
d. Reserve for Doubtful Accounts.

80. The financial statement which summarizes operating, investing, and financing
activities of an entity for a period of time is the
a. retained earnings statement.
b. income statement.
c. statement of cash flows.
d. statement of financial position.

81. The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense.
b. operating section, nonoperating section, discontinued operations, extraordinary
items, and cumulative effect.
c. revenues, expenses, gains, and losses.
d. all of these.

82. Information in the income statement helps users to

a. evaluate the past performance of the enterprise.
b. provide a basis for predicting future performance.
c. help assess the risk or uncertainty of achieving future cash flows.
d. all of these.

83. Limitations of the income statement include all of the following except
a. items that cannot be measured reliably are not reported.
b. only actual amounts are reported in determining net income.
c. income measurement involves judgment.
d. income numbers are affected by the accounting methods employed.

84. Which of the following would represent the least likely use of an income statement
prepared for a business enterprise?
a. Use by customers to determine a company's ability to provide needed goods and
services.
b. Use by labor unions to examine earnings closely as a basis for salary discussions.
 c. Use by government agencies to formulate tax and economic policy.
d. Use by investors interested in the financial position of the entity.

85. The income statement reveals

a. resources and equities of a firm at a point in time.
b. resources and equities of a firm for a period of time.
c. net earnings (net income) of a firm at a point in time.
d. net earnings (net income) of a firm for a period of time.

86. Which of the following is an acceptable method of presenting the income statement?
a. A single-step income statement
b. A multiple-step income statement
c. A consolidated statement of income
d. All of these

87. Which of the following is not a generally practiced method of presenting the income
statement?
a. Including prior period adjustments in determining net income
b. The single-step income statement
c. The consolidated statement of income
d. Including gains and losses from discontinued operations of a component of a
business in determining net income

88. Which of the following is a required disclosure in the income statement when reporting
the disposal of a component of the business?
a. The gain or loss on disposal should be reported as an extraordinary item.
b. Results of operations of a discontinued component should be disclosed
immediately below extraordinary items.
c. Earnings per share from both continuing operations and net income should be
disclosed on the face of the income statement.
d. The gain or loss on disposal should not be segregated, but should be reported
together with the results of continuing operations.

89. When a company discontinues an operation and disposes of the discontinued

operation (component), the transaction should be included in the income statement
as a gain or loss on disposal reported as
a. a prior period adjustment.
b. an extraordinary item.
c. an amount after continuing operations and before extraordinary items.
d. a bulk sale of plant assets included in income from continuing operations.

90. Which of the following is not a generally practiced method of presenting the income
statement?
a. Including prior period adjustments in determining net income
 b. The single-step income statement
c. The consolidated statement of income
d. Including gains and losses from discontinued operations of a component of a
business in determining net income

Questions 91-100 (source-RESA review material)

91. Which financial statement would be potential investor primarily use to assess the
company’s liquidity and financial flexibility
a. Statement of Comprehensive income
b. Statement of financial position
c. Statement of changes in equity
d. Statement of retained earning

92. Which of the following is the essential characteristic of an asset?

a. The claims to an asset’s benefits are legally enforceable
b. The asset is tangible
c. The asset is obtained at cost
d. The assets provides future benefits

93. Under PAS 1, which of the following statement of financial position are broadly
classified into
a. Tangible and intangible
b. Current and non-current
c. Depreciable and non-depreciable
d. Monetary and non-monetary

94. Offsetting of assets and liabilities is

a. Allowed in all cases
b. Not allowed in all cases
c. Allowed unless not permitted by PFRS
d. Not allowed unless permitted by PFRS

95. A general features of FS presentation that requires an entity to present separately each
material class of similar items and present separately items of dissimilar nature or function
unless they are immaterial.
a. Consistency of presentation
b. Materiality and aggregation
c. Comparative information
d. Fair presentation and compliance with PFRS

96. Which of the following is not an acceptable presentation of the statement of financial
position?
a. Assets presented in the order of liquidity
b. Non-controlling interest presented within equity
c. Deferred tax liabilities presented as part of current liabilities
 d. Provisions presented as part of the liability section

97. Which is not required to be presented as minimum information on the face of the
balance sheet?
a. Biological assets
b. Contingent liability
c. Investment property
d. Investment accounted under equity method

98. The income statement shows information about an entity’s

a. Liquidity c. Cash flow
b. Performance d. Financial structure

99. If an asset provides benefits for several periods, its cost is allocated to the periods
benefited in the absence of a more direct basis for relating the cost of revenue.
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Installment method

100. A transaction that is material in amount, unusual in nature and infrequent in

occurrence should be presented in the income statement separately as a
a. Component of income from continuing operations
b. Component of income from discontinued operations, before tax
c. Component of income from discontinued operations, after tax
d. prior period error

PROBLEMS

Items 1-19 (Source: Practical Accounting 1 by Condrado o. Uberita)

1-4. The accounts and balances shown below were taken from basic company’s trial
balance on December 31, 2011. All adjusting entries have been made.
Wages payable, P250,000; Cash, P175,000; Bonds Payable, P600,000; Dividends
Payable, P140,000; Prepaid Rent, P136,000; Inventory,P820,000; Sinking Fund Assets,
P525,000; Trading Securities, P153,00; Premium on Bonds Payable, P48,000,
Investment in Subsidiary, P1,020,000; Taxes Payable, P228,000; Accounts Payable,
P248,000; Accounts Receivable, P366,000; Property, plant and equipment, P1,200,000;
Patents Net, P150,000; Accumulated Depreciation-PPE, P400,000; Land Held for future
business site, P900,000.

1. How much should be reported in Basic’s December 31, 2011 balance sheet as
current assets?
a. P1,660,000 c. P1,860,000
b. P1,650,000 d. P1,850,000
 Cash P175,000
Prepaid rent 136,000
Inventory 820,000
Trading Securities 153,000
Accounts receivable 366,000
Total P1,650,000

2. How much should be reported in Basic’s December 31, 2011 balance sheet as
noncurrent assets?
a. P2,375,000 c. P2,225,000
b. P3,395,000 d. P3,705,000

Sinking fund asset P 535,000

Investment in Subsidiary 1,020,000
Property, plant and equipment 1,200,000
Patent-net 150,000
Accumulated Depreciation (400,000)
Land held for future business site 900,000
Total P3,395,000

3. How much should be reported in Basic’s December 31, 2011 balance sheet as
current liabilities?
a. P776,000 c. P916,000
b. P866,000 d. P966,000

Wages Payable P250,000

Dividends Payable 140,000
Taxes Payable 228,000
Accounts Payable 248,000
Total P866,000

4. How much should be reported in Basic’s December 31, 2011 balance sheet as
noncurrent liabilities?

a. 552,000 c. 640,000
b. 648,000 d. 648,000
c.
Bonds Payable P600,000
Premium on bonds payable 48,000
Total P648,000

5. Beloved Corporation’s trial balance contained the following account balances at

December 31, 2011:
Trading Securities 150,000
Prepaid insurance 30,000
Cash 330,000
 Inventory 900,000
Equipment and furniture-net 990,000
Patent 120,000
Accounts receivable-net 480,000
Land (held for capital appreciation) 1,200,000

How much is the total current assets in Beloved’s December 31,2011 balance sheet?
a. P1,890,000 c. P2,190,000
b. P2,010,000 d. P2,430,000

Cash P 330,000
Trading Securities 150,000
Accounts receivable-net 480,000
Inventory 900,000
Prepaid insurance 30,000
Total current assets P1,890,000

6. Head Company prepared a draft of its 2011 balance sheet. The draft statement
reported current liabilities totalling P2, 000,000. However, none of the following items
were included in this preliminary total at December 31,2011.
Accounts payable P300,000
Bonds payable, due 2012 500,000
Discounts on Bonds payable, due 2012 60,000
Dividends payable-January 31, 2012 160,000
Notes payable, due 2013 400,000
Bond issue costs 20,000

At which amount should Head’s current liabilities be correctly reported in December 31,
2011 balance sheet?
a. P2,880,000 c. P2,960,000
b. P2,900,000 d. P3,020,000

Balance per books P2,000,000

Accounts payable 300,000
Bonds payable, due 2012 500,000
Discounts on Bonds payable ( 60,000)
Dividends payable 160,000
Bond issue costs (20,000)
Total P2,880,000

7-10. The following balance sheet accounts and their respective unadjusted balances of
Prince Company was made available on December 31, 2011:
Cash 1,250,000 Accounts payable 340,000
Trading securities 800,000 Other current liabilities 200,000
Accounts receivable-net 2,135,000 Long-term liabilities 3,275,000
Inventory 3,100,000 Treasury share 450,000
 Other current assets 1,420,000
PPE-net 6,480,000
Other noncurrent assets 1,360,000

The following information relate to the December 31, 2011 balance sheet:
1. Cash includes P400,000 that has been restricted for the purchase of manufacturing
equipment.
2. Trading securities include P275,000of shares that was purchased in order to give the
company significant ownership and a seat on the board of directors of a major
suppliers.
3. Other current assets include P400,000 advance to the President of the company, no
due date has been set.
4. Long term liabilities include bonds payable of P1,000,000, of this amount P250,000
represents bond scheduled to be redeemed in 2012.
5. Long term liabilities also include P700,000 bank loan. On May 15,2012, the loan will
become due on demand.
6. Cash in the amount of P1,900,000 has been placed in a restricted fund for the
redeemed of the preference shares. In 2012, both the cash and the preference shares
have been removed from the balanced sheet.
7. PPE includes land costing P800,000 is an investment property. Company’s policy is
to measure investment property under the cost model.

7. How much should be the current assets?

a. P7,630,000 c. P8,430,000
b. P8,305,000 d. P8,705,000

8. How much should be the non-current assets?

a. P7,840,000 c. P10,150,000
b. P8,515,000 d. P10,815,000
c.
Current Non-current
Total per book: P8,705,000 * P7,840,000 **
Cash restricted for the purchase of
manufacturing equipment (1) (400,000) 400,000
Investment in securities to give the
company significant ownership (2) (275,000) 275,000
Advance to President (3) (400,000) 400,000
Cash restricted for the redemption of
preference share (6) 1,900,000
Correct current and non-current assets P7,630,000 P10,815,000

*includes cash, investments, accounts receivable, inventory and other current liabilities
**includes PPE and other non-current assets
The investment property is classified as non-current asset
9. How much should be the current liabilities?
a. P540,000 c. P 950,000
b. P790,000 d. P1,940,000

10. How much should be the non-current liabilities?

a. P2,325,000 c. P3, 275,000
b. P2,575,000 d. P3,275,000

Current Non-current
Balance per book P 540,000 * P3,275,000
Current portion of bonds payable 250,000 (250,000)
Bank loan 700,000 (700,000)
Correct balances P1,490,000 P2,325,000

*includes accounts payable and other current liabilities

11-13. Below are the account balance prepared by the bookkeeper for Jack and Jill
Company as of December 31, 2011:

Cash P 800,000 Accounts payable P 750,000

Accts receivable, net 522,000 Long-term liabilities 1,000,000
Inventories 570,000 Residual interest 2,185,000
Investments 763,000
Equipment (net) 960,000
Patents 320,000 ---
P3,935,000 P3,935,000

Additional information:
 Cash includes the cash surrender value of a life insurance policy for P94,000, and
bank overdraft of P25,000 has been deducted.
 The net receivable balance includes:
o Accounts receivable-debit balances P600,000
o Accounts receivable-credit balances P40,000
 Inventories do not include goods costing P30,000 ship out on consignment.
Receivables of P30,000 were recorded of these goods.
 Investment include investments in ordinary shares, trading-P190,000, available-for-
sale-P483,000, and sinking fund of P90,000.

11. How much should be the current assets?

a. P1,063,000 c. P2,053,000
b. P1,873,000 d. P2,091,000

Current Assets:
Cash (P800,000-P94,000+P25,000) P731,000
Trading securities 190,000
 Accounts Receivable (600,000-30,000) 570,000
Inventories (570,000+30,000) 600,000
Correct total current assets P2,091,000

12. How much should be the total current assets?

a. P1,753,000 c. P1,937,000
b. P1,847,000 d. P1,947,000

Investments:
Available for sale securities P483,000
Cash surrender value 94,000
Sinking fund 90,000 P667,000
Property, plant and equipment 960,000
Intangibles 320,000
Total non-current assets P1,947,000

13. How much should be the total current liabilities?

a. P750,000 c. P 815,000
b. P775,000 d. P1,815,000

Accounts payable P 750,000

Customer’s account with credit balances 40,000
Bank overdraft 25,000
Total current liabilities P815,000

14-15. On January 1, 2011, Glow Company leased a building to Blow Corporation for ten
year term at an annual rental of P75,000. At inception of the lease, Glow received P300,000
covering the first two years rent of P150,000 and a deposits of P150,000. This deposits will
not be returned to Blow upon expiration of the lease but will be applied to payment of rent
for the last two years of the leased.

14. What portion of the P300,000 should be shown as a current liability in Glow’s
December 31, 2011 balance sheet?
a. 0 c. P150,000
b. P75,000 d. P300,000

Annual rental of P75,000

15. What portion of the P300,000 should be shown as a long-term liability in Glow’s
December 31, 2011 balance sheet?
a. P300,000 c. P 75,000
b. P150,000 d. P225,000

First 2 years rent of P150,000

16.18. The following trial balance of Food Corporation at December 31, 2011 has been
properly adjusted except for the income tax expense adjustment:

Debit Credit
Cash P 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Property, plant and equipment (net) 7,366,000
Accts payable and accrued liabilities P1,701,000
Income taxes payable 697,600
Deferred income tax liability 85,000
Ordinary share capital 2,350,000
Share premium 3,680,000
Accumulated profit, Jan. 1, 2011 3,450,000
Net sales and other revenue 13,360,000
Costs and Expenses 11,180,000
Income tax expenses 1,222,600 .
P25,323,600 P25,323,600

Other financial data for the year ended December 31, 2011 are as follows:
o Included in accounts receivable is P1,200,000 due from a customer and payable is
quarterly instalments of P150,000. The last payment is due December 29, 2013.
o The balance in the deferred income tax liability account pertains to a temporary
difference that arose in a prior year, of which P20,000 will reverse within one year.
o During the year, estimated tax payments of P525,000 where charge to income tax
expense. The current and future tax rate on all types of income is 30%.

In Food Corporation’s December 31, 2011 balance sheet.

16. How much should be the total current assets?

a. P4,955,000 c. P5,555,000
b. P5,405,000 d. P6,080,000

Cash P 775,000
Accounts receivable P2,695,000
Less: Amount collectible in 2013
(P150, 000 x 4) 600,000 2,095,000
Inventory 2,085,000
Total current assets P4,955,000

17. How much should be the total current liabilities?

a. P1,873,600 c. P2,375,000
b. P1,893,600 d. P2,440,000
 Accts payable and accrued liabilities P1,701,000
Income tax payable (P697,600-P525,000) 172,600
Total current liabilities P1,873,600

18. The accumulated profit balance shall be

a. P4,536,000 c. P4,932,400
b. P4,905,000 d. P4,976,000

Accumulated profits, January 1, 2011 P3,450,000

Add. Net income after tax:
Net sales and other revenues P13,360,000
Less: Cost and expenses 11,180,000
Net income P 2,180,000
Less: Income tax (P2,180,000 x 30%) 654,000 1,526,000
Accumulated profits, December 31, 2011 P4,976,000

19. Merit Corporation has an arrangement with its customers that, in any 12-month period
ending March 31, if they purchase goods for a value of at least P2,000,000, they will
received retrospective discount of 2%.at the end of the year December 31, 2011, Merit
Corporation has made sales to a customer during the period April to December 31,
2011 of P1,800,000.
What amount of revenue should Merit Corporation report in its December 31,
2011income statement retailed to the above arrangement.
a. P1,323,000 c. P1,800,000
b. P1,764,000 d. P1.960,000

P1,800,000 x 98% = P1,764,000

Items 20-30 (source KIESO)

20. Stine Corp.'s trial balance reflected the following account balances at December 31,
2010:
Accounts receivable (net) $24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Stine's December 31, 2010 balance sheet, the current assets total is
a. $90,000.
b. $82,000.
 c. $77,000.
d. $73,000.

Cash $11,000

Accounts receivable (net) 24,000

Inventory 30,000
Trading securities 6,000
Prepaid expenses 2,000
Total current assets $73,000

Use the following information for questions 17 through 19.

The following trial balance of Reese Corp. at December 31, 2010 has been properly adjusted
except for the income tax expense adjustment.

Reese Corp.
Trial Balance
December 31, 2010
Dr. Cr.
Cash $ 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Property, plant, and equipment (net) 7,366,000
Accounts payable and accrued liabilities $ 1,701,000
Income taxes payable 654,000
Deferred income tax liability 85,000
Common stock 2,350,000
Additional paid-in capital 3,680,000
Retained earnings, 1/1/10 3,450,000
Net sales and other revenues 13,360,000
Costs and expenses 11,180,000
Income tax expenses 1,179,000
$25,280,000 $25,280,000

Other financial data for the year ended December 31, 2010:
 Included in accounts receivable is $1,200,000 due from a customer and payable in
quarterly installments of $150,000. The last payment is due December 29, 2012.
 The balance in the Deferred Income Tax Liability account pertains to a temporary
difference that arose in a prior year, of which $20,000 is classified as a current liability.
 During the year, estimated tax payments of $525,000 were charged to income tax
expense. The current and future tax rate on all types of income is 30%.
In Reese's December 31, 2010 balance sheet,

21. The current assets total is

a. $6,080,000.
b. $5,555,000.
c. $5,405,000.
d. $4,955,000.
$775,000 + [$2,695,000 – ($150,000 × 4)] + $2,085,000 = $4,955,000.

22. The current liabilities total is

a. $1,850,000.
b. $1,915,000.
c. $2,375,000.
d. $2,440,000.

$1,701,000 + ($654,000 – $525,000) + $20,000 = $1,850,000.

23. The final retained earnings balance is

a. $4,451,000.
b. $4,536,000.
c. $4,976,000.
d. $4,905,000.
$3,450,000 + $13,360,000 – $11,180,000 – ($1,179,000 – $525,000) =
$4,976,000.

24. Ortiz Co. had the following account balances:

Sales $ 120,000
Cost of goods sold 60,000
Salary expense 10,000
Depreciation expense 20,000
Dividend revenue 4,000
Utilities expense 8,000
Rental revenue 20,000
Interest expense 12,000
Sales returns 11,000
Advertising expense 13,000
What would Ortiz report as total revenues in a single-step income statement?
a. $133,000
b. $ 10,000
c. $144,000
d. $120,000
$120,000 + $4,000 + $20,000 – $11,000 = $133,000.

25. Ortiz Co. had the following account balances:

 Sales $ 120,000
Cost of goods sold 60,000
Salary expense 10,000
Depreciation expense 20,000
Dividend revenue 4,000
Utilities expense 8,000
Rental revenue 20,000
Interest expense 12,000
Sales returns 11,000
Advertising expense 13,000
What would Ortiz report as total expenses in a single-step income statement?
a. $127,000
b. $134,000
c. $123,000
d. $ 63,000

$60,000 + $10,000 + $20,000 + $8,000 + $12,000 + $13,000 = $123,000.

26. An income statement shows “income before income taxes and extraordinary items”
in the amount of $2,055,000. The income taxes payable for the year are $1,080,000,
including $360,000 that is applicable to an extraordinary gain. Thus, the “income
before extraordinary items” is

a. $1,335,000.
b. $615,000.
c. $1,395,000.
d. $675,000.

$2,055,000 – ($1,080,000 – $360,000) = $1,335,000.

27. Dole Company, with an applicable income tax rate of 30%, reported net income of
$210,000. Included in income for the period was an extraordinary loss from flood
damage of $30,000 before deducting the related tax effect. The company's income
before income taxes and extraordinary items was

a. $240,000.
b. $300,000.
c. $330,000.
d. $231,000.

$210,000 + ($30,000 × .7) = $231,000

$231,000 ÷ .7 = $330,000.

28. A review of the December 31, 2010, financial statements of Somer Corporation
revealed that under the caption "extraordinary losses," Somer reported a total of
 $515,000. Further analysis revealed that the $515,000 in losses was comprised of
the following items:

(1) Somer recorded a loss of $150,000 incurred in the abandonment of

equipment formerly used in the business.
(2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as
a result of hurricane damage to a warehouse.
(3) During 2010, several factories were shut down during a major strike by
employees, resulting in a loss of $85,000.
(4) Uncollectible accounts receivable of $30,000 were written off as
uncollectible.
Ignoring income taxes, what amount of loss should Somer report as extraordinary
on its 2010 income statement?

a. $150,000.
b. $250,000.
c. $400,000.
d. $515,000.

$515,000 – $150,000 – $85,000 – $30,000 = $250,000.

Use the following information for questions 29 and 30.

At Ruth Company, events and transactions during 2010 included the following. The tax rate
for all items is 30%.
(1) Depreciation for 2008 was found to be understated by $30,000.
(2) A strike by the employees of a supplier resulted in a loss of $25,000.
(3) The inventory at December 31, 2008 was overstated by $40,000.
(4) A flood destroyed a building that had a book value of $500,000. Floods are very
uncommon in that area.

29. The effect of these events and transactions on 2010 income from continuing
operations net of tax would be

a. $17,500.
b. $38,500.
c. $66,500.
d. $416,500.

$25,000 – $7,500 = $17,500.

30. The effect of these events and transactions on 2010 net income net of tax would be

a. $17,500.
b. $367,500.
c. $388,500.
d. $416,500.

$17,500 + ($500,000 × .7) = $367,500.