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Name: ______________________________ Score: ____________________

Year/Course/Section: _______________ Schedule:__________________

FINANCIAL ACCOUNTING AND REPORTING PART 3 (MIDTERMS)

MULTIPLE CHOICE: Encircle the best answer

1. According to PAS 1, which of the following statement is incorrect?

a. The statement of comprehensive income summarizes the transactions of income,
expense, gains and losses, both realize and unrealized, for a period of operation,
between two statements of financial position dates
b. The heading of the performance statement should clearly indicate the period of
operation which the statement covers
c. The statement of comprehensive income shows as the final amount, the net income
or net loss that were recognized and realized for a given period of time
d. The statement of comprehensive income shows the changes in assets and liabilities
arising from profit directed activities and other increases and decreases in equity
other than transactions of owners as owners

2. An statement of comprehensive income reveals:

a. The revenues and expenses of a firm at a point in time
b. The resources and equities of a firm for a period of time
c. The extent to which, and the ways in which the owner’s equity of an entity increased
or decreased during a period from all sources other than transactions with owners,
and prior period adjustments
d. The net earnings of an enterprise for a given time

3. Which of the following statement is true?

a. An income statement describes the total change in owners’ equity during a period of
time
b. The balance sheet and the statement of comprehensive income are only related in
that net income is transferred to the retained earnings account on the balance sheet
c. An income statement can be useful in estimating the value of a business enterprise
on a going concern basis
d. An income statement always covers a one-year period

4. XYZ Corporation displays information on its performance by preparing two separate

statements: an Income Statement and Statement of Comprehensive Income. Which of the
following should be shown only in the Income Statement component?
a. Unrealized Gain or Change in Value of Investment Property
b. Unrealized Gain on Change in Value of Available Securities
c. Revaluation Surplus
d. Cumulative Translation adjustments of Foreign Currency in Foreign Operations

5. Which of the following is not a manufacturing cost?

a. Depreciation of factory equipment
b. Wages of machine operators
c. Insurance of factory equipment
d. Delivery supplies used

6. These provide narrative description or disaggregation of items disclosed in the financial

statements and information about items that do not qualify for recognition:

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a. Notes to financial statements

b. Accounting policies
c. Non-financial reports
d. Recognized gains and losses

7. Which of the following is not included in the “notes to financial statements:?

a. Statement of compliance with GAAP
b. Statement of measurement basis for the financial statements and accounting
policies applied
c. Supporting information for line items presented and aggregated
d. Cash flow statements

8. These are defined as “the specific principles, methods, practices, rules, bases and
conventions adopted by an entity in preparing and presenting financial statements.
a. Contingencies and commitments
b. Notes to financial statements
c. Non-financial disclosures
d. Accounting policies

9. The “summary of accounting policies section” of the notes to financial statements shall
describe:
a. Only the measurement basis used in preparing the financial statements
b. Only the specific accounting policies followed by the entity
c. Both the measurement basis and accounting policies followed
d. Nature of the entity’s operations and its principal activities

10. An entity is required to disclose certain non-financial information. Which is not embraces
in this disclosure?
a. A description of the nature of the entity’s operations and its principal activities
b. The name of the parent entity and the ultimate parent of the group
c. Domicile and legal from of the entity, its country of incorporation and address or the
registered office
d. Names and addresses of the corporate directors and officers

11. All of the following fall within the definition of an entity’s related party, except:
a. Joint venture in which the entity is a venturer
b. A post-employment benefit plan for a benefit of the employees
c. An executive director of the entity
d. The partner of a key manager is a major supplier of the entity

12. Which of the following should be included in key management personnel compensation?
a. Social security contributions
b. Post employment benefits
c. Social security contributions and post employment benefits
d. Social security contributions, post employment benefits and dividends to
shareholders

13. An entity has entered into a joint venture with an affiliate to secure access to additional
inventory. Under the joint venture agreement, the entity will purchase the output of the
venture at prices negotiated on an arm’s length basis. Which of the following must be
disclosed about the related party transactions?
a. The amount due to the venture at the end of reporting period
b. The peso amount of the purchases
c. The amount due to the venture at the end of reporting period and the peso amount

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of purchases
d. Neither the amount due to the venture at the end of reporting period and the peso
amount of purchases

14. A parent entity has a wholly-owned subsidiary. During the current year, the parent sold
goods to the subsidiary. The subsidiary paid a part of the debt before the year-end and
then encountered financial difficulties. The subsidiary is not expected to be able to pay the
remainder of the balance and therefore it has been provided as uncollectible.
Administration costs are incurred as a result of the parent credit controllers chasing the
debt. All of the following are required to be disclosed in relation to this arrangement,
except
a. The administration costs of the credit control department incurred in chasing the
debt
b. Details of any guarantee received in relation to the outstanding balance
c. The provision in relation to the debt being uncollectible
d. The amount of the transaction and outstanding balance

15. All of the following are related party transactions, except:

a. Transferred goods from inventory to a stockholder owning thirty percent of the
ordinary shares
b. Sold an entity car to the wife of the managing director
c. Sold an asset to an associate
d. Took out a huge bank loan

16. These are events whether favorable or unfavorable that occur between the balance sheet
date and the date on which financial statements are authorized to issue
a. Events after balance sheet date
b. Current events
c. Past events
d. Future uncertain events

17. These are the events that provide evidence of conditions that exist at the balance sheet
date
a. Adjusting events after balance sheet date
b. Non-adjusting events after balance sheet date
c. Provisions
d. Contingent liabilities

18. The financial statements are authorized for issue

a. When the board of directors reviews the financial statements and authorizes them
for issue
b. When the financial statements are made available to shareholders
c. When the shareholders approve the financial statements at their annual meeting
d. When the approved financial statements are filed with a regulatory body

19. Adjusting events after balance sheet date includes all of the following, except:
a. The settlement of a court case after the issuance of the financial statements that
confirms that the entity has a present obligation
b. Bankruptcy of a customer occurring between the balance sheet date and date of
issuance of financial statements
c. Determination after balance sheet date and before the issuance of the statements of
the cost of asset purchased before the balance sheet date
d. The discovery of fraud or errors between the balance sheet date and the date of
issuance of financial statements

20. Non-adjusting events after balance sheet date that generally result in disclosure include
all of the following except:
a. A major business combination after balance sheet date
b. Announcing a plan to discontinue an operation

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c. Major purchases of asset or expropriation of major asset after balance sheet date
d. Destruction of a major production plant by a fire on balance sheet date

21. During 2017, Jane Company engaged in the following transactions:

Key management personnel compensation P2,000,000
Sales to affiliated entities 3,000,000
Which of the two transactions would be disclosed as related party transactions in Jane’s
2017 financial statements?
a. 0 c. 3,000,000
b. 2,000,000 d. 5,000,000

22. The audit of Anne Company for the year ended December 31, 2017 was completed on
March 1, 2018. The financial statements were signed by the managing director on March
15, 2018 and approved by the shareholders on March 31, 2018. The next events have
occurred.
 On January 15, 2018, a customer owing P900,000 to Anne filed for bankruptcy. The
financial statements include an allowance for doubtful accounts pertaining to this
customer only for P100,000
 Anne Company’s issued share capital comprised 100,000 ordinary shares with P100
par value. The company issued additional P25,000 shares on March 1, 2018 at par
value
 Specialized equipment costing P525,000 purchased on September 1, 2017 was
destroyed by fire on December 15, 2017. Anne Company has booked a receivable of
P400,000 from the insurance company. After the insurance company completed its
investigation on February 1, 2018, it was discovered that the fire took place due to
negligence of the machine operator. As a result, the insurer’s liability was zero on
this claim
Anne Company should report a total amount of “adjusting events” on December 31, 2017
at:
a. 1,300,000 c. 3,800,000
b. 1,200,000 d. 3,700,000

23. The following data are provided by Norway Company. The balance sheet date is December
31, 2017 and the financial statements are authorized for issue on March 15, 2018
 On December 31, 2017, Norway Company had a receivable of P400,000 from a
customer that is due 60 days after balance sheet date. On February 15, 2018, a
receiver was appointed for the said customer. The receiver informed Norway that the
P400,000 would be paid in full by June 31, 2018
 Norway Company measures its investments in listed shares as held for trading at fair
value through profit or loss. On December 31, 2017, these investments were
recorded at the market value of P5,000,000. During the period up to February 15,
2018, there was a steady decline in the market value of all the shares in the
portfolio, and at February 15, 2018, the market value had fallen to P2,000,000
 Norway Company had reported a contingent liability on December 31, 2017 related
to a court case in which Norway Company was a defendant. The case was not heard
until the first week of February, 2018. On February 11, 2018, the judge handed down
a decision against Norway Company. The judge determined that Norway Company
was liable to pay damages and costs totaling P3,000,000
 On December 31, 2017, Norway Company had a receivable from a large customer in
an amount of P3,500,000. On January 31, 2018, Norway company was advised by
the liquidator of the said customer that the customer was insolvent and would be
unable to repay the full amount owed to Norway Company. The liquidator advised
Norway Company in writing that only 10% of the receivable will be paid on April 31,
2018.
Norway Company should report a total amount of “adjusting events” on December 31,
2018 at
a. 6,150,000 c. 9,550,000
b. 9,150,000 d. 6,500,000

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24. Brock Company reports operating expenses in two categories: selling and general and
administrative. The adjusted trial balance at December 31, 2017 included the following
expense and loss accounts:
Accounting and legal fees P1,200,000
Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000
One-half of the rented premises is occupied by the sales department. Brock’s total selling
expenses should be:
a. 4,800,000 c. 7,700,000
b. 4,000,000 d. 3,600,000

25. The following items were among those that were reported on Lee Company’s income
statement for the year ended December 31, 2017:
Legal and audit fees P1,700,000
Rent for office space 2,400,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing
equipment used in operations 350,000
The office space is used equally by Lee’s sales and accounting departments. What amount
of the above-listed items should be classified as general and administrative expense in the
income statement?
a. 2,900,000 c. 4,100,000
b. 3,250,000 d. 5,000,000

26. The following costs were incurred by Griff Company, a manufacturer, during 2017:
Accounting and legal fees P 250,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
What amount of these costs should be reported as general and administrative expenses?
a. 2,600,000 c. 6,350,000
b. 5,500,000 d. 8,100,000

27. The following information is available from Dell Company’s accounting records for the
current year:
Purchases P5,300,000
Purchase discounts 100,000
Beginning inventory 1,600,000
Ending inventory 2,150,000
Freight out 400,000
Dell’s cost of goods sold for the current year is:
a. 4,650,000 c. 5,050,000
b. 7,750,000 d. 5,850,000

28. The following information pertains to Diane Company’s cost of goods sold:
Inventory, January 1 P4,500,000
Purchases 6,200,000
Loss on inventory write-down 1,700,000
Inventory, December 31 1,500,000
The inventory write-down was due to an unexpected and unusual technological advance

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by a competitor. In its income statement, what amount should Diane report as cost of
goods sold?
a. 9,000,000 c. 7,500,000
b. 9,200,000 d. 6,200,000

29. The following information is available for Bart Company for the current year:
Disbursements for purchases P5,800,000
Increase in trade accounts payable 500,000
Decrease in merchandise inventory 200,000
Cost of goods sold for the current year was:
a. 6,500,000 c. 5,500,000
b. 6,100,000 d. 5,100,000

30. Selected information from the accounting records of the Vigor Company is as follows:
Net accounts receivable at December 31, 2016 900,000
Net accounts receivable at December 31, 2017 1,000,000
Accounts receivable turnover 5 to 1
Inventory at December 31, 2016 1,100,000
Inventory at December 31, 2017 1,200,000
Inventory turnover 4 to 1
What was the gross margin for 2017?
a. 150,000 c. 300,000
b. 200,000 d. 400,000

31. The following information was taken from Kay Company’s accounting records for the
current year:
Increase in raw materials inventory 150,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
There was no work in process inventory at the beginning or end of the year. Kay’s cost of
goods sold is:
a. 9,500,000 c. 9,750,000
b. 9,650,000 d. 9,950,000

32. The following information was taken from Armenia Company’s accounting records for the
current year:
Decrease in raw materials inventory 500,000
Increase in goods in process inventory 800,000
Decrease in finished goods inventory 1,000,000
Raw materials purchased 20,000,000
Direct labor payroll 5,000,000
Factory overhead 4,000,000
Freight out 1,500,000
Freight in 2,300,000
The cost of goods sold is:
a. 32,000,000 c. 30,000,000
b. 33,500,000 d. 30,600,000

33. Sheraton Company reported the following information for the current year:
Ending goods in process P1,000,000
Depreciation on factory building 320,000
Sales salaries 270,000

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Beginning raw materials 400,000

Direct labor 1,980,000
Factory supervisor’s salary 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Advertising 500,000
Purchase of raw materials 2,300,000
What is the cost of goods manufactured for the current year?
a. 5,340,000 c. 5,550,000
b. 5,580,000 d. 5,820,000

34. Argentina Company incurred the following costs and expenses during the current year:
Raw material purchases P4,000,000
Direct labor 1,500,000
Indirect labor—factory 800,000
Factory repairs and maintenance 200,000
Taxes on factory building 100,000
Depreciation—factory building 300,000
Taxes on salesroom and general office 150,000
Depreciation—sales equipment 50,000
Advertising 400,000
Sales salaries 500,000
Office salaries 700,000
Utilities (60% applicable to factory,
25% to salesroom and 15% to office) 500,000
Beginning Ending
Raw materials P300,000 P 450,000
Work in process 400,000 350,000
Finished Goods 500,000 700,000
The cost of goods manufactured for the current year was:
a. 6,900,000 c. 7,100,000
b. 7,200,000 d. 7,300,000

35. After its first year of operations, Mercury Company had the following date on its
operations. Manufacturing costs were distributed as follows:
Cost of goods sold P4,320,000
Materials used 50%
Direct labor 30%
Manufacturing overhead 20%
Goods in process, December 31, were 10% of the total manufacturing cost. Finished goods
remaining in stock were 20% of the total cost of goods manufactured.
The direct labor cost was:
a. 1,800,000 c. 3,000,000
b. 2,400,000 d. 5,400,000

………………………………NOTHING FOLLOWS………………………………

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