Midterm Examination

Far Eastern University

Institute of Accounts, Business and Finance

THEORIES
1. If post-dated check delivered is not adjusted to appropriate accounts at the end of the
accounting period, what is the effect to Cash and Accounts Payable, respectively?
A. Understated and overstated, respectively
B. Overstated and understated, respectively
C. Both accounts are overstated
D. Both accounts are understated
2. If material, deposits in foreign bank which are subject to foreign exchange restriction should be
classified
A. Separately as current asset, with appropriate disclosure
B. Separately as a non-current asset with appropriate disclosure
C. Be written off as an extraordinary loss
D. As part of cash and cash equivalents
3. A compensating balance
A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as a current
asset.
C. Which is legally restricted and related to a short-term loan is classified separately as a
current asset.
D. Which is not legally restricted as to withdrawal is classified separately as current
asset.
4. When petty cash fund is used, which of the following is true?
A. The balances of the petty cash fund should be reported on the balance sheet as a long-term
investment
B. The petty cashier’s summary of petty cash payments serves as a journal entry that is posted
to the appropriate general ledger account
C. The reimbursement of the petty cash fund should be credited to the cash account.
D. Entries that include a credit to the cash account should be recorded at the time the
payments from the petty cash fund are made.
5. Which statement is not false?
A. Bank service charge will cause the cash balance per ledger to be higher than that
reported by the bank, all other things being equal
B. Outstanding checks will cause the cash balance per ledger to be greater than the balance
reported by the bank, all other things being equal
C. An error made by the bank by charging an amount to the depositor’s account requires a
correcting entry in the depositor’s own records
D. The cash amount shown in the balance sheet must be the balance reported in the
bank statement
6. What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on a statement of financial position?
A. As offsets to equity.
B. By means of footnotes only.
C. As assets but separately from other receivables.
D. As trade notes and accounts receivable if they otherwise qualify as current assets.
7. Which non-trade receivables are usually classified as noncurrent?
A. Advances to Supplier
B. Advances to Affiliates
C. Advances to Employees
D. Dividends Receivable
8. How can accounting for bad debts be used for earnings management?
A. Determining which accounts to write-off.
B. Changing the percentage of sales recorded as bad debt expense.
C. Using an aging of the accounts receivable balance to determine bad debt expense.
D. Reversing previous write-offs.
9. The advantage of relating a company's bad debt expense to its outstanding accounts receivable
 is that this approach
A. gives a reasonably correct statement of receivables in the statement of financial position.
B. best relates bad debt expense to the period of sale.
C. is the only generally accepted method for valuing accounts receivable.
D. makes estimates of uncollectible accounts unnecessary.
10 If there is evidence that an impairment loss on loans and receivable has been incurred, the
. amount of the loss is equal to the
A. Excess of the carrying amount of the loan receivable over the present value of the cash
flows related to the loan.
B. Excess of the present value of cash flows related to the loan over the carrying amount of
the loan receivable.
C. Excess of the carrying amount of the loan over the principal amount of the loan.
D. Excess of the principal amount of the loan over its carrying amount.
11 Which of the following costs of conversion cannot be included in the cost of inventory?
. A. Salaries of factory supervisor
B. Depreciation of machinery sued in production
C. Salaries of sales staff in which the sales department shares the building with the production
department
D. Indirect materials
12 Which of the following is false of the perpetual inventory system?
. A. Purchases are recorded as debit to the inventory account.
B. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory.
C. After a physical inventory count, inventory is credited for any missing inventory.
D. Purchase returns are recorded by debiting accounts payable and crediting purchase returns
and allowances.
13 Which account is not used by the gross method of recording purchases?
. A. Purchases
B. Purchase Discount
C. Purchase Discount Lost
D. Purchase Returns and Allowances
14 In a period of falling prices, the use of which of the following inventory cost flow methods would
. typically result in the highest cost of goods sold?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification
15 Purchase commitments are obligations of the entity to acquire certain goods sometime in the
. future as at
A. Fixed price but not fixed in quantity
B. Fixed in quantity but not fixed in price
C. Fixed in quantity and in price
D. Not fixed both in quantity and in price
16 Biological transformation results from as it changes through all of the following, except.
. A. Growth.
B. Degeneration.
C. Procreation.
D. Production of agricultural produce.
17 Bearer plants are accounted for as.
. A. Biological assets with disclosure.
B. Biological assets without disclosure.
C. Property, Plant, and Equipment.
D. Non-current investment.
18 Bearer animals are accounted for as.
. A. Biological assets.
B. Property, Plant, and Equipment.
C. Investment property.
D. Agricultural produce.
19 An entity had a plantation forest that is likely to be harvested and sold in 30 years. Their income
. shall be accounted for in which of the following?
A. No income shall be reported annually until first harvest and sale in 30 years.
B. Income shall be measured annually and reported using a fair value approach that
 recognizes and measures biological growth.
C. The eventual sale proceeds shall be estimated and matched to the profit and loss account
over the 30-year period.
D. The plantation Forest should be valued every five years and the increase in value should be
recognized as a component of other comprehensive income
20 Which of the following is unlikely to be used in fair value measurement of biological assets?
. A. Quoted market price.
B. The most recent market transaction price.
C. The present value of the expected net cash flows.
D. External independent valuation.
21 Fences and parking lots are reported on the statement of financial position as
. A. current assets.
B. land improvements.
C. land.
D. property and equipment.
22 Major spare parts and standby equipment qualify as property, plant and equipment when the
. entity expects to use them
A. For less than a year
B. During more than one period
C. Regardless of their expected life
D. During more than two periods.
23 If the cost of the asset is recorded net of the government grant,
. A. equity will likely be overstated.
B. liabilities will likely be overstated.
C. assets will likely be understated.
D. revenues will likely be understated.
24 Which of the following statements is true regarding capitalization of interest?
. A. Interest cost capitalized in connection with the purchase of land to be used as a building site
should be debited to the land account and not to the building account.
B. The amount of interest cost capitalized during the period should not exceed the actual
interest cost incurred.
C. When excess borrowed funds not immediately needed for construction are temporarily
invested, any interest earned should be recorded as interest revenue.
D. The minimum amount of interest to be capitalized is determined by multiplying a weighted
average interest rate by the amount of average accumulated expenditures on qualifying
assets during the period.
25 In accounting for plant assets, which of the following outlays made subsequent to acquisition
. should be fully expensed in the period the expenditure is made?
A. Expenditure made to increase the efficiency or effectiveness of an existing asset
B. Expenditure made to extend the useful life of an existing asset beyond the time frame
originally anticipated
C. Expenditure made to maintain an existing asset so that it can function in the manner
intended
D. Expenditure made to add new asset services
26 An intangible asset is identifiable when
. A. It is separable.
B. It arises from contractual and other legal rights.
C. It is either separable or it arises from contractual and other legal right.
D. It is neither separable nor it arises from contractors and other legal right.
27 Which of the following does not describe intangible assets?
. A. They lack physical existence.
B. They are monetary assets.
C. They provide long-term benefits.
D. They are classified as long-term assets.
28 Costs incurred internally to create intangibles are
. A. capitalized.
B. capitalized if they have an indefinite life.
C. expensed as incurred.
D. expensed only if they have a limited life.
29 Which of the following characteristics do intangible assets possess?
. A. Physical existence.
 B. Claim to a specific amount of cash in the future.
C. Long-lived.
D. Held for resale.
30 Which condition must be met for an item to be recognized as intangible assets other than
. Goodwill?
A. The fair value can be measured reliably.
B. The item is part of an activity aimed at gaining new scientific or technical knowledge.
C. The item is expected to be used in the production or supply of good or services.
D. The item is non-monetary, identifiable and locks physical substance.
PROBLEMS

1. In preparing its bank reconciliation for the month of April 2020, Henke, Inc. has available the following
information:

Balance per bank statement, 4/30/2020 39,140

NSF check returned with 4/30/2020 bank statement 450
Deposits in transit, 4/30/2020 5,000
Outstanding checks, 4/30/2020 5,200
Bank service charges for April 20

What should be the correct balance of cash April 30, 2020?

a. P39,370
b. P38,940
c. P38,490
d. P38,470

2. The cash account shows a balance of P 450,000 before reconciliation. The bank statement does not include
a deposit of P 23,000 made on the last day of the month. The bank statement shows a collection by the
bank of P 9,400 and a customer's check for P 3,200 was returned because it was NSF. A customer's check
for P 4,500 was recorded on the books as P 5,400, and a check written for P 790 was recorded as P 970.
The correct balance in the cash account was
a. P455,120
b. P455,480
c. P457,280
d. P478,480

3. Finley, Inc.’s checkbook balance on December 31, 2020 was P 21,200. In addition, Finley held the following
items in its safe on December 31.

1) A check for P 450 from Peters, Inc. received December 30, 2020, which was not included in the
checkbook balance.
2) An NSF check from Garner Company in the amount of $900 that had been deposited at the bank
but was returned for lack of sufficient funds on December 29. The check was to be redeposited on January
3, 2021. The original deposit has been included in the December 31 checkbook balance.
3) Coin and currency on hand amounted to P 1,450.

The proper amount to be reported on Finley's statement of financial position for cash at December 31, 2020
is
a. P21,300
b. P20,400
c. P22,200
d. P21,750

4. Tresh, Inc. had the following bank reconciliation at March 31, 2020:

Balance per bank statement, March 31, 2020 372,000

Add: Deposit in transit 103,000
Total 475,000
Less: Outstanding checks 126,000
Balance per books, March 31, 2020 349,000

Data per bank for the month of April 2020 follow:

 Deposit 467,000
Disbursements 497,000
All reconciling items at March 31, 2020 cleared the bank in April. Outstanding checks at April 30, 2020
totaled P 60,000. There were no deposits in transit at April 30, 2020. What is the cash balance per books at
April 30, 2020?

a. P282,000
b. P319,000
c. P342,000
d. P385,000

5. Consider the following: Cash in Bank – checking account of P13,500, Cash on hand of P 500, Post-dated
checks received totaling P 3,500, and Certificates of deposit totaling P 124,000. How much should be
reported as cash in the statement of financial position?
a. P13,500
b. P14,000
c. P17,500
d. P131,500

An entity began operations on January 1, 2013. From 2013 to 2015, the entity provided for doubtful accounts based
on 5% of annual credit sales. On January 1, 2016, the entity changed the method of determining the allowance for
doubtful accounts using an aging schedule.

In addition, the entity writes off all accounts receivable that are over 1 year old. The following information relates to
the years ended December 31, 2013, 2014, 2015 and 2016:

2016 2015 2014 2013

Credit sales 15,000,000 9,500,000 8,000,000 6,000,000

Collections excluding recovery 11,700,000 8,200,000 6,700,000 4,500,000
Accounts written off during year 200,000 120,000 80,000 None
Recovery of accounts written off 90,000 40,000 25,000 None

Days Account Outstanding Amount Probability of Collection

Less than 16 days 3,000,000 98%

Between 16 and 50 days 1,500,000 80%
Between 51 and 100 days 1,200,000 75%
Between 101 and 200 days 800,000 50%
Between 201 and 365 days 400,000 20%
Over 365 days – to be written off 100,000 0%

6. What was the allowance for doubtful accounts on January 1, 2016?

a. 1,175,000
b. 1,040,000
c. 1,240,000
d. 975,000
7. What amount should be reported as allowance for doubtful accounts on December 31, 2016?
a. 1,380,000
b. 1,480,000
c. 2,420,000
d. 1,060,000
8. What amount should be reported as doubtful accounts expense for 2016?
a. 550,000
b. 750,000
c. 450,000
d. 200,000
9. What is the net realizable value of accounts receivable on December 31, 2016?
a. 6,900,000
 b. 7,000,000
c. 5,520,000
d. 5,620,000
10. Geary Co. assigned P 400,000 of accounts receivable to Kwik Finance Co. as security for a loan of p
335,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%.
During the first month, Geary collected P 110,000 on assigned accounts after deducting P 380 of discounts.
Geary accepted returns worth p 1,350 and wrote off assigned accounts totaling p 2,980.

The amount of cash Geary received from Kwik at the time of the transfer was
a. P301,500
b. P327,000
c. P328,300
d. P335,000

An entity sells a new product. During a move to a new location, the inventory records for the product were
misplaced. The bookkeeper has been able to gather some data for the purchases and sales records. The July
purchases are as follows:
Units Unit cost Total cost

July 5 10,000 65 650,000

10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000

On July 31, 17,000 units were on hand. The sales for July amounted to P6,000,000 or 60,000 units at P100 per
unit. Roshe Company has always used a perpetual FIFO inventory costing system. Gross profit on sales for July
was P2,400,000.

11. What was the cost of the inventory on July 31?

a. 3,600,000
b. 1,670,000
c. 770,000
d. 950,000
12. What was the cost of inventory on July 1?
a. 1,390,000
b. 2,400,000
c. 950,000
d. 760,000
13. What is the number of units available on July 1?
a. 34,000
b. 26,000
c. 10,000
d. 9,000
14. At December 31, 2020 Mahling Company’s inventory records indicated a balance of P 632,000. Upon further
investigation it was determined that this amount included the following:
 P 112,000 in inventory purchases made by Mahling shipped from the seller December 27, 2020,
terms FOB destination, but not due to be received until January 2, 2021.
 P 74,000 in goods sold by Mahling with terms FOB destination on December 27, 2020. The goods
are not expected to reach their destination until January 6, 2021.
 P 6,000 of goods received on consignment from Dollywood Company.
What is Mahling’s correct ending inventory balance at December 31, 2020?

a. P520,000
b. P626,000
c. P440,000
d. P514,000
15. On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of
January 1 totaled P 1,650,000. From January 1 through the time of the fire, the company made purchases of
P 683,000, incurred freight-in of $78,000, and had sales of $1,210,000. Assuming the rate of gross profit to
selling price is 30%, what is the approximate value of the inventory that was destroyed?
a. P2,048,000
 b. P1,486,000
c. P1,564,000
d. P2,411,000
16. Righteous Company provided the following data:
 Value of biological asset at acquisition cost on December 31, 2020, P 6,000,000
 Fair valuation surplus on initial recognition at fair value on 12/31/20, P 500,00
 Change in fair value on 12/31/20 due to growth and price fluctuation, P 900,000
 Decrease in fair value due to harvest, P 100,000
What is the carrying amount of the biological asset on December 31, 2020?

a. P7,400,000
b. P7,300,000
c. P7,500,000
d. P6,500,000
17. Using the same information in number (1), what amount of net gain from the change in fair value of
biological assets should be reported in 2020?
a. P1,400,000
b. P1,300,000
c. P900,000
d. P800,000
18. Tamaraw Company purchased cattle at an auction for P 300,000 on July 1, 2020. Cost of transporting the
cattle back to the company’s farm was P 3,000 and the company would have to incur cost similar
transportation cost if it was to sell the cattle in the auction in addition to auctioneer’s fee of 2% of sales price.

On December 31, 2020, after taking into account the location, the fair value of the biological assets had
increased to P 500,000 (that is, the market price including the cost of transporting the asset).

What amount should be the biological assets be initially recognized?

a. P291,000
b. P294,000
c. P297,000
d. P300,000
19. Using the same information in number (8), what amount should the biological assets be reported in the
December 31, 2020 statement of financial position?
a. P487,000
b. P490,000
c. P497,000
d. P500,000
20. Using the same information in number (8), what amount of gain or loss should the company include in the
statement of comprehensive income due to the change in the fair value of the biological assets?
a. P193,000
b. P196,000
c. P200,000
d. P209,000
21. Reverend Company acquired a new processing machine at the beginning of current year.
 Invoice cost – terms 5/10, n/30, P 1,600,000
 Cost of transportation, P 50,000
 Cost of installation, P 50,000
 Payment for strengthening the floor to support the weight of the new machine, P 150,000
The chief engineer spent two-thirds of his time during trial run of the new machine. The monthly salary is P
60,000.

During the year, the entity was granted a cash allowance of P 100,000 by the supplier because the machine
proved to be of less than standard performance capability.

The operator of the old machine who was laid off due to the acquisition of the new machine was paid a
gratuity of P 30,000

What amount should be the capitalized cost of the new machine?

a. P1,560,000
b. P1,640,000
 c. P1,710,000
d. P1,590,000

22. A purchase of equipment for P18,000 also involved freight charges of P 500 and installation costs of P
2,500. The estimated salvage value and useful life are P 2,000 and 4 years, respectively. Under the straight-
line method, annual depreciation expense will be
a. P4,750
b. P4,500
c. P4,125
d. P4,625
23. Kakadu Ltd purchased land for P 80,000. The company also paid P 12,000 in accrued taxes on the property,
incurred P 5,000 to remove an old building and received P 2,000 from the salvage of the old building. The
land will be recorded at
a. P80,000
b. P95,000
c. P92,000
d. P83,000
24. On January 1, 2020, Domino Company purchased a new machine for P 4,000,000. The new machine has
an estimated useful life of eight years and the residual value was estimated to be P 400,000. Depreciation
was computed on the sum of the years’ digit method.

What is the carrying amount of the machine on December 31, 2021?

a. P2,100,000
b. P2,500,000
c. P1,150,000
d. P3,300,000
25. At the beginning of the current year, Handsome Company purchased a mineral mine for P 36,000,000 with
removable ore estimated by geological survey at 2,160,000 tons. The property has an estimated value of P
3,600,000 after the ore has been extracted. The entity incurred P 10,800,000 of development costs
preparing the property for the extraction of ore. During the current year, 270,000 tons were removed, and
240,000 tons were sold.
a. P3,600,000
b. P4,050,000
c. P4,800,000
d. P5,400,000
26. Marauder Company borrowed P 15,000,000 at 12% to finance in part the construction of a new building on
January 1, 2019 and in part for general purposes. The loan is to be repaid commencing the month following
the completion of the building. Expenditures for the completed structure totaled P 10,000,000 during the
year ended December 31, 2019. These expenditures were incurred evenly throughout the year. The entity
earned interest of P 200,000 for the year on the unexpended portion of the loan.

What amount of interest is capitalized on December 31, 2019?

a. P1,200,000
b. P1,000,000
c. P600,000
d. P400,000
27. An asset purchased on 1 January for P 48,000 has an estimated salvage value of P 3,000. The current
year's Depreciation Expense is P 5,000 and the balance of the Accumulated Depreciation account, after
adjustment, is P 20,000. If the company uses the straight-line method, what is the asset's remaining useful
life?
a. 9 years
b. 4 years
c. 8 years
d. 5 years
28. On January 1, 2020, Plausible Company reported the following account balances relating to property, plant
and equipment:

Land 2,000,000
Building 15,000,000
Accumulated Depreciation 3,750,000
Machinery 3,000,000
 Accumulated Depreciation 1,500,000

Assets have been carried at cost since acquisition. All assets were acquired on January 1, 2010. The
straight-line method is used.

On January 1, 2020, the entity decided to revalue the property, plant and equipment. On such date,
competent appraisers submitted the following:

Replacement Cost
Land 5,000,000
Building 25,000,000
Machinery 5,000,000
What is the revaluation surplus on January 1, 2020?

a. P15,000,000
b. P11,500,000
c. P30,000,000
d. P8,500,000
29. Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on
January 1, 2018 for 5,400,000. The entity used straight-line amortization.

On January 1, 2020, a new patent is received for an improved version of the same drug. The new patent has
legal and useful life of twenty years.

What is the amount of amortization expense 2020?

a. P900,000
b. P200,000
c. P180,000
d. P300,000
30. At the current year-end, Star Company purchased for P30 per share all 200,000 of Moon Company’s
outstanding ordinary shares. On this date, the acquiree’s statement of financial position showed net assets
of P5,000,000. Additionally, the fair value of the acquiree’s identifiable assets on this date was P400,000 in
excess of carrying amount.

In the statement of financial position, what amount should be reported as goodwill as a result of the
acquisition?
a. P1,000,000
b. P400,000
c. P600,000
d. P350,000

BONUS QUESTION (5 Points)

What is the Professor's Middle Initial/Name