ACC 124 – 1st Exam (MSA1)

1. Statement 1: Financial accounting can be broadly defined as the area of accounting that prepares
general purpose financial statements to be used by parties external to the entity.
Statement 2: The communicating process of accounting include summarizing.
a. Statement 1 is true. c. Both statements are true.
b. Statement 2 is true. d. Both statements are false.

2. The purpose of the IFRS is to

a. Issue enforceable standards which regulate the financial accounting and reporting of
multinational entities.
b. Develop a uniform currency in which the financial transactions of entities throughout the world
would be measured.
c. Promote uniform accounting standards among countries of the world
d. Arbitrate accounting disputes between auditors and international entities.

3. The primary focus of financial accounting has been on meeting the needs of which of the following
groups?
a. Government regulators c. National and local taxing authority
b. Present and potential creditors of the entity d. Independent auditors

4. Which of the following is true about the Philippine Interpretations Committee?

i. The role of the PIC is to prepare interpretations of PFRS for approval by the FSRSC and in the
context of the Framework, to provide timely guidance on financial accounting issues not
specifically addressed in current PFRS.
ii. The interpretations are intended to give authoritative guidance on issue that are likely to
receive divergent or unacceptable treatment because standards do not provide specific and
clearcut rules and guidelines.
a. i only b. ii only c. Both i and ii d. Neither i nor ii

5. Which of the following statements is incorrect?

a. The accrual method, which builds directly on the revenue and matching principles ignores the
timing of each receipts or payments in determining when to recognized revenue or expenses.
b. In accordance with the unit of measure assumption, accountants normally revise the amounts to
reflect the changing purchasing power of money due to inflation or deflation.
c. In accordance with the going concern assumption, the life of an entity is presumed to be
indefinite.
d. Accountants prepare financial statements at arbitrary points in time during an entity’s lifetime in
accordance with the accounting concept of accounting period.

6. Statement 1: The Framework applies to the financial statements of all commercial industries and
business reporting entities, whether in the public and private sector.
Statement 2: Special purpose financial reports, for example, prospectuses and computations
prepared for taxation purposes, are within the scope of the Framework.
a. Statement 1 is true. c. Both statements are true.
b. Statement 2 is true. d. Both statements are false.

7. The following are included in the scope of the Framework, except:

a. Qualitative characteristics that determine usefulness of financial accounting information.
b. Definition, recognition, and measurement of the elements of the financial statements.
c. Generally accepted accounting principles.
d. Objective of financial statements.

8. Statement 1: The Framework applies only when the FSRSC develops new or revised standards.

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 Statement 3: In the absence of a standard or an interpretation that specifically applies to a
transaction, management shall consider the applicability of the Framework in developing and
applying an accounting policy that results in information that is relevant and faithfully represented.
a. Statement 1 is true. c. Both statements are true.
b. Statement 2 is true. d. Both statements are false.

9. Which of the following is not a purpose of the Framework?

a. To provide definition of key terms and fundamental concepts.
b. To provide specific guidelines for resolving situations not covered by existing accounting
standards.
c. To assist accountants and other in selecting among alternative accounting and reporting
methods.
d. To assist the FSRSC in the standard-setting process.

10. Revenue from sale of goods shall be recognized when all of the following conditions have been
satisfied, except
a. The entity has transferred to the buyer the significant risks and rewards of ownership of the
goods.
b. The entity retains either continuing managerial involvement or effective control over the goods
sold.
c. The amount of revenue can be measured reliably.
d. It is probable that economic benefits will flow to the entity.

11. The operating cycle

a. Measures the time elapsed between cash disbursement for inventory to cash collection of the
sales price.
b. Refers to the seasonal variations experienced by business entities.
c. Should be used to classify assets and liabilities as current if it is less than one year.
d. Cannot exceed one year.

12. Statement 1: Accrued revenue would normally appear in the statement of financial position under
current assets.
Statement 2: The term deficit refers to a debit balance in retained earnings.
a. Statement 1 is true.
b. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.

13. The transaction approach in determining income is a concept in which

a. Income is measured as the amount that an entity could consume during a period and be as well
off at the end of that period as it was at the beginning.
b. Market values adjusted for the effects of inflation or deflation are used to calculate income.
c. The financial statement effects of business events are classified as revenue, gains, expenses and
losses, which are used to measure and define income.
d. Income equals the change in market value of the entity’s outstanding share capital for the
period.

14. The term comprehensive income

a. Must be reported on the face of the income statement.
b. Includes all changes in equity during a period except those resulting from investments by and
distributions to owners.
c. Is the net changes in owner’s equity for the period.
d. Is synonymous with the term net income.

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15. Which of the following steps in the accounting cycle are listed in logical order?
a. Post the journal entries to the ledger accounts, prepare a worksheet, and then take a trial
balance.
b. Journalize the closing entries, post the closing entries, and then take the post-closing trial
balance.
c. Prepare the income statement, prepare the statement of financial position, and then prepare a
worksheet.
d. Post the closing entries, take a post-closing trial balance, then journalize the closing entries.

Problem Solving – 2 points each

16. The following data are available for purposes of stating the financial position of Ian Company on
December 31, 2022:

Cash 1,200,000
Investment securities held for trading (including long-term
Investment of P500,000 in ordinary shares of BOD Company 2,000,000
Inventories 800,000
Prepaid expenses (including a deposit of P50,000 made on
Inventories to be delivered in 18 months) 150,000
Property, Plant and Equipment 10,000,000
Goodwill (based on estimate by the president) 1,000,000
Total Assets 15,150,000

What is the total current assets should be reported on December 31, 2022?

Cash 1,200,000
Trading Securities (2,000,000 – 500,000) 1,500,000
Inventories 800,000
Prepaid expenses (150,000 – 50,000) 100,000
Advances to supplies 50,000
Total Current Assets 3,650,000

17. The trial balance of Carlo Company reflected the following liability account balances on December
31, 2022:

Accounts payable 1,900,000

Bonds payable 3,400,000
Premium on bonds payable 200,000
Dividends payable 500,000
Income tax payable 900,000
Notes payable, due January 1, 2023 600,000

In Carlo Company’s statement of financial position, what total amount should be reported as current
liabilities?

Accounts payable 1,900,000

Dividends payable 500,000
Income tax payable 900,000
Notes payable 600,000
Total current liabilities 3,900,000

18. The adjusted trial balance of Cedric Company included the following accounts for the current year:

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 Sales 9,500,000
Interest revenue 250,000
Gain on sale of equipment 100,000
Revaluation surplus during the year 1,200,000
Share of profit of associate 350,000
Cost of goods sold 6,000,000
Finance cost 150,000
Distribution cost 500,000
Administrative expenses 300,000
Translation loss on foreign operation 200,000
Income tax expense 950,000

What is the comprehensive income for the current year?

Sales 9,500,000
Cost of goods sold 6,000,000
Gross profit 3,500,000
Other Income (250,000 + 100,000) 350,000
Total 3,850,000
Operating Expenses
Distribution cost 500,000
Administrative expenses 300,000
Other operating expenses 200,000
Income from Operation 2,850,000
Share of income from associate 350,000
Finance cost ( 150,000)
Income before tax 3,050,000
Income tax 950,000
Comprehensive Income 2,100,000

19. Below are selected account balances of Petalcorin Company on December 31, 2022:

Retained earnings, Jan. 1 3,000,000

Dividends 1,000,000
Sales 8,350,000
Dividend income 100,000
Inventory, Jan. 1 1,040,000
Purchases 3,720,000
Salaries 1,540,000
Delivery expenses 205,000
Miscellaneous expenses 125,000
Doubtful accounts expense 10,000
Depreciation expense 85,000
Loss on sale of equipment 150,000
Income tax 735,000

Inventory on December 31 amounted to P850,000.

What is the cost of goods sold?

What is the income from continuing operations?

Sales 8,350,000
Cost of Sales 3,910,000

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 Gross Profit 4,440,000
Other Income 100,000
Total 4.540,000
Operating Expense 2,115,000
Income from continuing operations 2,425,000
Income tax 725,000
Comprehensive Income 1,700,000

Cost of Sales
Beg. Inventory 1,040,000
Purchases 3,720,000
TGAS 4,760,000
Inventory, end 850,000
3,910,000

Operating Expense:
Salaries 1,540,000
Delivery expense 205,000
Miscellaneous expense 125,000
Doubtful accounts expense 10,000
Depreciation expense 85,000
Loss on sale 150,000
2,115,000

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