UM TAGUM COLLEGE

College of Accounting Education

Mock Board in Theory of Accounts October 17, 2012

INSTRUCTION: Write the letter which correspond to your chosen answer. Present
supporting solution(s) in an acceptable format.

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1. The financial statements most frequently b. enhance comparability among
provided include all of the following companies' financial statements.
except the c. allow new and emerging practical
a. statement of financial position. problems to be more quickly solved.
b. income statement. d. all of these.
c. statement of cash flows.
d. statement of retained earnings. 6. Company A issuing its annual financial
reports within one month of the end of
2. All the following are differences between the year is an example of which
financial and managerial accounting in enhancing quality of accounting
how accounting information is used information?
except to a. Neutrality.
a. plan and control company's b. Timeliness.
operations. c. Predictive value.
b. decide whether to invest in the d. Representational faithfulness.
company.
c. evaluate borrowing capacity to 7. When information about two different
determine the extent of a loan to enterprises has been prepared and
grant. presented in a similar manner, the
d. All the above. information exhibits the characteristic of
a. relevance.
3. General-purpose financial statements are b. reliability.
the product of c. consistency.
a. financial accounting. d. none of these.
b. managerial accounting.
c. both financial and managerial 8. Issuance of common stock for cash
accounting. affects which basic element of financial
d. neither financial nor managerial statements?
accounting. a. Revenues.
b. Losses.
4. The information provided by financial c. Liabilities.
reporting pertains to d. Equity.
a. individual business enterprises, rather 9. Which of the following basic accounting
than to industries or an economy as a assumptions is threatened by the
whole or to members of society as existence of severe inflation in the
consumers. economy?
b. business industries, rather than to a. Monetary unit assumption.
individual enterprises or an economy b. Periodicity assumption.
as a whole or to members of society c. Going-concern assumption.
as consumers. d. Economic entity assumption.
c. individual business enterprises,
industries, and an economy as a 10. Which of the following is an
whole, rather than to members of implication of the going concern
society as consumers. assumption?
d. an economy as a whole and to a. The historical cost principle is
members of society as consumers, credible.
rather than to individual enterprises b. Depreciation and amortization policies
or industries. are justifiable and appropriate.
c. The current-noncurrent classification
5. A soundly developed conceptual of assets and liabilities is justifiable
framework of concepts and objectives and signify-cant.
should d. All of these.
a. increase financial statement users'
understanding of and confidence in 11. Revenues are
financial reporting.

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 a. Impacted by debits and credits in the consumption of
same way that expenses are impacted time
by debits and credits. 16. Adjusting entries are necessary to
b. A subdivision of equity, providing 1. obtain a proper matching of expense
information about why equity to revenue.
increased. 2. achieve an accurate statement of
c. Reported on the statement of financial assets and equities.
position as a current item. 3. adjust assets and liabilities to their
d. All of the choices are correct fair value.
regarding revenues. a. 1
12. Debit always means b. 2
a. right side of an account. c. 3
b. increase. d. 1 and 2
c. decrease.
d. none of these.
17. A company must make adjusting
13. The trial balance entries
a. Proves that debits are greater than a. To ensure that the revenue
credits when the company has net recognition and expense recognition
income. principles are followed.
b. Uncovers any errors in journalizing b. Each time it prepares an income
and posting prior to preparation of the statement and a statement of
statement of financial position. financial position.
c. Is useful in preparing the statement of c. To account for accurals or deferrals.
financial position. d. All of the choices are correct
d. All of the choices are correct. regarding adjusting entries.
14. A general journal
a. chronologically lists transactions and 18. The closing entries
other events, expressed in terms of a. Must debit or credit one income
debits and credits. statement account and one statement
b. contains one record for each of the of financial position account.
asset, liability, equity, revenue, and b. Include closing the dividends account
expense accounts. to income summary.
c. lists all the increases and decreases in c. Are posted to the appropriate general
each account in one place. ledger accounts.
d. contains only adjusting entries. d. All of the choices are correct
regarding closing entries.
15. How do these prepaid expenses
expire? 19. Reversing entries
Rent a. Impact the income statement only.
Supplies b. Impact the statement of financial
a. With the passage of time Through position and the income statement.
use and c. Are not allowed under International
cons Financial Reporting Standards(PFRS).
umption d. Change amounts reported in the
b. With the passage of time With the financial statements of the preceding
passage peroid.
of
time 20. The major elements of the income
c. Through use and statement are
Through use and a. revenue, cost of goods sold, selling
consumption expenses, and general expense.
consumption b. operating section, nonoperating
d. Through use and With section, discontinued operations and
the passage cumulative effect.

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 c. revenues, expenses, gains,
losses.
d. All of these.
21. Which of the following is an example
of managing earnings down?
a. Changing estimated bad debts from 3
percent to 2.5 percent of sales.
b. Revising the estimated life of
equipment from 10 years to 8 years.
c. Not writing off obsolete inventory.
d. Reducing research and development
expenditures.
22. The statement of financial position
a. Omits many items that are of financial
value.
b. Makes very limited use of judgments
and estimates.
c. Uses fair value for most assets and
liabilities.
d. All of the choices are correct
regarding the statement of financial
position.
23. The statement of financial position
can help assess all of the following
except
a. Solvency.
b. Financial flexibility.
c. Profitability.
d. Liquidity.
24. 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.
25. The statement of cash flows provides
answers to all of the following questions
except
a. where did the cash come from during
the period?
b. what was the cash used for during the
period?
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and c. what is the impact of inflation on the
cash balance at the end of the year?
d. what was the change in the cash
balance during the period?
26. The statement of cash flows reports
allof the following except
a. the net change in cash for the period.
b. the cash effects of operations during
the period.
c. the free cash flows generated during
the period.
d. investing transactions.
27. Which of the following events will
appear in the cash flows from financing
activities section of the statement of
cash flows?
a. Cash purchases of equipment.
b. Cash purchases of bonds issued by
another company.
c. Cash received as repayment for funds
loaned.
d. Cash purchase of treasury stock.
28. Which factor would be greater — the
present value of P1 for 10 periods at 8%
per period or the future value of P1 for
10 periods at 8% per period?
a. Present value of P1 for 10 periods at
8% per period.
b. Future value of P1 for 10 periods at
8% per period.
c. The factors are the same.
d. Need more information.
29. An amount is deposited for eight
years at 8%. If compounding occurs
quarterly, then the table value is found
at
a. 8% for eight periods.
b. 2% for eight periods.
c. 8% for 32 periods.
d. 2% for 32 periods.
30. Present value is
a. the value now of a future amount.
b. the amount that must be invested
now to produce a known future value.
c. always smaller than the future value.
d. all of these.
31. A cash equivalent is a short-term,
highly liquid investment that is readily
 convertible into known amounts of cash
and
a. is acceptable as a means to pay
current liabilities.
b. has a current market value that is
greater than its original cost
c. bears an interest rate that is at least
equal to the prime rate of interest at
the date of liquidation.
d. is so near its maturity that it presents
insignificant risk of changes in interest
rates.
32. Bank overdrafts generally should be
a. reported as a deduction from the
current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash
amount reported.
d. reported as a current liability.
33. The category "trade receivables"
includes
a. advances to officers and employees.
b. income tax refunds receivable.
c. claims against insurance companies
for casualties sustained.
d. none of these.
34. Why do companies provide trade
discounts?
a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different
customers.
d. Both a. and c.
35. Which of the following methods of
determining bad debt expense does not
properly match expense and revenue?
a. Charging bad debts with a percentage
of sales under the allowance method.
b. Charging bad debts with an amount
derived from a percentage of accounts
receivable under the allowance
method.
c. Charging bad debts with an amount
derived from aging accounts
receivable under the allowance
method.
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d. Charging bad debts as accounts are
written off as uncollectible.
36. What is imputed interest?
a. Interest based on the stated interest
rate.
b. Interest based on the implicit interest
rate.
c. Interest based on the average interest
rate.
d. Interest based on the coupon rate.
37. The journal entries for a bank
reconciliation
a. are taken from the "balance per bank"
section only.
b. may include a debit to Office Expense
for bank service charges.
c. may include a credit to Accounts
Receivable for an NSF check.
d. may include a debit to Accounts
Payable for an NSF check.
38. Which of the following is a
characteristic of a perpetual inventory
system?
a. Inventory purchases are debited to a
Purchases account.
b. Inventory records are not kept for
every item.
c. Cost of goods sold is recorded with
each sale.
d. Cost of goods sold is determined as
the amount of purchases less the
change in inventory.
39. Valuation of inventories requires the
determination of all of the following
except
a. the costs to be included in inventory.
b. the physical goods to be included in
inventory.
c. the cost of goods held on consignment
from other companies.
d. the cost flow assumption to be
adopted.
40. Dolan Co. received merchandise on
consignment. As of March 31, Dolan had
recorded the transaction as a purchase
and included the goods in inventory. The
effect of this on its financial statements
for March 31 would be
a. no effect.
 b. net income was correct and current
assets and current liabilities were
overstated.
c. net income, current assets, and
current liabilities were overstated.
d. net income and current liabilities were
overstated.
41. Which of the following statements is
incorrect regarding the lower-of-cost-or-
net realizable value (LCNRV)?
a. Net realizable value (NRV) is the
selling price less estimated costs to
complete and estimated costs to make
a sale.
b. In most situations, companies price
inventory on a total-inventory basis.
c. One of two methods may be used to
record the income effect of valuing
inventory at net realizable value.
d. Companies use an allowance account,
the “Allowance to Reduce Inventory to
Net Realizable Value.”
42. Agricultural produce is
a. Harvested from biological assets.
b. Valued at the time of harvest at its
cost to produce.
c. Valued at each reporting period at its
fair value less costs to sell.
d. All of the choices are correct
regarding agricultural produce.
43. A major advantage of the retail
inventory method is that it
a. provides reliable results in cases
where the distribution of items in the
inventory is different from that of
items sold during the period.
b. hides costs from competitors and
customers.
c. gives a more accurate statement of
inventory costs than other methods.
d. provides a method for inventory
control and facilitates determination
of the periodic inventory for certain
types of companies.
44. 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.
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45. Which of the following is not a
condition that must be satisfied before
interest capitalization can begin on a
qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been
made.
c. The interest rate is equal to or greater
than the company's cost of capital.
d. Activities that are necessary to get
the asset ready for its intended use
are in progress.
46. If a government entity provides an
interest free loan to a company and the
company accounts for the grant using
the deferred revenue approach,
a. no interest expense will be recorded.
b. the interest element is initially
recorded as Discount on Noted
Payable.
c. the interest element is amortized to
Deferred Grant Revenue over the
term of the loan.
d. all of these.
47. Which of the following is not true with
regard to the accounting for government
grants?
a. Assets may be recorded at fair value
or nominal cost.
b. Companies may use either the capital
or income approach to account for the
asset and the grant.
c. Companies may apply the income
approach either by recording the
grant as deferred revenue or as an
adjustment to the asset.
d. Both a and c.
48. When a plant asset is acquired by
issuance of ordinary shares, the cost of
the plant asset is properly measured by
the
a. par value of the shares.
b. stated value of the shares.
c. book value of the shares.
d. fair value of the shares.
49. Lynch Printing Company determines
that a printing press used in its
operations has suffered an impairment in
value because of technological changes.
An entry to record the impairment should
a. recognize extra depreciation expense
for the period.
 b. include a credit to the equipment
accumulated depreciation account.
c. include a credit to the equipment
account.
d. not be made if the equipment is still
being used.
50. Which of the following is not an
intangible asset?
a. Trade name
b. Research and development costs
c. Franchise
d. Copyrights
51. In a business combination, the excess
of the cost of the purchase over the fair
value of the identifiable net assets
purchased is:
a. other assets.
b. indirect costs.
c. goodwill.
d. a bargain purchase.
52. Which of the following is a current
liability?
a. Preference dividends in arrears
b. A dividend payable in the form of
additional shares
c. A cash dividend payable to preference
shareholders
d. All of these
53. Which of the following is not
considered a characteristic of a liability?
a. Present obligation.
b. Arises from past events.
c. Results in an outflow of resources.
d. Liquidation is reasonably expected to
require use of existing resources
classified as current assets.
54. An electronics store is running a
promotion where for every video game
purchased, the customer receives a
coupon upon checkout to purchase a
second game at a 50% discount. The
coupons expire in one year. The store
normally recognized a gross profit
margin of 40% of the selling price on
video games. How would the store
account for a purchase using the
discount coupon?
a. The reduction in sales price attributed
to the coupon is recognized as
premium expense.
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b. The difference between the cost of the
video game and the cash received is
recognized as premium expense.
c. Premium expense is not recognized.
d. The difference between the cost of the
video game and the selling price prior
to the coupon is recognized as
premium expense.
55. Which of the following is the proper
way to report a contingent asset, receipt
of which is virtually certain?
a. As an asset.
b. As unearned revenue.
c. As a disclosure only.
d. No disclosure or accrual required.
56. Provisions are contingent liabilities
which are accrued because the likelihood
of an unfavorable outcome is
a. virtually certain.
b. greater than 50%.
c. at least 75%.
d. possible.
57. Bonds that pay no interest unless the
issuing company is profitable are called
a. collateral trust bonds.
b. debenture bonds.
c. revenue bonds.
d. income bonds.
58. When the effective-interest method is
used to amortize bond premium or
discount, the periodic amortization will
a. increase if the bonds were issued at a
discount.
b. decrease if the bonds were issued at a
premium.
c. increase if the bonds were issued at a
premium.
d. increase if the bonds were issued at
either a discount or a premium.
59. Long-term debt that matures within
one year and is to be converted into
shares should be reported
a. as a current liability.
b. in a special section between liabilities
and equity.
c. as part current and part non-current.
d. as non-current.
60. “Gains" on sales of treasury (using the
cost method) should be credited to
 a. share premium—treasury.
b. share capital. 65. The conversion of preference shares
c. retained earnings. into ordinary shares requires that any
d. other income. excess of the par value of the ordinary
shares issued over the carrying amount
61. Which of the following features of of the preference shares being converted
preference shares makes the security should be
more like debt than an equity a. reflected currently in income.
instrument? b. reflected currently in other
a. Participating comprehensive income.
b. Voting c. treated as a prior period adjustment.
c. Redeemable d. treated as a direct reduction of
d. Noncumulative retained earnings.

62. Liabilities and owners’ equity are 66. Employee share purchase plans
similar in that (ESPP)
a. Both provide certain amounts of a. Permit all employees to purchase
payments in the form of interest and shares at a discounted price.
dividends respectively based upon b. Are generally considered
written agreements. noncompensatory and result in no
b. Both provide specific timing of compensation expense being
payments as a result of specific recorded.
maturity dates. c. Distribute restricted shares to
c. Both creditors and stockholders are employees for a short period of time.
equity holders, although they have d. All of the choices are correct
different rights with respect to regarding ESPP.
income, risk, control, and liquidation. 67. A gain on sale of a debt investment is
d. Both liabilities and owners’ equity are the excess of the selling price over the
ranked equally when an enterprise’s bonds
assets are distributed. a. market price.
b. fair value.
63. How should cumulative preference c. face value.
dividends in arrears be shown in a d. book value.
corporation's statement of financial
position? 68. Investments in trading debt
a. Note disclosure investments are generally reported at
b. Increase in shareholders' equity a. amortized cost.
c. Increase in current liabilities b. face value.
d. Increase in current liabilities for the c. fair value.
amount expected to be declared d. maturity value.
within the year or operating cycle,
and increase in non-current liabilities 69. An option to convert a convertible
for the balance bond into ordinay shares is a(n)
a. embedded derivative.
b. host security.
c. hybrid security.
d. fair value hedge.
64. When a bond issuer offers some form
of additional consideration (a 70. Under PFRS, when a barter
“sweetener”) to induce conversion, the transaction occurs and the goods
sweetener is accounted for as a(n) exchanged are similar
a. equity item. a. The exchange is recorded as revenue.
b. expense. b. The company has transferred to the
c. loss. buyer the significant risks and
d. none of these. rewards of ownership of the goods.

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 c. Revenue is not reported. III. Operating loss carryforwards.
d. The critical event is considered to be IV.Operating loss carrybacks.
the date the goods or services are a. I, II, and III.
exchanged. b. I and III only.
c. I and IV only.
71. Under PFRS, revenue from bill-and- d. II and III only.
hold sales is recognized when
I. It is probable that goods will be 75. A pension liability is reported when
delivered a. the defined benefit obligation exceeds
II. The item is identified, on hand, and the fair value of pension plan assets.
ready for delivery b. the accumulated benefit obligation is
III. The goods (services) exchanged less than the fair value of pension
are dissimilar in nature plan assets.
IV.The buyer acknowledges the deferred c. the pension expense reported for the
delivery arrangement period is greater than the funding
V. Usual payment terms apply amount for the same period.
a. I, III, IV, and V. d. accumulated other comprehensive
b. I, II, III, IV, and V. income exceeds the fair value of
c. I and V. pension plan assets.
d. I, II, IV, and V.
76. The amount to be recorded as the
72. Machinery was acquired at the cost of an asset under a, finance lease is
beginning of the year. Depreciation equal to the
recorded during the life of the machinery a. present value of the minimum lease
could result in payments.
Future b. present value of the minimum lease
Future payments or the fair value of the
Taxable Amounts Deductible Amounts asset, whichever is lower.
a. Yes Yes c. present value of the minimum lease
b. Yes No payments plus the present value of
c. No Yes any unguaranteed residual value.
d. No No d. carrying value of the asset on the
lessor's books.
73. A major distinction between
temporary and permanent differences is 77. The methods of accounting for a lease
a. permanent differences are not by the lessee are
representative of acceptable a. operating and finance lease methods.
accounting practice. b. operating, sales, and finance lease
b. temporary differences occur methods.
frequently, whereas permanent c. operating and leveraged lease
differences occur only once. methods.
c. once an item is determined to be a d. none of these.
temporary difference, it maintains
that status; however, a permanent 78. Minimum lease payments may include
difference can change in status with a
the passage of time. a. penalty for failure to renew.
d. temporary differences reverse b. bargain purchase option.
themselves in subsequent accounting c. guaranteed residual value.
periods, whereas permanent d. any of these.
differences do not reverse.

74. Under PFRS deferred tax assets are

recognized for
I. Deductible temporary differences.
II. Deductible permanent differences.

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79. Accounting changes are often made b. No effect Overstate Understate
and the monetary impact is reflected in Understate.
the financial statements of a company c. Understate Understate No effect
even though, in theory, this may be a No effect.
violation of the accounting concept of d. Understate No effect Understate
a. materiality. Understate.
b. consistency.
c. prudence. 84. Revenue of a segment includes
d. objectivity. a. only sales to unaffiliated customers.
b. sales to unaffiliated customers and
80. A company changes from straight-line intersegment sales.
to an accelerated method of calculating c. sales to unaffiliated customers and
depreciation, which will be similar to the interest revenue.
method used for tax purposes. The entry d. sales to unaffiliated customers and
to record this change should include a other revenue and gains.
a. credit to Accumulated Depreciation.
b. debit to Retained Earnings in the 85. An operating segment is a reportable
amount of the difference on prior segment if
years. a. its operating profit is 10% or more of
c. debit to Deferred Tax Asset. the combined operating profit of
d. credit to Deferred Tax Liability. profitable segments.
81. Which type of accounting change b. its operating loss is 10% or more of
should always be accounted for in the combined operating losses of
current and future periods? segments that incurred an operating
a. Change in accounting policy loss.
b. Change in reporting entity c. the absolute amount of its operating
c. Change in accounting estimate profit or loss is 10% or more of the
d. Correction of an error company's combined operating profit
or loss.
82. An example of a correction of an error d. none of these.
in previously issued financial statements
is a change 86. Companies should disclose all of the
a. from the FIFO method of inventory following in interim reports except
valuation to the average cost method. a. basic and diluted earnings per share.
b. in the service life of plant assets, b. changes in accounting policies.
based on changes in the economic c. post-statement of financial position
environment. events.
c. from the cash basis of accounting to d. seasonal revenue, cost, or expenses.
the accrual basis of accounting.
d. in the tax assessment related to a 87. All of the following are exemptions to
prior period. retrospective application in first-time
adoption of PFRS except
83. A company using a perpetual a. estimates.
inventory system neglected to record a b. hedge accounting.
purchase of merchandise on account at c. non-controlling interest.
year end. This merchandise was omitted d. deferred taxes.
from the year-end physical count. How
will these errors affect assets, liabilities, 88. A company’s first PFRS financial
and equity at year end and net income statements must include at least how
for the year? many separate cash flow statements?
Assets Liabilities Equity
Net Income a. None are required
a. No effect Understate Overstate b. One
Overstate. c. Two
d. Three

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 total comprehensive income outside of
89. Which of the following statements is profit and loss)?
true about goodwill under PFRS for a. gains and losses from discontinued
SMEs? operations.
a. Goodwill is not amortized but tested b. gains and losses arising on translating
for impairment annually. the financial statements of a foreign
b. Goodwill is amortized over its operation.
expected useful life. c. gains on the revaluation of property,
c. The expected life of goodwill is 20 plant and equipment.
years. d. gains and losses that management
d. None of the above. considers extraordinary items.

90. Under the PFRS for SMEs borrowing

costs are?
a. All charged to expense when incurred. 95. The classification of financial asset(s)
b. Capitalized only when related to in PAS 39 that have been dropped in
qualifying assets. PFRS 9 is(are):
c. Capitalized in all cases. a. Available-for-sale financial asset
d. May be capitalized or expensed b. Held-to-maturity investment
outright under benchmark treatment. c. Held-for-trading securities
d. Both A and B
91. Under PFRS for SMEs, how does an
entity recognized actuarial gains and
losses on employee benefits? 96. Under PFRS 9, Financial Instruments,
a. Recognized immediately in profit or the classification of financial assets when
loss. the business model and cash flow
b. As an item of other comprehensive characteristics tests are not met is
income. a. At amortized cost
c. Deferred and subsequently amortized b. At fair value
using corridor approach. c. At fair value through other
d. Items a and b only are correct. comprehensive income
d. At cost
92. Under PFRS for SMEs, which of the
following statements is not correct? 97. The device by which a corporation
a. Recognized deferred taxes if the basis transfers a part of its assets to a new
of an asset or liability is different from company in exchange for stocks of the
its carrying amount. new company, after which the
b. Tax basis assumes recovery by sale. corporation distributes such stock to its
c. Recognized deferred tax assets in full; stockholders without any surrender of
valuation allowance is not permitted. stock is known as
d. No deferred tax on an asset or liability a. Spin off
if recovery or settlement of carrying b. Split up
amount is not expected to affect c. Split off
taxable profit. d. Split on

93. Which of the following is not covered 98. This is a sum of money or other
in PFRS for SMEs? government resources set aside for the
a. Government grant. purpose of carrying cut specific activities
b. Stock split. or attaining certain objectives in
c. Earnings per share. accordance with specific regulations,
d. Agriculture. restrictions or limitations, and constitutes
an independent fiscal and accounting
94. Under PFRS for SMEs, which of the entity.
following gains and losses are recognized a. Cash disbursement ceiling
in other comprehensive income (i.e. in b. Appropriation

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 c. Fund b. Graft and corruption
d. Budget c. Irregular disbursement
d. Estafa
99. No money shall be paid out of the
National Treasury except in pursuance of 100. What is the new government
an appropriation law. Consequently, a accounting system?
government official who disburses a. Cash basis
government funds beyond the approved b. Modified cash basis
budget may be charged with c. Accrual basis
a. Technical malversation d. Modified accrual basis

 - end of examination- 

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