Intermediate Accounting 2 Theories Final Examination.docx

Intermediate Financial Accounting 2 Theories FINAL REQUIREMENT NAME: ________________________________

DATE: ______________________

I. CHOOSE THE BEST ANSWER; SUMMARIZE YOUR ANSWER IN A WHOLE SHEET OF PAPER. 1. When shares with par are sold, the proceeds shall be credited to the a. Share capital account b. Share premium c. Retained earnings d. Share capital account to the extent of the par of the shares issued with any excess being reflected in share premium 2. When shares without par value are sold, the excess proceeds over the stated value shall be credited to a. Income c. Share premium b. Retained earnings d. Share capital 3. If shares are issued for a noncash consideration, the shares issued shall be measured by a. Fair value of the shares issued d. Carrying amount of the consideration b. Par value of the shares issued received c. Fair value of the consideration received 4. If shares are issued to extinguish a financial liability, what is the initial measurement of the shares issued? a. Par value of the shares issued c. Fair value of the liability extinguished b. Fair value of the shares issued d. Book value of the shares issued 5. When shares are issued for services received, the measure is equal to a. Fair value of such services c. Book value of the shares issued b. Par value of the shares issued d. Fair value of the shares issued 6. Treasury shares shall be recorded at cost irrespective of whether these are acquired below or above par value. The cost of the treasury shares acquired for noncash consideration is usually measured by a. Fair value of the noncash consideration given b. Carrying amount of the noncash asset surrendered c. Par value of the shares d. Book value of the shares 7. The total cost of the treasury shares shall be reported as a. Deduction from shareholders’ equity b. Asset c. Deduction from retained earnings d. Deduction from share premium 8. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by a. Fair value of the treasury shares b. Fair value of the noncash consideration received c. Carrying amount of the noncash consideration received d. Book value of the treasury shares 9. Which statement is incorrect concerning treasury shares? a. Treasury shares shall be reported at cost irrespective whether acquired below or above par value b. The total cost of treasury shares shall be deducted from equity c. Treasury shares may be recognized as financial asset d. Gain or loss on sale of treasury shares shall not be included in profit or loss 10. “Loss” from sale of treasury shares shall be charged to a. Loss on sale of treasury shares to be shown as other expense b. Retained earnings and then share premium from treasury shares c. Share premium from treasury shares then retained earnings d. Share premium from original issuance, share premium from treasury shares and then retained earnings 11. Gains and losses on retirement of treasury shares shall not be included in profit or loss. If the retirement results in a gain, such gain shall be credited to a. Share premium c. Share capital b. Retained earnings d. Income 12. Loss on retirement of treasury shares shall be debited to a. Retained earnings b. Share premium from treasury shares and then to retained earnings c. Share premium from treasury shares, share premium from original issuance and then to retained earnings d. Share premium from original issuance, share premium from treasury shares and then retained earnings

13. It is issuance by an entity of its own shares to its shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting a reduction in unit market price. a. Share split c. Stock dividend b. Reverse share split d. Recapitalization 14. Subscription receivable and other receivables from sale of shares which are not collectible currently shall be presented as a. Deduction from the related subscribed share capital in the shareholders’ equity b. Current asset c. Long-term investment d. Other asset 15. Deposits on subscription to a proposed increase in share capital shall be reported as a. Part of liabilities c. Memorandum only b. Part of shareholders’ equity d. Part of retained earnings 16. In accounting for shareholders’ equity, the accountant is primarily concerned with which of the following? a. Determining the total amount of shareholders’ equity b. Distinguishing between realized and unrealized revenue c. Recording the source of each or the various elements of the shareholders’ equity d. Making sure that the directors do not declare dividends in excess of retained earnings 17. Contributed capital does not include a. Share premium on ordinary and preference shares b. Preference share capital c. Capital resulting from reissuance of treasury shares at a price above acquisition price d. Capital accumulated by retention of earnings 18. Discount on share capital a. May be recorded as either an asset or an expense b. Shall be closed to income summary account c. May be off set against share premium on the same class of share capital d. None of the above may be done 19. An ordinary shareholder does not possess which of the following? a. The right to share in the earnings of the corporation when dividends are declared b. The right to vote in the election of the board of directors of the corporation c. The right to direct ownership of the corporate assets d. The right to share proportionately in corporate assets in case of liquidation if such assets exceed the claims of the creditors 20. Which of the following is not one of the basic rights of a shareholder? a. The right to participate in earnings b. The right to maintain one’s proportional interest in the corporation c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation d. The right to inspect the accounting records of the corporation 21. An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. Share premium would be recorded when the rights a. Expire c. Become exercisable b. Are exercised d. Are issued 22. Which of the following are issued to shareholders of a corporation to acquire its unissued or treasury shares within a specified time at a specified price? a. Share option c. Stock dividend b. Share warrant d. Share subscription 23. Share warrants outstanding shall be reported as a. Liability c. Share capital b. Reduction of share premium d. Share premium 24. When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency is called a. A net loss b. A dividend c. A liability d. A deficit 25. The par value of an ordinary share represents a. The liquidation value of the shares b. The book value of the share c. The legal nominal value assigned to the share d. The amount received by the corporation when the share was originally issued

26. When collectability is reasonably assured, the excess of the subscription price over the stated value of the no-par subscribed share capital shall be recorded as a. No par share b. Share premium when the subscription is recorded c. Share premium when the subscription is collected d. Share premium when the share capital is issued 27. The issuance of preference shares a. Increases preference shares outstanding b. Has no effect on preference shares outstanding c. Increases preference shares authorized d. Decreases preference shares authorized 28. When an entity redeems all of its preference shares for more than the original issue price, the excess paid above the original price shall be a. Accounted for as loss on exchange in the income statement b. Charged against share premium of ordinary shares c. Charged to a discount on preference shares d. Charged against retained earnings 29. When preference shares are purchased and retired by the issuing entity for less than original issue price, proper accounting for the retirement a. Increases the amount of dividends available to ordinary shareholders b. Increase the contributed capital of the ordinary shareholders c. Increases reported income for the period d. Increases treasury shares held by the corporation 30. The purchase of treasury shares a. Decreases shares authorized b. Decreases shares issued c. Decreases shares outstanding d. Has no effect on shares outstanding 31. Treasury shares were acquired for cash at more than par value, and then subsequently sold for cash at more than acquisition price. What is the effect on share premium from treasury shares? Purchase of Sale of treasury shares treasury share a. Increase Increase b. Decrease No effect c. No effect Increase d. No effect No effect 32. Which of the following statements best describe the net effect on retained earnings of the purchase and the subsequent sale of treasury shares? a. Retained earnings may never be increased but sometimes decreased b. Retained earnings may never be increased or decreased c. Retained earnings sometimes may be increased but never decreased d. Retained earnings account is always affected unless the selling price is exactly equal to cost 33. At the date of the financial statements, shares issued would exceed shares outstanding as a result of a. Declaration of share split c. Purchase of treasury shares b. Declaration of a stock dividend d. Payment in full subscribed shares 34. What is the accounting for treasury shares? a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the shares were issued and the repurchase price for the shares b. On reissuance of treasury shares, a gain or loss is recognized equal to the difference between the previous repurchase price and the reissuance price c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized d. Treasury shares are accounted for as financial assets 35. How would the share split in which par value per share decreases in proportion to the number of additional shares issued affect each of the following? Share premium Retained earnings a. Increase No effect b. No effect No effect c. No effect Decrease d. Increase Decrease 36. Non-stock dividends shall be recognized as liabilities on the

a. Date of declaration d. Date of issuing check b. Date of record c. Date of payment 37. When shareholders may elect to receive cash in lieu of stock dividend, the amount to be charged to retained earnings is equal to a. Optional cash dividend c. Par value of the shares b. Fair value of the shares d. Book value of the shares 38. Treasury shares may be reissued as dividend, in which case what amount should be charged to retained earnings? a. Cost of treasury shares b. Par value of the treasury shares c. Fair value of the treasury shares on the date of declaration d. Fair value of the treasury shares on the date of issuance 39. If the stock dividend is less than 20%, how much of the retained earnings should be capitalized? a. Par value of the shares b. Fair value of the shares on the date of declaration c. Fair value of the shares on the date of record d. Fair value of the shares on the date of issuance 40. The issuer shall directly charge retained earnings for the par value of the shares issued in a. Two for one share split c. Twenty percent stock dividend b. Share options d. Share appreciation right 41. Entity A (customer) enters into a contract with Entity B (supplier) for the use of a data processing equipment. According to the contract, Entity A shall operate the equipment only in accordance with the standard operating procedures stated in the accompanying user’s manual. In assessing the existence of a lease, does Entity A have the right to direct the use of the asset? a. No, because the asset’s use is restricted. b. Yes, because Entity A has the right to direct how and for what purpose the asset is used. c. Yes, because the asset’s use is predetermined and Entity B is precluded from changing that predetermined use. d. Maybe yes, maybe no, but exactly I don’t know. 42. Which of the following is not one of the criteria when determining whether a contract is or contains a lease? a. Identified asset b. Identified liability c. Right to obtain substantially all of the economic benefits from use of an identified asset throughout the period of use d. Right to direct the use of the identified asset throughout the period of use 43. Which of the following statements is correct regarding the accounting for leases? a. The lessor depreciates the leased asset under a finance lease. b. The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease. c. When discounting lease payments, the lessor and the lessee use the interest rate implicit in the lease. d. An entity can never be both a lessor and a lessee of a same leased asset. 44. According to PFRS 16, lease liabilities are presented in the lessee’s statement of financial position a. separately from the other liabilities of the lessee. b. together with other liabilities, with disclosure of the line items that include the lease liabilities. c. a or b d. not presented in the lessee’s financial statements but only in the lessor’s financial statements 45. According to PFRS 16, right-of-use assets are presented in the lessee’s statement of financial position a. separately from the other assets of the lessee. b. together with other assets as if they were owned, with disclosure of the line items that include the rightof-use assets. c. a or b d. not presented in the lessee’s financial statements but only in the lessor’s financial statements 46. Lessor Co. entered into two contract leases. Lease #1 transfers substantially all the risks and rewards incidental to ownership of the leased asset. Lease #2 does not transfer substantially all the risks and rewards incidental to ownership of the leased asset. How should Lessor Co. classify the leases? (Lease #1); (Lease #2) a. Finance, Operating c. Finance, Finance b. Operating, Finance d. Operating, Operating 47. A lessor’s gross investment in a finance lease is computed as a. lease payments plus unguaranteed residual value b. present value of (a) c. difference between (a) and (b)

d. sum of (a) and (b)

48. A lessor’s unearned interest income in a finance lease is computed as a. lease payments plus unguaranteed residual value b. present value of (a) c. difference between (a) and (b) d. sum of (a) and (b) 49. Which of the following does not correctly relate to the accounting for leases? a. The underlying asset in a lease contract is recognized by the lessee in its financial statements. b. The lessor recognizes a finance lease receivable equal to the net investment in a finance lease. c. A manufacturer or dealer lessor recognizes gross profit or loss on commencement of a finance lease in accordance with its policy for outright sales. d. The lessor recognizes lease payments receivable from an operating lease as income in the period earned. e. The lessor continues to recognize an asset subject to a finance lease in its financial statements. 50. Regarding the accounting for the residual value of a leased asset, which of the following statements is incorrect? a. A lessee accounts for a residual value only if it is guaranteed. b. A lessor accounts for a residual value only if it is guaranteed. c. A lessor accounts for a residual value whether guaranteed or not. d. Both lessee and lessor will account for a residual value only if the leased asset reverts back to the lessor. 51. Under operating leases, lessors a. recognize rent income using a straight line basis, unless another method is more appropriate. b. recognize interest income using the effective interest method. c. recognize different amounts of rent income each year depending on the contractual payments d. any of these 52. Security deposits that are refundable a. are treated as unearned income by lessors under an operating lease. b. are not discounted because they are normally of a short-term nature c. are treated as receivable by lessees and as payable by lessors. d. are discounted only by lessees but not by lessors 53. If the lessor recognizes rent income (lease income), then the lease must have been classified as a. finance lease c. a or b b. operating lease d. none of these 54. Which of the following statements is false regarding the accounting for leases? a. The lessor may not use the straight line basis for recognizing lease income under an operating lease if another systematic basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished. b. The amount of lease income recognized each year under an operating lease is typically constant even though the contractual payments increase every year by a certain amount specified in the contract. c. It is possible that the lessor does not depreciate the leased asset even if the lease is classified as an operating lease. d. Under an operating lease, the lessor capitalizes initial direct costs. These costs will increase the lease income each year. 55. Which of the following is correct regarding the accounting for operating leases? a. A lessor under an operating lease may classify the lease as either direct operating lease or sales type operating lease. b. A lessor includes a rent collected in advance as part of the cost of the leased asset. c. A lessor includes initial direct costs incurred on the operating lease as part of the cost of the leased asset to be recognized in profit or loss on the same basis as rent income is recognized. d. A lessor includes initial direct costs incurred on the operating lease as part of the cost of the leased asset to be recognized in profit or loss on the same basis as depreciation expense is recognized. 56. Which entities are required to apply deferred tax accounting? I. Public entities II. Non-public entities a. I only c. Both I and II b. II only d. Neither I nor II 57. It is the profit for a period determined in accordance with the rules established by taxation authorities upon which income taxes are payable. a. Accounting profit b. Taxable profit

c. Net profit d. Accounting profit subject to tax 58. It is the net profit for a period before deducting tax expense. a. Accounting profit b. Taxable profit c. Gross profit d. Net profit 59. These are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. a. Temporary Differences c. Permanent differences b. Timing differences d. Accounting differences 60. These are differences that will result in future taxable amount in determining taxable profit of future periods when the carrying amount of the asset or liability is recovered or settled. a. Temporary differences c. Deductible temporary differences b. Taxable temporary differences d. Permanent differences. 61. These are differences that result in future deductible amount in determining taxable profit in future periods when the carrying amount of the asset or liability is recovered or settled. a. Taxable temporary differences d. Deductible temporary and permanent b. Deductible temporary differences differences c. Taxable temporary and permanent differences 62. It is the differed tax consequence attributable to a taxable temporary difference. a. Deferred tax liability c. Current tax liability b. Deferred tax asset d. Current tax asset 63. It is the deferred tax consequence attributable to a deductible temporary difference and operating loss carryforward. a. Deferred tax liability c. Current tax liability b. Deferred tax asset d. Current tax asset 64. It is the amount of income tax payable in respect of the taxable profit. a. Current tax expense c. Deferred tax expense b. Total Income tax provision d. Deferred tax benefit 65. The deferred tax expense is equal to a. Increase in deferred tax asset less the c. Increase in deferred tax asset. increase in deferred tax liability. d. Increase in deferred tax liability b. Increase in deferred tax liability minus the increase in deferred tax asset. 66. It is the aggregate amount included in the determination of net profit for the period in respect of current tax and deferred tax. a. Tax expense c. Deferred tax expense b. Current tax expense d. Deferred tax benefit 67. It is the amount attributable to an asset or liability for tax purposes. a. Carrying amount d. Taxable amount b. Tax base c. Measurement base 68. A deferred tax liability shall be recognized for all a. Permanent differences b. Temporary differences c. Taxable temporary differences d. Deductible temporary differences 69. A deferred tax asset shall be recognized for all deductible temporary differences and operating loss carryforward when a. It is probable that taxable income will be available against which the deferred tax asset can be used. b. It is probable that accounting income will be available against which the deferred tax asset can be used. c. It is possible that taxable income will be available against which the deferred tax asset can be used. d. It is possible that accounting income will be available against which the deferred tax asset can be used. 70. An entity shall offset a deferred tax asset and deferred tax liability when I. The deferred tax asset and deferred tax liability relate to income taxes levied by the same taxing authority. II. The entity has a legal enforceable right to offset a current tax asset against a current tax liability. a. I only

b. II only c. Both I and II d. Neither I nor II 71. It refers to a plan where plan assets, if any, are retained and managed by the employer a. Funded plan b. Non-contributory plan

c. Unfunded plan d. Delicate plan

72. These are pool of assets contributed by a various unrelated employer to be used to pay retirement benefits to participants without regard to the identity of the contributing employers. a. Multi-employer plan b. State plans

c. Pooling of asset plan d. Secret plan

73. Multi-employer plans are treated as a. Defined contribution plan b. Defined benefit plan

c. Hybrid plan d. A or B

74. These are established by legislation and are operated by a government agency which is not subject to control or influence by the reporting entity a. State plans b. SSS

c. GSIS d. Puro plan

75. State plans are a. Accounted for as defined contribution plan b. Accounted for as defined benefit plan c. Accounted for in the same way as multiemployer plans

d. Accounted for only by the commission on Audit

76. The accounting for defined contribution plan a. Is straightforward- actuarial computations are not required b. Is complex- actuarial computations are required

c. Is simple- not accounted for d. Is done only by CPAs

77. Under a defined contribution plan, the retirement benefits expense is a. Equal to an actuarially determined amount b. Equal to the agreed periodic contribution to the fund

c. Equal to the contribution made during the period d. Zero, if no employee retired during the period

78. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. Which of the following employee benefits is not with the scope of PAS 19? a. Short-term b. Post-employment

c. Other long-term d. Termination

e. Share-based payments

79. Which of the following employee benefits is not with the scope of PAS 19? a. Semi-monthly salaries of employees b. Employer’s share in SSS contributions

c. One sack rice allowance d. Bonus in the form of entity shares

80. Accumulating compensated absences are those that a. Can be carried over to the next period if not fully used during the year of entitlement b. Expire if not fully used during the year of entitlement

c. Can be carried over to the next period if not fully used during the year of entitlement and are paid in cash when the employee leaves the company. d. Are recognized only when actually taken by employees 81. Liabilities are a. Any accounts having credit balances after closing entries are made. b. Deferred credits that are recognized and measured in conformity with generally accepted accounting principles. c. Obligations to transfer ownership shares to other entities in the future. d. Obligations arising from past transactions and payable in assets or services in the future. 82. Which of the following is not one of the essential characteristics for an item to be reported as a liability on the balance sheet? a. It is a present obligation of a particular entity b. It is payable to specifically identifiable payees

c. It involves a future sacrifice of economic benefits d. It is reasonably measurable in terms of money

83. Which of the following liabilities is financial liability? a. b. c. d.

Deferred revenue A warranty obligation A constructive obligation An obligation to deliver own shares worth a fixed amount of cash.

84. Which of the following instruments would not be classified as a financial liability? a. A preference share that will be redeemed by the issuer for cash on a future date (i.e., the entity has an outstanding share that it will repurchase at a future date.) b. A contract for the delivery of as many of the entity’s ordinary shares as are equal in value to Php. 100,000 on a future date (i.e. the entity will issue a variable number of own shares in return for cash at a future date.) c. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary shares in return for a fixed price (i, e. the entity would issue a fixed number of own shares in return for cash, if the option is exercised by the holder, at a future date.) d. An issued perpetual debt instrument (i.e., a debt instrument for which interest will be paid for all eternity, but the principal will not be repaid) 85. Which of the following statements best describes the principle for classifying an issued financial instrument as either a financial liability or equity? a. Issued instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability, financial asset, and an equity instrument. b. Issued instruments are classified as liabilities or equity in accordance with the legal form of the contractual arrangement and the definitions of a financial liability and an equity instrument. c. Issued instruments are classified as liabilities or equity in accordance with the managements designation of the contractual arrangement. d. Issued instruments are classified as liabilities or equity in accordance with the risk and rewards of the contractual arrangement. 86. Which of the following is not classified as a financial instrument in accordance with PAS 32 Financial instruments: presentation? a. Convertible bond c. Warranty provision b. Foreign currency contract d. Loan receivable 87. The SENTIENT AWARE company has 300 7% preference shares in issue. They are redeemable on December 31, 20x9. How will the preference shares and the related preference dividend be presented in SENTINENT’s financial statements for the year ended December 31, 20x6, according to PAS 32 Financial instruments: Presentation?

Preferences shares

Preference dividend

a. Non-current liability Deducted from equity b. Equity Deducted from equity c. Equity Finance cost d. Non-current liability Finance cost 88. Current liabilities that arise when, before the corresponding liability to the bank is paid, the goods are released to the buyer in trust for the bank which advanced the money for importation are a. Liabilities under trust receipts c. Deferred credits b. Acceptance payable d. Accrued liabilities 89. Which of the following are generally associated with payables classified as accounts payable? (1) Periodic payment of interest, (2) Secured by collateral a. Yes, Yes b. No, No

c. No, Yes d. Yes, No

90. When a company receives a deposit from a customer to protect itself from nonpayment for future services, the deposit should be classified by the company as a. Revenue b. A deferred credit deducted from accounts receivable c. A liability d. Part of the allowance for bad debts 91. Which of the following is the correct definition of a provision? a. A possible obligation arising from past event b. A liability of uncertain timing or amount c. A liability which cannot be easily measured d. An obligation to transfer funds to an entity

92. A provision shall be recognized as liability when I. An entity has a present obligation as a result of a past event. II. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. III. The amount of the obligation can be measured reliably. a. I and II only c. II and III only b. I and III only d. I, II, and III 93. A constructive obligation is an obligation I. Arising from contract, legislation or operation of law. II. That is derived from an entity’s action that the entity will accept certain responsibilities because of past practice, published policy or current statement and as a result, the entity has created a valid expectation in other parties that it will discharge those responsibilities. a. I only c. Both I and II b. II only d. Neither I nor II 94. It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation. a. Obliging event c. Subsequent event b. Past event d. Current event 95. An outflow of resources embodying economic benefits is regarded as “probable” when a. The probability that the event will occur is greater than the probability that the event will not occur. b. The probability that the event will not occur is greater than the probability that the event will occur. c. The probability that the event will occur is the same as the probability that the event will not occur. d. The probability that the vent will occur is 90% likely. 96. Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the range to be used is the a. Minimum c. Midpoint b. Maximum d. Summation of the minimum and maximum 97. Where the provision being measured involves a large population of items, the obligation is estimated by “weighting” all possible outcomes by their associated probabilities. The name for this statistical method of estimation

a. Expected value c. Current value b. Present value d. Extrapolation 98. Which statement is incorrect in the measurement of a provision? a. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision. b. Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditure expected to settle the obligation. c. Future events that may affect the amount required to settle the obligation shall be reflected in the amount of the provision where there is sufficient objective evidence that the future events will occur. d. Gains from expected disposal of assets shall be taken into account in measuring a provision. 99. Which statement is incorrect where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party? a. The reimbursement shall be recognized only when it is virtually certain that the reimbursement would be received if the entity settles the obligation. b. The amount of the reimbursement shall not exceed the amount of the provision. c. In the income statement, the expense relating to the provision may be presented net of the reimbursement. d. The reimbursement shall not be treated as separate asset and therefore “netted” against the estimated liability for the provision. 100. Which statement is incorrect concerning recognition of a provision? a. Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. b. A provision shall be used only for expenditures for which the provision was originally recognized. c. Provisions shall be recognized for future operating losses. d. If an entity has an onerous contract, the present obligation under the contract shall be recognized and measured as a provision. “Patience cannot be acquired overnight. It’s just like building up a muscle, every day you need to work on it”. –Eknath Easwaran. -----END OF EXAMINATION-----PREPARED BY: JARO P. ROSAL INSTRUCTOR