Docsity
Log inSign up
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search Store documents

The best documents sold by students who completed their studies

Search through all study resources
Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

University Rankings

Discover the best universities in your country according to Docsity users

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

From our blog

Exams and Study
Go to the blog

Statement of Financial Position: Exercises and Explanations, Exercises of Accounting

University of the Philippines Baguio (UPB)Accounting

Accounting questions and answers

Typology: Exercises

2020/2021

Uploaded on 12/14/2023

hercel-mae-munoz
hercel-mae-munoz 🇵🇭

5 documents

1 / 36

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
STATEMENT OF FINANCIAL POSITION
Essay Questions
1. When is a "third" statement of financial position required?
A third statement of financial position is required when an entity:
1. Applies an accounting policy retrospectively.
2. Makes retrospective restatement of items in the financial statements.
3. Reclassifies items in the financial statements.
Under these circumstances, the entity shall present three statements of
financial position as at: a. The end of the current period
b. The end of the previous period
c. The beginning of the previous comparative period
2. Define a statement of financial position.
A statement of financial position is a formal statement showing the three elements
comprising financial position, namely assets, liabilities and equity. Investors,
creditors and other statement users analyze the statement of financial position to
evaluate such factors as liquidity, solvency and the need of the entity for additional
financing.
3. Define current assets.
PAS 1, paragraph 66, provides that an entity shall classify an asset as current when:
a. The asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting period.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting
period. d. The entity expects to realize the asset or intends to sell or consume it
within the entity's normal operating cycle.
4. What is the meaning of "operating cycle"?
The operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. When the entity's
normal operating cycle is not clearly identifiable, its duration is assumed to be
twelve months. The operating cycle of a trading entity is the average period of time
that it takes for the entity to acquire the merchandise inventory, sell the inventory to
customers and ultimately collect cash from the sale. The operating cycle of a
manufacturing entity is defined as the period of time between acquisition of materials
entering into a process and their realization in cash or cash equivalent. Thus, the
period of time to buy the materials, to convert them into finished goods, to sell the
finished goods and convert them into receivables, and to collect the receivables is
the entity's normal operating cycle.
5. What is the presentation of current assets in the statement of financial
position? Current assets are usually listed in the statement of financial
position in the order of liquidity.
The line items under current assets are:
a. Cash and cash equivalents
b. Financial assets at fair value such as trading securities and other investments in
quoted equity instruments.
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
pf3
pf4
pf5
pf8
pf9
pfa
pfd
pfe
pff
pf12
pf13
pf14
pf15
pf16
pf17
pf18
pf19
pf1a
pf1b
pf1c
pf1d
pf1e
pf1f
pf20
pf21
pf22
pf23
pf24

Partial preview of the text

Download Statement of Financial Position: Exercises and Explanations and more Exercises Accounting in PDF only on Docsity!

STATEMENT OF FINANCIAL POSITION

Essay Questions

  1. When is a "third" statement of financial position required? A third statement of financial position is required when an entity: 1. Applies an accounting policy retrospectively.
    1. Makes retrospective restatement of items in the financial statements.
    2. Reclassifies items in the financial statements. Under these circumstances, the entity shall present three statements of financial position as at: a. The end of the current period b. The end of the previous period c. The beginning of the previous comparative period
  2. Define a statement of financial position. A statement of financial position is a formal statement showing the three elements comprising financial position, namely assets, liabilities and equity. Investors, creditors and other statement users analyze the statement of financial position to evaluate such factors as liquidity, solvency and the need of the entity for additional financing.
  3. Define current assets. PAS 1, paragraph 66, provides that an entity shall classify an asset as current when: a. The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. b. The entity holds the asset primarily for the purpose of trading. c. The entity expects to realize the asset within twelve months after the reporting period. d. The entity expects to realize the asset or intends to sell or consume it within the entity's normal operating cycle.
  4. What is the meaning of "operating cycle"? The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. When the entity's normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months. The operating cycle of a trading entity is the average period of time that it takes for the entity to acquire the merchandise inventory, sell the inventory to customers and ultimately collect cash from the sale. The operating cycle of a manufacturing entity is defined as the period of time between acquisition of materials entering into a process and their realization in cash or cash equivalent. Thus, the period of time to buy the materials, to convert them into finished goods, to sell the finished goods and convert them into receivables, and to collect the receivables is the entity's normal operating cycle.
  5. What is the presentation of current assets in the statement of financial position? Current assets are usually listed in the statement of financial position in the order of liquidity. The line items under current assets are: a. Cash and cash equivalents b. Financial assets at fair value such as trading securities and other investments in quoted equity instruments. c. Trade and other receivables d. Inventories e. Prepaid expenses
  1. Define noncurrent assets. The caption "noncurrent assets" is a residual definition. PAS 1, paragraph 66, simply states that "an entity shall classify all other assets not classified as current as noncurrent". In other words, what is not included in the definition of current assets is deemed excluded. All others are classified as noncurrent assets. Accordingly, noncurrent assets include the following: a. Property, plant and equipment b. Long-term investments c. Intangible assets d. Other noncurrent assets PAS 1, paragraph 56, provides that when an entity presents current and noncurrent assets on the face of the statement of financial position, it shall not classify deferred tax assets as current.
  2. Define the following:
  3. Property, plant and equipment
  4. Investments
  5. Intangible assets
  6. Other noncurrent assets PAS 16, paragraph 6, defines property, plant and equipment as "tangible assets which are held by an entity for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used during more than one period". The International Accounting Standards Committee defines investment as follows: An investment is "an asset held by an entity for the accretion of wealth through capital distribution, such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing entity such as those obtained through trading relationships". PAS 38, paragraph 8, defines an intangible asset simply as follows: "An intangible asset is an identifiable nonmonetary asset without physical substance." Other noncurrent assets are those assets that do not fit into the definition of the previously mentioned noncurrent assets.
  7. Define current liabilities. PAS 1, paragraph 69, provides that an entity shall classify a liability as current when: a. The entity expects to settle the liability within the entity's normal operating cycle. b. The entity holds the liability primarily for the purpose of trading. c. The liability is due to be settled within twelve months after the reporting period. d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Trade payables and accruals for employee and other operating costs are part of the working capital used in the entity's normal operating cycle. Such operating items are classified as current liabilities even if they are settled more than twelve months after the reporting period. Other current liabilities are not settled as part of the normal operating cycle but are due for settlement within twelve months after the reporting period or held primarily for the purpose of being traded. Examples of such current liabilities are financial liabilities held for trading, bank overdraft, dividends payable, income taxes, other nontrade payable and current portion of noncurrent financial liabilities. Financial liabilities held for trading are financial liabilities that are incurred with an intention to repurchase them in the near term.
  8. Explain the presentation of current liabilities. PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial position shall include the following line items for current liabilities:

reporting period. However, Paragraph 75 provides that the liability is classified as noncurrent if the lender has agreed on or before the end of reporting period to provide a grace period ending at least twelve months after the end of reporting period.

  1. What is the meaning of "equity"? The term "equity" is the residual interest in the assets of the entity after deducting all of its. liabilities. Simply stated, equity means "net assets" or total assets minus liabilities. The terms used in reporting the equity of an entity depending on the form of the business organization are: a. Owner's equity in a proprietorship b. Partners' equity in a partnership c. Stockholders' equity or shareholders' equity in a corporation However, the term equity may simply be used for all business organizations.
  2. What are the elements of shareholders' equity? Generally, the elements constituting shareholders' equity with their equivalent IAS term are: Philippine term IAS term Capital stock Share capital Subscribed capital stock Subscribed share capital Common stock Ordinary share capital Preferred stock Preference share capital Additional paid capital Share premium Retained earnings (deficit) Accumulated profits (losses) Retained earnings appropriated Appropriation reserve Revaluation surplus Revaluation reserve Treasury stock Treasury share
  3. What is the-meaning of the term "reserves"? The term "reserves" is not officially defined in any accounting standard or in the Conceptual Framework. Reserves form a substantial part of the equity of an entity. Under international accounting standard, the use of equity reserves is based on whether a reserve is part of distributable equity or nondistributable equity. Distributable equity is that portion that can be distributed to shareholders as dividends without impairing the legal capital of the entity. This squarely pertains to unappropriated retained earnings. Nondistributable equity is that portion that cannot be distributed to the shareholders in any form during the lifetime of the entity. Generally, nondistributable equity reserves represent those items of equity other than the aggregate par or stated value of share capital and retained earnings unappropriated. Examples of reserves a. Share premium reserve is the excess over par or stated value or additional paid in capital b. Appropriation reserve is the earmarking of retained earnings for a certain purpose which may be legal, contractual or voluntary. This reserve is technicaUy known as retained earnings appropriated c. Asset revaluation reserve arises from the revaluation of property, plant and equipment. It is the excess of fair value or depreciated replacement cost of the revalued property over its carrying amount. Technically, this reserve is called revaluation surplus. d. Other comprehensive income reserve.
  4. As a minimum, what are the line items on the face of the statement of financial position? PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial position shall include the following:
  5. Cash and cash equivalents
  6. Financial assets (other than 1, 3 and 6)
  7. Trade and other receivables
  8. Inventories
  1. Property, plant and equipment
  2. Investment in associates accounted for by the equity method
  3. Intangible assets
  4. Investment property
  5. Biological assets
    1. Total of assets classified as held for sale and assets included in disposal group classified as held for sale
    2. Trade and other payables
    3. Current tax liability
    4. Deferred tax asset and deferred tax liability
    5. Provisions
    6. Financial liabilities (other than 11 and 14)
    7. Inabilities included in disposal group classified as held for sale
    8. Noncontrolling interest
    9. Share capital and reserves The listing of the line items is not exclusive. PAS 1 simply provides a list of items that are so different in nature and function to warrant separate presentation on the face of the statement of financial position.
  6. When is an entity allowed to present additional line items on the face of the statement of financial position? Additional line items, headings and subtotals shall be presented on the face of the statement of financial position when such presentation is relevant to the understanding of the entity's financial position. The judgment on whether additional items are presented separately is based on the assessment of the following: a. The nature and liquidity of assets. b. The function of assets within the entity. c. The amount, nature and timing of liabilities.
  7. Explain the forms of a statement of financial position. The format of a statement of financial position is not specified in PAS 1. In practice, there are two customary forms in presenting the statement of financial position, namely: a. Report form. This form sets forth the three major sections in a downward sequence of assets, liabilities and equity. b. Account form. As the title suggests, the presentation follows that of an account, meaning, the assets are shown on the left side and the liabilities and equity on the right side of the statement of financial position. PAS 1, paragraph 57, provides that the standard does not prescribe the order or format in which items are to be presented in the statement of financial position.
  8. Explain the presentation of assets and liabilities in the statement of financial position. PAS 1, paragraph 60, provides that an entity shall present current and noncurrent assets, and current and noncurrent liabilities on the face of the statement of financial position. Current and noncurrent presentation of assets and liabilities provides useful information when the entity supplies goods or services within a clearly identifiable operating cycle. In the Philippines, the common practice is to present in the statement of financial position current assets before noncurrent assets, current liabilities before noncurrent liabilities, and equity after liabilities. Other formats may be equally appropriate provided the distinction is clear. This is in accordance with paragraph 7 of the Preface to PAS 1. However, all assets and liabilities are presented broadly in the order of liquidity when such presentation is reliable and more relevant. Note that the format of the statement of financial position as illustrated in the appendix to PAS 1 presents noncurrent assets before current assets, equity before liabilities, and noncurrent liabilities before current liabilities. This may be the practice in other jurisdiction, like the United Kingdom.

B. Government-owned entity D. Service provider FA © 2014

  1. An entity must present additional line items in the statement of financial position when such presentation is A. Relevant to an understanding of the financial position of the entity B. A generally accepted practice in the sector in which the entity operates C. Required by tax authorities of the jurisdiction in which the entity operates FA © 2014 D. Relevant to the understanding of the entity's financial position and financial performance
  2. Which of the following must be included on the face of an entity's statement of financial position? A. Contingent liability C. Number of shares authorized FA © 2014 B. Investment property D. Shares in an entity owned by that entity
  3. Which of the following must be included in an entity's statement of financial position? A. Deferred tax B. Contingent asset C. Share capital and reserves analyzed by class D. Property, plant and equipment analyzed by class TOA © 2013 15. Which of the following is not required to be presented as minimum information on the face of the statement of financial position? A. Biological asset B. Contingent liability C. Investment property D. Investment accounted under the equity method FA © 2014
  4. Which of the following statements in relation to the line items shown in the statement of financial position is true? I. Provisions shall be recognized in the statement of financial position. II. Liabilities included in disposal group classified as held for sale shall be shown separately on the face of the statement of financial position. A. I only C. Both I and II B. II only D. Neither I nor II FA © 2014
  5. Which of the following statements is true? I. Biological assets should be shown in the statement of financial position. II. The number of shares authorized for issue should be shown in the statement of financial position or the statement of changes in equity or in the notes. A. I only C. Both I and II B. II only D. Neither I nor II Operating cycle
  6. It is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. A. Business cycle C. Cash to receivable cycle B. Cash to inventory cycle D. Operating cycle FA © 2014
  7. The operating cycle of an entity A. Is a period of one year. B. Is the time between the acquisition of materials entering into a process and their realization in cash or cash equivalent. C. Causes the distinction between current and noncurrent items to depend on whether they will affect cash within one year. D. Is the period of time normally elapsed from the time the entity expends cash to the time it converts trade receivables back into cash. TOA © 2013
  8. The operating cycle A. Cannot exceed one year. 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. Measures the time elapsed between cash disbursement for inventory and cash collection of the sales price. FA © 2014
  9. The operating cycle of a business is that span of time which A. Runs from cash disbursement for inventory through the realization of cash from

sale. B. Coincides with economy's business cycle which runs from one trough of the entity's business activity to the next. C. Corresponds with its natural business year which runs from one trough of the particular entity's business activity to the next. D. Is set by the industry's trade association usually on an average length of time for all entities which are members of the association. FA © 2014

  1. An operating cycle A. Is twelve months or less in length B. Starts with inventory and ends with cash C. Is the average time required for an entity to collect its receivable FA © 2014 D. Is used to determine current assets when the operating cycle is longer than one year
  2. The operating cycle concept A. Has become obsolete. B. Affects the income statement but not the statement of financial position. C. Causes the distinction between current and noncurrent items to depend on whether they will affect cash within one year. D. Permits some assets to be classified as current even though they are more than one year removed from becoming cash. FA © 2014
  3. When there is much variability, the operating cycle is measured at A. Less than twelve months C. The median value B. Six months D. Twelve months FA © 2014 Current & noncurrent classification
  4. Current and noncurrent presentation of assets and liabilities provides useful information when the entity A. Is a public utility B. Is a financial institution C. Is a nonprofit organization D. Supplies goods or services within a clearly identifiable operating cycle FA © 2014 Current & noncurrent assets
  5. When classifying assets as current and noncurrent for reporting purposes A. The amounts at which current assets are carried and reported must reflect realizable cash value. B. Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle. C. The time period by which current assets are distinguished from noncurrent assets is determined by the seasonal nature of the business. D. Prepayments for items such as insurance or rent are included in "other assets" rather than as current assets as they will ultimately be expensed. FA © 2014
  6. When classifying assets as current and noncurrent for reporting purposes A. Prepayments are included in other assets rather than as current assets. B. The amounts at which current assets are reported must reflect realizable cash value. C. Assets are classified as current if these are reasonably expected to be realized in cash or consumed during the normal operating cycle. D. The time period by which current assets are distinguished from noncurrent assets is determined by the seasonal nature of the business. FA © 2014
  7. The basis for classifying assets as current or noncurrent is the period of time normally elapsed from the time the accounting entity expends cash to the time it converts A. Inventory back into cash, or 12 months, whichever is longer. B. Inventory back into cash, or 12 months, whichever is shorter. C. Receivables back into cash, or 12 months, whichever is longer. D. Tangible fixed assets back into cash, or 12 months, whichever is longer. FA © 2014
  8. Which of the following is not an acceptable major asset classification? A. Current assets C. Investments FA © 2014 B. Deferred charges D. Property, plant, and equipment Current assets
  9. Assets to be sold, consumed or realized as part of the entity's normal operating cycle are A. Current assets B. Noncurrent assets C. Noncurrent investments

A. Inventories, accounts receivable, prepaid items, cash B. Inventories, prepaid items, accounts receivable, cash C. Cash, accounts receivable, prepaid items, inventories D. Cash, inventories, accounts receivable, prepaid items TOA © 2013

  1. Accrued revenue would normally appear in the statement of financial position under A. Current liabilities C. Long-term liabilities B. Current assets D. Plant assets TOA © 2013 Current liabilities
  2. Liabilities that are expected to be settled within the normal operating cycle are classified as A. Equity B. Current liabilities C. Noncurrent liabilities D. Current or noncurrent liabilities in accordance with other criteria FA © 2014
  3. An entity shall classify a liability as current under all of the following conditions, except A. The entity holds the liability primarily for the purpose of trading. B. The liability is due to be settled within twelve months after the reporting period. C. The entity expects to settle the liability within the entity's normal operating cycle. D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. FA © 2014
  4. The short-term obligations of an entity at the end of reporting period include 90-day notes payable renewable for another 90-day period. The notes payable shall be classified in the statement of financial position as A. Current liabilities C. Intermediate debt B. Deferred charges D. Noncurrent liabilities FA © 2014
  5. In which section of the statement of financial position should employment taxes that are due for settlement in 15 months' time be presented? A. Current assets C. Noncurrent assets B. Current liabilities D. Noncurrent liabilities FA © 2014
  6. Which of the following characteristics may result in the classification of a liability as current? A. Violation of provisions of a debt agreement B. Short-term obligations refinanced with long-term debt at the end of reporting period C. Obligations for advance collections that involve long-term deferment of the delivery of goods. D. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets TOA © 2013
  7. Which obligations are classified as current liabilities even if they are due to be settled after more than twelve months from the end of the reporting period? A. Bank overdrafts B. Dividends payable C. Current portion of interest-bearing liabilities D. Trade payables and accruals for employee and other operating cost FA © 2014
  8. A dividend declared by the entity before year-end and payable to the shareholders three months after the end of reporting period is classified as A. A current asset C. A noncurrent liability B. A current liability D. Equity TOA © 2013
  9. At the end of reporting period, an entity has a 120-day note payable outstanding. The entity has followed the policy of replacing the note rather than repaying it over the last three years. The entity's treasurer says that this policy is expected to continue indefinitely and the arrangement is acceptable to the bank to which the note was issued. The proper classification of the note is A. Noncurrent liability B. Dependent on the actual ability to refinance C. Dependent on the intention of management D. Current liability, unless specific refinancing criteria are met FA © 2014 50. When an entity breaches an undertaking under a long-term loan agreement on or before the end of reporting period with the effect that the liability becomes payable on demand I. The liability is classified as current even if the lender has agreed after the end of reporting period and before the issuance of the statements not to demand

payment as a consequence of the branch. II. The liability is classified as noncurrent if the lender agreed on or before the end of reporting period to provide a grace period for at least twelve months after the end of reporting period within which to rectify the breach. A. I only C. Either I or II B. II only D. Neither I nor II FA © 2014

  1. Which of the following is not a current liability? A. Unearned revenue B. Stock dividend payable C. Trade accounts payable D. The currently maturing portion of long-term debt FA © 2014
  2. An entity shall classify a liability as current when (choose the incorrect one) A. The entity holds the liability primarily for the purpose of trading. B. The liability is due to be settled within twelve months after the reporting period. C. The entity expects to settle the liability within the entity's normal operating cycle. D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. FA © 2014 Working capital
  3. Working capital is A. Unappropriated retained earnings. B. Current assets less current liabilities. C. Capital which has been reinvested in the business. D. The group assets which enables the entity to operate profitably. FA © 2014
  4. Working capital is A. Total current assets B. Capital invested in business' C. Total current assets minus total current liabilities D. The group of assets which enables the entity to operate profitably FA © 2014
  5. An example of an item which is not an element of working capital is A. Goodwill C. Temporary investment FA © 2014 B. Work in process D. Accrued interest on note receivable
  6. Which of the following items would normally be excluded from the computation of working capital? A. Prepaid insurance B. Advances from customers C. Cash surrender value of life insurance policy D. The portion of long-term debt that matures within one year after the reporting period and will be paid from the regular cash account FA © 2014
  7. An example of an item which is not an element of working capital is A. Accrued interest on note receivable C. Temporary investment B. Goods in process D. Treasury share FA © 2014 Noncurrent assets
  8. In which section of the statement of financial position should cash that is restricted for the settlement of a liability due 18 months after the reporting period be presented? A. Current assets C. Noncurrent assets B. Equity D. Noncurrent liabilities FA © 2014
  9. Which of the following is usually classified as a noncurrent asset? A. Supplies B. Prepaid rent C. Plant expansion fund D. Goods that are in the process of being completed for another entity FA © 2014 Long-term investments
  10. Equity securities held to finance future construction should be classified as A. Current assets C. Long-term investments FA © 2014 B. Intangible assets D. Property, plant, and equipment
  11. Which of the following is not a long-term investment? A. Franchise C. Land held for speculation FA © 2014 B. A sinking fund D. Cash surrender value of life insurance

A. Current asset C. Other asset FA © 2014 B. Investment D. Reduction of shareholders' equity

  1. The term "deficit" refers to A. A prior period error. B. A debit balance in retained earnings. C. An excess of current assets over current liabilities. D. An excess of current liabilities over current assets. FA © 2014
  2. The term "deficit" refers to A. A debit balance in retained earnings. B. A loss that is reported as a prior period error. C. An excess of current assets over current liabilities. D. An excess of current liabilities over current assets. FA © 2014 Comparative statements
    1. An entity shall prepare how many statements of financial position as a result of retrospective application, retrospective restatement and reclassification of items in the financial statements? A. One C. Three B. Two D. Four TOA © 2013
    2. A third statement of financial position as at the beginning of the earliest comparative period is required A. When an entity applies an accounting policy retrospectively. B. When an entity reclassifies items in the financial statements. C. When an entity makes a restrospective restatement of items in the financial statements. D. In all of the above cases. TOA © 2013
  3. A third statement of financial position as at beginning of the earliest comparative period presented is required I. When an entity applies an accounting policy retrospectively. II. When an entity makes a retrospective restatement of items in the financial statements. III. When an entity reclassifies items in the financial statements. A. I and II only C. II and III only B. I and III only D. I, II and III FA © 2014 Comprehensive
  4. Conceptually, asset valuation accounts are A. Assets C. Neither assets nor liabilities B. Liabilities D. Part of shareholders' equity. FA © 2014
  5. Which of the following statements is true? I. Biological assets should be shown in the statement of financial position. II. The number of shares authorized for issue should be shown in the statement of financial position or the statement of changes in equity or in the notes. A. I only C. Both I and II B. II only D. Neither I nor II FA © 2014
  6. Which of the following statements is true concerning the presentation of statement of financial position? I. An entity shall present current and noncurrent assets and liabilities as separate classification on the face of the statement of financial position. II. All assets and liabilities are presented broadly in the order of liquidity when such presentation is faithfully represented and more relevant. A. I only C. Both I and II B. II only D. Neither I nor II FA © 2014
  7. Which of the following statements is true? I. Provisions should be recognized in the statement of financial position. II. A revaluation surplus on noncurrent assets in the current year should be recognized in the statement of changes in equity. A. I only C. Both I and II B. II only D. Neither I nor II TOA © 2013
  8. Which of the following statements is true? I. Dividends paid should be recognized in the statement of comprehensive income. II. A loss on disposal of assets should be recognized in the statement of changes in equity. A. I only C. Both I and II

B. II only D. Neither I nor II TOA © 2013 Multiple Choice Problems Current assets

  1. On December 31, 2014, the current assets of Hazel Company revealed cash and cash equivalents of P700,000, accounts receivable of P1,200,000 and inventories of P600,000: The examination of accounts receivable disclosed the following: Trade accounts 930, Allowance for doubtful accounts ( 20,000) Claim against shipper for goods lost in transit 30, Selling price of unsold goods sent by Hazel on consignment at 130% of cost and not included in ending inventory 260, Total accounts receivable 1,200, What total amount should be reported as current assets? A. 2,240,000 C. 2,440, B. 2,412,000 D. 2,500,000 FA © 2014
  2. Gracia Company reported the following current assets at year-end: Cash including sinking fund of P500,000 with trustee 1,500, Accounts receivable 2,500, Inventory, including P200,000 cost of goods in transit purchased FOB point of destination 2,000, Advances to officers collectible currently 400, Dividend receivable 100, Total current assets 6,500, What total amount should be reported as current assets? A. 5,300,000 C. 5,800, B. 5,400,000 D. 5,900,000 FA © 2014
  3. Darwin Company provided the following information on December 31,2014: Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P700,000 1,000, Accounts receivable 1,200,000 Prepaid insurance 100,000 Financial assets held for trading 200,000 Financial assets at fair value through other comprehensive income 800,000 Cash 300,000 Deferred tax asset 150,000 Bank overdraft 250, What amount should be reported as total current assets on December 31, 2014? A. 2,100,000 C. 2,800, B. 2,550,000 D. 3,600,000 P1 © 2014
  4. Violago Company provided the following account balances on December 31, 2014: Accounts receivable 1,600,000 Financial assets at fair value through profit or loss 500,000 Financial assets at amortized cost 1,300, Cash 1,100,000 Inventory 3,000,000 Equipment and furniture 2,500, Accumulated depreciation 1,500,000 Patent 400,000 Prepaid expenses 100,000 Equipment held for sale 1,800, On December 31, 2014, what total amount should be reported as current assets? A. 6,300,000 C. 8,000, B. 7,600,000 D. 8,100,000 FA © 2014
  5. Pamela Company provided the following adjusted account balances on December 31,2014: Wages payable 250,000 Cash 200,000 Mortgage payable 1,500,000 Dividends payable 150,000 Prepaid rent 100,000 Inventory 800, Sinking fund 500, Short-term investments 300,000 Investment in associate 2,000,000 Taxes payable 220,000 Accounts payable 240, Accounts receivable 350, What total amount should be reported as current assets on December 31, 2014? A. 1,750,000 C. 3,750, B. 2,250,000 D. 4,250,000 P1 © 2014
  6. Petite Company provided the following data on December 31,2014: Cash 5,000,000 Financial assets at fair value (including long-term investment of P500,000 in ordinary shares of Ayala Company) 2,000, Inventories (including goods received on consignment of P200,000) 800,000 Prepaid expenses (including a

A. 4,630,000 C. 4,830,

B. 4,780,000 D. 4,900,000 P1 © 2014

  1. East Company reported the following current assets at year end: Cash 3,200,000 Accounts receivable 2,000,000 Inventory 2,800, Deferred charges 200, 8,200, The accounts receivable consisted of the following: Customers' accounts 1,420, Employees' account-current 240, Advances to subsidiary 260, Allowance for uncollectible accounts (120,000) Claim against shipper for goods lost in transit 200, 2,000, What amount should be reported as total current assets? A. 7,740,000 C. 7,940, B. 7,780,000 D. 8,200,000 FA © 2014
  2. The general ledger trial balance of Daria Company included the following accounts on December 31, 2014: Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P700. 1,000,000 Trade receivables 1,200,000 Prepaid insurance 100, Financial assets held for trading 200,000 Financial assets at fair value through other comprehensive income 800,000 Cash 300,000 Deferred tax asset 150,000 Bank overdraft 250,000 What total amount should be reported as current assets on December 31, 2014? A. 2,100,000 C. 2,800, B. 2,550,000 D. 3,600,000 FA © 2014
  3. Daet Company provided the following account balances and related information on December 31,2014: Cash 3,700, Accounts receivable 1,500, Allowance for doubtful accounts 200, Inventory 2,000, Prepaid insurance 300, The cash included cash in bank of P1,000,000 net of bank overdraft P300,000, cash set aside for plant purchase P2,000,000, petty cash P10,000, cash withheld from wages P190,000, and general cash P500,000. The accounts receivable included past due account in the amount of P100,000. The account is deemed uncollectible and should be written off. The inventory included goods held on consignment amounting to P150,000 and goods of P200, purchased and received on December 31,2014. Neither of these items have been recorded as a purchase. The prepaid insurance included cash surrender value of life insurance of P50,000. What total amount should be reported as current assets on December 31, 2014? A. 5,100,000 C. 5,300, B. 5,200,000 D. 5,400,000 P1 © 2014
  4. Gold Company provided the following trial balance on December 31,2014: Cash overdraft 100, Accounts receivable, net 350, Inventory 580, Prepaid expenses 120, Land classified as held for sale 1,000, Property, plant and equipment, net 950, Accounts payable and accrued expenses 320, Ordinary share capital 250, Share premium 1,500, Retained earnings. 830, 3,000,000 3,000, Checks amounting to P300,000 were written to vendors and recorded on December 29,2014, resulting in a cash overdraft of P100,000. The checks were mailed on January 15,2015. Land classified as held for sale was sold for cash on January 31,2015. The entity issued the financial statements on March 31, 2015. On December 31,2014, what total amount should be reported as current assets?

A. 1,250,000 C. 2,050,

B. 1,950,000 D. 2,250,000 P1 © 2014

  1. Petite Company provided the following data on December 31, 2014: Cash 5,000, Financial assets at fair value (including long-term investment of P500,000 in ordinary shares of Ayala Company) 2,000,000 Inventories (including goods received on consignment of P200,000) 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 (excluding P300,000 of equipment still in. use but fully depreciated) 10,000,000 Goodwill (based on estimate by the president) 1,000,000 Total assets 18,950,000 Analysis of the cash account showed the following: Cash in general checking account 3,500,000 Sinking fund set aside to retire bonds in 2016 1,000,000 Cash held to pay value added taxes 500,000 5,000, What total amount of current assets should be reported on December 31, 2014? A. 6,200,000 C. 7,200, B. 6,250,000 D. 7,250,000 FA © 2014
  2. On December 31, 2014, Ivan Company showed the following current assets: Cash 500,000 Accounts receivable 3,500, Inventory 2,000,000 Deferred tax asset 400,000 Prepaid expenses 100,000 Total current assets 6,500,000 Cash on hand including customer's postdated check ofP20,000 and employee IOU of P10,000 130, Cash in bank per bank statement (outstanding checks on December 31, 2014, P70,000) 370,000 Total cash 500,000 Customers' debit balances, net of customers' deposit of P50,000 1,900,000 Allowance for doubtful accounts ( 150,000) Sales price of goods invoiced to customers at 150% of cost on December 29, 2014 but delivered on January 5, 2015 and excluded from reported inventory 750, Subscription receivable, collectible currently 1,000, Total accounts receivable 3,500, What total amount should be reported as current assets on December 31, 2014? A. 5,800,000 C. 5,900, B. 5,830,000 D. 6,230,000 FA © 2014
  3. Daet Company provided the following account balances and related information on December 31, 2014: Cash and cash equivalents 3,700, Accounts receivable 1,500, Allowance for doubtful accounts ( 200,000) Inventory 2,000, Prepaid insurance 300, 7,300, The cash and cash equivalents included the following: Cash in bank, net of bank overdraft of P300, maintained in a separate bank 1,000,000 Cash set aside by the Board of Directors for the purchase of a plant site 2,000,000 Petty cash 10,000 Cash withheld from wages for income tax of employees 190,000 General cash 500,000 3,700,
  • The accounts receivable included past due account in the amount of P100,000 on which a loss of 50% is anticipated. The account should be written off.
  • The merchandise inventory included goods held on consignment amounting to P150,000 and goods of P200,000 purchased and received on December 31,
  1. Neither of these items had been recorded as a purchase.
  • The prepaid insurance included cash surrender value of life insurance of P50,000. What total amount should be reported as current assets on December 31, 2014? A. 5,100,000 C. 5,300, B. 5,200,000 D. 5,400,000 FA © 2014 Total assets

liabilities? A. 3,900,000 C. 4,300, B. 4,100,000 D. 7,100,000 FA © 2014

  1. Burma Company disclosed the following information: Accounts payable, after deducting debit balances in suppliers' accounts amounting to P100,000 4,000,000 Accrued expenses 1,500,000 Credit balances of customers' accounts 500, Stock dividend payable 1,000,000 Claims for increase in wages and allowance by employees of the entity, covered in a pending lawsuit 400, Estimated expenses in redeeming prize coupons 600,000 What amount should be reported as total current liabilities? A. 6,600,000 C. 7,100, B. 6,700,000 D. 7,700,000 FA © 2014
  2. Gumamela Company provided the following data at year-end: Trade accounts payable, including cost of goods received on consignment of P150,000 1,350,000 Accrued taxes payable 125,000 Customers' deposit 100,000 Manila Company as guarantor 200,000 Bank overdraft 55,000 Accrued electric and power bills 60,000 Reserve for contingencies 150,000 What total amount should be reported as current liabilities? A. 1,540,000 C. 1,740, B. 1,650,000 D. 1,840,000 FA © 2014
  3. Mazda Company reported the following liability balances on December 31,2014: 10% note payable issued on October 1,2013, maturing October 1, 2015 2,000,000 12% note payable issued on March 1, 2013, maturing on March 1, 2015 4,000, The 2014 financial statements were issued on March 31,2015. Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31, 2014. On March 1, 2015, the entire P4,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. What amount of the notes payable should be classified as current on December 31, 2014? A. 0 C. 4,000, B. 2,000,000 D. 6,000,000 P1 © 2014
  4. Jam Company had P2,000,000 note payable due on March 1, 2015. The entity borrowed P1,500,000 on December 31, 2014 which has a five-year term and used the proceeds to pay down the note payable and used other cash to pay the balance at maturity. The financial statements were issued on March 31, 2015. What amount of the note payable should be classified as current on December 31, 2014? A. 0 C. 1,500, B. 500,000 D. 2,000,000 FA © 2014
  5. On December 31,2014, Ace Company had P40,000,000 note payable due on February 28,2015. On December 31, 2014, the entity arranged a line of credit with City Bank which allows the entity to borrow up to P35,000,000 at one percent above the prime rate for three years. On February 15,2015, the entity borrowed P25,000,000 from City Bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable. The financial statements were issued on March 31,2015. What amount of note payable should be reported as current liability on December 31,2014? A. 0 C. 10,000, B. 5,000,000 D. 40,000,000 FA © 2014
  6. Charice Company provided the following information on December 31,2014: * Accounts payable amounted to P500,000 and accrued expenses totaled P300, on December 31,2014.
  • On December 15,2014, die entity declared a cash dividend of P7 per share on 100,000 outstanding shares, payable on January 15,2015.
  • On July 1, 2014, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds mature on June 30, 2019, and pay interest annually every June 30.
  • The pretax financial income was P8,500,000 and taxable income was P6,000,000. The difference is due to P1,000,000 permanent difference and PI,500,000 of taxable temporary difference to reverse in 2015.
  • The income tax rate is 30%. The entity made estimated income tax payments during the year of P1,000,000. What amount should be reported as total current liabilities on December 31,2014? A. 2,300,000 C. 2,700, B. 2,500,000 D. 3,500,000 P1 © 2014
  1. Manchester Company provided the following information on December 31,2014: Employee income taxes withheld 900,000 Cash balance at First State Bank 2,500,000 Cash overdraft at Harbor Bank 1,300, Accounts receivable with credit balance 750,000 Estimated expenses of meeting warranties 500,000 Estimated damages as a result of unsatisfactory performance on a contract1,500,000 Accounts payable 3 ,000,000 Deferred serial bonds, issued at par and bearing interest at 12%, payable in semiannual installments of P500,000 due April 1 and October 1 of each year, the last bond to be paid on October 1, 2020. Interest is also paid semiannually. 5,000,000 What amount should be reported on December 31,2014 as total current liabilities? A. 7,350,000 C. 8,100, B. 7,950,000 D. 9,100,000 P1 © 2014
  2. Kumaykay Company provided the following information on December 31,2014: Accounts payable 6,500, Bank note payable - 10% 3,000, Bank note payable - 11% 5,000, Interest payable 150, Mortgage note payable - 10% 2,000, Bonds payable 4,000,
  • The P3,000,000, 10% note was issued March 1,2014, payable on demand. Interest is payable every six months.
  • The one-year P5,000,000,11% note was issued January 15,2014. On December 31,2014, the entity negotiated a written agreement with the bank to replace the note with a 2-year, P5,000,000,10% note to be issued January 15,2015.
  • The 10% mortgage note was issued October 1,2011, with a term of 10 years. Terms of the note give the holder the right to demand immediate payment if the entity fails to make a monthly interest payment within 10 days from the date the payment is due. On December 31,2014, the entity is three months behind in making the required interest payment.
  • The bonds payable are ten-year, 8% bonds, issued June 30,2005. Interest is payable semiannually on June 30 and December 31. What amount should be reported as total current liabilities? A. 11,650,000 C. 15,650, B. 13,650,000 D. 20,650,000 FA © 2014
  1. Charice Company provided the following information on December 31, 2014: * Accounts payable for goods and services purchased on open account amounted to P500,000 and accrued expenses totaled P300.000 on December 31, 2014.
  • On December 15, 2014, the entity declared a cash dividend of P7 per share, payable on January 15, 2015, to shareholders of record on December 31, 2014. The entity had 100,000 shares issued and outstanding throughout 2014.
  • On July 1, 2014, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds mature on June 30, 2019, and pay interest annually every June
  1. On December 31, 2014, the bonds were trading in the open market at 86 to yield 12%. The entity used the effective interest method to amortize bond discount.
  • The pretax financial income was P8,500,000 and taxable income was P6,000,000. The difference is due to PI,000,000 permanent difference and Pi,500,000 of taxable temporary difference which is expected to reverse in 2015. The entity is subject to income tax rate of 30% and made estimated income tax payments during the year of P1,000,000. What total amount should be reported as current liabilities on December 31, 2014? A. 2,300,000 C. 2,700, B. 2,500,000 D. 3,500,000 FA © 2014
  1. Manchester Company provided the following information on December 31, 2014: Employee income taxes withheld 900,000 Cash balance at First State Bank 2,500,000 Cash overdraft at Harbor Bank 1,300,000 Accounts receivable with credit balance 750,