PAS CHALLENGE #3

Name:____________________________________ Score:____________________________

INSTRUCTIONS: Select the correct answer for each of the following questions.
Mark only one answer for each item by shading the box corresponding to the
letter of your choice on the answer sheet provided. Strictly no erasures allowed.
Use pencil no. 2 only.

NOTE: This is Set A. Be sure to shade Set A in your answer sheet.

MULTIPLE CHOICE:

1. The information provided by financial reporting pertains to

a. Individual business enterprises and the economy as a whole, rather than to
industries or to members of society as consumers.
b. Individual business enterprises, industries and the economy as a whole,
rather than to members of society as consumers.
c. Individual business enterprises, rather than to industries of the economy as
a whole or to members of society as consumers.
d. Individual business enterprises and industries rather than to the economy
as a whole or to members of society as consumers.

2. In the framework for the Preparation and Presentation of Financial Statements,

which of the following is an ingredient of reliability
a. Predictive value c. Understandability
b. Materiality d. Verifiability

3. Which of the following is not an objective of using present value in accounting

measurements?
a. To capture the value of an asset or a liability in the context of a particular
entity.
b. To estimate fair value.
c. To capture the economic difference between sets of future cash flows.
d. To capture the elements that taken together would comprise a market price
if one existed.

4. Which of the following most clearly demonstrates application of the

conservatism constraint?
a. Depreciating the cost of a wastebasket which has an estimated 10-year life.
b. Stating an estimated liability at the lower end of the possible range.
c. Capitalizing and amortizing the cost of a major advertising campaign,
instead of expensing it at once.
d. Delaying recording and probable damages in a lawsuit until the amount is
fixed.

5. For financial statement purposes, the installment method of accounting may be

used if the
a. Collection period extends over more than twelve months.
b. Installments are due in the different years.
c. Ultimate amount collectible is indeterminate.
d. Percentage of completion method is inappropriate.

6. Pedro Santos lent P2,000 to Anya Reyes for one year at 10% interest, all due
at maturity. He insisted the terms of the transaction be formalized in a
promissory note. In this situation?
a. The maturity value of the note is P2,000.
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b. Santos is considered the maker of the note and records the note as an
asset in his accounting records.
c. Santos is considered the maker of the note and records the note as a
liability in his accounting records.
d. Reyes is considered the maker of the note and records the note as a liability
in her accounting records.

7. Accounts receivable are classified as current assets?

a. Only if convertible into cash within 60 days or sooner.
b. Only if the allowance method is used to estimate the uncollectible accounts.
c. Only if convertible into cash within one year.
d. Whenever the accounts receivable arise from “normal” sales of merchandise
to customers, regardless of the credit terms.

8. Bruce Cycle Shop sells a bicycle to E. Nygma, a customer who uses Express
Charge (a national credit card, but not issued by a bank). In recording this
sale, Bruce Cycle Shop should record?
a. An account receivable from E. Nygma.
b. A cash receipt.
c. An account receivable from Express Charge.
d. A small increase in the allowance for doubtful accounts.

9. Which of the following methods may not be appropriate for estimating bad debt
expense?
a. Individual or collective assessment of outstanding receivables.
b. Percentage of outstanding accounts receivables.
c. Aging of accounts receivable.
d. Percentage of sales.

10. The carrying value of an impaired note before recognizing a loan impairment?
a. Includes accrued interest.
b. Excludes accrued interest
c. Is the same as the carrying value after recognizing the impairment.
d. Is less than the carrying value after recognizing the impairment.

11. Bannon Corp. transferred financial assets to Chapman Inc. The transfer
meets the conditions to be accounted for as a sale. As the transferor, Bannon
should do each of the following, except
a. Remove all assets sold from the balance sheet.
b. Record all assets received and liabilities incurred at cost.
c. Measure the assets received and liabilities incurred at cost.
d. Recognize any gain or loss on the sale.

12. A building suffered uninsured fire damage. The damaged portion of the
building was refurbished with higher quality materials. The cost and related
accumulated depreciation of the damaged portion are identifiable. To account
for these events, the owner should
a. Reduce accumulated depreciation equal to the cost of refurbishing.
b. Record a loss in the current period equal to the sum of the damaged portion
of the building.
c. Capitalize the cost of refurbishing and record a loss in the current period
equal to the carrying amount of the damaged portion of the building.
d. Capitalize the cost of refurbishing by adding the cost to the carrying
amount of the building.

13. Derby Co. incurred costs to modify its building and to rearrange its
production line. As a result, an overall reduction in production costs is
expected. However, the modifications did not increase the building’s market

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vale, and the rearrangement did not extend the production line’s life. Should
the building modification costs and the production line rearrangement costs be
capitalized?
Building Production line
modification costs rearrangement costs
a. Yes No
b. Yes Yes
c. No No
d. No Yes

14. On January 1, 2000 Crater Inc. purchased equipment having an estimated

salvage value equal to 20% of its original cost at the end of a ten-year life. The
equipment was sold December 31, 2004, for 50% of its original cost. If the
equipment’s disposition resulted in a reported loss, which of the following
depreciation methods did Crater use?
a. Double declining balance c. Straight line
b. Sum of the years’ digits d. Composite

15. A depreciable asset has an estimated 15% salvage value. At the end of its
estimated useful life, the accumulated depreciation would equal to the original
cost of the asset under which of the following depreciation methods?
Straight-line Productive output
a. Yes No
b. Yes Yes
c. No Yes
d. No No

16. Which of the following statements is incorrect regarding internal use of

software?
a. The application and development costs of internal use software should be
amortized on a straight-line basis unless another systematic and rational
basis is more representative of its costs.
b. Internal use software is considered to be software that is marketed as a
separate product or as part of a product or process.
c. The costs of testing and installing computer hardware should be capitalized
as incurred.
d. The costs of training and application maintenance should be expensed as
incurred.

17. All but one of the following are required before a transfer of receivables can
be recorded as a sale.
a. The transferred receivables are beyond the reach of the transfer and its
creditors.
b. The transferor has not kept effective control over the transferred
receivables through a repurchase agreement.
c. The transferor maintains continuing involvement.
d. The transferee can pledge or sell the transferred receivables.

18. Which of the following is not an objective for each entity accounting for
transfers of financial assets?
a. To derecognize assets when control is gained. c. To recognize liabilities
when incurred
b. To derecognize assets when control is given up. d. To derecognize
assets when extinguished

19. Vann Co. sells appliances that include a three-year warranty. Service calls
under the warranty are performed by an independent mechanic under a

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contract with Vann. Based on experience, warranty costs are
estimated at P30 for each machine sold. When should Vann recognize these
warranty costs?
a. Evenly over the life of the warranty c. When payments are made
to the mechanic
b. When the service calls are performed. d. When the machines are
sold

20. Perk Co. issued P500,000, 10% bonds to yield 8%. Bond issuance costs were
P10,000. How should Perk calculate the net proceeds to be received from the
issuance?
a. Discount the bonds at the stated rate of interest.
b. Discount the bonds at the market rate of interest.
c. Discount the bonds at the stated rate of interest and deduct bond issuance
costs.
d. Discount the bonds at the market rate of interest and deduct bond issuance
costs.

21. The market price of a bond issued at a discount is the present value of its
principal amount at the market (effective) rate of interest
a. Less the present value of all future interest payments at the market
(effective) rate of interest.
b. Less the present value of all future interest payments at the rate of interest
stated on the bond.
c. Plus the present value of all future interest payments at the market
(effective) rate of interest.
d. Plus the present value of all future interest payments at the rate of interest
stated on the bond..

22. Quoit, Inc. issued preferred stock with detachable common stock warrants.
The issue price exceeded the sum of the warrants’ fair value and the preferred
stocks’ par value. The preferred stock fair value was not determinable. What
amount should be assigned to the warrants outstanding?
a. Total proceeds.
b. Excess of proceeds over the par value of the preferred stock.
c. The proportion of the proceeds that the warrants’ fair value bears to the
preferred stock’s par value.
d. The fair value of the warrants.

23. In 2003, Fogg, Inc. issued P10 par value common stock for P25 per share. No
other common stock transactions occurred until March 31, 2005, when Fogg
acquired some of the issued shares for P20 per share and retired them. Which
of the following statements correctly states an effect of this acquisition and
retirement?
a. 2005 net income is decreased c. Additional paid-in capital
is decreased
b. 2005 net income is increased d. Retained earnings is increased

24. On January 31, 2005, pack, Inc. split its common stock 2 for 1, and Young, Inc.
issued a 5% stock dividend. Both companies issued their December 31, 2004
financial statements on March 1, 2005. Should Pack’s 2004 , basic earnings
per share (BEPS) take into consideration the stock split, and should Young’s
2004 BEPS take into consideration the stock dividend?
Pack’s 2004 BEPS Young’s 2004 BEPS
a Yes No

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.
b No No
.
c Yes Yes
.
d No Yes
.

25. On December 29, 2004, BJ Co. sold a marketable equity security that had
been purchased on January 4, 2003. BJ owned no other marketable equity
security. An unrealized loss was reported in 2003 as other comprehensive
income. A realized gain was reported in the 2004 income statement. Was the
marketable equity security classified as available for sale and did its 2003
market price decline exceed its 2004 market price recovery?
2003 market price decline
Available for sale exceeded 2004 market
recovery
a Yes Yes
.
b Yes No
.
c No Yes
.
d No No
.

26. When a firm increases its interest in an investment in equity securities

accounted for by the fair value method, and changes to the equity method,
what is the initial carrying value for purposes of subsequent application of the
equity method?
a. Book value at the date of the change.
b. The amount which would be reflected in the investment account had the
equity method been used all along.
c. Market value at the date of the change
d. Original cost plus or minus the net market value change since acquisition.

27. Pal Corp’s 2004 dividend revenue included only part of the dividends received
from its Ima Corp. investment. Pal Corp. has an investment in Ima corp. that it
intends to hold indefinitely. The balance of the dividend reduced Pal’s carrying
amount for its Ima investment. This reflects the fact that Pal accounts for its
Ima investment
a. As an available for sale investment, and only a portion of Ima’s 2004
dividends represent earnings after Pal’s acquisition.
b. As available for sale investment and its carrying amount exceeded the
proportionate share of Ima’s market value.
c. As equity investment, and Ima incurred a loss in 2004.
d. As equity investment, and its carrying amount exceeded the proportionate
share of Ima’s market value.
28. Enterprise wide disclosures include disclosures about
Geographic areas Allocated costs
a Yes Yes
.
b Yes No
.
c No Yes
.
d No No

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.

29. Enterprise wide disclosures are required by publicly held companies with
Only one reportable More than one reportable
segment segment
a Yes Yes
.
b Yes No
.
c No Yes
.
d No No
.

30.Which of the following statements is incorrect?

a. An intangible asset acquired by an issuance of ordinary shares should
generally be valued at the fair value of the intangible asset.
b. Amortization of intangible assets involves an adjusting entry that should not
be reversed in the next accounting period.
c. An unidentifiable asset developed internally in never recognized in the
accounts as an asset.
d. All annual payments made by a franchisee to the franchisor for assistance
should be capitalized as part of the cost of the franchise.

31.A change in the amortization rate for an intangible asset should be accounted
for
a. By means of retroactive basis c. On a prospective basis
b. By means of a prior period adjustment d. On a current basis

32.Costs incurred by a company that may develop its own goodwill internally
should be
a. Capitalized and amortized as the company profits increased.
b. Capitalized and amortized over the useful life of the goodwill.
c. Expensed when incurred as a current operating expense.
d. Capitalized and amortized over a period not to exceed 40 years.

33. To effect business combination initiated on July 1, 2004, Proper Co. acquired
all the outstanding common shares of Scapula Co. for cash equal to the
carrying amount of Scapula’s net assets. The carrying amounts of Scapula’s
assets and liabilities approximated their fair values, except that the carrying
amount of its building was more than fair value. In preparing Proper’s
December 31, 2004 consolidated income statement, what is the effect of
recording the assets acquired and liabilities assumed at fair value and should
goodwill amortization be recognized?
Depreciation expense Goodwill amortization
a Lower Yes
.
b Higher Yes
.
c Lower No
.
d Higher No
.

34. Goodwill, when properly recognized, should be written off

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a. by systematic charges to expense over the period benefited, but not more
than 20 years.
b. As soon as possible against retained earnings.
c. As soon as possible as an ordinary item.
d. When impairment loss occurs.

35. Which of the following is included in research and development expense in

2005?
a. The total cost of a building (useful life 25 years, completed January 1, 2005)
to be used only in research and development.
b. Depreciation in 2005 on the building used for research and development.
c. The cost incurred in 2005 to ensure quality control for existing production
process.
d. The cost incurred in 2005 of research activities performed for another firm,
the project is expected to be completed in 2006.

36. Which of the following would not be included in research and development
expense for JJ Co. for the current period?
a. The portion of plant assets, devoted completely to research for JJ, which is
amortized in the current period.
b. The cost of materials used in conducting research for JJ during the current
period.
c. Cash paid by JJ to FF for research performed by FF for JJ in the current
period.
d. The cost of labor incurred by JJ in conducting research for GG during the
current period.

37. When the market value of a company’s portfolio of available for sale securities
is lower than its cost, the difference should be?
a. Accounted for as a liability.
b. Disclosed and described in a note to the financial statements but not
accounted for.
c. Accounted for as a valuation allowance deducted from the asset to which it
relates.
d. Accounted for as an addition in the shareholder’s equity section of the
balance sheet.

38. Cash dividends declared out of current earnings were distributed to an

investor. How will the investor’s investment account be affected by those
dividends under each of the following accounting methods?
Fair value Equity method
method
a. Decrease No effect
b. No effect Decrease
c. Decrease Decrease
d. No effect No effect

39. Under what conditions will the service hours and productive output
methods of depreciation result in the same depreciation expense for a
particular year?
a. When the total estimated service hours and production in units are the
same.
b. When the ratio of actual service hours to productive output for the year is
the same as the ratio of the estimates used in their respective depreciation
rates.
c. When the salvage value is zero.
d. The two methods cannot produce the same depreciation expense amount for
any given year.

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40. A machine with a 4-year estimated useful life and an estimated 15%
residual value was acquired on January 1. Would depreciation expense using
the sum of years’ digits method be higher or lower than depreciation expense
using the double declining balance method in the first and second year?
1st Year 2nd Year
a. Higher Higher
b. Higher Lower
c. Lower Higher
d. Lower Lower

41. At the end of the expected useful life of a depreciable asset with an
estimated 15% residual value, the accumulated depreciation would equal the
original cost of the asset under which of the following depreciation methods?
Straight line Sum of Years’ Digits
a. Yes Yes
b. No No
c. Yes No
d. No Yes

42. A firm wants to exclude short-term debt from its current liabilities to improve
its current ratio. Which of the following would help the firm accomplish its
goal?
a. Refinance the debt by issuing share capital before the balance sheet date.
b. Enter into a financing agreement before the balance sheet date which
permits the refinancing of the debt with other debt due 8 months after the
balance sheet date.
c. Pay the debt after the balance sheet date, and replenish the cash used to
pay the debt with the proceeds from long-term debt issued before issuance
of the balance sheet.
d. Plan not to pay the debt until after the end of the next fiscal period.

43. A firm’s future payments for holiday and vacation pay are earned as
employees provide services, accumulate but do not vest, most likely will be
paid and are estimable. However, unused vacation credit can be carried over
two years at most. This firm is so much fun to work for that a material and
estimable percentage of personnel let some vacation benefits lapse. Therefore:
a. This firm should accrue all earned vacation pay except for vacation salary
benefits not expected to be paid.
b. This firm should accrue all earned vacation pay.
c. This firm need not accrue vacation pay.
d. This firm would accrue all earned vacation pay only if the benefits vest.

44. On July 1, 2004 South Co. entered into a ten-year operating lease for a
warehouse facility. The annual minimum lease payments are P100,000. In
addition to the base rent, South pays monthly allocation of the building’s
operating expenses, which amounted to P20,000 for the year ended June 30,
2005. In the notes to South’s June 30, 2005 financial statements, what amounts
of subsequent years’ lease payments should be disclosed?
a. P100,000 per annum for each of the next five years and P500,000 in the
aggregate.
b. P120,000 per annum for each of the next five years and P600,000 in the
aggregate.
c. P100,000 per annum for each of the next five years and P900,000 in the
aggregate.
d. P120,000 per annum for each of the next five years and P1,080,000 in the
aggregate.

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45. Events that occur after the balance sheet date but prior to its issuance are
called:
a. Prior events c. Subsequent events
b. Post-closing events d. Unaudited events

46. Determine the correct classification of the following liabilities?

1) Liability due in 6 months, payable in share capital of debtor firm.
2) Liability refinanced with long-term debt between the balance sheet
date and date of issuance of balance sheet.
3) Liability which will be refinanced on a long-term basis between the
balance sheet date of issuance of balance sheet through an
irrevocable agreement signed by debtor.
4) Liability paid between the balance sheet date and date of issuance of
balance sheet with cash; the cash is replenished with proceeds from
long-term debt also between the balance sheet date and date of
issuance of balance sheet.
a. All are current liabilities. c. Only No. 4 is a current
liability
b. All are long-term liabilities. d. Only No. 1 is a long-
term liability.

47. Which of the following statements regarding taxes payable is true?

a. Income taxes on salaries are recognized by the employer as an expense.
b. Retail businesses often are required to collect a tax at the time of sale and
to remit the tax to a taxing authority.
c. Property taxes, based on the assessed value of real and personal property,
are levied in advance of the year for which they are paid and therefore
rarely require an accrual.
d. Sales taxes collected from customers results in an expense recognized by a
retailing firm.

48. Which of the following statements is true?

a. A bond purchased at a discount will pay more cash interest per period than
interest revenue is recognized on the accrual basis.
b. The market price of a bond tends to fluctuate directly, and in the same
direction, with changes in the market rate of interest.
c. A bond premium has the effect of reducing the amount of interest revenue
below the amount of interest that would be earned if the bond were to yield
their stated rate.
d. When the effective rate of interest is higher than the stated rate of interest,
the bond will be purchased at a premium.

49. In general, retiring bonds before maturity:

a. Is not acceptable per GAAP.
b. Results in a non-recurring gain or loss.
c. Results in a gain if interest rates have decreased significantly since
issuance of the bonds.
d. Results in a gain or loss even though this event is relatively common.

50. An employer’s obligation relating to employees’ right to receive

compensation for future absences is attributable to employees’ services
already rendered. The payment of compensation is probable, and the amount
of compensation can be reasonably estimated. Employees’ compensation
should be?
a. Accrued if the obligation relates to rights that vest or accumulate.
b. Accrued if the obligation relates to rights that do not vest or accumulate.
c. Expensed when paid.

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d. Disclosed but not accrued if the obligation relates to rights that vest or
accumulate.

51. Which of the following is an example of a contingent loss (expense) likely to

be recognized in the accounts on a regular basis each year?
Lawsuits Loss Warranty Bad Debts
Expense Expense
a Yes No No
.
b No Yes No
.
c No Yes Yes
.
d Yes Yes Yes
.

52. In calculating present value in a situation with a range of possible outcomes

all discounted using the same interest rate, the expected present value would
be
a. The most-likely outcome c. The minimum outcome
b. The maximum outcome d. The sum of probability weighted present values

53. How would the amortization of premium on bonds payable affect each of the
following?
Net income
Carrying value of (compared to no
bond premium)
a. Decrease Decrease
b. Increase Decrease
c. Decrease Increase
d. Increase Increase

54. Which of the following statements is false?

a. Failure to record depreciation expense in one year usually results in what is
called a noncounterbalancing error.
b. An overstatement of ending inventory in a given year usually results in what
is called a counterbalancing error.
c. An error affecting earnings of a prior period that requires a correcting entry
is reported on the statement of retained earnings as a retroactive
adjustment to the beginning balance.
d. When an error is discovered, it should be corrected as of the end of the year
in which the error was made.

55. How many of the following transactions would appear on the statement of
cash flows or in its sub schedules?
1) Sold and issued new ordinary shares, P30,000
2) Purchased a new machine and paid for it in full by issuing company’s
own ordinary shares.
3) Purchased land for cash, P20,000
4) Sales revenue, P500,000
a. One c. Three
b. Two d. Four

56. Which of the following could lead to cash flow problems?

a. Obsolete inventory, accounts receivable of inferior quality, easing of credit
by suppliers.

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b. Slow-moving inventory, accounts receivable of inferior quality, tightening
of credit by suppliers.
c. Obsolete inventory, increasing notes payable, easing of credit of suppliers.
d. Obsolete inventory, improved quality of accounts receivable, easing of
credit suppliers.

57. In a statement of cash flows:

a. Net cash flow from operating activities is always the same as net income.
b. Net cash flow from operating activities must be the same as net increase in
cash during the period.
c. Net cash flow from operating activities maybe less than or greater than net
income.
d. Net cash flow from operating activities is always greater than net income

58. Which of the following would least likely be shown in one of the three activity
sections of the statement of cash flows?
a. Refinancing a bond issue currently due with a new bond issue
b. An increase in trade accounts receivable over the period.
c. Purchase of a subsidiary corporation
d. A decrease in long-term notes payable over the period

59. How is it possible for a firm to be profitable and still go bankrupt?

a . Earnings have increased more rapidly than sales
b. The firm has positive net income but has failed to generate cash from
operations
a. Net income had been adjusted for inflation.
b. Sales have not improved even though credit policies have been eased.

60. Which of the following statements is false?

a. Unusual or infrequent items should be reported separately, but not net of
income tax, and not as an extraordinary item.
b. An event is considered to occur infrequently if it would not reasonably be
expected to recur in the foreseeable future, taking into account the entity’s
environment.
c. Disclosure notes are an integral part of the financial statements.
d. Prior period adjustments are reported in the income statement.

61. Which of the following could never be subject to interperiod tax allocation?
a. Rent revenue c. Depreciation expense on operational
assets
b. Estimated warranty expense d. Interest revenue on government
bonds

62. Which of the following is not source of support for the realization of a
deferred tax asset?
a. Future deductible temporary differences.
b. Future taxable temporary differences.
c. Past taxable income within the carryback period.
d. Future taxable income.

63. Deferred income tax amounts initially are computed on the basis of tax rates
in effect when temporary differences occur as long as future enacted tax rates
are not different. If tax rates change before the temporary differences reverse:
a. Income of the period in which the differences were first recognized is
changed retroactively.
b. The deferred tax balances are adjusted to reflect the new rates.
c. Because deferred taxes is an estimate, no adjustment of the deferred tax
balance is usually required.

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d. An extraordinary gain or loss is recognized for the change caused by
the newly enacted tax law rates.

64. One objective of PAS 12 Income Taxes regarding deferred tax accounting is to
provide reasonable matching of
a. Income tax expense with the taxable income on the tax return.
b. Income tax expense with the pretax income on the income statement.
c. Income taxes payable with the other items on the balance sheet.
d. Income tax paid with other items on the income statement.

65. A valuation allowance would exist as a contra account to the deferred tax
assets, if it is?
a. “More likely than not” that only a portion of the gross amount of the
deferred tax assets is expected to be realized.
b. “Probable” that some amount of the assets is absolutely realizable.
c. “Possible” that the entire amount will not be realized.
d. “Remotely possible” that not all of the asset will be realized.

66. The maximum number of years a tax loss can be carried forward is
a. 3 years c. 17 years
b. 15 years d. 14 years

67. Service cost for 2005 for a pension plan whose pension benefit formula
incorporates estimates of future compensation levels is:
a. The present value of benefits earned by employees in 2005 based on current
salary levels.
b. The increase in Accumulated Benefit Obligation (ABO) for 2005 less interest
cost on the beginning balance in ABO.
c. The nominal value of benefits earned by employees in 2005 based on future
salary levels.
d. The present value of benefits earned by employees in 2005 based on future
salary levels.

68. Choose the correct relationship among off-balance sheet values and values
reported in a balance sheet, relative to a pension plan?
a. Underfunded ABO less amortization of unrecognized Past Service Cost
(PSC) equals the balance in accrued pension cost.
b. Unrecognized PSC is an items that reconciles the balance in accrued
pension cost and overfunded ABO.
c. Sum of pension expense to date equals ABO.
d. Fair value of plan assets less Accumulated Benefit Obligation (ABO) equals
balance in accrued pension cost.

69. For external reporting purposes, assuming an underfunded ABO, the liability
that must be reported in the balance sheet is?
a. ABO less plan assets at fair value.
b. Balance in accrued pension cost.
c. The underfunded ABO
d. Additional minimum pension liability

70. Choose the correct statement concerning amortization of unrecognized gain

or loss:
a. Some amortization must be recognized in a year that begins with a nonzero
unrecognized gain or loss.
b. The corridor is the maximum amortization allowed.
c. The corridor amount for 2005 is 10% of the greater of these two December
31, 2005 values: ABO and plan assets at fair value.

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d. The amortization of an unrecognized gain yields a reduction in
pension expense and a reduction in that unrecognized gain.

71. Defined contribution plans and defined benefit plans are two common types of
pension plans. Choose the correct statement concerning these plans.
a. The required annual contribution to the plan is determined by formula or
contract in a defined contribution plan.
b. Both plan provide the same retirement benefits.
c. The retirement benefit is usually determinable well before retirement in a
defined contribution plan.
d. In both types of plans, pension expense is generally the amount funded
during the year.

72. Which of the following is not one of the six components of pension expense
(or part of a component)
a. Initial transition asset
b. Amortization of unrecognized gain or loss.
c. Actual return on plan assets.
d. Growth (interest cost) in ABO since the beginning of the period.

73. Interest cost included in the net pension cost recognized by an employer
sponsoring a defined benefit pension plan represents the
a. Amortization of a discount on unrecognized prior service cost.
b. Increase in the fair value of plan assets due to the passage of time.
c. Increase in the accumulated benefit obligation due to the passage of time.
d. Shortage between the expected and actual returns on plan assets.

74. A company reacquires shares of its own during the fiscal year and reports the
transaction in the theoretically correct manner. What effect will this
transaction have on shareholders’ equity and earnings per share, respectively?
a. Increase and decrease c. Decrease and increase
b. Decrease and decrease d. Increase and no effect

75. The redemption privilege on preference share provides that the preference
shareholders can
a. Purchase treasury shares any time they become available
b. Purchase enough shares of any new issue, so that their percentage
ownership remains the same.
c. Turn in the preferred shares for a specified cash price.
d. Exchange the preferred shares for ordinary shares.

76. The order in which the dividends are allocated to ordinary and preference
share depends upon the provisions in the respective share contracts. Choose
the correct statement regarding this allocation.
a. When noncumulative preference share is fully participating, the rate of
dividends allocated to preference share is the ratio of total par of
preference share outstanding to total par of both classes of shares
outstanding.
b. When noncumulative preference share is not participating, the rate of
dividends to ordinary shares is limited to the ratio of total par of ordinary
shares outstanding to total par of both classes of shares outstanding.
c. When 8% cumulative preference share is participating to a total of 12%,
any arrear dividends are ignored in the allocation since they pertain to a
previous year.
d. When 8% noncumulative preference share is participating to a total of 12%,
the preference share must receive all arrear dividends and 12% of total

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preference share par outstanding prior to ordinary share receiving any
dividends.

77. Adjusting events after balance sheet date include all of he following, except
a. Resolution after balance sheet date of a court case because it confirms that
the entity had already a present obligation.
b. Bankruptcy of a customer which occurs after the balance sheet date
c. Discovery of fraud or errors that show that the financial statements were
incorrect
d. Business combination after the balance sheet date

78. Nonadjusting events after balance sheet date which require disclosure include
all of the following, except
a. Plan to discontinue an operation
b. Major purchase and disposal of asset or expropriation of major asset by
government
c. Destruction of a major production plant by a fire after the balance sheet
date
d. Determination after balance sheet date of the cost of assets purchased or
proceeds from assets sold before the balance sheet date

79. Technically, offsetting in financial statements is accomplished when

a. The allowance for doubtful accounts is deducted from accounts receivable
b. The accumulated depreciation is deducted from property, plant and
equipment
c. The total liabilities are deducted from total assets to arrive at net assets
d. Gain or losses from disposal of noncurrent assets are reported by deducting
from the proceeds the carrying amount of the assets and the related selling
cost

80. It is the presentation and classification of financial statement items on a

uniform basis from one accounting period to the next.
a. Comparable information c. Aggregation
b. Consistency of presentation d. Accrual basis

81. With respect to loans classified as current liabilities, all of the following
events would qualify for disclosure as nonadjusting event, except
a. Refinancing on a long-term basis occurring after balance sheet date and
before the date the financial statements are authorized for issue.
b. Rectification of a breach of a long-term loan agreement on or before
balance sheet date.
c. Receipt from the lender of a grace period ending at least twelve months
after balance sheet date occurring between the balance sheet date and the
date the financial statements are authorized for issue.
d. Issuance of common stock between the balance sheet date and the date the
financial statements are authorized for issue the proceeds from which are
used to pay off the currently maturing long-term loan.

82. As a minimum, disclosures of related party transactions necessary for an

understanding of the financial statements include all of the following, except
a. Amount of the transactions.
b. Amount of outstanding balances.
c. Pricing policies.
d. Provision for doubtful debts related to the amount of outstanding balances.

83. Related parties include all of the following, except

a. Subsidiaries

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b. Associates
c. Key management personnel and close family members of such individuals.
d. Two entities that have a common director.

84. Which statement is incorrect concerning related party disclosure?

a. The new standard requires disclosure of the compensation of key
management personnel.
b. State-controlled entities that are profit-oriented are exempted from
disclosing transactions with other state-controlled entities.
c. Disclosures that related party transactions were made on terms equivalent
to those that prevail in arm’s length transactions are made only if such
terms can be substantiated.
d. Two venturers are not necessarily related parties simply because they share
joint control over a joint venture.

85. This is a pricing policy between related parties which sets the price by
reference to comparable goods sold in an economically comparable market to a
buyer unrelated to the seller.
a. No price method.
b. Cost plus method.
c. Resale price method.
d. Uncontrolled price method.

86. A related party transaction is a transfer of resources or obligations.

a. Between related parties when a price is charged.
b. Between related parties, regardless of whether a price is charged.
c. Between unrelated parties when a price is charged.
d. Between unrelated parties, regardless of whether a price is charged.

87. The face of the income statement shall include line items for the following
amounts, except
a. Revenue c. Finance costs
b. Income tax expense d. Casualty loss

88. The term “revenue” includes all of the following, except

a. Sales c. Dividend received
b. Interest received d. Gain on sale of land

89. The physical capital maintenance concept requires the adoption of which
measurement basis?
a. Historical cost c. Realizable value
b. Current cost d. Present value

90. Which is incorrect concerning the conditions to be met in considering the sale
of a component of an entity to be highly probable?
a. Management is committed to a plan to sell.
b. An active program to locate a buyer is initiated.
c. The sale is expected to qualify as a completed sale within two years from
the date of classification as held for sale.
d. The component is being actively marketed for sale at a sales price that is
reasonable in relation to its current fair value.

91. The results of a discontinued operation, net of tax shall be presented

a. As a single amount on the face of income statement with no details
disclosed in the notes.
b. As a single amount on the face of income statement with appropriate
disclosure of the details in the notes.

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c. Side by side by continuing operations with the details for revenue
and expenses attributable to the discontinued operation shown on the face
of the income statement.
d. In the notes only

92. An entity has an ordinary “A” class, nonvoting share, which is entitled to a
fixed dividend of 6% per annum. The “A” class ordinary share will
a. Be included in the per share calculation after adjustment for the fixed
dividend.
b. Be included in the per share calculation for EPS without adjustment for the
fixed dividend.
c. Not included in the per share calculation for EPS.
d. Be included in the calculation of diluted EPS.

93. Earnings per share is calculated before accounting for which of the
following items?
a. Preference dividend for the period c. Taxation
b. Ordinary dividend d. Minority interest

94. When an entity makes a bonus issue/stock split/stock dividend or rights

issue
a. The previous year’s EPS is not adjusted for the issue.
b. The previous year’s EPS is adjusted for the issue.
c. Only a note of the effect on the pervious year’s EPS is made.
d. Only the diluted EPS for the previous year is adjusted.

95. If a new issue of shares for cash is made between the year-end and the date
that the financial statements are authorized
a. The EPS both for the current and previous year are adjusted.
b. The EPS for the current year only is adjusted.
c. No adjustment is made to EPS.
d. Diluted EPS only is adjusted.

96. The weighted average number of shares outstanding during the period for
all periods other than the conversion of potential ordinary shares shall be
adjusted for
a. Any change in the number of ordinary shares without a change in resources.
b. Any prior-year adjustment.
c. Any new issue of shares for cash.
d. Any convertible instruments settled in cash.

97. Dy Co. adjusted its historical cost income statement by applying specific
price indexes to its depreciation expense and cost of goods sold. Dy’s adjusted
income statement is prepared according to
a. Fair value accounting
b. General purchasing power accounting
c. Current cost accounting
d. Current cost/general purchasing power accounting

98. During a period of inflation in which a liability account balance remains

constant, which of the following occurs?
a. A purchasing power gain, if the item is non-monetary liability.
b. A purchasing power gain, if the item is a monetary liability.
c. A purchasing power loss, if the item is a non-monetary liability.
d. A purchasing power loss, if the item is a monetary liability.

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99. Derivatives are financial instruments that derive their value from changes in
a benchmark based on any of the following except.
a. Stock prices c. Mortgage and currency rates
b. Commodity prices d. Discounts on accounts receivable

100. Disclosures related to financial instruments, both derivative and non-

derivative, used as hedging instruments must include
a. A list of hedged instruments c. Objectives and strategies for
achieving them.
b. Maximum potential accounting loss d. Both “a” and “c”

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