CONSTRUCTIVE ACCOUNTING

MIDTERM DEPARTMENTAL EXAMINATION

1. Financial statements must be prepared at least

a. Annually c. Semiannually
b. Quarterly d. Every two years

2. The statement of financial position is useful for analyzing all of the following,
except
a. Liquidity c. Profitability
b. Solvency d. Financial flexibility

3. Which of the following is not a component of the financial statements?

a. Statement of the financial position
b. Statement of changes in equity
c. Report of board of directors
d. Notes to financial statements

4. Which of the following is an essential characteristic of an asset?

a. The claims to an asset’s benefits are legally enforceable.
b. An asset is tangible.
c. An asset is obtained at a cost.
d. An asset provides future benefits.

5. Notes to financial statements

a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the financial statements
d. All of the choices are correct regarding notes to financial statements

6. Mill Company reported the following account balances on December 31, 2014:

Accounts payable 1,500,000

Bonds payable, due 2015 2,500,000
Discount on bonds payable 300,000
Dividend payable 800,000
Note payable, due 2016 2,000,000

What total amount should be reported as current liabilities?

a. 4,500,000
b. 5,100,000
c. 6,500,000
d. 7,800,000
7. Events after the reporting period are favorable or unfavorable events that occur
between
a. The end of the reporting period and the date of the next annual financial
statements
b. The end of the reporting period and the date of the next interim or annual
financial statements
c. The end of the reporting period and the date when the financial statements
are authorized for issue
d. The end of reporting period and the date of the next interim statements

8. Jewel Company reported the following current assets at year-end:

Cash and cash equivalents 3,200,000

Accounts receivable 1,420,000
Allowance for doubtful accounts (120,000)
Inventory 2,800,000
Deferred charges 200,000
Employees’ account – current 240,000
Advances to subsidiary 260,000
Claim against shipper for goods lost in transit 200,000
Total current assets 8,200,000

What total amount should be reported as current assets?

a. 7,740,000
b. 7,780,000
c. 7,940,000
d. 8,200,000

9. It is the total of income less expenses, excluding the components of other

comprehensive income.
a. Comprehensive income c. Accounting income
b. Profit or loss d. Economic income

10. The presentation of the notes to financial statements in a systematic manner

a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry

11. Violago Company provided the following account balances on December 31,
2014:

Accounts receivable 1,600,000

Financial assets at fair value through profit/loss 500,000
Financial assets at amortized cost 1,300,000
Cash 1,100,000
Inventory 3,000,000
Equipment and furniture 2,500,000
Accumulated depreciation 1,500,000
 Patent 400,000
Prepaid expenses 100,000
Equipment held for sale 1,800,000

On December 13, 2014, what total amount should be reported as current assets?
a. 8,100,000 c. 8,000,000
b. 6,300,000 d. 7,600,000

12. Gracia Company reported the following current assets at year-end:

Cash including sinking fund of P 500,000 with trustee 1,500,000

Accounts receivable 2,500,000
Inventory, including P 200,000 cost of goods in transit
purchased FOB destination point 2,000,000
Advances to officers collectible currently 400,000
Dividend receivable 100,000
Total current assets 6,500,000

What total amount should be reported as current assets?

a. 5,400,000
b. 5,300,000
c. 5,800,000
d. 5,900,000

13. When preparing a draft of year-end statement of financial position, Mont

Company reported net assets totaling P 8,750,000. Included in the asset section
were the following:

Treasury shares of Mont Company at cost, which

approximates market value on December 31 250,000
Idle machinery 100,000
Cash surrender value of life insurance 150,000
Allowance for inventory writedown 50,000

What amount should be reported as net assets?

a. 8,500,000 c. 8,450,000
b. 9,000,000 d. 8,350,000

14. It is the amount of cash that could currently be obtained by selling the asset in an
orderly disposal.
a. Realizable value c. Market value
b. Fair value d. Present value

15. Which of the following events after the end of reporting period would generally
require disclosure?
a. Retirement of key management personnel
b. Settlement of litigation when the event that gave rise to the litigation occurred
in a prior year
 c. Strike of employees
d. Issue of a large amount of ordinary shares

16. Which is not a line item in the income statement?

a. Revenue c. Profit before tax
b. Gross profit d. Extraordinary item

17. The income statement reveals

a. Assets and equity at a point in time
b. Assets and equity for a period of time
c. Net income at a point in time
d. Net income for a period of time

18. Which of the following approaches to income measurement underlies financial

reporting?
a. Transaction approach
b. Economic approach
c. Valuation approach
d. Capital maintenance approach

19. Adjusting events are those that

a. Provide evidence of conditions that existed at the end of the reporting period
b. Are indicative of conditions that arose after the end of the reporting period
c. Are indicative of conditions that arose after the approval of the financial
statements by shareholders
d. Provide for conditions that existed after the date the financial statements were
issued

20. Financial statements are authorized for issue

a. When the board of directors reviews and authorizes the financial statements
for issue
b. When the shareholders approve the financial statements at their annual
meeting
c. When the financial statements are filed with SEC
d. When a supervisory board made solely of nonexecutives approves the
financial statements

21. Nonadjusting events after reporting period which require disclosure include all of
the following, except
a. Plan to discontinue an operation
b. Expropriation of asset by government after end of reporting period
c. Destruction of a major production plant by fire at the end of reporting period
d. A business combination after end of reporting period

22. The factory was damaged in a storm surge after the end of reporting period but
before issuance of financial statements. What is the treatment of the damage
from storm surge?
a. An adjusting event
b. A nonadjusting event
 c. Neither an adjusting event nor a nonadjusting event
d. Both an adjusting event and a nonadjusting event

23. Deficits accumulated during the development stage of an entity should be

a. Reported as organization cost
b. Reported as part of shareholders’ equity
c. Capitalized and written off in the first year of principal operations
d. Capitalized and amortized over a five-year period beginning when principal
operations commence

24. Accounting policies disclosed in the notes to financial statements typically include
all of the following, except
a. The cost flow assumption
b. The depreciation method
c. Significant estimates
d. Significant inventory purchasing policies

25. Disclosure of information about key sources of estimation uncertainty

a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry

26. Disclosure of information about judgments

a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry

27. Which of the following should be defined as intentional distortion of financial

statement?
a. Error c. Error and fraud
b. Fraud d. Neither error nor fraud

28. Mite Company provided the following data for the current year:

Finished goods inventory, January 1 1,000,000

Finished goods inventory, December 31 1,200,000
Cost of goods manufactured 5,000,000
Loss on sale of plant equipment 100,000

What is the cost of goods sold for the current year?

a. 4,800,000 c. 4,900,000
b. 5,200,000 d. 5,300,000

29. Melissa Company provided the following information for the current year:

Beginning inventory 400,000

Freight in 300,000
 Purchase returns 900,000
Ending inventory 500,000
Distribution costs 1,250,000
Sales discount 250,000

The cost of goods sold is six times the distribution costs.

What is the amount of gross purchases?

a. 6,500,000 c. 8,000,000
b. 6,700,000 d. 8,200,000

30. Dell Company provided the following information for the current year:

Purchases 5,300,000
Purchase discounts 100,000
Beginning inventory 1,600,000
Ending inventory 2,150,000
Freight out 400,000

What is the cost of goods sold for the current year?

a. 4,650,000 c. 5,050,000
b. 4,750,000 d. 5,850,000

31. Bart Company provided the following information for the current year:

Disbursements for purchases 5,800,000

Increase in trade accounts payable 500,000
Decrease in merchandise inventory 200,000

What is the cost of goods sold for the current year?

a. 6,500,000 c. 5,500,000
b. 6,100,000 d. 5,100,000

32. Zeno Company maintains a markup of 60% based on cost. The entity’s
distribution and administrative expenses average is 30% of sales. Sales
amounted to P 9,600,000 for current year. What is the net income for the current
year?
a. 3,600,000 c. 960,000
b. 2,880,000 d. 720,000

33. The primary focus of financial reporting has been on meeting the needs of which
of the following?
a. Managers of an entity
b. Existing and potential investors, lenders and other creditors
c. National and local taxing authorities
d. Independent CPAs

34. Related parties include all of the following, except

 a. Parent, subsidiary and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of such key
management personnel
d. Two venturers simply because they share joint control over a joint venture

35. 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

36. Grim Company incurred the following costs during the current year:

Property taxes 250,000

Freight in 1,750,000
Doubtful accounts 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000

What amount of these costs should be reported as administrative expenses?

a. 5,950,000 c. 2,600,000
b. 3,950,000 d. 4,200,000

37. Gianina Company reported the following information for the current year:

Inventory, Jan. 1 2,000,000

Purchases 7,500,000
Purchase returns and allowances 500,000
Sales returns and allowances 750,000
Inventory, Dec. 31 2,800,000
Gross profit rate on net sales 20%

What is the amount of gross sales for the current year?

a. 7,750,000
b. 8,500,000
c. 7,000,000
d. 9,125,000
38. Zeno Company maintains a markup of 60% based on cost. The entity’s
distribution and administrative expenses average 30% of sales. Sales amounted
to P9,600,000 for current year. What is the net income for the current year?
a. 3,600,000
b. 2,880,000
c. 960,000
d. 720,000

39. Carla Company carried a provision of P2,000,000 in the draft financial

statements for the year ended December 31, 2014 in relation to an unresolved
 court case. On January 31, 2015, when the financial statements for the year
ended December 31, 2014 had not yet been authorized for issue, the case was
settled and the court decided the final total damages to be paid by the entity at
P3,000,000. What amount should be adjusted on December 31, 2014 in relation
to this event?
a. 3,000,000 c. 1,000,000
b. 2,000,000 d. 0

40. Jambalaya Company reported the following renumeration and other payments
made to the entity’s chief executive officer during the current year.

Annual salary 2,000,000

Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000

What total amount should be disclosed as “compensation” to key management

personnel?
a. 3,500,000 c. 3,000,000
b. 4,700,000 d. 2,500,000

41. Jericho Company showed net income of P480,000 in the income statement for
the current year. Selling expenses were equal to 15% of sales and also 25% of
cost of sales. All other expenses were 13% of sales. What was the gross profit
for the current year?
a. 4,000,000 c. 1,600,000
b. 2,400,000 d. 2,000,000

42. Sheraton Company reported the following information for the current year:

Ending goods in process 1,000,000

Depreciation on factory building 320,000
Sales salaries 270,000
Beginning raw materials 400,000
Direct labor 1,980,000
Factory supervisory salaries 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Advertising 500,000
Purchases of raw materials 2,300,000

What is the cost of goods manufactured for the current year?

a. 5,340,000 c. 5,550,000
b. 5,580,000 d. 5,820,000
43. a.
Melissa
6,500,000
Company provided the following informationc. 8,000,000
for the current year:
b. 6,700,000 d. 8,200,000
Beginning inventory 400,000
Freight in 300,000
44. Dell
Purchase
Company
returns
provided the following information for the current
900,000year:
Ending inventory 500,000
Distribution cost
Purchases 1,250,000
5,300,000
Sales discount
Purchase discounts 250,000
100,000
Beginning inventory 1,600,000
The costinventory
Ending of goods sold is six times the distribution cost.2,150,000
What is out
Freight the amount of gross purchases? 400,000

What is the cost of goods sold for the current year?

a. 4,650,000 c. 5,050,000
b. 4,750,000 d. 5,850,000

45. Bart Company provided the following information for the current year:

Disbursements and purchases 5,800,000

Increase in trade accounts receivable 500,000
Decrease in merchandise inventory 200,000

What is the cost of goods sold for the current year?

a. 6,500,000 c. 5,500,000
b. 6,100,000 d. 5,100,000

46. 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 5 year term and use the
proceeds to pay down the note payable and use the other cash to pay the
balance at maturity. The financial statements were issued on March 31, 2015.
What amount of note payable should be classified as current on December 31,
2014?
a. 2,000,000 c. 500,000
b. 1,500,000 d. 0

47. Brazil Company reported the following liability balances on December 31, 2014:

Account payable 5,000,000

Bonds payable, due December 30, 2015 10,000,000
Deferred tax liability 2,500,000
Note payable- bank 4,000,000

The bank note payable matures on June 30, 2015. On March 1, 2015, the bank
note payable was refinanced on a long term basis. The financial statements were
 issued on March 31, 2015. What total amount should be reported as current
liabilities?

a. 19,000,000
b. 21,000,000
c. 15,000,000
d. 9,000,000

48. Peach Company prepared a draft of the year-end statement of financial position.
The draft statement reported total assets of P4,375,000 which included the
following:

Treasury shares of Peach Company at cost, which

Approximates market value on December 31 120,000
Unamortized patent 56,000
Deferred charges 68,500
Cumulative translation loss 42,000

What amount should be reported as total assets?

a. 4,208,500 c. 4,250,500
b. 4,213,000 d. 4,255,000

49. Generally, recognition criteria are met and revenue is recognized

a. At the point of sale

b. When cause and effect are associated
c. At the point of cash collection
d. At appropriate points throughout the operating cycle

50. Revenue from an artistic performance is recognized when

a. The audience register for the event online

b. The tickets for the concert are sold
c. Cash has been received from the ticket sales
d. The event takes place
ANSWER KEY

1.A 18.A 35.B

2.C 19.A 36.D
3.C 20.A 37.B
4.D 21.C 38.D
5.C 22.B 39.C
6.A 23.B 40.A
7.C 24.D 41.C
8.A 25.B 42.A
9.B 26.B 43.D
10.C 27.B 44.A
11.A 28.A 45.A
12.C 29.D 46.C
13.A 30.A 47.A
14.A 31.A 48.B
15.D 32.D 49.A
16.D 33.B 50.D
17.D 34.D