Chapter 7 - Trial Balance, Financial Reports and Statements

Question 1

Statement I: The objectives of general purpose financial reporting in the public sector should be to provide information useful for decision making, and to
demonstrate the accountability of the entity for the resources entrusted to it.
Statement II: Financial Statements have a predictive or prospective role, providing information useful in predicting the level of resources required for continued operations, the resources that may be generated by continued operations, and the associated risks and uncertainties.

a.Only Statement I is true
b. Only Statement Il is true
c. Both Statements are true
d. Both Statements are false

Answer 1

c. Both Statements are true

Question 2

The following are responsible for the preparation of financial statements EXCEPT

a. Head of the entity
b. Head of the Finance division
c. Cashier
d. Authorized representative of the head of the agency

Answer 2

c. Cashier

Question 3

Omission or misstatement of information could influence the decisions of users or assessments made on the basis of the financial statements.

a. Relevance
b. Materiality
c. Prudence
d. Reliability

Answer 3

b. Materiality

Question 4

The inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or revenue are not overstated and liabilities or expenses are not understated.

a. Relevance
b. Faithful representation
c. Prudence
d. Reliability

Answer 4

c. Prudence

Question 5

Financial statements are free from material error and bias, and can be depended on by users to represent faithfully that which it purports to represent or could
reasonably be expected to represent.

a. Understandability
b. Faithful representation
c. Prudence
d. Reliability

Answer 5

d. Reliability

Question 6

Statement I: If Management strongly believes that compliance with the requirement of PPSAS would result in misleading presentation that it would contradict the objective of the financial statements set forth in PPSAS, the entity will not depart from that requirement but instead disclose in the notes to financial statements the possible misleading presentation that will result in following the
PPSAS requirement.
Statement II: When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial
statements are prepared and the reason why the entity is not regarded as a going
concern.

a. Only Statement I is true
b. Only Statement II is true
c. Both Statements are true
d. Both Statements are false

Answer 6

b. Only Statement II is true

Question 7

Statement I: Material class of similar items shall be presented separately in the financial statements.
Statement Il: Immaterial class of dissimilar items shall be presented aggregately in the financial statements.

a. Only Statement I is true
b. Only Statement II is true
c. Both Statements are true
d. Both Statements are false

Answer 7

c. Both Statements are true

Question 8

Statement I: Gains and losses arising from a group of dissimilar transactions are reported on a net basis
Statement II: Assets and liabilities, and revenue and expenses, shall not be offset unless required or permitted by a PPSAS.

a. Only Statement I is true
b. Only Statement Il is true
c. Both Statements are true
d. Both Statements are false

Answer 8

b. Only Statement Il is true

Question 9

Which among the following are included in the computation of surplus or deficit for a period?

a. the correction of prior period errors
b. the effect of changes in accounting policies
c. the effect of changes in accounting estimates
d. gains or losses on remeasuring available-for-sale financial assets

Answer 9

c. the effect of changes in accounting estimates

Question 10

Which among the following does not require a separate disclosure in the notes to financial statements?

a. Write-downs of inventories to net realizable value
b. Disposals of items of property, plant, and equipment
c. Litigation settlements
d. All of the above

Answer 10

d. All of the above

Question 11

Statement I: The correction of a prior period error is excluded from the computation of income and expense for the period in which the error is discovered.
Statement Il: Prior period errors shall be corrected by an adjusting entry within the current year before the financial statements are authorized for issue.

a. Only Statement I is true
b. Only Statement II is true
c. Both Statements are true
d. Both Statements are false

Answer 11

a. Only Statement I is true

Question 12

It serves as the covering letter in transmitting the agency’s financial statements to the Commission on Audit, Department of Budget and Management, and other
oversight agencies and parties.

a. Pre-closing trial balance
b. Post-closing trial balance
c. Statement of management responsibility
d. Notes to financial statements

Answer 12

c. Statement of management responsibility

Question 13

Adjusting entries involve

a. only real accounts
b. only nominal accounts
c. only equity accounts
d. at least one real and one nominal account

Answer 13

d. at least one real and one nominal account

Question 14

Why are adjusting entries necessary?

a. Transactions take place over more than one accounting period.
b. To make debits equal credits.
c. To close nominal accounts at year-end.
d. To correct erroneous balances in accounts.

Answer 14

a. Transactions take place over more than one accounting period.

Question 15

Closing entries

a. are optional steps
b. affect only balance sheet accounts
c. permit the government agency to analyze routine and repetitive transactions the same way all the time
d. remove the balances from the agency’s temporary accounts

Answer 15

d. remove the balances from the agency’s temporary accounts

Question 16

The following are the financial statements generally prepared in the national government, EXCEPT

a. Statement of Cash Flows
b. Balance Sheet
c. Statement of Government Equity
d. Statement of Management Responsibility

Answer 16

d. Statement of Management Responsibility

Question 17

These are financial statements that are required to be prepared at any given period or at a financial reporting period without closing the books of accounts.

a. Pre-closing trial balance
b. Statement of management responsibility
c. Interim reports
d. Notes to financial statements

Answer 17

c. Interim reports

Question 18

This is also termed as the Adjusted Trial Balance.

a. Trial Balance
b. Pre-Closing Trial Balance
c. Post-Closing Trial Balance
d. None of the above

Answer 18

b. Pre-Closing Trial Balance

Question 19

It is an adjusting entry for an economic activity already undertaken but not yet recognized into asset and revenue accounts or liability and expense accounts

a. Accrual
b. Deferrals
c. Either of the above
d. Neither of the above

Answer 19

a. Accrual

Question 20

What account should be credited to record the restoration of the unreleased check to the cash account?

a. Cash in Bank, Local Currency Current
b. Appropriate Liability Account
c. Appropriate Revenue Account
d. Subsidy from National Government

Answer 20

b. Appropriate Liability Account