INTACC FINALS Flashcards
are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventories
is one that buys goods which are altered or converted into another form before they are made available for sale.
manufacturing concern
The term ______ is generally applied to goods held by a trading concern.
merchandise inventory
Inventories encompass
goods purchased and held for resale
are completed products which are ready for sale.
Finished goods
have been assigned their full share of manufacturing costs.
Finished goods
frequently raw materials are restricted to materials that will be ______ in the production of other goods and which can be traced directly to the end product of the production process.
physically incorporated
are similar to raw materials but their relationship to the end product is indirect.
Factory or manufacturing supplies
Factory or manufacturing supplies may be referred to as
indirect materials
The phrase _____ is a legal language which means the point of time at which ownership changes.
“passing of title”
is a method of marketing goods in which the owner called the consignor transfers physical possession of certain goods to an agent called the consignee who sells them on the owner’s behalf.
consignment
is the person who delivers goods to the consignee for sale.
consignor
the person or company to whom goods or documents are officially sent or delivered
consignee
Under _______, ownership of goods purchased is transferred only upon receipt of the goods by the buyer at the point of destination
FOB destination or FOB buyer
Thus, under _____, the goods in transit are still the property of the seller.
FOB destination
Thus, under FOB destination, the ___ shall legally be responsible for freight charges and other expenses up to the point of destination
seller
Under _____ ownership is transferred upon shipment of the goods and therefore, the goods in transit are the property of the buyer
FOB shipping point or FOB seller,
FOB shipping point, the __ shall legally be responsible for freight charges and other expenses from the point of shipment to the point of destination.
buyer
In practice, during an accounting period, the accountant normally records purchases when goods are ____ and sales when goods are ____, regardless of the precise moment atbwhich title passed
received
shipped
means that the freight charge on the goods shipped is not yet paid. The common carrier shall collect the same from the buyer.
Freight collect
the freight charge is actually paid by the ____ if the term is freight collect.
buyer
means that the freight charge on the goods shipped is already paid by the seller.
Freight prepaid
The terms “freight collect” and “freight prepaid” determine the party who actually paid the freight charge but not the party who is supposed to ,_____ the freight charge.
legally pay
The terms “FOB destination” and “FOB shipping point” determine ____ of the goods in transit and the party who is supposed to pay the freight charge and other expenses from the point of shipment to the point of destination.
ownership
A seller who ships ___ must bear all expenses and risk involved in delivering the goods to the dock next to or alongside the vessel on which the goods are to be shipped.
FAS or free alongside
FAS - The ___ bears the cost of loading and shipment and thus, title passes to the ___ when the carrier takes possession of the goods.
buyer
Under this shipping contract, the buyer agrees to pay in a lump sum the cost of the goods, insurance cost and freight charge.
CIF or Cost, insurance and freight
The shipping contract may be modified as CF which means that the buyer agrees to pay in a lump sum the ____________ only.
cost of the goods and freight charge
CIF - the ___ must pay for the cost of loading. Thus, title and risk of loss shall pass to the buyer upon delivery of the goods to the carrier.
seller
A seller who delivers the goods ex-ship bears all expenses and risk of loss until the goods are ____ at which time title and risk of loss shall pass to the buyer.
Ex-ship
unloaded
When a promissory note matures and is not paid, it is said to be
dishonored
dishonored notes receivable should be removed from the notes receivable account and transferred to
accounts receivable
The amount debited to accounts receivable should include the _____ ____ ____
face amount, interest and other charges.
is an unconditional promise in writing made by one person to another, signed by the maker. engaging to pay on demand or at a fixed determinable future time a sum certain in money to order or to bearer.
negotiable promissory note
are claims supported by formal promises to pay usually in the form of notes.
Notes receivable
is a written contract in which one person, known as the maker, promises to pay another person, known as the payee, a definite sum of money.
promissory note
receivables arising from sale of goods or services in the normal course of business (e. accounts receivable and notes receivable).
trade receivables
notes receivable shall be measured initially at
present value
is the sum of all future cash flows discounted using the prevailing market rate of interest for similar notes.
present value
prevailing market rate of interest is actually the
effective interest rate
short-term notes receivable shall be measured at
face amount
The initial measurement of long-term notes will depend on whether the notes are
interest-bearing or noninterest bearing.
are measured at face amount which is actually the present value upon issuance.
Interest-bearing long-term notes
are measured at present value which is the discounted value of the future cash flows using the effective interest rate.
Noninterest-bearing long-term notes
term ______ is a misnomer because all notes implicitly contain interest.
“noninterest-bearing”
All notes implicitly contain interest
True
Subsequent to initial recognition, long-term notes receivable shall be measured at ______ using the effective interest method.
amortized cost
What is imputed interest?
a. Interest based on the stated interest rate
b. Interest based on the implicit interest rate
c. Interest based on the average interest rate .
d. Interest based on the bank prime interest
B
Accounting for the interest in a noninterest bearing note receivable is an example of what aspect of accounting theory?
Substance over form
Receivables not measured initially at their transaction price are measured initially at
a. Fair value
b. Fair value less costs to sell
c. Fair value minus transaction costs that are directly attributable to the acquisition of the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of the financial asset
d. Fair value plus transaction costs that are directly attributable to the acquisition of the financial asset
Which statement is correct regarding Receivables?
a. They refer to amounts due from individuals and other events
b. They are claims expected to be collected in cash
c. They are financial assets representing contractual rights to receive cash
d. All of these
D
An SME may usetechniques for measuring cost of inventories if the results approximate cost,Accepted techniques include all of the following, EXCEPT
a.Standard cost
b.Retail method
c.Most recent purchase price
d. Gross profit method
d. Gross profit method
Inventories must be measured by an SME at;
a. Cost
b. The lower of cost and estimated selling price less cost to complete and dispose
c. The lower of cost and fair value less cost to complete and dispose
d. The most recent purchase price
b. The lower of cost and estimated selling price less cost to complete and dispose
The cost of inventory is the sum of
a. Cost of purchase and cost of conversion.
b. Direct cost, indirect cost and other cost.
c. Cost of purchased, cost of conversion and other cost incurred in bringing the inventory to the present location and condition.
d. Cost of conversion and other cost incurred in bringing the inventory to the present conditionand location
c. Cost of purchased, cost of conversion and other cost incurred in bringing the inventory to the present location and condition.
The cost of inventory does not include
a. Salaries of factory staff.
b. Storage cost necessary in the production process before a further production stage.
c. Abnormal amount of wasted material.
d.vIrrecoverable purchase taxes
c. Abnormal amount of wasted material.
entity must assign the cost ofinventories by
a.The LIFO cost Formula
b. Specific identification of individual costs for inventories that are not ordinarilyinterchangeable and, for inventories that are not ordinarily interchangeable, the FIFO or the weighted average cost formula.
c. Specific identification of individual costs for inventories that are ordinarily interchangeable,and for inventories that are not ordinarily interchangeable, the FIFO or the weighted averagecost formula.
d. The FIFO cost formula
B
Under PFRS for SMEs, f the estimated selling price less cost to complete and sell is lower thancost of inventory, the write down is recognized
Impairment loss
Generally, which inventory costing method approximates must closely the current cost for eachof the following?
COGS
Ending Inventory
COGS - LIFO
EI - FIFO
PAS 2(inventories) applies to all inventories, except
a. Work in progress arising under construction contracts, including directly related servicecontracts
b. Financial instruments
c. Biological assets related to agricultural activity and agricultural produce at the point of harvest
d. All of the above
D
PAS 2 does not apply to the measurement of inventories held by
a.Producers of agricultural and forest products, and agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realizable value inaccordance with well-established practice in those industries.
b. Commodity broker-traders who measure their inventories at fair value less costs to self
Both A and B
Which of the following is
not a common disclosure for inventories?
a. Inventory composition
b. Inventory costing methods employed
c. Inventory financing arrangements
d. Inventory location
d. Inventory location
The following may be included in the cost of inventories,
except
a. Administrative overheads
b. Storage costs
c. Wasted materials, labor and other production costs
d. Selling cost
D. Selling Cost
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. The interest receivable account would show a balance on
a. July 1 but not December 31
b. December 31 but not July 1
c. July 1 and December 31
d. Neither July 1 nor December 31
B
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due in one year. When the note receivable was recorded on July 1, which of the following was debited?
a. Interest receivable
b. Unearned discount on note receivable
c. Interest receivable and unearned discount on note receivable
d. Neither interest receivable nor unearned discount on note receivable
D
On October 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on September 30 of next year. The interest receivable on December 31 of the current year would consist of an amount representing
a. Three months of accrued interest income
b. Nine months of accrued interest income
c. Twelve months of accrued interest income
d. The excess on October 1 of the present value of the note receivable over the face amount
A
On July 1 of the current year, an entity obtained a two-year 8% note receivable for services rendered. At that time, the market rate of interest was 10%. The face amount of the note and the entire amount of interest are due on the date of maturity. Interest receivable on December 31 of the current year is
a. 5% of the face amount of the note
b. 4% of the face amount of the note c. 5% of the present value of the note
d, 4% of the present value of the
B
An entity uses the installment method to recognize revenue from installment sales. Customers pay the installment notes in 24 equal monthly amounts which include 12% interest. What is the carrying amount of the installment notes receivable six months after the sale?
a. 75% of the original sales price.
b. Less than 75% of the original sales price.
c. The present value of the remaining monthly payments discounted at 12%.
d. Less than the present value of the remaining monthly payments discounted at 12%.
C
On August 15, an entity sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?
a. Unearned discount
b. Interest receivable
c. Prepaid interest
d. Interest revenue
B
On July 1 of the current year, an entity received a one-year note receivable bearing interest at the market rate. The face amount of the note receivable and the entire amount of the interest are due on June 30 of next year. On December 31 of the current year, the entity should report in the statement of financial position
a. A deferred credit for interest applicable to next year
b. No interest receivable
c. Interest receivable for the entire amount of the interest due on June 30 of next year
d. Interest receivable for the interest accruing in the current year
D
The _____ calls for the physical counting of goods on hand at the end of the accounting period to determine quantities.
periodic system
This approach gives actual or physical inventory.
Periodic system
Under the periodic system, the ______ is computed only at the end of reporting period by deducting the physical inventory from the cost of goods available for sale
cost of goods sold
The periodic inventory procedure is generally used when the individual inventory items have _____, such as groceries, hardware and auto parts.
small peso investment
The perpetual system requires the maintenance of records called ___ that usually offer a running summary of the inventory inflow and outflow.
stock cards
In an ideal perpetual system, the stock cards are kept to reflect and control both
units and costs.
_____ are deductions from the list or catalog price in order to arrive at the invoice price which is the amount actually charged to the buyer. Thus, ____ are not recorded.
trade discounts
____ are deductions from the invoice price when payment is made within the discount period. ______ are recorded as purchase discount by the buyer and sales discount by the seller.
Cash discounts
The purpose of ____ is to encourage prompt payment.
cash discounts
Purchases and accounts payable are recorded at gross amount of invoice.
Gross method
Purchases and accounts payable are recorded at net amount of the invoice.
Net method
The cost measured under the ___ represents the cash equivalent price on the date of payment and therefore the theoretically correct historical cost.
net method
Theoretically correct historical cost
Net method
However, in practice, most entities record purchases at ___ invoice amount.
gross
the gross method violates the _____ because discounts are recorded only when taken or when cash is paid rather than when purchases that give rise to the discounts are made.
matching principle
Despite its theoretical shortcomings, the gross method is supported on
practical grounds
cost of inventory shall comprise _____________________incurred in bringing the inventory to the present location and condition.
cost of purchase, cost of conversion and directly attributable cost
The _____ comprises the purchase price, import duty, irrecoverable tax, freight, handling and other cost directly attributable to the acquisition.
cost of purchase
Trade discounts, rebates and other similar items are deducted in determining the
cost of purchase
The cost of purchase shall not include _______ which arise directly from the acquisition of inventory involving a foreign currency.
foreign exchange differences
includes cost directly related to the units of production such as direct labor.
cost of conversion
The cost of conversion also includes a systematic allocation of ________ incurred in converting materials into finished goods.
fixed and variable production overhead
is the indirect cost of production that remains relatively constant regardless of the volume of production.
Fixed production overhead
is the indirect cost of production that varies directly with the volume of production.
Variable production overhead
includes indirect labor and indirect materials.
Variable production overhead
Abnormal amount of wasted material, storage cost, administrative overhead and distribution or selling cost are recognized as expense when
incurred
storage cost related to goods in process or part-finished goods should be included in
cost of inventory
Which of the following should not be taken into account
when determining the cost of inventory?
a. Storage costs of part-finished goods
b. Trade discounts
c. Recoverable purchase taxes
d. Import duties on shipping of inventory inward
b. Trade discounts
The cost of inventory does not include
a. Salaries of factory staff
b. Storage cost necessary in the production process before a further production stage
c. Abnormal amount of wasted materials d. Irrecoverable purchase taxes
c. Abnormal amount of wasted
Which of the following costs of conversion cannot be included in cost of inventory?
a. Cost of direct labor
b. Factory rent and utilities
c. Salaries of sales staff
d. Factory overhead based on normal capacity
c
Which of the following should be taken into account
when determining the cost of inventory?
a. Storage cost of part-finished goods
b. Abnormal freight in
c. Recoverable purchase tax
d. Interest on inventory loan
A
Costs incurred in bringing the inventory to the present location and condition include
a. Cost of designing product for specific customers
b. Abnormal amount of wasted material
c. Storage cost not necessary in the production process before a further production stage
d. Distribution cost
A
Factory supplies to be consumed in the production process
Inventories
When determining the cost of an inventory, which of the following should not be included?
a. Interest on loan obtained to purchase the inventory
b. Commission paid when inventory is purchased
c. Labor cost of the inventory when manufactured
d. Depreciation of plant equipment used in manufacturing
A
Theoretically, cash discounts permitted should be
a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
C
Which of the following generally would not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases
b. Cash discounts taken
c. Purchase returns and allowances
d. Cost of transportation for merchandise purchased
A
The use of a discount lost account implies that cost of a purchased inventory is
a. Invoice price
b. List price.
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether or not taken
D
FIFO is in accordance with the ordinary merchandising procedure that the goods are sold in the order they are
purchased
The inventory is thus expressed in terms of recent or new prices while the cost of goods sold is representative of earlier or old prices.
FIFO
However, in a period of deflation or declining prices, the ___ method would result to the lowest net income.
FIFO
Accordingly, in a period of inflation or rising prices, the __ method would result to the highest net income.
FIFO
The objection to the FIFO method is that there is improper matching of cost against revenue because the goods sold are stated at earlier or older prices resulting in understatement of cost of goods sold.
When used in conjunction with the perpetual system, the weighted average method is popularly known as the
moving average method
Under this method, a new weighted average unit cost must be computed after every purchase and purchase return.
weighted average
The inventory is thus expresed in terms of earlier or old prices and the cost of goods sold is representative of recent or new prices.
LIFO
Actually, in a period of Inflation, the method would result in the lowest net income.
LIFO
In a period of declining prices (deflatio), the __ method would result to the highest net income.
LIFO
means that specific costs are attributed to identified items of inventory.
Specific identification
This requires records which will clearly determine the actual costs of goods on hand.
Specific identification
are predetermined product costs established on the basis of normal levels of materials and supplies, labor, efficiency and capacity utilization.
Standard costs
The ______ is based on the philosophy that cost is proportionate to selling price.
relative sales price approach
In a period of falling prices which inventory method generally provides the lowest amount of ending inventory?
FIFO
What is the inventory pricing procedure in which the oldest costs rarely have an effect on the ending inventory?
FIFO
The costing of inventory must be deferred until the end of reporting period under which of the following method of inventory valuation?
Weighted average
Cost of goods sold is the same under periodic system and perpetual system using
FIFO
The cost of inventories that are not ordinarily interchangeable and goods produced and segregated for specific projects shall be measured using
Specific Identification
Which is the reason why the specific identification method may be considered ideal for assigning cost to inventory and cost of goods sold?
a. The potential for manipulation of net income is reduced.
b. There is no arbitrary allocation of cost.
c. The cost flow matches the physical flow.
d. It is applicable to all types of inventory.
C
Which cost flow assumption is used for inventory when an entity builds townhouses?
Specific Identification
IFRS requires the specific identification method in certain circumstances. Which of the following is likely to be a circumstance where the specific identification method can
be used?
a. Unit price is low.
b. Inventory turnover is low.
c. Inventory quantities are large.
d. All of the choices are likely circumstances.
B
Under IFRS, inventories shall be measured at the
lower of cost and net realizable value.
is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost of disposal
NRV
inventories are usually written down to net realizable value an
item by item or individual basis.
If the __ is lower than __ there is no accounting problem because the inventory is measured at cost and the increase in value is not recognized.
cost
net realizable value,
If the __ is lower than __, the inventory is measured at net realizable value and the decrease in value is recognized.
net realizable value
cost
Methods of accounting for the inventory writedown
a. Direct method or cost of goods sold method
b. Allowance method or loss method
Direct method
The inventory is recorded at the ___ of cost or net realizable value.
lower
The direct method is also known as ______ method because any loss on inventory writedown or gain on reversal of inventory writedown is not accounted for separately but “buried” in the cost of goods sold.
cost of goods sold
Allowance method
The inventory is recorded at ___ and any loss on inventory writedown is accounted for separately.
cost
The allowance method is also known as ___ method because a loss on inventory writedown is debited and an allowance for inventory writedown is credited.
loss
If the required allowance decreases, a __ on reversal of inventory writedown is recorded.
gain
if the required allowance increases, an ____ is recognized.
additional loss
are obligations of the entity to acquire certain goods sometime in the future at a fixed price and fixed quantity.
Purchase commitments
Note that a purchase commitment must be ____ in order that a loss purchase commitment can be recognized.
noncancelable
LCNRV of inventory
a. always either the net realizable value or cost.
b. Must be equal to net realizable value
c. May sometimes be less than net realizable value.
d Must be equal to estimated selling price less cost to complete and cost of disposal.
A
Which statement is true regarding inventory write down
and reversal of writedown?
a. Reversal of inventory writedown is prohibited
b. Separate reporting of reversal of inventory writedown is required
c. An entity is required to record an inventory writedown in a separate loss account.
d. All of the choices are correct
B
How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value?
Deducting in arriving costs
How should prompt payment discount be dealt with when valuing inventories at LCNRV?
Ignored
How should sales staff commission be dealt with when valuing inventories at LCNRV?
Deducted in arriving at NRV
The _____ is based on the assumption that the rate of gross profit remains approximately the same from period to period and therefore the ratio of cost of goods sold to net sales is relatively constant from period to period.
gross profit method
The ___ is so called COGS because the cost of goods sold is computed through the use of the gross profit rate.
gross profit method
Sales allowance and sales discount are _____ from sales in computing net sales under the gross profit method.
ignored or not deducted
The gross profit method assumes that
a. The amount of gross profit is the same as in prior years.
b. Sales and cost of goods sold did not change.
c. Inventory values have not increased.
d. The relationship between selling price and cost of goods sold is similar in prior years.
D
The gross profit method is not valid when
a. There is substantial increase in the quantity of inventory.
b. There is substantial increase in the cost of inventory.
c. The gross margin percentage changes significantly.
d. All ending inventory is destroyed by fire
C
Which statement is not valid about the gross profit method?
a. It may be used by auditors.
b. It is an acceptable accounting procedure.
c. It may be used for interim statements.
d. It may be used for annual statements.
D
How is the gross profit method used in relation to inventory?
a. To verify the accuracy of the perpetual inventory record
b. To verify the accuracy of the physical iventory
c. To estimate the cost of goods sold d. To provide a FIFO inventory value
A
Which is not a basic assumption of the gross profit method?
a. The beginning inventory plus net purchases equals total goods to be accounted for.
b. Goods not sold must be on hand.
c. The sales reduced to cost basis when deducted from the sum of beginning inventory and net purchases would result to inventory on hand.
d. The amount of purchases and the amount of sales remain relatively unchanged from the previous period.
D
Retail means
Selling price
deducted from purchases at cost only
Purchase discount
deducted from purchases at cost and at retail.
Purchase return
deducted from purchases at cost only
Purchase allowance
Freight in - ___ to purchases at cost only.
addition
Departmental transfer in or debit- ___ to purchases at cost and at retail.
addition
Departmental transfer out or credit - ___ to purchases at cost and at retail.
deduction
Which inventory cost flow assumption results to inventory balance closest to the current prices?
a. LIFO
b. FIFO
c. Weighted average
d. Specific identification
B
Where the prices are consistently going up, which inventory cost flow assumption will result in highest profit?
a. LIFO
b. FIFO
c. Weighted average
d. Specific identification
B
Where the prices are consistently going down, which inventory cost flow assumption will result in highest cost recognized in the profit or loss?
a. LIFO
b. FIFO
c. Weighted average
d. Specific identification
B
Where the prices are consistently going up, which inventory cost flow assumption will result in highest inventory value?
a. LIFO
b. FIFO
c. Weighted average
d. Specific identification
B
Which of the following is not an inventory?
a. Acquired to be sold in the ordinary course of business
b. Still in process of manufacturing with the end of selling them afterwards
c. Supplies for rendering services
d. Held for use in the production of goods
D
Which of the following is not part of the cost of inventory?
a. Purchase price
b. Custom duties
c. Freight-in
d. Value-added tax
D
Which of the following is not part of the cost of inventory?
a. Handling costs
b. Import duties
c. Freight-out
d. Irrecoverable taxes
C
The conversion costs of inventory do not include
a. Direct labor
b. Variable manufacturing overhead
c. Fixed manufacturing overhead
d. Variable administrative overhead
D
Inventoriable fixed manufacturing overhead should be allocated based on?
a. Normal capacity
b. Actual ouput
c. Maximum capacity
d. Prior year’s output
A
In determining the cost of inventories, which of the following should not be included?
a. Storage cost of work-in-process
b. Recoverable taxes
c. Custom duties
d. Salary of the production supervisor
B
Which of the following should not form part of inventories?
a. Wage of a factory worker
b. Storage cost of partially-finished goods
c. Abnormal wastage of materials
d. Irrecoverable taxes
C
The cost incurred in bringing the inventory to its present condition excludes the following except for
a. Marketing cost
b. Storage cost after the production stage
c. Abnormal wastage
d. Product design cost applicable for specific customer.
D
Which of the following is not an inventory in accordance with IAS 2?
a. Merchandise acquired by a retailer
b. Properties held for capital appreciation
c. Work-in-process
d. Supplies to be used in providing services
B
Cash discounts on merchandise should be treated as:
a. Other income
b. Other income only when taken
c. Reduction to inventory
d. Reduction to inventory only when taken
C
Supplies to be utilized in the manufacturing process should be accounted for in accordance with
a. IAS 2
b. IAS 16
c. IAS 38
d. IAS 40
A
This is a discount due to large volume of purchase.
a. Cash discount
b. Trade discount
c. Negative discount
d. Progressive discount
B
Merchandise inventory is to a retailer as ______________ is to a manufacturer
a. Raw materials
b. Work-in-process
c. Finished goods
d. Supplies
C
Which of the following is a prohibited cost flow assumption?
a. LIFO
b. FIFO
c. Weighted average
d. Moving average
A
Which of the following is not an appropriate basis for inventory measurement?
a. Net realizable value
b. Historical cost
c. Current replacement cost
d. Present value of future net cash flows
D
In classifying trade receivables, it should be current when it is realizable within
a. Twelve months
b. The normal operating cycle
c. Shorter of twelve months or normal operating cycle
d. Longer of twelve months or normal operating cycle
D
In classifying nontrade receivables, it should be current when it is realizable within
a. Twelve months
b. The normal operating cycle
c. Shorter of twelve months or normal operating cycle
d. Longer of twelve months or normal operating cycle
A
In inspecting the subsidiary ledger of accounts receivable, you found out that there are customer accounts that have negative balances. These should be classified as
a. Contra-receivable account
b. Accounts payable
c. Advances from customers
d. Contra-asset account
C
Recognized receivable from subsidiaries arising from advances made to them should be classified as
a. Current
b. Noncurrent
c. Current or noncurrent depending on management’s expectation on realizability
d. Offbook receivables
D
What is the most appropriate method in recognizing cash discounts related to receivables?
a. Net method
b. Allowance method
c. Gross method
d. All methods are equally acceptable
A
Imputed interest is most synonymous to
a. Stated interest rate
b. Implicit interest rate
c. Risk-free rate
d. Prevailing interest rate
B
Noninterest-bearing notes receivable have imputed interest. Accounting for this interest is consistent with what accounting concept?
a. Periodicity
b. Substance over form
c. Materiality
d. Benefit over cost
B
What is the purpose of selling accounts receivable?
a. To reduce legal liability
b. To expedite cash
c. To purposively lose money in the process
d. To jack up the revenue amount
B
Which of the following is not a legal practice in accelerating the realization of receivables?
a. Pledging
b. Defalcation
c. Factoring
d. Discounting
B
The outright sale of receivables is known as
a. Pledging
b. Assignment
c. Factoring
d. Revenue from sale of receivables
C
This is the factor’s security against defective receivables
a. Service charge
b. Collateral
c. Factor’s holdback
d. Gain on factoring
C
If a receivable was discounted with recourse
a. No contingent liability should be considered
b. The discounted receivable should be derecognized
c. Liability related to the transaction should be recognized
d. Note receivable discounted is recognized
B
Note receivable discounted are presented in the financial statements by
a. Excluding from total receivables with contingent liability disclosure
b. Excluding from total receivables without contingent liability disclosure
c. Including from total receivables with contingent liability disclosure
d. Including from total receivables without contingent liability disclosure
A
Loans and receivables are covered by what standards?
a. IFRS 6
b. IFRS 7
c. IFRS 8
d. IFRS 9
D
If receivables are hypothecated against borrowings, it should be
a. Excluded from the total receivables and a gain or loss is recognized
b. Excluded from the total receivables with no disclosure
c. Excluded from the total receivables with disclosure
d. Disclosed only in the financial statements
D
Long-term noninterest-bearing note receivable is recognized at its
a. Face value
b. Face value plus implicit interest
c. Face value minus implicit interest
d. Face value minus its present value
C
Under IFRS, accounts receivable are measured at
a. Face value
b. Net realizable value
c. Lower of cost and ret realizable value
d. Face value less cost to sell
B
A note receivable bearing interest is sold to a bank with recourse. At the date of the discounting, the note receivable discounted account should be
a. Decreased by the proceeds
b. Increased by the proceeds
c. Decreased by the face amount of the note
d. increased by the face amount of the note
D
Which of the following is not false?
a. The balance per bank statement should be reflected as cash balance in the balance sheet.
b. If all other items are in order, cash balance per books is higher than cash balance per bank if there are outstanding checks.
c. If all other items are in order, cash balance per books is lower than cash balance per bank if there are deposits in transit.
d. If all other items are in order, cash balance per books is higher than cash balance per bank if there are bank charges
D
Which of the following is not true?
a. A certified check should be excluded from outstanding checks.
b. A certified check is one drawn by a bank upon itself.
c. A certified check has a higher degree of acceptability.
d. A certified check is the certifying bank liability.
B
Which of the following information will not be provided by a bank statement?
a. Deposit in transit
b. NSF check
c. Bank charges
d. Cleared checks
A
Which of the following information will not be provided by a bank statement?
a. Withholding tax on interest
b. Interest earned
c. Deposits during the period
d. Outstanding checks
D
Which of the following information will not be provided by a bank statement?
a. Withholding tax on interest
b. Interest earned
c. Deposits during the period
d. Outstanding checks
D
Which of the following reconciling items requires adjustment?
a. Outstanding checks
b. Deposit in transit
c. Book error
d. Bank error
C
In preparing a bank reconciliation, which of the following is added to balance per book?
a. Deposit in transit
b. Interest earned
c. Outstanding checks
d. Bank charges
B
In preparing a bank reconciliation, which of the following is added to balance per book?
a. Deposit in transit
b. Interest earned
c. Outstanding checks
d. Bank charges
D
In preparing a bank reconciliation, which of the following is added to balance per bank?
a. Deposit in transit
b. Interest earned
c. Outstanding checks
d. Bank charges
A
In preparing a bank reconciliation, which of the following is deducted from balance per bank?
a. Deposit in transit
b. Interest earned
c. Outstanding checks
d. Bank charges
C
Which of the following more likely exists when balance per bank is higher than balance per book?
a. Bank charges
b. Unrecorded disbursement
c. Loan repayment not yet taken up in the books
d. Outstanding checks
D
This comprises cash on hand and demand deposit
a. Cash
b. Cash equivalents
c. Money
d. Legal tender
A
These are short‑term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
a. Cash
b. Cash in bank
c. Cash equivalent
d. Cash investment
C
Which of the following is not a cash item?
a. Sweep account
b. Certificate of deposit account
c. Savings account
d. Checking account
B
Which of the following is least likely to be included as cash?
a. Bank deposit
b. Petty cash fund
c. Notes receivable due today
d. Compensating balance
C
Which of the following is usually included as cash?
a. Post-dated check
b. Current account
c. Time deposit
d. Unit investment trust fund
B
This occurs when money is withdrawn from a bank account and the available balance goes below zero.
a. Overdraft
b. Compensating balance
c. Post-dated check
d. Ante-dated check
A
As a matter of practice, what is the timeframe critical for a cash equivalent?
a. 1 month
b. 3 months
c. 6 months
d. 12 months
B
How should be a bank overdraft generally be accounted for?
a. As a reduction from cash in bank balance
b. As a contra-asset account
c. Similar to expected credit loss
d. As an item in current liabilities
D
A change fund is a
a. Cash on hand
b. Cash in bank
c. Cash equivalent
d. Short-term investment
A
Which of the following is true about cash short and over account?
a. It is a contra asset account.
b. It is commonly utilized by industries that strictly use bank transfers as mode of cash receipt.
c. A debit balance may be classified as receivable.
d. A debit balance is investigated while the credit balance is not
C
To be reported as “cash and cash equivalent”, the cash and cash equivalent must be
A. Unrestricted in use for current operations.
B. Available for the purchase of property, plant and equipment.
C. Set aside for the liquidation of long-term debt
D. Deposited in bank
A
All of the following can be classified as cash and cash equivalents, except?
A. Redeemable preference shares acquired and due in 60 days
B. Commercial papers held and due for repayment in 90 days
C. Equity investments
D. A bank overdraft
C
Which is false concerning measurement of cash and cash equivalents?
A. Cash is measured at face value.
B. Cash in foreign currency is measured at the current exchange rate.
C. If a bank or financial institution holding the funds of the company is in bankruptcy or financial difficulty, cash should be written down to estimated realizable value.
D. Cash equivalents should be measured at maturity value, meaning face value plus interest.
D
If material, deposits in foreign bank which are subject to foreign exchange restriction shall be classified.
A. Separately as current asset, with appropriate disclosure.
B. Separately as noncurrent asset with appropriate disclosure.
C. Be written off as an extraordinary loss.
D. As part of cash and cash equivalents
B
A compensating balance
A. Must be included in cash and cash equivalent.
B. Which is legally restricted and related to a long-term loan is classified as current asset.
C. Which is legally restricted and related to a short-term loan is classified separately as current asset.
D. Which is not legally restricted as to withdrawal is classified separately as current asset
C
Unreleased checks (checks drawn before the end of reporting period but held for later delivery to creditors)
A. Shall be treated as outstanding checks.
B. Shall be restored to the cash balance.
C. Shall be treated as outstanding checks if the date is shortly after the end of operating period.
D. Shall be treated as outstanding checks if they are ultimately encashed
B
Which of the following shall not be considered “cash” for financial reporting purposes?
A. Petty cash funds and change funds.
B. Money orders, certified checks and personal checks
C. Coin, currency and available funds
D. Postdated checks and IOUs
D
Which of the following is usually considered cash?
A. Certificate of deposit
B. Checking account
C. Money market saving certificate
D. Postdated check
B
Which of the following is usually considered cash?
A. Certificate of deposit
B. Checking account
C. Money market saving certificate
D. Postdated check
B
What happens when a petty cash is in use?

A. Expenses paid with petty cash are recorded when the fund is replenished.
B. Most small amounts are paid from cash receipts before they are deposited.
C. Petty cash is debited when the fund is replenished.
D. Petty cash is credited when the fund is replenished
C
A Cash Over and Short account
A. Is not generally accepted.
B. Is debited when the petty cash fund proves out over.
C. Is debited when the petty cash fund proves out short.
D. Is a contra account to cash
C
When a petty cash fund is used, which of the following true?
A. The balance of the petty cash fund should be reported in the statement of financial position as a long-term investment.
B. The petty cashier’s summary of petty cash payments serves as a journal entry that is posted to the appropriate general ledger account.
C. The reimbursement of the petty cash fund should be credited to the cash account.
D. Entries that include a credit to the cash account should be recorded at the time the payments from the petty cash fund are made.
C
. At the end of the current year, an entity had cash accounts at three different banks. One account is segregated solely for payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported?
A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.
B. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.
C. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
D. The segregated and regular accounts should be reported as current assets net of the overdraft
A
Abank reconciliation is
A. A formal financial statement that lists all of the bank account balances of an entity.
B. A merger of two banks that previously were competitors.
C. A statement sent by the bank to depositor on a monthly basis.
D. A schedule that accounts for the differences between an entity’s cash balance as shown in the bank statement and the cash balance shown in the general ledger.
D
A proof of cash
A. Is a physical count of currencies on hand at the end of reporting period.
B. Is a formal statement showing the total cash receipts during the year.
C. Is a four-column bank reconciliation showing reconciliation of cash balances per book and per bank at the beginning and end of the current month and reconciliation of cash receipts and cash disbursements of the bank and the depositor during the current month.
D. Is a summary of cash receipts and cash payments
C
Which of the following statements is false?
A. A certified check is a liability of the bank certifying it.
B. A certified check will be accepted by many persons who would not otherwise accept a personal check.
C. A certified check is one drawn by a bank upon itself.
D. A certified check should not be included in the outstanding checks
C
Bank statements provide information about all of the following, except A. Checks cleared during the period B. NSF checks C. Bank charges for the period D. Errors made by the depositor
D
Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor’s records and to identify bank errors. Adjustments on the part of the depositor should be recorded for
A. Bank errors, outstanding checks and deposits in transit.
B. All items except bank errors, outstanding checks and deposits in transit.
C. Book errors, bank errors, deposits in transit and outstanding checks.
D. Outstanding checks and deposits in transit
B
Which of the following will not require an adjusting entry on the depositor’s books?
A. NSF check from customer
B. Check in payment of account payable as recorded by the depositor is overstated
C. Deposit of another entity is credited by the bank to the account of the depositor
D. Bank service charge
C
If the cash balance shown on entity’s accounting records is less than the correct cash balance and neither the entity nor the bank has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the entity
B. Deposits in transit
C. Outstanding checks
D. Bank charges not yet recorded by the entity
A
If the balance shown on an entity’s bank statement is less than the correct cash balance and neither the entity nor the bank has made any error, there must be
A. Deposits credited by the bank but not yet recorded by the entity
B. Outstanding checks
C. Deposits in transit
D. Bank charges not yet recorded by the entity
C
In preparing a bank reconciliation, interest paid by the bank on the account is
A. Added to the bank balance
B. Subtracted from the bank balance
C. Added to the book balance
D. Subtracted from the book balance
C
Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which ends with adjusted cash balance?
A. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor
B. NSF customer check
C. Service charge
D. Erroneous bank debit
A
Companies adopt different cost flow except
Balance Sheet effects
Cash Flow Effects
Income Statement Effects
Tax Method
Cash Flow Effects
Inflation, inventory method which results in the inventory value on the balance sheet that is closest to current vost
FIFO
Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period. then the company using
a. LIFO will have the highest ending inventory.
b. FIFO will have the highest cost of good sold.
c. FIFO will have the highest ending inventory.
d. LIFO will have the lowest cost of goods sold.
C
If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the
a. cost of goods sold of the companies will be identical.
b. cost of goods available for sale of the companies will be identical.
c. ending inventory of the companies will be identical.
d. net income of the companies will be identical.
B
In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?
a. FIFO
b. LIFO
c. Average Cost
d. Income tax expense for the period will be the same under all assumptions.
B
The factor which determines whether or not goods should be included in a physical count of inventory is
a. physical possession.
b. legal title.
c. management’s judgment
d. whether or not the purchase price has been paid.
B
After the physical inventory is completed,
a. quantities are listed on inventory summary sheets.
b. quantities are entered into various general ledger inventory accounts.
c. the accuracy of the inventory summary sheets is checked by the person listing the quantities on the sheets.
d. unit costs are determined by dividing the quantities on the summary sheets by the total inventory costs
A
A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?
a. Establishment of responsibility
b. Documentation procedure
c. Independent internal verification
d. Segregation of duties
D
A problem with the specific identification method is
a. inventories can be reported at actual costs.
b. management can manipulate income.
c. matching is not achieved.
d. the lower-of-cost-or-market basis cannot be applied
B
Which of the following statements is true regarding inventory cost flow assumptions?
a. A company may use more than one costing method concurrently
b. A company must comply with the method specified by industry standards.
c. A company must use the same method for domestic and foreign operations.
d. A company may never change its inventory costing method once it has chosen a method
A
Inflation, ending inventory understated
Average cost
FIFO
LIFO
Moving Ave
LIFO
LCRNV is an example of
Comparability
Consistency
Conservatism
Cost Principle
Conservatism
NRV is
current placement cost
selling price
selling price less mark up
Current placement cost
Ending inventory overstated
effect on cogs and net income
understated; overstated
Understated beginning inventory effect in cogs and income
understated; overstated
overstated beg inventory effect on assets and oe
understated understated
Disclosures about inventory should include each of the following except the
a. basis of accounting.
b. costing method.
c. quantity of inventory.
d. major inventory classifications.
C
Inventory turnover is calculated by dividing cost of goods sold by
a. beginning inventory.
b. ending inventory.
c. average inventory.
d. 365 days.
C
