INTERMEDIATE ACCOUNTING 1

FINAL EXAMINATION

1. After initial recognition, bonds payable shall be measured at

a. Amortized cost using the effective interest method
b. Fair value through profit or loss
c. Either amortized cost using the effective interest method or fair value through other
comprehensive income
d. Either amortized cost using the effective interest method or fair value through profit or loss

2. An entity purchased land and hotel with the plan to tear down the hotel and build a new hotel. The
allocated cost of the old hotel should be

a. Depreciated over the remaining life of the old hotel

b. Written off as loss in the year the hotel is torn down
c. Capitalized as part of the cost of the land
d. Capitalized as part of the cost of the new hotel

3. An entity is performing its annual test of the impairment of goodwill for a cash generating unit. The
entity has determined that the fair value of the unit exceeds the carrying amount. Which of the
following statements is true concerning the test of impairment?

a. Goodwill should be written down as impaired

b. The assets and liabilities should be valued to determine if there has been an impairment of
goodwill
c. Impairment is not indicated and no additional analysis is necessary
d. Goodwill should be retested at the entity level

4. On July 1, 2019, 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 June 30, 2021. Interest receivable on December 31, 2019 is

a. 4% of the face amount of the note

b. 5% of the face amount of the note
c. 5% of the July 1, 2019 present value of the amount due on June 30, 2021
d. 4% of the July 1, 2019 present value of the amount due on June 30, 2021

5. 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

6. It is a financing arrangement whereby one party formally transfers its rights to accounts receivable to
another party in consideration for a loan

a. Pledge
b. Assignment
c. Factoring
d. Discounting

7. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be

a. Available for the purchase of property, plant and equipment

b. Set aside for the liquidation of long-term debt
c. Deposit in bank
d. Unrestricted in use for current operations

8. Accounts receivable shall be recognized initially at

a. Face value
b. Discounted value
c. Maturity value
d. Current value

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9. The amortized cost of loan receivable is the amount at which

a. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount, minus reduction for impairment
b. The loan receivable is measured initially minus principal repayment, plus or minus the
cumulative amortization of any difference between the initial amount recognized and the
principal maturity amount
c. The loan receivable is measured initially
d. The loan receivable is measured initially minus principal repayment

10. In calculating the carrying amount of loan receivable, the lender adds to the principal

I. Direct origination cost

II. Indirect origination cost
III. Origination fee charged to borrower

a. I only
b. I and II only
c. I and III only
d. I, II and III

11. 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

12. Which of the following statements is true in relation to presentation of receivables in the statement of
financial position?

a. Trade receivables and nontrade receivables are shown separately

b. Trade receivables and nontrade receivables which are currently collectible shall be presented as
one line item called “trade and other receivables”
c. Nontrade receivables are presented as noncurrent assets
d. Trade accounts receivable and trade notes receivable shall be presented separately

13. 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. Nine months of accrued interest income

b. Three 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 its face amount

14. An entity issued the following two types of financial instrument to raise capital:

 Convertible bonds which are redeemable for cash in five years’ time. The holders have the right
to request the issue of a fixed number of new ordinary shares in lieu of cash. The holders have not
yet indicated whether they will exercise the right to receive the new ordinary shares.
 Preference shares with no fixed date for redemption. The preference shares are redeemable for
cash at any time in the future at the option of the issuer. The issuer must give six months written
notice of its intention to redeem the preference shares and no notice has yet been given.

What is the appropriate classification for CONVERTIBLE BONDS AND PREFERENCE SHARES,
respectively?

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INTERMEDIATE ACCOUNTING 1
FINAL EXAMINATION

a. Compound instrument and equity instrument

b. Financial liability and compound instrument
c. Equity instrument and equity instrument
d. Financial liability and compound instrument

15. What is the principle for the recognition of a financial asset or a financial liability?

a. A financial asset is recognized when, and only when, it is probable that future economic benefits
will flow to the entity and the cost or value of the instrument can be measured reliably
b. A financial asset is recognized when, and only when, the entity obtains control of the instrument
and has the ability to dispose of the financial asset independent of the actions of others
c. A financial asset is recognized when, and only when, the entity obtains the risks and rewards of
ownership of the financial asset and has the ability to dispose of the financial asset
d. A financial asset is recognized when, and only when, the entity becomes a party to the contractual
provisions of the instrument

16. Which of the following best describes the risk that an entity will encounter if it has difficulty in
meeting obligations associated with its financial difficulties?

a. Liquidity risk
b. Credit risk
c. Financial risk
d. Payment risk

17. At the beginning of the current year, an entity purchased equity shares in another entity with the
intention of holding this investment over the long term. What is the most appropriate classification of
this equity investment?

a. At fair value through profit or loss

b. Available for sale
c. Held to maturity
d. Amortized cost

18. What is the effect of stock dividend of the same class?

a. Increase in investment account and increase in cost per share

b. Decrease in investment account and decrease in cost per share
c. No effect on investment account but decrease in cost per share
d. No effect on investment account but increase in cost per share

19. The interest rate written in the face of bond is known as

a. Nominal rate
b. Coupon rate
c. Stated rate
d. All of the above

20. It is a designated derivative or a designated non-derivative financial asset or financial liability whose
fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated
hedged item.

a. Hedging instrument
b. Financial instrument
c. Compound financial instrument
d. Host instrument

21. The cost of an item of property, plant and equipment comprises all of the following, except

a. Purchase price
b. Import duties and nonrefundable purchase taxes

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INTERMEDIATE ACCOUNTING 1
FINAL EXAMINATION

c. Any cost directly attributable in bringing the asset to the location and condition for its intended
use
d. Initial estimate of the cost of dismantling and removing the item and restoring the site, the
obligations for which the entity does not incur when the item was acquired

22. Government grant related to depreciable asset is usually recognized as income

a. Immediately
b. Over the useful life of the asset using straight line
c. Over the useful life of the asset using the sum of years’ digits
d. Over the useful life of the asset and in proportion to the depreciation of the asset

23. Which of the following statements is true concerning capitalization of borrowing cost?

I. If the borrowing is directly attributable to a qualifying asset, the borrowing cost is required to
be capitalized as cost of the asset
II. If the borrowing is not directly attributable to a qualifying asset, the borrowing cost shall be
expensed as incurred

a. I only
b. II only
c. Both I and II
d. Neither I nor II

24. It is the systematic allocation of the depreciable amount of an item of property, plant and equipment

a. Depreciation
b. Depletion
c. Amortization
d. Realization

25. 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 reporting period
d. Shall be treated as outstanding checks if they are ultimately encashed

26. 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

27. Bank statements provide the 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

28. 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 fated 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

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FINAL EXAMINATION

29. A property developer must classify properties that it holds for sale in the ordinary course of business
as

a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property

30. A discount given to a customer for purchasing a large volume of merchandise is typically referred to
as

a. Trade discount
b. Quantity discount
c. Size discount
d. Cash discount

31. It is a designated derivative or a designated non-derivative financial asset or financial liability whose
fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated
hedged item.

a. Hedging instrument
b. Financial instrument
c. Compound financial instrument
d. Host instrument

32. Which of the following statements is incorrect concerning the class of PPE to be revalued?

a. When an item of property, plant and equipment is revalued, the entire class of the property, plant
and equipment to which that asset belongs shall be revalued
b. A class of property, plant and equipment is a grouping of assets of a similar nature and use in an
entity’s operations
c. The items within a class of property, plant and equipment are revalued selectively
d. A class of assets may be revalued on a rolling basis provided revaluation of the class of assets is
completed within a short period of time and provided the revaluations are kept up to date

33. 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. What is the accounting for these events?

a. 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
b. Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building
c. Record a loss in the current period equal to the cost of refurbishing and continue to depreciate the
original cost of the building
d. Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying
amount of the damaged portion of the building

34. At the end of the current year, an entity had various checks and papers in its safe. Which item should
not be included in “cash” in the current year-end statement of financial position?

a. US $20,000 cash
b. Past due promissory note issued in favor of the entity
c. Another entity’s P150,000 check payable to the entity dated December 15 of the current year
d. The entity’s undelivered check payable to a supplier dated December 31 if the current year

35. In the cash of long-term installments receivable (real estate installment sales) where a major portion
of the receivables will be collected beyond the normal operating cycle

a. The entire receivables are shown as current without disclosure of the amount not currently due
b. The entire receivables are shown as noncurrent
c. Only the portion currently due is shown as current and the balance as noncurrent
d. The entire receivables are shown as current with disclosure of the amount not currently due

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FINAL EXAMINATION

36. How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value?

a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

37. I If the gross profit is based on sales, the cost of sales is computed as

a. Net sales times cost ratio

b. Gross sales times cost ratio
c. Net sales divided by sales ratio
d. Gross sales divided by sales ratio

38. Which of the following statements best describes the principle for classifying an issued financial
instrument as either financial liability or equity?

a. Issued instruments are classified as liabilities or equity in accordance with the legal form of the
contractual arrangement and the definitions of a financial liability, financial asset and an equity
instrument.
b. Issued instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement and the definitions of the financial liability, financial asset and an equity
instrument
c. Issued instruments are classified as liabilities or equity in accordance with management’s
designation of the contractual arrangement.
d. None of the above

39. Statement 1: The financial asset shall be measured at fair value if the business model is not to collect
contractual cash flows on specified dates and the contractual cash flows are not solely payments of
principal and interest

Statement 2: An entity may irrevocably designate a financial asset as measured at fair value through
profit or loss even if the financial asset satisfies the amortized cost measurement.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Neither of the statements is correct

40. Bonds usually sell at a discount when

a. Investors are willing to invest in the bonds at the stated interest rate
b. Investors are willing to invest in the bonds at rates that are lower than the stated interest rate
c. Investors are willing to invest in the bonds only at rates that are higher that the stated interest rate
d. An unrealized gain is expected

41. Germany Company started business at the beginning of current year. The entity established an
allowance for doubtful accounts estimated at 5% of credit sales. During the year, the entity wrote off
P50,000 of uncollectible accounts.

Further analysis showed that merchandise purchased amounted to P9,000,000 and ending
merchandise inventory was P1,500,000. Goods were sold at 40% above cost.

The total sales comprised 80% sales on account and 20% cash sales. Total collections from
customers, excluding cash sales, amounted to P6,000,000.

What is the cost of goods sold?

a. 7,500,000
b. 5,400,000
c. 3,600,000

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INTERMEDIATE ACCOUNTING 1
FINAL EXAMINATION

d. 6,900,000

42. On December 31, 2019, Bamboo Company assigned specific accounts receivable totaling P2,000,000
as collateral on a P1,500,000, 12% note from a certain bank. Bamboo Company will continue to
collect the assigned accounts receivable. In addition to the interest on the note, the bank also charged
a 5% finance fee deducted in advance on the P1,500,000 value of the note. The December collections
of assigned accounts receivable amounted to P1,000,000 less cash discounts of P50,000. On
December 31, 2019, Bamboo Company remitted the collections to the bank in payment for the
interest accrued on December 31, 2019 and the note payable. What amount of cash was received from
the assignment of accounts receivable on December 1, 2019?

a. 2,000,000
b. 1,500,000
c. 1,900,000
d. 1,425,000

43. Hero Company reported inventory on December 31, 2019 at P6,000,000 based on a physical count of
goods priced at cost, and before any necessary year-end adjustment relating to the following:

 Included in the physical count were goods billed to a customer FOB shipping point on December
31, 2019. These goods had a cost of P125,000 and were picked up by the carrier on January 10,
2020.
 Goods shipped FOB shipping point on December 28, 2019 from a vendor to Hero Company was
received on January 4, 2020. The invoice cost was P300,000

What amount should be reported as inventory on December 31, 2019?

a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

44. On January 1, 2019, Dean Company purchased ten-year bonds with a face value of P1,000,000 and a
stated interest rate of 8% per year payable semiannually July 1 and January 1. The bonds were
acquired to yield 10%. Present value factors are as follows:

PV of 1 for 10 periods at 10% .386

PV of 1 for 20 periods at 5% .377
PV of an annuity of 1 for 10 periods at 10% 6.145
PV of an annuity of 1 for 20 periods at 5% 12.462

What is the purchase price of the bonds?

a. 1,124,620
b. 1,100,000
c. 1,000,000
d. 875,380

45. Thor Company provided the following data on December 31, 2019:

Checkbook balance 4,000,000

Bank statement balance 5,000,000
Check drawn on Thor’s account payable
to supplier, dated and recorded on
December 31, 2019 but not mailed until
January 31, 2020 500,000
Cash in sinking fund 2,000,000

On December 31, 2019, what amount should be reported as cash under current assets?

a. 4,500,000
b. 5,500,000

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INTERMEDIATE ACCOUNTING 1
FINAL EXAMINATION

c. 3,500,000
d. 6,500,000

46. Tantrum Company provided the following information on relation to accounts receivable at year-end:

Days Estimated % Uncollectible

Outstanding amount

0 - 60 1,200,000 1%
61 - 120 900,000 2%
0ver 120 1,000,000 6%

During the current year, the entity wrote off P70,000 in accounts receivable and recovered P20,000
that had been written off in prior years. At the beginning of current year, the allowance for
uncollectible account was P60,000. Under the aging method, what amount should be reported for the
current year?

a. 90,000
b. 80,000
c. 70,000
d. 60,000

47. Hazel Company entered into a call option contract with a bank at the beginning of the current year.
This contract gave the entity the option to purchase 10,000 shares at P100 per share. The option
expires on April 30. The shares are trading at P100 per share at the beginning of current year, at
which time the entity paid P10,000 for the call option.

The market price per share is P120 on April 30 and the time value of the option has not changed. In
order to settle the option contract, what would the entity most likely do?

a. Pay the bank P200,000

b. Purchase the shares at P100 per share and sell the shares at P120
c. Receive P200,000 from the bank
d. Receive P190,000 from the bank

48. Lin Company sells its merchandise at a gross profit of 30%. On June 30, 2019, all of Lin’s inventory
was destroyed by fire. The following figures pertain to Lin’s operations for the six months ended June
30, 2019.

Net sales 8,000,000

Beginning inventory 2,000,000
Net purchases 5,200,000

What is the estimated cost of the destroyed inventory?

a. 4,800,000
b. 2,800,000
c. 1,600,000
d. 800,000

49. Amiable Company exchanged a truck with a carrying amount of P1,200,000 and a fair value of
P2,000,000 for a truck and P200,000 cash. The fair value of the truck was P1,800,000. The cash flow
from the new truck are not expected to be significantly different from the cash flows of the old truck.

At what amount should the truck received in the exchange be recorded?

a. 1,000,000
b. 2,000,000
c. 1,400,000
d. 1,800,000

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INTERMEDIATE ACCOUNTING 1
FINAL EXAMINATION

50. Moses Company borrowed P4,000,000 on a 10% note payable to finance a new warehouse which the
entity is constructing for its own use. The only other debt on Moses’ books is a P6,000,000 12%
mortgage payable on an office building. At the end of the current year, average accumulated
expenditures on the new warehouse totaled P4,750,000. What amount should Moses capitalize as
interest for the current year?

a. 400,000
b. 475,000
c. 490,000
d. 522,500

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