Presentation and Preparation of FS

When the classification of items in its financial statements is changed, the entity
must not reclassify the comparative amount

can choose whether to reclassify the comparative amounts
must reclassify the comparative amounts, unless it is impracticable to do so
must prepare at least 4-year comparative statements of financial position
Ans.
must reclassify the comparative amounts, unless it is impracticable to do so
Which of the following statements is incorrect in relation to fair presentation?
An entity shall not describe financial statements as complying with PFRS unless they comply
with all the requirements of PFRS.
An entity whose financial statements comply with PFRS shall make an explicit and unreserved
statement of such compliance in the notes.
An entity can rectify in appropriate accounting policies either by disclosure of the accounting
policies used or by notes or explanatory material
Fair presentation requires the faithful representation of the effects of transactions in accordance
with the definition criteria for assets, liabilities, income, and expenses.
Ans.
An entity can rectify in appropriate accounting policies either by disclosure of the accounting
policies used or by notes or explanatory material
An entity decided to extend the report period from a 12-month period to a 15-month
period. Which of the following is .not required in case of change in reporting period?
The entity should disclose the period covered by the financial statements.
The entity should disclose the reason for using a longer period than a period of 12
months.
The entity should disclose that comparative amounts used in the financial statements are
not entirely comparable.
The entity should change the reporting period only if other similar entities in the
geographical area in which it generally operates have done so in the current year.
Ans.
The entity should change the reporting period only if other similar entities in the geographical
area in which it generally operates have done so in the current year.
Items of dissimilar nature or function

must always be presented separately in financial statements
must not be presented separately in financial statements (ie must be aggregated in the financial
statements)
must be presented separately in financial statements if those items are material
must be disclosed only in the notes

Ans.
must be presented separately in financial statements if those items are material
On July 1, 20CY, Rica Company handed over to a client a new computer system. The
contract price for the supply of the system and after-sales support for 12 months was
P1,000,000. Rica Company estimates the cost of the after-sales support at P150,000 and
it normally marks up such cost by 50%.
The total revenue reported by Rica Company in its 20CY statement of comprehensive
income is
425,000
500,000
775,000
887,500
Ans.
887,500
An entity presents an analysis of expenses using a classification based on
the nature of expenses
the function of expenses
either the nature of expenses or the function of expenses within the entity, whichever provides
information that is reliable and more relevant
either the nature of expenses or the function of expenses within the entity, whichever the entity
would prefer to present
Ans.
either the nature of expenses or the function of expenses within the entity, whichever provides
information that is reliable and more relevant
The following information provided by Maricar Company in preparing

this year’s comprehensive income statement:
Sales
8,000,000
Cost of sales
4,200,000
Depreciation and amortization expense
700,000
Employee beneft expense
900,000
Impairment of property, plant and equipment
200,000
Finance costs
800,000
Share of proft of associates
1,200,000
Translation loss on foreign operations
500,000
Loss on sale of fnancial instruments held for trading
300,000
Gain on sale of available-for-sale securities
450,000
Remeasurement gains on trading securities
400,000
Remeasurement gains on available for sale securities
300,000
Actuarial loss on employee benefts
100,000
Reduction of revaluation surplus as a result of a devaluation
200,000
Derivative gains on call options (speculation)
100,000
Gain on forward contract designated as a cash fow hedge
150,000
The amount included in the proft or loss section of the current year’s comprehensive
income statement is
3,050,000
2,950,000
3,200,000
3,550,000
Ans.
3,050,000
Separate line items in an analysis of expenses by function include
purchases of materials, transport costs, employee benefits, depreciation, extraordinary

items
purchases of materials, distribution costs, administrative costs, employee benefits,

depreciation, taxes
depreciation, purchases of materials, employee benefits and advertising costs
cost of sales, administrative expenses, distribution expenses etc.

Ans.
cost of sales, administrative expenses, distribution expenses etc.
Which of the following terms cannot be used to describe a line item in the statement of
comprehensive income?
Revenue
gross profit
profit before tax
extraordinary item
Ans.
extraordinary item
Rica Company reported the following changes in all the account balances for the current
year, except for retained earnings:
Increase (Decrease)
Cash 790,000
Accounts receivable, net 240,000
Inventory 1,270,000
Investments (470,000)
Accounts payable (380,000)
Bonds payable 820,000
Share capital 1,250,000
Share premium 130,000
There were no entries in the retained earnings account except for Profit and a dividend
declaration of P190,000 which was paid in the current year. What is the Profit for the
current year?
10,000
200,000
1,190,000
1,200,000
Ans.
200,000
Retained earnings is a subcategory of
Contributed capital
Capital stock
Liabilities
Equity
Ans.
Equity
Which of the following reports is not a component of the financial statements according
to PAS 1?
Statement of Financial Positions.

Statement of Changes in Equity
Director’s Report.
Notes to Financial Statements
Ans.
Director’s Report.
Changes in account balances of Agamata Business Consultancy (ABC) for 2013 are as
follows:
Increase
(Decrease)
P2,500,00
Cash 0
Accounts receivable
net 1,750,000
Inventory 1,000,000
Investments (250,000)
Accounts payable (1,500,000)
Bonds payable 2,000,000
Share capital 3,000,000
Share premium 500,000
Unrestricted Retained
Earnings 750,000
Restricted Retained
Earnings 250,000
What should be the 2013 net income, assuming there were no entries in the retained
earnings account except for the net income and a dividend declaration of P1,000,000
which was paid in the current year?
P3,500,000
P1,750,000
P2,000,000
P1,000,000
Ans.
P2,000,000
PAS 1 requires the following items to appear on the face of the Statement of Changes in
Equity:
The net amount of cash from the issue of my securities during the period
The cumulative effect of changes in accounting policy and the correction of errors
Total comprehensive income for the period
Profit or loss for the period
II, III, and IV

II and IV only
I, III, and IV
I,II,III and IV
Ans.
I,II,III and IV
On December 31, 2010, the stockholders’ equity section of Alexandra Corp was as
follows:
Common stock, par value P10; authorized
30,000 shares; issued and outstanding 9,000 shares P 90,000
Additional paid-in capital 116,000
Retained earnings 146,000
Total stockholders’ equity P352,000
On March 31, 2011, Alexandra declared a 10% stock dividend. Accordingly, 900
shares were issued when the fair market value was P16 per share. For the 3 months
ended March 31, 2011, Alexandra sustained a net loss of P32,000. The balance of
Alexandra’s retained earnings as of March 31, 2011 should be
P99,600
P105,000
P108,600
P114,000
Ans.
P99,600
Which of the following should be presented in the statement of changes in equity?
Investment by owners
Distributions to owners
Change in ownership interest in subsidiary that does not result in a loss of control
All of the above
Ans.
All of the above
Choose the correct statement
The elements in the owners’ equity section of a statement of financial position are classified
primarily by source.
Appropriated retained earnings are those earnings that have been set aside for the payment of
dividends.
All tangible operational assets are depreciable; therefore, they are usually reported net of
depreciation.
Statement of Financial Position items are grouped according to date of their acquisition.
Ans.
The elements in the owners’ equity section of a statement of financial position are classified
primarily by source.
The elements of the equity section of the statement of financial position should be classified
primarily by:
Source
Maturity date
Class of capital stock
Liquidity
Ans.
Source
The cross-reference between each line item in the financial statements and any related
information disclosed in the notes to the financial statements
is voluntary
is mandatory
depends on the industry
depends on the size of the entity
Ans.
is mandatory
Which information should be disclosed in the summary of significant accounting policies?
Guarantee of indebtedness of others.

Adequacy of pension plan assets relative to vested benefits.
Refinancing of debt subsequent to the end of reporting period.
Criteria for determining which investments are treated as cash equivalents.
Ans.
The presentation of the notes to the financial statements in a systematic manner
is voluntary
is mandatory
is mandatory, as far as is practicable
Ans.
Which of the following about note disclosures are considered mandatory rather than
voluntary (optional)?
I. Disclosure of information about key sources of estimation uncertainly
II. Disclosure of information about judgement that management has made in the process
of applying accounting policies.
III. The presentation of notes to the financial statements in a systematic manner.
IV. The cross- reference between each line in the financial statements and any related
information disclosed in the notes to the financial statements.
I and II only
III and IV only
I, II, and III only
I, II , III and IV
Ans.
I, II , III and IV
The cross-reference between each line item in the financial statements and any related
information disclosed in the notes to the financial statements
is voluntary
is mandatory
depends on the industry
Ans.
is mandatory
The presentation of the notes to the financial statements in a systematic manner
is voluntary
is mandatory
Ans.
Which of the following about note disclosures are considered mandatory rather than
voluntary (optional)?
I. Disclosure of information about key sources of estimation uncertainly
II. Disclosure of information about judgement that management has made in the process
of applying accounting policies.
III. The presentation of notes to the financial statements in a systematic manner.
IV. The cross- reference between each line in the financial statements and any related
information disclosed in the notes to the financial statements.
I and II only
III and IV only
I, II, and III only
I, II , III and IV
Ans.
I, II , III and IV
Which information should be disclosed in the summary of significant accounting policies?

Guarantee of indebtedness of others.
Adequacy of pension plan assets relative to vested benefits.
Refinancing of debt subsequent to the end of reporting period.
Ans.
Amortization of premium on bonds payable is subtracted from net income in the reconciliation
of net income to cash flows from operation because
It is a financing cash outflow
It reduced income without causing a cash outflow
Interest expense understates the cash paid for interest by the amount of the premium amortization
It increase income with a cash flow

Ans.
Interest expense understates the cash paid for interest by the amount of the premium amortization
The following information is available for Santana Company for the current year:
December 31 January 1
Cash 1,500,000 1,000,000
Retained earnings 7,000,000 5,400,000
Cash flow from operating activities ?
Cash flow from investing activities (4,800,000)
Cash flow from financial activities 1,800,000
Dividends declared and paid 2,000,000
Net income 3,600,000
How much was the cash flow operating activities?
3,500,000
2,500,000
4,500,000
3,600,000
Ans.
3,500,000
In a cash flow statement, if used equipment is sold at a gain, the amount shown as a cash flow
from investing activities equals the carrying amount of the equipment
Plus the gain
Plus the gain and less the amount of tax attributable to the gain
Plus both the gain and the amount of tax attributable to the gain
With no addition or subtraction
Ans.
Plus the gain
Black town Company had the following account balances for the current year:
Accounts payable 500,000 650,000
Inventory 300,000 250,000
Accounts receivable 800,000 900,000
Prepaid expenses 400,000 600,000
· All purchases of inventory were on account.

· Depreciation expense of P900,000 was recognized during the year.
· Equipment was sold during the year and gain of P300,000 was recognized.
Black town provided following cash flow information for the current year:
Cash collected from customers 9,500,000
Cash paid for inventory (4,100,000)
Cash paid for other expenses (1,400,000)
Cash flows from operations 4,000,000
What was black town Company’s net income for the current year?
3,300,000
3,400,000
3,000,000
3,900,000
Ans.
3,300,000
Bumper Company’s statement of cash flows for the current year shows cash flow from
operations of P1,840,000. The following items also appear on the statement of financial
position and income statement.
Depreciation expense 400,000

Accounts receivable increase 120,000
Inventory decrease 280,000
Accounts payable decrease 80,000
What is the net income for the current year?
1,360,000
2,320,000
1,440,000
1,840,000
Ans.
1,360,000
Corinthians Company prepared the following balance sheet data.

December 31, December 31,
2013 2012
Cash and cash equivalents 518,500 675,000
Accounts receivable (net) 360,000 345,000
Merchandise inventory 750,000 654,000
Prepaid insurance 4,500 6,000
Buildings and equipment 5,515,500 4,350,000
Accm dep’n – buildings & (2,235,000) (1,995,000)
equipment
Total Assets 4,913,500 4,035,000

Salaries payable 75,000 105,000
Notes payable – bank (current) 150,000 600,000
Notes payable – bank (long- 1,200,000 -
term)
Common stock, P20 par value 2,000,000 1,800,000
Premium on common shares 700,000 600,000
Retained earnings (deficit) 175,000 (15,000)
Total liabilities & 4,913,500 4,035,000
stockholder’s equity
 Cash needed to purchase new equipment and to improve the company’s working
capital position was raised by borrowing from the bank with a long-term note.
 Allowance for bad debts on December 31, 2012 and December 31, 2013 were
P25,000 and P40,000 respectively. The bad debts expense for 2013 amounted to
P40,000 while write-offs amounted to P25,000
 Equipment costing P75,000 with a book value of P15,000 was sold for P18,000;
the gain on sale was included in net income.
 Corinthians Company issued 10,000 common shares as settlement for the

acquisition of a building acquired in June 2013. The building’s fair value at the
time of purchase was P300,000 while the shares market value was P28.75
 The company paid cash dividends of P110,000 and reported earnings of P300,000
for 2013. There were no entries in the retained earnings account other than to
record the dividend and net income for the year.
The cash provided by (used in) operating activities is
126,000
166,000
186,000
192,000
Ans.
126,000
Mahogany Company had the following accounts balances for the current year:
Inventory 300,000 450,000
All purchases of inventory were on account. Mahogany Company provided the

following income information statement information for the current year:
Revenue 9,800,000
Cost of goods sold (4,000,000)
Other expenses (1,300,000)
Depreciation expenses (1,000,000)
Loss on sale of equipment (100,000)
Net income 3,400,000
The statement of cash flows should show net cash flow from operating activities at
4,500,000
4,400,000
4,600,000
4,300,000
Ans.
4,400,000
During the financial year Marina Limited had sales of $720 000. The beginning balance
of Accounts receivable was $103 000, and the ending balance was $139 000. Bad debts
amounting to $34 000 were written off during the period. The cash receipts from
customers during the year amounted to:
$718 000;
$650 000;
$790 000;
$722 000.
Ans.
$650 000;
Sun Company provided the following data for the preparation of the statement of cash
flows for the current year:
Increase in accounts receivable 300,000

Decrease in income tax payable 170,000
Depreciation 1,000,000
Net income 250,000
Gain on sale equipment 440,000
Loss on sale building 210,000
Using the indirect method, how much should be reported as cash flow from operating
activities?
780,000
700,000
880,000
550,000
Ans.
550,000

2013 2012
equipment
Total Assets 4,913,500 4,035,000

term)

The cash provided by (used in ) financing activities is
640,000
940,000
340,000
440,000
Ans.
640,000
Fragile Company uses the direct method to prepare it statement of cash flows. The entity
had the following cash flows during the current year:
Cash receipts from issuance of ordinary shares 4,000,000

Cash receipts from customers 2,000,000
Cash receipts from dividends on long- term 300,000
investments
Cash receipts from repayment of loan made to 2,200,000
another entity
Cash payments for wages and other operating 1,200,000
expenses
Cash payments for insurance 100,000
Cash payments for dividends 200,000
Cash payments for taxes 400,000
Cash payments to purchase land 800,000
The net cash provided by operating activities is?
600,000
400,000
300,000
200,000
Ans.
600,000
During the financial year Marina Limited had sales of P720 000. The beginning balance of
Accounts receivable was P103 000, and the ending balance was P139 000. Bad debts amounting
to P34 000 were written off during the period. The cash receipts from customers during the year
amounted to:
P718 000;
P650 000;
P790 000;
P722 000;
Ans.
P650 000;
Aries Limited had a net profit after tax of P850,000 for the financial year. Included in
this profit was:
· Depreciation expense of P120,000
· Gain on sale of Investments of P28,000
Also, Accounts Receivable increased by P39,000 and Inventories decreased by
P12,000. The cash flow from operating activities during the year was:
P785,000
P915,000
P731,000
P969,000
Ans.
P915,000
The direct method
Shows each major class of gross cash receipts and gross cash payments.
Adjusts accrual basis net profit or loss for the effects of non-cash transactions.
Both shows each major class of gross cash receipts and gross cash payments and adjusts accrual
basis net profit or loss for the effects of non-cash transactions.
Niether shows each major class of gross cash receipts and gross cash payments nor adjusts
accrual basis net profit or loss for the effects of non-cash transactions.
Ans.
Shows each major class of gross cash receipts and gross cash payments.
Which of the following will be classified as cash flows from operating activities?
Cash receipts from royalties, fees, commissions and other revenue.

Cash payments to acquire equity or debt instruments of other enterprises.
Cash receipts from issuing shares and other equity instruments.
Cash payments to owners to acquire or redeem the enterprise’s shares.
Ans.
Cash receipts from royalties, fees, commissions and other revenue.
Which of the following is not added to net income as an adjustment to reconcile net
income to cash from operating activities in the statement of cash flows?
Increase in an accrued liability

Amortization of discount on bonds payable
Loss on sale of operation asset
Increase in deferred tax asset
Ans.
Increase in deferred tax asset
Shery Limited had the following cash flows during the reporting period:
· Purchase of intangibles - P30,000
· Proceeds from sale of plant - P28,000
· Receipts from customers - P832,000
· Payments to suppliers - P593,000
· Interest received - P17,600
· Income taxes paid - P45,500
The net cash connected to operating activities was:
P239,100
P256,600
P269,100
P211,100
Ans.
P211,100
In preparing a statement of cash flows under the indirect method , cash flows from operating
activities
Is calculated as the difference between revenue and expenses plus the beginning cash balance
Is always equal to the sum of cash flows from investing activities and cash flows from financing
activities
Can calculated by appropriately adding to or deducting from net income those items in the
income statement that affect cash and accrual for current asset and current liabilities
Can be calculated by appropriately adding to or deducting from net income those items in the
income statement that do not affect cash.
Ans.
income statement that do not affect cash.
Which should not be disclosed in the cash flow statement using the indirect method?
Interest paid, net of amounts capitalized

Cash flow per share
Income taxes paid
Dividends paid on preferred stock
Ans.
Cash flow per share
Brett Limited had a net profit after tax of $850 000 for the financial year. Included in this
profit was:
· Depreciation expense of $120 000
· Gain on sale of Investments of $28 000
Also, Accounts Receivable increased by $39 000 and Inventories decreased by $12 000.
The cash flow from operating activities during the year was:
$785 000;
$731 000;
$915 000;
$969 000.
Ans.
$915 000;
During the financial year, Cresswell Limited had a Cost of Sales amounting to $260 000.
Beginning and ending balances were:
Beginning Ending
balance balance
Inventory $46 000 $55 000
Accounts Payable $18 000 $26 000
A discount of $2 000 for prompt payment was received. The amount of cash paid for
goods purchased during the year was:
$259 000;
$263 000;
$275 000;
$279 000.
Ans.
$259 000;
Top Toms Co has been trading for a number of years and is currently going through a
period of expansion. An extract from the statement of cash flows for the year ended 31
December 20CY for Top Toms Co is presented as follows (in thousands):
Net cash from operating activities 995

Net cash used in investing activities (540)
Net cash used in financing activities (200)
Net increase in cash and cash equivalents 255
Cash and cash equivalents at the beginning of the period 200
Cash and cash equivalents at the end of the period 455
Which of the following statements is correct according to the extract of Top Toms
Co’s statement of cash flows?
Select one:
The company has good working capital management
Net cash generated from financing activities has been used to fund the additions to non-current
assets
Existing non-current assets have been sold to cover the cost of the additions to non-
current assets
Net cash generated from operating activities has been used to fund the additions to non-
current assets
Ans.
Net cash generated from operating activities has been used to fund the additions to non-current
assets
Which of the following cash flows does not appear in statement of cash flows using the indirect
method?
Net cash flow from operating activities

Cash received from customers
Cash inflow from sale of equipment
Cash outflow for dividend payment
Ans.
Using the indirect method, cash flows from operating activities would be increased by which of
the following?
Gain on sale of investments

Increase in prepaid expense
Decrease in accounts payable
Decrease in accounts receivable
Ans.
Decrease in accounts receivable
The net income for the current year for Roger Company was P3,520,000. Additional data
are as follows:
Purchase of plant assets 2,800,000

Depreciation of plants assets 1,480,000
Dividends declared 970,000
Net decrease in noncash current assets 290,000
Loss on sale of equipment 130,000
What should be the net cash provided by operating activities in the statement of cash
flows for the current year using the indirect method?
5,420,000
5,130,000
7,250,000
5,290,000
Ans.
5,420,000
When preparing a reconciliation of net income to cash from operations , an increase in

the ending inventory will result in an adjustment to reported net income because
Cash increase because inventory is a current asset

Inventory is an expense deducted in computing net income bur is not a use of cash
The net increase in inventory is part of the difference between cost of goods sold and
cash paid to suppliers
All changes in noncash accounts must be disclosed

Ans.
The net increase in inventory is part of the difference between cost of goods sold and cash paid
to suppliers
Which of the following cash flows does not appear in a cash flow statement using indirect
method?
Net cash flow from operating activities

Cash inflow from sale of equipment
Cash outflow for dividend payment
Ans.
Kersley Company has provided the following account balances for the preparation of the
statement of cash flows for the current year:
January 1 December 31
Accounts receivable 1,150,000 1,450,000
Allowance for uncollectible accounts 40,000 50,000
Prepaid rent expense 620,000 410,000
Accounts payable 970,000 1,120,000
Kersley’s net income for the year is P7,500,000. Net cash provided by operating activities
should be
7,270,000
7,430,000
7,550,000
7,570,000
Ans.
7,570,000
Cash advances and loans from bank overdrafts should be reported as:
Operating activities.
Financing activities
Investing activities
other significant noncash activities
Ans.
Operating activities.
How should gain on sale of an office building owned by the entity be presented in a statement
of cash flows?
As an inflows in the investing activities section because it pertains to long term asset
As an inflow in the financing activities section because the building was constructed with a long
term loan from a bank that need to be repaid from the sale proceeds
As a deduction from the net income in the operating activities section prepaid under the indirect
method
Added to the sale proceeds and presented in the investing activities section
Ans.
As a deduction from the net income in the operating activities section prepaid under the indirect
method
A change in unearned revenue would be classified into which of the following categories for
purposes of disclosure in the statement of cash flow?
Operating cash flow

Investing cash flow
Financing cash flow
As an item reconciling earnings and operating cash flows
Ans.
As an item reconciling earnings and operating cash flows
Supplemental disclosures required only when the statement of cash flows is prepared
using the indirect method include
A schedule reconciling net income with net cash flows from operating activities.
Amounts paid for interest and taxes
Amount deducted for depreciation and amortization
Significant noncash investing and financing activities
Ans.
Amounts paid for interest and taxes
An entity other than a financial institution receives dividends from investment in shares. How
should it disclose the dividends received in the statement of cash flows?
Operating cash inflow.

Either as operating cash inflow or as investing cash inflow.
Either as operating cash inflow or as financing cash inflow.
As an adjustment in the "operating activities" section of the cash flow because it is included in
the Profit for the year and as a cash inflow in the "financing activities" section of the statement
of cash flows.
Ans.
Either as operating cash inflow or as investing cash inflow.
Brook Company provided the following information for the preparation of the statement
of cash flows for the current year:
Decrease in inventory 300,000

Increase in wages payable 100,000
Restructuring charge 2,300,000
Depreciation 1,000,000
Net income 500,000
The restructuring charge consists of two elements, namely P1,500,000 for the write down
in value of certain assets and P800,000 for recognition of an obligation to relocate
employees. None of the relocation has yet taken place.
Under the indirect method, how much should be reported as cash flow from operating
activities?
4,200,000
1,900,000
3,600,000
4,000,000
Ans.
4,200,000
Aklan Company reported net income of P10,000,000 for 2009. Changes occurred in
several balance sheet accounts during 2009 as follows:
Investment in shares, carried at equity P2,500,000

increase
Premium on bonds payable 500,000 decrease
Accumulated depreciation, caused by major 1,000,000
repair decrease
Deferred tax liability 400,000 increase
In the 2009 cash flow statement, the cash provided by operating activities should be
P7,400,000
P9,400,000
P6,400,000
P7,000,000
Ans.
P7,400,000
Sinulog Company has provided the following 2009 current account balances:
Jan. 1 Dec. 31
Accounts receivable P1,500,000 P2,800,000
Allowance for doubtful accounts 200,000 400,000
Accounts payable 900,000 1,200,000
Sinulog’s net income for 2009 was P8,000,000. Net cash provided by operating
activities should be
P7,350,000
P7,150,000
P9,550,000
P8,650,000
Ans.
P7,350,000

2013 2012
equipment
Total Assets 4,913,500 4,035,000

term)

The cash provided by (used in) investing activities is
(922,500)
(1,222,500)
(962,500)
(1,262,500)
Ans.
(922,500)
The following was taken from the comparative financial statements of Champaca
Company for the current year:
Net income for the current year 750,000

Sales revenue 4,500,000
Cost of goods sold (except depreciation) 2,750,000
Depreciation expenses 500,000
Amortization of intangible assets 200,000
Interest expense on short-term debt 300,000
Dividend declared and paid during year 350,000
January 1 December 31
Inventory 350,000 400,000
Interest payable 100,000 85,000
Under the indirect method, how much should be reported as net cash flow from operating
activities?
1,500,000
1,515,000
1,450,000
2,020,000
Ans.
1,500,000
Cash receipts from royalties, fees and commissions and other revenue are
Cash outflows for operating activities

Cash inflows from operating activities
Cash inflows from investing activities
Cash outflows for financing activities
Ans.
Cash inflows from operating activities
Box Company provided the following information during the current year.
Dividend 500,000 Proceeds from 2,000,000
received sale of long-
term
investments
Dividend 1,000,000 Cash paid to 6,000,000
paid suppliers and
employees
Cash 9,000,000 Interest paid 400,000
received on long term
from debt
customers
Proceeds 1,500,000 Income taxes 300,000
from issuing paid
share capital
Interest 200,000 Cash balance, 1,800,000
received Jan 1
What is the net cash provided by operating activities for the current year?
3,000,000
2,700,000
3,300,000
2,000,000
Ans.
3,000,000
The following information pertains to Lax Company during the current year.
Dividend received 500,000

Dividend paid 1,000,000
Cash received from customers 9,000,000
Proceeds from issuing share capital 1,500,000
Interest received 200,000
Proceeds from sale of long term investments 2,000,000
Cash paid to suppliers and employees 6,000,000
Interest paid on long term debt 400,000
Income taxes paid 300,000
Cash balance, January 1 1,800,000
What is the net cash provided by operating activities for the current year using direct
method?
3,000,000
3,300,000
2,700,000
2,000,000
Ans.
3,000,000
How should a gain from the sale of used equipment for cash be reported in a cash flow statement
using the indirect method?
In investing activities as a reduction of the cash inflow from the sale

In investment activities as a cash outflow
In operating activities as a deduction from income
In operating activities as an addition to income
Ans.
In operating activities as a deduction from income
In preparing a statement of cash flows , the reconciliation of net income to cash from operating
activities does not include
Loss on sale of operational asset
Bond discount or premium amortization for the period
Gain on sale of bedt and equity securities classified as trading securities
Adjustment to record debt or equity securities classified as available for sale securities
Ans.
Adjustment to record debt or equity securities classified as available for sale securities
Which of the following cannot be classified as Cash flows from operating activities?
Interest payments to lenders and other creditors.

Cash flows arising from income taxes.
Dividend payments to owners.
Cash receipts from short term borrowings.
Ans.
Cash receipts from short term borrowings.
In a cash flow statement using the indirect approach for operating activities, an increase in
inventory should be presented as
Outflow of cash
Addition to net income
Inflow and outflow of cash
Deduction from net income
Ans.
Deduction from net income
In preparing a cash flow statement, cash flows from operating activities
Are always equal to accrual accounting income
Are calculated as the differences between revenues and expenses
income statement that do not affect cash
income statement that do affect cash
Ans.
income statement that do not affect cash
Colon Company uses the direct method to prepare its statement of cash flows. The
company had the following cash flows during 2009:
Cash receipts from the issuance of ordinary shares P400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to another 220,000
company
Cash payments for wages and other operating expenses 120,000
Cash payments for insurance 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
Cash payment to purchase land 80,000
The net cash provided by (used in) operating activities is?
P60,000
P40,000
P30,000
(P20,000)
Ans.
P60,000
Star Company provided the following data for the preparation of statement of cash flows
for the current year using the direct method:
Cash balance, beginning 1,500,000

Cash paid to purchase inventory 7,800,000
Cash received from sale of building 5,600,000
Cash paid for interest 450,000
Cash paid to repay a loan 1,000,000
Cash collected from customers 10,000,000
Cash received from issuance of 1,200,000
ordinary shares
Cash paid for dividend 780,000
Cash paid for income taxes 1,320,000
Cash paid to purchase machinery 1,950,000
How much was the cash flow for operating activities?
1,750,000
970,000
880,000
430,000
Ans.
430,000
During the financial year, Cresswell Limited had a Cost of Sales amounting to P260 000.
Beginning and ending balances were:
Beginning Ba Ending
lance Balance
Inventory P46 000 P55 000
Accounts Payable P18 000 P26 000
A discount of P2 000 for prompt payment was received. The amount of cash paid for
goods purchased during the year was:
P259 000
P263 000;
P275 000;
P279 000;
Ans.
P259 000
When preparing a statement of cash flows using the direct method, amortization of patent is?
shown as an increase in cash flows from operating activities.

shown as reduction in cash flows from operating activities.
included with supplemental disclosures of noncash transactions.
not reported in the statement of cash flows or related disclosures.
Ans.
included with supplemental disclosures of noncash transactions.
Seawall Company provided the following data for the operation of the statement of cash
flows for the current year:
Dividends declared and paid 800,000
Cash flow from investing activities (2,500,000)
Cash flows from financing activities (800,000)
Cash 2,100,000 1,200,000
Other assets 21,000,000 22,700,000
Liabilities 10,500,000 11,700,000
Share capital 2,000,000 2,000,000
Retained earnings 10,600,000 10,200,000
How much was reported as cash flow from operating activities ?
4,200,000
2,400,000
4,500,000
5,400,000
Ans.
4,200,000
Under the direct method, which of the following would represent cash paid?
Loss on sale of plant asset
Gain on sale of plant asset
Interest expense , adjusted for changes in interest payable and amortization of bond
premium or discount
Depreciation expense , adjusted for change in depreciation method

Ans.
Interest expense , adjusted for changes in interest payable and amortization of bond premium or
discount
Jeanette Corp.'s transactions for the year ended December 31, 2013 included the
following:
· Purchased real estate for P220,000 cash which was borrowed from a bank.
· Sold available-for-sale securities for P200,000.
· Paid dividends of P240,000.
· Issued 500 shares of common stock for P100,000.
· Purchased machinery and equipment for P50,000 cash.
· Paid P180,000 toward a bank loan.
· Reduced accounts receivable by P40,000.
· Increased accounts payable P80,000.
Jeanette's net cash used in investing activities for 2013 was
P70,000
P270,000
P20,000
P150,000
Ans.
P70,000
In preparing a statement of cash flows, which of the following transactions would be considered
an investing activity?
Sale of a business segment
Issuance of bonds payable at a discount
Purchase of treasury stock
Sale of capital stock
Ans.
Sale of a business segment
In a statement of cash flows, the cash flows from investing activities section should report
the issuance of common stock in exchange for a factory building.

stock dividends received.
a major repair to machinery charged to accumulated depreciation.
the assignment of accounts receivable.
Ans.
a major repair to machinery charged to accumulated depreciation.
Cash inflows from investing result from
decreases in liabilities.
increases in liabilities.
decreases in noncash assets.
increases in noncash assets.
Ans.
decreases in noncash assets.
Marie Company provided the following information for the current year:
 Purchased a building for P1,200,000. Paid P400,000 and signed a mortgage with
the seller for the remaining P800,000.
 Executed a debt-equity swap and replaced a P600,000 loan by giving the lender
ordinary shares worth P600,000 on the date the swap was executed
 Purchased land for P1,000,000. Paid P350,000 and issued ordinary shares worth
P650,000.
 Borrowed P550,000 under a long-term loan agreement. Used the cash from the
loan proceeds as follows: P150,000 for the purchase of additional inventory,
P300,000 to pay cash dividend, and P100,000 to increase the cash balance.
What amount should be reported as net cash used in investing activities in the statement
of cash flows?
400,000
750,000
1,200,000
2,200,000
Ans.
750,000
Capiz Company had the following activities during 2009:
· Acquired ordinary shares of Iloilo Company for P3,000,000.

· Sold an investment in Guimaras Company for P4,500,000 when the carrying
amount was P3,800,000.
· Acquired a P5,000,000 one-year certificate of deposit from a bank. During
the year, interest of P400,000 was received from the bank.
· Collected dividends of P800,000 on investments in equity securities.
In the 2009 statement of cash flows, net cash used in investing activities should be?
P3,500,000
P4,300,000
P3,900,000
P4,700,000
Ans.
P3,500,000
Hager Company sold some of its plant assets during 20CY. The original cost of the plant
assets was P900,000 and the accumulated depreciation at date of sale was P840,000. The
proceeds from the sale of the plant assets were P90,000. The information concerning the
sale of the plant assets should be shown on Hager's statement of cash flows (indirect
method) for the year ended December 31, 20CY, as a(n)
subtraction from Profit of P30,000 and a P60,000 increase in cash flows from financing
activities.
addition to Profit of P30,000 and a P90,000 increase in cash flows from investing
activities.
subtraction from Profit of P30,000 and a P90,000 increase in cash flows from investing
activities.
addition of P90,000 to Profit

Ans.
activities.
In 2009, a fire completely destroyed a building belonging to Negros Company. The cost of
the building was P8,000,000 and had accumulated depreciation of P5,000,000 at the time of fire.
Negros received a cash settlement from an insurance company and reported a casualty loss of
P500,000. In its 2009 statement of cash flows, the net change reported in the cash flows from
investing activities should be?
P3,000,000 decrease
P3,500,000 increase
P2,500,000 increase
P 500,000 decrease
Ans.
P2,500,000 increase
Marcum Corp.'s transactions for the year ended December 31, 2009 included the
following:
· Purchased real estate for P220,000 cash which was borrowed from a bank.
· Sold available-for-sale securities for P200,000.
· Paid dividends of P240,000.
· Issued 500 shares of common stock for P100,000.
· Purchased machinery and equipment for P50,000 cash.
· Paid P180,000 toward a bank loan.
· Reduced accounts receivable by P40,000.
· Increased accounts payable P80,000.
Marcum's net cash used in investing activities for 2009 was
P70,000
P20,000
P270,000
P150,000
Ans.
P70,000
Fleming Company provided the following information on selected transactions during

2018:
Dividends paid to preferred stockholders $ 500,000

Loans made to affiliated corporations 1,400,000
Proceeds from issuing bonds 1,600,000
Proceeds from issuing preferred stock 2,100,000
Proceeds from sale of equipment 800,000
Purchases of inventories ,400,000
Purchase of land by issuing bonds 600,000
Purchases of treasury stock 1,200,000
The net cash provided (used) by investing activities during 2018 is?
$(1,200,000).
$(600,000).
$200,000.
$800,000
Ans.
$(600,000).
Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018.
Included in net income were depreciation expense of $16,800 and a gain on sale of
equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated
depreciation of $48,000. Each of the following accounts increased during 2018:
Land $11,000
Prepaid rent $13,600
FVTOCI securities $2,000
Bonds payable $10,000
What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for
the year ended December 31, 2018?
( $ 9,600)
$33,400
$22,400
$24,400
Ans.
$22,400
Xanthe Corporation had the following transactions occur in the current year:
· Cash sale of merchandise inventory.

· Sale of delivery truck at book value.
· Sale of Xanthe common stock for cash.
· Issuance of a note payable to a bank for cash.
· Sale of a security held as an available-for-sale investment.
· Collection of loan receivable.
How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
Five items
Four items
Three items
Two items
Ans.
Three items
Antique Corp. reported net income of P420,000 for 2009. Changes occurred in several
balance sheet accounts as follows:
Equipment P35,000 increase

Accumulated 56,000 increase
depreciation
Note payable 42,000 increase
Additional information:
· During 2009, Antique sold equipment costing P35,000, with accumulated
depreciation of P16,800, for a gain of P7,000.
· In December 2009, Antique purchased equipment costing P70,000 with
P28,000 cash and a 12% note payable of P42,000.
· Depreciation expense for the year was P72,800.
In Antique's 2009 statement of cash flows, net cash used in investing activities should be
P 2,800
P30,800
P16,800
P49,000
Ans.
P 2,800
Smiley Corp.'s transactions for the year ended December 31, 2018 included the
following:
· Purchased real estate for $1,250,000 cash which was borrowed from a
bank.
· Sold available-for-sale securities for $1,000,000.
· Paid dividends of $1,200,000.
· Issued 500 shares of common stock for $500,000.
· Purchased machinery and equipment for $250,000 cash.
· Paid $900,000 toward a bank loan.
· Reduced accounts receivable by $200,000.
· Increased accounts payable $400,000.
Smiley's net cash used in investing activities for 2018 was

$1,500,000.
$750,000.
$500,000.
$250,000.
Ans.
$500,000.
In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2018,
the following amounts were available:
Collect note receivable $615,000

Issue bonds payable 639,000
Purchase treasury stock 300,000
What amount should be reported on Titan, Inc.’s statement of cash flows for investing
activities?
$615,000
$315,000
$1,254,000
$339,000
Ans.
$615,000
The following information on selected cash transactions for 2018 has been provided
by Mancuso Company:
Proceeds from sale of land $315,000

Proceeds from long-term borrowings 600,000
Purchases of plant assets 216,000
Purchases of inventories 1,020,000
Proceeds from sale of Mancuso common 360,000
stock
What is the cash provided (used) by investing activities for the year ended December 31,
2018, as a result of the above information?
$99,000
$384,000.
$315,000.
$1,275,000.
Ans.
$99,000
In a statement of cash flows, receipts from sales of property, plant, and equipment would be
classified as cash inflows from
liquidating activities.
operating activities.
investing activities.
financing activities.
Ans.
investing activities.
In 2013, a fire completely destroyed a building belonging to Jiffrey Company. The cost of the
building was P8,000,000 and had accumulated depreciation of P5,000,000 at the time of fire.
Jiffrey received a cash settlement from an insurance company and reported a casualty loss of
P500,000. In its 2013 statement of cash flows, the net change reported in the cash flows from
investing activities should be
P3,000,000 decrease
P3,500,000 increase
P2,500,000 increase
P 500,000 decrease
Ans.
P2,500,000 increase
The following cash flow activities are regarded as investing cash flows:
income taxes paid;

interest paid;
acquisition of subsidiary net of cash acquired;
proceeds from issue of debentures.
Ans.
acquisition of subsidiary net of cash acquired;
Equipment which cost $426,000 and had accumulated depreciation of $228,000 was sold for
$222,000. This transaction should be shown on the statement of cash flows (indirect method) as
a(n)
addition to net income of $24,000 and a $222,000 cash inflow from financing activities.
deduction from net income of $24,000 and a $198,000 cash inflow from investing activities.
addition to net income of $24,000 and a $198,000 cash inflow from financing activities.
Ans.
In 20CY, a typhoon completely destroyed a building belonging to Carpet Corporation.

The building cost P2,500,000 and had accumulated depreciation of P1,200,000 at the time
of the loss. carpet received a cash settlement from the insurance and reported a loss of
P525,000.
In Carpet’s 20CY cash flow statement, how much would be the net changes that would be
reported in the cash flows from investing activities section?
Select one:
P525,000 increase
P775,000 increase
P250,000 increase
P1,300,000 increase
Ans.
P775,000 increase
Napier Co. provided the following information on selected transactions during 2018:
Purchase of land by issuing bonds $1,000,000

Purchases of inventory 3,800,000
Purchases of treasury stock 600,000
Dividends paid to preferred stockholders 400,000
The net cash provided (used) by investing activities during 2018 is
$300,000.
$(1,100,000).
$(2,100,000).
$(4,500,000).
Ans.
$(1,100,000).
Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000.
Data from the comparative balance sheets are:
12/31/18 12/31/17
Equipment $5,400,000 $4,875,000
Accumulated Depreciation 1,650,000 1,425,000
Equipment purchased during 2018 was
$1,400,000.
$825,000.
$525,000.
$915,000.
Ans.
$1,400,000.
Hager Company sold some of its plant assets during 20CY. The original cost of the plant
assets was $900,000 and the accumulated depreciation at date of sale was $840,000. The
proceeds from the sale of the plant assets were $90,000. The information concerning the
sale of the plant assets should be shown on Hager's statement of cash flows (indirect
method) for the year ended December 31, 20CY, as a(n)
subtraction from net income of $30,000 and a $60,000 increase in cash flows from
financing activities.
addition to net income of $30,000 and a $90,000 increase in cash flows from investing
activities.
activities.
addition of $90,000 to net income

Ans.
activities.
Warner Limited had the following cash flows during a reporting period:
· Acquisition of subsidiary, net of cash flows $250 000

· Dividends paid $65 000
· Repayment of borrowings $90 000
· Interest paid on borrowings $57 000
· Proceeds from sale of plant $215 000
What is the amount of the cash flows in relation to financing activities of Warner Limited
for the reporting period?
net cash inflow $155 000;

net cash outflow $155 000;
net cash inflow $212 000;
net cash inflow $212 000.
Ans.
net cash outflow $155 000;
The following information was taken from the 2018 financial statements of Dunlop
Corporation:
Bonds payable, January 1, 2018 $ 800,000

Bonds payable, December 31, 2018 4,800,000
During 2018
· A $720,000 payment was made to retire bonds payable with a face amount
of $800,000.
· Bonds payable with a face amount of $320,000 were issued in exchange for
equipment.
In its statement of cash flows for the year ended December 31, 2018, what amount should
Dunlop report as proceeds from issuance of bonds payable?
$4,000,000
$4,400,000
$4,480,000
$5,120,000
Ans.
$4,480,000
During 20Y2, Stout Inc. had the following activities related to its financial operations:
Carrying value of convertible preferred stock in Stout, converted into 540,000
common shares of Stout
Payment in 20Y2 of cash dividend declared in 20Y1 to preferred 279,000
shareholders
Payment for the early retirement of long-term bonds payable (carrying 3,975,000
amount P3,930,000)
Proceeds from the sale of treasury stock (on books at cost of P387,000) 450,000
The amount of net cash used in financing activities to appear in Stout's statement of cash
flows for 20Y2 should be
P2,985,000.
P3,264,000
P3,804,000
P3,822,000.
Ans.
P3,804,000

2013 2012
equipment
Total Assets 4,913,500 4,035,000

term)

The cash provided by (used in ) financing activities is

640,000
940,000
340,000
440,000
Ans.
640,000
Napier Co. provided the following information on selected transactions during 2018:
Purchase of land by issuing bonds $1,000,000

Purchases of inventory 3,800,000
Dividends paid to preferred stockholders 400,000
The net cash provided by financing activities during 2018 is?
$3,200,000.
$3,600,000.
$4,200,000.
$4,600,000.
Ans.
$3,600,000.
The transactions of Tsape Company for the year 2009 included the following:
Cash borrowed from bank for purchase of land P6,000,000

Purchase of land for cash 6,000,000
Sale of securities for cash 1,000,000
Dividend declared (of which P2,000,000 was paid during the year) 3,000,000
Issuance of ordinary shares for cash 7,000,000
Payment of bank loan including interest of P500,000 3,500,000
Increase in customers’ deposits 500,000
The 2009 statement of cash flows should report net cash provided by financing activities
at
P8,000,000
P7,500,000
P8,500,000
P7,000,000
Ans.
P8,000,000
Smiley Corp.'s transactions for the year ended December 31, 2018 included the
following:
Purchased real estate for $1,250,000 cash which was borrowed from a bank.
· Sold available-for-sale securities for $1,000,000.
· Paid dividends of $1,200,000.
· Issued 500 shares of common stock for $500,000.
· Purchased machinery and equipment for $250,000 cash.
· Paid $900,000 toward a bank loan.
· Reduced accounts receivable by $200,000.
· Increased accounts payable $400,000.
Smiley's net cash used in financing activities for 2018 was?
$450,000.
$350,000.
$900,000.
$850,000.
Ans.
$350,000.
A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement
of cash flows (indirect method), this event would be reflected as a(n)
addition adjustment to net income in the cash flows from operating activities section.
cash outflow from investing activities.
cash inflow from investing activities.
cash inflow from financing activities.
Ans.
Financing activities are the?
Activities that result in changes in the size and composition of equity capital and
borrowings of the enterprise.
Acquisition and disposal of long-term assets and other investments not included in cash
equivalents.
Principal revenue-producing activities of the enterprise.
Borrowings and subsequent payments of the borrowings only .

Ans.
Activities that result in changes in the size and composition of equity capital and borrowings of
the enterprise.
Dividends paid to stockholders are reported on the cash flow statement as
Both financing and investing activity

Financing activity
Operating activity
Investing activity
Ans.
Financing activity
During 2009, Siquijor has the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable P5,500,000

(carrying amount of bonds payable P5,000,000)
Distribution in 2009 of cash dividend declared in 2008 3,000,000
Carrying amount of convertible preference shares converted into 2,000,000
ordinary shares
Proceeds from sale of treasury shares (cost, P2,000,000) 2,500,000
In the 2009 statement of cash flows, net cash used in financing activities should be
P6,000,000
P8,500,000
P3,000,000
P6,500,000
Ans.
P6,000,000
Cash outflows for financing activities include all, except
Principal payments to creditors who have extended long-term credit

Interest payment on loans
Payment of dividends
Repayment of amounts borrowed on a short-term bank loan
Ans.
Interest payment on loans
During 2013, Jerwin has the following activities related to its financial operations:
Payment for the early retirement of long-term bonds payable

(carrying amount of bonds payable P5,000,000) P5,500,000
Distribution in 2009 of cash dividend declared in 2008 3,000,000
Carrying amount of convertible preference shares converted into 2,000,000
ordinary shares
Proceeds from sale of treasury shares (cost, P2,000,000) 2,500,000
In the 2013 statement of cash flows, net cash used in financing activities should be
P6,000,000
P3,000,000
P8,500,000
P6,500,000
Ans.
P6,000,000
The balance in retained earnings at December 31, 2017 was $1,440,000 and at December 31,
2018 was $1,164,000. Net income for 2018 was $1,000,000. A stock dividend was declared and
distributed which increased common stock $500,000 and paid-in capital $220,000. A cash
dividend was declared and paid. The amount of the cash dividend was?
$496,000.
$556,000.
$776,000.
$1,276,000.
Ans.
$556,000.
A company borrows P10,000 and signs a 90-day nontrade note payable. In preparing a statement
of cash flows (indirect method), this event would be reflected as a(n)
addition adjustment to Profit in the cash flows from operating activities section.
cash outflow from investing activities.
cash inflow from investing activities.
Ans.
Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018.
Included in net income was a gain on early extinguishment of debt of $120,000 related to
bonds payable with a book value of $2,400,000. Each of the following accounts increased
during 2018:
Notes receivable $90,000

Deferred tax liability $20,000
Treasury stock $240,000
What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended
December 31, 2018?
$2,520,000
$2,540,000
$3,800,000
$ 450,000
Ans.
$2,520,000
Lange Co. provided the following information on selected transactions during 2009:
Purchase of land by issuing bonds P200,000

Proceeds from issuing bonds 300,000
Purchases of inventory 650,000
Purchases of treasury shares 90,000
Loans made to affiliated corporations 250,000
Dividends paid to preference shareholders 80,000
Proceeds from issuing preference shares 240,000
The net cash provided by financing activities during 2009 is?
P370,000
P460,000
P570,000
P120,000
Ans.
P370,000
In preparing Titan Inc.’s statement of cash flows for the year ended December 31, 2018,
the following amounts were available:
Collect note receivable $615,000

Issue bonds payable 639,000
Purchase treasury stock 300,000
What amount should be reported on Titan, Inc’s statement of cash flows for financing
activities?
$ 24,000
$1,254,000
$339,000
$315,000
Ans.
$339,000
In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost
would be classified as a(n)
transfer activity
operating activity
investing activity
financing activity
Ans.
financing activity
The balance in retained earnings at December 31, 20Y1 was P1,440,000 and at December 31,
20Y2 was P1,164,000. Profit for 20Y2 was P1,000,000. A stock dividend was declared and
distributed which increased common stock P500,000 and paid-in capital P220,000. A cash
dividend was declared and paid. The amount of the cash dividend was
P496,000
P556,000
P776,000
P1,276,000
Ans.
P556,000
In a statement of cash flows, which of the following items is reported as a cash flow
from financing activities?
I. Payments to retire mortgage notes
II. Interest payments on mortgage notes
III. Dividends payments
I, II, and III

I only
II and III
I and III
Ans.
I and III
Which of the following would be classified as a financing activity on a statement of cash flows?
Declaration and distribution of a stock dividend

Payment of a bond payable
Sale of a loan receivable
Payment of interest to a creditor
Ans.
Payment of a bond payable
Jennifer Co. provided the following information on selected transactions during 2013:
Purchase of land by issuing bonds P200,000

Proceeds from issuing bonds 300,000
Purchases of inventory 650,000
Purchases of treasury shares 90,000
Loans made to affiliated 250,000
corporations
Dividends paid to preference 80,000
shareholders
Proceeds from issuing preference 240,000
shares
The net cash provided by financing activities during 2013 is
P370,000
P570,000
P460,000
P120,000
Ans.
P370,000
Selected information from Dinkel Company's 2018 accounting records is as follows:
Proceeds from issuance of common stock $ 800,000

Proceeds from issuance of bonds 2,400,000
Cash dividends on common stock paid 290,000
Cash dividends on preferred stock paid 120,000
Sale of stock to officers and employees not included above 200,000
Dinkel's statement of cash flows for the year ended December 31, 2018, would show net
cash provided (used) by financing activities of?
$120,000.
$(470,000).
$290,000.
$2,750,000
Ans.
$2,750,000
If dividends are declared after the reporting period but before the financial statements are
authorized for issue
The dividends are not reflected in the financial statements

No liability shall be recognized at the end of the reporting period
No disclosure shall be included in the financial statements
The dividends shall be accrued as at the end of the reporting period
Ans.
No liability shall be recognized at the end of the reporting period
 The following data are provided by Colossians Company. The end of the reporting
period is December 31, 2009 and the financial statements are authorized for issue
on March 15, 2010.
 On December 31, 2009, Colossians Company had a receivable of P 400,000 from a
customer that is due 60 days after the end of reporting period. On January 15,
2010, a receiver was appointed for the said customer. The receiver informed
Colossians that the P 400,000 would be paid in full by June 30, 2010.
 Colossians Company measures its investments in listed shares as held for trading
at fair value through profit or loss. On December 31, 2009, these investments were
recorded at the market value of P 5,000,000. During the period up to February 15,
2010, there was a steady decline in the market value of all the shares in the
portfolio, and at February 15, 2010, the market value had fallen to P 2,000,000.
 Colossians Company had reported a contingent liability on December 31, 2009

related to a court case in which Colossians Company was the defendant. The case
was not heard until the first week of February 2010. On February 11, 2010, the
judge handed down a decision against Colossians Company. The judge determined
that Colossians Company was liable to pay damages and costs totaling P
3,000,000.
 On December 31, 2009, Colossians Company had a receivable from a large

customer amounting to P3,500,000. On January 31, 2010 Colossians Company was
advised by the liquidator of the customer that the customer was insolvent and
would be unable to repay the full amount owed.. The liquidator advised Colossians
Company in writing that only 10% of the receivable will be paid on April 30,
2010.
Colossians Company should report a total amount of “adjusting events” on December 31,
2009 at
6,150,000
9,150,000
9,550,000
6,500,000
Ans.
6,150,000
Per PAS 10 Events after the Reporting Period, these are events that provide evidence of
conditions that existed at the end of the reporting period
Events after the reporting period

Subsequent events
Adjusting events
Non-adjusting events
Ans.
Adjusting events
Most likely an adjusting event
Declaration of dividends after the reporting period
A major business combination after the reporting period
Commencing major litigation arising solely out of events that occurred after the reporting period
The discovery of fraud or errors that show that the financial statements are incorrect
Ans.
The discovery of fraud or errors that show that the financial statements are incorrect
Which of the following subsequent events would require adjustment of the accounts before
issuance of the financial statements?
Loss of plant as a result of fire

Changes in the quoted market prices of securities held as an investment
Loss on an uncollectible account receivable resulting from a customer’s major flood loss
Loss on a lawsuit, the outcome of which was deemed uncertain at year end
Ans.
Loss on a lawsuit, the outcome of which was deemed uncertain at year end
Timothy Company carried a provision of P 2,000,000 in its draft financial statements
on December 31, 2009 in relation to an unresolved court case. On January 31, 2010,
when the financial statements on December 31, 2009 had not yet been authorized for
issue, the case was settled and the court decided the final total damages payable by
Timothy to be P2,800,000.
The amount of adjustment to the December 31, 2009 statement of financial position
in relation to this event is
2,800,000
2,000,000
800,000
0
Ans.
800,000
Thessalonians Company is completing the preparation of its draft financial statements

for the year ended December 31, 2009. The financial statements are authorized for
issue on March 31, 2010.
On March 15, 2010, a dividend of P 1,750,000 was declared and a contractual profit
share payment of P 350,000 was made, both based on the profit for the year ended
December 31, 2009.
On February 1, 2010, a customer went into liquidation having owed the entity P
340,000 for the past 5 months. No allowance had been made against this debt in the
draft financial statements.
On March 20, 2010, a manufacturing plant was destroyed by fire resulting in a

financial loss of P 2,600,000.
The profit or loss for the year ended December 31, 2009 to reflect adjusting events is
1,750,000
3,290,000
2,600,000
690,000
Ans.
690,000
Each of the following events occurred after the reporting date of 31 March 2CY, but
before the financial statements were authorised for issue. Which would be treated as a
non-adjusting event under IAS 10 Events After the Reporting Period?
Select one:
A sale of goods in April 20CY which had been held in inventory at 31 March 20CY. The sale
was made at a price below its carrying amount at 31 March 20CY.
A public announcement in April 20CY of a formal plan to discontinue an operation which

had been approved by the board in February 20CY.
The settlement of an insurance claim for a loss sustained in December 20PY.
Evidence that P20,000 of goods which were listed as part of the inventory in the statement of
financial position as at 31 March 20CY had been stolen.
Ans.
A public announcement in April 20CY of a formal plan to discontinue an operation which had
been approved by the board in February 20CY.
A new drug named “EEE” was introduced by Genius Inc. in the market on December 1, 20Y1.
Genius Inc.’s financial year ends on December 31, 20Y1. It was the only company that was
permitted to manufacture this patented drug. The drug is used by patients suffering from an
irregular heartbeat. On March 31, 20Y2, after the drug was introduced, more than 1,000 patients
died. After a series of investigations, authorities discovered that when this drug was
simultaneously used with “BBB,” a drug used to regulate hypertension, the patient’s blood would
clot and the patient suffered a stroke. A lawsuit for P100,000,000 has been filed against Genius
Inc. The financial statements were authorized for issuance on April 30, 20Y2. Which of the
following options is the appropriate accounting treatment for this post–balance sheet event under
PAS 10?
The entity should provide P100,000,000 because this is an “adjusting event” and the financial
statements were authorized to be issued after the accident.
The entity should disclose P100,000,000 as a contingent liability because it is an “adjusting

event.”
The entity should disclose P100,000,000 as a “contingent liability” because it is a present

obligation with an improbable outflow.
Assuming the probability of the lawsuit being decided against Genius Inc. is remote, the entity
should disclose it in the footnotes, because it is a non-adjusting material event.
Ans.
The entity should disclose P100,000,000 as a “contingent liability” because it is a present
obligation with an improbable outflow.
International Inc. deals extensively with foreign entities, and its financial statements reflect these
foreign currency transactions. Subsequent to the balance sheet date, and before the “date of
authorization” of the issuance of the financial statements, there were abnormal fluctuations in
foreign currency rates. International Inc. should
Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in
foreign exchange rates
Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign
exchange rates (and not just adverse movements).
Disclose the post–balance sheet event in footnotes as a non-adjusting event.
Ignore the post–balance sheet event

Ans.
Disclose the post–balance sheet event in footnotes as a non-adjusting event.
Most likely a non-adjusting event
The settlement after the reporting period of a court case that confirms that the entity had a
present obligation at the end of the reporting period
The bankruptcy of a customer that occurs after the reporting period
The determination after the reporting period of the amount of profit-sharing or bonus payments
and the entity had a present legal or constructive obligation at the end of the reporting period to
make such payments
Decline in market value of investments between the end of the reporting period and the date
when the financial statements are authorized for issue
Ans.
Decline in market value of investments between the end of the reporting period and the date
when the financial statements are authorized for issue
Excellent Inc. built a new factory building during 20Y1 at a cost of P20 million. At December
31, 20Y1, the net carrying value of the building was P19 million. Subsequent to year-end, on
March 15, 20Y2, the building was destroyed by fire and the claim against the insurance company
proved futile because the cause of the fire was negligence on the part of the caretaker of the
building. If the date of authorization of the financial statements for the year ended December 31,
20Y1, was March 31, 20Y2, Excellent Inc. Should
Write off the net carrying value to its scrap value because the insurance claim would not fetch
any compensation
Make a provision for one-half of the net carrying value of the building
Make a provision for three-fourths of the net carrying value of the building based on prudence
Disclose this non-adjusting event in the footnotes

Ans.
Disclose this non-adjusting event in the footnotes
ABC Ltd. decided to operate a new amusement park that will cost P1 million to build in the year
20Y1. Its financial year-end is December 31, 20Y1. ABC Ltd. has applied for a letter of
guarantee for P700,000. The letter of guarantee was issued on March 31, 20Y2. The audited
financial statements have been authorized to be issued on April 18, 20Y2. The adjustment
required to be made to the financial statement for the year ended December 31, 20Y1, should be
Booking a P700,000 long-term payable

Disclosing P700,000 as a contingent liability in 2005 financial statement
Increasing the contingency reserve by P700,000
Do nothing
Ans.
Do nothing
During 2015, Orca Corp. decided to change from the FIFO method of inventory valuation
to the weighted-average method. Inventory balances under each method were as follows:
FIFO Weighted-average
January 1, 2015 P71,000 P77,000
December 31, 2015 P79,000 P83,000
Orca’s income tax rate is 30%.
In its 2015 financial statements, what amount should Orca report as the gain or loss on
the cumulative effect of this accounting change?
P2,800
P4,000
P4,200
P0
Ans.
P0
On December 31, 2011 Dean Company changed its method of accounting for inventory from the
average cost method to the FIFO method. This change caused the 2011 beginning inventory to
increase by $420,000. The cumulative effect of this accounting change to be reported for the year
ended 12/31/11, assuming a 40% tax rate, is
$420,000
$252,000
$168,000.
$0.
Ans.
$252,000
Per PAS 8, these are the specific principles, bases, conventions, rules and practices applied by
an entity in preparing and presenting financial statements.
Accounting policies
Generally accepted accounting principles
Accounting principles
Philippine Financial Reporting Standards
Ans.
Accounting policies
Denny Company completed construction of its warehouse on January 1, 2008 at a cost

of P2,000,000. Denny Company uses the cost model as its accounting policy. The
warehouse was to be depreciated under the straight-line method over useful period of
10 years with no expected residual value.
On January 1, 2011 Denny Company changes its accounting policy in the
measurement of its warehouse from cost model to revalued model. The following
information was derived from the independent appraiser hired by Denny Company: (a)
no changes in the original useful life of the warehouse; (b) the expected residual value
remains at P0; (c) sound value of the warehouse on January 1, 2010 and January 1,
2011 were computed as P2,236,500 and P2,520,000.
The depreciation expense for 2010 in the 2011 comparative income statement is
200,000
248,500
280,000
315,000
Ans.
200,000
During 20Y3, a construction company changed from the cost-recovery method to the
percentage-of-completion method for accounting purposes but not for tax purposes. Gross
profit figures under both methods for the past three years appear below:
Cost- Percentage-of-
Recovery Completion
20Y1 P 475,000 P 800,000
20Y2 625,000 950,000
20Y3 700,000 1,050,000
P1,800,000 P2,800,000
Assuming an income tax rate of 40% for all years, the affect of this accounting change on
prior periods should be reported by a credit of
P600,000 on the 2011 income statement.

P390,000 on the 2011 income statement
P600,000 on the 2011 retained earnings statement
P390,000 on the 2011 retained earnings statement.
Ans.
P390,000 on the 2011 retained earnings statement.
Jacob, Inc., changed from the average cost to the FIFO cost flow assumption in 2012. the
increase in the prior year`s income before taxes is €1,100,000. The tax rate is 35%.
Jacob’s 2012 journal entry to record the change in accounting policy will include.
a debit to Retained Earnings for €1,100,000.

a credit to Retained Earnings for €1,100,000.
a debit to Inventory for €715,000.
a credit to deferred Tax Liability for €385,000
Ans.
a credit to deferred Tax Liability for €385,000
An entity changed from an accounting principles that is not generally accepted to one that is
generally accepted. The effect of the change shall be reported , net of applicable income tax , in
the current year
Income statement as component of income from continuing operations

Income statement as component of discontinued operations
Retained earnings statement as an adjustment of the opening balance
Retained earnings statement after Profit but before dividends
Ans.
Retained earnings statement as an adjustment of the opening balance
Per PAS 8, it is applying a new accounting policy to transactions, other events and conditions as
if that policy had always been applied.
Retrospective application
Prospective restatement
Retrospective restatement
Prospective application
Ans.
Retrospective application
XYZ Inc. changes its method of valuation of inventories from weighted-average method to first-
in, first-out (FIFO) method. XYZ Inc. should account for this change as
A change in estimate and account for it prospectively

A change in accounting policy and account for it prospectively
A change in accounting policy and account for it retrospectively
Account for it as a correction of an error and account for it retrospectively
Ans.
A change in accounting policy and account for it retrospectively
On December 31, 20CY Dean Company changed its method of accounting for inventory from the
average cost method to the FIFO method. This change caused the 20CY beginning inventory to
increase by P420,000. The cumulative effect of this accounting change to be reported for the year
ended 12/31/CY, assuming a 40% tax rate, is
P420,000
P252,000
P168,000
P0
Ans.
P252,000
Iceman Corporation began operations in 2010. The company has been using the
first-in, first-out method in costing its raw materials. However, during 2012, Iceman
Corporation decided to change to average costing method. Inventory balances under
each method were as follows:
December 31, December 31, December 31,
2010 2011 2012
FIFO P 490,000 P 438,000 P 576,000
Average 465,000 374,000 482,000
In its 2012 statement of changes in retained earnings, Iceman Corporation should report a
cumulative effect of this accounting change of
P25,000
P64,000
P89,000
P183,000
Ans.
P64,000
During 20CY, Titus Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method were as
follows:
FIFO Weighted Average
January 1 7,100,000 7,700,000
December 31 7,900,000 8,300,000
Ignoring income tax, in its 20CY statement of retained earnings, what amount should
Titus report as the cumulative effect of this accounting change?
1,000,000 addition
1,000,000 deduction
600,000 addition
600,000 deduction
Ans.
600,000 addition
Which of the following statement is not correct?
A change from an in appropriate accounting policy to a proper one shall be accounted for
as an accounting error
A change from an in appropriate accounting policy to a proper one shall be accounted for
as an accounted for as a changed in accounting policy
A change from an inappropriate accounting policy to a proper one shall be accounted for
retrospectively
A change from an I appropriate accounting policy to a proper one may require an

adjustment to beginning retained for the earliest period reported
Ans.
A change from an in appropriate accounting policy to a proper one shall be accounted for as an
accounted for as a changed in accounting policy
The effect of a change in accounting policy that is inseparable from the effect of a change in
accounting estimates shall be reported
By restating the financial statement of all prior period presented
As a correction of an error
As a component of income from continuing operations in the period of change and future periods
if the change affects both
As a separate disclosure after income from continuing operations , in the period of change and
future periods if the changed affects both.
Ans.
As a component of income from continuing operations in the period of change and future periods
if the change affects both
Denny Company completed construction of its warehouse on January 1, 2008 at a cost

of P2,000,000. Denny Company uses the cost model as its accounting policy. The
warehouse was to be depreciated under the straight-line method over useful period of
10 years with no expected residual value.
On January 1, 2011 Denny Company changes its accounting policy in the
measurement of its warehouse from cost model to revalued model. The following
information was derived from the independent appraiser hired by Denny Company: (a)
no changes in the original useful life of the warehouse; (b) the expected residual value
remains at P0; (c) sound value of the warehouse on January 1, 2010 and January 1,
2011 were computed as P2,236,500 and P2,520,000.
The revaluation surplus recognized on January 1, 2011 as a result of the change in
accounting policy from cost to revalued model is
0
520,000
636,500
1,120,000
Ans.
1,120,000
During 2011, Eden Company made the following accounting policy changes:
 Change from straight-line method to the declining balance method of depreciation
for its manufacturing equipment. The equipment was acquired on January 1, 2009
for P1,200,000; expected useful life of 10 years with no expected residual value.
 Change from completed contract to percentage of completion with respect to a
specially made unit for a contract price of P750,000. The total estimated cost of
manufacturing the unit remained the same at P400,000 since Eden Company
started on the project in 2009. Cost incurred for 2009, 2010 and 2011 were
P120,000, 180,000 and P100,000 respectively.
The adjustment to the opening balance of the retained earnings as shown in the 2011
statement of changes in equity as a result of the above-mentioned changes in accounting
policy is
0
192,000
262,500
454,500
Ans.
262,500
On January 1, 2009, Neal Corporation acquired equipment at a cost of $540,000. Neal adopted
the sum-of-the-years-digits method of depreciation for this equipment and had been recording
depreciation over an estimated life of eight years, with no residual value. At the beginning of
2012, a decision was made to change to the straight-line method of depreciation for this
equipment. The depreciation expense for 2012 would be?
$28,125
$45,000
$67,500.
$108,000.
Ans.
$45,000
During 2009, Titus Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method
were as follows:
FIFO Weighted Average
January 1 7,100,000 7,700,000
December 31 7,900,000 8,300,000
Ignoring income tax, in its 2009 statement of retained earnings, what amount should Titus
report as the cumulative effect of this accounting change?
1,000,000 addition
1,000,000 deduction
600,000 addition
600,000 deduction
Ans.
600,000 addition
On January 1, 2009, Knapp Corporation acquired machinery at a cost of $250,000. Knapp

adopted the double-declining balance method of depreciation for this machinery and had been
recording depreciation over an estimated useful life of ten years, with no residual value. At the
beginning of 2012, a decision was made to change to the straight-line method of depreciation for
the machinery. The depreciation expense for 2012 would be?
$12,800
$18,286
$25,000
$35,714
Ans.
$18,286
It is an adjustment of the carrying amount of an asset or a liability or the amount of the periodic
consumption of an asset that results from the assessment of the present status and expected future
benefit and obligation associated with the asset and liability.
Change in accounting estimates

Change in accounting policy
Correction of a prior period error
Change in reporting entity
Ans.
Change in accounting estimates
Which of the following is not correct regarding the provision of PAS 8?
A change in accounting estimates is reflected in the current and future period.

A change in depreciation method is classified as a change in accounting estimates.
A change in depreciation method is classified as a change in accounting policy.
PAS 8 generally reflect a preference for restating prior results to improve comparability of
financial statements.
Ans.
A change in depreciation method is classified as a change in accounting policy.
Which of the following is not a justifications for a change in depreciations method?
A change in the estimated useful life of an asset as a results of unexpected obsolescence.

A change in the pattern of receiving the estimated future benefits from an asset.
To conform with the depreciations method prevalent in a particular industry.
A change in the estimated future benefits from the asset.
Ans.
To conform with the depreciations method prevalent in a particular industry.
The effect of a change in an accounting estimate shall be recognized prospectively by including

it in profit or loss in:
The period of the change, if the change affects that period only.
The period of the change and prior periods, if the change affects both.
Either the period of the change, if the change affects that period or the period of the change and
prior periods, if the change affects both
Neither the period of the change, if the change affects that period nor the period of the change
and prior periods, if the change affects both
Ans.
The period of the change, if the change affects that period only.
Which statement is incorrect concerning accounting estimate?
As a result of the uncertainties inherent in business activities, many items in financial statements
cannot be measured with precision but can only be estimated.
The use of reasonable estimate is an essential part of the preparation of financial statements and
does not undermine their reliability.
An estimate may need revision if changes occur in the circumstances on which the estimate was
based or as a result of new information or more experience.
By its very nature, the revision of an estimate relates to a prior period and is a correction of
error.
Ans.
By its very nature, the revision of an estimate relates to a prior period and is a correction of
error.
On January 1, 2009, Piper Co., purchased a machine (its only depreciable asset) for
$300,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-
digits depreciation has been used for financial statement reporting and the elective
straight-line method for income tax reporting. Effective January 1, 2012, for financial
statement reporting, Piper decided to change to the straight-line method for depreciation
of the machine. Assume that Piper can justify the change. Piper's income before
depreciation, before income taxes, and before the cumulative effect of the accounting
change (if any), for the year ended December 31, 2012, is $250,000. The income tax rate
for 2012, as well as for the years 2009-2011, is 30%. What amount should Piper report as
net income for the year ended December 31, 2012?
$60,000
$91,000
$154,000
$175,000
Ans.
$154,000
On January 1, 2009, Hess Co. purchased a patent for $595,000. The patent is being amortized
over its remaining legal life of 15 years expiring on January 1, 2024. During 2012, Hess
determined that the economic benefits of the patent would not last longer than ten years from the
date of acquisition. What amount should be reported in the statement of financial position for the
patent, net of accumulated amortization, at December 31, 2012?
$357,000
$408,000
$420,000
$436,375
Ans.
$408,000
On January 1, year 1, Taft Co. purchased a patent for $714,000. The patent is being
amortized over its remaining legal life of fifteen years expiring on January 1, year 16.
During year 4, Taft determined that the economic benefits of the patent would not last
longer than ten years from the date of acquisition. What amount should be reported in the
balance sheet for the patent, net of accumulated amortization, at December 31, year 4?
$428,400
$489,600
$504,000
$523,600
Ans.
$489,600
When an independent valuation expert advises an entity that the residual value of its
plants and machinery had drastically change and the change is material , the entity shall
Retrospectively change the depreciations charged based on the revised residual value.
Change the depreciations charged and treat it as a corrections of an error.
Change the annual depreciations for the current year and future year.
Ignore the effect of the change on annual depreciations because change in residual value
would normally affect the future only since this is expected to be recovered in the future.
Ans.
Change the annual depreciations for the current year and future year.
Which of the following should be reported as a change in accounting estimates?
Change in the reported beginning inventory amount due to a discovery of a bookkeeping

error.
Change from the completed contract method to the percentage of completion method for
revenue recognition on long term constructions contracts.
Increase in the rate applied to net credit sales from one percent to two percents in
determining losses from uncollectible receivables.
Change made to comply with a new PFRS.

Ans.
Increase in the rate applied to net credit sales from one percent to two percents in determining
losses from uncollectible receivables.
Which of the following is characteristic of a change in an accounting estimates?
It usually need not be disclosed.

It does not effect the financial statement of prior period.
It should be reported through the restatement of the financial statement.
It makes necessary the reporting of pro forma amounts for prior period.
Ans.
It does not effect the financial statement of prior period.
Per PAS 8, it is an adjustment of the carrying amount of an asset or a liability, or the amount of
the periodic consumption of an asset, that results from the assessment of the present status of,
and expected future benefits and obligations associated with, assets and liabilities.
Correction of error
Prior period error
Change in accounting estimate
Prospective application
Ans.
Change in accounting estimate
Which of the following is the proper time period in which to record a change in
accounting estimates
Current period and future period.

Current period and retroactively.
Retroactively only.
Current period only.
Ans.
Current period and future period.
The effect of a change in accounting estimate shall be recognized currently and

prospectively by including it in income or loss of
I. The period of change if the change effect that period only
II. The period of hange and future period if the change affect both
I only
II only
Both I and II
Neither I nor II
Ans.
Both I and II
Prospective recognition of the effect of a change in an accounting estimates means that the
change is applied to transaction from the?
Date of the change in estimates.

End of the current reporting period.
Beginning of the year of change.
Date of issuance of financial statement.
Ans.
Date of the change in estimates.
On January 1, year 1, Flax Co. purchased a machine for $528,000 and depreciated it by the
straight-line method using an estimated useful life of eight years with no salvage value. On
January 1, year 4, Flax determined that the machine had a useful life of six years from the date of
acquisition and will have a salvage value of $48,000. An accounting change was made in year 4
to reflect these additional data. The accumulated depreciation for this machine should have a
balance at December 31, year 4, of?
$292,000
$308,000
$320,000
$352,000
Ans.
$292,000
A change in the residual value of an asset arising because additional information has been
obtained is?
An accounting change that should be reported in the period of change and future period if the
changed affects both.
An accounting changed that should be reported by restating the financial statement of all prior
periods presented.
A correction of an error.
Not an accounting change.

Ans.
changed affects both.
When an entity changed the expected service life of an asset because additional information has
been obtained , which of the following should be reported?
Cumulative effect of change in accounting policy.
Proforma effect of retroactive application.
Prior period error.
An accounting changed that should be reported in the period of change and future period if the
change affects both.
Ans.
An accounting changed that should be reported in the period of change and future period if the
change affects both.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000. Nobel adopted
the straight-line method of depreciation for this machine and had been recording depreciation
over an estimated life of ten years, with no residual value. At the beginning of 2012, a decision
was made to change to the double-declining balance method of depreciation for this machine.
Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained
earnings, is?
$67,200.
$0.
$78,960.
$112,800
Ans.
$0.
A change in the unit depletion rate would be accounted for as a
Correction of an accounting error.

Change in accounting policy.
Change in accounting estimates.
Change in accounting estimates effected through a change in accounting policy.
Ans.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000. Nobel adopted
the straight-line method of depreciation for this machine and had been recording depreciation
over an estimated life of ten years, with no residual value. At the beginning of 2012, a decision
was made to change to the double-declining balance method of depreciation for this machine.
The amount that Nobel should record as depreciation expense for 2012 is?
$60,000
$84,000
$120,000
none of the above
Ans.
$120,000
When an entity changed from the straight line method of depreciation for previously recorded
assets to the double declining balance method , which of the following should be reported ?
Cumulative effect of change in accounting policy.

Proforma effect of retroactive applications.
Prior period error.
Ans.
For the prior year , an entity estimated its two year equipment warranty cost based on a certain
amount per unit sold in the prior year. Experience during the current year indicated that the
estimates should have been higher than the previous year. The effect of these increase in the
estimates is reported
In income from continuing operations of the current year.
As an accounting change , net of tax , below income continuing operations of the current year.
As an accounting change requiring financial statements of the prior year to be restated.
As A correction of an error requiring financial statements of the prior year to be restated.

Ans.
In income from continuing operations of the current year.
On January 1, 2008, Lake Co. purchased a machine for $792,000 and depreciated it by the
straight-line method using an estimated useful life of eight years with no residual value. On
January 1, 2011, Lake determined that the machine had a useful life of six years from the date of
acquisition and will have a residual value of $72,000. An accounting change was made in 2011 to
reflect these additional data. The accumulated depreciation for this machine should have a
balance at December 31, 2011 of?
$438,000.
$462,000
$480,000.
$528,000
Ans.
$438,000.
A change in the period benefited by a deferred cost because additional information has been
obtained is
change affect both.
An accounting change that should be reported by restating the financial statements of all prior
presented.
A correction of an error.
Not an accounting changed.

Ans.
change affect both.
A change in the estimated useful life of a building
Is not allowed by generally accepted accounting principles .
Affect the depreciations on the building beginning with the year of the change.
Must be handle as a retroactive adjustment to all accounts affected , back to the year of the
acquisitions of the building.
Creates a new accounts to be recognized in the income statement reflecting the difference in net
income up to the beginning the year of change.
Ans.
Affect the depreciations on the building beginning with the year of the change.
How should the effect of a change in accounting estimates be accounted for?
By restating amounts reported in financial statements of prior periods.

By reporting pro forma amounts for prior period.
As a prior periods adjustment to beginning retained earnings.
In the period of change and future period if the changed affects both.
Ans.
In the period of change and future period if the changed affects both.
A change in amortization rate, such as on a copyright should be accounted for?
retroactively.
by recording a prior period adjustment.
Prospectively
Currently
Ans.
Prospectively
The effect of a changes in the expected pattern of consumption of economic benefits of a

depreciable assets shall be?
Included in the determinations of income or loss in the period of change only.

Included in the determination of income or loss in the period of change and future period.
Included in the statement of retained earnings as an adjustment of the beginning balance.
Included as component of other comprehensive income.
Ans.
Included in the determination of income or loss in the period of change and future period.
The estimated life of building that has been depreciated 30 years of an originally estimated life
of 50 years has been revised to a remaining life of 10 years . Based o this information the
accountant shall
Continue to depreciates the building over the original 50 year life.
Depreciate the remaining book value over the remaining life of the asset.
Adjust accumulative depreciation to its appropriate balance , through net income base on a 40 –
year life then depreciate the adjusted book value as though the estimated life had always been 40
years.
Adjust accumulated depreciation to its appropriate balance , trough retained earnings ,based on
40- year life and then depreciate the adjusted book value as though the estimated life had always
been 40 year.
Ans.
Depreciate the remaining book value over the remaining life of the asset.
In 2009, a firm changed from straight-line (SL) method of depreciation to double

declining balance (DDB). The firm’s 2008 and 2009 comparative financial statements
will reflect method or methods
2008 2009
SL SL
SL DDB
DDB DDB
SL either SL or DDB
Ans.
SL DDB
A change from the straight line method of depreciations to an accelerated method shall be
accounted for as
Change in accounting policy.

Prior period error.
Accounting error.
Ans.
On January 1, 2013, Warren Co. purchased a P600,000 machine, with a five-year useful
life and no salvage value. The machine was depreciated by an accelerated method for
book and tax purposes. The machine’s carrying amount was P240,000 on December 31,
2014. On January 1, 2015, Warren changed to the straight line method for financial
reporting purposes. Warren can justify the change. Warren’s income tax rate is 30%.
In its 2015 income statement, what amount should Warren report as the cumulative effect
of this change?
P120,000
P 84,000
P 36,000
P0
Ans.
P0
When an independent valuation expert advises an entity that the salvage value of its plant and
machinery had drastically changed and thus the change is material, the entity should?
Retrospectively change the depreciation charge based on the revised salvage value.
Change the depreciation charge and treat it as a correction of an error.
Change the annual depreciation for the current year and future years.
Ignore the effect of the change on annual depreciation, because changes in salvage values would
normally affect the future only since these are expected to be recovered in future.
Ans.
Change the annual depreciation for the current year and future years.
An accounting estimate may be revised
if changes occur regarding the circumstances on which the estimate was based.
anytime.
if an error was made in prior periods.
if it will increase net income.
Ans.
if changes occur regarding the circumstances on which the estimate was based.
On October 1, 2011 Acts Company approved the disposal of its subsidiary. The sale
of which was expected to be completed by July of 2012.
The following information in relation to the subsidiary is as follows:

January 1 – September October 1 – December
30 31
Revenues 17,500,000 7,500,000
Expenses 13,500,000 5,000,000
The carrying amount of the subsidiary’s net assets at December 31, 2011 was
P28,000,000 and the fair value less cost to sell was P30,500,000.
The sale contract requires Acts Company to terminate certain employees and the
expected cost is estimated at P2,000,000. Income tax rate for 2011 is 30%
The amount reported as income (loss) from discontinued operations is

3,150,000
4,900,000
4,550,000
6,300,000
Ans.
3,150,000
On September 30, 2009, when the carrying amount of the net assets of a business segment was
P70, 000,000, Young Company signed a legally binding contract to sell the business segment.
The sale is expected to be completed by January 31, 2010 at selling price of P60, 000,000. In
addition, prior to January 31, 2010 the sale contract obliges Young Company to terminate the
employment of certain employees of the business segment incurring an expected termination cost
of P2, 000,000 to be paid on June 30, 2010. The segment’s revenue and expenses for 2009 were
P40, 000,000 and P45, 000,000 respectively. Before income tax, how much will be reported as
loss from discontinued operation for 2009?
17,000,000
12,000,000
15,000,000
7,000,000
Ans.
17,000,000
Enron Company decided on August 1, 2009 to dispose of a component of its business. The
component was sold on November 30, 2009. Enron’s income for 2009 included income of P5,
000,000 from operating the discontinued segment from January 1 to the sale date. Enron incurred
a loss on the November 30 sale of P4, 500,000. Ignoring income tax, what amount should be
reported in the 2009 income statement as income or loss under “discontinued operation”?
4,500,000 loss
5,000,000 income
500,000 loss
500,000 income
Ans.
500,000 income
The following statement relate to a discontinue operation .Which statement is true?

I. When the discontinue criteria are met after the date of the
reporting period , the operations shall retrospectively be separately presented
as a discontinue operations
II. The net cash flow attributable to the operating investing , and
financing activities of a discontinue operations shall be separately presented.
I only
II only
Both I and II
Neither I nor II
Ans.
II only
A discontinued operations is a component of an entity that either has been disposed of or
is classified as held for sale and
I. Represents a separate major line of business or geographical area of operations.
II. Is a Part of a single co- ordinate plan to dispose of a separate major line of
business or business or geographical area of operations.
III. Is a subsidiary acquire exclusively with a view to resale.
.
I only
I and II only
I and III only
I, II and III
Ans.
I, II and III
On November 1, 2011 Romans Company approved the disposal of its subsidiary.

The sale of which was expected to be completed by March of 2012.
January 1 – October 30 November 1 –

December 31
Revenues 8,500,000 2,500,000
Expenses 7,500,000 3,000,000
The sale contract requires Romans Company to terminate certain employees and
the expected cost is estimated at P1,000,000.
The amount reported as income (loss) from discontinued operations is
(2,500,000)
(1,500,000)
(500,000)
500,000
Ans.
(2,500,000)
A discontinued operation is defined as
Derivative
Financial assets
Financial liability
Equity instrument
Ans.
Derivative
An entity manufacture and sell household products . The entity experienced losses associated
with its small appliance group. Operations and cash flow for this group can be clearly
distinguished from the rest of the entity operations . The entity plans to sell the small appliance
group with its operations . What is the earliest point at which the entity shall report the small
appliance group as a discontinued operations.
When the entity classifies it as held for sale

When the entity received an offer for the segments
When the entity first sell any of the assets of the segment
When the entity sells the majority of the assets of the segment
Ans.
When the entity classifies it as held for sale
Which of the following is a requirement for a component of an entity to be classified as a

discontinued operation?
Its activity must cease permanently prior to the financial statement being authorized for issue by
management.
It must comprise a separately reportable segment in accordance with PFRS 8 operating segments.
Its assets must have been classified as held for sale in the previous financial statement.
It must have been cash generating units while being held for use
Ans.
It must have been cash generating units while being held for use
Which is incorrect concerning the presentations of the discontinued operations in the statements
of financial positions?
Asset of the component held for sale are presented separately from all other assets of the entity
Asset of the component held for sale are measured at the higher of fair value less cost to sell and
their carrying amount
Liabilities of the component held for sale are presented separately from all other liabilities of the
entity
Depreciations assets of the component held for sale shall not be depreciated
Ans.
Asset of the component held for sale are measured at the higher of fair value less cost to sell and
their carrying amount
A component of an entity is classified as a discontinued operation
I. When the entity has actually disposed of the operation
II. When the operation meets the criteria to be classified as “held for sale”
Both I and II
Neither I nor II
I only
II only
Ans.
Both I and II
Booker Company committed to sell its comic book division (a component of the business)
on September 1, 2009. The carrying amount of the division was P4,000,000 and the fair
value was P3,500,000. The disposal date is expected to be June 1,2010. The division
reported an operating loss of P200,000 for the year ended December 31, 2009. Ignoring
income tax, what amount should be reported as loss from discounted operation in 2009?
500.000
200,000
700,000
0
Ans.
700,000
What is the presentation of the results from discontinued operation in the income statements?
The entity shall disclose a single amount on the face of the income statement with analysis in the
notes or a sections of the income statement separate from continuing operations
The amount of discontinue operations shall be broken down over each category of revenue and
expense
Discontinued operations shall be shown as a movement on retained earnings
Discontinued operations shall be shown as a line item after gross profit with the taxation being
shown as part of income tax expense.
Ans.
The entity shall disclose a single amount on the face of the income statement with analysis in the
notes or a sections of the income statement separate from continuing operations
Which of the following is a discontinued operation?

An entity has three machines located in one plant. All of the machines produce the same product.
The entity significantly scales down its operations by disposing of one of the machines.
An entity has three machines located in one plant. Each machine produces a completely different
product and each machine is managed as a separate business unit. The entity significantly scales
down its operations by disposing of one of the machines and in doing so discontinues
manufacturing one of its three products.
An entity has three plants that all produce the same product. Each plant is located in a separate
continent and sells its output to customers local to the plant in which the product is
manufactured. The entity scales down its operations by disposing of one of the plants.
Both (b) and (c) above

Ans.
Both (b) and (c) above
On November 1, 2016, management of Myto Corporation committed to a plan to dispose of

Timms Company, a major subsidiary. The disposal meets the requirements for classification as
discontinued operations. The carrying value of Timms Company was P8,000,000 and
management estimated the fair value less costs to sell to be P6,500,000. For 2016, Timms
Company had a loss of P2,000,000. How much should Myto Corporation present as loss from
discontinued operations before the effect of taxes in its income statement for 2016?
P0
P1,500,000
P2,000,000
P3,500,000
Ans.
P3,500,000
On the Statement of Comprehensive Income, income from discontinued operations is shown
As a separate section of income from continuing operations

As a separate item after income from continuing operations, before income tax
As a separate item after income from continuing operations, net of income tax
Combined with revenues and expenses of continuing operations.
Ans.
As a separate item after income from continuing operations, net of income tax
It comprises operations and cash flow that can be clearly distinguished , operationally and
for financial reporting purposes from the rest of the entity
Component of an entity
Disposal group
Business segments
Corporate asset
Ans.
Component of an entity
The discontinued operations section of the Statement of Comprehensive Income is comprised of
which one of the following?
Post-tax gain or loss from the disposal of discontinued business segment
Post-tax Income from the discontinued operation of the business segment and post-tax gain or
loss from the disposal of the discontinued operations or post-tax gain or loss from measurement
to realizable value of net assets.
Pretax Income from the discontinued operation of the business segment and pretax gain or loss
from the disposal of the discontinued operations or pretax gain or loss from measurement to
realizable value of net assets.
Pretax gain or loss from the disposal of the discontinued business segment.
Ans.
Post-tax Income from the discontinued operation of the business segment and post-tax gain or
loss from the disposal of the discontinued operations or post-tax gain or loss from measurement
to realizable value of net assets.
On November 1, 2011 Romans Company approved the disposal of its subsidiary.

The sale of which was expected to be completed by March of 2012.
January 1 – October 30 November 1 –

December 31
Revenues 8,500,000 2,500,000
Expenses 7,500,000 3,000,000
The sale contract requires Romans Company to terminate certain employees and
the expected cost is estimated at P1,000,000.
The amount reported under “disposal group held for sale” in Romans Company’s
December 31, 2011 statement of financial position is
16,000,000
18,000,000
15,000,000
15,500,000
Ans.
16,000,000
A component of an entity is classified as a continue operations

I. When the entity has actually disposed of the operations
II. When the operations meets the criteria to be classified as “
held” for sale.”
Either I or II
Neither I nor II
I only
II only
Ans.
Either I or II
Which of the following criteria does not have to be met in order for an operations to be
classified as discontinued
The operations shall represents a separate major line of business or geographical area.
The operations is part of a single plan to dispose of a separate major line of business or
geographical area.
The operations is a subsidiary acquired exclusively with a view to re sale.
The operations must be sold within three months of the year - end
Ans.
The operations must be sold within three months of the year - end

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When the classification of items in its financial statements is changed, the entity

must not reclassify the comparative amount

Which of the following statements is incorrect in relation to fair presentation?

Items of dissimilar nature or function

must be presented separately in financial statements if those items are material

must be disclosed only in the notes

An entity presents an analysis of expenses using a classification based on

the nature of expenses

the function of expenses

The following information provided by Maricar Company in preparing

Actuarial loss on employee benefts

purchases of materials, transport costs, employee benefits, depreciation, extraordinary

purchases of materials, distribution costs, administrative costs, employee benefits,

depreciation, purchases of materials, employee benefits and advertising costs

cost of sales, administrative expenses, distribution expenses etc.

Retained earnings is a subcategory of

Statement of Financial Positions.

Total comprehensive income for the period

Profit or loss for the period

II, III, and IV

Which of the following should be presented in the statement of changes in equity?

Choose the correct statement

Which information should be disclosed in the summary of significant accounting policies?

Guarantee of indebtedness of others.

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

I. Disclosure of information about key sources of estimation uncertainly

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

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

I. Disclosure of information about key sources of estimation uncertainly

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

Which information should be disclosed in the summary of significant accounting policies?

It is a financing cash outflow

It reduced income without causing a cash outflow

It increase income with a cash flow

How much was the cash flow operating activities?

· All purchases of inventory were on account.

Cash flows from operations 4,000,000

Depreciation expense 400,000

Corinthians Company prepared the following balance sheet data.

Accounts payable 613,500 945,000

 Corinthians Company issued 10,000 common shares as settlement for the

All purchases of inventory were on account. Mahogany Company provided the

Net income 3,400,000

Increase in accounts receivable 300,000

Corinthians Company prepared the following balance sheet data.

Accounts payable 613,500 945,000

 Corinthians Company issued 10,000 common shares as settlement for the

The cash provided by (used in ) financing activities is

Cash receipts from issuance of ordinary shares 4,000,000

The net cash provided by operating activities is?

The direct method

Cash receipts from royalties, fees, commissions and other revenue.

Increase in an accrued liability

Interest paid, net of amounts capitalized

Net cash from operating activities 995

The company has good working capital management

Net cash flow from operating activities

Gain on sale of investments

Purchase of plant assets 2,800,000

When preparing a reconciliation of net income to cash from operations , an increase in