P1

The principles, which constitute the ground rules for financial reporting, are termed as generally accepted accounting principles. To qualify as generally accepted, an accounting principle:

• must guide corporate managers in the preparation of financial statements which should be understood by widely scattered stockholders.

• must guide corporate managers in the preparation of financial statements which will be used in making collective bargaining agreements with trade unions.

• must guide entrepreneurs in the choice of investments.

• must receive substantial authoritative support from the public and the members of the profession.

In accounting, those standards and practices that have won acceptance because of their logic and proven usefulness are referred to as:

• accounting dogmas

• accounting principles

• accounting procedures

• accounting theories

Financial statements that are expressed assuming a stable monetary unit are:

• general price-level financial statements.

• historical peso financial statements.

• current value financial statements.

• air-value financial statements.

As compared with other valuation alternatives that are used in the preparation of general-purpose financial statements, historical cost is more:

• objective.

• relevant.

• indicative of the entity’s purchasing power.

• conservative.

The cash or operating cycle refers to:

• the length of time that elapses between an outlay of cash for resources and the receipt of cash from the sale of goods or services

• the length of time that elapses between the time an item is purchased and payment is made

• the length of time it takes to collect receivables from customers who have been extended special credit terms

• none

The cash balance your company reports should be increased if in doing the bank reconciliation discover:

• a note receivable has been collected for you by the bank

• not all of the checks written this period have yet cleared the bank

• a check from one of your customers has been returned for insufficiency of funds

• a deposit in transit included in your bank reconciliation last period is shown by the bank as received at the beginning of this period

Patsy Corp. has estimated its activity for December 2008. Selected data from these estimated amounts are as follows:

Sales P350,000

Gross profit (based on sales) 30%

Increase in trade accounts receivable P 10,500

Change in accounts payable P 0

Increase in inventory P 5,000

Variable selling, general and administrative expenses includes a charge for uncollectible accounts of 1% of sales. Accounts written off were P3,000.

On the basis of the above data, what is the cash inflow from operating activities for December?

• P336,500

• P339,500

• P346,500

• P350,000

When a note is discounted, the party receiving the proceeds is referred to as:

• the maker

• the payee

• the payor

• the endorser

Which method of recording bad debts is consistent with accrual accounting?

• the entire receivables are shown as current without disclosure of the amount not currently due

• the entire receivables are shown as noncurrent

• only the portion currently due is shown as current the balance as noncurrent

• is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year-end

In an audit of Selena Company on December 31, 2009, the following information is gathered:

Balance per book 6,700,000

Customer’s check 200,000

Depositor’s note charged to account 650,000

Customer’s note collected by bank 120,000

Outstanding checks 800,000

Checkbook printing charge 2,000

Certified checks included in the outstanding checks 100,000

Deposit in transit 1,200,000

Interest earned on deposits net of 20% final tax 32,000

• 6,050,000

• 6,700,000

• 6,000,000

• 5,300,000