Free Printable Philippine Accounting Standards 8

Worksheets

Philippine Accounting Standards 8

Total questions: 75

Worksheet time: 40mins

Name

Class

Date

How should the effect of a change in accounting estimate be accounted for?

By restating amounts reported in financial statements of prior periods.

By reporting proforma amounts for prior periods.

As a prior period, adjustment to beginning retained earnings

In the period of change and future periods if the change affects both.

Which of the following is characteristic of a change in accounting estimate?

It usually need not be disclosed.

It does not affect the financial statements of prior period.

It should be reported through the restatement of the financial statements.

It makes necessary the reporting of proforma amounts for prior periods.

1. When an entity changed from the straight line method of depreciation to the double declining balance method, which of the following should be reported?

Cumulative effect of change in accounting policy.

Proforma effect of retroactive application

Prior period error

An accounting change that should be reported currently and prospectively.

Accounting changes are often made even though this may be a violation of the accounting concept of

Materiality

Consistency

Prudence

Objectively

Which is not classified as an accounting change?

Change in accounting policy

Change in accounting estimate

Error in the financial statements

All of these are classified as an accounting change.

Which is the first step within the hierarchy of guidance when selecting accounting policies?

Apply a standard from PFRS if it is specifically relates to the transaction.

Apply the requirements in PFRS dealing with similar and related issues.

Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual Framework.

Consider the most recent pronouncements of other standard setting bodies

Why is an entity permitted to change an accounting policy?

The change would allow the entity to present a more favorable profit picture.

The change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flows.

The change is made by the internal auditor.

The change is made by the CPA.

A change in accounting policy requires what kind of adjustment to the financial statements?

Current period adjustment

Prospective adjustment

Retrospective adjustment

Current and prospective adjustment

The change in accounting policy requires that the cumulative effect of the change for prior periods should be reported as an adjustment to

Beginning retained earnings for the earliest period presented.

Net income for the period in which the change occurred.

Comprehensive income for the earliest period presented.

Shareholders’ equity for the period in which change occurred.

10.

A change in accounting policy includes all of the following except

The initial adoption of an accounting policy to carry asset at revalued amount.

The change from cost model to revaluation model in measuring property, plant, and equipment

A change in measurement basis

A change from one method of depreciation to a different method of depreciation.

11.

When financial statements for a single year are being presented, a prior period error should

Be shown as an adjustment of the balance of retained earnings at the start of the current year.

Affect net income of the current year.

Be shown in the statement of changes in equity

Be included in other comprehensive income

12.

Prior period errors

Do not include the effect of a mistake in the application of accounting policy

Do not affect the presentation of prior period comparative financial statements

Do not require further disclosure in the body of the financial statements

Are reflected as adjustment of the opening balance of retained earnings of the earliest period presented.

13.

An example of a correction of an error in previously issued financial statements is a change

From FIFO method of inventory valuation to the average method

In the service life of property, plant and equipment

From cash basis to accrual basis of accounting

In the tax assessment related to a prior period.

14.

If it is impracticable to determine the cumulative effect of an accounting change to any of the prior periods, the accounting change should be accounted for

As a prior period adjustment

On a prospective basis

As a cumulative effect change on the income statement

As an adjustment to retained earnings.

15.

When an entity changed the expected service life of an asset, which of the following should be reported?

Cumulative effect of change in accounting policy

Proforma effect of retroactive application

Prior period error

An accounting change that should be reported in the period of change and future periods.

16.

Accrual-basis accounting involves recording revenues when earned and recording expenses with their related revenues.

True

False

17.

The revenue recognition principle states that we record revenue in the period in which we collect cash.

True

False

18.

According to the revenue recognition principle, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current.

True

False

19.

Jones Corporation provides services to a customer on June 17, but the customer does not pay for the services until August 12. According to the revenue recognition principle, Jones Corporation should record the revenue on August 12.

True

False

20.

According to the matching principle, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the current year.

True

False

21.

The revenue recognition principle states that:

Revenue should be recognized in the period the cash is received.

Revenue should be recognized in the period earned.

Revenue should be recognized in the balance sheet.

Revenue is a component of common stock

22.

The matching principle is the principle that states:

All costs that are used to generate revenue are recorded in the period the revenue is recognized.

All transactions are recorded at the exchange price.

The business is separate from its owners.

The business will continue to operate indefinitely unless there is evidence to the contrary.

23.

Resources owned by the company that will provide a benefit for more than one year are called:

Current assets.

Current liabilities

Long-term assets

Revenue

24.

Cebu Pacific collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Cebu Pacific have recognized this revenue?

January

February

April

Evenly in each of the three months

25.

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

November

December

Evenly in each of the two months.

One-third in November and two-thirds in December.

26.

Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual basis or cash-basis accounting?

Received P600 from customers for services to be provided in May.

Paid P1,800 for a six-month insurance policy covering the period July 1—December 31.

Paid P700 for an advertisement that appeared in the April 17 edition of the StarSun newspaper.

Received P300 from customers for services performed in March.

27.

Received P600 from customers for services to be provided in May.

Paid P1,800 for a six-month insurance policy covering the period July 1—December 31.

Paid P700 for an advertisement that appeared in the April 17 edition of the StarSun newspaper.

Received P300 from customers for services performed in March.

28.

December 28, 2020 - Bills was contacted by a customer for possible accounting and tax services.

December 30, 2020 - Bills signed a formal agreement with the customer to provide accounting and tax services in 2021.

January 4, 2021 - The customer paid P1,000 in advance for the services to be provided by Bills Company.

January 11, 2021 - Bills provided accounting and tax services to the customer.

Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

December 30,2020

December 31, 2020

January 4, 2021

January 11, 2021

29.

I - Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.

II - Assets on the balance sheet are recorded at market value or replacement cost.

I is correct, II is incorrect

I is incorrect, II is correct

Both I & II are correct

Both I & II are incorrect

30.

I - In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners. II - The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.

a) I is correct, II is incorrect

b) I is incorrect, II is correct

c) Both I & II are correct

d) Both I & II are incorrect

31.

I – Financial reporting provide information that is useful to solve internal and external conflicts about an entity II – Financial reporting provides information that is useful in assessing the amount, timing and uncertainty of prospective cash receipts.

a) I is correct, II is incorrect

b) I is incorrect, II is correct

c) Both I & II are correct

d) Both I & II are incorrect

32.

I – Comparability is the ability through consensus among measurers to ensure that information represents what it purports to represent. II – Recognition is the process of determining the monetary amounts at which the elements of the financial statements are recognized in the financial statements.

a) I is correct, II is incorrect

b) I is incorrect, II is correct

c) Both I & II are correct

d) Both I & II are incorrect

33.

I- Current cost is the amount of cash that would have to be paid if the asset was acquired currently. II – Historical cost is the amount that represents the immediate purchase cost of an asset.

a) I is correct, II is incorrect

b) I is incorrect, II is correct

c) Both I & II are correct

d) Both I & II are incorrect

34.

The term used for economic resources owned by an entity as a result of past transactions is

a. Assets

b. Liabilities

c. Revenues

d. Retained earnings

35.

Which of the following items is an expense?

a. Accounts Payable

b. Cost of Goods Sold

c. Accounts receivable

d. Sales revenue

36.

I - The time period assumption allows a company to meet the qualitative characteristic of relevance by allowing for timelier reporting of financial information. II - The matching principle states that expenses are recognized when incurred in generating revenue.

a) I is correct, II is incorrect

b) I is incorrect, II is correct

c) Both I & II are correct

d) Both I & II are incorrect

37.

Which of the following is true about the time period assumption?

a. It assumes we value the business properly as of the end of every month.

b. It is the cutoff point for asset and liability recognition.

c. It keeps the company's transactions separate and apart from those of the owners.

d. It assumes we divide the long life of a business into a series of shorter time periods for accounting and reporting purposes.

38.

Which of the following activities will most likely result in a reported gain on the income statement?

a. The sale of inventory to customers

b. The sale of old equipment

c. The wages and benefits paid to employees

d. The payment of dividends to stockholders

39.

A landlord received P5,000 cash for December 2020's rent but the tenant's rent for December is P8,000. Which of the following is true for the year ended 2020?

a. P8,000 would be reported on the statement of cash flows.

b. P8,000 would appear on the balance sheet as rent receivable.

c. P8,000 would appear on the income statement as rent revenue earned

d. P5,000 would appear on the balance sheet as prepaid rent.

40.

A company receives a P50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20. Which of the following statements is true?

a. Cash will be reported on the statement of cash flows for the month of November

b. Revenue will be recorded and reported on the income statement for October

c. A liability will be reported on the balance sheet at the end of October

d. A prepaid asset will be reported on the balance sheet at the end of October

41.

A company purchases P20,000 of inventory in February 2021 and will pay for it in March 2021. Which of the following statements is false?

a. The company will report an accounts payable of P20,000 in February 2021.

b. The statement of cash flows will report an operating cash outflow of P20,000 in March 2021.

c. The company will record 20,000 in inventory purchased in February 2021.

d. The income statement will report the P20,000 as cost of goods sold in February 2021 when it was purchased.

42.

The comparability principle assumes that

a. users can compare financial data across businesses

b. accounting data should be based on objective data and transactions.

c. accounting data should be supported by appropriate documents when possible.

d. information can be compared over time because similar accounting methods have been applied from year to year.

43.

An outflow of asset based on an activity that represents the major operations is called

a. Loss

b. Liability

c. Expense

d. Equity

44.

The primary distinction between revenue and gain is

a. The materiality of the amount

b. The likelihood that the transaction will recur in the future

c. The nature of the activity that gives rise to the transaction

d. The method of disclosing transaction

45.

What category of expenses is subject to immediate recognition in the income statement?

a. Utilities expense for the production line of a manufacturer.

b. Repairs and maintenance expense incurred on production equipment of a manufacturer.

c. The salary of the production foreman

d. The salary of the president

46.

When should expenditure be recorded as an asset rather than an expense?

a. Never

b. Always

c. If the amount is material

d. When future benefit exists

47.

An expense is recognized immediately

a. When expenditure produces no future economic benefit.

b. When cost incurred ceases to qualify as an asset.

c. When an expenditure produces future economic benefit

d. When expenditure produces no future economic benefit and when cost incurred ceases to qualify as an asset.

48.

What is the only underlying assumption mentioned in the Conceptual Framework for Financial Reporting?

a. Going concern

b. Accounting entity

c. Time Period

d. Monetary unit

49.

The relatively stable economic, political and social environment supports.

a. Conservatism

b. Materiality

c. Timeliness

d. Going concern

50.

Which best describes the revenue recognition principle?

a. Production is complete.

b. Cash is received.

c. It is probable that future economic benefit will flow to the entity and the amount can be measured reliably.

d. Production is complete and there is an active market for the product

51.

Revenue from a concert is recognized when

a. Tickets are sold

b. Cash has been received from ticket sales

c. Audience register for the event online

d. The event takes place.

52.

The term “recognize” means

a. To record

b. To realize

c. To match

d. To allocate

53.

Costs that can be reasonably associated with specific revenue but not with specific products should be

a. Charged to expense in the period incurred.

b. Allocated to specific products based on the best estimate of the product processing time.

c. Expensed in the period in which the related revenue is recognized.

d. Capitalized and then amortized over a reasonable period.

54.

An outflow of asset based on an activity that represents the major operations is called

a. Loss

b. Liability

c. Expense

d. Equity

55.

I. Relevance and reliability are the two primary qualities that make accounting information useful for decision making. II. The idea of consistency does not mean that companies cannot switch from one accounting method to another.

a. I and II are correct

b. I and II are false

c. Only I is correct

d. Only II is correct

56.

I. Timeliness and neutrality are two ingredients of relevance. II. Verifiability and predictive value are two ingredients of reliability

a. I and II are correct

b. I and II are false

c. Only I is correct

d. Only II is correct

57.

I. Revenues, gains, and distributions to owners all increase equity. II. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

a. I and II are correct

b. I and II are false

c. Only I is correct

d. Only II is correct

58.

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

a. economic entity assumption.

b. relevance characteristic.

c. comparability characteristic.

d. neutrality characteristic

59.

Which of the following elements of financial statements is not a component of comprehensive income?

a. Revenues

b. Distributions to owners

c. Losses

d. Expenses

60.

The two primary qualities that make accounting information useful for decision making are

a. comparability and consistency.

b. materiality and timeliness.

c. relevance and reliability.

d. reliability and comparability.

61.

The underlying theme of the conceptual framework is

a. decision usefulness.

b. understandability.

c. reliability.

d. comparability.

62.

The purpose of the International Accounting Standards Board is to

a. issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.

b. develop a uniform currency in which the financial transactions of companies through-out the world would be measured.

c. promote uniform accounting standards among countries of the world.

d. arbitrate accounting disputes between auditors and international companies.

63.

A common set of accounting standards and procedures are called

a. financial accounting standards.

b. generally accepted accounting principles.

c. objectives of financial reporting.

d. statements of financial accounting concepts.

64.

General-purpose financial statements are the product of

a. financial accounting.

b. managerial accounting.

c. both financial and managerial accounting.

d. neither financial nor managerial accounting.

65.

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

a. Sale of equipment at book value

b. Sale of merchandise on credit

c. Declaration of a cash dividend

d. Issuance of bonds payable at a discount

66.

In preparing a statement of cash flows, cash flows from operating activities

a. are always equal to accrual accounting income.

b. are calculated as the difference between revenues and expenses.

c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.

d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

67.

Making and collecting loans and disposing of property, plant, and equipment are

a. operating activities

b. investing activities

c. financing activities

d. liquidity activities

68.

The statement of cash flows provides answers to all of the following questions except

a. Where did the cash come from during the period?

b. What was the cash used for during the period?

c. What is the impact of inflation on the cash balance at the end of the year?

d. What was the change in the cash balance during the period?

69.

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the

a. retained earnings statement.

b. income statement.

c. statement of cash flows.

d. statement of financial position.

70.

Long-term liabilities include

a. obligations not expected to be liquidated within the operating cycle.

b. obligations payable at some date beyond the operating cycle.

c. deferred income taxes and most lease obligations.

d. all of these.

71.

Working capital is

a. capital which has been reinvested in the business.

b. unappropriated retained earnings.

c. cash and receivables less current liabilities.

D. none of these.

72.

The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense

b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect.

c. revenues, expenses, gains, and losses.

d. all of these.

73.

The single-step income statement emphasizes

a. the gross profit figure.

b. total revenues and total

c. extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement.

d. the various components of income from continuing operations.

74.

Which of the following is not a generally practiced method of presenting the income statement?

a. Including prior period adjustments in determining net income

b. The single-step income statement

c. The consolidated statement of income

d. Including gains and losses from discontinued operations of a component of a business in determining net income

75.

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007. The January 1, 2007 merchandise inventory balance will appear

a. only as an asset on the balance sheet.

b. only in the cost of goods sold section of the income statement.

c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

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Philippine Accounting Standards 8

Total questions: 75

Worksheet time: 40mins

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