'Exam - Compiled - Theory.pdf

PRELIMINARY EXAMINATION 1. Which of the following is true? Group of answer choices If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest. If using the units-of-production method, it is possible t...

PRELIMINARY EXAMINATION 1. Which of the following is true? Group of answer choices If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest. If using the units-of-production method, it is possible to depreciate more than the depreciable cost. If using the straight-line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance. Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same. 2. Which of the following shall not be classified as property, plant and equipment? Group of answer choices Building under construction land acquired and put on the market for resale equipment that is idle temporarily delivery truck acquired on installment, certificate of ownership being held by the finance company 3. Which of the following is not appropriate basis for measuring the cost of property plant and equipment? Group of answer choices The purchase price, freight costs, and installation costs of a productive asset should be included in the asset’s cost. Proceeds obtained in the process of readying land for its intended purpose, such as from the sale of cleared timber, should be recognized immediately as income. The cost of improvements to equipment incurred after its acquisition should be added to the assets cost if they increase future service potential All necessary cost incurred in the construction of a plant building, from excavation to completion, should be as part of asset’s costs. 4. If there is a change in useful life, depreciation method, or residual value. Group of answer choices the accountant should compute first the carrying amount of the asset as of the date of change; thereafter, the carrying amount is allocated over the remaining revised useful life using the new depreciation method or revised residual value. the accountant should compute the carrying amount of an asset as if the new depreciation method, revised useful life or revised residual value have been used all along the accountant should compute first the original cost of the asset; thereafter, the carrying amount is allocated over the remaining revised useful life using the new depreciation method or revised residual value there should be no changes in useful lives, depreciation methods or residual values because once selected or determined, they are irrevocable, according to standards. 5. A provision is an obligation that is uncertain as to- Amount Existence Yes Yes Yes No No Yes No No 6. Expected useful life is Group of answer choices Calculated when the asset is sold. Estimated at the time that the asset is placed in service. Determined each year that the depreciation calculation is made. None of the answers are correct. 7. Bonds that are subject to retirement at a stated amount prior to maturity at the option of the issuer are called Group of answer choices debentures callable bonds early retirement bonds options 8. The sale of a depreciable asset resulting in a gain, indicates that the proceeds the sale were Group of answer choices greater than cost greater than the carrying amount less than carrying amount less than cost 9. Which of the following sets of condition would give rise to the accrual of a loss or an expense? Group of answer choices Amount of loss is reasonably estimable and events occur infrequently Amount of loss is reasonably estimable and occurrence of event is probable Event is unusual in nature and occurrence of event is probable Event is unusual in nature and event occurs infrequently 10. Which of the following is FALSE? Group of answer choices When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium Bonds are sold at face value when the contract rate is equal to the market rate of interest. The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the end of each interest period. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium. 11. Which of the following is True? Group of answer choices Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future The cost of replacing an engine in a truck is an example of ordinary maintenance. An operating lease is accounted for as if the lessee has purchased the asset. 12. The gain or loss on the retirement of bonds prior to maturity should be- Group of answer choices recognized in income of the period of retirement credited or debited to additional paid-in-capital amortized over remaining term of the bond ignored 13. Which of the following should be included in the acquisition cost of a piece of equipment? Group of answer choices Transportation costs Installation costs Testing costs prior to placing the equipment into production All are correct 14. A retail store received cash and issued gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How should the deferred revenue account be affected by each of the following transaction? Redemption of certificates Lapse of certificates Group of answer choices No effect Decrease Decrease Decrease Decrease No effect No effect No effect 15. Which of the following is FALSE? Group of answer choices A bond is simply a form of an interest-bearing note If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond. The face value of a term bond is payable at a single specific date in the future. The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date 16. TRUEBREW Co. recorded the necessary adjusting entry on December 31, 20x4 for bonds issued at 98 on March 31, 20x4 with March 31 and September 31 interest payment date. Indicate the effect of this transaction on the following financial statement categories: Net Income Current Liability Long term Liability Group of answer choices Decrease Increase Increase Decrease Increase Decrease No effect No effect Decrease Decrease No effect Increase 17. The journal entry for recording an operating lease payment would Group of answer choices be a memo entry only debit the fixed asset and credit Cash debit an expense and credit Cash debit a liability and credit Cash 18. Which of the following is TRUE? Group of answer choices Interest expense is reported in the operating expense section of the income statement. The proceeds from discounting a P20,000, 60-day, note payable at 6% is P19,800. Withholding Income taxes are based on the employee's net pay The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense 19. A call privilege attached to a bond issue means that- Group of answer choices The investor may convert bonds held to cash at his or her option The issuer may retire the bonds by paying a specified call price during a specified period The issuer may retire the bonds by paying a specified market price at the open market at any point in the life of the bond The issuer may convert the bonds to some form of equity security during a specified period 20. Using the cost model, how are property, plant and equipment measured on the statement of financial position? Group of answer choices At replacement cost less accumulated depreciation and accumulated impairment losses At historical cost less salvaged value At original cost adjusted for general price level changes At acquisition cost less depreciated portion there of 21. Which of the following is not a valid statement regarding bonds payable? Group of answer choices Bonds issued by an entity represent a financial liability and shall be measured at amortized cost, using the effective interest method The market price of a bond issue is the present value of its principal amount plus the present value of all interest payments, both discounted at the market rate of interest when the bonds were issued Bonds that mature at a single date are called term bonds The amortization of bond premium increase both the bond carrying value and the recorded interest expense 22. These liabilities are generally classified as current even if they are due to be settled more than twelve months after the balance sheet date. Group of answer choices Dividends Payable Trade Payables and Accruals for Employees and Other Operating Costs Notes Payable Deferred Revenues 23. Which of the following is FALSE? Group of answer choices If the amount of a bond premium on an issued 11%, 4-year, P100,00 bond is P12,928, the semiannual straight-line amortization of the premium is P1,416 (12928 / 8) If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount There is a loss on redemption of bonds when bonds are redeemed above carrying value Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture. 24. The estimated life of a building that has been depreciated 5 years of an originally estimated life of 25 years has been revised to a remaining life of 15 years. Based on this information, the accountant should Group of answer choices Continue to depreciate the building over the original 25-year life Depreciate the remaining book value over the remaining life of 15 years Adjust the accumulated depreciation to its appropriate balance through net income based on a 20-year life and then depreciate the adjusted book value as though the estimated life has always been 20 years Adjust the accumulated depreciation to its appropriate balance through retained earnings based on a 20-year life and then depreciate the adjusted book value as though the estimated life has always been 20 years 25. A contingent liability- Group of answer choices Is not recognized in the financial statements, but it is disclosed in the notes, unless the outflow of resources embodying economic benefits is considered remote Definitely exists as a liability but its amount or due date is indeterminate Is commonly associated with operating loss carry forwards Is not disclosed in the financial statements 26. Which of the following uncertainties is normally accrued? Group of answer choices Pending or threatened litigation General or unspecified business risk Obligation related to product warranties Risk of property loss due to fire 27. ASSASSINS CREED Inc. recorded the necessary adjusting entry on December 31, 20x4 to accrue three months interest on bonds payable that had been issued at premium several years prior. The next semi-annual interest payment will occur on March 1, 20x5. Indicate the effect of the December 31, 20x4 transaction on the following financial statement categories: Net Income Current Liability Long term Liability Group of answer choices Decrease Increase Increase Decrease Increase Decrease No effect No effect Decrease Decrease No effect Increase 28. Bond premium should be reported in the balance sheet- Group of answer choices At the present value of the future reduction in bond interest expense due to the premium As a deferred credit Along with other premium accounts such as those resulting from stock transactions As a direct addition to the face amount of the bonds 29. When all bonds mature at single date, they are called- Term bonds Serial bonds Debenture bonds Callable bonds 30. Which of the following is FALSE? Group of answer choices Receiving payment prior to delivering goods or services causes a current liability to be incurred. The borrower is the one who issues a note payable to a creditor The amount of money a borrower receives from the lender is called maturity value. All long-term liabilities eventually become current liabilities. 31. Changes in depreciation methods, useful lives, and residual values Group of answer choices are changes in accounting estimates accounted for prospectively are changes in accounting estimates accounted for retrospectively are changes in accounting policies accounted prospectively does not affect previously recognized expenses, as well as future expenses 32. Depreciation, as generally used in accounting, is Group of answer choices A process of asset valuation for purposes of the statement of financial position Applicable only to long-lived intangible assets Used to indicate a decline in fair value of a long-lived asset The systematic allocation of the depreciable amount of an asset over its useful life 33. The improvement made to an old machine increased its fair market value and its production capacity by 25% without extending the machine’s useful life. The cost of the improvement preferably should be: Group of answer choices expensed capitalized recognized as loss recognized as a liability 34. A corporation issues for cash P1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? A corporation issues for cash P1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? The amount of the annual interest expense gradually decreases over the life of the bonds The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity 35. Which of the following is FALSE? Group of answer choices Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the effective interest method If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity. If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity. The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount. 36. How would the carrying value a bond payable be affected by amortization of each of the following? Discount Premium Group of answer choices No effect No effect Increase No effect Increase Decrease Decrease Increase 37. The sum-of-years digits method of depreciation results in a/an Group of answer choices Constant charge over the life of the asset Decreasing charge over the life of the asset Increasing charge over the life of the asset Charge based on the expected use or output of the asset 38. An asset’s carrying amount is the Group of answer choices Cost of an asset or the amount substituted for cost in the financial statements, less its residual value Amount of cash or cash equivalent paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction Net amount which the enterprise expects to obtain an asset at the end of its useful life after deducting expected costs of disposal Amount at which an asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses. 39. A depreciable asset has an estimated 20% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Productive output Sum-of-the-years’ digits Double-declining balance Group of answer choices Yes No No No No No No Yes No Yes Yes Yes 40. The current portion of long-term debt should Group of answer choices be classified as a long-term liability. not be separated from the long-term portion of debt. be paid immediately be reclassified as a current liability. 41. The cost of land does not include Group of answer choices Costs of grading, filling and clearing. Costs of removing unusable buildings. Costs of improvements with limited lives. Special assessment. 42. Which of the following is True? Group of answer choices Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called plant assets The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use. The cost of repairing damage to a machine during installation is debited to a fixed asset account. During construction of a building, the cost of interest on a construction loan should be charged to an expense account 43. What is the market rate of interest for a bond issue that sells for more than its face value? Group of answer choices Lower than the rate stated on the bond Equal to the rate stated on the bond Higher than the rate stated on the bond Independent of the rate of the bond 44. The highest amount of depreciation will usually be recorded in the last year of an assets useful life when using: Group of answer choices STRAIGHT LINE SYD double-declining balance either B or C 45. A machine with a five-year estimated useful life and estimated 15% salvage value was acquired on January 1,20x5. The increase in accumulated depreciation for 20x6 using the double- declining balance method would be 1/5 x 2 = 40% and 60% Group of answer choices Original cost x 85% x 40% Original cost x 40% Original cost x 85% x 60% x 40% Original cost x 60% x 40% 46. Safeway Supermarket is selling an old delivery truck. The truck is fully depreciated, with no salvage value. Which of these statements will apply? Group of answer choices A gain will be reported on the statement of comprehensive income Safeway must write off both the original cost of the truck and the accumulated depreciation when the truck is sold Safeway will record a gain on the sale of the truck All of the above will apply d47. In theory, the proceeds from the sale of a bond will equal to- Group of answer choices The face amount The present value of the principal amount due at the end of the life of the bond plus the present value of the interest payments made during the life of the bond The face amount of the bond amount plus the present value of the interest payments made during the life of the bond The sum of the face amount of the bond and the periodic interest payments 48. On August 1, 20x7, ABC Company borrowed cash and signed a one-year interest-bearing note on which both the principal and interest are payable on August 1, 20x8. How will the note payable and the accrued interest be classified in the balance sheet at December 31, 20x7? Note Payable Accrued Interest Group of answer choices Current liability Non-current liability Current liability Non-current liability Current liability Current liability Non-current liability No entry 49. Selling the bonds at a premium has the effect of raising the effective interest rate above the stated interest rate increasing the amount of cash paid for interest each 6 months causing the total cost of borrowing to be higher than the bond interest paid causing the total cost of borrowing to be lower than the bond interest paid. 50. The interest rate specified in the bond indenture is called the Group of answer choices discount rate contract rate market rate effective rate 51. The cost of a product warranty should be included as an expense in the Group of answer choices period the cash is collected for a product sold on account future period when the cost of repairing the product is paid period of the sale of the product future period when the product is repaired or replaced  MIDTERM EXAMINATION 1. Which of the following would not be true of a privately held corporation? Group of answer choices Its shares are regularly traded on the stock Exchange It is usually smaller than a publicly held company. It is sometimes called a closely held corporation. It does not offer its shares for sale to the general public. 2. Which of the following statements is generally correct? I. A limited partner in a limited partnership has the right to take part in the management of the partnership. II. A limited partner is subject to personal liability for the limited partnerships debt. Group of answer choices I only II only Neither I nor II Both I and II 3. A stock dividend: Group of answer choices Transfers a portion of equity from retained earnings to paid-in capital Is a liability on the balance sheet Reduce a corporation’s assets and stockholder’s equity Affects total equity, but does not affect the components of equity. 4. When treasury stock is reissued at a price above cost: Group of answer choices The re-issuance is treated as an extraordinary item in the corporation’s income statement Total paid-in capital is increased Retained earnings is increased The corporation recognizes a gain to be recorded on the income statement 5. The concept of artificial being refers to which form of business organization? Group of answer choices Partnership Corporation Limited Partnership Sole proprietorship 6. Which of the following is true? Group of answer choices The cumulative feature of preferred stock guarantees that the preferred shareholders will receive cash dividends Common stock may be issued in exchange for cash but not for noncash assets. If a corporation has cumulative preferred stock and it fails to pay cash dividend, the cash dividend to the preferred stockholder’s is said to be in arrears. Stocks must have either par value or stated value. 7. Identify the effect of declaration of a stock dividend has on the par value per share and book value per share. Par Value Per Share Book Value per Share Group of answer choices No effect, Decrease No effect, Increase Decrease, Decrease Increase, Decrease 8. In a corporation’s organization chart, which of the following is the highest position? Group of answer choices Board of the directors. President Stockholders CEO 9. The directors of a corporation: Group of answer choices May not own stock in the same corporation or be officers of the same corporation. Are elected by the shareholders to run day-to-day operations. Are responsible for formulating corporate policy and for hiring corporate officers. Are hired by the officers to run the business on a day-to-day basis. 10. which statement is true? Group of answer choices a segment of a business represents a separate distinct line of business activity or that provides a service to a distinct category customers. retained earnings deficit occur frequently in corporations that are “going concerns”. a loss due to strike of a company’s employees is an extraordinary loss. discontinued operations need not be a segment of the business in order to qualify for separate presentation in the income statement. 11. Book value per share: Group of answer choices measures the worth of assets. reflects the value per share if a company is liquidated at balance sheet amounts. is assets divided by the number of common share outstanding. is equal to par value per share. 12. The financial statements of a corporation that failed during the current year to pay any dividends on its cumulative preferred stock should: Group of answer choices Show the amount of the mitted dividends as a deduction from retained earnings Include a footnote disclosing the amount of the dividends in arrears. List the omitted dividends as a long-term liability. Include the amount of the omitted dividends among its current liabilities. 13. If a partnership agreement specifies salaries to partners, interest on partners’ capital, and the remainder on a fixed ratio, and partnership net income is not sufficient to cover both salaries and interest, Group of answer choices Only salaries are allocated to the partners. Both salaries and interest are allocated to the partners. The entire net income is shared on a fixed ratio. Only interest is allocated to the partners. 14. Assets contributed to a partnership by a partner would be recorded at: Group of answer choices Potential value. Cost less depreciation. Fair market value. Historical Cost. 15. The net income of a sole proprietorship should compensate the owner for all of the of the following except: Group of answer choices Personal Service The risk taken by the owner Capital invested by the owner The income taxes paid by the owner 16. When a corporation declares a dividend: Group of answer choices assets decrease, liabilities increase liabilities increase, retained earnings decrease retained earnings decrease, assets increase retained earnings increase, liabilities increase 17. A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this, they should: Group of answer choices Correct this year’s statements with prior period adjustment decreasing beginning retained earnings Correct this year’s statements with a prior period adjustment increasing beginning retained earnings Correct this year’s statements with prior period adjustment increasing ending retained earnings. Correct last year’s statement by increasing net income 18. The Board of Directors of a corporation: Group of answer choices Decide whether profits will be distributed to stockholders. Are responsible for hiring other professional managers. All of the above Make major policy decisions 19. Which statement is true? Group of answer choices The sale of treasury stock at a price in excess of its cost results in a realized gain, which should be presented as a non-operating item in the income statement The purchase of treasury stock for cash causes no change in total assets The sale of treasury can result to an increase in additional paid in capital The sale of treasury stock at cost decreases total stockholder’s equity 20. A typical organization chart showing delegation of authority would show Group of answer choices The controller delegating to the chief executive officer. The board of directors delegating to stockholders. Stockholder delegating to the board of directors. The chief executive officer delegating to the board of directors. 21. Prior period adjustments to financial statements can result from: Group of answer choices Discontinued operations Changes in estimates. Changes in tax law Using unacceptable accounting principles. 22. Double taxation means: Group of answer choices A corporation pays taxes to the national government and local government The corporation pays tax on its income and stockholders pay tax on their dividends. A corporation must pay a double the amount of the tax that an unincorporated business pays. The corporation pays tax on its income and the officers of the corporation pay tax on their salaries. 23. The liquidation of a partnership is a process containing the following steps: 1. Pay partnership liabilities in cash 2. Allocate the gain or loss on realization to the partners on their income ratios. 3. Sell noncash assets for cash and recognize a gain or loss on realization. 4. Distribute remaining cash to partners on the basis of their remaining capital balance Identify the proper sequencing of the steps in the liquidation process. Group of answer choices 3,2,1,4 1,4,3,2 1,3,2,4 3,2,4,1 24. When a corporation issues capital stock at a price higher than the stated value: Group of answer choices The entire issue price is credited to the capital stock account and capital in excess of stated value. The amount received in excess of stated value constitutes profit to the issuing corporation The amount received in excess of stated value becomes a part of legal capital The amount received over stated value increases retained earnings 25. Mutual agency means Group of answer choices All partners must agree before the partnership can act. Creditors can apply their claims to partner’s personal assets. Partner are taxed on partnership withdrawals. A partner can commit or bind the partnership in any contract within the scope of the partnership business. 26. Which statement is true? Group of answer choices retained earnings represents the cash available for dividends neither stock dividends nor stock splits cause any change in the total amount of stockholders equity when a corporation presents both “primary” and “fully diluted” earnings per share, primary earnings per share will be smaller of the two figures. in a dividend action by the board of directors, the date of record usually follows the date of payment. 27. Corporations often buy back their own stock because: I. To avoid a hostile take-over. II. To have shares available for employee compensation Group of answer choices Both I and II Neither I nor II II only I only 28. When a partner is unable to pay a capital deficiency Group of answer choices A. The partner must take out a loan to cover the deficient balance B. The deficiency is absorbed by remaining partners. C. The deficient partner has personal liability to pay the deficiency D. Both B and C. 29. Which of the following statement is false? Group of answer choices A partnership is dissolved whenever a partner dies or withdraws from the organization. Through error, the withdrawal of cash by the owner of a sole proprietorship was not recorded. This error would affect the balance sheet but not the income statement. All partners are entitled to participate equally in the earnings of a partnership. A partner must pay a personal income taxes on his or her share of partnership net income, regardless of whether the partner has withdrawn this amount of money from the business during the year or not. 30. Shares that have been sold and are in the hands of stockholders are called Group of answer choices Treasury Underwritten Issued Outstanding 31. In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner’s investment, the interest allowance: Group of answer choices Legally becomes a liability of the general partner. Is an expense of the business. Can make up for unequal capital contributions. Is ignored when earnings are not sufficient to pay interest. 32. A bonus to a new partner will Group of answer choices Increase the capital balances of the existing partners based on their income ratios after the admission of the new partner. Increase the capital balances of existing partners based on their income ratios before the admission of the new partner. Decrease the capital balances of existing partners based on their capital balances before the admission of the new partner. Decrease the capital balances of existing partners based on their ratios before the admission of the new partner. 33. Which of the following is false? Group of answer choices When you apply for 120,000 authorized shares, at least 30,000 shares must be subscribed and at least 7,500 shares must be paid. The issuance of additional shares of common stock at a price above the current book value per share will cause the book value per share to increase. When a corporation issues capital stock in exchange for assets other than cash, the transaction should be recorded at par value of the shares issued. The account Subscription Receivable can be classified as an asset. And capital Stock subscribed is classified in the stockholders Equity group accounts. 34. A bonus may be paid to old or remaining partner: Group of answer choices By a withdrawing partner if the recorded value of the equity is overstated. By withdrawing partner if the recorded equity is understated. By a new partner when the current value of a partnership is less than the recorded amounts of equity. By a new partner with exceptional talents. 35 A company made an error in recording the 20x5 purchase of machinery. This was discovered in 20x7. The item should be reported as prior period adjustment: Group of answer choices Accounted for as catch-up adjustment. On the 20x5 income statement On the 20x7 income statement On the 20x7 statement of retained earnings. 36. which statement is false? Group of answer choices the board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes. restricted retained earnings may arise from the purchase of treasury stock the retained earnings account is a reservoir of cash used to pay dividends and make capital expenditures. long-term debt contracts may impose a restriction on retained earnings as a condition for the loan 37. Which of the following statements is true? Group of answer choices Salary allowances usually reflect the relative value of the services provided by partners. Salary allowances are expenses. Salaries to partners are expenses on the partnership income statement. Partners are employees of the partnership. 38. Stock options are often used to encourage employees to: Group of answer choices Remain with company Take a long-run approach At least two of the choices are correct focus on company performance 39. In the final step of the liquidation process, remaining cash is distributed to partners Group of answer choices On the basis of the income ratios. Regardless of the capital deficiencies. On the basis of the remaining capital balances. On an equal basis. 40. Which of the following statements reflects the transferability of ownership rights in a corporation? Group of answer choices A shareholder must obtain permission from at least three other stockholders before selling shares. A shareholder must obtain permission from the board of directors before selling shares. If a shareholder decides to transfer ownership, he must transfer all of his shares. A shareholder may dispose of part or all of his shares. 41. Which statement is false? Group of answer choices stock splits increase the number of shares stock dividend increases total stockholder’s equity Stock splits cause no change in the amount of the stockholder’s equity. stock dividend increases the amount of paid in capital 42. Changes in accounting estimates are: Group of answer choices Reported as prior period adjustments. Accounted for with cumulative “catch-up” adjustment Accounted for in current and future periods. Considered accounting errors 43. Which statement is true? Group of answer choices Under the partnership agreement, you can recognize the salary expense of the managing partner as part of your administrative expenses. Interest allowance paid to partner ultimately decreases the capital balance involved partner. The year-end balance sheet of a profitable partnership will ordinarily include in the current liability section the item Income Tax Payable. In case of no agreement as to the division of net loss, the net loss will be divided equally. 44. A 2-for-1 split will: Group of answer choices increase the total par value of the stock and increase the number of shares outstanding. not change the total amount of the stock and increase the number of shares outstanding. decrease the total par value f the stock and increase the number of shares outstanding. increase the total stockholder’s equity 45. It would be reasonable to assume that Group of answer choices basic earnings per share should exceed diluted earnings per share basic earnings per share would not be presented with diluted earnings per share basic earnings per share should be equal to diluted earnings per share diluted earnings per share should exceed basic earnings per share 46. Salary allowances to partner when dividing net income: Group of answer choices A. Are not expense of the business Neither A nor B. Both A & B. B. Dot not get recorded. 47. Which of the following is a characteristic of a corporation? Group of answer choices Stockholder liability for business debts. All of the above. Mutual Agency Ease of transferability of the ownership 48. The liquidation of a partnership may result from each of the following except the Group of answer choices Retirement of the partner. Sale of the business by the partners. Bankruptcy of the partnership. None of the above 49. A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment? Group of answer choices The balance of the accounts receivable account should be recorded on the books of the partnership at its net realizable value. The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business. The allowance account should not be carried on the books of the partnership The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed. 50. Which statement is false? Group of answer choices When recording a small stock dividend, the debit to the Retained Earnings account must be equal to the current market value of the stock None of the above A distribution of cash by a corporation to its stockholders is called a cash dividend A small stock dividend increases total stockholders’ equity by the market value of the shares  SEMIFINAL EXAMINATION THEORY Question 1 Which statement is false? Group of answer choices Additional paid in capital resulting from a stock dividend appears in the stockholders’ equity section of the balance sheet. An amount credited to the Unrealized holding Gain account represents other comprehensive Income. Neither the conversion of preferred stock to common stock nor a stock dividend will change total stockholders’ equity. A correction of a material error called prior period adjustment is made in the income statement. Question 2 Nero Corporation reported a net income that is less than its net cash flow from operations. A possible explanation of this difference is: Group of answer choices Depreciation Expense Non-operating Gains A decrease in income tax rates An increase in accounts receivable over the period Question 3 In evaluating a particular company’s current ratio, which of the following is the least important consideration? Group of answer choices The “normal” current ratio for companies of this size and operating in this industry The trend in the ratio in recent periods Characteristics of the company and the industry in which it operates Whether the ratio exceeds 2 to 1 Question 4 Comparative financial statements compare the company’s current statements with: Group of answer choices Those of prior periods The budgeted level for performance for the period. Those of the company’s principal competitor Those of other companies in the same industry Question 5 The F! Corporation reported net income in excess of its net cash flow from operating activities for the current year. An explanation for this may be: Group of answer choices An increase in accounts payable during the year Depreciation expense recognized for the year. An increase in Prepaid Expense A loss on the sale of equipment in the current year Question 6 A rising gross profit rate most strongly suggests: Group of answer choices Strong consumer demand for the company’s products Intense competition Increased short-term solvency An increase in physical sales volume Question 7 Return on investments computation are used in evaluating: Group of answer choices Profitability Gross Profit Liquidity Solvency Question 8 The measures most often used in evaluating solvency- the current ratio, quick ratio and the amount of working capital- are developed from amounts appearing in the: Group of answer choices Balance Sheet Statement of Retained Earnings Statement of Cash Flows Income Statement Question 9 The most efficient way to prepare a statement of cash flow for a large corporation is to analyze the: Group of answer choices D. Bank statement and paid checks Income statement accounts and changes in all the balance sheet accounts except for cash Cash Receipts and cash payment journals Debit and Credit entries in the cash account Question 10 The debt ratio indicates the percentage of: Group of answer choices Total assets financed by long-tem mortgages Total liabilities classified as current Total assets financed by creditors Revenue consumed by interest expense Question 11 Assume that National Store’s net sales are increasing at a rate above the industry average, but well below the rate of inflation. It appears that: Group of answer choices Its market share is decreasing, although the company is selling more merchandise Its market share is decreasing and the company is selling less merchandise each year. Its market share is increasing, although the company is selling less merchandise Its market share is increasing, and the company is selling more merchandise Question 12 Which of the following is not classified among the operating activities in a statement of cash flows? Group of answer choices Payment of interest on a bank loan Payment of income taxes Payment of an account payable to a merchandise supplier Payment of the principal amount owed on a bank loan Question 13 Which of the following indicate cash disbursements? Group of answer choices Credit entries in the accumulated depreciation account. Debit entries in the marketable securities account. Credit entries in the notes payable account Credit entries in the notes receivable account. Question 14 Company A 2 Z used the indirect method to prepare its statement of cash flows. Following this approach, why is a loss on sale of a land added to net income in computing net cash flow from operating activities. Group of answer choices The amount of the loss recognized was not equal to the cash received The sale resulted in a cash receipt in an accounting period different from the period in which the loss was recognized This type of transaction is not classified as an operating activity. The sale of land did not result in the receipt of any cash Question 15 An income statement is the primary source of information needed to evaluate a firm’s: Group of answer choices Solvency Operating Capability Performance Financial Flexibility Question 16 In a multi-step income statement, which of the following would be classified as an operating expense? Group of answer choices Depreciation Expense Interest Expense Cost of Goods Sold Income Taxes Expense Question 17 In a statement of cash flows, the term cash includes: Group of answer choices Only bank accounts and cash on hand Bank accounts, cash on hand and cash equivalents Bank accounts, cash on hand, cash equivalents and marketable securities classified as current assets. Only money on deposit in bank accounts Question 18 A statement of cash flow is not intended to assist investors in evaluating: Group of answer choices The profitability of business operations. Non-cash aspects of investing and financing activities. Reasons for differences between the amount of net income and net cash flow from operations The company’s ability to meet its obligations and to pay dividends. Question 19 Which of the following is not classified among the investing activities in a statement of cash flows? Group of answer choices Collection of the principal amount of cash loans made to others Purchase of plant assets for cash Investments of cash made in the business by the owners Purchase of marketable securities for cash Question 20 Which of the following does not create a difference between net income and the cash flow from operations? Group of answer choices Non-operating gains and losses Depreciation Expense Timing differences between credit sales and collections from customers Payment of a cash dividend Question 21 Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false? Group of answer choices The direct method shows the specific cash inflows and outflows constituting the operating activities of the business The direct and the indirect method can be used to present the cash flow Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement. Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods. Question 22 Which of the following transactions would not appear on a statement of cash flows prepared by the direct method? Group of answer choices A net loss from operations Payment of last year’s income tax liability The payment of cash dividends that were declared last year The amount paid to acquire treasury stock Question 23 Assume that net sales are increasing faster than the rate of inflation, and that the company’s gross profit rate is rising. Of the following, the most logical conclusion is that: Group of answer choices The company has achieved an increase in sale volume by reducing its sales prices The company’s cost of purchasing merchandise is rising rapidly Demand for the company’s products is very strong Operating expenses are falling Question 24 For purposes of preparing a cash flow statement, which of the following is not considered cash equivalent? Group of answer choices A money market fund Commercial paper An investment in bonds Treasury bills Question 25 When net cash flow from operating activities is presented by the direct method, the statement of cash flow is accompanied by supplementary schedule reconciling: Group of answer choices Net income with net cash flow from operating activities Net cash flow from operating activities with net sales Net income with the net increase or decrease in cash and cash equivalents Net cash flow from operating activities shown in the statement with that which would result from use of the indirect method Question 26 Which statement is true? Group of answer choices In the statement of cash flows, the sale of treasury stock for cash is classified as a financing activity, while the purchase of treasury stock for cash is classified as an investing activity. Both stock dividends and stock splits reduce the book value per share. The sale of treasury stock at a price in excess of cost results in a realized gain that should be presented as a non-operating item in the income statement. The purchase of treasury stock for cash causes no change in total assets. Question 27 Which statement is true? Group of answer choices Retained Earnings represents the cash available for dividends. Neither stock dividends nor stock splits cause any change in the total amount of stockholders equity. In a dividend action by the board of directors, the date of record usually follows the date of payment. When a corporation presents both “primary” and “fully diluted” earnings per share, primary earnings per share will be the smaller of the two figures. Question 28 The return on assets usually is computed as: Group of answer choices Net sales divided by average total assets Gross Profit divided by average total assets Operating income divided by average total assets Net income divided by average total assets Question 29 A successful and growing business is most likely to show a negative cash flow from: Group of answer choices Transactions with customers Investing Activities Operating Activities Financing Activities Question 30 In a statement of cash flows, cash transfers between a bank and a money market fund are classified as: Group of answer choices Operating activities None of the above Financing activities Investing activities Question 31 Which of the following transactions would increase the net cash flow from operating activities? Group of answer choices The purchase of delivery truck by issuing a note payable. The sale of equipment for cash at a gain. The issuance of capital stock for cash at a price above par The collection of an account receivable from a customer Question 32 Which of the following accounts will not appear on a post-closing trial balance? Group of answer choices Retained Earnings Accounts Payable Dividends Dividends Payable Question 33 Owners assume greater personal liability for the debts of: Group of answer choices Small corporations Large corporations Companies with debt ratios over 50% Unincorporated businesses Question 34 Which statement is false? Group of answer choices Fully diluted earnings per share represents a hypothetical case, showing what earnings per share would be if certain securities were converted into additional shares of common stock. An income statement for a year in which a segment of the business has been discontinued shows both earnings per share from continuing operations and net earnings per share. The earning per share statistic indicates the total amount of a corporation’s assets that which belong to each shareholder. The amount of cash dividends paid to common stockholder does not enter into the computation of earnings per share. Question 35 Which statement is false? Group of answer choices A company may issue a stock dividend in lieu of cash dividend when it wishes to declare dividends in some form but is short on cash. When par value common stock is issued, Common Stock is credited with the par value of the shares issued, regardless of whether the issuance price is equal to par or more than par. The Retained Earnings account is a reservoir of cash used to pay dividends and make capital expenditures. Appropriations of Retained Earnings are rare Question 36 In a classified balance sheet, the asset categories usually include: Group of answer choices Current assets and non-current assets Cash and non-current assets Operating assets and non-operating assets Current assets, plant and equipment and other assets Question 37 Which of the following sets of data is sufficient to compute the amount of cash paid for merchandise? Group of answer choices Increase or decrease in cash, increase or decrease in inventory, increase or decrease in accounts payable Cost of Goods sold, increase or decrease in inventory, increase or decrease in accounts payable. Cost of goods sold, increase or decrease in accounts payable Cost of goods sold Question 38 Which statement is true? Group of answer choices Discontinued Operations need not be a segment of the business in order to qualify for separate presentation in the income statement. A loss due to strike of a company’s employees is an extraordinary loss. Retained Earnings deficits occur frequently in corporations that are “going concerns”. A segment of a business represents a separate distinct line of business activity or that provides a service to a distinct category of customers. Question 39 Which of the following indicated cash receipts? Group of answer choices A decrease in accrued expenses, such as wages payable A decrease in accounts receivable A decrease in accounts payable An increase in inventory Question 40 Which of the following is true? Group of answer choices Common stock may be issued in exchange for cash but not for noncash assets. Stocks must have either par value or stated value. If a corporation has cumulative preferred stock and it fails to pay cash dividend, the cash dividend to the preferred stockholders is said to be in arrears. The cumulative feature of preferred stock guarantees that the preferred shareholders will receive cash dividends Question 41 Excess Paid In capital would never be associated with Group of answer choices Treasury stock No par stock Authorized but unissued stock Issued but not outstanding stock Excess Question 42 The “bottom line” in a statement of cash flows shows: Group of answer choices Net increase or decrease in cash during the period The cash (including cash equivalents) on the balance sheet at the end of the period Net income, computed by cash basis of accounting Net cash flow from operating activities Question 43 Which statement is false? Group of answer choices A small stock dividend increases total stockholders’ equity by the market value of the shares. A stock dividend is a distribution of additional shares to common stockholders in proportion to their holdings. A distribution of cash by a corporation to its stockholders is called a cash dividend. When recording a small stock dividend, the debit to the Retained earnings account must be equal to the current market value of the stock. Question 44 KKK Corporation’s reported net income for 2010 is more than its net cash flow from operating activities. One reason for this could be: Group of answer choices A decrease in inventory levels during 2010 An error in the preparation of the statement of cash flows: net income should be less than or equal to net cash flow from operating activities The sale of machinery at a gain in 2010 The sale of investments at a loss in 2010 Question 45 Which of the following statement is false? Group of answer choices Computing Earnings Per Share by dividing the company’s net income by the number of common shares outstanding is acceptable when the corporation has common stock only, and the number of shares has not changed during the year. The resulting loss from discontinued operations is shown in the income statement net of income taxes. The earnings per share on net earnings is less significant than the earnings from continuing operations when evaluating the possible future operating results. When there are preferred dividends in arrears, the dividend in arrears and the year’s cumulative dividends are deducted in the earnings per share computation. Question 46 In the long run it is most important for a business to generate positive cash flow from its: Group of answer choices None of the above, in terms of generating positive cash flow, these activities are of equal importance Financing Activities Operating Activities Investing Activities Question 47 In a multi-step income statement, income taxes are not classified as operating expense because: Group of answer choices Income taxes do not contribute to the production of revenue Not all forms of business organization are subject to income taxes Income taxes stem from the manner in which assets are financed, not the manner in which they are used in business operations The statement is incorrect; income taxes are classified as operating expense Question 48 Which statement is false? Group of answer choices One of the requirements to declare a cash dividend is having adequate retained earnings. The price earnings ratio is computed by dividing the current market price per share of the common stock by the par value per share of the common stock Net Income applicable to common stock divided by the weighted average number of common shares outstanding during the year is called the basic earnings per share. Diluted earnings per share are computed under the assumption that all convertible securities have been converted into additional common shares at the beginning of the period. Question 49 Which of the following is true? Group of answer choices A liability cannot be classified as current if its maturity date is beyond 12 months from the balance sheet date. Liabilities with uncertain amounts, uncertain due dates and uncertain payees cannot be included among the liabilities in the balance sheet. Notes payable discounted is a contingent liability. Trade liabilities are classified as current liabilities even if their maturity date is beyond 12 months from the balance sheet date. Question 50 The quick ratio: Group of answer choices Is always higher than the current ratio May be higher or lower than the current ratio Cannot be higher than the current ratio Is computed by dividing current assets by current liabilities Question 51 On October 12, 20x1, Jocelyn Corporation invested P700,000 in short-term available for sale marketable securities. The market value of this investment was P730,000 at December 31, 20x1, but had slipped to P725,000 by December 31, 20x2. Assuming Jocelyn Does not sell this investment, the mark-to-market adjustment necessary at December 31, 20x2, includes: Group of answer choices A P5,000 debit to investments in Marketable Securities. A P725,000 debit to Investments in Marketable Securities. A P25,000 credit to Unrealized Holding Gain on Investments. A P5,000 debit to Unrealized Holding Gain on Investments. Question 52 The purpose of the mark-to-market adjustment for securities classified as “FVOCI securities” is: Group of answer choices To recognize the proper amount of gain or loss on fluctuations in the market value of these securities in the current period income statement. To adjust a corporation’s capital stock account to reflect the current market value of the outstanding capital stock. To adjust the valuation of a company’s investment to current market value. Both A and B are correct. Question 53 Investments in FVOCI securities: Group of answer choices Are adjusted to current market value at the end of each accounting period. May be reported in the balance sheet at market values lower than cost, but never at values in excess of original cost. Are carried in the accounting records at current market values, and therefore do not generate gains or losses when sold at market values. Only include investments in the capital stock of publicly traded corporations. Question 54 Ariane Corporation sold FVPL securities costing P800,000 for P860,000 cash. This transaction is reported in Ariane’s income statement and statement of cash flows, as: Group of answer choices P60, 000 gain and a P60,000 cash receipt. A P60, 000 gain and P860,000 cash receipt. A P860,000 gain and P60, 000 cash receipt. A P860, 000 gain and a PP860,000 cash receipt. Question 55 On May 22 20x9 Jovelyn Company purchased 600 shares of Jayfone Company stock at P120 per share plus P750 brokerage fee and classified it as an investment in trading securities. On December 11, 20x9, Jovelyn Company sold 300 shares of Jayfone Company stock for P125 per share, less a P450 brokerage fee. The journal entry to record the sale of the investment in trading securities will include a: Group of answer choices Debit to Brokerage Fee of P450 Debit to cash P37,050 Credit to Gain on Sale of Short-term investments P675 Credit to Short-term investments – trading securities Question 56 On January 2, Marites Company purchased 10,000 shares of Judelyn Corp, common stock at P19 per share plus a P3,000 commission. This represents 30% of Judelyn Corp.’s outstanding stock. On August 6, Judelyn Corp. declared and paid cash dividends of P1.75 per share, and on December 31 it reported net income of P150,000. The journal entry to record the dividends received will include: A. Debit to Cash P17,500 B. Credit to Long-term Investments P17,500 C. Credit to Dividends Revenue P17,500 D. Both A and C are included Group of answer choices C A B D Question 57 On October 1, Cienaren Co. purchases automotive parts from Jelimae Co, for 12,000 euros, terms n/30. The exchange rate was $1.15 per euro. The Cienaren Co. paid Jelimae Co. for October 1 purchase on October 30 when exchange rate was $1.13 per euro. The journal entry to record the payment of these purchases will include a: Group of answer choices Debit to Foreign Exchange Loss P240 Debit to Accounts Payable P13,800 Credit to Cash P13,800 Debit to Merchandise inventory P13,560 Question 58 On November 10, Ledee Co. sold an artwork to Maybelle Company for 10,000,000-yen, terms n/30 when the exchange rate was $0.0084 yen. Ledee Co. received the payment for this sale from Maybelle Company on December 5 when the exchange rate was $0.009 per yen. The journal entry to record the receipt of payment from Maybelle Company will include a: Group of answer choices Debit it Foreign Loss P6,000 Debit to Cash P84,000 Credit to Sales P90,000 Credit to Accounts Receivable P84,000 Question 59 In a statement of cashflows, payments of interest are usually classified as; Group of answer choices Non-operating expenses Operating Activities Investing Activities Financing Activities Question 60 The measurement which best reflects investors’ expectation about future earning is: Group of answer choices Earnings per share The price/earnings ratio Return on assets Return on Equity`  FINAL EXAMINATION THEORY 1. Which of the following ratios relates most closely to the concept of leverage? Group of answer choices Current Ratio Debt Ratio Price Earnings Ratio Asset Turnover 2. The drawings account in a proprietorship is credited when: Group of answer choices Money is withdrawn by the owner Money is contributed by the owner The account is closed An individual establishes a business 3. Which of the following is true about the effects of a stock dividend declaration? Retained Earnings Stockholders Equity Contributed Capital Group of answer choices Decreases No Change Increases Decreases Decreases Increases No Change Decreases No Change No change No Change Decreases 4. Bonds Payable must be discounted to their present value for the balance sheet presentation when: Group of answer choices They are issued between interest dates at par The bonds stated rate of interest equals the market rate of interest. The bonds stated rate of interest is less than the market rate of interest Both B and C 5. Which of the following is not a characteristic of the corporate form of organization? Group of answer choices The owners of a corporation cannot lose more than the amount of their investment Shares of stock in a corporation are more readily transferable than an interest in a partnership Stockholders have authority to decide by majority vote the amount of dividends to be paid. The corporation is a very efficient vehicle for obtaining large amounts of capital required for large scale of production. 6. The Share Premium, Treasury Stock is credited when Group of answer choices Treasury stock is purchased at a price above par Treasury stock is sold at a price above cost Treasury stock is sold at a price below cost Treasury stock is purchased at a price below par. 7. If the cost of a depreciable asset is incorrectly recorded as revenue expenditure Asset’s and owner’s equity for the first year will be understated Assets and owner’s equity for the succeeding year will be overstated Net Income for the first year will be overstated Net Income for the succeeding year will be understated 8. Which of the following is not an essential characteristic of a liability? Group of answer choices It embodies a probable future sacrifice of economic benefits It obligates a particular entity to transfer assets or to provide services in the future It is the result of a transaction or event that has already occurred. It should be precisely measurable in terms of money to specifically identifiable payees. 9. Which of the following depreciation methods usually results in the lowest net income in the early years of an asset’s life? Group of answer choices Sum of the years digit depreciation method Double Declining balance depreciation method Straight line method 150% declining balance method 10. Which of the following is least likely to be classified as cash equivalent? Group of answer choices Commercial Paper Investments in short term bonds Treasury Bills Certificates of Deposit 11. The payment for major overhaul of one of the company’s trucks would probably be Group of answer choices Expensed Capitalized Either A or B Neither A nor B 12. A contingent liability whose occurrence is reasonable possible must: Group of answer choices Disclosed in the notes to the financial statements Be recorded as a liability Not recognized in the financial statements at all Be recorded as an asset in the current period 13. Liquidity deals primarily with: Group of answer choices Current asset and Current Liabilities Revenues and Expenses Owner’s Equity Long Term Debt 14. The quick ratio: Group of answer choices Is computed by dividing current assets by current liabilities Is always higher than the current ratio Cannot be higher than the current ratio May be higher or lower than the current ratio 15. When the effective interest amortization method is used, the interest expense is equal to the Group of answer choices Bond carrying value times the stated interest rate Bond carrying value times the effective interest rate Bond principal times the effective interest rate Bond principal times the stated interest rate 16. Winner corporation reported net income in excess of its net cash flow from operations. A possible explanation of the difference is Depreciation Expense Non-operating gains A decrease in income taxes rates A decrease in accounts receivable over the period 17. Baker Company issued stock to Taylor Company in exchange for equipment. This transaction would be reflected in: Group of answer choices A narrative explanation or in a separate schedule The operating activities section of a statement of cash flows The financing activities section of a statement of cash flows The investing activities section of statement of cash flows 18. Which of the following is not true of plant and equipment assets? Group of answer choices They are recorded at cost when purchased Their cost is depreciated over their useful lives Their value is sometimes impaired They are often written up to an amount above cost if they increase in value 19. Which of the following is not true for dividends? Group of answer choices They are not liabilities until declared They are net reductions in owners’ equity. They are normal expenses of doing business They reduce net assets. 20. Deferred Income Taxes payable are recorded as liabilities when: Group of answer choices Taxes owed to the government exceed income tax expense in the financial statements. A company has a net loss on its income statement for the period. Taxes owed to the government are less than income tax expense in the financial statements A company has no income tax expense on the income statement but owes the government income taxes 21. Excess Paid In capital would never be associated with Group of answer choices No par stock Treasury stock Authorized but unissued stock Issued but not outstanding stock 22. An example of an item which is not a liability is: Group of answer choices The portion of a long-term debt due within one year Accrued estimated warranty costs Advances from customers on contracts Dividends payable in stock 23. Which of the following is not a characteristic of most preferred stock? Group of answer choices Participation in the management of the company Preference as to dividends Preference as to assets in the event of liquidation of the company No voting power yes Group of answer choices A debit to Gain on Sale and a credit to Premium on Bonds A credit to Gain on Sale and a credit to Premium on Bonds A credit to Gain on Sale and a debit to Premium on Bonds A debit to Gain on Sale and a debit to Premium on Bonds 25. All of the following measures a company’s overall performance except: Group of answer choices Earnings per share Inventory turnover Return on total assets Return on stockholders’ equity 26. Which of the following would be reported on a statement of cash flows prepared using the direct method? Group of answer choices Total wages paid during the year Depreciation Expense for the year Accrual basis net income An increase in the Accounts Receivable balance for the year. 27. Bond Premiums and discounts are amortized Group of answer choices Over their legal life Only over the period the bond are outstanding Only by the investor and not by the issuer Only by the issuer and not the investor 28. When entering into a capital lease, the lessee would: Group of answer choices Debit an asset account for the estimated residual value of the leased asset. Debit an asset account for the total amount of payments required by the lease. Debit an asset account for the present value of payments required by the lease Make no entry until the first lease payment is made. 29. An income statement is the primary source of information needed to evaluate a firm’s: Group of answer choices Solvency Financial Flexibility Performance Operating Capability 30. Which of the following accounts will not appear on a post-closing trial balance? Group of answer choices Dividends Retained Earnings Dividends Payable Accounts Payable 31. The balances in the Leased Asset and Lease Liability accounts will be equal: Group of answer choices Throughout the life of the lease Never At the inception of the lease At the end of each year during the lease term 32. Which of the following is not a characteristic of a partnership? Group of answer choices Each partner has authority to bind partnership to contracts Each partner’s liability is limited to the amount he or she invested Ease of formation Each partner must pay personal income taxes on his or her share of partnership net income 33. In determining diluted earnings per share, dividends on non-convertible cumulative preferred stock should be: Group of answer choices Disregarded Added back to net income whether declared or not Deducted from net income only if declared Deducted from net income whether declared or not 34. The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current: Group of answer choices Income statement after income from continuing operations and before discontinued operations Income statement after income from continuing operations and after discontinued operations Retained earnings statement as an adjustment of the opening balance Retained earnings after net income but before dividends 35. Which of the following transactions of a sole proprietorship should not be recorded by debiting the owners’ drawing account? Group of answer choices Payment of authorized salary to the owner Use of business funds to pay personal debts of the owner Cash collected by the owner on behalf of the firm but retained by the owner personally instead of deposited in the business bank account Payment of a proprietorship liability by the owner out of personal funds 36. Which of the following would not be reported on a statement of cash flows prepared using the indirect method? Group of answer choices The amortization of patents Fully depreciated machinery that was scrapped during the year Treasury stock that has been purchased from a stockholder Depreciation Expense for the year 37. Arrow Company entered into a one-year advertising contract which required payment for each month’s advertising by the 10th of the following month. An advertisement costing P2,000 which appeared in a newspaper during the month was recorded by Arrow Company on the last day of the same month. Which statement describes the effect of this entry? Group of answer choices Both Assets and Liabilities increased. Liabilities decreased and owners’ equity increased Liabilities increased and owners’ equity decreased Liabilities decreased and assets increased 38. If the market rate of interest is 12% and a company issues 10% long-term bonds, what interest rate would be used in the tables to discount the bonds assuming semiannual compounding? Group of answer choices 6% 5% 10% 12% 39. Warranty (Customer Service) Liabilities are recorded Group of answer choices In the same period as the products are sold In periods subsequent to the sale In periods prior to sale Only when cash is paid to provide the customer service 40. Which of the following is not a feature of a corporation? Group of answer choices Limited Liability Easy transferability of ownership interests Separate Taxation Unlimited Liability 41. Able Company purchases Delta Company paying P90,000 cash and assuming all of its liabilities. Delta Company’s books show assets of P90,000 and liabilities of P30,000. If the assets are appraised at 100,000 how much goodwill should be recorded by Able? Group of answer choices P50,000 P0 P10,000 P20,000 42. When a stock dividend is issued, total stockholders’ equity: Group of answer choices Increases Decreases Does not change Either increases or decreases 43. The effective interest rate will be lower than the stated interest rate Group of answer choices If bonds are sold at a premium If bonds are sold at a discount If bonds are sold at par At no time 44. Which of the following indicated cash receipts? Group of answer choices A decrease in accrued expenses, such as wages payable A decrease in accounts receivable An increase in inventory A decrease in accounts payable 45. A partnership is formed by two individuals who were previously sole proprietors. Which of the following assets forming part of the initial investment in the newly created partnership would be recorded at the fair value at the date of the investment? Marketable Securities Inventories Group of answer choices No No No Yes Yes Yes 46. The amortization of a bond discount Group of answer choices Increases bond interest expense Decrease bond interest expense Has no effect on bond interest expense Does not always have the same effect on interest expense 47. A stock split will do which of the following? Group of answer choices Affect a stockholder’s percentage interest in the corporation Decrease the par value of the stock Increase the Total Stockholders’ Equity Increase the par value of the stock 48. Which of the following transactions would not appear on a statement of cash flows prepared by the direct method Group of answer choices A net loss from operations The amount paid to acquire treasury stock Payment of last year’s income tax liability The payment of cash dividends that were declared last year 49. D Co. sells e company a machine, the usual cash price of which is P110,000 in for a P118,000 noninterest bearing-note due three years from date. If E records the asset and the note at P118,000, the overall effect will be Group of answer choices A correct acquisition cost and correct interest expense A correct acquisition cost and understated interest expense An understated acquisition cost and understated interest expense An overstated acquisition cost and understated interest expense. 50. When the indirect method is used to prepare a statement of cash flows, depreciation is treated as an adjustment to reported net income because it: Group of answer choices is a source of cash Reduces reported net income but does not involve an outflow of cash Reduces reported net income and involves as inflow of cash is an inflow of cash to reserve account for the replacement of assets