Gov. Accounting Solutions Manual (Chapter 6) PDF

lOMoARcPSD|37607501 CHAPTER 6 PROBLEM 6-1: TRUE OR FALSE False 1. According to the GAM for NGAs, all financial assets are initially measured at fair value. False 2. According to the GAM for NGAs, government entities shall prepar...

lOMoARcPSD|37607501 CHAPTER 6 PROBLEM 6-1: TRUE OR FALSE False 1. According to the GAM for NGAs, all financial assets are initially measured at fair value. False 2. According to the GAM for NGAs, government entities shall prepare bank reconciliations only at year-end or whenever the need arises. False 3. Only debt instruments with remaining maturity of 3 months or less can qualify as cash equivalents. False 4. The PCF of a government entity is replenished when disbursements reach at least 90%, or as needed. True 5. No journal entry is prepared when a disbursement is made out of the petty cash fund. False 6. A government entity established a P30,000 petty cash fund. The custodian must be bonded for at least P5,000. False 7. According to the GAM for NGAs, all financial assets shall be initially measured at fair value plus transaction costs. False 8. Transaction costs on financial assets classified under the held to maturity category are expensed outright. True 9. A derivative derives its value from the changes in value of a specified rate, price, event or some other variable. True 10. Risk management is the process of identifying the desired level of risk, identifying the actual level of risk and altering the latter to equal the former. PROBLEM 6-2: MULTIPLE CHOICE 1. Which of the following is not considered a financial asset? a. Petty cash fund b. Investment in debt securities c. Accounts receivable d. Prepaid assets 2. A cash shortage of a government entity is most likely recorded as a a. debit to a receivable account b. debit to a cash shortage or overage account c. credit to miscellaneous income account d. credit to a cash shortage or overage account 3. Dishonored checks are recorded by a government entity as a. Notes receivable b. Other receivables c. Accounts receivable d. Losses Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 4. The entry to record the replenishment of a petty cash fund of a government entity is a. Expense accounts xxx Cash-Modified Disbursement System (MDS), Regular xxx b. Expense accounts xxx Petty Cash xxx c. Expense accounts xxx Cash-Collecting Officers xxx d. Expense accounts xxx Cash-Treasury/Agency Deposit, Regular xxx 5. Under this method of bank reconciliation statement preparation, the unadjusted book and bank balances are brought to an adjusted balance that is reported on the statement of financial position. a. Bank to Book Method b. Book to Bank Method c. Adjusted Balance Method d. All of these 6. Which of the following may be paid through the petty cash fund of a government entity? a. Rent worth P12,000. b. Pantry supplies worth P15,000. c. Office supplies worth P20,000. d. None of these. 7. Entity A maintains a petty cash fund. At any given point of time, the cash on hand and the petty cash vouchers must be equal to the ledger balance of the petty cash fund. If these are not equal, the difference is either shortage or overage. This system of handling petty cash fund is called a. Impress System b. Fluctuating Balance System c. Pretty Cash System d. Imprest System 8. According to the GAM for NGAs, the establishment of a petty cash fund a. requires the approval of the Head of Agency. b. requires the approval of the Chief Accountant. c. requires the approval of the President of the Philippines. d. does not require any formal approval because petty cash funds are likely to be immaterial. Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 9. The “Loans Receivable” account is most likely to be used in the books of accounts of which the following government agencies? a. COA b. NIA c. BTr d. All of these 10. Which of the following is not one of the characteristics of a derivative? a. It requires no notional amount (or only a very minimal notional amount). b. Its value changes in response to the change in an underlying. c. It requires no initial net investment (or only a very minimal initial net investment). d. It is settled at a future date. PROBLEM 6-3: MULTIPLE CHOICE 1. According to the GAM for NGAs, these refer to incremental costs that are directly attributable to the acquisition, issue, or disposal of a financial instrument. a. Costs to sell b. Transaction costs c. Financial costs d. Variable costs 2. Which of the following is not one of the categories of financial assets under the GAM for NGAs? a. Held-to-maturity investments b. Loans and receivables c. Available-for-sale financial assets d. Financial asset through other comprehensive income 3. Entity A acquires an investment for P1,000,000. Transaction costs amount to P10,000. At year-end, the investment has a fair value of P900,000. If the investment is classified as financial asset through surplus or deficit, how much is the loss from the change in fair value? a. 100,000 b. 90,000 c. 110,000 d. 0 Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 Use the following information for the next four questions On January 1, 20x1, Entity A acquires 10-year, 10%, P2,000,000 face amount bonds for P1,456,792 and classifies them as held-to-maturity investments. Transaction costs on the acquisition amount to P125,919. The issuer pays annual interest every December 31. The effective interest rate is 14% 4. The initial carrying amount of the investment on January 1, 20x1 is a. 1,456,792 b. 1,330,873 c. 1,582,711 (1,456,792 + 125,919) d. 2,000,000 5. The interest income in 20x1 is a. 221,580 (1,582,711 x 14%) b. 203,951 c. 186,322 d. 200,000 6. If the investment is classified as available for sale financial asset and the fair value at year- end is P1,800,000, how much is the gain (loss) from the change in fair value? a. (200,000) b. (217,289) c. 195,709 (1,800,000 – 1604,291) d. 238,869 Date Collections Interest income Amortization Present value 1/1/x1 1,582,711 12/31/x1 200,000 221,580 21,580 1,604,291 7. If the investment is classified as available for sale financial asset, how much is the interest income in 20x1? a. 221,580 b. 203,951 c. 186,322 d. 200,000 8. According to the GAM for NGAs, changes in fair value of investments classified as available for sale financial assets are a. recognized in surplus or deficit b. recognized in net assets c. not recognized d. a or b Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 9. Entity A acquires an investment for P100,000 and incurs transaction costs of P10,000. At year-end, the fair value of the investment is P80,000. Entity A recognizes a P30,000 loss from the change in fair value. The investment would most likely to have been classified under which of the following categories of financial assets? a. Available-for-sale financial assets b. Financial asset through surplus or deficit c. Held-to-maturity investments d. Loans and receivables 10. Entity A acquires an investment for P100,000 and incurs transaction costs of P10,000. At year-end, the fair value of the investment is P120,000. However, the investment is appropriately reported in the year-end statement of financial position at a carrying amount of P106,382. The investment would most likely to have been classified under which of the following categories of financial assets? a. Available-for-sale financial assets b. Held-to-maturity investments c. Loans and receivables d. Cannot be determined due to insufficient information PROBLEM 6-4: FOR CLASSROOM DISCUSSION 1. According to the GAM for NGAs, a government entity’s cash comprises all of the following except a. cash on hand b. cash in bank c. cash equivalents d. cash treasury accounts 2. Which of the following is excluded from the amount of cash that is reported in the statement of financial position of a government entity? a. unreleased checks drawn b. cancelled checks drawn c. undeposited collections d. post-dated checks received 3. An unexplained cash overage of a government entity is recorded as a a. credit to a payable account b. debit to a cash shortage overage account c. credit to miscellaneous income account d. credo to a cash shortage or overage account Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 4. All of the following are considered internal controls over cash except a. Requiring a cash custodian to be properly bonded. The amount of bond shall not be less than the cash accountability of the custodian. b. Preparing a bank reconciliation for each bank account maintained by a government entity. c. Making estimates of recurring expenses before establishing an amount for a petty cash fund. d. Maintaining the petty cash fund under a Fluctuating Balance System wherein the total cash on hand and petty cash vouchers may or may not be equal to a fixed amount of petty cash fund at any given point of time. e. Requiring at least three bidders or canvases before making purchases. 5. The per transaction threshold for petty cash disbursements of a government entity is a. P5,000 b. P10,000 c. P15,000 d. No limit; sky is the limit. 6. A government agency shall prepare a bank reconciliation for each bank account maintained. Bank reconciliations are prepared using the a. Bank to Book Method b. Book to Bank Method c. Adjusted Balance Method d. Any of these 7. If the adjusted balance of cash is less than the unadjusted balance per books and there are no other reconciling items or errors, the difference is most likely caused by a. Credit memo b. Debit memo c. Deposits in transit d. Outstanding checks 8. According to the GAM for NGAs, receivables are measured at Initial Subsequent a. Fair value Amortized cost b. Fair value plus transaction costs Amortized cost c. Fair value minus transaction costs Amortized cost d. Fair value Fair value 9. The subsequent changes in the fair value of an investment that is classified as available for sale are recognized in a. surplus or deficit b. net assets or equity c. not recognized d. any of these as an accounting policy choice Downloaded by Nicole Nigos ([email protected])  lOMoARcPSD|37607501 10. According to the GAM for NGAs, the very purpose of derivatives is a. risk management b. speculation c. risk incurrence d. a or b Downloaded by Nicole Nigos ([email protected])