CONSTRUCTIVE ACCOUNTING

MIDTERM DEPARTMENTAL EXAMINATION

1. Financial statements must be prepared at least

a. Annually
c. Semiannually
b. Quarterly
d. Every two years
e.
f.
2. The statement of financial position is useful for analyzing all of the following,
except
a. Liquidity
c. Profitability
b. Solvency
d. Financial flexibility
e.
f.
3. Which of the following is not a component of the financial statements?
a. Statement of the financial position
b. Statement of changes in equity
c. Report of board of directors
d. Notes to financial statements
g.
4. Which of the following is an essential characteristic of an asset?
a. The claims to an assets benefits are legally enforceable.
b. An asset is tangible.
c. An asset is obtained at a cost.
d. An asset provides future benefits.
h.
5. Notes to financial statements
a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the financial statements
d. All of the choices are correct regarding notes to financial statements
i.
6. Mill Company reported the following account balances on December 31, 2014:
j.
k.
Accounts payable
1,500,000
l.
Bonds payable, due 2015
2,500,000
m.
Discount on bonds payable
300,000
n.
Dividend payable
800,000
o.
Note payable, due 2016
2,000,000
p.
q.
What total amount should be reported as current liabilities?
a. 4,500,000
b. 5,100,000
c. 6,500,000
d. 7,800,000
r.

7. Events after the reporting period are favorable or unfavorable events that occur
between
a. The end of the reporting period and the date of the next annual financial
statements
b. The end of the reporting period and the date of the next interim or annual
financial statements
c. The end of the reporting period and the date when the financial statements
are authorized for issue
d. The end of reporting period and the date of the next interim statements
s.
8. Jewel Company reported the following current assets at year-end:
t.
u.
Cash and cash equivalents
3,200,000
v.
Accounts receivable
1,420,000
w.
Allowance for doubtful accounts
(120,000)
x.
Inventory
2,800,000
y.
Deferred charges
200,000
z.
Employees account current
240,000
aa.
Advances to subsidiary
260,000
ab.
Claim against shipper for goods lost in transit
200,000
ac.
Total current assets
8,200,000
ad.
ae.
What total amount should be reported as current assets?
a. 7,740,000
b. 7,780,000
c. 7,940,000
d. 8,200,000
af.
9. It is the total of income less expenses, excluding the components of other
comprehensive income.
a. Comprehensive income
c. Accounting income
b. Profit or loss
d. Economic income
e.
10. The presentation of the notes to financial statements in a systematic manner
a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry
f.
11. Violago Company provided the following account balances on December 31,
2014:
g.
h.
Accounts receivable
1,600,000
i.
Financial assets at fair value through profit/loss
500,000
j.
Financial assets at amortized cost
1,300,000
k.
Cash
1,100,000
l.
Inventory
3,000,000
m.
Equipment and furniture
2,500,000
n.
Accumulated depreciation
1,500,000

o.
Patent
400,000
p.
Prepaid expenses
100,000
q.
Equipment held for sale
1,800,000
r.
s.
On December 13, 2014, what total amount should be reported as current
assets?
a. 8,100,000
c. 8,000,000
b. 6,300,000
d. 7,600,000
e.
12. Gracia Company reported the following current assets at year-end:
f.
g.
Cash including sinking fund of P 500,000 with trustee
1,500,000
h.
Accounts receivable
2,500,000
i.
Inventory, including P 200,000 cost of goods in transit
j.
purchased FOB destination point
2,000,000
k.
Advances to officers collectible currently
400,000
l.
Dividend receivable
100,000
m.
Total current assets
6,500,000
n.
o.
What total amount should be reported as current assets?
a. 5,400,000
b. 5,300,000
c. 5,800,000
d. 5,900,000
p.
q.
13. When preparing a draft of year-end statement of financial position, Mont
Company reported net assets totaling P 8,750,000. Included in the asset section
were the following:
r.
s.
Treasury shares of Mont Company at cost, which
t.
approximates market value on December 31
250,000
u.
Idle machinery
100,000
v.
Cash surrender value of life insurance
150,000
w.
Allowance for inventory writedown
50,000
x.
y.
What amount should be reported as net assets?
a. 8,500,000
c. 8,450,000
b. 9,000,000
d. 8,350,000
e.
14. It is the amount of cash that could currently be obtained by selling the asset in an
orderly disposal.
a. Realizable value
c. Market value
b. Fair value
d. Present value
e.

15. Which of the following events after the end of reporting period would generally
require disclosure?
a. Retirement of key management personnel
b. Settlement of litigation when the event that gave rise to the litigation occurred
in a prior year
c. Strike of employees
d. Issue of a large amount of ordinary shares
f.
16. Which is not a line item in the income statement?
a. Revenue
c. Profit before tax
b. Gross profit
d. Extraordinary item
e.
17. The income statement reveals
a. Assets and equity at a point in time
b. Assets and equity for a period of time
c. Net income at a point in time
d. Net income for a period of time
f.
18. Which of the following approaches to income measurement underlies financial
reporting?
a. Transaction approach
b. Economic approach
c. Valuation approach
d. Capital maintenance approach
g.
19. Adjusting events are those that
a. Provide evidence of conditions that existed at the end of the reporting period
b. Are indicative of conditions that arose after the end of the reporting period
c. Are indicative of conditions that arose after the approval of the financial
statements by shareholders
d. Provide for conditions that existed after the date the financial statements were
issued
h.
20. Financial statements are authorized for issue
a. When the board of directors reviews and authorizes the financial statements
for issue
b. When the shareholders approve the financial statements at their annual
meeting
c. When the financial statements are filed with SEC
d. When a supervisory board made solely of nonexecutives approves the
financial statements
i.
21. Nonadjusting events after reporting period which require disclosure include all of
the following, except
a. Plan to discontinue an operation
b. Expropriation of asset by government after end of reporting period
c. Destruction of a major production plant by fire at the end of reporting period
d. A business combination after end of reporting period
j.

22. The factory was damaged in a storm surge after the end of reporting period but
before issuance of financial statements. What is the treatment of the damage
from storm surge?
a. An adjusting event
b. A nonadjusting event
c. Neither an adjusting event nor a nonadjusting event
d. Both an adjusting event and a nonadjusting event
k.
23. Deficits accumulated during the development stage of an entity should be
a. Reported as organization cost
b. Reported as part of shareholders equity
c. Capitalized and written off in the first year of principal operations
d. Capitalized and amortized over a five-year period beginning when principal
operations commence
l.
24. Accounting policies disclosed in the notes to financial statements typically include
all of the following, except
a. The cost flow assumption
b. The depreciation method
c. Significant estimates
d. Significant inventory purchasing policies
m.
25. Disclosure of information about key sources of estimation uncertainty
a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
n.
26. Disclosure of information about judgments
a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
o.
27. Which of the following should be defined as intentional distortion of financial
statement?
a. Error
c. Error and fraud
b. Fraud
d. Neither error nor fraud
e.
28. Mite Company provided the following data for the current year:
f.
g.
Finished goods inventory, January 1
1,000,000
h.
Finished goods inventory, December 31
1,200,000
i.
Cost of goods manufactured
5,000,000
j.
Loss on sale of plant equipment
100,000
k.
l.
What is the cost of goods sold for the current year?
a. 4,800,000
c. 4,900,000
b. 5,200,000
d. 5,300,000

e.
29. Melissa Company provided the following information for the current year:
f.
g.
Beginning inventory
400,000
h.
Freight in
300,000
i.
Purchase returns
900,000
j.
Ending inventory
500,000
k.
Distribution costs
1,250,000
l.
Sales discount
250,000
m.
n.
The cost of goods sold is six times the distribution costs.
o.
p.
What is the amount of gross purchases?
a. 6,500,000
c. 8,000,000
b. 6,700,000
d. 8,200,000
e.
30. Dell Company provided the following information for the current year:
f.
g.
Purchases
5,300,000
h.
Purchase discounts
100,000
i.
Beginning inventory
1,600,000
j.
Ending inventory
2,150,000
k.
Freight out
400,000
l.
m.
What is the cost of goods sold for the current year?
a. 4,650,000
c. 5,050,000
b. 4,750,000
d. 5,850,000
e.
31. Bart Company provided the following information for the current year:
f.
g.
Disbursements for purchases
5,800,000
h.
Increase in trade accounts payable
500,000
i.
Decrease in merchandise inventory
200,000
j.
k.
What is the cost of goods sold for the current year?
a. 6,500,000
c. 5,500,000
b. 6,100,000
d. 5,100,000
e.
f.
32. Zeno Company maintains a markup of 60% based on cost. The entitys
distribution and administrative expenses average is 30% of sales. Sales
amounted to P 9,600,000 for current year. What is the net income for the current
year?
a. 3,600,000
c. 960,000
b. 2,880,000
d. 720,000
e.
33. The primary focus of financial reporting has been on meeting the needs of which
of the following?
a. Managers of an entity

b. Existing and potential investors, lenders and other creditors

c. National and local taxing authorities
d. Independent CPAs
f.
34. Related parties include all of the following, except
a. Parent, subsidiary and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of such key
management personnel
d. Two venturers simply because they share joint control over a joint venture
g.
35. A related party transaction is a transfer of resources or obligations
a. Between related parties when a price is charged
b. Between related parties, regardless of whether a price is charged
c. Between unrelated parties when a price is charged
d. Between unrelated parties, regardless of whether a price is charged
h.
36. Grim Company incurred the following costs during the current year:
i.
j.
Property taxes
250,000
k.
Freight in
1,750,000
l.
Doubtful accounts
1,600,000
m.
Officers salaries
1,500,000
n.
Insurance
850,000
o.
Sales representative salaries
2,150,000
p.
q.
What amount of these costs should be reported as administrative
expenses?
a. 5,950,000
c. 2,600,000
b. 3,950,000
d. 4,200,000
e.
37. Gianina Company reported the following information for the current year:
f.
g.
Inventory, Jan. 1
2,000,000
h.
Purchases
7,500,000
i.
Purchase returns and allowances
500,000
j.
Sales returns and allowances
750,000
k.
Inventory, Dec. 31
2,800,000
l.
Gross profit rate on net sales
20%
m.
n.
What is the amount of gross sales for the current year?
a. 7,750,000
b. 8,500,000
c. 7,000,000
d. 9,125,000
38. Zeno Company maintains a markup of 60% based on cost. The entitys
distribution and administrative expenses average 30% of sales. Sales amounted
to P9,600,000 for current year. What is the net income for the current year?
a. 3,600,000

b. 2,880,000
c.
960,000
d. 720,000
o.
39. Carla Company carried a provision of P2,000,000 in the draft financial
statements for the year ended December 31, 2014 in relation to an unresolved
court case. On January 31, 2015, when the financial statements for the year
ended December 31, 2014 had not yet been authorized for issue, the case was
settled and the court decided the final total damages to be paid by the entity at
P3,000,000. What amount should be adjusted on December 31, 2014 in relation
to this event?
a. 3,000,000
c. 1,000,000
b. 2,000,000
d. 0
e.
40. Jambalaya Company reported the following renumeration and other payments
made to the entitys chief executive officer during the current year.
f.
g.
Annual salary
2,000,000
h.
Share options and other share-based payments
1,000,000
i.
Contributions to retirement benefit plan
500,000
j.
Reimbursement of travel expenses for business trips
1,200,000
k.
l.
What total amount should be disclosed as compensation to key
management personnel?
a. 3,500,000
c. 3,000,000
b. 4,700,000
d. 2,500,000
e.
41. Jericho Company showed net income of P480,000 in the income statement for
the current year. Selling expenses were equal to 15% of sales and also 25% of
cost of sales. All other expenses were 13% of sales. What was the gross profit
for the current year?
a. 4,000,000
c. 1,600,000
b. 2,400,000
d. 2,000,000
e.
42. Sheraton Company reported the following information for the current year:
f.
g.
Ending goods in process
1,000,000
h.
Depreciation on factory building
320,000
i.
Sales salaries
270,000
j.
Beginning raw materials
400,000
k.
Direct labor
1,980,000
l.
Factory supervisory salaries
560,000
m.
Depreciation on headquarters building
210,000
n.
Beginning goods in process
760,000
o.
Ending raw materials
340,000
p.
Indirect labor
360,000
q.
Advertising
500,000
r.
Purchases of raw materials
2,300,000
s.

t.
What is the cost of goods manufactured for the current year?
u.
a. 5,340,000
c. 5,550,000
b. 5,580,000
d. 5,820,000
e.
f.
43. Melissa Company provided the following information for the current year:
g.
h.
Beginning inventory
400,000
i.
Freight in
300,000
j.
Purchase returns
900,000
k.
Ending inventory
500,000
l.
Distribution cost
1,250,000
m.
Sales discount
250,000
n.
o.
The cost of goods sold is six times the distribution cost.
p.
What is the amount of gross purchases?
q.
a. 6,500,000
c. 8,000,000
b. 6,700,000
d. 8,200,000
e.
f.
44. Dell Company provided the following information for the current year:
g.
h.
Purchases
5,300,000
i.
Purchase discounts
100,000
j.
Beginning inventory
1,600,000
k.
Ending inventory
2,150,000
l.
Freight out
400,000
m.
n.
What is the cost of goods sold for the current year?
o.
a. 4,650,000
c. 5,050,000
b. 4,750,000
d. 5,850,000
e.
f.
45. Bart Company provided the following information for the current year:
g.
h.
Disbursements and purchases
5,800,000
i.
Increase in trade accounts receivable
500,000
j.
Decrease in merchandise inventory
200,000
k.
l.
What is the cost of goods sold for the current year?
m.
a. 6,500,000
c. 5,500,000
b. 6,100,000
d. 5,100,000
e.
f.

46. Jam Company had P2,000,000 note payable due on March 1, 2015. The entity
borrowed P1,500,000 on December 31, 2014 which has 5 year term and use the
proceeds to pay down the note payable and use the other cash to pay the
balance at maturity. The financial statements were issued on March 31, 2015.
What amount of note payable should be classified as current on December 31,
2014?
a. 2,000,000
c. 500,000
b. 1,500,000
d. 0
e.
f.
47. Brazil Company reported the following liability balances on December 31, 2014:
g.
h.
Account payable
5,000,000
i.
Bonds payable, due December 30, 2015
10,000,000
j.
Deferred tax liability
2,500,000
k.
Note payable- bank
4,000,000
l.
m.
The bank note payable matures on June 30, 2015. On March 1, 2015, the
bank note payable was refinanced on a long term basis. The financial statements
were issued on March 31, 2015. What total amount should be reported as current
liabilities?
n.
a. 19,000,000
b. 21,000,000
c. 15,000,000
d. 9,000,000
o.
48. Peach Company prepared a draft of the year-end statement of financial position.
The draft statement reported total assets of P4,375,000 which included the
following:
p.
q.
Treasury shares of Peach Company at cost, which
r.
Approximates market value on December 31
120,000
s.
Unamortized patent
56,000
t.
Deferred charges
68,500
u.
Cumulative translation loss
42,000
v.
w.
What amount should be reported as total assets?
a. 4,208,500
c. 4,250,500
b. 4,213,000
d. 4,255,000
e.
f.
49. Generally, recognition criteria are met and revenue is recognized
g.
a. At the point of sale
b. When cause and effect are associated
c. At the point of cash collection
d. At appropriate points throughout the operating cycle
h.

i.
50. Revenue from an artistic performance is recognized when
j.
a. The audience register for the event online
b. The tickets for the concert are sold
c. Cash has been received from the ticket sales
d. The event takes place
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
x.
y.
z.
aa.
ab.ANSWER KEY
ac.
ad. 1.A
au. 18.A
ae. 2.C
av. 19.A
af. 3.C
aw. 20.A
ag. 4.D
ax. 21.C
ah. 5.C
ay. 22.B
ai. 6.A
az. 23.B
aj. 7.C
ba. 24.D
ak. 8.A
bb. 25.B
al. 9.B
bc. 26.B
am. 10.C
bd. 27.B
an. 11.A
be. 28.A
ao. 12.C
bf. 29.D
ap. 13.A
bg. 30.A
aq. 14.A
bh. 31.A
ar. 15.D
bi. 32.D
as. 16.D
bj. 33.B
at. 17.D
bk. 34.D

bl. 35.B
bm. 36.D
bn. 37.B
bo. 38.D
bp. 39.C
bq. 40.A
br. 41.C
bs. 42.A
bt. 43.D
bu. 44.A
bv. 45.A
bw. 46.C
bx. 47.A
by. 48.B
bz. 49.A
ca. 50.D

cb.
cc.

cd.