AC503 FINAL EXAMINATION

1ST SEMESTER 2010-2011

SET A
Instructions:
A. Theory of accounts Write the letter of your choice on the left side of the
questioner. Use capital letter.
B. Problem solving Write the letter of your choice on the left side and solutions
on the available space of the questioner. Use capital letter.

Strictly NO ERASURE on the final answer.

1. The information provided by financial reporting pertains to

a. individual business enterprises, rather than to industries or an economy as a
whole or to members of society as consumers.
b. business industries, rather than to individual enterprises or an economy as a
whole or to members of society as consumers.
c. individual business enterprises, industries, and an economy as a whole,
rather than to members of society as consumers.
d. an economy as a whole and to members of society as consumers, rather
than to individual enterprises or industries.
2. What is a major objective of financial reporting?
a. Provide information that is useful to management in making decisions.
b. Provide information that clearly portray nonfinancial transactions.
c. Provide information that is useful to assess the amounts, timing, and
uncertainty of perspective cash receipts.
d. Provide information that excludes claims to the resources.
3. When should an expenditure be recorded as an asset rather than an expense?
a. Never.
b. Always.
c. If the amount is material.
d. When future benefit exits.
4. Recognition of expense related to amortization of an intangible asset illustrates which
principle of accounting?
a. Expense recognition.
b. Full disclosure.
c. Revenue recognition.
d. Historical cost.
5. Which assumption or principle requires that all information significant enough to affect
a decision of reasonably informed users should be reported in the financial
statements?
a. Matching.
b. Going concern.
c. Historical cost.
d. Full disclosure.
6. Which of the following is not a selling expense?
a. Advertising expense
b. Office salaries expense
c. Freight-out
d. Store supplies consumed
7. Which of the following is included in comprehensive income?
a. Investments by owners.
b. Unrealized gains on available-for-sale securities.
c. Distributions to owners.
d. Changes in accounting principles
8. Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation
9. The statement of cash flows provides answers to all of the following questions except
a. where did the cash come from during the period?
b. what was the cash used for during the period?
c. what is the impact of inflation on the cash balance at the end of the year?
d. what was the change in the cash balance during the period?
10. Under which section of the balance sheet is "cash restricted for plant expansion"
reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Stockholders' equity.
11. If a company employs the gross method of recording accounts receivable from
customers, then sales discounts taken should be reported as
a. a deduction from sales in the income statement.
b. an item of "other expense" in the income statement.
c. a deduction from accounts receivable in determining the net realizable value
of accounts receivable.
d. sales discounts forfeited in the cost of goods sold section of the income
statement.
12. Where should goods in transit that were recently purchased f.o.b. destination be
included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
13. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
14. The cost of land does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
15. Which of the following costs are capitalized for self-constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
16. Which of the following assets do not qualify for capitalization of interest costs
incurred during construction of the assets?
a. Assets under construction for an enterprise's own use.
b. Assets intended for sale or lease that are produced as discrete projects.
c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare them for
their intended use
17. It is the smallest identifiable group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows from other assets or
group of assets
a. cash generating unit
b. goodwill
c. corporate asset
d. the entity as a whole
18. When the revaluation surplus is realized because of the use of the asset by the entity
or disposal of the asset, it may be transferred directly to
a. retained earnings
b. income
c. share capital
d. share premium
19. Companies should test indefinite life intangible assets at least annually for:
a. recoverability.
b. amortization.
c. impairment.
d. estimated useful life.
20. Which intangible assets are amortized?
Limited-Life Indefinite-Life
a. Yes Yes
b. Yes No
c. No Yes
d. No No

21. When a patent is amortized, the credit is usually made to

a. the Patent account.
b. an Accumulated Amortization account.
c. a Deferred Credit account.
d. an expense account.
22. All of the following financial assets shall be measured at fair value through profit or
loss, except
a. financial assets held for trading
b. financial assets designated on initial recognition as at fair value through profit
or loss
c. investments in quoted equity instruments
d. financial assets at amortized cost
23. Depending on the business model for managing financial assets, an entity shall
classify financial assets subsequent to initial recognition at
a. fair value
b. amortized cost
c. either fair value or amortized cost
d. neither fair value nor amortized cost
24. If the financial asset is held for trading or if the financial asset is measured at fair
value through profit or loss transaction costs directly attributable to the acquisition shall
be
a. capitalized as cost of the financial asset
b. expensed immediately when incurred
c. deferred and amortized over a reasonable period
d. included as component of other comprehensive income
25. For Mortenson Company, the following information is available:
Cost of goods sold $ 60,000
Dividend revenue 2,500
Income tax expense 6,000
Operating expenses 23,000
Sales 100,000
In Mortensons functional income statement, gross profit
a. should not be reported.
b. should be reported at $13,500.
c. should be reported at $40,000.
d. should be reported at $42,500
26. For Mortenson Company, the following information is available:
Cost of goods sold $ 60,000
Dividend revenue 2,500
Income tax expense 6,000
Operating expenses 23,000
Sales 100,000
In Mortensons natural income statement, gross profit
a. should not be reported.
b. should be reported at $13,500.
c. should be reported at $40,000.
d. should be reported at $42,500
27. Olmsted Company has the following items: common stock, $720,000; treasury stock,
$85,000; deferred taxes, $100,000 and retained earnings, $363,000. What total
amount should Olmsted Company report as stockholders equity?
a. $898,000.
b. $998,000.
c. $1,098,000.
d. $1,198,000
28. Sauder Corporation reports the following information:
Net income $250,000
Depreciation expense 70,000
Increase in accounts receivable 30,000
Sauder should report cash provided by operating activities of
a. $150,000.
b. $210,000.
c. $290,000.
d. $350,000
29. Consider the following: Cash in Bank checking account of $13,500, Cash on hand
of $500, Post-dated checks received totaling $3,500, and Certificates of deposit
totaling $124,000. How much should be reported as cash in the balance sheet?
a. $ 13,500.
b. $ 14,000.
c. $ 17,500.
d. $131,500
30. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should
be recorded as revenue?
a. $ 9,800.
b. $ 9,900.
c. $10,000.
d. $10,100.
31. Checkers uses the periodic inventory system. For the current month, the beginning
inventory consisted of 1,200 units that cost $12 each. During the month, the
company made two purchases: 500 units at $13 each and 2,000 units at $13.50
each. Checkers also sold 2,150 units during the month. Using the FIFO method,
what is the ending inventory?
a. $20,073.
b. $18,600.
c. $20,925.
d. $18,950.
32. The following information is available for October for Barton Company.
Beginning inventory $ 50,000
Net purchases 150,000
Net sales 300,000
Percentage markup on cost 66.67%
A fire destroyed Bartons October 31 inventory, leaving undamaged inventory
with a cost of $3,000. Using the gross profit method, the estimated ending
inventory destroyed by fire is
a. $17,000.
b. $77,000.
c. $80,000.
d. $100,000.
33. Fogelberg Company purchased equipment for $12,000. Sales tax on the purchase
was $600. Other costs incurred were freight charges of $240, repairs of $420 for
damage during installation, and installation costs of $270. What is the cost of the
equipment?
a. $12,000.
b. $12,600.
c. $13,110.
d. $13,530.
34. Ecker Company purchased a new machine on May 1, 2002 for $176,000. At the time
of acquisition, the machine was estimated to have a useful life of ten years and
an estimated salvage value of $8,000. The company has recorded monthly
depreciation using the straight-line method. On March 1, 2011, the machine was
sold for $24,000. What should be the loss recognized from the sale of the
machine?
a. $0.
b. $3,600.
c. $8,000.
d. $11,600.
35. Timmons Company traded machinery with a book value of $120,000 and a fair value
of $200,000. It received in exchange from Lewis Company a machine with a fair
value of $180,000 and cash of $20,000. Lewiss machine has a book value of
$190,000. What amount of gain should Timmons recognize on the exchange?
a. $ -0-
b. $8,000
c. $20,000
d. $80,000
Jamison Company purchased the assets of Booker Company at an auction for
$1,400,000. An independent appraisal of the fair value of the assets is listed below:
Land $475,000
Building 700,000
Equipment 525,000
Trucks 850,000
36. Assuming that specific identification costs are impracticable and that Jamison
allocates the purchase price on the basis of the relative fair values, what amount would
be allocated to the Trucks?
a. $466,667
b. $700,000
c. $840,000
d. $850,000

37. Assuming that specific identification costs are impracticable and that Jamison
allocates the purchase price on the basis of the relative fair values, what amount
would be allocated to the Building?
a. $529,730
b. $700,000
c. $1,275,000
d. $384,314

Below is the information relative to an exchange of assets by Stanton Company. The

exchange lacks commercial substance.

Old Equipment
Book Value Fair Value Cash Paid
Case I $75,000 $85,000 $15,000
Case II $50,000 $45,000 $7,000

38. Which of the following would be correct for Stanton to record in Case I?

Record Equipment at: Record a gain of (loss) of:

a. $90,000 $0
b. $100,000 $10,000
c. $75,000 $(5,000)
d. $90,000 $10,000

39. Which of the following would be correct for Stanton to record in Case II?

Record Equipment at: Record a gain of (loss) of:

a. $57,000 $0
b. $50,000 $2,000
c. $52,000 $(5,000)
d. $50,000 $(2,000)
Capiz Company has the following information on January 1, 2009 relating to its land and
building.
Land 50,000,000
Building 450,000,000
Accuulated depreciation-bldg 75,000,000

There were no addition or disposal during 2009. Depreciation is computed using straight
line over 15 years for building. On June 30, 2009 the land and building were revalued as
follows:
Replacement cost sound value
Land 65,000,000 65,000,000
Building 600,000,000 480,000,000

40. What is the revaluation surplus on June 30, 2009?

a. 135,000,000
b. 125,000,000
c. 120,000,000
d. 160,000,000
41. What is the depreciation of the building for 2009?
a. 30,000,000
b. 35,000,000
c. 40,000,000
d. 32,000,000
42. Lopez Corp. incurred $420,000 of research and development costs to develop a
product for which a patent was granted on January 2, 2006. Legal fees and other
costs associated with registration of the patent totaled $80,000. On March 31,
2011, Lopez paid $150,000 for legal fees in a successful defense of the patent.
The total amount capitalized for the patent through March 31, 2011 should be
a. $230,000.
b. $500,000.
c. $80,000.
d. $650,000
43. On May 5, 2011, MacDougal Corp. exchanged 2,000 shares of its $25 par value
treasury common stock for a patent owned by Masset Co. The treasury shares
were acquired in 2010 for $45,000. At May 5, 2011, MacDougal's common stock
was quoted at $34 per share, and the patent had a carrying value of $55,000 on
Masset's books. MacDougal should record the patent at
a. $45,000.
b. $50,000.
c. $55,000.
d. $68,000.
44. Riley Co. incurred the following costs during 2011:
Significant modification to the formulation of a chemical product $160,000
Trouble-shooting in connection with breakdowns during commercial
production 150,000
Cost of exploration of new formulas 200,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 225,000
In its income statement for the year ended December 31, 2011, Riley should
report research and development expense of
a. $585,000.
b. $735,000.
c. $770,000.
d. $920,000.
45. Racer Company purchased marketable equity securities during 010 to be held as
trading. An analysis of the current investments on December 31, 2010 showed the
following:
Cost Market
A company ordinary share 1,000,000 800,000
B company ordinary share 1,500,000 1,800,000
C company preference share 2,000,000 1,700,000
D company preference share 2,500,000 2,600,000

What is the measurement of the financial assets held for trading on December 31, 2010?
a. 6,900,000
b. 6,800,000
c. 7,000,000
d. 6,500,000
46. During 2010, Rock Company made various investments in trading securities. On
December 31, 2010, the investments had the following cost and market value:
Cost market value
Man Company ordinary share 1,000,000 900,000
Kemo Company ordinary share 900,000 1,100,000
Penn Company preference share 1,100,000 800,000

How much should be included as unrealized loss in the income statement for 2010?
a. 200,000
b. 400,000
c. 300,000
d. 0
47. Raiza Company acquired a financial asset at its market value of P3,200,000. Broker
fees of P200,000 were incurred in relation to the purchase. At what amount should the
financial asset initially be recognized respectively if it is classified as at fair value through
profit or loss, or as at fair value through other comprehensive income?
a. 3,400,000 and 3,200,000
b. 3,200,000 and 3,200,000
c. 3,200,000 and 3,400,000
d. 3,400,000 and 3,400,000
48. During 2009, Brod Company purchased marketable equity securities to be measured
at fair value through other comprehensive income. At December 31, 2009, the balance
in the unrealized loss on these securities was P200,000. There were no security
transactions during 2010. Pertinent data at December 31, 2010 are as follows:

Security Cost Market value

X 2,100,000 1,600,000
Y 1,850,000 2,000,000
Z 1,050,000 900,000
_______ ________
5,000,000 4,500,000
======= =======
In its statement of changes in equity for 2010, Brod Company should include cumulative
unrealized loss as component of other comprehensive income at
a. 500,000
b. 300,000
c. 200,000
d. 0
49. Edes Company purchased 50,000 of Rona Company on January 15, 2010
representing 5% ownership interest. Edes Company received a stock dividend of 20%
on March 31, 2010 when the market price of the share is P40. Rona Company paid a
cash dividend of P5 per share on December 15, 2010. In the Income statement for the
year ended December 31, 2010, what amount Edes Company report as dividend
income?
a. 150,000
b. 400,000
c. 700,000
d. 300,000
50. On its December 31, 2010, balance sheet, Trump Co. reported its investment in
available-for-sale securities, which had cost $600,000, at fair value of $550,000.
At December 31, 2011, the fair value of the securities was $585,000. What
should Trump report on its 2011 income statement as a result of the increase in
fair value of the investments in 2011?
a. $0.
b. Unrealized loss of $15,000.
c. Realized gain of $35,000.
d. Unrealized gain of $35,000
51. During 2010, Woods Company purchased 20,000 shares of Holmes Corp. common
stock for $315,000 as an available-for-sale investment. The fair value of these
shares was $300,000 at December 31, 2010. Woods sold all of the Holmes stock
for $17 per share on December 3, 2011, incurring $14,000 in brokerage
commissions. Woods Company should report a realized gain on the sale of stock
in 2011 of
a. $11,000.
b. $25,000.
c. $26,000.
d. $40,000.
52. Gutierrez Company is constructing a building. Construction began in 2010 and the
building was completed 12/31/10. Gutierrez made payments to the construction
company of $1,500,000 on 7/1, $3,300,000 on 9/1, and $3,000,000 on 12/31.
Average accumulated expenditures were
a. $1,575,000.
b. $1,850,000.
c. $4,800,000.
d. $7,800,000.
53. Marsh Corporation purchased a machine on July 1, 2008, for $750,000. The
machine was estimated to have a useful life of 10 years with an estimated
salvage value of $42,000. During 2011, it became apparent that the machine
would become uneconomical after December 31, 2015, and that the machine
would have no scrap value. Accumulated depreciation on this machine as of
December 31, 2010, was $177,000. What should be the charge for depreciation
in 2011 under generally accepted accounting principles?
a. $106,200
b. $114,600
c. $123,000
d. $143,250
54. In January 2010, Fehr Mining Corporation purchased a mineral mine for $4,200,000
with removable ore estimated by geological surveys at 2,500,000 tons. The
property has an estimated value of $400,000 after the ore has been extracted.
Fehr incurred $1,150,000 of development costs preparing the property for the
extraction of ore. During 2010, 340,000 tons were removed and 300,000 tons
were sold. For the year ended December 31, 2010, Fehr should include what
amount of depletion in its cost of goods sold?
a. $516,800
b. $456,000
c. $594,000
d. $673,200
55. In January 2010, Fehr Mining Corporation purchased a mineral mine for $4,200,000
with removable ore estimated by geological surveys at 2,500,000 tons. The
property has an estimated value of $400,000 after the ore has been extracted.
Fehr incurred $1,150,000 of development costs preparing the property for the
extraction of ore. During 2010, 340,000 tons were removed and 300,000 tons
were sold. For the year ended December 31, 2010, Fehr should include what
amount of inventory in the balance sheet?
a. $92,000
b. $79,200
c. $85,600
d. $85,000
ANSWER:
1. A
2. A
3. D
4. A
5. D
6. B
7. B
8. D
9. C
10. B
11. A
12. D
13. D
14. C
15. D
16. D
17. A
18. A
19. C
20. B
21. A
22. D
23. C
24. B
25. C
26. A
27. B
28. C
29. B
30. B
31. C
32. A
33. C
34. B
35. D
36. A
37. D
38. A
39. A
40. C
41. B
42. C
43. D
44. A
45. A
46. A
47. C
48. A
49. D
50. A
51. A
52. B
53. B
54. C
55. B