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NATIONAL COLLEGE OF SCIENCE AND TECHNOLOGY

Amafel Bldg., Aguinaldo Hi-way, Dasmariñas, Cavite


Tel. No.: (046)416-6278 ● Telefax: (046)416-0166 ● Mobile No.:+63918-88

BUSINESS DEPARTMENT

REV 003

MIDTERM

QUESTIONS A B C

Cotton Hotel Corporation recently depreciated over


1 purchased Holiday Hotel and the land the period from
on which it is located with the plan to acquisition to the written off as an
tear down the Holiday Hotel and build date the hotel is extraordinary loss in capitalized as
a new luxury hotel on the site. The scheduled to be the year the hotel is part of the cost
cost of the Holiday Hotel should be torn down. torn down of the land.

2 costs of grading, costs of


filling, draining, and costs of removing improvements
The cost of land does not include clearing. old buildings. with limited lives.
street lights,
3 The cost of land typically includes the grading, filling, sewers, and private
purchase price and all of the following draining, and drainage systems driveways and
costs except clearing costs. cost. parking lots.

4
Fences and parking lots are reported
on the balance sheet as current assets. land improvements. land.

assets that are assets that are


5 assets under ready for their not currently
construction for a intended use in the being used
Assets that qualify for interest cost company's own earnings of the because of
capitalization include use. company. excess capacity.
When funds are borrowed to pay for
construction of assets that qualify for multiplied by an
6 capitalization of interest, the excess appropriate
funds not needed to pay for interest rate to
construction may be temporarily offset against determine the
invested in interest-bearing securities. interest cost used to reduce the amount of
Interest earned on these temporary incurred during cost of assets being interest to be
investments should be construction. constructed. capitalized.

7 Plant assets purchased on long-term the total value of the future amount the present
credit contracts should be accounted the future of the future value of the
for at payments. payments. future payments.
When a plant asset is acquired by
8 issuance of common stock, the cost of
the plant asset is properly measured par value of the stated value of the book value of
by the stock. stock. the stock.

one dollar (since


the site cost
9 A plant site donated by a township to a nothing but
manufacturer that plans to open a new should be
factory should be recorded on the the nominal cost of included in the
manufacturer's books at taking title to it. its market value. balance sheet).

10
Which of the following is a capital Payment of an Retirement of Payment of
expenditure? account payable bonds payable income taxes

11 The sale of a depreciable asset


resulting in a loss indicates that the less than current greater than
proceeds from the sale were market value. greater than cost. book value.

Which of the following principles best


12
describes the conceptual rationale for
the methods of matching depreciation Associating cause Systematic and Immediate
expense with revenues? and effect rational allocation recognition

physical life is the


service life refers to life of an asset
13 the time an asset without
will be used by a consideration of
company and salvage value and
The major difference between the physical life refers service life requires physical life is
service life of an asset and its physical to how long the the use of salvage always longer
life is that asset will last. value. than service life.
the total amount to the estimated
be charged the cost of the market value of
14
The term "depreciable cost," or (debited) to asset less the the asset at the
"depreciable base," as it is used in expense over an related depreciation end of its useful
accounting, refers to asset's useful life. recorded to date. life.

15 Economic factors that does not


shorten the service life of an asset
include obsolescence. supersession. inadequacy.

assumes that conceptually


16
depreciation is a associates cost
is a variable charge function of the in terms of input
The activity method of depreciation approach. passage of time. measures.

means salvage means the book


results in a value is not value should not
17
decreasing charge deducted in be reduced
Use of the double-declining balance to depreciation computing the below salvage
method expense. depreciation base. value.

18 For income statement purposes,


depreciation is a variable expense if sum-of-the-
the depreciation method used is units-of-production. straight-line. years'-digits.

rate is the total cost rate is the total life is the total
19
divided by the total annual depreciation cost divided by
For the composite method, the annual divided by the total the total annual
composite depreciation. depreciable cost. depreciation.

20 result in be handled in be handled in


restatement of prior current and future future periods
A change in estimate should period statements. periods. only.

21 The most common method of


recording depletion for accounting percentage decreasing charge straight-line
purposes is the depletion method. method. method.

Tangible
22 equipment costs
Of the following costs related to the associated with
development of natural resources, Acquisition cost of machinery used
which one is not a part of depletion the natural resource to extract the
cost? deposit
Accumulated Exploration costs natural resource
depreciation, either Details
23 Which of the following disclosures is by major classes of demonstrating how Depreciation
not required in the financial statements depreciable assets depreciation was expense for the
regarding depreciation? or in total. calculated. period.
equal to the
the asset's balance of the
24 the fair market acquisition cost less related
value of the asset the total related accumulated
at a balance sheet depreciation depreciation
The book value of a plant asset is date. recorded to date. account.

25 Which of the following methods of


amortization is normally used for Sum-of-the-years'- Units of
intangible assets? digits Straight-line production

any legal or any provisions


26
Factors considered in determining an contractual for renewal or
intangible asset’s useful life include all the expected use of provisions that may extension of the
of the following except the asset. limit the useful life. asset’s legal life

27
Which of the following is not an Research and
intangible asset? Trade name development costs Franchise
Which of the following principles best
28 describes the current method of
accounting for research and Associating cause Systematic and Income tax
development costs? and effect rational allocation minimization
deferred credits that
are recognized and obligations to
any accounts having
measured in transfer
credit balances after
29 Liabilities are _____________. conformity with ownership shares
closing entries are
generally accepted to other entities
made.
accounting in the future.
principles.

A cash dividend
A dividend payable in
Which of the following is a current Preferred dividends payable to
30 the form of additional
liability? in arrears preferred
shares of stock
stockholders

Which of these is not included in an Philhealth Pag-ibig


31 SSS contribution
employer's payroll tax expense? contribution contribution

Environmental
Which of the following contingencies Guarantees of
32 Probable losses not liabilities that cannot
needs be disclosed in the financial indebtedness of
reasonably estimable be reasonably
statements or the notes thereto? others
estimated

Which of the following sets of conditions Amount of loss is Amount of loss is Event is unusual
33 would give rise to the accrual of a reasonably estimable reasonably estimable in nature and
contingency under current generally and event occurs and occurrence of occurrence of
accepted accounting principles? infrequently event is probable. event is probable
They are sold by malls, supermarkets or
34 drugstores which are redeemable by Warranty Premium Gift certificate
purchase of merchandise.

They are restrictions attached to


borrowing agreements which represent
35 undertakings such as further borrowings, Grace period Covenant Breach of contract
dividend payment and working capital
maintenance.

The obligation to
The obligation to
The obligation to pay pay interest on a
provide goods that
for goods that an five-year note
36 Which of the following represents a customers have
entity expects to payable that was
liability? ordered and paid for
order from suppliers issued the last
during the current
next year day of the current
year
year

What is the effect of an issuance of gift


37 decrease in deferred increase in deferred decrease in
certificate by a department store that is
revenue account revenue account revenue account
redeemable in merchandise?

expensed when there


38 How is warranty cost recognized in the expensed when is certainty that expensed when
books under the accrual approach? incurred there would be paid
warranty clain

They consists of cash and property


39 received from customers which are returnable
unearned revenue curretn liabilities
returnable after compliance with certain deposits
conditions.

It is an event that creates a legal or


40 constructive obligation because the entity
current event past event subsequent event
has no other realistic alternative but to
settle the obligation.

possible obligation existing liability of liability which


41 Which of the following is correct about
arising from past uncertain timing and cannot be easily
provision?
events amount measured

outflow of
entity has present
42 Which condition does not provide for a the amount can be resources is
obligation as a result
recognition of provision as a liability? measured reliably probable to settle
of past event
the obligation

43 It is an obligation derived from the constructive


probable obligation legal obligation
actions of the entity. obligation

Which of the following is not a


44 present value
consideration in recognizing and reimbusements future events
obligation
measuring a provision
45 which of the following is not an example possible loss on
guarantee court case
of provision? disposal of asset

46 Which of the following terms is a


possible likely remote
condition in recognizing a provision?

established pattern
47 Which of the following tdoes not give rise
based on past legislation a contract
to a legal obligation?
exprerience

48 not recognized in the not disclosed if


A contingent liability is __________. disclosed only
financial statements remote

the entity will accept


others expect the
49 Which of the following is not a responsibilities damages for
entity will discharge
constructive obligation? because of current breach of contract
its responsibilites
statement

50

51

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100

Prepared by: Verified by:

ROSALIA C. DE GUZMAN

Checked by: Noted by:


E AND TECHNOLOGY
, Dasmariñas, Cavite
66 ● Mobile No.:+63918-888-6278

MENT

D ANSWER REFERENCES

Financial Accounting Volume


One, Latest Edition, Valix,
Peralta, Valix
capitalized as part
of the cost of the
new hotel.

Financial Accounting Volume


One, Latest Edition, Valix,
special Peralta, Valix
assessments.

Financial Accounting Volume


assumption of any One, Latest Edition, Valix,
liens or mortgages Peralta, Valix
on the property.
Financial Accounting Volume
One, Latest Edition, Valix,
property and Peralta, Valix
equipment.

Financial Accounting Volume


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All of these assets Peralta, Valix
qualify for interest
cost capitalization.
Financial Accounting Volume
One, Latest Edition, Valix,
Peralta, Valix

recognized as
revenue of the
period.

Financial Accounting Volume


One, Latest Edition, Valix,
Peralta, Valix
none of these.

Financial Accounting Volume


One, Latest Edition, Valix,
market value of the Peralta, Valix
stock.

Financial Accounting Volume


the value assigned One, Latest Edition, Valix,
to it by the Peralta, Valix
company's
directors.
Financial Accounting Volume
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acquisition of Peralta, Valix
invnetories
Financial Accounting Volume
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less than book Peralta, Valix
value.

Financial Accounting Volume


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Peralta, Valix

Partial recognition

service life refers to


the length of time Financial Accounting Volume
an asset is of use to One, Latest Edition, Valix,
its original owner, Peralta, Valix
while physical life
refers to how long
the asset will be
used by all owners.
Financial Accounting Volume
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Peralta, Valix
the acquisition cost
of the asset.
Financial Accounting Volume
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Peralta, Valix
impairment

Financial Accounting Volume


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Peralta, Valix

Financial Accounting Volume


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Peralta, Valix

all of these.

Financial Accounting Volume


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Peralta, Valix
declining-balance.

life is the total Financial Accounting Volume


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depreciable cost Peralta, Valix
divided by the total
annual depreciation.

Financial Accounting Volume


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be handled Peralta, Valix
retroactively.
Financial Accounting Volume
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units-of-production Peralta, Valix
method.

Financial Accounting Volume


Intangible One, Latest Edition, Valix,
development costs Peralta, Valix
such as drilling
costs, tunnels, and
shafts
Balances of major
classes of
Financial Accounting Volume
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by nature and Peralta, Valix
function.
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property tax
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Double-declining- Peralta, Valix
balance

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the amortization
method used.
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Copyrights

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Immediate One, Latest Edition, Valix,
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expense

obligations arising
from past
Financial Accounting Volume
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services in the
future.
D

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loan payable in 2016 One, Latest Edition, Valix,
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C

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withholding taxes One, Latest Edition, Valix,
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near the end of the
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expensed based on Financial Accounting Volume


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d by:

BERNARDO C. PANGILINAN

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