ACC 02 - FINALS

Which of the following is added to the cash ledger balance? * A credit to cash of P96,000 but recorded as P69,000 A debit to cash of P96,000 but recorded as P69,000 A debit to cash of P69,000 but recorded as P96,000 A credit to cash of P69,000 but recorded as accounts payable

A debit to cash of P96,000 but recorded as P69,000

Which of the following is deducted from the cash ledger balance? * Additional cash investment was recorded as a debit to equipment. A collection from a credit customer was recorded as a debit to accounts receivable. A purchase of goods on account was recorded as a credit to cash. A payment on account was recorded as a credit to accounts payable.

A payment on account was recorded as a credit to accounts payable.

Which of the following BEST describes the term liability? * Resources to meet financial statements as they fall due The residual interest in the assets of the entity after deducting all of its liabilities A present obligation of the entity arising from past events An excess of equity over assets

A present obligation of the entity arising from past events

Which of the following BEST describes a pro forma financial statement? * A statement of planned production Presented for the form but contains no dollar amounts A financial statement for past periods A projected or budgeted financial statement

A projected or budgeted financial statement

Which of the following is a current liability? * Deferred tax liabilities Mortgage payable Notes payable (15 months) Accounts payable (Term: n/120; dated Dec. 1)

Accounts payable (Term: n/120; dated Dec. 1)

To compute for the net income in the statement of changes in equity, we should * Add the withdrawal to the equity end balance, then deduct the additional contribution, and deduct the equity beginning balance. Add the withdrawal to the equity beginning balance, then deduct the additional contribution, and deduct the equity end balance. Deduct the additional contribution from the equity beginning balance, then deduct the owner's withdrawal, and deduct the equity end balance. Deduct the expenses from the revenues.

Add the withdrawal to the equity end balance, then deduct the additional contribution, and deduct the equity beginning balance.

In preparing a bank reconciliation statement, what is the appropriate treatment for a deposit that does not appear on the bank statement but is recorded as a cash receipt in the company's books? * Add to the cash balance per bank Deduct from the cash balance per book Deduct from the cash balance per bank Add to the cash balance per book

Add to the cash balance per bank

In preparing a bank reconciliation statement, what is the appropriate treatment for an amount received that is recorded on the bank statement as a direct deposit from a customer? * Deduct from the cash balance per bank Deduct from the cash balance per book Add to the cash balance per book Add to the cash balance per bank

Add to the cash balance per book

In a cash flow statement using indirect method, a decrease in prepaid expense is * Added to the net income Deducted from the net income Reported as an outflow of cash Reported as an outflow and inflow of cash

Added to the net income

Which of the following statements is FALSE? * All shareholders are corporators. All incorporators are shareholders. All corporators are incorporators. All incorporators are corporators.

All corporators are incorporators.

Statement I - In a sole proprietorship, there is only one capital account. Statement II - In a partnership, a capital account exists for each partner. Statement III - In a corporation, shareholders' equity is composed of two major components namely the share capital and the retained earnings. * Only one statement is false. All statements are false. All statements are true. Only one statement is true.

All statements are true.

A business paid accounts payable. What is its effect on the accounting equation? * An asset decreased and a liability decreased One liability increased and another liability decreased An asset increased and a liability increased An asset decreased and owner's equity decreased

An asset decreased and a liability decreased

How should gain on sale of an office building owned by an entity be presented in the cash flow statement? * As an inflow in the investing activities section because it pertains to long-term asset Added to the sale proceeds and presented in the investing activities section As a deduction from the net income in the operating activities section prepared under indirect method As an inflow in financing activities section because the building was constructed with a long-term loan from a bank that needs to be repaid from the sale proceeds

As a deduction from the net income in the operating activities section prepared under indirect method

Liquidity ratios are computed using information from the ____________. * Cash flow statement Income statement Balance sheet Statement of changes in financial position

Balance sheet

The procedure that compares the cash balance as recorded by the bank with the cash balance per the general ledger is referred to as a _________________. * Cash budgeting Bank statement Bank reconciliation Cash flows

Bank reconciliation

Which of the following statements is NOT true? * Bank reconciliation statement is required. Payee is the recipient of the check. Adjusting journal entries are necessary for book errors. Outstanding checks are checks issued that have not yet been presented to the bank for payment.

Bank reconciliation statement is required.

When compared to a debt ratio, a debt to equity ratio would ____________. * Be lower than the debt ratio Be equal to the debt ratio Be higher than the debt ratio Have no relationship at all to debt ratio

Be higher than the debt ratio

If the entity has transferred a portion of its selling expenses to its general and administrative expenses because of the change in judgment, then gross profit and net income will * Both remain the same Both increase Remain the same and decrease respectively Both decrease

Both remain the same

Which of the following statements regarding the term "profit" true or false? Statement 1 - Profit is any amount over and above that required to maintain the capital at the beginning of the period. Statement 2 - Profit is the residual amount that remains after expenses have been deducted from income. * Only statement 1 is true. Both statements are false. Both statements are true. Only statement 2 is true.

Both statements are true.

Which of the following statements is TRUE? * Service industries cannot organize a partnership. Accounting firms, singly or jointly with others, may organize a corporation for any lawful purpose or purposes. Both the sole proprietorship and the partnership have limited life. The stockholders are personally liable for the corporation's debt.

Both the sole proprietorship and the partnership have limited life.

Which of the following statements is TRUE? * Budgets are a quantitative expression of an organization's goals and objectives. Budgets should never be used to evaluate performance. All organizations are required to budget. All organizations have the same set of budgets.

Budgets are a quantitative expression of an organization's goals and objectives.

This is an account bearing the name of the owner representing the original and additional investment of the owner of business increased by the amount of net income earned during the year. * Capital Income Summary Drawings Assets

Capital

Cash beginning balance may be increased as a result of the following transactions, EXCEPT * Cash disbursements Cash receipts Cash sales Collection on credit sales

Cash disbursements

Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement would be most appropriate? * Does not appear in the cash flow statement Cash flows from investing activities Cash flows from financing activities Cash flows from operating activities

Cash flows from operating activities

Payment to the owners in a form of withdrawal is part of * Cash inflows from operating activities Non-cash transactions Cash outflows from investing activities Cash outflows from financing activities

Cash outflows from financing activities

The material purchases budget tells a manager all of the following EXCEPT * Quantity of material to be purchased in each period Cash payment for material in each period Quantity of material to be consumed in each period Cost of material to be purchased in each period

Cash payment for material in each period

Which of the following is NOT a cash inflow from operations? * Cash receipts from supplier refunds Cash receipts from bank loan Cash receipts from the sale of services Cash receipts from the sale of goods

Cash receipts from bank loan

In an appliance store, which of the following is MOST likely be presented as a non-current asset in the statement of financial position? * Television set Computer set Microwave oven Cash register

Cash register

The correct order to present current assets is: * Cash, inventories, prepaid items, accounts receivable Cash, accounts receivable, prepaid items, inventories Cash, accounts receivable, inventories, prepaid items Cash, inventories, accounts receivable, prepaid items

Cash, accounts receivable, inventories, prepaid items

Which of the following statements is TRUE? * Bank reconciliation can applied to savings deposit. A post-dated check can be presented for payment at anytime. Certified checks are no longer outstanding for bank reconciliation. A credit memo is a bank reconciling item.

Certified checks are no longer outstanding for bank reconciliation.

Conceptually, net income is a measure of Cash flow Capital restructuring Wealth Change of wealth

Change of wealth

Which of the following is an example of vertical analysis? * Utilities expense in 2020 is 10% greater than in 2019. Commission expense in 2020 is 5% of sales. A comparison in financial ratio between two or more firms in the same industry A comparison in financial ratio between two or more firms in the different industries

Commission expense in 2020 is 5% of sales.

Through financial statement analysis, interested parties, such as managers, investors, and creditors, can identify the company's financial strengths and weaknesses and know about the following, EXCEPT * Profitability of the business firm Composition of management running the firm Safety of the investment in the business The firm's ability to meet its obligations

Composition of management running the firm

It is the change in equity during a period resulting from transactions and other events, other than changes resulting from transactions with owners in their capacity as owners. * Profit or loss Comprehensive income Other comprehensive income Retained earnings

Comprehensive income

Quarintina, a sole proprietor, borrowed P100,000 from the bank to start a small business. How should the P100,000 be classified? * Non-current asset and non-current liability Current asset and current liability Current asset and capital Non-current liability and capital

Current asset and capital

If the ratio of total liabilities to equity increases, a ratio that would also most likely INCREASE is ____________. * Current ratio Return on assets Debt ratio Times interest earned

Debt ratio

A company's current ratio and acid-test ratios are both greater than 1.0 to 1. If obsolete inventory is written off, this would ____________. * Increase net working capital Increase the acid-test ratio Decrease the current ratio Decrease both the acid-test ratio and the current ratio

Decrease the current ratio

Manela Bae Co.' s total income is lesser than its total expenses for the period. How does it affect the capital? * No effect Increases Cannot be determined Decreases

Decreases

When preparing a bank reconciliation with a positive cash balance, bank fees immediately charged by the bank are _________________. * Deducted from the bank statement balance Deducted from the cash ledger balance Added to the bank statement balance Added to the cash ledger balance

Deducted from the cash ledger balance

A collection that is already forwarded to the bank for deposit but too late to appear in the bank statement is an example of a/an _________________. * Credit memo Outstanding check Debit memo Deposit in transit

Deposit in transit

Which of the following works as a proof for the bank acknowledging the payment received from the customer? * Deposit slip Withdrawal slip Debit memo Credit memo

Deposit slip

Which of the following would increase the cash balance per bank statement? * Accounts receivable has been credited. Depositor's account has been debited. Depositor's account has been credited. Cash account has been credited.

Depositor's account has been credited.

An entity shall report separately cash flows arising from investing and financing activities using * Direct method Neither direct method or indirect method Either direct method or indirect method Indirect method

Direct method

Which of the following elements of financial statements is NOT a component of comprehensive income? * Distribution to owners Expenses Losses Revenue

Distribution to owners

Which of the following statements is TRUE? * Individuals who practice their profession may form a corporation. Preferred stock has more shares than common stock. Partners' rights and interests are transferrable. Dividend declarations reduce retained earnings.

Dividend declarations reduce retained earnings.

Which of the following is NOT classified as an operating activities? * Dividend paid Interest paid Interest received Dividend received

Dividend paid

A doubtful accounts expense under the nature of expenses method in the preparation of statement of comprehensive income can be presented as * General and Administrative Expense Selling Expense Doubtful Accounts Expense Either Selling Expense or General and Administrative Expense

Doubtful Accounts Expense

It was noted on the bank statement of Gusto Co. that a check was received from a customer and deposited. Subsequently, the check was returned due to lack of funds. What is the appropriate adjusting journal entry? * Dr. Accounts Receivable, Cr. Cash Dr. Cash, Cr. Accounts Receivable No entry Dr. Revenue, Cr. Cash

Dr. Accounts Receivable, Cr. Cash

The accrued balance in a revenue account represents an account which is: * Earned and collected Earned and uncollected Unearned and uncollected Unearned and collected

Earned and uncollected

An entity shall present all items of income and expense recognized in a period I. In a single statement of comprehensive income II. In two statements, one statement displaying the components of profit or loss, and the second statement beginning with profit or loss and displaying components of other comprehensive income * Either I or II II only Both I and II I only

Either I or II

An entity shall report cash flows from operating activities using __________________. Either direct method or indirect method Direct method Neither direct method or indirect method Indirect method

Either direct method or indirect method

Which of the following is a contra-asset? * Depreciation expense Bad debts Estimated uncollectible accounts Doubtful accounts expense

Estimated uncollectible accounts

If a company has a policy of maintaining an inventory of finished goods at a specified percentage of the next month's budgeted sales, budgeted production for January will exceed budgeted sales for January when budgeted ________________. * February sales exceed budgeted January sales January sales exceed budgeted February sales January sales exceed budgeted December sales December sales exceed budgeted January sales

February sales exceed budgeted January sales

The balance sheet shows the following information about the entity, EXCEPT * Solvency Entity's need for financing Liquidity Financial performance

Financial performance

Which of the following statements is FALSE? * Different accounting procedures may affect ratio comparisons between individual companies and industry averages. Financial statement analysis involves little judgment on the part of analysts when industry comparisons are available. Valid comparative financial statement analysis depends on the availability of data for appropriately defined industries. The statement of cash flows summarizes a firm's operating, investing and financing activities for a specific period and explains the change in cash from one period to the next.

Financial statement analysis involves little judgment on the part of analysts when industry comparisons are available.

Financial statement analysis is not without problems and limitations. Among such limitations are as follows, EXCEPT * A ratio that is acceptable to one company may not be acceptable to another when some other factors are considered. The timing of transactions and use of averages in applying the various techniques in financial statements analysis affect the results to be obtained. There may be some differences in the accounting methods and estimates used by companies so that comparison of their ratios may not be advisable. Financial statements are based on current market value of the firm's assets; therefore they do not reflect historical costs.

Financial statements are based on current market value of the firm's assets; therefore they do not reflect historical costs.

A company that generates a great deal of "free cash" each year is generally considered to be what? * One that raises most of its cash from stock sales that do not require the payment of interest Using its cash unwisely Financially weak because it does not have enough investment opportunities available to put all its cash to work Financially strong because it generates more than enough cash to satisfy reinvestment opportunities

Financially strong because it generates more than enough cash to satisfy reinvestment opportunities

Which of the following is NOT an example of selling expense? * Freight-in Salaries of store employees Advertising expense Commission expense

Freight-in

Which of the following is NOT presented in the statement of changes in equity? * Gain on sale of fixed asset Withdrawals Profit Loss

Gain on sale of fixed asset

In financial statement analysis, expressing all financial statement items as a percentage of base period amounts is called ____________. * Vertical analysis Horizontal analysis Variance analysis Ratio analysis

Horizontal analysis

Which of the following ratios are measures of the company's profitability? I. Current ratio II. Return on sales III. Debt-to-equity ratio IV. Return on assets V. Inventory turnover VI. Receivable turnover * V & VI II, III & IV II & IV I, II & IV

II & IV

Which of the following is TRUE? * If the total assets were decreased by P300,000 during a specific period and the owner's equity was decreased by P350,000 during the same period, then the period's change in total liabilities was a P650,000 increase. If the assets owned by the business total P900,000 and the liabilities total P500,000, then the owner's equity totals P1,400,000. If the assets owned by the business total P900,000 and the liabilities total P500,000, then owner's equity totals P400,000. If the liabilities owned by the business total P8,000,000, then the assets also total P8,000,000.

If the assets owned by the business total P900,000 and the liabilities total P500,000, then owner's equity totals P400,000.

The following statements are true EXCEPT * The operating budget is expressed both in units and peso. * In a manufacturing organization, the cash budget is prepared immediately after the sales budget. The financial budget is prepared after the operating budget. The budget is an important source of feedback for an organization.

In a manufacturing organization, the cash budget is prepared immediately after the sales budget.

Which of the following is NOT added to the net income as an adjustment to reconcile the net income to the cash flow from operating activities in the cash flow statement? * Increase in accrued income Loss on sale of equipment Depreciation expense Increase in accrued expense

Increase in accrued income

Dina Co. sells a good on account for half the price and the remainder for cash. In the statement of financial position, the assets and liabilities section will * Increase half the price each for the total assets and the total liabilities Increase in full price for the total assets and have no effect for the total liabilities Have no effect for both the total assets and the total liabilities Have no effect for the total assets and increase in full price for the total liabilities

Increase in full price for the total assets and have no effect for the total liabilities

If there is an increase in inventory, then it will * Decrease net purchases Increase expenses Increase net sales Increase net income

Increase net income

A company has just converted a long-term note receivable into a short-term note receivable. This transaction will ____________. * Increase the company's times interest earned ratio Increase the current ratio and have no effect on times interest earned ratio Increase working capital and decrease the acid-test ratio Decrease the current ratio

Increase the current ratio and have no effect on times interest earned ratio

An increase in the purchase returns would * Increase the cost of goods sold Increase the net purchases Decrease the net income Increase the gross profit

Increase the gross profit

The cash flows in the cash flow statement mean that we identify * Inflows and outflows of cash classified as operating, investing, and financing Lapsing of the property, plant, and equipment The conversion of cash basis to accrual basis net income The receipts made by cash and non-cash items as well as disbursements made by cash and non-cash items

Inflows and outflows of cash classified as operating, investing, and financing

Which of the following can be found in the income statement? * Inventory Dividends paid by the company Accumulated Depreciation Allowance for Doubtful Accounts

Inventory

When preparing a reconciliation of net income to cash from operations, an increase in the ending inventory will result in an adjustment to reported net income because * The net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers. Inventory is an expense deducted in computing the net income but it does not use cash. Cash is increased because inventory is a current asset. All changes in noncash accounts must be disclosed.

Inventory is an expense deducted in computing the net income but it does not use cash.

Bank borrowings are generally considered __________________. Investing activities Recreational activities Operating activities Financing activities

Investing activities

The following does NOT affect capital EXCEPT * Collection from credit sales Payment of a utility bill Investment of inventory to the store Purchase of machinery for cash

Investment of inventory to the store

These refer to assets that are put into the business by a sole proprietor. * Assets Investments Drawings Finances

Investments

The statement of financial position differs with the other financial statements because * It is dated "as of" or "as at" the period ended. It does not contain the equity account unlike the other financial statements. It contains the nominal accounts unlike the other statements. It is a separate financial statement that can be prepared only using the unadjusted trial balance without adjustments to accruals, deferrals, depreciation, and doubtful accounts.

It is dated "as of" or "as at" the period ended.

All of the following statements about management's discussion and analysis that accompany financial statements are true, EXCEPT * It helps investors and creditors interpret the financial statements. The external stakeholders use it to understand the overall health of the organization. It is restricted to a discussion and analysis of the historical data presented in the financial statements. It is useful because top management is in the best position to know how well the company is performing.

It is restricted to a discussion and analysis of the historical data presented in the financial statements.

Which of the following BEST describes a balance sheet? * It lists the assets, liabilities and owner's equity at a specific point in time. It shows how the resources of an entity change during a period of time. It lists the assets and liabilities at present cash values. It shows all facts affecting the financial position of the entity.

It lists the assets, liabilities and owner's equity at a specific point in time.

Which of the following BEST describes an operating cycle? * It measures the time elapsed between cash disbursement for inventory and cash collection of the sales price. It cannot exceed one year. It refers to the seasonal variations experienced by business entities. It should be used to classify assets and liabilities as current if it is less than one year.

It measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.

Which of the following BEST describes a low accounts payable turnover? * It provides a shorter number of days for the business to pay its obligation due to sufficient cash available. It provides a longer number of days for the business to pay its obligation on account purchases. It provides a shorter number of days for the business to pay its obligation on account purchases. It provides a longer number of days for the business to pay its obligation due to insufficient cash available.

It provides a longer number of days for the business to pay its obligation on account purchases.

The following are advantages of a corporation, EXCEPT * It has continuity of existence. It requires a relatively high cost of formation and operation. Its management is centralized in the board of directors. Shareholders have limited liability.

It requires a relatively high cost of formation and operation.

Which of the following best describes the master budget? * It includes only an organization's pro forma financial statements. It utilizes only information from the financial accounting system. It reflects the determination of an organization's cost of capital. It serves as a managerial tool for the organization.

It serves as a managerial tool for the organization.

Which of the following does NOT belong to the list? Peso and percentage changes on financial statements Financial ratios Common-size financial statements Long-form report

Long-form report

Depreciation on the production equipment would appear in which of the following budgets? * Manufacturing overhead budget Cash budget Selling and administrative expense budget Production budget

Manufacturing overhead budget

The cash flow statement of the entity for the period has a net cash used in operating activities, net cash used in investing activities, and net cash used in financing activities. Therefore, the entity should have * More cash disbursements than cash receipts Net increase in cash More earnings than expenses Net cash inflow from operations

More earnings than expenses

On the completion of the bank reconciliation, which of the following requires an adjusting journal entry? * Outstanding checks NSF checks Deposits in transit Erroneous service charge by the bank

NSF checks

Which of the following is an appropriate computation for return on investment? * Net income divided by net sales Net sales divided by average total assets Net sales divided by equity Net income divided by average total assets

Net income divided by average total assets

Dulo Might Sons Company borrowed money from the bank to purchase a certain equipment for the business. How does this transaction affect the capital? * No effect Decreases Cannot be determined Increases

No effect

In which section of the statement of financial position should cash that is restricted from the settlement of liability due 18 months after the reporting period be presented? * Current liabilities Non-current assets Current assets Non-current liabilities

Non-current assets

Covid Lee purchased P30,000 computer for his daughter's online class. How should the computer be presented in the statement of financial position? * Non-current asset Capital Current asset None

None

Which of the following is a prepaid item? * Accrued income Supplies expense Office supplies Accrued expense

Office supplies

Which of the following should be presented as property, plant, and equipment in the statement of financial position? * Patent Goods Office table Personal computer

Office table

I. The drawer, as a creditor, issues a check for payment to the payee, a debtor. II. Issuance of a check by the drawer reduces the liability of the bank to the depositor. III. A depositor's account is decreased when it is credited. * All statements are true. One statement is true. One statement is false. All statements are false.

One statement is true.

Statement I - Accumulated profits and losses is a nominal account. Statement II - A partnership is created by mere agreement of the partners. Statement III - A corporation has an indefinite life. * Only one statement is true. All statements are false. Only one statement is false. All statements are true.

Only one statement is false.

Statement I - All partners are liable to the extent of their personal assets. Statement II - The accounting records of the sole proprietorship include the proprietor's personal financial records. Statement III - All partnerships may singly or jointly form a corporation. * All statements are false. Only one statement is false. Only one statement is true. All statements are true.

Only one statement is false.

Statement I - The existence of the partnership may be for any period of time stipulated by the partners. Statement II - Management is vested on the Board of Directors for non-stock, non-profit corporation. Statement III - The sole proprietor is not responsible for all debts of the business. * All statements are true. Only one statement is false. All statements are false. Only one statement is true.

Only one statement is true.

It comprises items of income and expense that are not recognized in profit or loss as required by the Philippine Financial Reporting Standards. * Profit or loss Comprehensive income Other comprehensive income Retained earnings

Other comprehensive income

The following accounts are intangible assets, EXCEPT * Trademark Franchise Patient Copyright

Patient

Which of the following does NOT affect capital? * Payment of a previously billed account Billing from utilities Investment of land to the business Net loss during the year

Payment of a previously billed account

Who among the following is the signatory of a check? * Payor Payee Drawee Bank

Payor

Which of the following items is usually classified as a non-current asset? * Machinery held for sale Plant expansion fund Supplies Prepaid rent

Plant expansion fund

A high accounts receivable turnover would most likely indicate that ____________. * Policies for extending credit to customers are too tight. Credit policies have been relaxed. The company is unsuccessful in its efforts to collect cash from customers. Accounts receivable balances have been overstated.

Policies for extending credit to customers are too tight.

Creditors and investors use financial statement analysis to ____________. * Predict the amount of expected returns, as well as the risks associated with those returns Help determine how to solve a company's financial problems Choose the members of the board Help determine the cause of a company's financial problems

Predict the amount of expected returns, as well as the risks associated with those returns

Which of the following would be most helpful in comparison of the different-sized companies? * To look at the amount of income earned by each company Comparison of their working capital balances Horizontal analysis Preparation of common-size financial statements

Preparation of common-size financial statements

It is the total income less expenses, excluding the components of other comprehensive income. * Accounting income Economic income Comprehensive income Profit or loss

Profit or loss

Which type of ratio measures the earning power of a firm? * Liquidity Solvency Profitability Market valuation

Profitability

LODI Co. presently has a current ratio of 0.8 to 1. The company has been informed by its bank that it must improve its current ratio to qualify for a line of credit. Which of the following would improve the current ratio? * Use cash to pay off some current liabilities. Purchase additional marketable securities in cash. Acquire a parcel of land in exchange for ordinary shares. Purchase additional inventory on credit.

Purchase additional inventory on credit.

Which of the following does NOT affect capital? * Purchase of equipment on credit Withdrawal of cash from the business Service rendered on account Investment of machinery to the business

Purchase of equipment on credit

Dina Kho, Whiley Go, Wally Ngao, Rambo Tan, and Khap Uy are close friends who agreed to form a business and entered into a contract. Dina Kho and Khap Uy both contributed money. Whiley Go and Wally Ngao contributed properties while Rambo Tan contributed his personal service. Which of the following statements is TRUE? * The five close friends formed a corporation. Rambo Tan is a general partner. Rambo Tan is a limited partner. Rambo Tan has no obligation to the firm's debt.

Rambo Tan is a general partner.

Which of the following is CORRECT? * Ratio analysis addresses such issues as the firm's liquidity, use of leverage, management of assets, cost control, growth and valuation. Liquidity refers to the firm's ability to pay all its obligations and to continue operations. Solvency refers to a firm's ability to survive in the long-term by paying its short-term obligations. Trading on the equity refers to a firm's sale of its own stocks in the stock exchange.

Ratio analysis addresses such issues as the firm's liquidity, use of leverage, management of assets, cost control, growth and valuation.

Which of the following is FALSE? * Purchase of computer on credit increases asset and liability. Receiving payment from accounts receivable increases assets and capital. Initial investment increases asset and capital. Sale of office equipment at book value has no effect in assets.

Receiving payment from accounts receivable increases assets and capital.

In the cash flow statement, depreciation is treated as an adjustment to reported net income because depreciation __________________. * Is an inflow of cash to a reserve account for replacement of assets Reduces net income but does not involve cash Reduces net income and involves an inflow of cash Is a direct source of cash

Reduces net income but does not involve cash

Which of the following should NOT be subject to depreciation? * Brand new office computer Renovated store building Second-hand company vehicle Rented office building

Rented office building

Which of the following does NOT affect cash? * Credit sales Sale of equipment at a loss Payment of loans payable Purchase of inventory at a discount

Sale of equipment at a loss

The selling and general & administrative expense budget is based on which of the following budgets? Purchases budget Sales budget Cash budget Production budget

Sales budget

Return on investment (ROI) is a term often used to express income earned on capital invested in a business unit. A company's ROI would INCREASE if ____________. Sales increased by the same peso amount as expense and total assets increased Sales decreased by the same peso amount that expenses increased Sales and expenses increased by the same percentage that total assets increased Sales remained the same and expenses were reduced by the same peso amount that total assets increased

Sales remained the same and expenses were reduced by the same peso amount that total assets increased

From the viewpoint of short-term creditors, which of the following relationships would be the LEAST meaningful? * The amount of working capital Quick assets as a percentage of current liabilities Short-term notes payable as a percentage of accounts payable The accounts receivable turnover

Short-term notes payable as a percentage of accounts payable

The bank does the following EXCEPT * Provides a source document for bank charges States the balance in the company's bank account Shows the amount payable by the customer Summarizes the activity in the check account

Shows the amount payable by the customer

The following are owners of a corporation, EXCEPT * Stockholders Investors Stakeholders Shareholders

Stakeholders

Which of the following would MOST likely be NOT honored by the bank? * Outstanding checks Payroll checks Stale checks Post-dated checks

Stale checks

The essential characteristics of an asset include all of the following, EXCEPT * The asset provides future economic benefit. The cost of the asset can be measured reliably. The asset is the result of past transaction or event. The asset is tangible.

The asset is tangible.

In computing a ratio, when a balance sheet amount is related to an income statement, ____________. * The income statement amount should be converted to an average of the year. The amounts may be used as is to develop a meaningful ratio. Both amounts should be converted to an average of the year. The balance sheet amount should be converted to an average of the year.

The balance sheet amount should be converted to an average of the year.

Which of the following BEST describes a debit memo? * Notes endorsed to the bank for collection have been collected by the bank for collection have been collected by the bank and credited to the depositor's account but a notice of collection is not yet received from the bank by the depositor. Deposits may have been made after the bank records are sent out to the depositor. The bank may have been charged the depositor's account with service charges which the depositor may not know about until a report is received from the bank. Checks issued by the depositor are not yet presented for payment to the bank.

The bank may have been charged the depositor's account with service charges which the depositor may not know about until a report is received from the bank.

Which of the following statements is FALSE? * Financial statements are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users. The basis for the preparation of the general-purpose financial statements is to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. Financial statements are normally prepared after the closing entries are journalized and posted. The balance sheet is also known as the statement of financial position.

The basis for the preparation of the general-purpose financial statements is to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities.

When the current year's ending inventory is overstated, then * The next year's income is overstated. The current year's total assets are understated. The current year's net income is overstated. The current year's cost of goods sold is overstated.

The current year's net income is overstated.

The following are criteria to classify a liability as current, EXCEPT * The liability is due to be settled within twelve months after the reporting period. The entity expects to settle the liability within the entity's normal operating cycle. The entity does have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The entity holds the liability primarily for the purpose of trading.

The entity does have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All of the following are consideration to classify an asset as current, EXCEPT * The entity holds the asset primarily for the purpose of trading. The entity expects to realize the asset, intends to sell or consume it, in its normal operating cycle. The entity expects to realize the asset within twelve months after the reporting period. The asset is a restricted cash or cash equivalent for long-term use.

The entity expects to realize the asset within twelve months after the reporting period.

Which of the following may result to a decrease of an asset for the current period? * The entity collects a credit sale from the last period. The entity pays the liability from the last period. The entity records an accrued expense for the period to be paid next period. The entity earns a revenue.

The entity pays the liability from the last period.

The assets in the statement of financial position should equal * The debits of the post-closing trial balance The revenues and expenses The credits of the post-closing trial balance The liabilities and owner's equity

The liabilities and owner's equity

Which of the following decreases the capital? * The personal computer of the owner is used for the business. The owner took a furniture out from the business. The entity sold goods to various customers for cash. Total income is greater than the total expenses.

The owner took a furniture out from the business.

When an entity receives a promissory note for the services performed, _________________. * There is no effect to the owner's equity. The owner's equity is decreased. The owner's equity is increased. An asset is decreased.

The owner's equity is increased.

The following statements are true, EXCEPT * The capital account will increase when the total expenses are lesser than the total income. The sole proprietor has unlimited liability. A natural person may organize a corporation for any lawful purpose or purposes. The partner's interest to the partnership is transferrable.

The partner's interest to the partnership is transferrable.

The amount of raw material purchased in a period may be different than the amount of material used that period because ________________. * The number of units sold may be different from the number of units produced. The raw material inventory may increase/decrease during the period. Finished goods inventory may fluctuate during the period. Companies often pay for material in the period after it is purchased.

The raw material inventory may increase/decrease during the period.

For a liability to EXIST, * There must be an obligation to pay cash in the future. There must be a past transaction or event. The exact amount must be known. The identity of the party to whom the liability is owed must be known.

There must be a past transaction or event.

The following are advantages of self-imposed budgets EXCEPT * They lead to better morale and higher motivation. They usually require more time to prepare. There is a high degree of acceptance of the goals and objectives by operating management. They are usually more realistic.

They usually require more time to prepare.

Which of the following is evidenced by a certificate of deposit? * Savings deposit Time deposit Demand deposit Checking account

Time deposit

Which of the following BEST represents net assets? Total paid in capital of an entity Retained earnings of an entity Total assets less total liabilities Current assets less current liabilities

Total assets less total liabilities

Accrued income would appear in the statement of financial position under * Trade and other receivables Plant assets Prepaid expenses Trade and other payables

Trade and other receivables

1: Accounts receivable is more liquid than inventories. 2: Financial Flexibility must focus only on the liquidity of the firm. False, False False, True True, False True, True

True, False

1: An 18-month note payable dated January 1, 2020 which is paid on a monthly basis shall be classifies as non-current liability on December 31, 2020. 2: An accounts receivable shall be classified as a current asses regardless of when collection is made. False, False True, True True, False False, True

True, False

1: Income includes revenues and gains. 2: Advertising expenses can only be presented as selling expenses under the cost of sales method in the statement of comprehensive income. True, False False, False True, True False, True

True, False

1: The balance sheet can be presented either in an account form or in a report form. 2: The presentation of current and non-current distinction for assets and equity are required in the preparation of financial position. False, True False, False True, False True, True

True, True

1: Whether direct method or indirect method, the computation for the net cash flow from operating activities shall arrive at the same amount. 2: Increases in accounts receivable, decrease in accounts payable, and increase in inventory are all deducted from the net income for its conversion to cash flows from operating activities using the indirect method. True, False False, True True, True False, False

True, True

Which of the following does NOT require adjusting journal entry? Note collection by bank Undeposited collections Bank service charges Erroneous recording

Undeposited collections

All of the following are components of other comprehensive income EXCEPT * Unrealized gains and losses on trading securities Deferred gains and losses on derivative financial instruments Foreign currency translation adjustment Actuarial gains and losses on defined benefits plan

Unrealized gains and losses on trading securities

The following are current assets, EXCEPT * Accrued income Merchandise inventory Machinery held for sale Used supplies

Used supplies