Quiz 1 - Overview of Accounting
When resolving accounting problems not specifically addressed by current standards, an entity shall be guided by the hierarchy of financial reporting standards. The correct sequence of the hierarchy of financial reporting standards in the Philippines is I. PASs, PFRSs, and Interpretations II. Conceptual Framework III. Judgement IV. Pronouncement of other standard-setting bodies a. I, III, II and IV b. I, IV, II and III c. I, II, IV and III d. I, III, III and IV
A
The concept of recognition is applied
An entity includes the effects of an event in the financial statements through a journal entry.
T/F-General purpose financial statements are those statements that cater to the common and specific needs of a wide range of external users.
False
T/F- The basic purpose of accounting is to provide information about economic activities intended to be useful in making economic decisions.
True
What type of users' needs is catered by general purpose financial statements?
a. Common needs
Mr. A is assessing the ability of Entity A to generate future cash and cash equivalents. In making the assessment, Mr. A uses not only the statement of cash flows but also the other components of a complete set of financial statements.
d. Articulation.
Entity A buys bananas and converts them into banana chips. The conversion of bananas into banana chips is a (an)
d. Internal event.
Which of the following events is not considered an exchange or reciprocal transfer? a. Purchase of inventory on account b. Lending money to another entity c. Payment of loan payable d. Payment of taxes
d. Payment of taxes
Which of the following statements is correct? a. Accounting provides quantitative information only. b. Accounting is considered an art because it requires the use of creative skills and judgement. c. The only acceptable measurement basis in accounting is historical cost. d. Qualitative information can be found only in the notes to the financial statements.
B*
Which of the following statements is correct? a. All quantitative information is financial in nature, b. The accounting process of assigning peso amounts to economic transactions and events is measuring. c. The economic activity that involves using current inputs to increase the stock of resources available for output is called savings. d. The economic activity of using the final output of the production process is called income distribution.
B*
Which of the following statements is incorrect? a. Financial reporting standards may at times be influenced by legal, political, business and social environments. b. General-purpose financial statements must be prepared by a Certified Public Accountant. c. General-purpose financial statements are prepared primarily for the use of external users. d. The PFRSs are issued by the Financial Reporting Standards Council.
B*
Entity A is owned by Mr. X and Ms. Y. Which of the following transactions does not violate the separate entity concept and therefore is appropriately recorded in the accounting records of Entity A? a. Mr. X purchases groceries for his home consumption. b. Mr. X gives Ms. Y chocolate and flowers on Valentine's Day. c. Ms. Y provides capital to Entity A. d. Ms. Y provides capital to Entity B, another business entity.
C*
Which of the following is considered valued by fact rather than by opinion? a. Depreciation. b. Cost of goods sold. c. Discount on share capital. d. Retained earnings.
C*
Which of the following statements is incorrect regarding the PFRSs? a. The PFRSs are based on the IFRSs. b. The financial reporting standards used in the Philippines are the same as those used globally. c. The PFRSs have higher authority than the PASs & Interpretations. d. The PFRSs are accompanied by guidance. The use of such guidance is sometimes mandatory and sometimes optional.
C*
All of the following are considered internal events, except a. Transfer of goods from work-in-process to finished goods inventory b. Losses from flood, earthquake, fire and other calamities c. Transformation of biological assets from immature to mature d. Vandalism committed by the entity's employees
D
Which of the following is considered an internal user of Entity A's financial reports? A. Entity B, a bank, requires Entity A to submit audited financial statements in conjunction to a loan being applied for by Entity A. B. Mr. I is deciding whether to invest in Entity A. Mr. I uses Entity A's financial statements in making his investment decision. C. Ms. S, a shareholder of Entity A, is deciding whether to hold or sell her shareholdings in Entity A. Ms. S uses Entity A's financial statements in making her "hold or sell" decision. D. Mr. X, a member of Entity A's board of directors, uses financial reports to make decisions regarding the financial and operational affairs of Entity A.
D
Mr. John Doe, CPA, is a professor in a university where he teaches mainly home economics, music and physical education. Those subjects require that the teacher must be awesome. Mr. Doe is also frequently invited as judge in beauty pageants and singing contests and as a referee in mixed martial arts competitions. Mr. Doe is considered to be practicing accountancy in which of the following sectors? a. Academe b. Public accounting. c. Commerce & Industry. d. None of these.
D*
Which of the following is not among the Four Sectors in the practice of accountancy as enumerated in R.A. 9298 also known as the "Philippine Accountancy Act of 2004"? a. Practice in Commerce & Industry. b. Practice in Government. c. Practice in Education/Academe. d. Practice of Private Accountancy.
D*
Which of the following is not one of the several measurement bases used in accounting? a. Historical cost. b. Fair value. c. Present value. d. All of these are used
D*
Which of the following statements is incorrect regarding accounting concepts? a. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when incurred, not when cash is received and disbursed. b. Under the Going-concern concept, the business entity is assumed to carry on its operations for an indefinite period of time. c. Under the Business Entity concept, the business is treated separately from its owners. d. Under the Time period concept, the life of the business is divided into series pf reporting periods. e. Under the Cost-benefit concept, the cost of processing and communicating information should exceed the benefits derived from it.
E*
T/F- All information presented in the financial statements are sourced from the accounting records of the entity.
False
T/F- The accounting process of assigning numbers, commonly in monetary terms, to the economic transactions and events is referred to as classifying.
False
T/F- The financial statements are the only source of information when making economic decisions.
False
T/F-All events and transactions of an entity are recognized in the books of accounts.
False
T/F-Once promulgated, accounting standards are never changed.
False
T/F- The entity's management is responsible for the selection of appropriate accounting policies, not the accountant.
True
T/F-Entity A's accounting period starts on July 1 and ends on June 30 of the following year. Entity A uses a fiscal year period.
True
T/F-Financial accounting is the branch of accounting that focuses on general purpose reports of financial position and operating results known as the financial statements.
True
Changes to reporting standards are primarily made in response to
a. Government regulations. b. Users' needs. c. Global modernization.
The Philippine Financial Reporting Standards (PFRSs) comprise: I. Philippine Financial Reporting Standards II. Philippine Accounting Standards III. Interpretations IV. Accounting Practice Statements and Implementation Guidance
a. I, II and III.
To be useful, accounting information should be presented using
b. A common denominator
The proper application of accounting principles is most dependent upon the
b. Accountant
On Day 1, a customer buys goods from Entity A and promises to pay the sale price on Day 30. Entity A recognizes sales revenue on Day 1 rather than on Day 30. This is an application of which of the following accounting concepts? a. Prudence b. Accrual basis c. Consistency d. Materiality
b. Accrual basis
Which of the following events is considered a non-reciprocal transfer? a. Sale of an asset b. Donation c. Loss from a calamity d. Production of finished goods
b. Donation
Entity A acquires a stapler. Instead of recognizing the cost of the stapler as an asset to be subsequently depreciated, Entity A immediately charges it as expense.
b. Materiality. c. Cost-benefit.
Entity A acquires merchandise inventory. Entity A initially records the acquisition cost of the inventory as asset rather than an outright expense. When the inventory is subsequently sold, Entity A recognizes the cost of inventory sold as expense, in the same period the sale revenue is recognized. This is an application of which of the following accounting concepts? a. Stable monetary unit b. Materiality c. Matching d. Proprietary
c. Matching
Which of the following violates the historical cost concept? a. Recording purchases of merchandise inventory at purchase price. b. Recording a building at the total construction costs. c. Measuring inventories at net realizable value. d. Recording an equipment acquired in an installment purchase at the cash price equivalent.
c. Measuring inventories at net realizable value.
Entity A engages in importing and exporting activities. At the end of the period, Entity A has assets and liabilities denominated in foreign currencies. When preparing its financial statements, Entity A translates these assets and liabilities to pesos. Entity A is most likely to be applying which of the following accounting concepts? a. Double entry b. Accrual basis c. Stable monetary unit d. Time period
c. Stable monetary unit
Entity A values its fixed assets at their historical costs and does not restate them for changes in the purchasing power of the Philippine pesos due to inflation. Entity A is applying which of the following concepts? a. Prudence b. Accrual basis c. Stable monetary unit d. Time period
c. Stable monetary unit
Preparing financial statements at least annually is an application of which of the following accounting concepts? a. Historical cost b. Accrual basis c. Stable monetary unit d. Time period
d. Time period