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Bonds Payable:
1. Bond with a face value of P5.0 million carrying a stated interest rate
of 12% payable semiannually on March 1 and September 1 were issued on
July 1. The total proceeds from the issue amounted to P5, 200, 000. The
best explanation for the excess amount received over the face is
2. When the interest payment dates of a bond are April 1 and October 1,
and a bond issue is sold on June 1, the amount of cash received by LMN
Company will be
3. Bond issuance costs, including the printing costs and legal fees
associated with the issuance, should be
a. zero
b. equal to the market value of the warrants
c. calculated as the excess of the proceeds over the fair value of
the bonds
d. calculated as the excess of the proceeds over the face value of
the bonds
10. The interest rate written in the terms of the bond indenture is
known as
a. coupon rate
b. nominal rate/stated rate
c. Stated rate
d. Coupon rate, nominal rate, or stated rate
12. If the bonds are issued between interest dates, the entry of the
issuing entity could include a
a. no effect, no effect
b. increase, no effect
c. increase, decrease
d. decrease, increase
15. In accounting for Fair Value Option of measuring bonds payable:
II. The said standard provide that interest income for irrevocable
designation at fair value option is based on the nominal interest rate
rather than the effective interest rate.
18. DEF Corporation has bonds outstanding during 2018 in which the
market rate of interest has risen. DEF elected the fair value option.
It will report interest expense and a gain for 2018.
19. The major difference between convertible bonds and bonds issued
with share warrants is that upon exercise of the warrants the holder
has to pay a certain amount to obtain the shares.
21. When bonds are acquired between interest dates, the purchase price
normally includes the accrued interest.
25. Zero-coupon bonds result in zero interest expense for the issuer.
28. The net amount of bond liability that appears on the statement of
financial position is the face value of the bond plus related premium
or minus related discount.
31. Blue Company issued a bond with a stated rate of interest that is
less than the effective interest rate. The bond was issued on one of
the interest payment dates. The entity shall report on the first payment
date an interest that is lower than the cash payment to bondholders.
Answers:
1. A 8. D 15.1 T 20. T 27. F
2. D 9. C 15.2 T 21. T 28. T
3. C 10. D 16.1 F 22. F 29. T
4. C 11. B 16.2 T 23. F 30. T
5. B 12. C 17. T 24. F 31. F
6. C 13. C 18. T 25. F
7. D 14. C 19. T 26. T
Shareholders’ Equity:
1. Convertible preference share is one which gives the holder the right to
exchange for other securities (e.g., ordinary shares and bonds) of the
issuing corporation.
6. If shares are issued for services, the shares shall be recorded at the
fair value of the shares issued.
8. If the treasury shares are acquired for noncash consideration, the cost
is usually measured by the carrying amount of the noncash asset
surrendered.
16. Green Company acquired some of its own common shares at a price
greater than the par value and original issue price but less than their
book value. Green uses the cost method of accounting for treasury stock.
What is the impact of this acquisition on total stockholders’ equity
and the book value per common share?
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease
19. Any loss incurred from the sale of treasury shares shall be charged
to
II. That gives the holder the right to require the issuer to redeem
the instrument for a fixed or determinable amount at a future
date.
22. When shares without par value are sold, the proceeds shall be
credited to share capital.
23. If shares are issued for noncash consideration, the proceeds shall
be measured based on the fair value of the shares issued.
24. When shares are issued for services received, the measure is
secondarily equal to fair value of such services.
26. When treasury shares are reissued for noncash consideration, the
proceeds shall be measured by fair value of the noncash considerati on
received.
Answers:
BVPS/EPS:
2. In the absence of any statement to the contrary, the ordinary share has
preference as to assets.
a. disregarded
b. deducted from net income only if declared
c. added back to net income whether declared or not
d. deducted from net income whether declared or not
8. Earnings per share should be presented even if they are negative, i.e.
loss per share.
13. In case where there are two classes of preference share with
different dividend rates and both are participating, the lower rate
shall be the basis for allocation to the ordinary share.
14. The preference share may have a call price and this is considered
for book value computation.
15. The call price is the amount which the preference shareholders
normally receive upon the liquidation of the corporation.
17. Options and warrants are dilutive if the exercise price or option
price is less than the average market price of the ordinary
share
18. Needless to say, the basic earnings per share would remain the
same whether outstanding during the year or converted during the
year.
Answers:
1. F 5. F 9. T 13. T 17. T
Lease:
III. Any lease bonus received by the lessor from the lessee is
recognized as unearned rent income to be amortized over the remaining
life of the asset.
c. The lessee has the ability to continue the lease for a secondary
period at a rent which is substantially the same as the market
rate.
d. Gains and losses from the fluctuation in the fair value of the
residual fall to the lessee.
9. Any excess fair value over sales price shall be accounted for as
additional financing provided by the buyer-lessor to seller-lessee.
12. In a direct finance lease, the initial direct cost paid by the
lessor is added to the cost of the asset to get the net investment in
the lease.
13. Gross investment is equal to the gross rentals for the entire lease
term plus the absolute amount of the residual value, whether guaranteed
or unguaranteed.
15. In sales type lease, sales is the amount equal to the net
investment in the lease or fair value of the asset, whichever is lower.
17. In sales type lease, cost of goods sold is equal to the cost of
the asset minus the present value of unguaranteed residual value minus
the initial direct cost paid by the lessor
18. Initial direct cost incurred by the lessor shall be added to the
carrying amount of the underlying asset and recognized as expense over
the lease term on the same basis as the lease income.
19. Any lease bonus received by the lessor from the lessee is
recognized as unearned rent income to be amortized over the remaining
life of the asset.
Answers:
2. F 7. A 12. T 17. F
3. F 8. T 13. T 18. T
Loans Receivable
1. When direct origination cost is higher than origination fee, the stated
rate is lower than the effective rate. (F)
2. When direct origination cost is lower than origination fee, the stated
rate is higher than the effective rate. (F)
a. Temporary, Liability
b. Temporary, Asset
c. Permanent, Liability
d. Permanent, Asset
3. Temporary differences arise when revenues are taxable (After they are
recognized in financial income; Before they are recognized in financial
income)
a. No; No
b. No; Yes
c. Yes; No
d. Yes; Yes
Answers:
1. A 2. A 3. D 4. F 5. F
Liabilities:
Answers:
1. F 2. T 3. F 4. F
PPE (PAS 16):
2. Under PAS 16, if a property is acquired on credit and paid beyond the
discount period, purchase discount lost and property, plant and
equipment accounts are credited.
3. Whether cash discount taken or not, the property, plant and equipment
must be net of such discount.
Answers:
1. B
2. F
3. T
II. When an entity maintains two or more accounts in one bank and one
account in an overdraft, such overdraft can be offset against the
other bank account with a credit balance.
III. Overdraft can also be offset with other bank account if the amount
is not material.
IV. “Bank overdraft, net of other bank account” is used when debit
balance is greater than credit cash balance.
8. Credit memo will cause the cash balance per ledger to be higher than
that reported by the bank, all other things being equal.
9. Outstanding checks will cause the cash balance per ledger to be greater
than the balance reported by the bank, all other things being equal.
11.Bank service charge will cause the cash balance per ledger to be higher
than that reported by the bank, all other things being equal.
15. The term cash equivalent refers to demand credit instruments such as
money order and bank drafts.
16. The purpose of establishing a petty cash fund is to keep enough cash
on hand to cover payment of small amounts or things are hurriedly
bought or customers are entertained.
18. When an entity maintains two or more accounts in one bank and one
account in an overdraft, such overdraft can be offset against the other
bank account with a debit balance.
Answers:
1.1 T 3. F 8. F 13. F 18. T
1.2 F 4. T 9. F 14. F
1.3 T 5. T 10. F 15. F
1.4 F 6. F 11. T 16. T
2. F 7. C 12. B 17. F
Cash Flow:
a. cash receipts and payments from contracts held for dealing or trading
purposes.
b. cash receipts from futures contracts, forward contracts and swap
contracts.
c. cash receipts from sales of equity or debt instruments of other
entities and interest in joint ventures.
d. cash payments to acquire property, plant and equipment,
intangibles and other long-term assets.
10. Star Company purchases a land and the seller accepts payment partly
in equity shares and partly in collateral trust bonds of the company.
The transaction shall be treated in the statement of cash flows as which
of the following?
11. How should gain on sale of an office building owned by the entity
be presented in a statement of cash flows?
12. An entity shall report cash flows from operating activities using:
(a) the direct method, whereby major classes of gross cash receipts
and gross cash payments are disclosed.
(b) the indirect method, whereby profit or loss is adjusted for the
effects of transactions of non-cash nature, any deferrals or
accruals of past or future operating cash receipts or payments, and
items of income or expense associated with investing or financing
cash flows.
a. A only
b. Both A and B
c. Either A or B
d. Neither A nor B
I. Noncash expenses are added back to net income to eliminate the effect
they had on net income.
II. Decreases in nontrade current liabilities are deducted from the net
income.
17. Cash payments to suppliers for goods and services is a cash inflow
from financing activities.
19. An entity shall report separately cash flows arising from investing
activities using
a. Direct method
b. Indirect method
c. Either direct method or indirect method
d. Neither direct method nor indirect method
20. The statement of cash flows repots all of the following, EXCEPT:
a. investing transactions
b. the net change in cash for period
c. the free cash flows generated during the period
d. the cash effects of operations during the period.
a.
What was the cash used for during the period?
b.
Where did the cash come from during the period?
c.
What was the change in the cash balance during the period?
d.
What is the impact of inflation on the cash balance at the end of
the year?
22. Preparing the statement of cash flows, using indirect method,
involves all of the following, EXCEPT:
Answers:
1. T 6. T 11. C 15. T 20. C
2. F 7. T 12. C 16. A 21. D
3. D 8. F 13.1 F 17. F 22. D
4. A 9. T 13.2 T 18. F
5. D 10. B 14. T 19. A
Investments:
1. The following transfers/reclassifications of financial are permitted,
except:
a. Transfer from amortized cost to fair value through other
comprehensive income
b. Reclassification of non-derivative financial assets out of the fair
value through profit or loss category if the financial as set is no
longer held for the purpose of selling it in the near term in
particular circumstances
c. Reclassification of non-derivative financial assets designated at
fair value through profit or loss by the entity upon initial
recognition out of the fair value through profit or loss category.
d. Transfer from the fair value through other comprehensive income to
the loans and receivable category a financial asset that would have
met the definition of loans and receivables (if the financial asset
had not been designated a fair value through other comprehensive
income), if the entity has the intention and ability to collect
contractual cash flows.
6. When bonds are acquired between interest dates, the purchase price
normally includes the accrued interest.
II. The said standard provides that interest income for irrevocable
designation at fair value option is based on the nominal interest rate
rather than the effective interest rate.
Answers:
1. C 4. F 7. F 10.1 F
2. D 5. B 8. F 10.2 T
3. T 6. T 9. F