Qualifying Exam 1920 - 1st Year

University of Rizal System – Binangonan Junior Philippine Institute of Accountants JPIA’s Finest Qualifying Exam – First Year Batch 2019-2020 Instructions: Identify the choice that best completes the statement or answers the question. You have (2) hours and (30) minutes to answer this 80-item qualifying exam. Good luck! Test I ____ 1. Accounting standards help accountants meet the information demands of interested parties by providing: a) limits and guidance for financial reporting b) improved operating plans to the Board c) legislation introduction pertaining to financial reporting d) reports to the Media ____ 2. Which of the following characteristics may result in the classification of a liability being changed from current to noncurrent? a) Violation of an objective acceleration clause b) Refinancing after the balance sheet date c) A demand provision for payment d) Violation of a subjective acceleration clause ____ 3. The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of a) comparability b) going concern c) accrual d) consistency ____ 4. When a specific customer's account is written off by a company using the allowance method, the effect on net income and the net realizable value of the accounts receivable is a) Net income (None); Net realizable value of accounts receivable (None) b) Net income (Decrease); Net realizable value of accounts receivable (None) c) Net income (Increase); Net realizable value of accounts receivable (Increase) d) Net income (Decrease); Net realizable value of accounts receivable (Decrease) ____ 5. If a company uses the completed-contract method of accounting for long-term construction contracts, then during the period of construction, financial information related to a long-term contract will a) not appear on the financial statements b) appear on both the income statement and balance sheet during the construction period c) appear only on the income statement during the period of construction d) appear only on the balance sheet during the period of construction ____ 6. The process of establishing financial accounting standards is a) a democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented b) a social process which incorporates political actions of various interested user groups as well as professional research and logic c) a legislative process based on rules promulgated by government agencies d) based solely on economic analysis of the effects each standard will have if it is implemented ____ 7. Interested parties receive information about a company’s past performance from: a) financial news c) financial reporting b) the SEC d) CEOs ____ 8. Which of the following items is reported only in current and future periods? a) Change in accounting principle c) Change in estimate b) Effects of changing prices d) Prior period adjustment ____ 9. The correct order to present current assets is a) cash, accounts receivable, prepaid items, inventories b) cash, accounts receivable, inventories, prepaid items c) cash, inventories, accounts receivable, prepaid items d) cash, inventories, prepaid items, accounts receivable ____ 10. Proper application of accounting principles is most dependent upon the a) oversight of regulatory bodies c) professional judgment of the accountant b) existence of specific guidelines d) external audit function ____ 11. Which of the following is an appropriate computation for return on investment? a) Sales divided by total assets c) Net income divided by sales b) Sales divided by stockholders' equity d) Net income divided by total assets ____ 12. If the balance shown on a company's bank statement is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be a) deposits credited by the bank but not yet recorded by the company b) deposits in transit c) outstanding checks d) bank charges not yet recorded by the company ____ 13. In November and December 2013, Bee Company, a newly organized newspaper publisher, received P72,000 for 1,000 three-year subscriptions at P24 per year, starting with the January 2, 2014, issue of the newspaper. How much should Bee report in its 2013 income statement for subscription revenue? a) 72,000 b) 0 c) 24,000 d) 12,000 ____ 14. Under the general rule of revenue recognition, revenue is recognized when a) marketability and market price are assured b) the earnings process is complete, and a valid promise of payment has been received c) a contractual agreement exists, and cash collection is assured d) all related expenses have been incurred ____ 15. Which of the following is not a long-term investment? a) Trademarks b) Stock held to exert influence on another company c) Land held for speculation d) Cash surrender value of life insurance ____ 16. Which of the following is an internal user of a company's financial information? a) Creditors with long-term contracts with the company c) Holders of the company's bonds b) Board of directors d) Stockholders in the company ____ 17. Which of the following items is not a modifying convention? a) Conservatism b) Materiality c) Industry practices d) Matching ____ 18. The area of accounting that emphasizes developing accounting information for use within a company is known as __________ accounting. a) management b) forensic c) financial d) audit ____ 19. Unearned rent would normally appear on the balance sheet as a a) current liability b) plant asset c) current asset d) long-term liability ____ 20. Songbird Corporation's trial balance included the following account balances at December 31, 2020: Accounts Payable P45,000 Bonds Payable, due 2021 75,000 Discount on Bonds Payable, due 2021 9,000 Dividends Payable, January 31, 2021 24,000 Notes Payable, due January 31, 2018 60,000 What amount should be included in the current liability section of Songbirds December 31, 2020, balance sheet? a) 195,000 b) 135,000 c) 234,000 d) 153,000 ____ 21. Carlton Company sold equipment for P3,700 that originally cost P22,000. The balance of the Accumulated Depreciation account related to this equipment was P19,000. The entry to record the disposal of this equipment would include a a) credit to Equipment of P3,000. b) debit to Gain on Sale of Equipment of P700. c) debit to Loss on Sale of Equipment of P700. d) credit to Gain on Sale of Equipment of P700. ____ 22. Which of the following events would be considered an extraordinary item? a) A company, located on an island which has experienced severe flooding three times in the past 25 years, was subjected to a heavy loss of physical plant due to flooding. b) A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history c) An airline experienced a significant loss due to a strike by employees of the company who provide its aircraft maintenance. d) A medical corporation was required to pay damages equal to three times its average net income to a patient. The corporation had experienced suits of this nature in the past, but the amount of the losses had never exceeded 5 percent of the corporation's average net income. ____ 23. The following information is available for Superior Company for 2020: Decrease in Merchandise Inventory P20,000 Increase in Accounts Payable Related to Inventory 50,000 Disbursements for purchases of Merchandise 580,000 What amount should Superior report as cost of goods sold for 2020? a) 650,000 b) 510,000 c) 610,000 d) 550,000 ____ 24. Which of the following is not normally an objective of financial reporting? a) To provide information about an entity's assets and claims against those assets b) To provide information that is useful in assessing an entity's sources and uses of cash c) To provide information about an entity's liquidation value d) To provide information that is useful in lending and investing decisions ____ 25. The following is not a major component of the financial statements: a) auditor’s opinion b) balance sheet c) explanatory notes d) annual report ____ 26. The term deficit refers to a) a loss that is reported as a prior period adjustment b) an excess of current liabilities over current assets c) an excess of current assets over current liabilities d) a debit balance in Retained Earnings ____ 27. The balance in Wellstocked Company's accounts payable account on December 31, 2014, was P1,225,000 before the following information was considered: Goods shipped FOB destination on December 21, 2014, from a vendor to Wellstocked were lost in transit. The invoice cost of P45,000 was not recorded by Wellstocked. On December 28, 2014, Wellstocked notified the vendor of the lost shipment. Goods were in transit from a vendor to Wellstocked on December 31, 2014. The invoice cost was P60,000, and the goods were shipped FOB shipping point on December 28, 2014. Wellstocked received the goods on January 6, 2015. What amount should Wellstocked report as accounts payable in its December 31, 2014, balance sheet? a) P1,285,000 b) P1,225,000 c) P1,330,000 d) P1,270,000 ____ 28. In a consolidated balance sheet, the minority interest is reported a) as part of long-term assets. b) as part of stockholders’ equity. c) between liabilities and stockholders’ equity d) as part of long-term liabilities. ____ 29. Accounting for inventories by applying the lower-of-cost-or-market is an example of the application of a) comparability b) materiality c) conservatism d) consistency ____ 30. If a company anticipates a 40% increase in sales volume, then it is most likely that the company will need about a 40% increase in a) accounts payable b) operating profit c) property, plant, and equipment d) bank loans payable ____ 31. What is the correct order of the following events in the accounting process? I Financial statements are prepared II Adjusting entries are recorded III Nominal accounts are closed a) II, I, III b) II, III, I c) III, II, I d) I, II, III ____ 32. Information from Brian Company's balance sheet is as follows: Current assets: Cash 1,200,000 Investment securities 3,750,000 Accounts Receivable 28,800,000 Inventories 33,150,000 Prepaid Expenses 600,000 Total current assets 67,500,000 Current liabilities: Notes payable 750,000 Accounts payable 9,750,000 Accrued Expenses 6,250,000 Income taxes payable 250,000 Payment due within one year on long-term debt 1,750,000 Total current liabilities 18,750,000 What is Brian’s current ratio? a) 0.30 to 1 b) 1.80 to 1 c) 3.60 to 1 d) 0.26 to 1 ____ 33. Which of the following best describes the condition(s) that must be present for the recognition of revenue? a) The revenue must be earned and collectible b) The revenue must be earned, measurable, and collected c) The revenue must be measurable and collectible d) The revenue must be earned, measurable, and collectible ____ 34. Conservatism is best described as selecting an accounting alternative that a) has the least favorable impact on owners' equity b) understates assets and/or net income c) overstates, as opposed to understates, liabilities d) is least likely to mislead users of financial information ____ 35. An example of an adjusting entry involving a deferred revenue is a) Debit: Unearned Rental Revenue; Credit: Rental Revenue b) Debit: Rental Revenue; Credit: Cash c) Debit: Cash; Credit: Unearned Rental Revenue d) Debit: Accounts Receivable; Credit: Sales ____ 36. The primary purpose of the Securities and Exchange Commission is to a) prevent the trading of speculative securities b) enforce generally accepted accounting principles c) issue accounting and auditing regulations for publicly held companies d) regulate the issuance and trading of securities ____ 37. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of a small account previously written off would a) increase net income b) decrease net income c) increase the allowance for doubtful accounts d) decrease the allowance for doubtful accounts ____ 38. the overall objective of financial reporting is to provide information a) about an enterprise's assets, liabilities, and owners' equity b) that is useful for decision making c) about an enterprise's financial performance during a period d) that allows owners to assess management's performance ____ 39. A company loaned P6,000 to another corporation on December 1, Year 1, and received a 90-day, 10 percent, interest-bearing note with a face value of P6,000. The lenders December 31, Year 1, adjusting entry is a) Debit: Interest Revenue (P100); Credit: Interest Receivable (P100) b) Debit: Interest Revenue (P150); Credit: Interest Receivable (P150) c) Debit: Interest Receivable (P50); Credit: Interest Revenue (P50) d) Debit: Interest Receivable (P150); Credit: Interest Revenue (P150) 40. A common business transaction that would not affect the amount of owners' equity is a) billing of customers for services rendered b) payment of dividends c) signing a note payable to purchase equipment d) payment of property taxes Test II ____ 1. A single-step income statement is a format that a) reports sales revenue, cost of goods sold, gross margin, and all other expenses b) recognizes subtotals at intermediate stages such as gross margin c) combines revenues and gains and subtracts from them expenses and losses, resulting in income from operations d) compares the current year's income with last year's income ____ 2. Simultaneous recognition of both a revenue and an expense may result from certain transactions or events. An example of an expense so recognized may be a) Electricity used to light offices b) Transportation to customers c) Expired portion of prepaid insurance d) Salespersons monthly salaries ____ 3. Financial statements issued for the use of parties external to the enterprise are the primary responsibility of the a) creditors of the enterprise b) stockholders of the enterprise c) independent auditors of the enterprise d) management of the enterprise ____ 4. Which of the following describes the flow of product costs through the inventory accounts of a manufacturer? a) Raw materials, goods in process, factory overhead, finished goods b) Raw materials, goods in process, finished goods c) Raw materials, direct labor, factory overhead, finished goods d) Raw materials, direct labor, factory overhead ____ 5. A company providing maintenance services on equipment for a fixed periodic fee would recognize a) service revenue only when the fixed period has ended b) service revenue in proportion to the direct costs to the provider of the services to perform each act c) service revenue over the fixed period by the straight-line method d) an equal amount of service revenue for each act ____ 6. UVW Broadcast Co. entered into a contract to exchange unsold advertising time for travel and lodging services with Hotel Co. As of June 30, advertising commercials of P10,000 were used. However, travel and lodging services were not provided. How should UVW account for advertising in its June 30 financial statements? a) Not reported b) Both the revenue and expense of P10,000 are recognized c) An asset and revenue for P10,000 is recognized d) Revenue and expense are recognized when the agreement is complete ____ 7. The use of the gross profit method assumes a) sales and cost of goods sold have not changed from previous years b) inventory values have not increased from previous years c) the relationship between selling price and cost of goods sold is similar to prior years d) the amount of gross profit is the same as in prior years ____ 8. If the ending inventory balance is understated, net income of the same period a) cannot be determined from the information c) will be understated b) will be overstated d) will be unaffected ____ 9. On June 30, a company paid P3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31: a) overstates both owners’ equity and assets c) understates net income b) overstates assets d) overstates owners' equity ____ 10. Crescent Corporation's interest revenue for 2013 was P13,100. Accrued interest receivable on December 31, 2013, was P2,275 and P1,875 on December 31, 2012. The cash received for interest during 2013 was a) 10,825 b) 1,350 c) 12,700 d) 13,100 ____ 11. When the current year's ending inventory amount is overstated, the a) next year's income is overstated c) current year's cost of goods sold is overstated b) current year's total assets are understated d) current year's net income is overstated ____ 12. Failure to record depreciation expense at the end of an accounting period results in a) understated income b) overstated assets c) overstated expenses d) understated assets ____ 13. On January 1, 2017, Brecon Co. installed cabinets to display its merchandise in customers stores. Brecon expects to use these cabinets for 5 years. Brecons 2017 multi-step income statement should include a) All of the cabinet costs in cost of goods sold b) One-fifth of the cabinet costs in cost of goods sold c) All of the cabinet costs in selling, general, and administrative expenses d) One-fifth of the cabinet costs in selling, general, and administrative expenses ____ 14. The debit and credit analysis of a transaction normally takes place when the a) entry is posted to a subsidiary ledger c) trial balance is prepared b) financial statements are prepared d) entry is recorded in a journal ____ 15. On August 1 of the current year, Kyle Company borrowed P278,000 from the local bank. The loan was for 12 months at 9 percent interest payable at the maturity date. The adjusting entry at the end of the fiscal year relating to this obligation would include a a) debit to interest expense of P25,020 b) credit to note payable of P10,425 c) debit to interest receivable of P10,425 d) debit to interest expense of P10,425 ____ 16. A material loss should be presented separately as a component of income from continuing operations when it is a) an extraordinary item b) a cumulative effect-type change in accounting principle c) infrequent in occurrence but not unusual in nature d) infrequent in occurrence and unusual in nature ____ 17. Arid Company paid P1,704 on June 1, 2013, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2013, adjusting entry is a) debit Insurance Expense and credit Prepaid Insurance, P1,207 b) debit Prepaid Insurance and credit Insurance Expense, P1,207 c) debit Insurance Expense and credit Prepaid Insurance, P497 d) debit Prepaid Insurance and credit Insurance Expense, P497 ____ 18. Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of P27,000 on credit. The entry to record the receipt of the cattle would be a) Debit: Inventory (27,000); Credit: Accounts Payable (27,000) b) Debit: Inventory (27,000); Credit: Cash (27,000) c) Debit: Purchases (27,000); Credit: Cash (27,000) d) Debit: Purchases (27,000); Credit: Accounts Payable (27,000) ____ 19. Which of the following would not be classified as a current liability on a classified balance sheet? a) Unearned revenue c) Mandatory redeemable preferred stock b) The currently maturing portion of long-term debt d) Accrued salaries payable to management ____ 20. Which of the following would NOT be classified as a current asset on a classified balance sheet? a) Investment trading securities c) Intangible assets b) Short-term investments d) Prepaid expenses ____ 21. On December 31 of the current year, Holmgren Company's bookkeeper made an entry debiting Supplies Expense and crediting Supplies on Hand for P12,600. The Supplies on Hand account had a P15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand of P11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was a) debit Supplies Expense, P8,700 and credit Accounts Payable, P8,700 b) debit Supplies on Hand, P8,700 and credit Accounts Payable, P8,700 c) debit Supplies on Hand, P16,500 and credit Accounts Payable, P16,500 d) debit Supplies on Hand, P8,700 and credit Cash, P8,700 ____ 22. Which of the following is not an implication of the going-concern assumption? a) The historical cost principle is credible b) The current/noncurrent classification of assets and liabilities is justifiable and significant c) Depreciation and amortization policies are justifiable and appropriate d) Amortizing research and development costs over multiple periods is justifiable and appropriate ____ 23. On a multiple-step income statement, gains or losses on sale of equipment would be shown a) after income before extraordinary items but before net income b) before gross profit on sales c) after income from continuing operations but before income from extraordinary items d) after gross profit on sales but before income from continuing operations ____ 24. The transaction approach to determining income is a concept in which a) income equals the change in market value of the firm's outstanding common stock for the period b) market values adjusted for the effects of inflation or deflation are used to calculate income c) income is measured as the amount that an entity could consume during a period and be as well off at the end of that period as it was at the beginning d) the financial statement effects of business events are classified as revenues, gains, expenses, and losses, which are used to measure and define income ____ 25. Which of the following types of service transactions is most likely to require the proportional performance method of revenue recognition based on the seller's direct costs to perform each act? a) Providing maintenance services on equipment for a fixed periodic fee b) Providing lessons, examinations, and grading by a correspondence school c) Processing of monthly mortgage payments by a mortgage banker d) Delivering freight (by a trucking firm) ____ 26. Which of the following criteria must be met before an event should be recorded for accounting purposes? a) The event must be measurable in financial terms b) The event must be an arm's-length transaction c) The event must be repeatable in a future period d) The event must be disclosed in the reported footnotes ____ 27. Accrued revenues would normally appear on the balance sheet as a) current liabilities c) long-term liabilities b) plant assets d) current assets ____ 28. Historical cost has been the valuation basis most commonly used in accounting because of its a) timelessness b) reliability c) accuracy d) conservatism ____ 29. Analysis of a firm’s balance sheet provides information on its liquidity, which is the ability to a) satisfy short-term obligations c) maintain profitable operations b) maintain past levels of preferred and common dividends d) survive a major economic downturn ____ 30. Which of the following characteristics may result in the classification of a liability as current? a) Obligations for advance collections that involve long-term deferment of the delivery of goods or services b) Short-term obligations expected to be refinanced with long-term debt c) Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets d) Violation of provisions of a debt agreement ____ 31. Which of the following is not presented in an income statement? a) Dividends b) Net income c) Revenues d) Expenses ____ 32. Which of the following is an item that is reportable in the financial records of an enterprise? a) Changes in inventory costing methods c) The value of goodwill earned through business operations b) Changes in personnel d) The value of human resources ____ 33. For a liability to exist, a) there must be a past transaction or event b) the identity of the party to whom the liability is owed must be known c) there must be an obligation to pay cash in the future d) the exact amount must be known ____ 34. On August 1, a company received cash of P9,324 for one year’s rent in advance and recorded the transaction on that day as a credit to rent revenue. The December 31 adjusting entry would include a) a debit to Rent Revenue for P3,885 b) a credit to Unearned Rent Revenue for P5,439 c) a credit to Rent Revenue for P9,324 d) a debit to Unearned Rent Revenue for P3,885 ____ 35. An overstatement of ending inventory in Period 1 would result in income of Period 2 being a) overstated c) The answer cannot be determined from the information given b) correctly stated d) understated ____ 36. Which of the following is an accrued liability? a) Wages payable b) Portion of long-term debt payable in current year c) Cash dividends payable d) Rent revenue collected 1 month in advance ____ 37. Which of the following elements of financial statements is not a component of comprehensive income? a) Losses b) Distributions to owners c) Revenues d) Expenses ____ 38. A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be a) a debit to Sales Revenue and a credit to Accounts Receivable b) a debit to Cash and a credit to Accounts Receivable c) a debit to Accounts Receivable and a credit to Sales Revenue d) a debit to Sales Revenue and a credit to Unearned Revenue ____ 39. Which statement is true about the gross profit method? a) It may not be used by insurers of inventory b) It may not be used for internal estimates of inventory c) It may not be used to estimate inventories for annual statements d) It may not be used to estimate inventories for interim statements ____ 40. The normal ordering of items in the income statement would be best illustrated by which of the following? a) Discontinued operations, income from continuing operations, extraordinary items, cumulative effects, net income b) Income from continuing operations, extraordinary items, cumulative effects, discontinued operations, net income c) Extraordinary items, cumulative effects, income from continuing operations, discontinued operations, net income d) Income from continuing operations, discontinued operations, extraordinary items, cumulative effects, net income ---- Thank you for taking the exam. We will be informing you about the results. ----